Transcripts For CNBC Squawk On The Street 20161228

Positive as youll see right there, but not too much. Although uk actually having a fairly good morning. Japan not so much. Problems toshiba certainly weighing on that market. As for our tenyear note yield this morning in crude oil, which we always like to show you, 2. 556, and wti up ever so slightly. David, our road map for the hour begins with the dow on the edge of market history again. Futures higher. Will today be the day . Plus, some new Holiday Spending data suggesting a late december boost. Wall streets top picks going into 2017. And amazon crowned ever cores top internet pick. Did the company do enough to win christmas though . But first up, the trump rally, thats what we call it now, and the march to dow 20,000. That continues for yet another day. Futures as you just saw are higher, certainly would indicate we will be close at the open. The dow aiming for its eighth straight week of gains. And, well, what else, of course another tweet on the markets from president elect donald trump. Quote, the u. S. Consumer Confidence Index for december surged nearly four points to 113. 7, thats the highest level in more than 15 years. And as his typical, he ends with the exclamation point. Thanks, donald. I wish he was watching squawk on the street because we broke that number way before 10 00 p. M. Last night when his tweet came out. Did you say thanks donald though . I didnt say thanks donald. The why is up for debate, obviously. But you cant ignore the fact that Consumer Confidence is up, Business Confidence is up, home builder confidence is up. Youve got this dualing narrative now between whether its hope of trump policies and the new administration and the new congress and an inheritance from president obama. Because all the 2016 charts and review are looking at the fact that employment has had a good year, job growth has improved, even wages are starting to rise. Manufacturing is coming back. And so on and so forth. And how much credit does obama get and how much credit does trump get . Clearly youll hear different takes. Sara, you have that context going in, right . And then you had the election and also the markets reaction to the election. And it really did give a lot of folks who were sort of fighting this idea that the economy was getting better, it gave you kind of cover and an excuse to say, you know what, maybe policy can actually fall into line and make things better still. And i do think if you look at the composition of that Consumer Confidence number, higher income americans had the rush to new highs in confidence. Older americans thinks things are going to get better faster than younger americans. So that does line up roughly speaking with maybe people who think they want to give a President Trump a chance. Interesting with all of this, mike, is this is all positivity on gdp growth, on the economy, not necessarily the market. And of course markets are forward looking. Thats right. If you make a quick comparison in terms of the obama presiden presidencys probably going to end with an average s p return around 14. 5 . The Reagan Administration, something we keep heralding back to saying is trump going to be as positive was lower by about 8. 5 . I think thats another factor we have to think about. Maybe the economy really is picking up. Maybe this data is going to deliver stronger, but correlations not actually as strong as people might think and weve already run up high in q4 already. Youve wanted to be buying stocks most aggressively when confidence was low, not when it was high. But nobodys suggesting its a major market low right now. The question is can this continue for the next couple years and get more of a classic final bull market thrust higher. Thats the big question. You can script the tweet for when the dow does hit 20,000, if it does. You can. Although it is an interesting point that wilfred brings up the overall returns thing, the Obama Presidency, i think as strong as any, of course he did begin right near the lows. I mean, march of 09 is where we, you know, hit the lows. And hed taken off his two months prior to that. David, do you remember march third of 09 . I do. President obama a few weeks into his presidency said, look f youre a longterm investor, valuations look okay. Stocks are pretty good. He was mocked for mentioning that the market might do pretty well. It did. Those were some scary days, of course going back to that ge below 6, bank of america, citi group 1. 1. Couldnt imagine. Well, i mean, talk about a reversal. Early this morning we were talking about the reversal that happened in 2016. If you remember how we started this year, the worst start to a year ever, energy and financials were getting pummelled day after day after day. Those two groups, those sectors, the price of oil went down to 26 a barrel earlier this year. Its all the way back to the highs of the year. And now energy and financials are the best performing sectors of the year. But i think going back to the point of Obama Presidency very strong returns, whats the main thing thats driven that . Most people would agree its low Interest Rates, its loose monetary policy. The fact thats turned on its head, that weve seen yields go up so sharply, that justifies a big move in banks, which were the big underperformer when rates were low. Does it justify a big move up across all the sectors . Im not so sure it does. Thats a question also to keep in mind, have banks artificially dragged up the rest of the sectors even when that main factor turned on its head in Interest Rates doesnt tell quite a positive story for all the rest of the sectors. Lets bring more voices into this conversation on the markets. Were joined by Brian Jacobsen of wells fargo and dr. John rutledge. Gentlemen, good morning. Good to see you. Brian, last time you were on we were on dow 20,000 watch, we were talking about valentines day, your wife cares, you dont, as the march continues from 10,000 when it first crossed during the depths of the financial crisis as a reminder if youve been on the sidelines or missed out on this rally, that has been a big opportunity cost, brian. What do you do now . Well, i think that for anybody who has been sitting out, it is a Good Opportunity pretty much always to start averaging dollar cost averaging into the markets. Its really tough to get yourself to move into the markets after a big move up like weve seen, but i think thats why you have to take that longer term view. Yes, you might experience a little buyers remorse, little regret if you get in and suddenly see the market move against you say 1 to 2 . But i actually think as far as my best Case Scenario for 2017, and i always had sort of a best case, worst case and best case, but my best case is we can get into bubble up territory where were above 500 on the s p 500. Wow. If you think about whats the worst case, i think the worst case is looking at maybe 2,100, 2,050, i think may the odds ever be in your favor here. So all this is going to depend on what we actually get out of washington and not just hopes of it. John, we were just talking about reagan. Youve been there before. You were working on the reagan economic plan back in the early 80s. Sure. In terms of what the market is hoping for here, tax cuts, deregulation, fiscal stimulus, do you think its realistic and it matches up with a current valuations that were seeing for stocks . Some of its realistic. And some of it is early excitement. But its very difficult to deliver spending. Its very easy to deliver tax cuts on Regulatory Reform. The biggest single pop you could get on this market would be a rollback in the parts of dodd frank that are restricting bank lending and keeping small banks out of business loans. Thats why the economys strengthening, because the banks have gotten back into the lending business. The next big pop of course is tax rates. As we found back in the reagan days, you know, if the dows 20,000, that means pretax the dows actually 30,000. And the extra ten is owned by the government. And im a private equity guy. If you take thats only for the equity. If you add the debt on top of that, this is really a bunch of companies that are worth what would be roughly equivalent 50,000 on the dow, half debt, half equity. Uhhuh. You could lower the tax rates, just the Corporate Tax rates, and move the dow 10,000 points. You could lower the personal tax rates and really firm that up. Especially the top marginal rate, the Capital Gains rate and the tax on dividend income. So i think theres a lot of ups here possible on the stock market. If they can deliver tax cuts, and if they can deliver on dodd frank. John, thats all on the fiscal side. Of course theres one key difference that perhaps is a little bit overlooked on the monetary side when we compare the start of the Reagan Administration and the start of the trump administration. And thats where Interest Rates are and the direction theyre heading. Of course theyre very low, theyre going to be tightening from where we stand today. Is that something you think the market perhaps is overlooking in terms of what it might do to derail Investor Sentiment . Well, youre absolutely right. But there are two differences. One is Interest Rates and the other is inflation. And the reagan days inflation had already been squeezed by the volcker saturday night massacre. And was beginning to turn its way down. Now weve got eight years of monetary stimulus, an extraordinarily tight labor market and margins that have been squeezed by Rising Labor Costs and soft prices. All thats reversing now. So weve got a year coming here where the labor price pressure is pushing through into product prices, Inflation Numbers are up. Thats why you see the bond yields up. Because inflations coming around. Which means i would prefer stocks that are protected from inflation and not the ones that will be hurt by inflation. Number one asset class because of all that is real estate. Just the opposite of the reagan recommendation. Hey, guys, weve got a new tweet here from president elect trump just in the last moment or two. Heres what he writes, doing my best to disregard the many inflammatory president o president obama, statements and roadblocks. Thought it was going to be a smooth transition, not exclamation point. I guess hes referring, david, to some of the comments president obama did an interview saying he could have won the election if he was running again for his party. Yes. This is an issue, right . The smooth transition of power is something that a lot of investors and a lot of americans wanted to see and were hopeful