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Halftime Report
Stocks Surge on Rate Relief 1/15/25
00:47:25
Scott Wapner and the Investment Committee discuss today’s stock surge as the latest inflation report brings some much-needed rate relief. The experts detail their latest portfolio moves. The Calls of the Day include Netflix, Walmart, Devon Energy, and EQT. Jenny Harrington explains her dividend investing strategy. The Setup ahead of earnings includes UnitedHealth, Taiwan Semiconductor and Fastenal. Investment Committee Disclosures
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- [00:00]
Capella University Ad
At Capella University. Learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think with Capella University. Learn more at capella.
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Frank Holland
Edu Global Markets up to the Minute Front page news. Wake up to Frank Holland at Worldwide exchange weekdays 5:00am Eastern. CNBC Live. Ambitiously.
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Scott Wapner
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. Carl, thanks so much. Welcome to the Halftime Report. I'm Scott Wapner. Front and center this hour, today's stock surge, that CPI print bringing some much needed rate relief today. We will trade it, of course, with the investment committee. Joining me for the hour, Joe Terranova, Liz Young Thomas, Jenny Harrington and Steve Weiss. Let's take you to the market, show you what we're doing. We are green, decidedly so as you see across the board today, we have all three of the majors up at least one and a third percent. The NASDAQ up better than that. Liz, to you first, Core CPI lighter than expectations. We finally get some rate relief as the ten year is its lowest in a week or so. Is it enough to get us out of the woods? The VIX is back around 17. Are we good again?
- [01:26]
Liz Young
Well, we can't declare victory. I would never declare victory with just one print, but this was definitely some sweet relief, especially after seeing how quickly the 10 year has moved. We know the 10 year has been has been pressuring equities since it rose above 4 and a half percent and now we were looking at 5% and hanging on with bated breath. So I think that this is a really good sign. The market shifted its attention in late 2024 from jobs back to inflation and started to worry that we were going to see this reignition. Obviously a lot of the rhetoric around tariffs has hit as well. That's still yet to be seen how it's all going to shake out. So this is not necessarily problem solved. And the other thing I would warn people about is in the beginning of a year you usually have a seasonal period where inflation can surprise to the upside. January, February, March, April, it happened last year and drove a sell off into spring. So even if that happens, I think we have to use that as a reminder not to overreact. But this is definitely a good sign. I think PPI coming in a little bit lighter earlier this week was a good sign. For business activity to Joe, you know.
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Scott Wapner
The market had been having a bit of a Fed tantrum trying to adjust to the fact that the Fed wasn't going to be as accommodative as it once thought. Goldman Sachs Asset Management today says while today's release is likely insufficient to put a January rate cut back on the table, it strengthens the case that the Fed's cutting cycle has not yet run its course. And maybe we needed to be reminded of that.
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Frank Holland
Absolutely. And I think what it does is it shakes some of the excessive short positions positioning in the treasury market, which has really been the catalyst behind the equity correction since December 18, when the S&P was 6050 and it fell down to 5825. So you had a lot of speculative shorts that built in the treasury market. What were they playing for? I got a phone call Monday afternoon after the show from a hedge fund manager whose name I will leave out of this conversation. But what was said to me was how are you going to feel when you just said on CNBC you think we're near the high for yields and CPI comes out and the ten year is approaching five and a quarter? And I just respectfully disagreed because I don't think there was enough fundamental evidence to warrant that move to five and a quarter. I think this was speculative positioning and I think the market got exactly what it needed. When I say the market, the equity market, it got exactly what it needed today to begin to do a little bit of that rotation where those that are short Treasuries, you can maintain your short treasury position, but I don't think you want to have a max short treasury position right now. I think you want to take a look at some areas in the equity market for opportunity. And I will tell you, I think the Nasdaq, which is now the leading index performance wise today, I think that's one place you could look.
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Scott Wapner
Weiss, this took the heat off of yields for certain and maybe it took the heat off all of those who are saying, well, the Fed may only cut now once this year and it may stand pat for many, many months. Morgan Stanley today says the print is consistent, the CPI print consistent with our call for a rate cut in March. I don't think anybody expects anything this month in January, at the very end of this month, and they may not expect anything in the meeting after that. But March is still on the table, according to Morgan Stanley. Goldman today also says that stocks could still remain fragile until you get clear relief from hawkish policy. What do you think I mean today and yesterday, ppi, cpi, the drop in rates and the reaction in the stock market is not an accident given what happened.
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Steve Weiss
No, it's not. It's not. Plus there was so much selling going on and it was not unexpected, a good number for it to move like this, you know. But you have two different views here. You have Liz very modestly not claiming victory and you have Joe very immodestly claiming victory and slapping down an unnamed hedge fund manager. But that's today's news. If you take a look at the.
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Scott Wapner
Job character for both, by the way.
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Steve Weiss
Very much in character, very much so. We'll talk about Jyoti later.
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Scott Wapner
Coming from right, but that's why we left.
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Steve Weiss
But when I look at the jobs number, the jobs number is a look into the future. If you continue to put those numbers up then in jobs and you will see inflation return and you haven't seen the policies set in place yet. So look, I'm not a seller, I'm not bearish, I'm not bullish. I'm wait and see. Now what I do like the setup is going into earnings and not getting PC until the last day of the month. So right now it's going to be all about earnings with the inflation news out of the way. And I think earnings as they always are are going to surprise the upside. So it's a positive set up for that with the caveat again that it's going to depend on big cap tech. What we do. Banks have declared and it was a great day for bank earnings. But now let's see what happens with where everybody's really been invested and that's big cap tech. So bottom line is I think we're out of the woods for now. You'll still see the snapback rally, but it's too early to declare that we will see a cut in March or we won't see any more cuts.
