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Halftime Report
Stocks Extend Record Highs: The Investment Committee's Strategy 8/5/26
00:44:08
Scott Wapner and the Investment Committee debate whether the S&P 500 is headed for 8,000 as stocks extend their record highs. Plus, SpaceX sinks on soaring AI costs, shareholder Kevin Simpson calls in with his strategy on the stock. And later, Uber is lower after reporting weaker than expected guidance, the desk debate how to trade the name now. Investment Committee Disclosures
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- [00:01]
Sima Modi
Ready for the first day of school. Shop Etsy for back to school basics like personalized backpacks made to stand out but not in an awkward picture day kind of way. Celebrate new beginnings with original pieces. The board recommends approving regarding that seat
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Kevin Simpson
on the committee, we're promoting quarterly earnings. Every day, shareholders meet to discuss important
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Joe Terranova
matters about the companies you invest in.
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Scott Wapner
Now you can easily make your voice heard. Vanguard Investor Choice gives you a say
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Joe Terranova
in the companies you invest in.
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Scott Wapner
With just a few taps, you can set your product proxy voting preference for your index funds. Visit vanguard.com investorchoice to learn more.
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Kevin Simpson
Vanguard investors own shares of our index
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Scott Wapner
funds, which own shares of the companies they invest in. Available for Vanguard index funds that participate in Investor Choice. Vanguard Marketing Corporation Distributor I'm Scott Wapner and you're listening to CNBC's Halftime Report, the podcast the most profitable hour of the trading day. We record this live weekdays at 12 Eastern. Listen in.
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Sima Modi
Carl, thanks.
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Scott Wapner
Welcome to the Halftime Report of Scott Walker. Front and center this hour, the record run for stocks, whether 8,000 is the next stop for the S and P. We'll debate that with the investment committee. Joining me for the hour today, Joe Terranova, Liz Thomas, Jason Snipe Farmer, Jim Leventhal. Let's check the markets here. We are losing a little bit of steam. Dow is still green, though we're read otherwise, we are extending record highs for the most part. And there's a fair amount of bullish commentary that I want to lead our show off with today. Not just from our very own Josh Brown yesterday on Halftime who said this was one of the healthiest tapes that we've ever had. Wolf Research today is the next stop. 8,000. Ed Yardeni yesterday on closing bell with me, 8,250. He said that might look too conservative thanks to strong earnings. And here's Goldman's president, John Waldron with Andrew Ross Sorkin today in Aspen. Pretty positive as well.
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Liz Thomas
I would say the most important factor
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Kevin Simpson
right now is earnings, earnings growth.
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Liz Thomas
You know, earnings growth continues to be really strong. We're going to have the second quarter
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Kevin Simpson
was the seventh consecutive quarter in the
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Liz Thomas
S and P of double digit earnings growth.
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Kevin Simpson
So we've had very consistent and significant earnings growth which is propelling markets. That's ultimately the most important fundamental driver. And I would say recently it's broadening.
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Scott Wapner
Okay, so it's strong, it's broadening. And until that changes, you want to get negative.
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Joe Terranova
No, I don't think you want to get negative at all. I think you want to understand where Capital is flowing to and then understand what the potential risk is accordingly. We've seen in the last several days a return of the momentum factor. In particular isolating memory, semiconductor and even the Max 7 itself. Really strong day today from Nvidia kind of coming out of nowhere. So where is the risk in all of that? Over the last several days you are seeing the S and P market cap weighted outperform the S and p equal weight by 4%. So I would believe the risk as you move through the entirety of the summer is you lose the broadening narrative. If the market Scott gets concentrated again, you do not want a concentrated market. That's a marketplace where portfolio managers like myself will underperform. It's a very challenging marketplace and it pushes all the chips in a very isolated direction. That's the risk in the market.
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Scott Wapner
Yeah. That mean. But what's the realistic risk? Because if you listen to Waldron and others, if the earnings story itself is broadening so. So and it's strong outside of tech. Yeah. There's not an indication that your biggest risk is going to happen.
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Joe Terranova
So. No, no, no, no, no. So what I what you're always sitting there saying to yourself what can go wrong? I hear you. So I'm sitting here today, my strategy joti ETF all time high. I'm sitting here saying to myself, okay, what can possibly go wrong? Where does that begin to reverse itself?
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Scott Wapner
What if, what if we. What if we're though entering a market where you need to start thinking about what else can go right in terms of if you're getting broadening earnings. Jimmy shaking his head. He's smiling. If you're getting broadening earnings growth like Waldron's talking about and others are obviously focused on to why stocks can continue to go go up from here. Maybe that's the more apropos question today.
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Liz Thomas
Well, and I feel like you and I had this conversation maybe two weeks ago. Remember the other 493 versus MAG7 on earnings growth. And as we look in the second half, we're going to see that other 493 companies, their earnings growth probably surpass that of the Magic7. But you're also, you're seeing it in the stock price reaction. I mean let's consider things like Delta Airlines or the airlines in general just kind of pulling that out of thin air. But when you have a good economy, when you have broadening profit growth, a company like Delta is going to be approaching new highs as it is right now. And not just new highs, but a rerating of the Multiple or Joe, as you and I spoke about yesterday, you know, financials, if we weren't having this tear the COVID off the ball rally and semis, we'd be talking about the rally in finance.