for and that was one of the reasons that the president elects original acceptance speech that night of the election gave a lot of people hope that he was going to try to work peacefully with the new administration. Hard to know how much of this is just noise in the tweets. Yeah. Hard to say. And, again, you know, you get these tweets, you dont really have anything beyond that. President obama seems to have gone out of his way to say all the right things in terms of the transition and his commitment to making as smooth as possible the same way george w. Bushs administration did for president obama, something hes pointed out a number of times. You know, the abstention to the u. N. Vote on israel obviously trump disagreed with that. But unclear. You had the action in banning drilling in alaska. Right. So sort of the attempts made to sort of put final flags in the ground by the Obama Administration saying these are certain principles wed like to leave off. Theyre right. He is still the president. Sure. And trump has been more outspoken than has been typical, i believe, of most incoming president s. But if we step back from the latest developments of the last week or so, i think for most people the transitions been smoother than you would have expected on sort of the eve of election had a Trump Victory materialized. So in that sense we have to put it in perspective. Brian, is that a risk for investors here, a not, exclamation point, smooth transition between obama and trump . Im not actually really all that concerned between the transition between obama and trump because mainly all that matters is whos the next president. President obama is putting the punctuation mark at the end of his presidency with the u. N. Abstention from the vote there, offshore drilling and also possibly with additional sanctions against russia. These are all things that most likely president elect trump, he might not like them, but hell probably be able to undo them or will just live with them. So i think actually that transition is going quite smoothly where its most releva relevant, which is the information gathering and also paying attention to the cabinet picks and such. So im not really all that concerned about the transition. Within matters is whats the first 100 days of trurp going to look like . Is he actually going to come out swinging with Corporate Tax cuts and Regulatory Reform or not . I believe that he will. And i think thats one of the reasons why im not all that worried about the first this transition period nor the first 100 days of the trump presidency. All right. Echoing some of the investor enthusiasm weve heard lately. Gentlemen, weve got to leave it there. Thank you for bearing with us on that breaking tweet. Brian jacobsen at wells fargo, dr. John rutledge. Still to come, more on the latest out of trump from washington, and also ahead delta canceling 18 of its boeing 787. Were taking another look at the futures as we go to break. Of course still 55 off that 20k mark. More squawk on the street live from post nine at the New York Stock Exchange when we return. Liberty mutual stood with me when was too busy with the mdefinily doesnt have that. I. U can leavworry behind when rtstands with you™ libey Mutual Insurance rtstands with you™ dobecget fast sinusatoms relief. Wh vicks six. Do anget your hea ba in game. Nex. The constion, pressure, pain anget your hea toleour head, medicine. President elect donald trump tweeting again about the markets and staying busy with meetings today in maralago and tweeting just a few moments ago as well about the transition between his administration and the outgoing Obama Administration. Our john harwood joins us from washington to fill us in on all of these tweets and more, john. You know, david, looked like he was going to have a pretty low key day in maralago, was the quiet part of the transition proceeded. Hes got a few more cabinet posts to fill. Hes going to interview els elsa morano, former head of texas a m university who served as undersecretary of agriculture under president george w. Bush, a cuban emigrate, would add diversity to the cabinet. Thats one meeting hes going to have today. Hes going to meet the head of marvel comics, israeli born, former israeli army soldier, which is interesting at the time of the controversy over the u. N. Resolution. Hes going to meet with tommy thompson, former governor of wisconsin who served as hhs secretary under president george w. Bush. Hes going to speak by phone with the ceo of sprint, marcelo claure, but the tweet he just sent out is sort of remarkable. He said in the tweet that president obama had made inflammatory statements that and thrown up roadblocks meant it was not a smooth transition. All indications that weve had are that the governmental part of the transition has been very smooth. The landing teams from donald trump have been having meetings within agencies. But donald trump reacts to things on a personal visceral basis. And i think from his standpoint the idea that president obama would have said in that interview with David Axelrod that he thought he could have mobilized a majority in support of his vision probably felt to donald trump like an attack, even though i was surprised that president obama made the statement. Nobody knows what would have happened if he had run again since its a constitutional impossibility. But i think donald trump interpreted that as a slap, that he felt he needed to respond to. I would be highly surprised if president obama and his team take the bait today and respond and escalate. But its pretty extraordinary. And it goes to show you the nature of the politician that donald trump is in terms of, you know, calls himself a counterpuncher who reacts to personal slights and insults. He did it here on something as fundamental as the transition is kind of striking. Yeah. John, i think its going to become the norm. I dont know what your expectations are once he takes office, but we were talking here off break, are we going to be discussing tweets every morning. It certainly seems its a possibility. Mr. Trump has not changed his behavior at all, during the course of the campaign and the transition period. At age 70 peoples personalities and their habits and behaviors are pretty well engrained, so i think its going to be difficult for him to change. And i dont know that he wants to change. And the idea of sending out this little rocket against president obama, i dont think thats the kind of thing that bothers him in any way. And the fact that people in the normal flow of Political Affairs would say, oh, wow, what he is ruffling feathers of the transition. Were getting more context, hes continuing we cannot continue to let israel to be treated with total disdain and disrespect, they used to have a great friend in the u. S. , comma, dot, dot, dot, unclear if hes going to finish that thought. Clearly theres more than just the comments here. There was also that abstention from the u. N. Security vote, john. Well, sure. And, you know, there are policy disagreements and there are personal aspects to this. But up until now president obama has emphasize and had donald trump has seemed to accept the idea we only have one president at a time and this level of commentary from donald trump sort of goes against that idea again goes to the habits of donald trump that are not political norms weve come to be used to. That kind of tweet is not the kind of thing you would have seen from george w. Bush when he came in the weeks before he took over from bill clinton or that barack obama would have done before he took over from president george w. Bush. Well, twitter wasnt such a thing then, but we get your point, john. Thank you. Well, yeah, its just the form of communication. But im saying that kind of communication the emotion in 140 characters. Thats right. John harwood, thank you. March 21, 2006, i just checked, thats when twitter launched. Okay. So its around. They could have used it. Up next, more on the markets chasing history. The dow futures are up about 25 points. Remember yesterday we closed 55 points away from that much heralded 20,000 level. S p futures up too. Much more squawk on the street live from the New York Stock Exchange straight ahead. Futures indicating a higher open this morning as you can see right there. Perhaps dow 20,000 in sight. Who knows. The opening bell coming up right after this. Hey gary, whd you got here . This bad boy ia bile tding desk so that n take m Trading Platform wherever go. You knhathinkorswim this bad boy ia bile tding desk seamsslyyncs acros all your devices, right . , my custom udies ll go with me . Anywhere want to go the markets hot sync your platform on y device with thinkorswim. Only at Td Ameritrade you are watching cnbcs squawk on the street. And we are live from the Financial Capital of the world on this wednesday where the opening bell is going to ring in about a minute and a half. And of course we very well may be talking about all the reasons were going to be hitting dow 20,000 and ill be turning to mike santoli who will give you endless amounts of statistics on that. I did happen to look at the dow this morning, mike. Yes. Youd be happy to know United Health care one of the best performers, caterpillar. Goldman sachs has come from well behind to put up a stellar year as has j. P. Morgan. All contributing. Thats right. To what will be that approach. And those are the industrys that have done very well. Also the higher priced stocks have done well. So theres a lot of focus when you get to these landmarks on construction of the dow and the specifics of which stocks move it more and less and kind of the antiquated version of it. I pulled up a tenyear chart of the dow and s p and just so happens they are in precise lockstep over that span of time. They give to and fro, but right now youre in a kind of market thats pretty good for the dow. Its large cap, its value, its industrial, its financial. I wonder whether if we do hit that milestone we suddenly see a bit of rotation. Because as you say the differentiation much more pronounced on the short term. To date the dow is way ahead of the s p and nasdaq, so it does suggest if been up a bit aggressively. Well, its the sector makeup and the very large tech stocks that do weigh heavily on the s p that have not caught back up. Thats what youre looking for. You hear the applause building here at the nyse of course as we get the opening bell. Take a look at the realtime exchange back at hq. Most likely going to be more green on that board when its fully composed here. At the big board best Friends Animal Society celebrating saving almost 200,000 animals across the country this year. And over at the nasdaq, first world food organization, city harvest, 6 Million Pound of food for hungry new yorkers last week. Both worthwhile. Of course this time of year, i did my Charitable Giving yesterday, wrote all those checks. Havent put them in the mail yet, but theyre dated properly, so were good. Youll get yours if youre watching. Yes. Just looking at the dow right now looking at levels opened up about 30 points it has been quiet. In fact, the dow has not made a move of 1 in either direction since back on december 7th. And we are continuing that theme. But i guess whats important here, mike, is that were holding these gains. The resilience of this rally continues to plow forward. The index has really peaked about two weeks ago and theyve done nothing but churn and go sideways since. Theres a little ragged action under the surface, but hasnt given much back. The question is are we just kind of building up this selling pressure until the first of the year . We keep talking about how its happened the past three years, januarys been weak, but i do think you have to say that the trend remains up as long as the dow and the s p can kind of stick around these levels. Goldman sachs worth noting that in terms of whether weve really got the same momentum we had a few weeks ago i think also interesting to note that the yields on the bond market have also just paused for breath. So that simple explanation of money coming out of the bond market going into equities, thats no longer the driver. We hit 2. 