Halftime Report: The Fate of the Rally (12/27/24)
Host: Scott Wapner
Guests: Josh Brown, Jenny Harrington, Kevin Simpson, Bob Pisani
Release Date: December 27, 2024
Airing Time: Weekdays 12-1 PM ET on CNBC TV
Overview
In the December 27, 2024 episode of CNBC’s Halftime Report, host Scott Wapner is joined by top investors Josh Brown, Jenny Harrington, and Kevin Simpson, along with senior markets correspondent Bob Pisani. The primary focus is on assessing the sustainability of the current market rally amidst declining major indices and elevated bond yields. The discussion delves into profit-taking behaviors, the impending rebalancing activities in January, and the performance of prominent stocks within the MAG7 group versus the broader market (referred to as the other 493).
Market Snapshot
Scott Wapner opens the discussion by highlighting the downward trend across major indices:
- S&P 500: Attempting to avoid its third consecutive week of losses.
- Nasdaq: Down 2%.
- Russell 2000: On track for its worst month since September 2022.
Bond Yields:
- 10-Year Treasury Yield: Slight pullback from recent highs, currently at approximately 4.60%, remaining elevated compared to earlier in the year.
Quote:
“[...] the major indices are all down across the board. The S&P is trying to avoid its third straight week of losses.” — Scott Wapner [01:03]
The Nature of the Market Pullback
Profit-Taking vs. Rebalancing:
The panel debates whether the current market pullback is mere profit-taking or indicative of deeper market shifts. Scott Wapner suggests it’s primarily profit-taking, anticipating significant rebalancing activities in January.
Rebalancing Impact:
- Scale: Trillions in capital across wealth management, target date funds, SMAs, ETF model portfolios.
- Example: A 60/40 portfolio could shift to 66% equities and 34% bonds due to equity gains, necessitating a rebalance back to original allocations.
Quote:
“I think it's maybe a little bit of profit-taking. But we talked about yesterday, the big thing that's going to happen this January is rebalances.” — Scott Wapner [02:23]
Jenny Harrington adds that energy is the sole sector outperforming, being up approximately 0.25%, while all other sectors are declining, further supporting the low-volume profit-taking scenario.
Performance of MAG7 vs. Other 493
Josh Brown emphasizes the overwhelming dominance of MAG7 stocks (Meta, Amazon, Apple, Microsoft, Netflix, Nvidia, Tesla) over the broader market:
- MAG7 Growth: Meta up 176%, Tesla 76%, Amazon 50%, Alphabet up 40%, Apple 32%, Microsoft 14%.
- S&P 500: Up less than 30%, translating to a 45% return over five years when equally weighted MAG7.
Survey Insight:
A Delivering Alpha survey reveals that 77% of respondents expect the other 493 stocks to outperform MAG7 in 2025, betting on market broadening.
Scott Wapner counters this by asserting the lack of true broadening, highlighting the disproportionate performance of MAG7:
Quote:
“There is no broadening. It’s fake. Yes, you had rallies in other stocks and thank God, but the reality is nothing has kept up with this particular subset of stocks.” — Scott Wapner [09:01]
Kevin Simpson advises not to overinterpret the MAG7’s recent underperformance, attributing it to high trading volumes concentrated within these major names on low-volume days.
Dividend Strategies and Stock Picks for 2025
Josh Brown and Kevin Simpson discuss their approaches to dividend investing amidst market volatility:
-
Josh’s Picks: Conagra, Honda Motor, UPS—all with significant yields (5.1% to 5.7%) and trading below their high valuations, presenting contrarian investment opportunities.
Quote:
“You’re getting, if you’re thinking you’re going to get 10% on average, half of it already is coming from the dividend yield.” — Josh Brown [35:48] -
Kevin’s Picks: Chevron, Amgen, Procter & Gamble—companies with strong dividend growth and solid free cash flow, offering stable returns without the high volatility of MAG7 stocks.