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Scott Wapner
Well, just know what I know. But the market had kind of been declaring right that we're not going to see any cuts for the foreseeable future. I think is fair to say maybe we're reassessing that today because these prints will allow the Fed to do what it really wants to do and the PC is going to underscore that. Yes, we have to wait. But the pie is a really good read through to that. So I think we'd be shocked if the PCE came in to some level that put the Fed the handcuffs back on again.
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Jenny Harrington
So I think you're right. But I also think that we're talking about small things when there's actually something very big at play. And if we think back to the past year, The Fed cut three times, they cut 1% out of fed funds rate and what happened, the two most important interest rates went up. Right. So we saw mortgages that have a real economic impact go up from 6.6 to 6.8. We saw the 10 year treasury move from, I think it was 3.8 to 4.6 at the end of the year. So actually the rates that have economic impact that actually are meaningful for earnings, for the health of the consumer didn't go down when the Fed cut rates. So to me I'm not so I don't really care that much right now if the Fed cuts rates one times or two times next year. What I really care about is will interest rates that have an impact move. And you know why I think those are staying higher? I think those are higher because we can trace the rates back to October of 2023 when we saw the 10 year hit 5%. Why the 10 year hit 5% then? Because people are freaking out, US creditors are freaking out about our lack of fiscal discipline. And I actually think the reason that the 10 year and that the mortgage rates, that the interest rates that really matter to the economy, the reason they're staying up is because there's no fiscal discipline. So like lovely, lovely that we're seeing CPI and PPI get a little better and maybe the Fed cuts rates again but that doesn't actually influence valuations, it doesn't actually influence the health of the consumer or the corporation. So we need something much bigger to start to trend in a positive direction. We need something much bigger to get fixed. You know, inflation like that's little, that's short term fiscal discipline and our insane budget deficit, like that's a big deal. That's what would actually improve interest rates in a way that supports, supports the U.S. economy.
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Scott Wapner
Sure. But that's a probably a longer term shakeout. That doesn't mean that the stock market can't do well in this current environment at all. But it does not.
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Jenny Harrington
But let's, let's be real about like okay, so 21 and a half times value, 21 and a half times earnings you need that's not really based on a foreign change Fed funds rate, that's really based on interest rates and the 10 year treasury and the 5 year Treasury. Right. You don't have a 21 and a half times multiple when interest rates are as high as they are. So you're right, it's long term. But the long term I think is actually going to impact valuations. I don't see how you get to and by the way, you know we're talking about like our earnings going to save us but we know valuations aren't how much higher are we going to get like one multiple point, two multiple points. How do you get there? When interest rates are this high, valuation.
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Steve Weiss
Just hasn't been a factor. As a matter of fact, when you listen to shows like talking about Jim who used to talk about valuation. Right. It's only about momentum in the fundamentals and that's been the constant theme over the last few years are the fundamentals because you know valuation really is an arbitrary number. Right. Based upon historical, you know, experience in terms of where these stocks are trading, where the market straight that's pretty much been thrown out the window as ETFs have taken control of the equity markets. I'm not saying it's not valid.
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Scott Wapner
I look no, I say you could, I mean there are those who say you could easily justify the valuation of the market if earnings expectations come in. If not get get even better.
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Jenny Harrington
But how do you grow from here?
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Steve Weiss
But historically you have not you growing down.
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Scott Wapner
You don't necessarily multiple expansion to get the stock market to go higher. You can just have better earnings growth.
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Steve Weiss
Okay.
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Jenny Harrington
I think you probably need both because I think at 21 and a half times we've already accounted for the 15% earnings growth that's coming. Right. So. So if that's already accounted for what comes after this year?
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Scott Wapner
Well we have an account well we haven't accounted for I don't think are the tax cuts that are probably coming regulatory the regulatory changes that are definitely coming first hundred days and the animal spirits around deal making.
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Jenny Harrington
But I'll argue with you on tax.
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Scott Wapner
Cuts is coming as well because tax.
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Jenny Harrington
Cuts are just extensions of current tax rates. Right. So there's actually no economic impact for just a second.
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Scott Wapner
I have some breaking news I want to get to Eamon Javers. Eamon, what do we know here?
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Eamon Javers
Scott, Israel and Hamas have agreed to a cease fire deal that will bring to an end more than a year of fighting in the war torn area. According to NBC News this deal reached just within the past couple of hours finalized just within the past couple of minutes. NBC News saying that an Israeli official briefed on the talks says a deal has been reached. From a source briefed on the talks Gaza cease fire and hostage release deal has been reached following Qatari prime minister's meeting with Hamas negotiators and separately Israeli negotiators in the office. NBC's Kir Simmons reporting that a Hamas official named Bassem Naim tells Kiir that the agreement has been reached. So that is a watershed moment. And we'll wait for details in exactly how these hostages will be released and how this cease fire will be put into place. Scott, the expectation here is that the hostages will be released in a series of tranches. And so one of the big questions here domestically will be about the of any American hostages included in this deal, when they might be released as part of this. You saw President elect Trump last week, Scott, say that all hell would break out if there wasn't a deal to release American hostages before he is inaugurated on Monday. That seems now to have come to pass. Again, we're waiting on some more details in terms of the technical aspects and timing aspects of when and where and how hostages will be released. But this political deal now, Scott, will bring an end, as I say, to a year plus of bitter, bitter warfare in Gaza. And now it would appear that that end to the war comes largely on Israeli terms after they have militarily decimated Hamas, occupied Gaza, enormous destruction and loss of life in that area. All of that now coming to an end. And it would seem that Israel would have a bit more of a free hand to operate in that area. Going a victory politically now for Bibi Netanyahu. We expect to see Joe Biden, president of the United States until next week talking about this at some point today here in Washington. And then of course, we expect to see President elect Donald Trump speaking about it as well. At some point. President elect has put out a statement on Truth Social. His statement saying, scott, we have a deal for the hostages in the Middle East. They will be released shortly. Thank you. No details from President elect Trump there in terms of when and where and all the specifics, but clearly a lot of celebration going on around the world, Scott, that this cease fire deal has now been reached. Back over to you.