64 i think in terms of the peak of the tenyear yield. Right around the same time that the index peaked. Exactly. So i think thats an interesting factor because it does show that simple asset class switch is no longer happening. You need more fundamental reasons to buy these stocks now whether its geographic reallocation or actual stock picking, simple sort of bonds into equities seems so stock right now. Here we go again 25 points away, goldman adding 11 points itself to the dow. Apple is also at the top. Its adding about four points. Technology should be an interesting one after we saw a move higher yesterday with the nasdaq closing at a record high. Looks like were going to build on those gains. Though, mike, a lot of these big cap tech stocks are not as high as they were before the election. No, theyre not. Although lets look at nvidia because it goes up every day. Except for that one. Up 1 again today. I did see some people, not to throw too much cold water on it comparing the chart of nvidia this year to the chart of qualcomm in 1999 where the end of the year had this vertical acceleration into now a much higher priced tock, probably a much more consensus overloved stock, qualcomm was at the time, but nvidia has the same look. Its in the right place for everything. I thought you were going to say netflix because back in 2013 we had that tremendous rise in netflix stock up almost 300 . For nvidia were up more than 260 . I think thats the second best s p constituents performance for a year. Yeah. I think the whole of that sector all the chipmakers have done well. Look at samsung this year up 42 despite having serious issues in its smartphone business, which of course is the biggest part of because memory and chip making has done well. Nvidia clearly outperformed all of those but the broader sector has done well too. It doesnt take much when you have a big suddenly wants to get into Something Like nvidia wanting to buy hundreds of thousands of shares. They want to own it as mike said into the end of the year. You mentioned qualcomm, worth noting, stock is down not that much but obviously they are in a significant dispute with south korea chrks is, which is fining them for antitrust in excess of 800 million. They are going to fight that. Although they may have to put the money up at some point within the next as soon as 60 days. But even though the money is certainly of significance, it is the precedent it could set for other markets should they not prevail in appealing this fine. Uhhuh. For qualcomm. Which has had a very strong you know, a good year certainly since it announced its own deal to acquire nxpi not that long ago. Exactly the way you like to see those things drawn up or perform once they are drawn up, qualcomm benefitting a great deal from that deal to acquire nxpi. Sure. Amazon to take note of another tech stock getting a bit of a lift, we mentioned they did get this top pick status at evercore, but the rationale if you want to play data science, big data, artificial intelligence, deep learning, all these buzz phrases amazon might be the way to go. Interesting because the firm loves all these big established large scale Platform Companies like alibaba, like amazon, whats interesting too is they basically say their price target implies 670 a share in value for amazon for the Retail Business 320 for amazon web services. So its kind of a twotoone, twothirds, onethird value proportion there. Amazon, i spent a lot of time obviously on a documentary we did some time ago, always a disappointment to me that mr. Bezos chose not to participate, but when you look at that company and their ability to innovate at scale, i think that has got to be one of the key things that distinguishes it from so many others. These businesses youre mentioning, the fact they have created a Distribution Network in this country that is unprecedented really. I mean, what did they deliver, a billion packages or Something Like that during this period . Hard to keep track. Its incredible what theyve been able to do at amazon. And of course they do have the support as you say of a lot of the Analyst Community not to mention investors. The author of that report you cited at evercore, will be joining us at the top of the next hour. On the retail, were starting to get news of the High Frequency data of the Holiday Shopping period and looks like the procrastinators helped pull off what was a better Holiday Retail season. Just looking at some of the retailers after word from the National Retail federation that the thanksgiving weekend got off to a soft start. Sales there falling 3. 5 from a year earlier. But some of the other data including mastercard that the entire season including that surge of last week into Christmas Eve really helped. And mastercard saying 4 rise from november 1 through Christmas Eve. That would be an improvement. And that should be taken as good news for some of these retailers. There was definitely a little bit, arguably on paper, pent up demand going in. The question was there going to be catalyst to spend more heavily. Also, it was a relatively long Holiday Shopping season, it was an early thanksgiving so there was talk maybe it would peter out toward the very end. And christmas falling on a sunday so maybe the saturday before christmas always the biggest shopping day wouldnt be that strong, seemed like it worked out okay. Consumer discretion one of the best performing sectors today on the s p. Mike, in terms of Consumer Confidence data we saw yesterday, is there anything we can tell from that whether its driven by more borrowing or fundamental strength, or is it late cycle, early cycle . Its mostly saying expectations, expectations of how the economys going to perform had a big lift. The assessment of how the economy is doing right now is basically steady. So i dont think you can draw direct correlation to saying that leads to lets say uptick in spending on durable goods, consumer durables. Doesnt work that directly but does reflect where we are in the cycle which is low unemployment, wage growth starting to kick in and basically the more qualitative rather than quantitative factors that drove that surge above 100 in Consumer Confidence. Another stock to watch would be boeing. Seems like its in the news every single day on word of orders. Delta airlines canceling an order from boeing 18 787 dreamliner jets, had to do with the northwest tie up. But boeing is lagging and is the worst performing stock right now on the dow. Yeah and that deal supposedly worth around 4 billion to boeing, but we dont know the terms of the deal, terms of them pulling out how much there might be separation payments and the like, but boeing down at the moment. The dow up little less than 40 points from the 20,000 mark. Bob pisani joins us on the floor with what is moving. Good morning, sara. Were getting closer, lets look at major sectors, little bit of disappointments this morning. I was hoping a little more movement out of some of the financials but not quite. Theyre up just fractionally, materials, consumer discretionary, energy east not doing much thats a major dis appointment with oil at a new 52week high. Industrial on the flat side. So small moves up but not any strong leadership for 10, 11 days now here. Lets look at dow financials this month. Remember, this is what mattered, not only are the three biggest percent movers in the dow financials, all the three financials in the dow, but they are most of the gain. They are probably 35 to 40 of the gain in the Dow Jones Industrial average this month particularly Goldman Sachs big move on the upside. Disappointing is big energy. Now, yesterday in the middle of the day as oil started to move toward a 52week high, a lot of people said, ahh, all we need is 2 move, 2. 5 move on exxon and chevron and we hit dow 20,000, but they didnt respond at all. In fact, exxon was for sale all day yesterday. Thats a little disappointing. Theyre up fractionally today, but no big oomph like we would see in the past. Oil breaking through to a 52week high. Weve had some decent moves on the month, but this was all done earlier. These are monthtodate gains for the major these are the five biggest stocks in the xle, the Energy Sector here. But not really today. So look at the dow movers here. We have some small moves on the upside in chevron. Small moves in exxon. But still not enough to get us over 20,000. Little move in goldman, small. Travelers as well and small moves in apple. So overall its enough to move us up a couple points with each of these but not enough to move us over 20,000. Remember the dow outperformed the s p this month by three percentage points, thats rather significant up about 9 for the s p 500. Were up about 6 on the Dow Jones Industrial average. 