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Scott Wapner
We're going to be, we're going to be talking about that because they have made a nice move and there's some kind of stealthy moves that have happened within the private equity prism. I'll get to all that in a minute. I do have some news that I do want to get to Mackenzie Segalus. It's regarding Alphabet. What is that?
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Sima Modi
So, Scott, we're seeing Google shares down around 3 and a half percent now. The company reshuffling the leadership of DeepMind as Demis Hassabis moves into a new chairman role that's going to be focused on frontier research and then the broader implications of AGI. Hassabis will remain active, but with more time now devoted to AI safety and policies, scientific research and medicine, including a bigger role at Isomorphic Labs. That's a drug discovery side of the company that he launched after DeepMind's AlphaFold breakthrough. Now also as part of this reorg, you have Cry Kavu Koglou, who will take over day to day leadership as the new head of Google DeepMind. He has already been running much of the lab's model research since becoming Google's chief architect last year. So the company is framing this as a natural transition after getting Gemini back on track. And then separately, we're also seeing some departures. Longtime Google chief scientist Jeff Dean is leaving after nearly three decades to start a new company with several other employees. Google plans to invest in that startup, which will also partner with Google Cloud. So the department this departure rather is said to be amicable. And Google doesn't plan to replace Dean as chief scientist. That position was really created for him specifically to report into Sundar Pichai. What I will say though, Scott, and perhaps why we're seeing shares move lower, is that this comes after a series of departures from Google DeepMind, including John Jumper at Anthropic Noam Shazir to OpenAI. Before he left, Shazier was working on Gemini. So that's how.
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Scott Wapner
Well, it's good context. Yeah, I appreciate that, Mac.
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Josh Brown
Thank you.
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Scott Wapner
Okay, that's Mackenzie Seagalas. We'll watch that. Obviously with shares down a little more than 3%. I want to get back to to our conversation though on where this market Liz is going to go 8250 conservative potentially, according to Yardeni, because of the earnings story. It's not, it's not. It's no longer fomo, it's fimo. It's the earnings momentum that this market has and that's what he has been hanging his hat on. And as you heard John Waldron suggest too, we're in a broadening earnings story. Don't just tell me about what tech is doing. I get that the numbers are enormous in terms of the earnings growth, but if you're talking about 12% for other areas of the market, that's pretty darn good too.
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Sima Modi
I think it's very difficult to get pessimistic about this market. You've got internal strength, so 73% of the S and P S and p above its 200 day moving average. We've had this huge rebound after a momentum washout. Momentum that Joe is the expert in here. But I think the risk on this momentum rebound is that it is just that, a really swift rebound and you could see it come back off of this strong momentum right now.
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Scott Wapner
There's really talk about that today, by the way.
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Sima Modi
And that usually happens, right? I mean, semis went down almost 30% in that washout. So momentum died for a while and I'm sure was very frustrating for Joe in some of that. But you usually do get a swift bounce. This is actually one of the swiftest, swiftest bounces we've ever seen. So.
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Josh Brown
Yeah, right.
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Scott Wapner
You had one of the, you had one of the fastest declines and then one of the fastest bounce backs that we, that we've ever seen also.
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Sima Modi
So the risk is that it cools off, right? That it came back a little bit too strong. But there are a lot of other things to be positive about. Financials are still strong. I always look at financials as confirmation of a rally and confirmation of cyclicality. We've got almost 90% of financials above their 200 day moving average. That's huge. So I do think that for the rest of the year we see a return to large caps. I don't see small caps outperforming large caps for the rest of the year.
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Scott Wapner
Small caps, speaking of, are that Russell's up 22% year to date.
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Liz Thomas
Right.
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Sima Modi
And that's a good performance year to date. I think that in the second half of the year we see a return to large caps because I do expect volatility, but I also do expect this market to continue moving higher. I mean, 8,000 is only three and a half percent.
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Scott Wapner
Yeah, I know it's funny asking, is 8,000 the next stop? It's like now, okay, it's literally around the corner. It looks like it's almost a, dare you say a formality at this point. But if the earnings continue to live up to the hype, why wouldn't you get there? Then you have to start asking The Yardenic question 82:50 whether Jason Snipe. That's a little too conservative and maybe part of that hinges on where the momentum trade does go from here. I think Liz made some really great points that are being talked about elsewhere on the street today. Jonathan Krinski says the reflex continues but shades of 2000 continue to pop up. How quickly things change. He says a week ago semis were in a 30%, around 30% drawdown. We called time on the momentum unwind. Fast forward forward to today. We've seen the largest four day rally for the Sox since COVID The S and P has surged 5% over the last four trading days into a 52 week high in the last 30 years. That's only happened three other times including March 21st of 2000 which was dead highs of the dot com bubble. Jeff DeGraff of Renaissance Macro, he's going to be on closing bell with me today says time and drift are typically momentum's enemy from here. What do you think?
