The Great Rate Shock 1/8/25
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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 very much. Welcome to the Halftime Report. I'm Scott Wapner. Front and center this hour, the great rate shock, whether it might ruin this bull run for stocks. We will discuss with the investment committee and tell you about some new moves our traders are making as well. Joining me for the hour today, Joe Terranova, Shannon Sikos, Stephen Weiss, Jason Snipe. We're all here at Post 9. We do check the markets here. So we've come green a little bit, as Carl was just saying, across the board here. The big winner right now, S&P. But as you can see, not much on either side of this.

today, Joe, I'm calling it the great rate shock of 25 because that's what it feels like here. The 30 year, the highest since 2023, the 10 year, the highest since April. It's not so much just the level. It's the distance that we've traveled in such a period of time from that first cut in September. We were 371. OK, the 10 year note yield was 371.

when the Fed cut rates in September. Now it's, as I just showed you, 468. How much of a problem is this? It's a problem because what has happened now is the equity-to-bond correlation has turned negative. And you really, in terms of looking at the pricing of equities on an intraday basis, you're being held hostage by what happens when...

with treasury yields itself. We're getting a little bit of a lift right now for the S&P and the NASDAQ. Well, if I look and see where treasury yields are doing, treasury yields are coming off modestly. So we have a 30-year auction today at 1 p.m. Yesterday, the 10-year auction

since 2007 I don't think we're going to see any change on that today. For a thirty year and in terms of momentum because we always like to talk about momentum. In commodities in equities well there's momentum as it relates to the treasury market. And momentum is clearly pointing towards higher yields it's reflected. In the open interest. Of the

for the Treasury future market that continues to grow on a daily basis here in the month of January. Clearly, speculators are adding to their short positioning, expecting that yields are going to continue to move right higher. -Shan, how much of an issue is this for the market as it tries to, you know, work through all of this? It's trying to figure out what the Trump administration is going to mean. Higher growth, perhaps stickier inflation, universal tariffs, maybe a new trade war.

How should we think about all this? Because the market seems unsure of what all is going to happen. And I think there's uncertainty in terms of policy, Scott. But I think more importantly, there's a bit of certainty about the timing of all of this. Animal spirits take some time to manifest.

And so if you think about what the Trump administration could do in the near term, first of all, it's digesting a lot of the rhetoric. We have to get back into this news flow of hearing something every day, taking it apart, digesting it, and seeing it incorporated into market views. But the second thing is, is that you talk about tariffs, you talk about immigration. And Ian Bremmer just said this on the program before us. The important things are he can actually execute those changes

fairly quickly after inauguration day, whereas deregulation, the potential for lower policy rates, this pro-growth, continued economic growth scenario that's really supporting at least our view from a broadening out perspective for the equity market, that has some legs to it later in the year.

But this immediate kind of coming off of last year, Scott, we know we have large embedded gains in some of these S&P 500 stocks. Pairing down some of those positions, looking at immigration, looking at tariffs, looking at this uncertainty in the short term, I think that's why you're seeing the downward pressure. And I also think from a fiscal sustainability perspective, it's why you're seeing pressure on yields as well. Twice.

Look, it's real. The price and yields-- Is it a real problem? It is a real problem. It definitely is a real problem because as you get to 5%, it becomes a very real alternative

to the equity markets when you want to sit out the chaos. So if you take some of the comments about maybe we should own Greenland, maybe we should own the Panama Canal, hey, maybe we should even own Canada. Now, it's unlikely any of that happens, but if you're sitting as one of our allies and you're sitting in the U.S., you've got to be concerned and you want to go to a safety trade and wait out that

that insanity, basically. And if you're allies, you're thinking of how do we protect ourselves against America going down this path? If you remember how we...

Have we disenfranchised our allies during the first term administration, first Trump administration? That's coming again. So I'm not talking about political beliefs here. I'm just talking about what he said. And then he hasn't backtracked from tariffs, as you pointed out. And that's a major issue, which is also so at some point you've got to ask yourself, when am I going to take what he says as a real look into the future? And when am I going to disassociate it with reality? What can happen?

So that creates nervousness, instability in a market where we've seen valuations, critical components stay at ridiculously high levels. I mean, is it enough to offset the...

the optimism that has existed since election night? I mean, because the market is. It absolutely is. It is enough to offset that. It is enough. And I said that then, that we pulled forward a lot of the positives that can come from a change in the business outlook from the administration into before the election and post the election. And now we're going to, I think, it's going to be a very challenging market going forward because no matter what he does on the business side,

No matter what he does, it could be offset by inflation. So the only thing, and I keep harping on this every time I'm on the show, inflation, inflation, inflation. Jobs don't mean anything. Wage growth means something, right? Jolt doesn't mean anything. Wage growth. Jason Snipe, B of A says...