9 on the dow jones, 6 on the s p, excuse me, and thats because of the outperformance of the financials in particularly on Goldman Sachs here. The big issue is for wall street, two big ones everybodys trying to figure out now. First one, will the trump rally really translate into more Consumer Spending . Is that going to help at all . Will that make a difference . There you see the dow jones and s p for the next month. Pull up full screen and second issue is the impact on tax cuts and on fiscal stimulus for 2017. Now, these consumer issues are really very important now because small increases in Consumer Spending or decreases in savings, more spending, is going to make a big difference in the way analysts look at earnings estimates for 2017. So recently we had mastercard announced that from november 1st through Christmas Eve sales up 4 from a year ago. Sales up, thats a pretty good number overall. So people are looking at this very, very carefully. Recently had the National Federation of independent businesses found dramatically different attitudes amongst Small Business owners before and after the election. So, remember, were looking for some way to plug in numbers for 2017. Some model that we can use, numbers for the models, and thats going to make a difference if we can get some real estimates on how Consumer Spending might look. Thats why these numbers for retail sales for christmas are being scrutinized very, very carefully. Right now the dow up six points, lost a few of the point gains earlier on. Still just shy of 20,000. Guys, back to you. Bob, great stuff. Thanks very much for that. Lets head to the bond pits next. Rick santelli at the cme group in chicago. Rick, good morning. Good morning. You know, todays a pretty important day in the fixed income markets especially if youre looking at other sectors like stocks. Why . Because rates a firming in a positive fashion, if there is such a thing, the dollar as well. Usually these are accompanied lately by more improvement in equitie equities. So i would say 20k is definitely in the cross hairs. Yesterday we had a twoyear note auction. So the new guy takes over today with regard to where its yield is trading. And its the most actively traded. Well, there was a spread yesterday so if you look at intraday of twos notice were trading at 1. 28, why is that significant . The old twoyear high closing yield is 1. 27. If you open the chart up, it blends together. So tins the beginning of december you can see that little peak there that weve taken out. That was the highest closing yield, open the chart up, since the summer of 2009. So were challenging that right now. We have a fiveyear on tap today. The fiveyears high yield close for this cycle was on the 15th as well and that was a 2. 09. I fully expect we can take that out in a similar fashion with the new guys rollover spread. Now, if we look at tens since december 1st, were just a smidge away from its high yield close, the 15th a whisker under 2. 60. These are important things to Pay Attention to because of course as traders are offsides going into year end, waiting for the rebalancing and some buying of treasuries and selling of equities, they may have the timing wrong and propel a little bit more selling. The dollar indexes our final burden of proof that the markets are still hot and a growth sort of configuration. Look at intraday of the dollar index. Now, look at what the high is. 103. 53. Open to december 1st youll see were doing the same thing in the dollar in the twos without the rollover. Previous close was 103. 09 from the 20th. Open the chart up we are now toying with a fresh high close for that dollar index going back to december of 2002, lets call it 15 years. Sara, back to you. Yeah, euro back below 1. 04. Rick, thank you. Oil prices meantime are holding onto their gains as well making new highs for the year. Jackie deangelis is at the energy desk. Good morning, jackie. Good morning to you, sara. Im not going to make predictions on dow 20k, obviously were all watching but i will tell you you probably cant get there without Oil Prices Moving higher. And oil at a session high 54. 29. And its really remarkable that were making these kinds of moves especially at the end of the year when volumes are thin and youve got three real reasons oil should probably be lower. The first of course is not that much confidence in this opec deal or at least a wait and see approach. The second is the dollar index that rick mentioned, another half a percent move higher today. And weve been tracking u. S. Production which indicates that we should see those numbers starting to go higher. So you have all these reasons that oil should actually be moving lower. Yet in the last year weve made an almost 50 increase in prices from here. So that shows you some of these moves, some Short Covering today probably, but also psychological. Take a look at gas prices for a second. Last year at this time they were under 2 a gallon. That was the National Average reported by aaa. Now theyre up almost 30 cents, 2. 29 as of this morning. And you still see people out looking at retail numbers and theyre spending. So how much of this right now has to do with the psychological impact that people think 2017 is going to be more positive for the markets and for equities . And how much of it actually has to do with money in consumers pockets . So watch these prices very closely today. You know, as i said, to get that 20k mark you need crude to continue its march higher. Back to you. All right. Thank you very much, Jackie Deangelis. Well have a lot more on these markets and that march towards 20,000. By the way, it is stalling as you see right there. Sorry. This is cnbc first in business worldwide. American expsspen cards can help you take on a new job, or fill a big order or expand your office and take on whatever comes next. Find o hmerican exprescaand servicesoffice can help prepare you for growth at open. Com. Welcome back. Were down about 3. 5 points in the s p 20 minutes into the trading session. Joining us now ubs director of floor operations art cashin. Is there anything you can do to get us to 20,000 . Just get this over with. Starting to feel like when you push the rock all the way up the hill and before we can get there were back. As i discussed with mike yesterday, were about running out of time. There are rumors and speculation that theres going to be pension fund rebalancing. And that will mean selling of equities. Reports are anywhere from 35 million up to some reports of 50. Im in the camp with the more conservative side. So were running out of time here. They better get to it, or theyre probably going to have to postpone it into next year. Right. Because that would take place one would expect over the next two trading days. Right. In other words these Pension Funds getting themselves given the move in equities getting themselves back to balance in terms of fixed income versus equities. Thats right. They have various rules, 60 40, 30 70, they because weve had this rally and because bonds have backed up, theyre out of whack. So the easiest way to do it would be to sell a proportion of the equities they own. So that may be putting pressure. On the other side were all happy that speculation on tax reform probably kept the public out of year end selling. But we have this pension problem thats popped up. Yeah. Where are you looking for leadership, art . Today right now materials are higher. Everything else is lower in the s p. Clearly there have been some post election standouts, but this rotation seems to be an ongoing theme. What would be bullish for you to see in terms of a groove ahead . Well, i suspect, again, it would be in the industrial and construction area. And that would be based primarily on the possible Stimulus Program coming in and see how much they believe that. Again, as weve been saying over the last couple of days, as we move into the new year, well get to see how Congress Seems to fit in with approving appointees and maybe even challenging some of whats going on. Well find out how much effort will go into the judiciary and how much will go into some of these other programs. Art, you know, we all talk about, well, they should get this done, dow 20,000, as if thats the focal point of the market right now. But of course its also just a symptom of the fact the s p 500s been kind of bumping up against its alltime high. Its kind of flattened out here. So it just seems i mean, does it seem as if the people who tactically wanted to own more into year end got that done a couple of weeks ago . It looks like we might have borrowed, you know, with the earlier rally borrowed some of whats left. The santa claus rally is looking rather tired. And i think santa looks more like he wants to take a nap as we go into the new year. Take a chance. All right. Well, well see. Art, as always, thank you. My pleasure. Still got a few sessions left here. The dow up two points and the s p down 4. 5 points, squawk on the street will be right back. Matters. D both on the trac and thousandof miles away. With hof at t, Red Bull Racing can share critical information about every inchf the r from virtually anywhere. Brakes are getti warm. Confirmed, danl you need to cool your brakes. Understood, brake bias back 2 clicks. Giving them the agility toave spee precision. Cause no onenows like at t. Nvidia shares lower today, this after rising for ten days in a row. It was actually up in the premarket we were talking about it. By short sell of Citron Research just sent out a tweet, weve long been fans of nvidia but now the market is disregarding headwinds in 2017 we see nvidia heading back to 90. Nvidia remains the Top Performing stock of the nasdaq this year. Citing market share in terms of growth come from gaming as opposed to totable bull market. This is about emerging markets and Autonomous Vehicles and the internet of things and their system on a chip they have aside from the gaming and the fact it is going to be in so many more machines, i guess. Sure. And the idea, i think what theyre poking at is the idea nvidia has captured this intellectual property uniquely suited for it saying intels going to have access, other competitors will be in the mix. So basically a fundamental and valuation short as opposed to saying, you know, hey, the business is fundamentally flawed at root. Look, 50 times earnings right now, already 14 of the shares are short. I actually looked pretty heavy Short Interest already. Right. Andrew left by the way who is citron going to be on fast money tonight 5 25. Set your dvrs. And nvidia was up at the open, now dow. The dow was up at the open and it is fractionally down. Were moving away from 20k as we speak. Well keep an eye on that throughout the rest of the show and what to expect for 2017. And some upbeat figures on retail spending in december. Who benefit the most and who missed out coming up when squawk on the street returns. Its a shark its a cancerfighting shk. Thanks to st. Judehildrens research hostal. At st. Jude, no family ever pays for treatments, travel, housing or food. Becausl a family shodworry aboug their child live. Nna ay yes i do. Gi thanks for the healthy kids in your life anddonate now at stjude. Orgot. Yes i do. Or shop where you see the st. Jude logo. Why cant i be a shark . Long your ir is un ] stop livand one wants to be baldis. But there is hope. Getting my hair back was the best thing that ever happened to me. Im happy with the way i look n. Im very excited abouty hair. I feel beautiful. Love my hair [ ma announcer ] hair club offers all proven Hair Loss Solutions backed bour mmitment to. If youre not 100 satisfied , to another pron ir loss solution it was the best thing it loo good on me. [ male announcer ] call in the next five minutes to get your free brochure at nobligaon. It will tell you everythg you ne to know about yo hairloss problem and its free ifou call no i at leastook, would say, anhfi yrsoung. Gined. Im 52 a i loobetter n an i did wn i was in my 40s. I feelreat. [ male annncer ] and thats not all. The first 100 peop who cl from hair club. Call now good morning and welcome back to squawk on the street. Im sara eisen along with david faber and wilfred frost. Were live today at post nine at the New York Stock Exchange. Carl has the day off. Loving my wedding song playing now. The selling is picking up steam here. Dow is down about 22 points, s p 500 is down a third of a percent, all 11 sectors are now negative. Nasdaq down 0. 