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Halftime Report
The Record-Setting Rally's Next Move 5/11/26
00:43:46
Leslie Picker and the Investment Committee debate where the market is headed after hitting record highs. Plus, the desk share their latest portfolio moves. And later, we hit the latest Call of the Day on Diamondback Energy. Investment Committee Disclosures
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- [00:00]
Narrator/Announcer
What does it mean to live a rich life? It means brave first leaps, tearful goodbyes and everything in between. With over 100 years experience navigating the ups and downs of the market and of life, your Edward Jones financial advisor will be there to help you move ahead with confidence. Because with all you've done to find your rich, we'll do all we can to help you keep enjoying it. EDWARD jones, member, SIPC There's a fire inside you you can't ignore. Stand still. Not a chance. You're a lifelong learner who's come this far. Now we are here to help you keep going further. Capella University what can't you do?
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Contessa Brewer
Visit capella.
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Narrator/Announcer
Edu to learn more.
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Joe Terranova
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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Leslie Picker
Welcome to the Halftime Report. I'm Leslie Picker in for Scott Wapner. Today, front and center this hour, finding opportunity in this record setting rally. The investment committee is standing by with how they're navigating the massive move off the March low. Joining me now for the hour, Joe Terranova, Shannon Sokotia, Surat SETI and Steve Weiss. Let's get a quick check on the market. Somewhat unfazed by those recent comments from the president about the deal being on life support with Iran. On the Dow a little changed at this hour. The S and p up about 0.3%. The Nasdaq up by about 0.4% at this point in time. You can see the Russell up about 0.7% as well. Guys, this has been a huge run to the upside since March. And you know, everybody talks about the various superlatives that we've seen. And I have to wonder against this backdrop of a very complex geopolitical environment, one where we're also seeing high oil prices, what do you think the sustainability is of the equity market rally at this point in time? Steve?
- [02:04]
Steve Weiss
Yeah, look, I think there's no reason to doubt it because it's, you've got so many headwinds. You've got the war, you got, I mean, inflation is there, oil prices. I mean, hey, look at it this way. It takes $1 billion to renovate one room and not many people can afford that, right? So, you know, I'm making light of it. But, but that's a real issue now. The issue is really 60% of the country at the paycheck to paycheck. And for them, as I mentioned last week. It is devastating for the rest of the country it's a nuisance and doesn't matter all that much. That's why consumer spending keeps going and going. Plus you've got to make investments in AI right now and that's really what's driving the whole market. If there were an AI bubble, I don't think the bubble is here yet. It'll get there because valuations as they keep moving out, it's unsustainable, that'll be a problem but that's not a problem for a couple years in my view. So you have to spend or you risk the very existence of your company, particularly in some instances like software, you know, being a real issue. So that's going to keep driving the market and lifting all ships. What you didn't, what didn't happen in the last sort of technology evolution revolution where companies like Corning had momentary moves up but here you keep seeing announcement after announcement. So the whole undercurrent, the knock on plays are what's driving it as well. Take a look at vrt, take a little look at FTAI today and we'll talk about some of the others. But those stocks, I mean after where they've come from and how they keep going, it's mind boggling.
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Leslie Picker
Do you think it's broad based enough though Surat? Because yes, we are seeing a broadening out of, of moves to the upside but it's still pretty narrow. Especially when you consider stocks that don't have that traditional exposure to AI. You've got a lot of momentum in here. You've got a lot of retail investors kind of playing into the upside here. Sentiment seems to be a little bit dicey at this point in time.
- [04:08]
Surat Sethi
It is and it's kind of like if you're not on the train, you gotta get on it now for the momentum stocks. So you know we know the Fab Seven, we're doing well now. It's, you get the second layer of the semiconductors that have done super well, right. Whether it's memory chips or it's now back in Nvidia and you can see kind of Qualcomm's up 10% today and then you see kind of what Steve was talking about, the Vertives, all the other companies that are supporting all this Capex spend. Right. So that, but it's still very kind of linear. I mean it's in one bucket. But the rest of the market does not seem to be coming along with it. Whether it's in healthcare financials had a Run, they've kind of come back. So I think Staples haven't really run. So you've got the generals kind of leading, but you either need them to come back, which hopefully which is not going to go for the market, or you want the rest of the market to come back. But given where oil prices are you and the sustainability of the lower end consumer, that needs to be something that we really have to consider because over time, every day that oil prices stay at these, you're going to see kind of companies saying, hey, you know, Whirlpool had it. You're going to see some of the other companies, McDonald's, you're going to see some softening of consumer spend that will trickle through to retailers, that will trickle through to a lot of other places. And at that point kind of the market really so bifurcated.
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Leslie Picker
Yeah, it really feels that way. And we'll get some retail earnings, I believe it is next week. But Shannon, you think about this against this backdrop and I know the jobs report number was, was decent on Friday, but we do hear these idiosyncratic layoff announcements from companies and they largely, they, they say it's due to AI. And so how do you think about building an investment portfolio that on one side capitalizes on just this momentum we're seeing on the AI supply chain, while on the other side knowing that that's often at the expense of certain jobs and how that will play a role? I mean, is it as simple as just, you know, semis to the upside and you know, retail, certain pockets of retail to the downside?