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Scott Wapner
Okay, Eamon, thank you very much for that important update. We appreciate that Eamon jabbers down in Washington stocks adding a little bit to the significant gains that we've already had throughout this day. Certainly consistent see it through the major averages. We came on the program, I told you we were about one and a third percent higher across the board. NASDAQ was the outperformer, which it remains. But we're looking at even more incremental gains here for the majors. And we'll keep our eye on that story as it develops throughout the remainder of the day. I cut you off because it was important news to get to. But, you know, you need earnings growth to live up to the hype. You're looking for, you know, low to mid double digits for the remainder of this year. Banks today, which haven't always come out of the gates like rocket ships, certainly look pretty darn good today.
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Jenny Harrington
They do. Sorry, I'm a little emotionally overwhelmed by this hostage release and I sure hope those increments are in 15 minutes, not days. They've been through so much. Yes, banker, Sorry, do you want to go to someone else for a minute? I'm emotional here.
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Scott Wapner
Weiss.
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Steve Weiss
Yeah, look, this is the best concentrated earnings for you, for banks I've seen. I recall seeing where all of them that reported today did quite well. And you would expect that to continue going into going through the year as the IPO cycle. So I still like them. I mean, you know, they're not, at least, you know, Goldman's not back at its hold high, but it will be.
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Scott Wapner
We can look at Goldman here. I mean, it's one of the.
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Frank Holland
Right there.
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Scott Wapner
Some of the gains today are just really significant. When, when you look, you just don't see this.
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Steve Weiss
You know, you don't bank stocks and not mid cap.
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Scott Wapner
You don't often see these kinds of gains to begin with on an individual day. But the history of reporting earnings and seeing these kinds of gains has not really been the case.
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Frank Holland
I think the hallmark of today's financial earnings was the optimism that was reflected in the guidance universally from all of these financial institutions. We haven't seen that in many, many quarters. The financial sector has been remarkably strong over the last four quarters. I think the momentum continues as you move forward. And it's interesting because you talk about earnings growth and that's exactly what you need in 2025 to extend a valuation that's a rich valuation on the s and P500. You have to have that earnings growth. I'm not necessarily sure that the conversation about what's the right interest rate for the economy? Economy, what interest rate is too high for the economy? I don't know if that plays into a lot of these companies that we're going to be analyzing their earnings growth. In particular, when you think about tech companies, right, tech companies, they don't care about or they don't have the need to access the cost, the capital market for the cost of capital care if it's higher. So in the case of these financial institutions, net interest income, remarkably strong, volatile trading environment that's going to benefit names like Goldman Sachs and the exchanges. The financial sector is in 2025 an extension of what it was in 2024, which was a surprising sector to have ownership. And keep in mind that changes.
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Steve Weiss
Keep in mind that we only, we've been talking about regulation in terms of M and A, in terms of environmental. The banks are one of the most regulated. If not, of course, they would tell.
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Scott Wapner
You that, you know, the cows come home, they're going to be able to theoretically lend a lot more freely than they have been able to in the past. They're going to be able to return capital to shareholders in a way that they probably haven't been able to do. The shackles may be coming off in that regard too.
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Steve Weiss
Exactly my point. So that makes them more attractive. That should increase the multiple that you pay for these companies.
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Jenny Harrington
So, okay, back on my feet. Okay, so right when we left off too, and you were saying, like the regulatory environment and this touches on this. What I worry about as we go into next year is that there is so much hope for this wonderful like regulatory environment where regulations decrease, oversight decreases. But there are thin majorities in the House. There's the majorities across Congress. What if things don't get done? And one of the things that I wrote about in my note is a gridlock.
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Frank Holland
Good.
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Jenny Harrington
I'm not sure right now because I think what we saw was this, you know, Scott said animal spirits and what's incorporated in this level of the market and in that 21 and a half times multiple is, is the thought that there's not going to be gridlock anymore and that we will be in a lighter regulatory environment. Things will, that there will be animal spirits. But what if, what if we hit some walls? You know, we kind of saw that in the very beginning, maybe with Matt Getz's, with, you know, with different parties, different sections of Congress being like, you know what? I'm not going to take that. What if we get past inauguration and things don't go through as smoothly? I just think right now the market is anticipating a best case scenario. It's anticipating, anticipating, you know, Fed like fed funds coming down, interest rates falling, which they didn't. It's anticipating 15% earnings growth, it's anticipating deregulation. It's anticipating all the best. Like, what if we don't get all of that?
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Liz Young
I think we already unpriced a lot of it, though. I mean, the rally down like 3%. Well, not everything. There are a lot of things that.
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Jenny Harrington
Are down much, much more than that.