4. A bright spot is crude oil, wti making new highs of the year above 54 a barrel. Weve got breaking Economic Data crossing the tape pending home sales are out. Not quite living up to expectations. Here the National Association of realtors says pending home sales falling 2. 5 in the month of november. Economists were looking for a gain of about 0. 4 . This is a disappointment. The drop puts pending home sales which is a measure of home sales contracts signed but not yet closed at the lowest level since back in january. A sign maybe higher Mortgage Rates are starting to bite. Well, lets get to our roadmap this morning. It starts with the dow continuing to try to push towards the 20,000 mark. Turning negative though for now with just three trading sessions left, will we make history before year end . And amazon winning the top internet pick for 2017 from evercore. Well speak with the analyst who crowned the Company Straight ahead. And a positive sign for the state of the consumer as the late surge in Holiday Shopping helps offset a weak start to the season. Lets get back to the market though. Right now stocks as i mentioned are lower across the board. Pretty broad base selloff here, fractional declines though. Not talking 1 moves had not seen a 1 move, guys, i mentioned earlier for the dow in either direction since early december. Were in holiday thin trade. But we have lost a little bit of momentum, wilfred, that we saw earlier in the futures market and just after the opening bell with stocks turning red. Yeah. And i think the general point as mike santoli was making in the last hour is that the last two weeks have kind of been the story, small gains some days, small declines others. We havent burst a bubble but the big momentum we had for the first month after the election victory has seemed to go and has tallied with the bond markets hitting 2. 64 on the tenyear, were a bit below that. So simple transition of money out of bonds seems to have paused but not derailed things altogether. The dollars march higher, continues to do so. The euro back below w 1. 04. There are high hopes for Earnings Growth next year, about 12. 5 for the s p 500. The dollar could get in the way when you talk about multinational earnings overseas. That could be a problem though. So far the dollar has been marching higher along with stocks hand in hand. Well see if this relationship starts to break down. And really interesting point on that because, you know, the dow, if you look quartertodate returns dows up about 9 . Quartertodate returns in europe the french market, German Market both up about 9 , but such different factors playing into those rallies. One is despite a strong rally in the dollar the other is in the face of a fall in the euro and exporters doing well. And exactly as you say if that continues that momentum in things like dollar euro, can u. S. Equities continue to move in light of that. By the way, lots of people have been saying 2017 is going to be more of a year for stock picking. And amazon is a top pick for 2017 according to a new evercore note on internet stocks. Joining us now is ken senna. Good morning to you. Thanks very much for joining us. Good morning. As we just said, amazons your top pick. This isnt so much focused on the traditional retail part of the business, but youre saying its down to the importance of data science. Right. I think as we look at data science just across the space broadly, you know, amazon is leading the charge there. I think they sit in a position of being able to apply it both in terms of Retail Operation as well as being able to productize and commercialize that for businesses through enterprise. And i think as we start to even think about how video stands to reshape and we look at the large Addressable Market there, i think amazon sits in a good position as well. Ken, we always talk about the importance of course of amazon web services. But amazons not the only play ner this space, google, microsoft, they all have big offerings now in the cloud. What makes amazon stand out . I think a big part of it is just their head start. I think also, you know, amazon has shown a greater willingness to essentially take to market some of the advances that theyve seen within cloud. I think if we look at Something Like natural language understanding, you know, google is probably, you know, furthest ahead of anyone in that area. But if we look at what google has offered through google cloud in that area, it really doesnt stack up to amazon. Amazon has basically brought to market exactly what they use through alexa to allow other businesses to, you know, partake. So i think probably the combination of, you know, the head start that amazon had with an aws and also their willingness to move product into aws i think has allowed them to essentially grow within the overall tech stack. Well, ken, its david faber, you talk a bit about amazon being the best position to leverage data science. You mentioned alexa, all the data by the way that that is accruing helps continue to make it a better service. Exactly. Ive been spending a lot of time trying to understand a. I. Because so many people tell me its going to become so important. You seem to be focused on it as well. Why . And specifically what does it mean for amazon and the others in the universe who cover it . Well, we have seen some stats where 30 of our interactions in a couple of years will happen through voice, right . Obviously thats a very important application. Were seeing in terms of automation. But i think if we step back and just look at these businesses, applying a. I. Or Machine Learning in different sort of offshoots it stands to increase the addressable in terms of making opportunities either geographically or product categories, you know, more pishpish efficient. Also stands to drive conversion and ultimately market share. Beyond that you can see them matching better supply and demand for the sake of capital efficiencies or just essentially automatting a lot of their back end for the sake of margin leverage. Whether youre looking at it from the standpoint of nearterm practical business implications or thinking longer term in terms of Addressable Markets and disrupti disruption, you know, i think Everybody Needs to focus in this area. Why though . I mean, we have to get back to a bit of a conversation about value, why is 28 times reasonable value for investors to be considering 2018 numbers, which is what youre looking at . Fair point. Amazon is certainly investing across a whole host of areas here. I think from their standpoint now is the time. Particularly when you mentioned a. I. , but the importance around a. I. In terms of getting it to work well is having the data and having the training, right . So if you dont do it now, your product or experience is not going to be as good as the next guys and you will potentially be shut out of the market. So if you look at amazon as multiple to revenues, trades about a third of googles yet both moving to voice, search and areas that are similar. If you look at it to gmv, it trades closer to brick and mortar retailer yet without all of the secular tailwinds amazon has. So i think its more of an acceptance that investors have to get comfortable with around the investments amazon is making and the general overall horizon youre looking towards. What if we see, ken, more America First type economic policies, protectionist policies including in any tax reform wed get including the import tax, border adjustment x what would that mean for a company that sources so many products from all over the world like amazon . You know, i think well have to wait and see there. I think that, you know, im more focused on what were seeing as far as technology induced change and how amazon stands positioned within that. I think theres obviously certain macro changes that have happened that i think cause investors to look to other categories and the rotation is certainly a big part of what weve seen recently. But i think over time i think the trends that were talking about are not going to go away. And i think that, you know, whether or not you can look at some of the recent, you know, selloffs that weve seen within technology as buying opportunities were in that camp, i feel. Well just have to wait and see what comes. Ken, looking at the right of you your top picks, amazon, alibaba, facebook, alphabet, in terms of a. I. , they are going to come into more and more conflict, these four companies, and competition, where it wouldnt always seem thats the case . I think certainly. When you look at the players broadly who can provide insights to businesses that theyre going to increasingly going to need especially as they focus not just in terms of how they think about going to market but how they reorient back end to something much more demand driven, there arent that many players who can provide what they can provide at scale. So, yes, theyre going to move closer into one anothers turf, but i think that all of them are making major commitments to not just the data