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Jason Snipe Farmer
Yeah, no, I mean it's been a very interesting last few days and I think the setup has been interesting to me in the sense that July was a down month. There was a lot of churn, violent churn. Right. You talk about the, the drawdown in semis and when we look at the map, obviously the impact on the market from that perspective. But when I think about what earnings growth is, and I know this has been the theme, this is what we've been talking about all week. 29% earnings growth, 65% rate have reported so far an 85% beat rate. I mean these are very significant numbers. And to Liz's point, there are other sectors participating. Financials. Health care has took a little bit of a step back in these last few days but they have been participating.
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Scott Wapner
Can you get to 80 to 50? Sorry to interrupt you. Can you get to the Yardeni number if momentum does sort of roll over again because then it's a heavier lift. Even if you get some of the, the bigger financial names to participate more, it's going to be much harder, isn't it?
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Jason Snipe Farmer
There's no doubt. And I think because of the math, I think momentum has to play a significant factor in us getting to 80 to 50. And I think that story continues because of the earnings growth that we've seen Thus far. And the guidance. Right. It's not like the spending is slowing down. The spending is only increasing. We're seeing profitability in the cloud numbers, you know, from the hyperscalers and the downstream effects into other sectors.
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Josh Brown
Sectors.
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Jason Snipe Farmer
So I'm very interested to see how this continues to play out, but I'm excited about what I've seen thus far.
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Scott Wapner
Kristick goes further. He says the bigger issue we see is the market's been playing musical chairs as money is sloshed from momentum to value and now back to momentum. At some point, the music stops and participants might not be able to find a chair.
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Joe Terranova
All right, here we go. Let me explain this. The market does not need catalysts to continue to move higher. We know what the catalysts are. I remember clearly back in the late 90s, sitting on a trading desk, sitting there quizzing other traders, and everyone was giving you the bullish conditions. We know them. Tell me what can go wrong. And I am not saying by bringing forth what can go wrong. It happens, but it's the momentum factor. Where is momentum right now, today, the first week in August? Is it in memory? Is it in semiconductors? Is it in the air infrastructure? No, it rotated into the 493, Jimmy. It went into energy, it went into industrials, it went into other areas of the market. So where the narrative falls apart is if the 493 and the broadening out falls apart as we move forward shouldn't and shouldn't happen. It shouldn't happen. I'm with you on that. I'm telling you how it falls apart. If the market concentrates back to in video, if the market concentrates back to Micron and Marvell in Corning, the momentum
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Liz Thomas
factor is not there.
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Joe Terranova
That's where the market has a challenge.
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Liz Thomas
Let me say two real quick things. The macro economists on the desk will point out that the ESM numbers that we've gotten today and on Monday, services and manufacturing are really, really high.
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Scott Wapner
I was wondering, is there an invisible person who's playing that role?
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Liz Thomas
I mean, I thought it was Liz, but I didn't want. I didn't want to. I didn't want to exclude everybody else.
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Scott Wapner
He's like a chief market. He's like a chief strategist for soap. Dude, you need to read the bios. You need to read the bios.
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Liz Thomas
Okay, moving on to my point.
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Sima Modi
I'll play one on the game.
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Scott Wapner
Does she actually think that you're a farmer, even though I call you one? I mean,
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Liz Thomas
I think I might yodel to you. You're so far away.
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Scott Wapner
I feel like all right, but it's by design.
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Joe Terranova
Might get further. Jim, if you keep going down this
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Scott Wapner
road, number one, my eyes just meet you immediately. I have to keep my eye on you at full time time, full show every day.
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Liz Thomas
Yeah, I know because I could go off the rails. Not right now though. The ESM surveys, there's a very strong correlation, particularly the ISM manufacturing, when it's as high as it is right now, that earnings broaden and continue to grow. But the second point I want to make is your question, Scott, of can this get to 4250 if momentum bounces out of the equation? I'm sorry, 80 to 50 if momentum bows out of the equation. The simple math says that's not likely to happen. We're about 5% away from that 8,250. Now if you look at the top 10 stocks in the S&P 500, most of which are momentum, if those stocks went 5% higher, most of them would not hit an all time high. Nvidia 5% higher from here is not an all time high. Microsoft 5% from here is not an all time high. Same with Apple. Same with many of these stocks. I'm simply pointing out that the math is very favorable. I don't think momentum is going to swoon again, but you don't need much from momentum for those records to be hit.
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Scott Wapner
Let's throw up Google Alphabet intraday because we had the news of, you know, around departures related to DeepMind stocks at the lows of the day down 5%. So that's a significant move. How are we thinking about that as we're trying to assess company by company, who's who's got it and who doesn't, who's going to be a winner and who may not be what? You know, certain companies that are deemed to be in leadership roles at certain periods of time have then had their roles questioned. I wonder what you all who are, who's in this name? I mean what do you think about. What do you think about this?
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Joe Terranova
I think Google Cloud revenue growth 82%.
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Jason Snipe Farmer
Yep.
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Joe Terranova
I think revenue growth 24%. That's what's important to me. I think this is a knee jerk reaction. I think the market is reacting to a little bit of a shifting in intellectual capital. That's normal. It's normal in an environment where the stock has had a really strong rally off of earnings. But I don't think this is anything more than a near term reaction.
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Scott Wapner
I mean the chief scientist is leaving after 27 years.