The path is now open to 5%, maybe even above that, 5.3 on the 10-year. That feels like a game-changing conversation to me that, you know, when I sat with Gundlach, I remember obviously sitting there in L.A. at the double line office, Fed cuts rates, Gundlach comes on, and we're both looking at the bond market and watching yields go up. We're like, oh, that's interesting. And I just told you what they've done since that day

I don't know if most people had in their playbook that back in September,

that in January we'd be talking about 5% potentially on the 10-year. I couldn't agree with you more, Scott. I mean, I think that, you know, I'm looking at three cuts in the fourth quarter, right, 100 basis points, and you're talking about the 10-year at 3.7 in September and now well over 4.7. Clearly, this is definitely a concern. And I think it's not about having a decision on whether it's U.S. exceptionalism or it's inflationary concerns. The reality is the pace.

the pace of rates, 100 basis points in little under four months is significant. And I think that as we turn the

the calendar as, of course, we have in thinking about the Trump agenda, pro-business, pro-deregulation, all these different things that I think had been pulled forward since the election. And now we're kind of going through what does real policy mean? You know, I'm turning to earnings starting next Wednesday in earnest with financials. And I think that will be positive. And I think that would be the catalyst for us to move forward. I mean, Weiss, you're looking at moves, you know, to make as a result of what you think could be a game changer for the rally.

Most of what you're doing today, it appears to me, it relates to outside, the sort of derivative play, if you will, of what higher rates are going to mean. You've loved the India trade for a while. Now you're bailing on it, it looks to me, in numerous ways, right? Through the INDA and the SMIN, both are ETFs, one related to small caps and the other maybe larger cap stocks. Yeah, and look, I made money in the trade.

But I didn't make as much money as I thought with the supply chain moving from China to India, which I still think will occur. But the element you've introduced also is that there'll be more on-shoring, which was a theme already and has been a theme for a number of years. I think that accelerates because, again, you know, that's...

You know, we talk about Trump being pro-business, but let me deal with that a little bit, right? Is it really pro-business if you get a cowardly move by Mark Zuckerberg on Meta to say, "Okay, anything goes now," and then what are the advertisers going to think? Now, they're not going to come out like Disney and say, "Hey, we're not going to be on Twitter anymore because of this," okay? Because you can't do that. That's not politically correct in a different way now.

but it is influencing how businesses work. That's not pro-business. That's going along to a certain narrative that the administration wants. So as part of that, I worry about tariffs coming from India. I don't worry about tariffs making good business sense

Right. Because you do need some external manufacturing capabilities, some external supply chains. We're basically saying, no, we don't want anything coming from any other country. It's our country. So there's no balance right now. Look, it's it's difficult to invest outside the U.S. right now with with because we're not just talking to your point, Scott, the

It's a problem not just here. It's a problem in the rest of the world. UK yields, I think, are at their highest level since 2008. Emerging market yields are all rising. So that environment is very difficult to find opportunities outside the U.S. But I think back to the U.S., I just think all

all of this, what does consensus stay on 2025? Choppy first half, better second half. I'm not saying that's right or wrong, but if we have a continued negative equity to bond correlation, you're going to have choppy trade. But that's always the consensus in the U.S., because you've got strategists, no offense,

that work for equity houses, work for investment banks. They can't say it's going to be a bad 25. It's going to be a worse 26. You don't think you guys are going too far in suggesting like this has the potential to really like offset all the positives that people think are coming over the next month? We're going to extend the tax. What do you mean? What are the positives? I mean, yeah, let's go through. What are the positives? They're going to extend the tax cuts. Right. That's not new.

Well, that's not necessarily in the market now. Yes, it is in the market. Do you think deregulation is in the market? No, I think part of it is. Absolutely. Wow, there hasn't been any deals yet. Scott, people, good investors go where the puck's going to be. They don't know what deals are going to happen yet. No, they don't know. But they know it's going to be a much more accommodative deal regulation environment with Lena Kahn out. Everybody knows that. You don't know that? Of course. Of course. But that doesn't.

enable you to invest in the companies you think are going to have some sort of event? I would say that interest rates were a much bigger governor on deal activity than Lena Kahn was. I disagree with that. How do you disagree? The FTC lost about everything they did. No, I think it's

I think the impact of deregulation is being underappreciated. And I think that this near-term bump in yields, and I think the concerns about fiscal sustainability, yes, will they create a negative impact on the potential M&A activity in the second half of the year? Perhaps. But not for quality companies. They're at the same level.