science but the data infrastructure. And those are going to be very key for businesses i think to operate in 2017 and beyond. Ken, youve also got netflix as a buy. And youre positive on digital video sort of seems like all the new tech names are things you like. Are you therefore pretty bearish on traditional names . Likes of say cvs and media space. I think we have netflix as a whole, netflix benefits in some respects indirectly. If we look at Online Advertising in the u. S. , Something Like 180 billion. Or maybe i think thats globally. And that compares roughly to the same as, you know, Online Advertising right now. So as you start to see some of the audience measures showing we are seeing a shift to digital, especially among younger audiences that i do think that, you know, whether its facebook, google, these guys stand to benefit nicely within online video. Netflix is not focusing on advertising, but i still think it creates a certain, you know, necessity for distributors to want to integrate with netflix in a way that helps them. So the point i was making there in the report was simply that 2017 is going to be a year that we really look to focus on online vid and that potential ad shift and who the winners are. I think it doesnt quite apply to netflix specifically, but i think indirectly it does to some extent. Ken, thank you very much for joining us this morning. Thank you very much. Ken sena from evercore. Coming up on the show, brick and mortar getting a boost as consumers make a spending push in the final days of the Holiday Season. Well share the numbers. And it was a year for the history books as president elect donald trump shook up the political field. What does 2017 look like in a trump era . Predictions straight ahead. Taking a look at where stocks are trading at this hour, they are moving south. The s p is now down about 0. 4 . The dows down 25 points. The nasdaq doing the worst. It outperformed yesterday. Its down about half a percent. More squawk on the street. Stay with us. A jump in Consumer Spending in the final stretch of december turns out help offset a slow start to the Holiday Shopping season. Kate joins us with more. Thats right, sara. New data from analytics from retail next sales rose actually 6. 5 year over year after having fallen earlier in the month. The numbers are welcome news as spending was slower in november falling 3. 5 year over year for thanksgiving weekend despite a strong jump in online sales according to the National Retail federation. Separate data from mastercard shows Strong Demand for furniture, Home Furnishings and mens apparel from the beginning of december through december 24th helped push sales higher by around 4 . Amazon reported tuesday the 2016 Holiday Season was its best ever with its own devices echo, fire tv, fire tablet and amazon echo topping their list. Sales up over nine times compared to last years Holiday Season. With millions of alexa devices sold worldwide this year. Official stats from both the government and retailers will of course be out next month. In the meantime though president elect trump continues to take credit for Consumer Confidence and the market rally after the Conference Board reported tuesday its index rose to 113. 7 in december, trump noted this is the highest the index has climbed in more than 15 years, adding thanks donald. Back over to you. Kate, thank you very much. Kate rogers at headquarters. For more we are joined now by the head retail analyst at Morgan Stanley to talk winners and losers here. That Consumer Confidence level, jay, sure trump takes credit and its hard to exactly pinpoint the why, but does it necessarily translate into higher spending . I dont think it does, sara. You know, the important thing is retail spending is about two things, the willingness to spend, which is confidence, but also the ability to spend, which is how much money people have in their pockets. A cfo of a major foot retailer told me you cant spend confidence. I dont think thats why were seeing retail sales jump as much as maybe people were hoping for. Now, the last week was probably good but doesnt make up for all of december which was generally a little bit soft. You know, we get some great Consumer Survey data from a Company Called prospects analyti analytics, what they showed in most recent december survey people are feeling more confident, less stressed about politics, but when theyre asked about their spending plans, they havent changed. So i think overall its a combination of both, and confidence enough isnt really enough to drive a big change in the spending. You mentioned the means. I mean, weve seen an improvement, a pretty remarkable improvement in terms of the Unemployment Rate down to 4. 6 , wage growth has steadily been increasing. And other signs of Economic Activity picking up. So why do you not see consumers able to spend . I think the most important stat is real median household income, because that number over the last ten years has generally declined except for a little jump last year. So for the average american out there their ability to spend in terms of discretionary hasnt increased that much. I think thats the key issue why were not seeing a big jump in spending. Can loan growth be a kicker at least for a year or so . Well, loan growth if credit eases and more people are going to buy on credit cards and, sure, that would be a nice stimulus, if it happens. Right now were not seeing that, but could be. So within your universe, jay, from all of the research youve been doing and some of the figures were getting, who do you see as early winners and losers in retail . Well, for winners and losers for the holiday. On the holiday. We still Like Companies for where the stock perspective theres upside to street consensus estimates and where sentdment has been negative. If its a decent Holiday Season, that sentiment could reverse. Hanes brands is a name we like, numbers above consensus, sentiment very poor on this name and we think their Fourth Quarter has been fine and we think guidance theyll give for fiscal 17 is going to be good and that could send the stock higher over the next few months. Where do you see some of the weaker spots . I know you cover a lot of the Athletic Apparel makers, we talk constantly about nike and under armour which have both underperformed pretty sharply this year. Yeah. Sara, i mean, Athletic Apparel and footwear has definitely had a deceleration in their sales trend. The athleisure trend probably has peaked. We saw nike that reported last week their futures orders in north america have slowed again. Yeah, but they told us dont Pay Attention to future rs orders anymore, we could see faster Revenue Growth without it. You dont buy that . Its true. Sales will be better than futures, but i think the sales trend is still slowing as well. So, yeah, sales will be better than futures but the important thing is sales and theyll be slowing down thats the key factor. Nike will get back on its game but right now theyre in a bit of a soft patch thats why the stocks have not been good performer this year. You like adi tas and puma . Adidas, even with the holiday momentum, shoes like the superstar, all the kanye west footwear have been strong sellers. That continues to be the case. They have momentum from fashion perspective. You called adidas one of the breakout stocks of 2016, which is it for 2017 . Well, im not sure were going to see hanes brands, stockings and underwear, really . Childrens place is another stock we really like, but theres a lot of uncertainty look sboog 2017. Just heard bob pisani talk about how hard it is to model given all the policy changes taking place. Thats making it difficult to call distinct winners and losers, but i would say from athletic footwear theyre definitely facing more competition not just from companies within the industry but companies outside the industry. Its hard to see one of those stocks be a big winner. Its worth mentioning again the idea of an excise tax of some kind. Are you considering that a real possibility . And if so, do you somehow lower multiples on your universe . Well, the border tax, which is really the policy which would really impact Athletic Apparel and footwear is the big issue. The key is it really depends a lot on Foreign Exchange rates. The theory behind border tax is u. S. Dollar should appreciate very significantly versus other currencies. If that were to happen and wed have a new border tax policy, it could be very good for Athletic Apparel and footwear stocks. On the other hand, if we dont have any change in the dollar, border taxes could be very bad thing. Theres so many different scenarios and such a wide range of possible outcomes. It makes it hard to kind of figure out what the impact will be. Deutsche bank says 15 higher dollar we do get some sort of border tax especially with whats going on with the rest of the world right now. Well, Morgan Stanleys view is pretty similar. In that kind of scenario it would be a neutral but probably a bit of a negative. So its a wait and see issue. The thing is we dont even have a lot of details. All we have is a blueprint. Until we have a bill being debated in congress, its hard to really go into your model and really, you know, pencil out what earnings are going to look like next year. Well, we will talk to you as we hopefully start to get clarity on policies. But for now, thank you. Happy holidays. Thank you. Head of retail analysis at Morgan Stanley. Thank you. Coming up, it was a year for the books in politics. Were going to take a look at the new administration and what is ahead for 2017 as we were just talking with jay about. Take a look at stocks by the way, the dow as you see down 18plus points. A lot more ahead. Want to show a quick video of david rubenstein, a few minutes ago at maralago. Hes expected to meet with the president elect as well as his advisor steve bannon. Of course rubenstein also a big philanthropist, helped pay for the restoration of the washington monument. Nice building up at Lincoln Center with his name on it. But private equity certainly still his key focus. Yeah. Of course fellow private equity Steve Schwartzman heads up Strategic Policy forum. Trump is keeping his ties with wall streeters, at least when it comes to advice, right . And when it comes to these meetings. Yeah. I dont know that there was a relationship intact with rubenstein initially, im not aware of that. But certainly. Hes very comfortable with guys who are billionaires. Plenty of them around. Try to distance themselves from the wall street label. Saying its a different thing, but either way, similar