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Contessa Brewer
I think that there's probably an overstatement in terms of the next one to three years in terms of AI disintermediation and the amount of layoffs that there are likely to be. And in fact what you're seeing is that you're actually seeing, you know, Steve made some points about lower income and higher income households, but on the cyclical side of the economy, industrial side of the economy, you're starting to see some re acceleration. If you look at things like freight numbers, if you look at PMIs, you know, fed surveys on the manufacturing side. So we are seeing this undercurrent of cyclical improvement that I think in some ways can potentially support continued job growth in the United States. Even if we're seeing a, you know, kind of significant deterioration in certain parts of the labor market. If you look at tech, tech jobs, for instance, Since November of 2020, 22 off 11% in aggregate, then you see government jobs, federal government job, also 11% since their peak. So there are pockets of the labor market that are moving lower and potentially seeing that deterioration. You're seeing some stagnation in other parts of the labor market. I think the most important thing though is you're asking is, you know, is this hardware trade on the tech side where you want to be? Is that where the momentum is going to be? I mean, we saw a bit of an unwind last Thursday and this is really Joe's department. So I don't want to talk too much about momentum, but you know, we saw some cyclical unwind last Thursday. And so if you're looking at places like the consumer, you know, there are probably areas where you can be selective, but if you're barbelling sort of this technology, utilities, continued AI growth, trade with areas like energy and materials industrials, do you have to go in, bottom feed in, you know, consumer right now? Probably not. But can you pick up some of those quality companies that are more tied to the higher income cohort? I think that there are probably some buying opportunities even with the run up we've had in the broader market.
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Leslie Picker
Yeah. Jefferies had this interesting report this morning. They call it the AI unicycle and they show kind of how earnings supported AI returns are really just driving the S and P this year, especially relative to everything else. And Joe, if you're, you know, you, you're an expert on momentum, you study this stuff. I mean, does this make you nervous at this point in time or if you're still sitting on the sidelines, is it not too late to get in there?
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Joe Terranova
No, I don't. I just. Look, does it make me nervous? No. Does it make me understand that at some point we're going to have a massive intraday unwind in momentum? Absolutely. There's going to be day, I said this last week, there will be a day where the momentum factor is down 4 to 5% in a very tight period of time. You're talking about the momentum factor being up 30% so far in the current quarter. The SMH is up 50% so far in the current quarter. So I think what's going on to your point is there's a fundamental acknowledgment in place right now that this new industry, and really we are creating a new industry, if you think about it technologically, we are rapidly building out a entire new industry. And the fascinating part of it is the user engagement of it is at the very initial stages. So over the weekend I was challenged by someone regarding my bullishness surrounding the Momentum factor and the AI universe. And my response to the individual was well, are you using Gemini, ChatGPT or Claude? And they said why would I use any of those? Case made. So I think what's happening now is enterprise and the consumer are finally recognizing the value in these tools. I believe the true value is in Claude. But Gemini is phenomenal as well. And the, the, the beginning stages of the usage I think is going to rapidly advance the growth of this industry and it's going to be reflected in the earnings and that's currently what's going on. Six consecutive quarters of double digit earnings growth and we'll probably extend that to seven, eight or nine. We can't end this conversation without noting. Here we go, it's Nvidia. In the last several days it's been Amazon, Alphabet, Apple recording new all time highs. Today we have Nvidia $5.4 trillion market cap for a company that hasn't even reported yet.
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Leslie Picker
See I thought you were going to say we can't end this conversation without talking about semiconductors, without talking about stocks, which is up another 2.3%. A lot of people are making some noise about it being 60% higher. Its 200 day moving average. Whether that's kind of, you know, parabolic activity, something to be concerned about at these levels. Six straight weeks of gains. I mean this is, there's a lot going on here.
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Steve Weiss
Yeah. If you haven't been in the market for more than a minute, you have to be concerned. Right. Because all of us who've been in the market for a while say this just isn't normal. Right. Previous geopolitical conflicts have, haven't been sustainable in terms of market downdrafts. They just haven't. And any opportunity has been to buy it, but never have they led to this kind of move. It's always been a governor on the market. But when you look at stocks, I mean, I mean I don't want to jump ahead but I will Micron. I mean, you know, I shaved 10% of this position. I bought it at 330 on March 30th. I bought it again up, you know, about 10% on April 9th. So what am I going to do? I mean it's, it's now my largest position. That was not my intention. So you've completely recast Micron. That's no longer commodity play. And if you go through its trading history, this was comfortably in mid single digits, not trading where it is now. Now next year, if you go to next year's earnings and they're sold out. They've got better contracts where they can't be canceled without significant penalties. Next year you're looking at about nine times earnings. But nothing's really changed this year. This, nothing's really changed since Friday that would have the stock up another six and a half percent or the two I mentioned before. Now we can all rationalize it, but this stock should not have more than doubled in a month, less than a month and a half. Right. And that's where trouble.