We have to monetize private portfolio companies. That has to happen because these fund companies, the big asset managers, they cannot raise another fund until they do. So I think there's going to be a realization, a come to Jesus moment, if you will, on the fact of where rates are going to be. And I think that this deregulatory impulse

combined with the fact that there is a very salient capitalistic drive to monetize these public companies. I'll give you the other side of that. And just one more. Two strong years of public equity returns that have made valuations easier to determine. I think that all of those things are going to play into this M&A drive. Let me give you the other side of that. Of course they want to monetize. And the only rush to monetize is when they're trying to raise a new fund.

Which they all are. Right. Which they all are and have not been able to do. But...

But they need to get good marks. Funding, away from what we hear about entropic and open AI, funding in the private markets is still ridiculously tough. Ridiculously tough. I'm in the private markets half my time's there. Ridiculously tough. Wait, so you're running for the hills? I mean, what are you doing with your positions? You sound so negative now. I have raised a lot of cash. Seriously, though. I mean, you sound so negative now. I am biased towards negative, absolutely. Okay?

Okay, but I still think there are enough people that think what these people think around the table. I think that's going to take a while. I think shopping and I also think the president-elect can't

cares what happens in the stock market. And we might talk about universal tariffs, but the minute the stock market declines, he's going to go, whoa. He's going to call his economic team and say, hey, put something out there to comfort the markets. I just think that's what we've got the next four years. I don't know. You know what? I would only say that the difference this time is he's not running for re-election. I think he cares more about what he cares about getting done than necessarily how the stock market tick by tick reacts to what he does.

I think there may be a little bit more nuance this time that, you know what, I'm not running for re-election. Here's what I think I can get done. I got the Congress. You know, the courts are in my favor and I'm going to do what I want to do. And if the stock market gets upset for a minute or two or 10, then so be it. There might be some questions about legacy building for him. I agree with you, Scott. You know, he hasn't really come out and said, this is the legacy I want to have. But I tend to agree with Joe that part of that is going to be delivering a strong stock market.

Yeah, look, I think choppy best case. And people have said to me in response to conversations, well, we were at these rates a year ago. And as you pointed out, you know, back in 2008, we were here at one level. But the point is, at that point, we knew the market had 100 percent consensus that the next move was a cut.

That contentious no longer there. So we've seen certain trades obviously have some bit of issue. You know, yesterday was a rollover in tech, which we hadn't seen in a while to the magnitude, Jason, that we did. It was the worst day for the NAS, the NAS 100 and the tech sector at large since December 18th. Right. There was positive economic data stronger than some people, I guess, expected yields go up.

Tech goes down. Nvidia is trying to get a bounce back after the rout that it had yesterday. That was the worst day in months for the stocks in September. CES now in the rear view. How am I thinking about trades like that today?

Yeah, no. So, I mean, obviously for NVIDIA, I think the big thing for me, forget about CES for a second, the last six months has been relatively flat for NVIDIA. There hasn't really been a seismic move there. There was a lack of...

not necessarily innovation talk, but what is the here and now? What's going to happen in the near term? And I think that was somewhat of a letdown, and that's why the stock kind of traded lower. But when I think about semis broadly, I start to think about, and I continue to love the NVIDIA story, but

We're hearing from the hyperscalers. We're hearing more about them developing their own chips, their proprietary chips. So I start to broaden out my scope in the semi space and start to think about some of the companies like Broadcom, companies like Marvell that are doing custom

made chips that I think that those names could kind of get a nice run here coming in the, you know, over the next couple quarters. So for me, I don't think that the tech trade is disrupted terribly. I just think that, you know, CES was a little bit of a downer. If I could on NVIDIA, I said the other day that I believe that the keynote address would lead to a new all-time high.

Check the box. Got the new all-time high. That's not me patting myself on the back. Because guess what? No follow-through. History. Well, see, that's... You're right. I wasn't patting myself. So last year, goes to CES. He gives his keynote, and the stock goes up. And in the subsequent two days, it goes up more, and it stays up. So it was sort of telegraphed that the stock was going to go up. It did into the event.