kind of general financials no doubt about that. And now we watch maralago as we watch trump tower. Yes. When the president elect is in town. Talk about carried interest. Not getting rid of that exemption. Of course 2016 is coming to a close and with the new year will come the new administration. Today john harwood opens the 2017 playbook with a look at what you might expect in politics. If the 2016 campaign taught us anything, it is the unpredictability of everything about donald j. Trump. So anyone making predictions about his first year in the white house, not to mention those of us who never thought hed get there in the first place, better do it with a lot of humility. Here goes, in 2017, President Donald Trump will sign tax reform into law, but it wont be comprehensive tax reform of both the individual and corporate system. Hell focus on International Tax reform with the goal of returning corporate profits to the u. S. And raising money to finance his Infrastructure Spending plans. At least one of President Trumps cabinet picks will be defeated by the senate, even though republicans control more than enough votes, opposition democrats will look for opportunities to peel off a few moderate republicans to block trump picks they consider too far out of the mainstream. Target number one, health and Human Services secretary designate tom price, who favors big changes to medicare and medicaid. And finally, the incoming president will not rip up the nuclear deal the outgoing president struck with iran. Even though donald trump criticized it during the campaign. U. S. Allies, britain and france, were part of that deal. And so was russia. The u. S. Adversary mr. Trump wants better relations with. The new president may embrace stricter monitoring over the deal, but getting rid of it altogether is just not worth the trouble and the rigsk. One wild card thats arisen since we taped that piece is this escalating dispute between the United States and israel over the resolution that u. S. Declined to veto. Donald trump has sided with israel in that dispute. He just tweeted a few minutes ago that the Current Administration had shown total disdain and disrespect for israel. I reached out for comment to the white house. They said that theyre declining to comment from the National Security council about that Foreign Policy tweet by donald trump. But of course israels opposition to the iran deal adds another element to this equation, guys. John, its interesting in the playbook package the fact that you mentioned how the iranian deals a harder one to step away from, its got u. N. Security council approval, allies like britain and germany involved with it. Does israel then fall into the category much like some of these other areas whether its nafta, tpp, china, where trump has a real free reign to change the u. S. Position on things and radically alter the position of obama the last eight years . Well, i wouldnt say given the entanglements you just mentioned, the allied involvement, russias involvement, its not easy to you dont have a free hand to do almost anything when it comes to reversing the policies of a previous president. You can change them, but it tends to be complicated. Weve certainly seen some feeling that the incoming defense secretary, james mattis, assuming hes confirmed, hes not been a staunch opponent of the iran deal in the past, we dont know. But in other years its probably easier for the new administration to repudiate, for example, the transpacific partnership, than it would be to repudiate the iran deal. We also have secretary john kerry speaking today, right, john . Yes. Hes going to be outlining the United States position on peace in the middle east. Its a bit of an exercise for him. Of course hes only going to be in office for three weeks. The Peace Initiative that he attempted to strike went nowhere. And now its ended up in this ak ri mo acura moanny between th United States and israel, im not sure laying out a marker as they walk out the door this speech is going to serve. Well see any headlines from that in the next hour. For now, john, thank you, john harwood in washington. When we come back, sticking with politics. Tensions between president elect trump and china are heating up as 2016 comes to a close. Plus, that story of three chinese traders accused of hacking law firms in the u. S. For Insider Trading information. Well discuss all of this straight ahead. The dows down about 16. 5 points. Good morning everybody. Im bill griffith, German Police now holding a new suspect who may have been involved in last weeks deadly berlin truck attack. The 40yearold tunisia mans was uncovered. Divers discovered black box, all 92 onboard are believed to have perished. High winds in Southern California have caused a tractortrailer to flip onto its side, took down three trees at the same time. The National Weather service says wind gusts of up to 50 miles an hour have been reported throughout the l. A. Area. And police say there appears to be no connection now between a series of post christmas mall fights, cell phone video shows mostly teenagers involved. More than 15 Shopping Centers in a dozen states have reported incidents lately. Just another reason to stay at home and shop. Good morning, sara eisen. Good morning. Although you know its late morning, early afternoon. This is very early for me right now. Yes. I dont feel bad for you at all. Bill griffeth. Thank you very much. Have a lovely day. Well see you later on closing bell. Were an hour into the day, earl ri for bill. Lets head to bob pisani. We headed towards 20,000 and then lost steam. Eight of the 38 dow stocks are on the upside. Let me show you, theyre the ones that are really important. Theres the dow intraday in positive territory just moved down hire. By the way, this is not an unusual move. The dow usually moves 125 point range in a day, weve only moved 60 point range. Just matters because were so hyperfocused on dow 20,000. Financials have been what mattered since the election. Goldman up, travelers up, weve been expecting oil stocks to move up with oil closing at a new 52week high yesterday. Its up again today. Chevron, exxon up fractionally but not that much and was really disappointing yesterday. No help from big industrials for example on the downside. So boeing or tech like cisco or microsoft, theres no real pattern here. Some industrials are up, some tech are up, some are not. Were sort of wandering around here in the wilderness looking for leadership. Meantime, there was an interesting article in the wall street journal saying the New York Stock Exchange was losing etfs to nasdaq and bats. This is very interesting a big fight is going on because business is growing. So in 1999 there was only 32 billion in etfs. Only 36 etfs. Fast forward today 2. 5 trillion and almost 2,000 etfs. Thats real money and real business. Thats where the fight is. Heres what matters to etf providers, they want a successful launch of their etf. And they want good market quality. They want liquidity. They want people to trade it and tight spreads overall. For the exchanges thats where it really matters the auctions happen, you get big etfs, like the s p 500 etfs or emerging market etfs, they do a ton of trading on the opening and closing auctions. And that generates real revenue for the exchanges. And thats why theres a fight over this business. Now, right now nine of the ten biggest etfs are listed at the New York Stock Exchange including these are the top five etfs by assets under management. So in that sense assets under management nyse still has the lions share of the business overall. But a lot of fight going on things could change in the next year or two. By the way the exchanges themselves take a look theyve had a great year and particularly all of the exchanges listed since the election have been moved on the upside, down a bit today but moving because volume has picked up overall and trading has picked up. So good year for the exchanges in general. Guys, back to you. Bob, thank you. Were going to zero in on the banks helping lead this charge to 20,000 on the dow. Goldman sachs is still leading the dow right now even though its down, j. P. Morgan hitting record highs just this morning. Joining us now is Gerard Cassidy of rbc capital markets. Good morning. Thanks for calling in, gerard. Youre welcome. So weve got this rally on pause. Maybe a good time to take stock of the bank rally we have seen. Which still has legs. Clearly the narrative is bullish for next year. How does that match up with the already more than 30 gains for the likes of goldman and j. P. Morgan so far this year . You bring up a very good point. These stocks have run very nicely especially since the election, investors are always asking themselves now, is everything priced in. And we dont believe it is. Because if the u. S. Economy really starts to accelerate in growth based upon the incoming administrations plans for growing the economy, these banks will see better Revenue Growth coming from not only volume, meaning more loans, more Investment Banking activity, but also wider spreads coming from higher Interest Rates. Gerard, if we look at the banks within the sector which has been strong that have performed the best, its the likes of bank of america amongst the big universal banks that have outperformed. And that thought process is more about because theyre geared toward the Interest Rate curve than the other names. Which of the banks within the sector now move best in the second phase of this Sector Performance . I think the Interest Rate sensitive names will continue to lead the way initially into 2017 because of the benefit that youve already identified. So i dont think thats run out yet. But toward the end of the growth that could happen in 2018, i think you may want to look to what we consider to be the better managed names, names like a j. P. Morgan and a Goldman Sachs, for example, and on the regional side names like Pnc Financial or keycorp. In terms of stepping away from the core retail parts of these businesses, you mentioned Goldman Sachs there, what are the positive factors were likely to see that could drive more performance in trading and Investment Banking revenue . I think what were going to likely see next year clearly the Debt Capital Markets area in 2016 was quite strong. That may be less so next year particularly if they remove the Interest Deductibility of debt as part of an overall of tax reform. The pipelines appear to be strong going into 2017, that will help the investment banks. And then more mergers and acquisition activity. And then on the trading side, fixed