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Joe Terranova
Okay. And I'm sure that there is, I know you play on the other side, but there is a very strong team that's in place. And I don't think that means the cloud revenue growth is going to slowly deteriorate because we're seeing an executive leave the company.
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Liz Thomas
I think this move to the downside is an overreaction again. And Joe, you said that. I'm surprised by it. I think that there is a lot more talent in the overall AI industry than just one or two or three individuals. Clearly these are important individuals nonetheless. I mean, Gemini has now gone through many versions. This is not a one man show or even a three man show. I am surprised by this. Joe. You pointed out the web services. I would also point out the chips at Google. I would point out search, I would point out YouTube. I would point out Waymos. This is, this is an overreaction.
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Scott Wapner
Yeah, I mean we're talking about one of the architects of the AI strategy. This, this is, this is not, you know, a desk filler.
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Jason Snipe Farmer
There's no doubt. And I think continuity at this level of leadership is extremely important as we kind of fight through this race and there's obviously some other significant players. But to, to Joe's point, I mean we, and this is what I said earlier in terms of visibility on profits with all the capex that we've seen. 82% cloud growth last quarter was 60 plus. I mean this is significant Runway. I know the stock traded down because of negative free cash flow, but it retraced back. This to me is a viable opportunity.
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Joe Terranova
The deputy is taking over, so it's someone that's sitting right there alongside of an executive that has led the architecture strategy.
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Scott Wapner
Okay, let's look at Space X. It is a another big story today for obvious reasons. On the other side of the earnings report, stocks down about 9%. It was down more than 10, I think. So it's a little bit off of that level. Their costs are soaring. I don't know if anybody is actually surprised, you know, by that. The conversation I think going in in part was, you know, how is this company going to be defined by those internally and how are investors going to define it on the, on the outside? Are they going to be more viewed as a hyperscaler type business investing heavily into, you know, the AI future? Well, their costs are soaring and I guess the market's not happy about that. But you also had the lockup which comes tomorrow and then you have a stair step as well, which is going to be significant. In terms of the supply coming on the market after that, you do have a number of target raises and lowers today, which is interesting, the battle on the street over where this company at least in the near term is going. Kevin Simpson's been a shareholder. He joins us now. We wanted to get his take hear from somebody who's got some skin in the game on this. So what's your what's your feeling after the report, knowing the lockup is coming? I've got three targets that are lower today and then a couple that are going up. So where would you come down on it?
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Kevin Simpson
Yeah, I mean, I think that there's a good reason to be oscillating back and forth in terms of price targets, Scott. But if we break it down, just looking at the operating report, I thought it was fantastic. Now the stock reaction was a completely different story. These things are not moving in lock, stock step. And I think that makes sense because my enthusiasm for this business hasn't waned at all. But it's far different than my enthusiasm in the stock in large part, Scott, because of the lockup that you mentioned, the first of which we're going to see tomorrow hit the street. I want to wait and see how this stock trades as we see how these shares are absorbed into the float. But if we look at it just as the headline, the report was good. I mean, revenue grew 92% to 7.8 billion. Starlink revenue was up 66 billion. AI revenue grew 247%. But it's that $18.4 billion of capex that causes the problem for the Street. And they're just like all of the other hyperscalers. Microsoft Meta, Amazon Alphabet, now SpaceX. If you're going to spend this kind of money, you need to show the shareholder that there's some path to a return on investment. And I'm not sure that that's a story for the next quarter or two. But I think as an investor, if you're two, three, four years into the future, this is an incredible business. We're going to own it. But interestingly, we have not added to it. We put a half a percent position in the Q Devo Growth ETF at 160 because it was included in the ETF and we've watched it come down patiently. And just because a stock pulls back doesn't mean you need to add to it. I imagine that we will, but I want to see how it trades with these new shares as part of the marketplace.
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Scott Wapner
How much of the lockup do you think is Already in the, in the stock. You know, it's come down obviously a tremendous amount from the ipo.
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Kevin Simpson
A lot. I'm not going to. I mean I'll be surprised if this thing sells off a lot tomorrow because of it. You're talking about a stock Scott, that's down 100 bucks almost 50% from the highs. Going from the low two hundreds down to the low one hundreds. A lot of this has embedded into this price action. This is no surprise. I mean it is the talking point. I think you even led with it in the introduction here to the name. This is a 24 year old business. It was an inaugural report. It was really, really good on one hand. But that capex is a big deal. This lockup is a big deal. And I'm sure the Jimmy sweating from a valuation standpoint saying, you know, I can't value this stock and I don't disagree with them but I feel like this is such a revolutionary generational change in business if it works down the road. We know about Starlink, we know about the AI investment. Can they monetize it and it can make Starship a reality. The sky's the limit.
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Scott Wapner
Yeah, we'll have to wait and see on that. We know that Kevin. Thanks. Kevin Simpson joining us with his commentary around that Nvidia is up today. It is the only of the mega cap tech names that actually is green now and it's nearly a 4% move we think in part because Elon Musk gave the company an endorsement as part of the Space X earnings call. Said they have the best AI computer that that's a quote. So Nvidia is up on that Melius is talking about. They love the endorsement. How could you not given what he said.