But it didn't stay there. Didn't stay there. You didn't get the follow through. And let's kind of walk through that and explain how I think the viewers need to manage or shape the risk surrounding yesterday's move. It's very rare to see a stock move.

trade to an all-time intraday high and then close, challenging the 50-day moving average. You can't ignore that. That has significance. I think that there also is an element that you have to acknowledge that NVIDIA, despite all its strong fundamentals, the stock has been gamified. When you have all these ETFs that are double levered

and you have exposure of algorithms participating, I think a lot of that contributed to what you saw yesterday. So if you're a buyer up at 150, or if you're a buyer up near those intraday highs, you have to take a look at where price is today and understand the momentum in the near term is down. And I know that's not something that is normally said because most people say, okay, and Jim Cramer's right.

Own Nvidia as a core holding. Don't trade around it. But there are a lot of people that are trading around Nvidia. There's a lot of tactical elements surrounding Nvidia. And let's just acknowledge that what I expected to happen did not happen. And now the momentum has rolled over.

You've got negative momentum in the near term. It doesn't wash away the long-term strong fundamentals of this company and the belief that you want to own it for the long term. And it will make a new all-time high at some point in the future. How about AMD today? Got double downgraded to sell from buy. We had some calls of late that you just don't see all that often. This is a big one because it's a two-step move, okay? The target to 110 from 200 bucks.

This firm says they see additional downside as they now believe its AIGPU roadmap is less competitive than we previously thought. Weiss, you've talked about, I know you don't own AMD, but you have talked about one of the threats to NVIDIA being, well, it's only a matter of time before competition comes online to take this company on.

Now you have this call on AMD today by HSBC, which says not so fast, not so fast. Well, I never thought AMD would be competitive. Whomever we're talking about. Well, no, it's an important distinction. There are only a few companies that are even in the queue to be competitive. And those few companies that are in the queue are the biggest customers of NVIDIA, which

which you referenced, the hyperscalers, they have R&D budgets that far exceed what the R&D budget is for AMD. So that's where the weaponry comes from to compete with Nvidia not to be held hostage by them. And the reason why the stock sold off

is that what he talked about was not the euphoria around data centers anymore. Of course, that was mentioned, but into the other areas like robotics. Look, NVIDIA has been writing $50 million checks to $100 million checks

out of their venture fund like they're going out of style like you guys will tip on a weekend meal at a coffee shop that's how many checks they've been written so they are searching for the next avenue of growth for themselves because they know as they should know as every company does the great times don't last forever in the product because water finds its equal level so look so i debate nvidia all the time is

Is everybody too much in this state of denial that there can be competition? And it's never been a core position for me, unfortunately, because it's done so well. But it is a position. So it's one I look at and say, where can I go where everybody's not so bulled up on it? But as yet, I haven't pulled the trigger. Does anyone own AMD on the desk? It's in the ETF. You do. We have it.

And I'll tell you right now, relative to Broadcom and NVIDIA, absolutely correct. I think right now, current PE, 103 on AMD. Momentum clearly red for this stock. Rebalance January 31st gets dealt with accordingly, but it certainly doesn't look good. And that's an environment where you had a really strong end to 2024.

for a lot of technology names. It was so asinine to have AMD for the entire year trade at a higher valuation than NVIDIA. It made no sense. What were people thinking? That all of a sudden it's going to be this great technology leader? It never has been. It's been an alternative to Intel its entire career until Lisa Su took over, and she made it a little better, but not great. And Broadcom...

I think the bull case there is also overstated because it's not as pure play in data centers. They've got a lot of cyclical companies, cyclical products in there as well. So I'm not a Broadcom owner. All right. So there's another name I want to get to because it's a new stock that Joe Terranova has added. It's Terradine.

Right? Yeah. The other day, I mentioned the, look, risk to reward is important in this stock. And I said, we're using 125 as the stop out level. It appears as though this semi-equipment name is finally gaining traction.

traction in terms of AI facing exposure. It's also breaking out technically. So you take a look at the chart, you see it here in the mid-130s. I said on Monday I would buy it. I did that on the close. You have to manage a type stop on this one. And if in fact we have

moving forward a choppy equity environment because of this negative equity to bond correlation it's it's going to fall victim to the overall market itself and i think a lot of individual stocks are going to do that as well so i'm keep uh keeping a tight stop all right i want to do some news what we're calling new at noon today it's an exclusive uh that we've just got our hands on uh it's nelson peltz's try and partner sending an open letter now

to solventum shareholders today. That's the healthcare spinoff from 3M. 3M doing that earlier in 2024. Tryon holding what I understand to be a near 5% stake in that company. First took its position last year, has added to it.