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Liz Young
Post election you know, you look at financials, look at what happened to financials post election. Up about, or I'm sorry, yeah, up about 11%. You look at what's happened since then. Yes, they gave a lot back and now we have to start trading on fundamentals. What happened in that period post election, even leading up to the election is the amount that you can attribute in returns to just pure multiple expansion. Expanded a lot. And that's the part that gets really fragile when markets are unsure. And that's the part we've given now.
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Scott Wapner
The fundamentals though are still underdevelopment.
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Liz Young
Right. But they didn't really change after the election.
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Jenny Harrington
Right.
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Liz Young
It was all on expectations which ended up being multiple expansion. So now we have to get the read through. What are the fundamentals? Here's our first batch. Our first batch of fundamentals from financials look good. Our first batch of inflation data in 2025, although it's for 2024, looks pretty good. So you have to react to the strength that is happening now. That doesn't mean it won't change, but the strength that's happening now.
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Scott Wapner
All right, so we mentioned Goldman. Great. JP Morgan stock looks great. Wells and Citi today.
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Eamon Javers
Wow.
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Scott Wapner
We'll show both of these names and you can see for yourself what I'm talking about with both of those names better than 6%. Our resident shareholders are joining us on both of those stocks. Rob Sechin on Wells, Jim Lebenthal on Citi. Rob, do you first give us your read through on this report? And most importantly in terms of investors who are watching our program now, who are in that stock, that move today, that price action. Wow.
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Rob Sechin
Love of Wells. We own a lot of the names. I'm with Jimmy. We also own JP Morgan and it's this combination of economic momentum, a steeper yield curve, healthy balance sheets, the positive impossible easing of regulatory burden, M and A and all the animal spirits that might get, you know, released by the new administration. So the fundamentals are solid in the sector and Wells trades at a discount to the sector 17 times. It also is reasonable from a price to book perspective. Trading at a 20% discount to the sector. Realize that we're now back to 2021 levels from a price to book standpoint for the sector. So you know, there are some parts of this sector that are pricing in this optimism I think to Jenny's point. So you got to be careful. I think Wells allows you to do that. They showed you that they beat on the earnings. EPS rose 10%. The key takeaway is their, their Core businesses are killing it. Investment banking, loan growth, deposits steady, not seeing deterioration in there. They're emphasizing operational efficiency. And I think when you marry that all together, this is a place that you can deploy capital still and I think have that margin of safety as the rest of the sector maybe gets a little expensive.
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Scott Wapner
Thank you for that. Appreciate you. Jim Leventhal on Citi interviewed Mike Mayo yesterday from Wells Fargo securities, said Citi, Citi, Citi is his number one pick and it's probably been yours, too, more so than many, to be honest with you, because of the belief that you have in Jane Frazier and the turnaround that she has been orchestrating it at that firm. By the way, she is going to be on tomorrow with Leslie picker exclusively at 1:30pm Eastern Time on the Exchange. But tell us your reaction to the quarter and this print.
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Jim Lebenthal
Yeah, simply put, it's hard to find a blemish in this report. Revenue is better than expected, expenses lower than expected. So obviously that's an earnings per share beat. The story for Citigroup right now is about profitability. Their profitability is increasing more than expected. We see that in the guidance they put out for 2026 return on tangible common equity of 10 to 11%. That compares to current estimates of 9.4%. So this is exactly what we want to see. You know, Mike Mayo, you just mentioned, he was on the call and his question was, hey, I just want to confirm we've got three years of increasing revenues and decreasing expenses. I think we know what his headline tomorrow is going to be. It's probably going to be hat trick with more to come. But you know, the business is still in transformation. They've got the earnings with which to do it and at the same time buy back shares. They announced an authorization of a $20 billion buyback, which kind of indicates that they're getting into good graces with the regulators. They wouldn't tempt the regulators to smack them down on that if they didn't think they were going to be in good graces. Their bottom line is this. It's now at 85% of tangible book value, up from 50% a year ago. I see no reason that it doesn't go to 100% of tangible book value, which is a 15% increase from here and I mean soon. So I'll talk to you more about the targets after we get to $90 a share, which is the current target.
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Scott Wapner
All right. Looks like it's headed there, Jim. Thank you, Rob as well. I'm glad we could go through That I want to get to one more thing before we take a break and it's with you, Jenny, because we talk about financials. We haven't talked that much about energy lately. Joe's mentioned a few times because oil's moved up. Energy is the only positive sector over the last one month period shows you sort of how uneven the market's been. You're trimming a number of names that you have in book Kinder, Morgan Williams and one Oak. Why?
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Jenny Harrington
Well, this actually echoes back to the point that Liz made where she said like, look, there had been surges, there have been corrections even within the energy sector. Last year there were stocks that did nothing. There were stocks that surged. All of these were up 40 to 50% last year. So I went from a 3% position in the portfolio to like 4 and change. So they were just trims to bring them back to a model weight because to me that's good portfolio management. That's responsible risk management. It was not a statement on energy. I still have a huge overweight energy position overall, but those positions have gotten really rich and I can repurpose those proceeds elsewhere.
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Scott Wapner
All right, you got some other stuff going on too, which we'll cover on the other side of this break because Jenny is selling a tech name. She is buying a name as well. Weiss is buying more of a stock you want to hear about too. We'll do that along with our calls of the day and we'll do it next. Are you still quoting 30 year old movies? Have you said cool beans in the past 90 days? Do you think Discover isn't widely accepted? If this sounds like you, you're stuck in the past. Discover is accepted at 99% of places that take credit cards nationwide. And every time you make a purchase with your card, you automatically earn cash back. Welcome to the now it pays to Discover. Learn more@discover.com creditcard based on the February 2024 Nelson Report.