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Liz Thomas
What do you think about Nvidia or SpaceX? I mean in video I think this you can buy it right here. Just to cut to the Chase video right here. Yep, I do. New money that comes into accounts at our firm we're putting in in video. We're not hesitating by the way. It's about 5, about 6 or 7ish percent away from an all time high I think it will get there may not be in August when we get this light liquidity but news like we get where Elon Musk is endorsing it just continues to show that in video will have more demand that than it can supply for the foreseeable future. And it's multiple roughly 19 times 20 times forward earnings is to me attractive given the earnings per share growth rate that is around 30 35%.
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Scott Wapner
The other semiconductor name that I want to look at is AMD because I see it down almost 6% despite what was a good earnings report. I don't know what you could pick at. Well, and not like, what do you think?
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Joe Terranova
I think Elon Musk spoke at length about Vera Rubin chips and the relationship with SpaceX and Nvidia. We didn't hear very much about AMD. Now AMD has relations with Metta, OpenAI and Anthropic. But in return there are warrants on 160 million shares there. Much different relationship. You could also look at Nvidia relative to amd. By the way, nothing like you said, Scott, nothing wrong with AMD's earnings except what we heard last night from Elon Musk. If it was happening another day, you'd get a better reaction out of amd. But it does remind people when you look at the forward multiple, you're looking at AMD mid-40s. You're looking at Nvidia at somewhere around 19 and a half. And I agree with Jimmy, Nvidia, it is, it is literally a hanging curveball down the middle. I bought it at 199. I got stopped out at 193 while you were on vacation. I said it's the next Apple 100% right. What I saw and I handled the position wrong. It's going to a new all time high.
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Scott Wapner
Okay, now away from tech Disney, let's take a look. That's a nice winner today. What was, what was that? Was that now you love it again?
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Liz Thomas
It's the share price.
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Scott Wapner
The share price is right again.
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Liz Thomas
What?
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Scott Wapner
You love it again?
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Liz Thomas
I don't love it. No, I don't hate it. Here's, here's where my conundrum is, is the operating results from the company in my opinion are pretty darn good. I don't care if you look at entertainment, theme parks, streaming, and I think there's great potential by the way, in the studios. I mean, we've seen what Spider man has done in terms of its box office. Now it's part Sony, that's part Disney, but nonetheless the box office in general as an industry is coming back. And yet what are we up 2%? Stock trades? I'm not going to look right this minute, but about 14 times forward earnings.
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Scott Wapner
You think it should be more? Is that what you're suggesting?
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Liz Thomas
I do. Here's my conundrum. Here's my conundrum. I think the company itself is doing really well, but the stock just isn't. And it leaves Me where I was yesterday, considering how much of a mistake am I making here? Am I being patient or am I being stubborn? Now, I'm not selling it today, but clearly in my language, to answer your original question, no, I don't love it because I don't love what the share price is.
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Scott Wapner
Do you think it should be up
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Joe Terranova
to 100% and it has nothing to do with earnings? This is a market that wants to get behind the underdog. This is a market that wants to get behind the underperformance. Look at what happened in Microsoft. Look at what happened in Palantir. Now you see Disney today and it's only up 1.9%. The stock is down double digits on the year, double digits over the last 52 weeks. This is a good earnings report, Jimmy. I'll take your word for it.
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Liz Thomas
Good earnings report it. Absolutely.
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Joe Terranova
Okay, so. So where are all the buyers rushing in to buy? The underperformance tells you everything you need to know.
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Liz Thomas
You know, I think we have to expand the discussion and I'm going to bring Netflix in, not because I want to make myself feel better, but I think we have to look at the industry, streaming and broadcast overall, and say that maybe there's going to be more M and A. Maybe that's what's holding this stock back. We know there are obviously some cable channels, including our fine company, that have spun out recently and will be spinning out. And maybe the market's worried that Disney's going to enter that scrum, if you will, and pay too much for something they did with Fox 5 six years ago, whenever that was. So maybe that's what's holding it back.
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Scott Wapner
We have some news crossing about shake shackles. Brandon Gomez has those details for us. What are we learning here, Brandon?
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Jason Snipe Farmer
Hey, Scott.
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Josh Brown
Yeah, that's right.
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Scott Wapner
Starburst.
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Jason Snipe Farmer
Jeff Smith on Bloomberg just now saying he's taken a stake in Shake Shack, calling it, quote, too cheap. I said it's a several hundred million dollars stake and that they may now be the largest shareholder. Not yet confirmed. We know as of Q1 they didn't hold the stock. We'll get 13 Fs next Friday. More details possibly then that will indicate timing of the stake that he's taken. But you can see shares now popping about 8%. Company also had earnings this morning. But right now reacting to that news.
- [26:58]
Scott Wapner
Okay, we appreciate that. Stock's getting a big jump. We're making a call to Josh Brown as we speak. For obvious reasons, he might be a chain shack, probably if he's watching right now. He's feeling pretty good and I'm sure he would agree with Jeff Smith who, who thinks it's too cheap. We'll see if we can get him on the line, see what he has to say about that. Let's do quickly. I mentioned financials, having this, this move over a month. Private equity has been great too. So Shake Shack's up almost 10%, which I get Josh on the horn and see what happens. Apollo reiterated overweight today. Jason, you want to, you want to take that? It's been a nice move for private equity.