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Joe Terranova
So who is going to take the other side of that though? If you think about the quant community which is just as you know, it's just going to continue to push it higher and higher. That's why Jane street and Citadel are having record revenue years.
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Steve Weiss
Right.
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Joe Terranova
So who takes the other side of it? The only thing fundamentally in front of us where you could kind of take the other side of the rally is the effect of higher energy prices which obviously is impacting that broadening out.
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Steve Weiss
Yep.
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Joe Terranova
Thesis for the market but for the semiconductor and I just don't know who, who has the courage to stand in front of.
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Surat Sethi
I don't think you can. I mean if you are long like we are, you're either in or out of it and you can't really chase it. And if you're going to short it then you've got some massive upside or downside potential on it. But as a kind of cash flow investor, if you put that hat on, it's very hard to see two, three years from now kind of what the terminal value is going to be of these because they are commodity stocks. It's like buying copper company, it's like buying a steel company. You know, there are moments in time or gold when the demand far outstretches supply. But when those come in equilibrium, they're not reinvesting back in R and D such as one could argue for Nvidia or some of the others that really have higher value semiconductor chips. These are memory chips, they just go in there, they slot for a position but the demand is so high that today whatever price the hyperscalers will pay, whatever they need to get it right. So it's this competition until we see a lot of supply.
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Leslie Picker
So then what happens if there is some sort of newer, more efficient model that gets introduced that doesn't need all of this compute, doesn't need all of this capacity? I mean is it just a complete reversion to the mean at that point in time? I mean is that something that we need to be looking out for? Because to Weiss's point, nothing's really changed in the fundamental story other than just this insatiable demand. If that demand equation changes and pivots in the future, I mean, does it, does it just kind of reverse?
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Contessa Brewer
Well, I think the challenge is, and I think, Sirod, I don't know that you disagree here, but it's really about the duration of that demand. And I think right now, if you look at, and you, you know, akin to what we saw in the commodity super cycle, we saw several years where that demand continued at a pretty voracious pace.
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Leslie Picker
Yeah.
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Contessa Brewer
So I think if you look at, I guess the answer to your question, though, Leslie, is how many companies of the s and P500 or, you know, how many of them have actually committed what they likely will commit over the next four to five years in terms of AI implementation? And I would say that's a small number, a small percentage. And so it's. The pie is going to continue to grow, and even with additional efficiencies over the next couple of years, say one to two years, there still is going to be more new entrants in terms of demand. So even if that efficiency comes, potentially offset some of that demand, that pie is going to continue to grow in aggregate. And there's been underinvestment in this space up till now. All the investment has really been on that front edge with the hyperscalers. Now, to Joe's point about broadening, the way we see this is that I will broaden that. This demand is broadening pretty meaningfully to other sectors. And I think we're just at the front edge of that trade. So could you see some interim volatility in these prices as maybe a little too much pulled forward for 2026? Absolutely. But I think in terms of longer demand over the next couple of years, you don't have nearly the gauge of how many entrants into this market that we believe will be there two or three years from now.
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Joe Terranova
It's broadening, though, but it's actually broadening within the AI universe itself. I mean, how much more can utilities continue to appreciate? Last year we heard all about you want to own utilities. And that's kind of been the story so far. Early in 26. Now it's names like First Solar. We own first solar in the ETF. It's up 6% today. Why? Now we're beginning to believe that the demand for power is going to go to other places like solar itself. So it's kind of internal. Within the AI universe where you're seeing that broadening out narrative. You're not really seeing it in financials or health care or other sectors. Maybe the market would feel better and more comfortable for investors if that was the case. The narrowness it is concerning without question,
- [16:38]
Steve Weiss
you know, and what could, what really could exacerbate the downside are the private markets. So as much as we've seen these companies, public companies, move up and their valuations move higher, and I'm deliberately not using the word stretched, you know, in the valuations, the news continues to be positive. The private markets, as we see with the SpaceX, with OpenAI and others, I mean they make this market, the public markets look cheap. So if you ever have a prick of the bubble, you're going to see real damage to the overall economy. However, the good news is I don't see that happening because to Shannon's point, we're at the start of AI adoption, We're really at the start of AI technology. We don't know who the ultimate winners are going to be. Is OpenAI going to be a winner? Ultimately, I think so, but not one of the top leaders in the safe, so. So everything's up for grabs and you can't predict the future. So that's why you do it. And one last thing, Leslie. I haven't shorted stocks since I don't remember when hedge funds don't really short that much. They use indices, do it? Or synthetics. So as you know, because you cover that. So there's nobody on the other side just yet.