- [25:25]
Capella University Ad
@ Capella University, learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the courseroom to the workplace. A different future is closer than you think with Capella University. Learn more at capella.
- [25:39]
Frank Holland
Edu weekdays at 5am Be first on world markets. First to the global business conversation. Get a jump on the investing day every day with Frank Holland. Success starts early. Worldwide exchange, 5:00am Eastern, CNBC.
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Scott Wapner
All right, let's do these moves that I mentioned that we have today. More from Jenny. All right, so you sold IBM. You want to take me through that first?
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Jenny Harrington
Yeah, it's really just based on valuation and again like risk management and discipline for the strategy. So I bought IBM a couple years ago. It did everything and more that I like. When I bought it, I thought the price Target should be 200. Got up to about 230 after earnings last quarter. I trimmed it back to 3% then and then kicked the can until after the new year to you know, hopefully get a little more upside, which I didn't and also kick the capital gain which was quite big into the new year. So right after the new year I sold it at 218 and here's where it was. It's trading at 26 times earnings and it has like mid single digit earnings growth ahead with a 3% yield. So when I manage this portfolio where the objectives have a 5% yield, it just, just doesn't fit. But I think Most importantly a 26 times multiple is not suited for a stock that's earnings are growing in the mid single digits.
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Scott Wapner
I love how specific you are too. For our viewers. You bought more ups.
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Steve Weiss
There's almost like a sponsored spot.
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Jenny Harrington
Take notes.
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Scott Wapner
That's called being specific about when you buy and sell stuff.
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Steve Weiss
Weiss, I slept through half.
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Frank Holland
You record that.
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Steve Weiss
Okay, we'll lean on you for more.
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Scott Wapner
Of that in the new year. That should be your, that should be your new year's resolution.
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Jenny Harrington
Ups.
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Scott Wapner
I digress. I come back to you.
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Jenny Harrington
So UPS is bought more ups, right? So that I went in at early last year at about $130 a share thinking this might be the right price. It could go lower. If it does go lower, I'll add to it. So it actually dropped down to about 123 a week and change ago at 123 you had the stock trading at 14 times earnings, 5.4% of it at yield. And if you look out next year and the year after, you have mid teens earnings growth ahead. That is a setup of valuation and earnings growth that I like best.
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Scott Wapner
And it's down 21 1/2% from its 52 week high.
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Frank Holland
I mean it looks like a slider from the middle of 2021. And there's been such dramatic outperformance for FedEx relative to the stock.
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Jenny Harrington
Right. But think about what they went through. They had that whole labor issue right there as well.
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Frank Holland
I know that you citing the dividend yield, isn't dividend yield just a reflection of that of the down at this point?
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Jenny Harrington
And you can buy stocks with like dividend yields for all different reasons and sometimes you get them because the Stocks come down for, you know, for specific reasons. In this case, it was the labor negotiations. It was meeting their guidance and then.
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Frank Holland
And then three and a half years.
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Steve Weiss
Yes.
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Jenny Harrington
Okay. But that's why you buy it low. And like I, I mean, when I bought IBM, everyone was picking on me for this.
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Scott Wapner
Where'd you buy? UPS.
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Jenny Harrington
UPS. Initially 130. Added to it at 123. It's like 128ish right now.
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Scott Wapner
And how long have you owned it?
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Jenny Harrington
I think I'm at about six months.
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Scott Wapner
Oh, okay. So it's new.
- [28:43]
Jenny Harrington
Right. But. But sometimes stocks coming down create an opportunity. Sometimes there is signal of terrible things ahead. Sometimes there's a price for everything. You basically have three main competitors here. UPS, FedEx, Amazon. Once you kind of work out the competitive landscape there and say they're out from under labor, there's still earnings growth ahead. I believe it's going to grow in the mid teens. Right. By the way, it's got superb management. I think you own it here.
- [29:08]
Frank Holland
Makes sense.
- [29:08]
Scott Wapner
Let's go to Weiss. Now the pressure's on. Okay. Because Jenny was very specific in what.
- [29:14]
Steve Weiss
She'S doing, if anybody's still watching.
- [29:15]
Scott Wapner
So you bought. Well, they knew I was coming to you. They might have turned. You bought more Netflix?
- [29:20]
Steve Weiss
I did.
- [29:21]
Scott Wapner
Okay. The price target today goes to a thousand bucks at bmo. Why'd you buy more and where'd you buy more at, Steve?
- [29:28]
Steve Weiss
I bought more this morning. So I paid up a little bit for it. I bought it. I think it. I'll get back to you. I'm sure you time in a second. Yeah, okay, but unless Jenny knows.
- [29:39]
Scott Wapner
No time.
- [29:40]
Steve Weiss
Here's why I bought more. I sold some. As you know, I sold some a few a couple of weeks ago because Risk Management stock had moved up very nicely. Maybe it was even a month ago. And at this point it's corrected now. Stock Coming down 70 points on this kind or whatever it was is not a major corrections. Matt of fact, it's not even a definite definitional correction because it's not down 10%. However, as you look at Netflix and you still know that they've got tremendous pricing power with the consolidation. Other, you know, streaming services going out of business being folded together like Hulu and Disney. And you take a look at their content when you go in your stream. Look, contact. So many are non US speaking programs, so foreign language programs. So that means they're reaching much more outside the US which has always been their plan. And there's a lot of frankly fertile ground out there.
- [30:32]
Scott Wapner
Thousand Bucks seem reasonable to this call.
- [30:34]
Steve Weiss
I think 1,000 bucks is at least reasonable and probably goes higher because scarcity, number one, excellent management team. And there's sports. We just don't know what sports can do yet.