- [27:35]
Jason Snipe Farmer
Yeah, it has. And I think as it relates to Apollo, Apollo is still down around 10%. Fee related earnings are up to 70785 million, up 25%, which is a record quarter for them. Insurance spread income has really drove some of these results and private equity has been performing better. But I think for me, you know, I need to see those monetary monetizations continue to pick up to see the stock move further.
- [28:01]
Joe Terranova
I think one of the reasons why private equity is trading better is because software is trading better. And I think it's a very strong correlation between the two. We identified that previously. I think that's important. I also think it's benefiting from this environment where the market looks, loves the underdog and the underperformance and private equity certainly characterizes itself.
- [28:21]
Scott Wapner
Okay, that's just a good observation. Let's take a break. We come back Booking holdings on the move. We just had a bunch of rebalance travel related moves in Joe's etf. So we need to discuss that relative to what Booking holdings is doing today. Some calls of the day related to the consumer as well. We're back right after this
- [28:42]
Liz Thomas
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Joe Terranova
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Liz Thomas
Like grocery stores, on gas and at
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Joe Terranova
restaurants, it pays to discover terms apply. See discover.com 5 for details.
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Scott Wapner
that get your budget.
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Sima Modi
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- [30:22]
Scott Wapner
Josh Brown's on the phone. We wanted to get his take on this news from Jeff Smith of Starboard. A new position in Shake Shack calls it too cheap. The company had earnings today, stocks up now almost 11 and a half percent. Josh, what's your take on learning of this news?
- [30:38]
Josh Brown
Look, as a long term shareholder, it's very clear that this is a company that has a stated trajectory of getting to 1500 stores. They're going to open 65 stores this year. They have a great royalty business internationally. They have an unbelievable product and a loyal customer base. What's missing? It's a $2 billion market cap. So clearly the potential does not match the progress in the share price. And when you think about Starboard and some of the success they've had, whether it's Papa John's or Darden, just in this specific field, their track record is unimpeachable. And I can't imagine this being a negative. So I don't have any more details than what's out there. But I would tell you I think this may be exactly what the doctor ordered.
- [31:29]
Scott Wapner
What I mean, if this was going to be, which certainly at times it has been obviously with Jeff Smith, if it, if it turns out to be an activist related play, what are some potential moves that you think would be wise for this company to, to perhaps do And I don't know, frankly, I don't have enough information to know if, you know, this is, you know, a pure activist role. If it's a more passive position that he just thinks the stock is cheap, I'm not exactly sure. But have you thought about bigger picture? If an activist was to get in this name. And let's look at a longer term chart, by the way, as we answer this question, just to see what the stock has done, let's say over, we can move to a longer chart, guys, please. So like I don't know, three years. Give me, as you answer that question, Josh.
- [32:22]
Josh Brown
Yeah. So we know what needs fixing and what doesn't. What does. Let's start with what doesn't need fixing. I'm sure Starboard looks at this and says, okay, they have prime locations everywhere that you would want them. They're in every major shopping district, they're in the airports, they're in every major city at this point. They're near ballparks, they're in places with heavy consumer foot traffic. And they've done a great job picking site locations. I would give them an A, I give them a B on getting the drive thrus opened, getting enough users on the app and just building that digital future. But it's a work in progress. I wouldn't say it's an A, but it's not a C. They're succeeding there. What are they doing wrong? What could Starboard do? The first thing to understand is why did the stock come down from 132 to the 50s? They shocked the street last quarter with a surprise loss. Why did they have a surprise loss? They claim that the price of paper goods surprised them to the upside and the price of red meat. I think they were paying 675 a pound at one point this winter. Now, some of that is just the whole daisy chain of events because of Iraq, excuse me, Iran and the military action and the price of crude oil and blah, blah, blah, blah, blah. But in the end, you should not have a business this mature that shocks Wall street to this extent, where they go from a profit to a loss. There's obviously operational things that could be improved. And I would bet they're not buying several hundred million dollars worth of stock to just sit back and hope things get better. I would bet that there are constructive conversations taking place already and that those conversations could end up with a board seat. And I think you're a shareholder. This is exactly what you would like to see. Every company needs help from time to time. This business has huge potential and anyone that wants to come in here on the equity side and help them reach that potential should be welcomed with open arms.
- [34:25]
Scott Wapner
It's not. It's not the first rodeo either for. For an activist. Engaged. I've got Joe I'm going to bring into the conversation. I mean, Engaged was here a few years ago, about three years ago, and was pushing for the same sort of operational improvements that Josh suggests are still needed. Maybe something's not right. Resonating. I don't know. I don't know enough about sort of what sort of operational improvements they were pushing for and what may still have to happen if there's some kind of disconnect over what some investors think needs to happen and what hasn't. And that's why the chart looks the way it does. I think it's at 35% year to date, but over the longer period of time of the chart that we had thrown up, it's, you know, you draw a line straight across from where you were to where you are.
- [35:16]
Jason Snipe Farmer
Yeah.