it a bit in terms of what the letter says now. Try and wants the company to release a plan to, quote, restore performance back to the levels that it delivered inside of 3M and says that if it does that, that shares can reach one hundred and forty dollars per

by the end of 2027. That's far higher than the $69, $70 that you're watching it trade right now. Tryon also making it clear in the letter that it was in favor of that spin, that it set Solventum up for better long-term performance, but now says that, quote, performance has taken a major step back. It says the company trades at a discount to its peers and even 3M itself. Quote, in a short period of time, Tryon says,

This company went from being 3M's best performing division, consistently growing revenue organically at a low to mid single digit rate and mid to high 20% profit margin under 3M to one that is barely growing at a low 20% margin standalone. The company is expected now to release its long-term plan in February. You can see the stock is getting a bump off this letter that is going to be made public at some point today.

again, by Tryon to Solventum shareholders. Weiss, you want to comment on this? I mean, Tryon has...

participated and been involved in other healthcare spins, right? GE, Vinova, and GE Healthcare. It understands not only a spin well, but certainly one within the healthcare orbit. And here they go, sort of upping the ante and the pressure on this company, which they like, and they like the spin, but they think it can do a lot better than 70 bucks. Yeah. And look,

Look, Peltz is a smart guy. He does put together, obviously, very thoughtful analysis of companies and how they can grow. And this company will need to grow because right now, as I'm looking at forecasts, you've got basically flat earnings, flat revenue, flat EBITDA, flat earnings going forward. So on that

basis in this sector, it should sell at a low double digit multiple. Now, what I'd also say, though, is that companies have become much more emboldened in telling, you know, activists that, hey, thanks, but no thanks. What are you going to do about it?

You don't own enough to influence the board, you know, and we're set. And this is a new board relative to the spin-out. So I don't expect much to happen there. Well, I mean, this would, I guess, fall in the line of what, you know, Mr. Pelts tries to suggest he is anyway more than an activist, but a constructivist. And that's BS. But let me finish what I'm saying. Let me finish what I'm saying.

There's nothing in here that says, well, we want you to do this buyback or this or that or really push for financial engineering, if you will. This is somebody who likes the company a lot.

who agrees that the spin was a good idea. So he's not coming at it from a highly adversarial point of view. It's like, look, you're coming with your own long-term plan. We have some ideas of our own. Let's try and work together to get the stock to 140, not 70. If you're truly being constructive, you do behind closed doors.

You don't do it publicly unless... Scott, that's how it works. And unless the company has rebuffed you and doesn't want to listen. And if that's the statement he's making, then it's antagonistic. But when you say it's constructive, look at what Disney, right? I think this stock could double. I'm saying that's what he...

consistently says he is and tries to be. And I consistently say I'm 6'5 and complain the NBA. Well, we know that's not true when it comes to you. Not only have I seen your real height, but I don't even need to see your basketball skills to know that's BS. My skills are good. My day, baby. No, to see that's BS. But no, look.

Well, it's a cheap stock. It deserves to be cheap. If he can get the company to adopt some of his suggestions, then fine, it's going higher. But I guarantee you, and I'll bet you right now, that he's not staying there for 140. He's getting out, and there's nothing wrong with that. He's there to make money for his investors. So overall, yeah, it's a good target because it's got a very strong base. He's been a pretty long-term holder of the stocks that he's gotten involved in.

particularly ones where he's taken enough of an interest to release like a letter to shareholders. So I'd be shocked if he

I mean, what are you suggesting? His most recent Disney. Was he a real long-term shareholder there? I mean, he was in there for a while. Yeah, but as soon as he got stuck, because it was underperforming, as soon as he got some relief and it moved up, he got out, right? Well, he's been in a lot of names for a while. Anyway, we'll follow the story. But it's not about him. It's a decent name to target. Obviously, the stock is getting a bump off of our reporting here, and we'll follow that for the remainder of this session. We'll do calls of the day next, including a big downgrade for one of Steve Weiss' favorite stocks,

plus a double upgrade from one of Joe's names are back into

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All right, welcome back. Time for calls of the day. We start with Leidos. Cut to hold from buy. Target goes to 165 from 200. That's at TD Cowan. You own this, Weiss. I do. And if you look at this whole complex of stocks, you look at Booz Allen, BAH, look at Kaki, look at SAIC.