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Leslie Picker
Right. Oh, was your point though, going back to the private markets? Because there's the Cerebras IPO coming out this week, which is in the chip space already upsized in steel. And then you've got these massive, what's likely to be record breaking IPOs in the, in SpaceX, anthropic OpenAI, if they do ultimately come out. Is your concern that the demand for those new issues would kind of take out, suck out some of the demand for the, the beneficiaries of momentum now that it's more zero sum and that people right now think that maybe semiconductors are the best way to play AI and they've been, you know, moving it to the upside. But if these deals come out where you can in a more direct way, that could kind of suck some of the air out of that semiconductor trade. Is that what you're getting at?
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Steve Weiss
It is and it isn't. Of course we've seen that before, right. When you have major. But here's the story. When these stocks dip, the buyers Come in for most of them. I mean, we look at Microsoft and Meta and I guess two years ago we said, could the market ever move up if you have two of the major components of the Mag 7, you know, not only not doing up, participating, but going the opposite direction? Would have been challenged to answer it.
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Contessa Brewer
So.
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Steve Weiss
So I'm not terrib worried about it'll be a day, it'll be two days, then money comes back.
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Joe Terranova
Surat and I were talking before the show about this. You call me a momentum expert. If you look at my fund, it doesn't look like I'm a momentum expert because I'm trailing the pure factor of momentum. Why? Because I'm utilizing quality and momentum together. And I think in this environment, unfortunately, a lot of money managers are really feeling anxiety and a lot of managers will get fired in this environment if you don't capture the upside in a market that's galloping higher so aggressively. Look at the relationship so far in the current quarter between growth and value. Growth is up in the current quarter 20%. Value is only up 6% in the current quarter. Again, I use quality. It's only up 9% in the current quarter, momentum's up 30%. So this is a market that's taken on the characteristic and the personality of certainly being less quality, for sure. But that doesn't mean you can't not participate in the momentum upside because you literally have risk to the funds that you are managing in this environment if you're not able to capture some form of significant return.
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Leslie Picker
Yeah. I mean, Ed Yardeni said almost every major semiconductor stock price in the AI 11 has beaten all of the Mag 7 names except Broadcom. So it's funny because it feels a little deja vu. We were talking about that with Mag7 for years now. Mag7 is lagging and it's all about semiconductors.
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Steve Weiss
It's almost a bad word, Max seven, right?
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Contessa Brewer
Yeah. But there's just like some significant dispersion in that universe now. And if you look at, you know, with Apple in the upcoming Russell, reclassification is going to be a value stock. Right. I mean, and Caterpillar is a growth stock. So you've seen the tenor of that Mag 7. And I think Joe's point on potentially seeing cannibalization amongst these tech names around this new front tier of hardware, I think is important. We're also anticipating there could be cannibalization of some of these names with those large IPOs that are expected this year. How do you put those into the portfolio? How do you Think about potential redundancies and those exposures. Does that put additional pressure on, for instance, a Microsoft if you get an open AI? Right. So I think that there's a lot happening underneath this universe. I am more constructive on the potential for broadening out outside of the tech sector, but we can, we can start to differ on that.
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Leslie Picker
How do you think about Nvidia in this environment? Because we talk about semiconductors, you know, we're not necessarily talking about Nvidia being the biggest driver here. I think there was a Bloomberg piece about how it's poised to be surpassed by Alphabet in terms of the largest company. I mean, what do you do with an Nvidia in this environment?
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Joe Terranova
You continue to maintain being long the name and, you know, manage your. Clearly manage their size. The race for who's going to have the leading market cap. Nvidia is now pulling ahead with the advance that we're seeing today.
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Leslie Picker
Right.
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Joe Terranova
Jensen Huang's been right about everything that he has communicated to us as it relates to where he thought the growth of this new industry ultimately is going to go. The powerful force that they have is that the chips that they are providing for their customers eliminate that need to stack. And if you're eliminating the need to stack, which Nvidia chips allow you to do, you're far more efficient, and you are certainly faster in your utilization and your output than if ultimately you had to go a different direction. I think that's the solution that Nvidia continues to provide, and it's why they're in the seat of leadership.
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Leslie Picker
You own it as well.
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Surat Sethi
Yeah, we own it as well. And to Joe's point, what Nvidia has now done is caught up to its valuation. Right. It was trading at a very high pe. Earnings kept on going up, and the market kind of said, okay, let's see how sustainable your earnings are. Exactly. The discussion we're having about the memory stocks, right? And now when you see the memory stocks have the huge amount of demand, you can kind of say, well, if they've got the demand, that means people have got to be using Nvidia chips. And again, the reason that I like the Nvidias of the world is they are reinvesting money into new technology. They're trying to get more energy efficient. They're trying to do, you know, less stacking. They're trying to be in other places, not just in AI as well. So now you've kind of said, okay, where else you know, what can now go up as well? And we know Nvidia was there so it'll be a question of kind of them again moving into their pe.