- [30:46]
Scott Wapner
Show me Walmart, guys, please, if you would because Truist Joe. And speaking of price targets that are going up 98 bucks, Walmart reiterated to buy. It's not a huge move from here obviously, but nonetheless they're positive on Walmart your stock.
- [31:02]
Frank Holland
Several different tailwinds for this company. Number one, market share gains have been dramatic over the last several years. There seems to be an insensitivity for this consumer that is challenged by higher interest rates not to be present in the stores of Walmart because without question they are earnings growth at around 12% revenue growth, maybe 8 or 9% in 2025. Those are very strong numbers. And we talk about you want to own companies that are reasonably valued that are going to give you the Earnings growth in 25 is a great example of it.
- [31:36]
Scott Wapner
Okay, Jenny, you want to. You still like Devon Energy? Because Bernstein does. They upgraded it to outperform today. They had it at a market perform. They say that a US gas supercycle is coming.
- [31:48]
Jenny Harrington
Right? I think that's true. And so I had actually owned Devon in the portfolio, sold it back in 2023 kind of at a tiny loss. Once you factored in dividends, it was mostly flat and then added it back in in this past quarter. And the reason I've added it back in was because of that super cycle, they also made an acquisition. It's super accretive. And this goes back to our conversation about a more friendly regulatory environment. I think if anywhere, you know, banks and energy benefit from that. And if you look at what's his name, Wright, who's coming in as the new energy secretary, like that guy is so, so energy friendly. And we should be selling drill baby drilling.
- [32:22]
Scott Wapner
Yeah, but we should hear that. We've already heard that a lot. We're going to hear it a lot more.
- [32:25]
Jenny Harrington
Okay, but you know what? There may not be that much drill baby drill that might not. That's just kind of like rhetoric. The reality is if we can start to export to our friends and our allies, that's just great for American fossil fuels.
- [32:35]
Scott Wapner
What about equity which is part of.
- [32:37]
Frank Holland
This call to lng? LNG exports is an obvious tailwind, but I think it goes beyond that. Look, I think we are at this moment in our economy where you have to realize power, demand growth and the need for power generation is going to Rely more and more on natural gas and you look at equity perfectly positioned in the Appalachia. What is one area of the country that has the strongest data center demand? Virginia. There's a perfect geographic connection right there. It's serving that Virginia data center demand. So I just think when you look at natural gas, this is going to be the solution in terms of where the power generation is going to come to meet this power demand from artificial intelligence.
- [33:22]
Steve Weiss
And you, you think that the ability to export LNG will offset the additional, you know, basically capacity that's coming on here by opening up everything for drilling? Because that's really the issue and that's what people worry about. Is there going to be too much natural gas in this country with drilling on the federal lands, drilling offshore with everything else?
- [33:46]
Frank Holland
I don't know. I don't think so, Steve. I really don't. And again, you know, it's interesting because we're talking about LNG exports. That's not my thesis on natural gas. It's not. Because I've heard that in the past. I heard that in the first Trump administration and it didn't work. My thesis on why you want to own natural gas is because over the last four years we've prioritized decarbonization, whether you agree with it or not. So that switching effect, when natural gas goes to four and a quarter, you don't switch to coal anymore if you're a utility.
- [34:16]
Steve Weiss
One question, make it quick. Tell me all the super cycles that were predicted that actually came to fruition. Give me even one.
- [34:24]
Scott Wapner
Okay.
- [34:25]
Frank Holland
Can we just have a little mini cycle?
- [34:27]
Steve Weiss
Okay.
- [34:28]
Scott Wapner
All right. We will take a break. When we come back, your dividend playbook. Our expert, Jenny Harrington on why dividend investing is a winning strategy for this year and beyond. And we know many of you invest in stocks for those dividends. We'll talk about it next.
- [34:47]
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- [35:18]
Frank Holland
Weekdays at 5am Be first on world markets. First to the global business conversation. Get a jump on the investing day. Every day with Frank Holland. Success starts early. Worldwide exchange, 5am Eastern, CNBC.
- [35:34]
Scott Wapner
Back with breaking news A historic deal in the Middle east happening just moments ago. We go back to Eamon Javors now. Who has more for us. Eamon?
- [35:42]
Eamon Javers
Scott, we're still waiting on details in terms of exactly how these hostages will be released, who will be released, in what order. All that's going to happen, what we expect now is that there will be an exchange of releases between the Israeli and the Hamas sides. Hamas will release hostages, Israel will release prisoners. When all that happens. Still, tbd, as I'm talking to you now, we do have a statement here from President Elect Trump, who posted this on social media just a short time ago. He says this epic cease fire agreement could only have happened as a result of our historic victory in November, as it signaled to the entire world that my administration would seek peace and negotiate deals to ensure the safety of all Americans and our allies. Marco Rubio, the Florida senator who is Trump's pick for secretary of state, is testifying on Capitol Hill at this moment. And as this deal was announced, he spoke to senators giving credit to the Biden administration and to the Trump negotiating team. Rubio saying, in fact, I dare to say that all involved deserve credit for the cease fire that the chairman has just announced. But Steve Witkoff, that is President Trump's envoy here who's been on the ground negotiating this. Steve Witkoff has been a critical component of it and has been involved since day one. And Scott, it is just remarkable to think after more than a year of brutal and desperate conflict, that this conflict will now come to an end, at least for now, under the terms of this ceasefire deal, the horrific human devastation. Just going back to review some of the history here. Remember the October 7th attack on Israel by terrorists inspired by Hamas, more than a thousand Israelis killed, dozens taken hostage in that attack. And then Israel's military response into Gaza, more than 40,000 Palestinians killed over the course of the past year in that devastating military response. All of that tragedy and death and destruction now at least put on pause, as well as the political blowback around the world, including here in the United States. Scott, you think about the protests on campus that we saw in the wake of, of the Israeli military response in Gaza and the influence that this Israel Gaza issue had in the US Presidential election. All of that now in the rearview mirror, although with the Middle East, Scott, you never can say it's over for good.