The perception is they're all in the crosshairs of Doge, right? 30% of Leidos' employees are embedded in the DoD. Now, if you talk to the company, it only relates to tens of millions of contracts that can go away. But that is the issue that you're seeing, the overhang of what the rationalization of the cost savings will be in the Department of Defense.

So that's why you sort of got to sit in these things and hold back. I don't think it's as bad in Leidos as the market has said it is. And 165 is still, to me, a reasonable upside target for the stock.

Baker Hughes, I keep looking at it and I keep wanting to buy it, quality name, but they have even more exposure to the government. But it's not just there, it's IBM also. So basically you just gotta wait to see what happens. That could be a year from now before there's some clarity on those names. - Weiss, I mean, Joe, sorry, Accenture.

I just can't get myself. Same thing. It's a struggle. Please. It's a struggle. Accenture upgraded to outperform from peer perform at Wolf target four hundred and twenty five dollars. You know, part of being a good investor is the ability to change your mind. You have to recognize that you have to call balls and strikes. That's basically what it is. And when I look at this company earlier in the year, I was frustrated. I was skeptical about their ability to deliver earnings.

They've steadied themselves in that regard. And now just the other day at Jensen Wang's keynote address, they got a mention, a strong shout out surrounding robotics. Obviously, they're involved in industrial automation and their software will contribute to that evolution. You want to, Shan, you want to comment on Accenture? Yeah, I mean, I think that they've,

They had pretty strong earnings in the fourth quarter, but I also think more importantly, they're guiding to this increase in data work that they're doing. And really, they're likely to be one of the better positioned companies on the IT consulting, and we think that that's not going to necessarily be appreciated until second, third quarter of this year. It's another one that's on my buy list, but it's got to be- Accenture is. Yeah, much lower from here.

Travelers today got double upgraded. That's the one we were teasing, Joe. To buy from sell at, was it sell at Goldman? The target, $278. You own this stock in the T.

It's very difficult to think about owning insurance companies given the horrific scenes right now out in California. And catastrophic losses have been significant the past several quarters for each of these insurance companies. However, it's being offset by strong margins. And that's what's identified here in Goldman Sachs' report. Personal lines, commercial insurance, been very strong. It's going to remain strong in a high yield environment. And that's

That's where the resiliency is coming. It's coming from the margin side. Allstate upgraded to outperform Evercore. ISI does that. They had it in line. They had the target at 209, and they bumped that up to 226. They say there's a disconnect in the valuation. Very similar story to Travelers. Pullback recently. That pullback is going into the support of moving averages. They report earnings on February 6th.

And I expect to hear something positive at that point. You know, this is the playbook in PC, you know, property casually forever. Catastrophes are good because it allows them to raise rates significantly. And they've laid out or laid off a lot of the liability that they have.

So that's what we're seeing playing get at some point, though. You have too many catastrophe losses. They're not covered by your reinsurance partners being an issue. Apparently, that's not what there's no stronger. There's no stronger element of inflation than insurance premiums. Auto insurance has been through the roof. Let's get the headlines now with Contessa Brewer. Hi, Contessa. Hi there, Scott. We just got an update here from fire officials about that.

wildfires raging out of control across the Los Angeles area. Two major fires burning at this point. Tens of thousands of people have been ordered to flee. The Palisades fire on the west side of L.A. in the Pacific Palisades and the Malibu area already has destroyed an estimated thousand structures. I mean, a lot of these will be homes. It's a dense urban area and it's not contained at

at all. Authorities report a number of significant injuries to civilians and firefighters. And then the Eaton fire on the other side of L.A. County in the Pasadena area has claimed two lives so far and destroyed more than 100 buildings. Meanwhile, the Los Angeles County Fire Department says it's been stretched thin battling these flames raging across the city. It's requested aid from four nearby counties for help.

The department says responders from Nevada, Oregon and Washington are also on their way. That's badly needed relief. Here's an early morning video from NBC News correspondent Liz Kreutz showing the destruction in the wake of the Palisades fire. A row of beachfront homes in Malibu just leveled by the flames as it jumped the Pacific Coast Highway. We're keeping our eye on all of these fast moving developments, Scott.

I can just appreciate that. Thank you. That's Contessa Brewer coming up next. Palantir Payne, the stock selling off big time this week. Joe owns it. We have a report on it coming up. Shares down another four percent today. We're back right after this.