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Joe Terranova
Corning is very interesting and again, it's something I had a personal position and the ETF maintains it. So I rang the register on the personal position, took a nice gain there. Do I wish I didn't ring the register? Of course. But I don't want to be overexposed in terms of what my positioning is. But fundamentally they are so critically important. If you think about the need for optic fiber cable in data centers right now, again, they maintain leadership in the delivery of that product. They're seeing significant investments, one with Nvidia in the last several days that allows them to increase production of optic fiber cable. They have the relationship with Meta that was announced through 2030. So I think a lot of these hyperscalers are recognizing how important Corning is. You look at the valuation, is it getting elevated? Yes, it is, but it's not a triple digit valuation like you see in some of these other AI Halo names.
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Leslie Picker
Yeah.
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Steve Weiss
You added 16 billion to the mark cap today. I mean, that's not including what you, what you added, which I think's another 25 billion on Friday. Yeah, I mean, are these companies, you know, worth that much? You traded $32 billion worth of shares in Micron today alone.
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Joe Terranova
I, I think there's, I don't know, probably a little bit of a difference between Micron and I'm just saying these
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Steve Weiss
are, these are, you know, this is just greed. At some point now they may grow into these valuations. I think they will. And I'm participant in the greed. You know, I love making money, I love seeing stocks I own go up, but, and nothing's going to derail it right now. But let's not forget there is an element of risk here in the circular financing. So we've got Nvidia funding so many companies, you know that.
- [25:21]
Joe Terranova
But those typically, I don't disagree.
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Surat Sethi
The hyperscalers are funding and that's kind of, you know, if you look at the free cash flow, the hyperscalers, they're really using all their free cash flow to spend money on all this.
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Leslie Picker
Right.
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Steve Weiss
And if they don't, their customers, they're not just providing the financing, they're buying goods. Nvidia is providing the financing as so many others are.
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Joe Terranova
So I guess the question we're trying to answer is does momentum always end badly, right? I don't know the answer to that, but certainly for now, I don't think you want to identify what is driving, what's the catalyst in the market right now. It's momentum. There's no question I'm acknowledging it's market cycle.
- [26:02]
Steve Weiss
Here's how everybody thinks about Leslie, you think about, okay, these stocks have really moved, right? And I'm going to stay with it because I'll see the collapse coming. I won't catch the first downtick, but I'll catch the next downtick. And so I won't get crushed. I'll still be ahead by picking our 60%, 80% versus a few years ago. That's what everybody's thinking. But it never works out that way, right? It never works out.
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Leslie Picker
Or is it that the laggards are going to ultimately catch up to the winners in tech or is it the market that tech companies are going to ultimately come back down to earth where
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Joe Terranova
everybody else I don't think the market could endure a significant pullback of the momentum factor in the AI universe and still sustain the levels that we've appreciated too with the Q2 recovery. I just can't see that.
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Leslie Picker
All right, well, coming up, your playbook on the financials as those stocks struggle to join the recent rally we were just talking about. The committee is ready with their top picks. Halftime is back in two minutes.
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- [28:03]
Leslie Picker
confident that you could do something that hadn't been done before?
- [28:07]
Contessa Brewer
I have no fear of failure.
- [28:09]
Narrator/Announcer
Trailblazing women, Changing the game One of my favorite pieces of advice Think about
- [28:14]
Contessa Brewer
what your boss's boss needs. Leadership can look in many, many different forms. It really does come down to just trusting yourself.
- [28:21]
Leslie Picker
Life is short and you just gotta
- [28:23]
Contessa Brewer
think big to accomplish big things.
- [28:25]
Narrator/Announcer
Julia Boorstin hosts CNBC Changemakers and Power Players. New episodes every Tuesday, wherever you get your podcasts.
- [28:45]
Leslie Picker
Welcome back. Financials remaining on the sidelines of the record rally, still the second worst sector this year, but the big banks have been picking up speed recently. Zarat what kind of strikes me about the move in the banks year to date is just the dispersion in a way that we really haven't seen it in the last few years that investors are stock picking.
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Surat Sethi
They really are. And if you kind of look through the, the window and you say, okay, who's done well, who Hasn't? Morgan Stanley's up 8% for the year. That's because more than two thirds of their business is wealth management capital markets. So they don't really have the credit risk that some people are looking at. Although when you had all the credit issues, all of them came down because people didn't really understand who's holding what right. And then when you look at like the, the big banks like the JPS and the Wells of the world, they have a lot more exposure to the consumer, to credit, to real estate, to other things that most people are kind of being a little wary of to say, hey, what do we want to do there? So you've got this discrepancy. But I think if you get the IPO market back up again, you see more M and A activity that we're seeing. I think this could have all, it could raise all of them at one time. But you have to now look at them separately because the Goldman's and Morgan Stanley's are very different from the others.
- [29:55]
Leslie Picker
Citi has been an outperformer this year. They had their investor day last week. I sat down with the CEO, Jane Frazier. I know this is a company you own as well. From a relative value standpoint, do you feel like Citi is still the deal that it has been?