- [35:16]
Joe Terranova
This is a paradigm shift, though. This is important because Jeff Smith and the Starboard team have excelled in quick serve restaurant activism. You go back to 2014 with Darden. They replaced the entire 12 member board. In the five subsequent years to their activism, Darden went up 143%. And Jeff and his team, Scott, they are very engaged. I'm not being comical. I remember this distinctly from 10 years ago as it related to Olive Garden. This is how. How active Jeff and the team gets. They changed Olive Garden's cook strategy. And as an Italian, I know this. Boiling the pasta. They weren't using salt. They weren't using salt in the pasta. Jeff and Starboard made them boil the water, the pasta, the water with salt. That's how engaged they were. He did this at Papa John's.
- [36:08]
Scott Wapner
Were they doing it al dente or no?
- [36:10]
Joe Terranova
I'm sure after Jeff got involved, they were. But Jeff did the turnaround as well. At Papa John's. He was the executive chairman after Covid, and he was able to turn that around. He will be active here, he will be engaged, and I would imagine he's going to be on board.
- [36:25]
Scott Wapner
Josh, I'll give you the last word, then I got to bounce.
- [36:28]
Josh Brown
All right. The last word. Word is. I'm just picturing Joe in the joint slicing the garlic with a razor blade.
- [36:34]
Scott Wapner
Yeah.
- [36:40]
Josh Brown
All right. That's all I got.
- [36:42]
Scott Wapner
All right. Well, I appreciate you calling in. We just had to get your take, obviously. Stocks up 11%. SEEM has got the news update for us. Hi there.
- [36:50]
Sima Modi
Hey, Scott. Here are the stories we're watching at this hour. The FAA says its preliminary review found a momentary loss of separation between the President's helicopter and a commercial aircraft near Reagan National. Now controllers were communicating with both pilots as the aircraft moved apart. The agency says President Trump was never in danger and is reviewing possible corrective actions. The Vatican says Pope Leo the 14th will make his first trip to Latin America in November, visiting Uruguay, Argentina and Peru. The first US Born Pope spent decades in Peru as a missionary and bishop and holds Peruvian citizenship. And Live Golf says it has secured an outside investor to keep the circuit operating beyond the season. CEO Scott o' Neill did not identify the investor or the amount. The league is seeking 250 to $300 million after Saudi Arabia's sovereign wealth fund stopped financing it and plans to make golfers majority equity holders. Scott, that's the latest.
- [37:42]
Scott Wapner
Back to you Sima. Thanks so much Sima Modi. Up next, we'll talk about some movers. Again, I mentioned Booking holdings up a bunch on the earnings and how Joe just got rid of a bunch of names in that group. There's other ownership on the desk. We'll do it. Coming up
- [37:59]
Liz Thomas
with the Discover Cashback Card, it's payback time. When you earn cash back on everyday purchases, activate and earn 5% cash back
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Joe Terranova
at different categories each quarter on up to $1,500 in purchases. That's 5% cash back at different places each quarter.
- [38:15]
Liz Thomas
Like grocery stores, on gas and at
- [38:17]
Joe Terranova
restaurants, it pays to discover terms apply. See discover.com 5 for details.
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Sima Modi
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- [39:38]
Scott Wapner
All right, let's get to that booking holding story that we were talking about before the Shake Shack news crossed up. 6% is booking on earnings and it just made us think of the moves that you made in your ETF in which you got rid of Expedia LVs. Royal Caribbean. Expedia is a record high today. So talk to me.
- [39:58]
Joe Terranova
Yeah, the one that's painful is Royal Caribbean because as I've mentioned on this show over the last several years, the one area, the one sector in which I don't think momentum is very successful is consumer discretionary. It's a lot of fits, it's a lot of starts, it's a lot of quick entry into positions and a couple of quarters later you're out of it. Royal Caribbean is a name we have had in the portfolio for the better part of the last two years, have done really well with it. So I'm disappointed to see this Move to the sidelines. It is moving to the sidelines, specifically on price performance in the near term. A lot of that attributable to what's going on in the Middle East. So that could reverse itself very quickly. Las Vegas Sands, that's price momentum. And then Expedia is the interesting one because if you pull up Expedia and pull up a one year chart, Scott, you're going to be like, well, what are you talking about? There's great momentum for Expedia. Look at that. The problem is one of the metrics that we're using to for quality is debt to equity. Equity debt to equity could be distorted by a company that does significant buybacks. As you know, Jimmy, the debt to equity ratio for Expedia just got uncomfortably high. It's up sitting right now at 500%. So that disqualified it and that's the reason why we sold it. You look at it from a momentum perspective, it looks.
- [41:13]
Scott Wapner
Was that a quality metric by choice?
- [41:19]
Joe Terranova
So when the rules were created by myself, before we introduced the strategy In November of 2020, I selected three quality criteria. Revenue growth, return on equity and debt to equity. Let me just say this. In this, in this, in this business, the market is always teaching and you're always learning. So you're always learning something about what you've done with the rules and you're willing to pivot accordingly. And I think when I look at debt to equity, there might be something there in the future we'd have to pivot on.
- [41:52]
Liz Thomas
Can I just make a suggestion on this? High debt for share buybacks. I hate it. However, high debt for doing productive investments that are going to generate free cash flow. That's where you might look and see. Is there a way to distinguish.
- [42:05]
Joe Terranova
Great example. Caterpillar.