Quote:
“We look for strong dividend growth. We tend to like share buybacks as well.” — Kevin Simpson [36:53]
Sector Analysis and Future Outlook
Bob Pisani provides an analysis of earnings expectations for both MAG7 and other sectors in 2025:
- MAG7 Earnings Growth: Expected to decelerate but remain robust (e.g., Nvidia up 50%, Amazon 20%).
- Other 493 Earnings Growth: Moderate acceleration (e.g., up 14%), particularly in sectors like health care and materials.
Economic Indicators:
- GDP Growth: Steady at 3%.
- Net Profit Margins: Record high at 12%, supporting market resilience.
Quote:
“We’ve got high returns, we’ve got high profits, and we’ve got high margins on top of that.” — Bob Pisani [20:10]
Risks Identified:
- Tariffs: Potential implementation could disrupt markets.
- Dollar Strength: Continuing rally may act as a headwind for earnings.
Highlighted Stocks and Trades
Starbucks Trade:
Josh Brown initiated a position despite a three-year decline, citing a promising turnaround under new CEO Brian Niccol and trading at a median valuation.
Quote:
“If it gets into the low to mid-80s, I’m going to add an irresponsible amount of stock to my own portfolio…” — Scott Wapner [26:05]
Netflix Outlook:
Despite a recent 2.5% dip, Josh Brown maintains a bullish stance on streaming's future, noting robust subscriber growth and strategic investments in live sports and advertising.
Quote:
“I think streaming looks like a good business in 2025, which it did not for the last three years.” — Scott Wapner [40:57]
Doordash Acquisition:
Kevin Simpson discusses acquiring Doordash, emphasizing its dominant 67% market share and potential for continued growth despite high P/E ratios.
Quote:
“We think that there’s opportunity here. They’ve got 67% market share.” — Kevin Simpson [30:48]
Landmines and Risks for 2025
Scott Wapner outlines potential market disruptors:
- Tariffs: Rapid implementation could strain earnings.
- Currency Volatility: A stronger dollar might erode international profits.
- Unexpected Market Shocks: Events outside conventional risk assessments could impact stability.
Quote:
“These are the things that we need to have in front of us as big potential risks.” — Scott Wapner [21:07]
Closing Thoughts and Final Trades
The episode concludes with a summary of final trade picks:
- Josh Brown: Reiterates a conservative approach with dividend-focused stocks like Conagra and UPS.
- Kevin Simpson: Advocates for leveraging pullbacks in established companies like Amazon to enhance portfolio returns.
- Final Trade: Josh recommends Sabra with a 7.1% dividend yield, highlighting its positioning in the skilled nursing and retirement sectors.
Quote:
“It will provide great wealth creation over time. Four and a half percent on Chevron Energy has been out of favor, so certainly not a great name this year that could recover over the next two years.” — Kevin Simpson [37:58]
Conclusion
The Halftime Report episode “The Fate of the Rally” presents a comprehensive analysis of the current market dynamics, emphasizing the dominance of MAG7 stocks while highlighting opportunities within the broader market through dividend strategies and contrarian trades. The panel underscores the importance of preparedness for imminent rebalancing activities and cautions against overreliance on high-performing sectors. As 2025 looms, investors are advised to balance growth with stability, leveraging dividends and strategic stock picks to navigate potential market volatility.
Notable Quotes:
- “Is there more meaning to this than maybe we think on the surface or is it just simple profit taking?” — Scott Wapner [02:23]
- “There is no broadening. It’s fake.” — Scott Wapner [09:01]
- “If you get to earn 5, 6, 7, 8%, that’s all we need because you get a 4% dividend on top of it and you’re sitting at 11-12% return.” — Kevin Simpson [37:58]
- “Streaming looks like a good business in 2025, which it did not for the last three years.” — Scott Wapner [40:57]
This summary is based on the transcript provided and aims to encapsulate the key discussions, insights, and conclusions from the episode without including advertisements or non-content sections.