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Surat Sethi
It's definitely not as cheap as it used to be. I mean, it was always the kind
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Leslie Picker
of, hey, under book value, under book,
- [30:19]
Surat Sethi
you know, if one thing did well, the other thing blew up. But she's done a fabulous job, I think, of refocusing the company. They're trying to grow in wealth, they're trying to do more M and A. I think they've kind of taken the international and really streamlined that. So I think there's more work to be done because you've got the value kind of investor base in Citi, but you don't have the, hey, the top line growth of some of the others. So I think as that investor based transforms, I think you get some more potential. But right now, given what we've just been talking about with the consumer and oil prices, things like that, the banks right now are not getting the benefit of the doubt because they could be, you know, we'll see in the next call to say, are you seeing anything with the consumer and credit?
- [31:03]
Leslie Picker
Well, and you have this, this private credit question out there as well. The Wall Street Journal had a headline today saying private credit's hot streak is over. You also have news from this, this KKR Future Standard Fund where they took a $560 million loss from a couple of troubled assets in the portfolio. But I think the question now is how widespread their default rate seems to be higher than the average for these business development companies. But a number like that certainly can be jarring. Especially as you think about is this just a private credit issue or a broader credit issue?
- [31:40]
Steve Weiss
Yeah, so software has been obviously the, the main canary in the coal mine. But with oil prices where they are and where there appears to be staying, you have to look at companies that are overly dependent on oil as a, as a feedstock for what they do. Now that's going to also put them in issues potentially. And then you know, the private companies also rely on capital markets in terms of raising additional capital. You have to question whether that's going to be open to them and how open is going to be. Look, we're in the private markets all the time. Think we've got a portfolio of about 30 companies and so we see it every day. Some sectors very difficult to raise capital like healthcare, which would surprise you. Other sectors maybe AI, defense, a lot easier. So you sort of got to parse up. Right now everybody says, oh, there's nothing there, there's nothing there. Right. Look at the book, that's solid. But then you take a look at the KKR write off, right? And you take a look at the performance of some of the others and you're saying, do I really need to. And when you have single digit gains, do I really need to take on this perception of risk? Whether there's risk there or not? I think that's the issue.
- [32:58]
Joe Terranova
I think there's a very real threat. When you look at some of the financial data and recording companies like a fact set, like a Broadridge S and P Global Moody's because of AI, it's interesting, it's an interesting conversation about financials. Because just five months ago financials were probably one of the more popular sectors. I know it because in July of last year we had 35% allocation towards financials. We're down to 15% today. And it's a lot of what we're discussing here. The earnings quality for the banks were pretty good. Trading revenue was pretty good, but yet they weren't rewarded for it. Except for the Goldman Sachs, the Morgan Stanley. What I'm seeing right now in terms of where the strong momentum is in the financial sector, oddly enough it's in insurance companies, it's in Travelers and Allstate and Chubb and MetLife. It's where you find engagement. And Steve, that's probably why Morgan Stanley is performing so well, because of the engagement. So it's Charles Schwab, it's T. Rowe Price, it's Raymond James and then the exchanges, CME Group, commodities futures, really popular so far year to date. We also talk a lot about Virtu Financial, which is near an all time high. When you see the revenue that's being generated from a lot of market makers like Jane street and Citadel. Virtue Financial is arguably the only publicly traded market maker where you could get that exposure. So you're seeing a reshaping of the construction of the financial sector where the strongest momentum ultimately has been. But for sure it's been a disappointing sector year to date.
- [34:38]
Leslie Picker
Well, I think part of it too is what we were just talking about with regard to AI disintermediation. Anthropic unveiled that whole suite of products last week that can do a lot of the stuff that these investment banks do, whether it's pitchbooks or credit analysis and so forth. And so I think investors are also trying to figure out what are the moats in these legacy financial services companies. That's probably why you're seeing the fact sets of the world and some of the publicly traded data providers really get impacted by this.
- [35:05]
Contessa Brewer
But if you turn that around and you, and you look at the alternative asset managers, for instance, the bar is continuing to be set pretty low for these managers because there is, to Steve's point, this concern about potential contagion or spreading of the private credit challenges. And so really looking at the underlying fundamentals of those businesses, there's also starting to be some interest on the institutional side in some of these BDCs. And so you're going to get to a point where whether you're investing just in the financial sector on the public side or whether you're an institutional investor looking to potentially create some value out of, you know, perhaps assets that have been priced lower appropriately but now look more attractive. Those are some things that I think we need to be watching. And so if you look at the second half of the year, we wouldn't be all that, that surprise to see a bit more interest in these alternative asset managers, particularly as distribution rates from their traditional private equity portfolios are ticking up.
- [36:00]
Leslie Picker
Yeah, no, you definitely see outflows largely from retail inflows, which there are inflows. People forget to mention that from the institutional side of things. Now to Mackenzie Sagalos with a CNBC news update. Hey, Mac.
- [36:13]
Narrator/Announcer
Hey, Leslie.