- [42:07]
Scott Wapner
All right, Oliver Renick's coming up next. He's flagging a rare event that's happening within this record setting rally. He's playing options action next. Let's play some options action with Oliver Renick at the CBOE Global Markets in Chicago. What do you see from there?
- [42:41]
Kevin Simpson
Hey Scott, we're watching vix, which is sometimes called a fear gauge. This week is a perfect example of why that term is a generalization. The VIX rallied a full point during yesterday's breakout 2% rally in the S and P and extended gains in the first hour of trading today as stocks tried to rally. Now, with equities flirting with red, the VIX is too. That's because about 20% of the time VIX and S and P move in sync Right now it's because of huge call buying. More than 4 million SPX calls traded here at CBOE yesterday. A new all time record. And at the Nasdaq, the price of one standard deviation out of the money calls on Q's jumped 40%. The biggest single day move in five years. Here's what this means. One, bulls clearly have a newfound conviction in this market. But two, usually when the price of something goes up 40% overnight, it's probably not a great deal at this moment, which creates the risk of leakage in call prices, which is precisely how I describe what we're seeing today. Scott.
- [43:43]
Scott Wapner
Okay, Oliver, I appreciate that very much. That's Oliver Renick. You got a quick thought on that? Vix up, stocks up.
- [43:50]
Joe Terranova
Yeah, I think a lot of it is attributable to the activity that we're seeing with high frequency trade trading algorithms, things of that nature. I think it's more of a short term dynamic than anything else.
- [44:01]
Scott Wapner
Now we're down, obviously.
- [44:02]
Joe Terranova
Yeah, I don't think it extrapolates anything about the future. I think it's more a short term mechanic of the market.
- [44:07]
Sima Modi
Well, you're talking about the market wanting underdogs right now. The Nasdaq has been an underdog at some point. If momentum keeps moving in this direction, there's no underdogs left and then the market has to sort of, good point, slow down and come off of that.
- [44:18]
Scott Wapner
All right, we'll talk about Uber next. It is moving on the other side. Side of earnings do have ownership on this desk. We discuss, we debate, we do it next. The stocks of Uber, the stock is lower by near 7%. They did have a weaker than expected bookings, which is, what's, what's your read? Because I just pulled up an analyst report with that moved that, that moved at 12:40, so not that long ago at all. From Truist. The results in the guide reflect very healthy demand for mobility and delivery. And the autonomous vehicle rollouts are going to accelerate.
- [44:56]
Jason Snipe Farmer
Yeah.
- [44:56]
Scott Wapner
So what's your take relative to the stock move and then that kind of commentary?
- [45:02]
Jason Snipe Farmer
Yeah, so it was a revenue miss, clearly. Right. EPS was, was in line. You know, revenue is around, was up around 12%. I think the street was expecting 14. I think when I'm looking at this stock, and again they have free cash flow, flow of $10 billion are going to continue to invest in the market. But there's, there's no real catalyst to move this stock forward. I think that's really what my concern is. You know, so for me this is kind of like in the wait and see. It's off 7% down 17 for the year. But I think that's, that's kind of what my focus is like. What is the next catalyst for the stock?
- [45:34]
Scott Wapner
Do you have an answer to that?
- [45:35]
Joe Terranova
I don't. And it's the reason why I'm not in stock and I want to be in the stock because I believe in the long term business model. But it hasn't proven itself and if you're focused on price, you're going to be out.
- [45:46]
Scott Wapner
Okay, we'll step away, we'll come back and we'll do finals. All right, I'll see a closing bell, 3 o' clock Eastern Time. If we can extend these record highs with Chris Harvey, Abby Yoder, Courtney Garcia, Jeff DeGraff. I mentioned one of his notes on momentum earlier. So we'll dive a little bit deeper into that. The former US Soccer star Alex Morgan is going to join us as well. She's teaming up with JPM today at an event and we'll hear from her live couple of World Cups to her name and one of the best female soccer players ever for that matter. So we're happy to have her on our show today and hope you'll join us. What is your final trade?
- [46:29]
Liz Thomas
Farmer Jim Wynn resorts good earnings last night. So and I'm sorry you're going to win with win.
- [46:36]
Scott Wapner
Okay.
- [46:38]
Liz Thomas
I hate myself.
- [46:41]
Scott Wapner
I won't even make another comment for Jason Snipe.
- [46:46]
Jason Snipe Farmer
Microsoft Azure was strong. Coca Cola show some life less.
- [46:51]
Sima Modi
I'll go next as the macro economist on the desk today. Commodities, inflation.
- [46:56]
Scott Wapner
We got Arista Network. Alright Kelly, take it away. You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern only on CNBC.
- [47:11]
Sima Modi
All opinions expressed by the Halftime Report participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates and may have been previously disseminated by them on television, radio, Internet or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion. Such opinions are based upon information the Halftime Report participants consider reliable. But neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy and it should not be relied upon as such. To view the full Halftime Report disclaimer, please visit cnbc.com halftime reportdisclaimer try angel
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Scott Wapner
stuff for your tushy.
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Sima Modi
It's made by angels soft and strong, budget friendly.
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Scott Wapner
The choice is sample.
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Sima Modi
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