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I want to focus on Palantir shares now under pressure yet again today. Down near 15% this week alone. Sima Modi has a look behind that big drop for one of the biggest winners of last year. And Scott, even when you look at a longer term chart, shares of Palantir down about

16% from the record high it hit on December 24th. The move has coincided with about $45 million in insider selling this year, all pre-planned. Most of that aggregate total was sold by Ryan Taylor, the company's chief revenue officer, according to Verity data and a view of SEC's filings. Meantime, Cathie Wood's ARC Fund sold about $15 million of stock. Stretched valuations

That continues to be a key focal point for Wall Street, even with the drop in Palantir shares. It's still trading at a premium at 146 times forward earnings, making it the seventh most expensive stock in the IGB software ETF. And if you look at ratings across the street,

for Palantir. There are three buys, 12 holds and eight sell ratings on Palantir. Other software names worth noting trading at a higher multiple than the software sector include SentinelOne, Confluent and CrowdStrike, which is at about 92 times forward earnings right now. And Scott, it does seem like the street is getting more selective with Deutsche Bank today.

Bullish on the sector, yes, but they suggest that a slower than expected ramp when it comes to Gen AI adoption and elevated capex could pressure margins. Analysts there are downgrading Adobe and Palo Alto Network to hold from buy, and they're upgrading Workday to buy. Scott.

All right, Seema, thank you. Seema Modi. So, Joe, let's start with Palantir because you own that. But I want to branch this conversation out to some of the other software names that have ownership up here with their PEs, which are rather lofty. But Palantir, what do you tell our viewers? I continue to say to viewers in Palantir, sit back, wait, do not reach for the stock here. Upper 50s to low 60s if you don't own it. That's where, from a risk-to-reward standpoint, I take the initial shot. Okay.

CrowdStrike, 91 times it's forward PE, give or take. I mean, these numbers are the numbers that we did prior to noon. So give or take, 91 times for CrowdStrike. You have Datadog, 74 times. You have Applovin, 61 times.

About that. A lot of software. Is it too rich? A lot of software names. A lot of high valuation software names. So valuations are rich. To be better put. Valuations are rich if you continue to see yields move higher. Why? Because you're categorizing all these software names as long-duration assets.

And we saw the playbook in 2022. That's a difficult environment for them. So let's take cyber. Right now, Fortinet is the one cyber name that is outperforming the others. CrowdStrike, I still think, is still in an OK place. Palo Alto, as we speak, breaking down below the 200-day moving average. Some other software names. Twilio looks great. Of all the software names I've purchased recently, that one appears to look best.

Datadog, DocuSign, that's kind of in yellow territory, so to speak. And then another name, Zoom, that I added recently. I think Zoom is in a good position and on evaluation basis, it's cheap. Jason, you have service now. It trades at 67 times its forward PE. It was up 51% over the last year. Yeah. So, I mean, obviously, it had a tremendous year last year and we just trimmed it, actually.

You know, I look at a name like ServiceNow. The IGV was up 23%. ServiceNow was obviously a double on that. So I continue to like Bill McDermott. I like the story, automated workflows. You know, they're continuing to monetize their new AI tools. So they're really making businesses more efficient. But a forward multiple of 67%

You know, thinking about sales going forward and CapEx in the software space, that was a concern going into this year. I think it might slow a little bit this year. So we decided to come back to market weight. Weiss, what about these valuations? Yeah, they're ridiculous. And if Joe thinks there's reasonable valuations, his wife must have a closet full of Birkenbacks. I didn't say that. Did I say I think there are reasonable valuations? Well, you said, what you said was, I'm paraphrasing Grant, you said... I said Zoom is reasonable. At 5%.

then I'd start to worry, meaning that you're okay now. I said as yields move towards 5%, these are going to be challenged. You said that these valuations were high because of where yields are. Okay. White House is essentially saying whether yields are at this level or not, the valuations are ridiculous. Did I paraphrase you correctly? Perfectly. Thank you. That's why we get along so well. That's why I'm here. Go ahead. That's why you're the judge. So respond to that. So these companies...

in an environment where yields stay relatively anchored, began to see that the artificial intelligence halo was affecting their ability to grow earnings. And you saw a lot of software companies, a lot of the conversation about AI and the thematic of AI expanding beyond semiconductors. Datadog,

critical in terms of security for artificial intelligence. I'm not saying they're not. I'm just saying there's a price to pay for them and this price is too high, is my point. Okay.