- [36:14]
Contessa Brewer
Here's what we're watching this hour. The Food and Drug Administration is seeking public input on repurposing approved drugs for potential new uses. The effort could speed up treatment availability by using existing knowledge about the drugs. The FDA is particularly interested in input for metabolic diseases, women's and men's health conditions, and rare diseases, among others. The New York Times says the Lincoln Memorial Reflecting Pool renovation cost is now more than seven times what President Trump said it would be initially. Federal records show the Interior Department nearly doubled the size of the contract late last week, now planning to pay $13.1 million. An Interior Department spokesperson told the Times the price reflects the effort needed to get the project done by the 250th anniversary celebration. And pop star Dua Lipa is suing Samsung for at least $15 million in damages, accusing the tech giant of using a copyright image of her without permission on the front of cardboard boxes for its TV sets. The lawsuit alleges Samsung benefits from what seems like Dua Lipa's endorsement of the product. Leslie, sending it back to you. Wow.
- [37:23]
Leslie Picker
All right, Mac, thank you. Next, your ETF edge semis again leading the market higher. If you keep missing the moves, there is a potential tag along space you might consider. Now we're back up.
- [37:38]
Narrator/Announcer
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- [38:38]
Leslie Picker
confident that you could do something that hadn't been done before?
- [38:42]
Contessa Brewer
I have no fear of failure.
- [38:44]
Narrator/Announcer
Trailblazing women, changing the game One of my favorite pieces of advice, think about
- [38:49]
Contessa Brewer
what your boss's boss needs. Leadership can look in many, many different forms. It really does come down to just trusting yourself.
- [38:56]
Leslie Picker
Life is short and you just gotta
- [38:58]
Contessa Brewer
think big to accomplish big things.
- [39:00]
Narrator/Announcer
Julia Boorstin hosts CNBC Changemakers and Power Players. New episodes every Tuesday. Wherever you get your podcasts,
- [39:12]
Contessa Brewer
We're back on Halftime Report. I'm Contessa Brewer with your ETF Edge. Watching Micron today drive the chip makers higher. Many related ETFs are catching the broad moves in the sector. But look, this barrage of negative headlines around geopolitics could present some obstacles. Joining me now, Drew Pettit, director at Citi Research. It's great to see Drew. All right, let's start with your overall assessment of the sector. How does it relate to some of the larger semi ETFs?
- [39:38]
Joe Terranova
Yeah, look, we're still overweight tech. We like price momentum if there's earnings momentum behind it and that's what semis have. So we like follow through from here. We think it's the best way to say overweight tech.
- [39:49]
Contessa Brewer
The headline names carry more risk in terms of living up to expectations. And you note that you have bias toward small or mid cap enablers. Explain that.
- [40:00]
Joe Terranova
That's funny. Those didn't get bit up in the first run up of the AI trade. That was more about, I would say the big names inference chips. Then you started seeing a broadening in semis out to memory, out to semi cap equipment and then down cap. So that is much earlier in the trade even though we've had some really big moves of late.
- [40:20]
Contessa Brewer
All right, if you're hungry for more, this was just a little hors d'.
- [40:22]
Surat Sethi
Oeuvre.
- [40:23]
Contessa Brewer
We're going to continue the conversation over@etfedge.cnbc.com Drew will be joined by Dave Matza, who's the CEO of Roundhill Investments. So lots more to that. I hope you'll join us there.
- [40:33]
Leslie Picker
Les thank you. Contessa Looking forward to that. Up next, our Call of the Day. It's a playbook on the energy space and a top pick on one committee name. We'll debate it. Halftime is back after this.
- [40:51]
Contessa Brewer
Welcome back.
- [40:51]
Leslie Picker
Let's get to our Call of the Day. Bernstein reiterating Diamondback Energy as a top oil idea. Joe, this is one you own.
- [41:00]
Joe Terranova
Yeah. So they are in the Permian. When you think about the most vital barrel of oil in the world, what is that barrel? The United States, without question. So over the last year, the rig count, the Permian, is down about 15%. You're going to begin to see an uptick there. We need the production. The production is going to come here. I've always felt as though Diamondback was a potential acquisition target. It's about 55 billion in terms of its market cap. So that's a pretty big lift. But this is an incredibly valuable company because of the position that they sit in. And as we're talking, oil prices are getting uncomfortably high towards $100. I'm not sure the S and P is going to like that through the remainder of the day if it gets through 100. But we're not past this moment. I think you have to have energy exposure. The exposure is required in names like Diamondback. And I'll go back to the refiners. To me, the refiners are the must own in the energy industry. That is Phillips, that is Marathon, and that is Valero, which I maintain personal ownership in.
- [42:12]
Leslie Picker
Shannon, how do you think about this one vis a vis a Chevron or an Exxon because Bernstein trimmed its targets for those two. And do you agree with Joe that it could be a takeover target?
- [42:22]
Joe Terranova
Disagree with me. Go ahead.
