Halftime Report: "Rising Rates and the Road Ahead for Stocks" (May 15, 2025)

Hosted by Scott Wapner and featuring top investors from CNBC's investment committee, the May 15, 2025 episode of CNBC’s "Halftime Report" delves deep into the current market dynamics influenced by rising interest rates, tariffs, inflation, and their collective impact on the stock market. The discussion encompasses a comprehensive analysis of economic indicators, corporate strategies, and political influences shaping the investment landscape.

1. Market Overview

The episode kicks off with Joe Terranova setting the stage by highlighting the current market sentiment:

“We're mostly in the green. NASDAQ is red. And that a sight to behold because it hasn't been red very often of late. It's nicely above 19K. And you heard Carl say over 5,900 again on the S and P.”
[00:49] Joe Terranova

This juxtaposition underscores the mixed performance across major indices, prompting a deeper exploration into underlying factors.

2. Impact of Rising Interest Rates

Josh Brown expresses growing unease regarding the trajectory of interest rates:

“We don't have companies fighting for talent, we don't have these incredibly rising rents or wages or used car prices or some of the things that were the leading drivers of the inflation problem. We just survived. And it's just this kind of trade war uncertainty.”
[07:00] Josh Brown

He emphasizes the uncertainty surrounding future rate hikes and their potential dampening effect on stock valuations, particularly questioning the sustainability of the current market multiples.

3. Tariffs and Inflation Dynamics

Carl Quintanilla provides an insightful analysis of the recent Consumer Price Index (CPI) reports:

“The Fed doesn't actually cause that type of inflation. The tariffs caused that type of inflation and everyone knows it. And the Fed obviously can't fix it either.”
[02:08] Carl Quintanilla

He argues that tariffs, rather than Fed policies, have been a primary driver of recent inflationary pressures. Furthermore, Quintanilla anticipates that ongoing tariffs may lead to disinflation once their immediate effects subside.

4. Corporate Responses to Tariffs

The discussion shifts to corporate strategies in response to tariff-induced cost pressures, with Jenny Harrington analyzing Walmart's recent announcements:

“Today we heard, well, guess what? Over the next month prices are going to begin to rise. That was much different. So I think that rattled shareholders.”
[05:50] Jenny Harrington

Harrington contends that while companies like Walmart are maintaining market share through strategic pricing, the broader implications for profit margins and earnings outlook remain a concern.

5. Stock Market Valuations and Momentum

Joe Terranova questions the sustainability of the current market rally:

“Do we have the momentum to continue to go higher?”
[06:12] Joe Terranova

In response, Josh Brown voices skepticism about the market's current valuations:

“When you have higher than average rates that we're at and massive uncertainty, that to me does not support 21 times.”
[14:05] Josh Brown

Conversely, Carl Quintanilla highlights the resilience of major tech companies:

“It happens because of those earnings results. Now, what could be the monkey wrench is if all of a sudden you start getting disappointments on the employment data.”
[09:28] Carl Quintanilla

This exchange underscores the tension between optimistic earnings reports and underlying economic uncertainties.

6. Political Influences: Apple and Tariff Policies

A significant portion of the episode focuses on Apple's strategic shift towards India and the ensuing political friction with former President Trump. Steve Kovac elaborates on President Trump's public criticism of Apple's manufacturing decisions:

“Tim Cook smartly built the supply chain over in Asia to be maximally efficient from the raw materials and the processing of those materials to where the devices themselves are assembled.”
[27:10] Steve Kovac

This move is scrutinized for its implications on tariffs, supply chain efficiency, and investor sentiment towards Apple, which has seen underperformance relative to its peers.

7. Investment Committee Recommendations

The investment committee discusses several stock moves, highlighting both opportunities and risks:

• Cisco: Jim Leventhal and Josh Brown express optimism about Cisco's strategic positioning and share buyback programs as mitigating factors against broader market pessimism.