- [38:01]
Scott Wapner
Back over to you, that's for sure. We appreciate that. Update, Eamon, an important day, an emotional one for many, as we learned right on our own desk today, as that news was first breaking on Halftime Report today as well. Eamonn, thank you. We will turn our attention back to the market. Can we just show an intraday here once again, or at least the current picture of the three majors because we continue to have a bit more pickup in the activity today in stocks. Nasdaq's good for more than 2%. There you see a 2.13%. There's the S&P 500 trying to get back towards 6,000 and the Dow is up one and a half percent. We told you we were going to focus with our resident expert Jenny Harrington on dividends because investors have high hopes for 2025 following a year that modestly underperformed the S&P 500. Jenny Harrington among those who are optimistic coming into this year. Debating dividends was the focus of a recent segment we did with Josh Brown, who questioned whether using dividend investing as a sole strategy, it was a good idea.
- [39:05]
Frank Holland
Listen, I am Pro dividend. 75% of companies in the S&P 500.
- [39:11]
Scott Wapner
Do pay a dividend.
- [39:12]
Frank Holland
But when you actually analyze it as a standalone factor, 54% of the time, it trails the performance of the S&P 500 over all 12 month rolling periods going back 30 years.
- [39:27]
Scott Wapner
Part of the point he also made was that companies have changed the way they return capital to shareholders, focusing more heavily on things like buybacks which end up helping stock prices more. Plus, you risk missing out on great companies like in Amazon for example, or Berkshire with Josh owns both, obviously, and they don't pay dividends. So I want to get your take on this because again, you are our expert, okay. And I know that there are a lot of people watching who buy stocks for the dividends, right? So what's your not so much defense of dividend investing but why this works and who it works best for?
- [40:02]
Jenny Harrington
So to be really clear, it is not for everyone, right? Most people don't need income. But if you do need income, it works really, really well. And that's a pretty niche strategy. Like sometimes it's a retiree, sometimes it's just someone who likes to see some component of their total portfolio rolling in day after day. At least in my case, most of my clients don't have 100% of their portfolio in the dividend income statement strategy. So they're not missing out on an Amazon or Microsoft. It's just different silos. And frequently people use it again for that silo to replace the income or to diversify their overall portfolio. You know, when, when we let in and we said investors are looking towards 2025 as a good year for dividends. I think the reality is, and this sounds silly, but I think every year is a good year for dividends. If you are a dividend investor, you know you're getting your income right and are in a good spot strategy, a well managed strategy that's, that's consistent, that looks for consistent dividend income, you know, that's coming in. And what's really cool is s and P500 dividends since like the last 50, 60 years have grown at about 5.7%. So if you need that income and you want that income to outpace inflation, it's doing that. I found the same for my strategy, which isn't S and P specific. In addition, you have a tax advantaged income stream. If you buy it, if you buy Treasuries or, or corporate bonds, you've got an ordinary income tax, dividends, you're getting a 15% or 20% tax rate on them. So you have all these wonderful things going for you. But the thing about all that is, I think what we all know really well here is the single best investor is one who behaves well and you can be in high growth, but then if you freak out at the wrong time, if you switch strategies at the wrong time, it can destroy years of good returns. And generally what happens for dividend investors is they get really hooked on the income and they know if they sell, even if it's a March of 2020 or late 2022 when the market's down, or in October of 18, they know if they sell, they're cutting off all of their income. So that consistent income stream leads to very good behavior. It acts as a huge emotional source of comfort for investors. So all of those things people have going for it. One of the other things that Josh talked about on the show the other day is you know what, what kinds of companies pay big dividends? And sometimes it's stocks like ups like we talked about before, where the share price is off its high and then you have a high dividend. But there are a lot of companies out there too where actually that return of capital decision is saying like, look, we don't have huge growth opportunities ahead, we just have really high free cash flow. And let's make that our return to shareholders. Let, let's incentivize shareholders to buy this. So if you look at areas is capital, right? Michael Erringetti has been on the show a lot. He's unbelievable. That's an 8% return. He doesn't say to shareholders, hey, I expect this stock to double. He says, no, you're going to get this 8% return. And that's our goal, is to give that to you when you buy arcc. In my portfolio, I have Enterprise Products. One of the midstream energy companies have Organon, which is the health care spinoff from Merck Lamar Advertising. That's the giant billboards. Those all have 6, 7 and 4% dividend yields. And those management teams, their whole goal is to return shareholder value in the form of a dividend. So you have to look for those. You can't just chase a high yield, you know. And one of the things too people kind of get caught up on is the difference between dividend growth and dividend income. Those are very, very different things. So dividend growth, you could look at a company like Apple or Microsoft, Metta, Google, those are dividend growth. Right. They actually just started paying dividends. That's very different than what I own. So it just, it's a strategy that works well for the right people. Yeah, sorry, one more thing on that or I'm rolling a little too fast.
- [43:35]
Scott Wapner
It's all right.