And the Trump administration is going to be much more proactive on cyber and spend a lot more money, whereas the Biden administration held back spending even for defensive spending with the DOD. So that's a positive. The current price is a reflection, and the pullback on these stocks is a reflection in the rise in yields.

Go back three months, these companies had very strong momentum because yields were anchored. They weren't the challenge. This is going to be the year of valuation reset in these names. Okay, all right. So it doesn't matter where yields go. We got to go. No, to be quicker if yields go higher.

But it's still going to happen. Yeah, the valuation reset would be even quicker, he's saying, if deals would be higher. Do I need to translate that for you? I agree with you. Is that why this is happening here? No, but it's a vague conversation. If the 10-year goes to 4%, are they still overvalued? Yes. Okay, that's all I want to know. Okay, Santoli's next with his midday word.

Senior markets commentator Mike Santoli joins us now with his midday word. And we're still obsessed over rates. Yeah, I mean, the sensitivity to where yields are every tick is pretty extreme to the point almost

of absurdity at this point. I mean, I still think we're pretty well set up for a bid to find its way into bonds. Got the weird kind of half-day bond tomorrow, equity market closure tomorrow. It feels like building up toward jobs on Friday. Maybe that's going to be the excuse. But breath is horrid. It's really bad.

The tape is very slippery and unstable. The one good thing today is some of the real low-quality speculative stuff is finally getting purged. So maybe that's part of the process here of, you know, wringing some hope out and maybe setting the stage for a bit of a rebound. I mean, we're not trading tomorrow, obviously, for the national day of mourning, but that ups the ante.

to some degree for the jobs report on Friday, given where yields have moved to. Yeah, got some help from Waller today. But then I think, you know, this Bloomberg story about Trump administration advisors, plans for the Fed, maybe kind of unsettled things again at like 1140 a.m. So, you know, it's a little bit touch and go. All right. I'll see you in the afternoon, Mike. Thanks. That's Mike Zantoli. We're back after this.

Welcome back to the Halftime Report. I'm Dominic Chiu. We want to call your attention to what's happening now with shares of Constellation Energy, which are down roughly 10 percent right now in your session lows. This is all in the heels of a Bloomberg report saying that Constellation Energy is nearing a deal for roughly 30 billion dollars to take over PowerMob.

privately held utility and power provider, Calpine Energy, which is private equity owned. We've reached out to both Constellation and Calpine for comment. But you may recall Constellation Energy, Scott, guys on the desk, one of the biggest gainers in the S&P 500 last year, all on this optimism around nuclear power, alternative energy, powering AI data centers. We'll keep you posted on any news that comes out of this, Scott. But that's the big deal why Constellation Energy is down 10 percent. I'll

I'll send things back over to you. Okay. Thank you, Dom. Dom Chiu, with our reporting, we're fortunate to have Joe Terranova, who owns that stock, Constellation Energy. What do you think about this reporting? Early October, Constellation, 288, 200-day moving average, 217, 229.50 as we speak right now. Why is this deal happening? Because electricity demand in this country is absolutely surging. This will be one of the biggest, if it happens,

Power generation deals. I like where Constellation is here. You want this deal to happen? If you don't it. You want the deal to happen? For Constellation, this would be a good deal. And I think right where this stock is right now, you could buy it. Why do you think the stock's down 10%? Stock's down 10% because they're spending capital, number one. Secondarily, the utility sector is challenged by yields continuing to rise. In fact, if you believe that yields are going to push lower, the utility sector and owning it is a derivative way to play it.

All right, we'll do finals next. A couple hours from now, closing bell. We'll take you through the final stretch. Kevin Gordon, Doug Clinton, Bryn Talkington, Kevin Simpson will join us. Jason Snipe, we begin with you, though, for our finals. I like Apollo here. I think private equity exits should double this year, so I like this one here. All right, Steve Weiss. I mentioned that I started last show a position in UnitedHealthcare. I think that's a safe holding for this kind of market. Shan?

Financials, we just talked about private equity. You've got money-centered banks. You've got insurers we talked about earlier. We've got exchanges. There's a lot of way to play financials this year. Joe T. From the Adam Parker Playbook, healthcare, Boston Scientific. All right. So we're negative across the board. We obviously will watch interest rates for the remainder of this day. And I'll see you on Closing Bell, 3 o'clock Eastern. The exchange is 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. All opinions expressed by the Halftime Report participants are solely their opinions and do not reflect the opinions of CNBC, NBCUniversal, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet, or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or to make a decision.

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