Squawk on the Street - Detailed Episode Summary

Podcast: Squawk on the Street
Date: December 26, 2024
Hosts: Sarah Eisen, Brian Sullivan, with guest Tom Lee; segments by Kate Rooney, Bob Pisani, Julia Boorstin
Main Theme: Assessing the final trading days of 2024, with a deep dive into AI's impact for 2025 (featuring Goldman Sachs' predictions), Bitcoin and Mag 7 performance, interest rates, the state of markets post-election, and sector highlights.

Episode Overview

This episode unpacks the year-end market momentum: reviewing 2024's stock market highs, surging megacap ("Mag 7") tech performance, and the influence of interest rates, the dollar, and global news. The team debates whether recent gains "borrowed" from 2025, examines the interplay between policy (post-election) and markets, and highlights early 2025 predictions centering on artificial intelligence and sector trends. Special panels analyze AI's next wave per Goldman Sachs, the dichotomy between market optimism and Fed moves, and the cyclical resurgence of small caps and energy. Noteworthy moments include candid audience Q&A, memorable quotes, and playful banter over cultural icons and holiday movie picks.

Major Discussion Points and Insights

1. Market Recap: Year-End Surge & Santa Claus Rally

• Stock Indices & Record Highs
  • S&P 500 up 26.5% for the year, closing at record highs 57 times in 2024 ([03:00-03:20]).
  • Noted "Santa Claus rally" season: last 5 trading days + first 2 of the New Year ([00:52-01:31]).
• Skepticism About 2025
  • Are current gains "pulling ahead" from 2025? Brian frames it as a key question ([03:30-03:57]).
• Earnings Outlook
  • Earnings and growth expectations remain stable going into 2025 ([03:57]).

"It's been a good ride overall for the year. I don't think anybody came into the year expecting the S&P 500 to be up 26 and a half percent. ...57 times the S&P has closed at record highs this year."
— Sarah Eisen [03:00]

2. Macro Forces: Rates, Yields, and the Fed

• The Fed's Rate Cuts and Bond Market Skepticism
  • Recent 25bp and September's 50bp rate cuts seen as “weird” given resilient economic data ([05:01-05:23]).
  • 10-year Treasury yield trending up, now back near 2022 highs at 4.6% ([04:23-04:46], [06:52]).
  • Disconnect: Despite Fed cuts, consumer mortgage and credit rates aren’t falling ([05:56-06:17]).
  • Political analogies: "Bond vigilantes are back" shaping the rate reality ([06:17]).

"The Federal Reserve can say what it wants. But as the political pundit Bill Carville once said, he wants to come back as the bond market. Yeah, power take revenge. And I think the bond vigilantes are back."
— Brian Sullivan [06:17]

• Election Impact
  • The presidential election shifts expectations for deregulation, debt issuance, and fiscal policy ([07:41]).

3. Currency Moves & the Mighty U.S. Dollar

• Dollar’s Surge
  • The dollar strengthens sharply post-election due to growth optimism and America-first policies ([08:43-09:44]).
• Global FX Context
  • Strength is a headwind for multinationals but boosts U.S. market attractiveness ([09:44]).

"Dollar has been a story just spiked because the Dollar is strong... people are excited about the US Growth prospects. Tariffs are considered also Dollar positive. Hurts our trading partners like Mexico or Canada if he does go through with it. China's currency has been really weak. Japan's currency has been weak. We're the envy of the world right now in the growth arena." — Sarah Eisen [08:50]

4. Sector Winners: AI, Semiconductors, Crypto, and Energy

• Top Stocks & Thematic Surges
  • Winners: Applovin (up 600%), MicroStrategy (Bitcoin play), Palantir (AI), Robinhood, Nvidia ([10:12-10:59]).
  • Common denominator: “massive energy use” across all these “AI/crypto ecosystem” stocks ([10:59]).
• Rise of the “Mag 7”
  • Magnificent Seven (Apple, Nvidia, Microsoft, Tesla, Meta, Amazon, Broadcom) drive more than half (53%) of S&P gains ([36:00-36:50]).

5. Tom Lee Interview – 2025 Market Predictions

• Optimistic on 2025
  • Tailwinds: less Fed/inflation anxiety, cash on sidelines, election behind, potential for M&A ([12:09-12:44]).
• Yields Not a Dealbreaker
  • Says even 5% Treasuries don't upend the bull case ([12:56]).
• US Market Leadership
  • Weakness in Europe/Asia means global money continues to flow to US markets ([13:32-14:11]).
• Valuation Concerns (Is it a Bubble?)
  • Some froth in AI/tech, but not full bubble yet as clients remain skeptical ([15:38-16:30]).
• Small-Caps Poised for Rebound
  • Historical underperformance positions small caps for outsized gains if deregulation materializes and skepticism fades ([17:05-18:37]).