- [43:36]
Jenny Harrington
Okay, thanks. Right now, I think when we do think about the outlook for 2025, and everywhere I'm reading Goldman, bank of America, JP Morgan, everything diversify out next year. And when we look at the s and P500 right now, 10 stocks make up 39% of that index that is really, really concentrated. When you look outside, and this isn't really dividend specific. This is whether you want to be in small cap or value like anywhere that you get outside of the S&P 500. It's just, it's not as concentrated. And so if you do want to take a step back from that concentration, there are other areas. I would argue that the leadership of those 10 is not going to progress at the same pace it's been at for the past five years. So maybe, maybe there is relative, just not absolute up in areas outside of the s and P500 like dividends.
- [44:19]
Scott Wapner
That is why I wanted to have this conversation. Jenny Harrington, thank you. Mike Santoli is next. Our senior markets commentator Mike Santoli joins us now with his midday word. Just what the doctor ordered, I guess.
- [44:39]
J
Yeah, for sure, Scott. And you know, the relief comes after really six weeks of, of the market wrestling with not just these levels on the indexes, but this idea that maybe inflation expectations and the trends were getting unfriendly. So we got enough out of the core CPI downside surprise to I think, refresh a little bit of the, the risk appetite in that area. Now that said, the rally this morning in the s and P500, it stopped exactly at the 50 day moving average. There's a lot more kind of proof to be had here that this is something sustainable. The Russell 2000 like half a percent off its high from this morning. Now it's very broad rally and it's checking a lot of the boxes. But I do think you have to, I think keep an eye on the fact that we have just been churning in this zone for such a long time and we're right back again at that, you know, post election day level.
- [45:30]
Scott Wapner
Get volatility off the hot burner for a minute too. Right. And we kind of needed that.
- [45:34]
J
And I think that's, that's probably, probably something that you can definitely use as a little bit of a beacon as to whether the character of the market maybe is, has changed and that's getting into earnings season when you do have a lot of kind of back and forth company by company movement that's good for suppressing volatility at the index level. We'll see if that takes hold.
- [45:51]
Scott Wapner
I'll see. I'll see you on closing bell.
- [45:53]
Frank Holland
Mike.
- [45:53]
Steve Weiss
Thank you.
- [45:53]
Scott Wapner
That's Mike Santoli. We'll do the setup next. All right, let's do the setup on some earnings coming our way this week. Taiwan semi Weiss tomorrow before the bell. What do we expect?
- [46:14]
Steve Weiss
Well, we expect a really good quarter. I mean they released preliminary results of, you know, about a month ago or a few weeks ago on the last month. No reason to believe that they have, they have any excess capacity. So I think it continues to go and I like it here quite a bit.
- [46:30]
Scott Wapner
Okay. Stock of about 2% ahead of that Fastenal. It's Friday before the bell.
- [46:36]
Frank Holland
Now soft manufacturing market momentum is kind of teetering on being broken. Really need to see an acceleration of revenue growth. This company did 16% revenue growth in 22. We're down to only low single digits.
- [46:48]
Scott Wapner
You want to give me something too on UnitedHealth? Could we have the time to do it? That's tomorrow before the bell.
- [46:53]
Steve Weiss
Yeah, begrudgingly. Look, it's a coin toss.
- [46:55]
Scott Wapner
I started why you say begrudgingly?
- [46:58]
Jenny Harrington
Been begging to talk about.
- [47:00]
Scott Wapner
You don't have that much confidence in the.
- [47:02]
Steve Weiss
I have no real confidence in the, in the quarter which is why I have a small position there. So if the stock trades out stiffly and these stocks have been trading down almost 10% over the first day and ensuing days, then that I would use as a buying opportunity. There's some new regulations that have come in that have pressured revenue somewhat. The new coating, I think they've gone through most of it last year. There's more this year. But overall, I still like the company quite a bit and I think they will do quite well going forward. So regardless of the quarter, I think quarter be fine, but not high conviction.
- [47:33]
Scott Wapner
All right. All right. We'll step away. We'll come back. We'll do finals on the other side. Got a big market today. We'll take you through the final stretch a couple hours from now on. Closing bell with Adam Parker. Tom Lee is back with me today. Vista Equities, Ashley McNeil and Cameron Dawson as well. I hope you'll join me. Closing Bell Weiss final trade QXO look.
- [47:59]
Steve Weiss
It'S in the news today. It was in news in November when they first when it was first leaked they had approached Beacon roofing. They're offering a 37 premium for a company that just hasn't, well, done well lately. To me, Brad Jacobs you have to bet on and he's going to be disciplined. Don't look for this to go up 20% top of the bid. But you do want to own it.
- [48:18]
Scott Wapner
Okay, you can cut that off.
- [48:19]
Steve Weiss
Jenny. Brad can't talk.
- [48:21]
Scott Wapner
Jenny, we'll go to you.
- [48:22]
Jenny Harrington
Stanley Black and Decker, 4% dividend yield trading at 20 times. It's a dividend aristocrat. And if you believe that the US consumer actually holds up, this thing should grow at 20 to 30% earnings growth.
- [48:31]
Liz Young
Liz Young Thomas Health care strong earnings growth coming. Good entry point after a flat year and beneficiary of any rotations out of.
- [48:38]
Scott Wapner
Tech, the Joe T. Money going out.
- [48:40]
Frank Holland
Of treasuries going to go into the NASDAQ Applovin tight stop at 300.
- [48:43]
Scott Wapner
All right. I'll see you in a couple hours. On closing Bell, the exchanges now. You've been listening to CNBC's Halftime Report, the podcast you can always catch us live weekdays at 12 Eastern only on CNBC.
- [48:58]
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