  “It's a stock that if you look at the chart you're going to say, is there something wrong here? So look, I am building the position because I see value there.”
  [38:24] Jim Leventhal

• Eli Lilly: Replacing UnitedHealth, which is embroiled in a DOJ investigation, Jenny Harrington confirms the decision to divest from UnitedHealth due to legal uncertainties.

  “We sold UNH out of the Momentum Fund basically 18 months ago.”
  [25:26] Jenny Harrington

• Toast: Carl Quintanilla and Josh Brown highlight Toast's robust earnings growth and market dominance in the restaurant technology sector.

  “They're now at 140,000 restaurants and other customer locations. They basically have the whole industry in a chokehold.”
  [37:10] Carl Quintanilla

• Ethan Allen: Emphasized for its strong dividend yield and North American manufacturing focus, making it resilient against international trade tensions.

  “Ethan Allen trades at 13 times earnings, has a 5.9% yield and has been on my dividend income screen forever.”
  [39:16] Josh Brown

8. Private Investments in Retirement Plans

The committee debates the introduction of private credit, equity, and real estate investments into 401(k) plans. Carl Quintanilla acknowledges the potential for higher returns but cautions against the high fees associated with these alternative investments:

“The bad part is I think for the time being the fees will still be so high and the types of funds that get in will not be the very top echelon funds catering to small investors.”
[42:52] Carl Quintanilla

9. Gold as a Hedge Against Fiscal Policy Risks

David Einhorn's bullish stance on gold is analyzed, with the committee recognizing gold's role as a hedge against aggressive U.S. fiscal and monetary policies:

“Gold is about the confidence in the fiscal policy and the monetary policy.”
[44:32] Jim Leventhal

Jenny Harrington recommends investing in tangible gold assets, such as Newmont Mining, over ETFs like GLD due to quality factors.

“We can't own GLD because of the quality factor. But Newmont Mining is the way we play it.”
[45:40] Jenny Harrington

10. Conclusion and Final Thoughts

The episode wraps up with a consensus on the nuanced market outlook. While certain sectors and stocks exhibit strong fundamentals and growth potential, overarching uncertainties related to tariffs, interest rates, and political influences temper bullish sentiments. The committee emphasizes the importance of diversification, strategic stock selection, and cautious optimism in navigating the evolving market landscape.

Notable Quotes with Timestamps:

• “The Fed doesn't actually cause that type of inflation. The tariffs caused that type of inflation and everyone knows it.”
  — Carl Quintanilla [02:08]

• “When you have higher than average rates that we're at and massive uncertainty, that to me does not support 21 times.”
  — Josh Brown [14:05]

• “Tim Cook smartly built the supply chain over in Asia to be maximally efficient from the raw materials and the processing of those materials to where the devices themselves are assembled.”
  — Steve Kovac [27:10]

• “It's a stock that if you look at the chart you're going to say, is there something wrong here? So look, I am building the position because I see value there.”
  — Jim Leventhal [38:24]

Key Takeaways:

1. Rising interest rates and persistent tariffs continue to inject uncertainty into the markets, potentially affecting stock valuations and corporate profit margins.

2. Corporate strategies, especially in tech giants like Apple and Cisco, are pivotal in navigating the current economic landscape, with shifts in supply chains and manufacturing locations attracting both opportunities and political scrutiny.

3. Investment strategies should focus on companies with strong fundamentals, strategic market positioning, and resilient business models to weather economic volatilities.

4. Alternative investments in retirement plans present both opportunities for higher returns and risks related to high fees and limited access to top-tier funds.

5. Gold remains a strategic hedge against aggressive fiscal and monetary policies, with tangible assets like Newmont Mining being preferred over ETFs for quality and reliability.

This episode of "Halftime Report" offers a comprehensive analysis for investors seeking to understand the intricate balance between macroeconomic factors and individual stock performances, emphasizing informed decision-making in a complex market environment.