"I think 2025 is a year where we're going to find the AI and a lot of these applications actually do sort of re architect the way America does business and it's, it's vastly cheaper and that's why these companies are doing so well."
— Tom Lee [15:38]

6. Deep Dive: Goldman Sachs’ 2025 AI Predictions

• AI Past and Present
  • AI’s progress is likened to the takeoff of cloud computing—but unfolding faster ([20:21], [Kate Rooney]).
  • Major move: From chatbots to multimodal AI (images, video generation).
• Future: Hybrid Workforce
  • Prediction: In 2025, Fortune 500s will deploy AI more impactfully, leading to “hybrid workforces” of human and AI agents ([21:17-21:42]).
  • Emergence of industry-specific AI experts.
  • AI safety to become board-level (not just regulatory) priority.
  • Commoditization of large language models: "many cars, fewer engines," where proprietary data is the competitive edge ([21:42]).
• Skepticism and Hype Balance
  • For AI to keep supporting tech valuations, it must deliver real-world margin/efficiency improvements—not just hype ([22:19-22:39]).

"He [Goldman's CIO] says he's never seen anything like this in terms of the pace of development... the biggest surprise was this tech moving beyond things like chat bots into multimodal... He says next year Fortune 500 companies are going to start to deploy this in a much more impactful way and it eventually will evolve into what he calls a new hybrid workforce with AI agents working alongside people."
— Kate Rooney [20:21]

"It's got to help margins at some point in order for this narrative to continue. So I think there's a lot of pressure for this to actually start to impact normal companies, not just tech companies. If that doesn't happen, I think it takes some of the air out of what's going on here."
— Kate Rooney [22:19]

7. Market Mechanics: Historical Signals and Barometers

• Santa Claus/January Barometers
  • “If the market does not rally between now and the first trading day of January... January tends to be down. So these next five days, and this is all history, folks...” ([24:26-25:36])
  • On average, good Santa Claus rallies precede +10.4% S&P gain, but lackluster years see January decline ([25:12-25:36]).
• Apple as Market Juggernaut
  • Nearing the $4 trillion mark, which would make it nearly as large as the U.S. mid- and small-cap universes combined ([36:50-37:04]).
  • Notably, up >2% per week for five straight weeks—the first time since 2010 ([26:50-27:14]).

"Half of the 27%, 53% is because of seven stocks. The other four hundred and ninety three, well, they're responsible for 46% of the gain. This is sort of the simplest way to understand the tyranny of large cap stocks that exist and how they exert influence on the stock market today."
— Bob Pisani [36:30]

8. Sector Spotlights

• Energy
  • S&P Energy sector down 11% on the month [41:45].
• Utilities & Financials
  • Both up 27% in 2024; utilities’ strength tied to electricity/growth of "electrification", financials to potential M&A/deregulation ([39:41-40:29])

9. Other Noteworthy Segments

• Netflix’s NFL Bet ([31:58-33:30]):
  • First NFL streaming test for $150M—a gamble to lure subscribers & enter live sports.
• Disney’s 2025 Movie Slate ([42:30-44:05]):
  • Bob Iger's turnaround strategy banks on blockbusters and franchise reinventions.

Memorable Quotes by Segment & Timestamp

• “All these names that we just showed all have one thing in common and it's extensive energy use... fueling the rally.”
  — Brian Sullivan [10:59]

• "Small caps may not have hit escape velocity yet, but their underperformance for the last decade is 91 percentage points versus the S&P... never have small caps underperformed the next three years or five years."
  — Tom Lee [17:05-18:37]

• “Will you go out and pay $1,000 for a new iPhone because it has AI? I don’t mean artificial intelligence, I mean Apple intelligence. ...If the answer is yes, then maybe there’s something to that. If the answer is no, I don’t know.”
  — Brian Sullivan [28:43]

• "Bob Pisani: Apple is almost not quite as big as the 1000 stocks in the S and P stocks that are not in the S and P500, the small and mid caps. That's kind of a way to look at how dominant Apple and really the frankly, the biggest 10 stocks in the S and P are."
  — Bob Pisani [37:04]

Key Timestamps for Main Segments

• [00:52] – Open; setting the day’s market scene, year in review
• [03:30-03:57] – “Are we stealing gains from next year?” discussion
• [04:17-07:23] – Bond yields, Fed cuts, and market reactions
• [08:43-09:44] – Dollar strength and FX landscape
• [10:12-11:31] – AI, crypto, and energy-intensive stocks
• [12:09-18:37] – Tom Lee’s 2025 predictions: market trajectory, small caps, sector leadership
• [20:21-22:39] – Goldman Sachs AI predictions, Kate Rooney interview
• [24:26-25:36] – Santa Claus/January barometer stats and signals
• [26:50-28:34] – Apple’s historical streak, implications for market structure
• [36:00-37:04] – Mag 7 breakdown, Apple’s market gravity per Bob Pisani
• [41:45] – Energy, utilities, financials year-end review

Conclusion

This episode delivered a comprehensive look at the pivotal forces driving the final days of 2024’s bull market and set the stage for 2025, with special attention to the AI paradigm, rates/FX dynamics, and leadership sectors. Guest experts and hosts debated whether surging valuations are sustainable or “bubble trouble,” highlighted the lasting dominance of U.S. large caps, and dissected whether technology’s narrative—especially AI—will be validated with real profits in the year ahead.