- [42:23]
Contessa Brewer
I'm not going to disagree with Joe. Joe's certainly more closer to this story than I am. I think that the challenge here is just how do you want to be positioned in the energy sector? We are clearly seeing the re acceleration of energy earnings over the course of 2020 higher. That's not just on higher oil prices, but some of the dynamics that Joe talked about. So I think it's the positioning. I think Exxon and Chevron integrated easier positions for people to add. They tend to look at those as being highly correlated with energy prices. And yet that's an inelegant correlation in many markets. And so perhaps if you're looking to capture that beta from some of the volatility in energy prices, there might be other areas, such as in refiners, where you might get a little bit more in terms of value.
- [43:05]
Leslie Picker
ADD yeah. That theme of consolidation and energy is an interesting one as well. Up next, Mike Santoli joins us with his MIDDAY work. We are back on halftime. Senior markets commentator and overtime co anchor Mike Santoli joins us with his MIDDAY word. A little bit of steam out of some earlier moves here, Mike.
- [43:39]
Mike Santoli
For sure, Leslie. I mean, we've seen this quite a bit lately where all of the conviction is draining out of the parts of the market that are most closely in contact with the domestic consumer and into the narrow channel of tech companies that we know are massive beneficiaries and have all the earnings revision momentum. So we're testing, I think, how far that can go at this point. I'm fascinated that the entire market debate right now seems to be lining up alongside the, you know, is it or isn't it 1999 and should we expect it to get much better before it doesn't and all the rest? I've always said we're not ever guaranteed a close rerun of that episode. But it's interesting that there are not that many instances in the past where you could see things like just exactly how vertical semis have gone and, and how narrow the, the both the earnings growth and the, the performance have been. I'm usually not one who scolds the market for being not broad enough, but at some point it does get a little bit imbalanced and unstable if it keeps up this way.
- [44:41]
Leslie Picker
Yeah. A lot of questions about just the technical elements of this market. Mike, would you say net net, the research that you've been reading this morning and your own analysis suggests that on a technical basis it's looking a little bit more stretched and narrow or.
- [44:55]
Mike Santoli
Well, it certainly is. It certainly is. But it's also completely compatible with that kind of view that says, yeah, at some point semis are going to correct 20% in a blink and it won't really matter for the uptrend and it'll just be reloading because we have reset this AI trade at least once a year for the past three years or you've had this bout of underperformance, a crisis of faith in the whole growth theme and it's come back. So I think you can sort of confidently say don't expect a whole lot out of this high performing group for the short term. But that doesn't mean it's some kind of an ultimate collapse right around the corner.
- [45:27]
Leslie Picker
All right, Mike Santoli, thanks so much. Final trades coming up on halftime,
- [45:33]
Narrator/Announcer
the
- [45:34]
Joe Terranova
song conference May 12 in New York City. Be there in person to hear market moving ideas from the biggest names in investing. This year's lineup includes Jim Chanos, David Einhorn, Mark Lasri and Orlando Bravo. Plus Nvidia's chief software architect, Jonathan Ross for his insight on what's next for the AI industry. All proceeds go to Memorial Sloan Kettering's Pediatric Cancer Fighting program. The SOHN Conference is where Wall street unites to fight childhood cancer. For tickets and more information, go to soneconference.org.
- [46:08]
Contessa Brewer
Welcome back.
- [46:08]
Leslie Picker
We're back with Final Trades.
- [46:10]
Steve Weiss
Weiss I'm going to say Taiwan Semiconductor. Now it's down today, which, who cares. It's been a meteorship, but it gets all the business from Nvidia, all the other companies, so it's a must.
- [46:22]
Leslie Picker
Own Surat.
- [46:23]
Surat Sethi
I'm going to go with a different commodity.
- [46:25]
Contessa Brewer
Copper Freeport Magnum Shannon Industrials. Directly benefiting from that manufacturing upswing that I discussed earlier.
- [46:33]
Joe Terranova
Joe Biotech Chasing the Growth. Yes, the momentum is there, I understand it. But it continues to work as the market moves higher.
- [46:41]
Leslie Picker
All right, that does it for halftime. The exchange starts right now.
- [46:47]
Joe Terranova
You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern only on CNBC.
- [46:58]
Narrator/Announcer
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 ending 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 what made
- [47:33]
Leslie Picker
you confident that you could do something that hadn't been done before?
- [47:37]
Contessa Brewer
I have no fear of failure.
- [47:39]
Narrator/Announcer
Trailblazing women, Changing the game One of my favorite pieces of advice Think about
- [47:44]
Contessa Brewer
what your boss's boss needs. Leadership can look in many, many different forms. It really does come down to just trusting yourself.
- [47:51]
Leslie Picker
Life is short and you just gotta
- [47:52]
Contessa Brewer
think big to accomplish big things.
- [47:55]
Narrator/Announcer
Julia Boorstin hosts CNBC Changemakers and Power Players New episodes every Tuesday. Wherever you get your podcasts.