income trading is very strong in the first quarter, so we expect that. And then equity trading has been very strong in the month of november. Decembers tailed off a little bit due to the holidays, but we expect that to pick up as well. Then there are the regional banks, gerard, which have also performed quite nicely. They theoretically should be beneficiaries of higher loan growth, stronger economy, steepening yield curve and deregulation. Whats realistic there . I think that your last point is very important because thats how theyre going to differentiate themselves from the very large banks. All the banks will benefit from, you know, stronger growth and a better yield curve and higher Interest Rates, but regional banks, special banks under 250 billion in assets which appears to be the line in the sand that they will receive the most benefit and there may be even an opportunity for these banks to be pulled out of the federal reserves annual stress test which will reduce costs for them. But also it will enable them to give back more capital more aggressively. And we should start to see that actually next year because the governor tarullo who heads up t will not go through the qualitative portion of the tests. Something those regionals have been hoping for for a long time, gerard. Thank you for joining us today as we see banks higher again. Youre very well. Gerard cassidy, rbc capital markets. Well, beijing firing a trade warning as president elect Donald Trumps rhetoric about china has given the country cause for concern. So what is the next foot forward for china and trump relations in the year ahead . James mcgregor is apcos china senior counselor. You advise corporations obviously in terms of their strategy in certain areas in china. I would assume youre getting a lot of questions. Give me some sense as to what those conversations are like right now. Well, i think companies are quite worried because a pushback was needed. Weve been too soft on china and theyve been taking advantage in a number of ways, but the way this pushback is happening its like an unguided missile. We have to be smart in how we deal with china because chinas going to sit back right now and watch trump and see what happens. But theyve already got lined up the retaliation theyre going to do. This is not a real estate deal in new york. This is youre playing with the big boys here. And we need to back off and be smart in the way we deal with china. But a pushback is welcome, which is confusing for the Business Community because theyre not sure where this is going to end up. Right. Well, of course thats their threat uncertainty as we like to say whach say. What is your expectations though . Trump has yet to take office. We dont know what the contours of china policy will look like, do we . No, we dont. But i can fell you from his advisor advisors, Peter Navarro almost has a tabloid view of pushing a bunch of extremes. Those of us who have been in china a long time and clear where china is, none of us are soft on china or apoll gisogyia navarro has very Simple Solutions for very complicated problems and wilbur ross himself has done a lot of deals globally, but if you look at what hes written on china, its really not uptodate on where chinas at and where the u. S. China Economic trade relation is at. You mentioned chinas already got its potential retail liator moves, what would you guess . China is an important market integrated circuits, were talking automobiles, electronics of all kinds from phones to servers to medical devices, movies, music, you name it. This is a very big market for u. S. Companies despite the trade deficit. Right. This is going to hit the u. S. Stock market very hard if this happens. Yeah, well, its an important economic relationship to be sure. Not to mention theyre holdings of u. S. Treasuries. You seem worried. I mean, do you think that a trade war or hostility to a certain extent on economics is really something thats going to be coming . Clie nas in a state of flux right now because we have the 19th Party Congress coming up next year where xi jinping, whos been quite a hardliner, is going to be a group around him thats going to be more and more hardline. But the mayors, governors, Party Secretaries are all going to be shifting around. Theyre doing it in the face of a very hostile United States. Youre going to make a much tighter more paranoid more, you know, introspective china that wont be easy to deal with. Much less all the military tensions that are going on right now. South china sea, i read today china sending one Aircraft Carrier down there. The problem is a lot of this is unnecessary. You know, if were smart on china and we deal with china a smarter, tougher way, thats going to be okay. We just cant go rumbling in to be a bull in the china shop. So to speak. All right. Well, james, well probably be speaking to you again of course as we get more sense as to how this relationship evolves. James mcgregor from apco. And as we head to break here, take a look at shares of nvidia. Theyre down about 5 today for a change. Ten sessions in a row up until today, still best performing stock on the nasdaq 100 and s p 500 this year up more than 250 , but today short seller citron says investors are ignoring significant competition and other headwinds. Citrons andrew left will be on mad money 5 00 p. M. Eastern time. Stay with us. Im cry ress tryo figure out ts complex trade so i brought in my comfort pony, waento help me deal. Isnt that right warren . Well, you could get support from thinkorswims inapp chat. It letyou chat and share yourscy with a live peon rig from the app, so y dont neea comfor pony. Oh, so what about my motivaonal meerkat . Inapp chat thinkorswim. Only at Td Ameritrade. Att. Jude chilens re hosp. R breagh cancer treats are shared with doctorsacrossri. And no familpays s jude for eatm, travel housing or food. Because l a fami should worry about is helping their child live. So iyou have hh kids, ve tnks. Give thanks for the healy kidsn your life, and giveveo ose whare not. Gidote nowt stjude. Orgrgy kidsn your life, all right. Markets certainly coming off their highs, now lower across the board. Lets get over to the cme group. Rick santelli has the santelli exchange. Hi again, rick. Good morning, sara. I would like to welcome my guest peter churn. Peter, thanks for taking the time. Thanks for having me, rick. In your notes you bring up a point that many have brought up, that is with Interest Rates and yield curve sloped the way it is, would the better strategy in the future be to issue more long dated debt and the Counter Point to that is of course long dated debt has a higher coupon, pays more in yield therefore it will raise the deficit faster. Which side of this do you lean on . And give me examples of why you do. What i like is actually longer term debt. Were talking about a lot of long term projects so funding should be longer term. It should match that. Go back to any financial crisis, its always the inability to turn over short term debt. Yes, we will have to pay more today, but theres a safety in knowing what your debt component is. And i like that. All right. Now, since were on the topic of debt, were in what i call a growth rally. Rates going up, dollar going up, stocks are going up. We learned 2016 is going to be a record year for debt sales, 6. 6 trillion. Your thoughts on that number, peter. I think its going to be a very good year for banks in terms of there will be this debt to trade, this debt to issue, i think youre going to see this continuing flattening of the yield curve. People dont really want to own shortterm debt in a rising yield environment. Why own this two or threeyear paper when youre not getting much yield when all of a sudden the long bond at 3 , long dated corporates at over 4 . I think youll see the shifting of the yield curve as people are concerned about how robust the growth will be. But yeah, its going to be a very difficult market to trade and you want to be careful. You want to own some floating rate assets as well in your portfolio. All right. Now, considering that 3. 6 trillion of the 6. 6 trillion are corporate debt that have been issued through banks, okay, and knowing that number, i guess my question is, the dollar being so much higher means servicing a lot of this debt globally is going to get a whole lot more expensive. Finish off with what that may mean. Yeah, i think were going to start seeing the impact on some of the weaker high yield companies where the debt servicing could be meaningful. Even with some Investment Grade companies where youll see this eat at profit margins, right . One of the big growth stories for the past two years in support for the equity has been the ability to borrow cheaply to fund stock buybacks and stock dividends. As that goes away, i think there will be some negativity that hits the stock markets because of these higher costs on the debt side. Excellent. And we have a few seconds left. What would that mean for your strategy to include emerging markets in diversified portfolios . Right. So, right now i like some emerging market debt. I believe emerging market debts mispriced. Theres some value there. It sold off too hard. I like some leveraged loans where, again, you get a lit of the Energy Exposure but a floating rate. And Municipal Bonds have been getting sold pretty much hand over fist for the past few weeks or months. Thats going to be an area i think the tax reform is not going to be as acongressive. So theres an opportunity to buy back some munis, particularly on the closed end fund spaits space where youre getting nice discounts to nav. Peter, thank you for your observations. Always fass nacinating and help. Back to you. Much more ahead on squawk on the street. Stay with us. Were back in a couple minutes. Both on the track and thounds ofiles away. Wiinbrakes a gettingarm. Ally raanywhere. Hare ctica information about evy confird, daniel you need to cool your brakes. Understood, bre biasack clicks. Giving them the agily to have speed precision. Becae no one knows like at t. Etry align junior probiotic. Digestive balance . So she can have a fraction dominating. Status uating. Helloyellowbelkind of da get 24 digestiveupport wh align junior. The 1 doctor recommendeda obiotic and, now for kids. Welcome back. Contra funds are supposed to run contrary to the market by buying unpopular equities. Turns out you might not be getting what youre paying for. Eric has the details. The market is of course not just the dow or the s p 500. A lot of people are paying big bucks for contra or Contrarian Funds, but we looked through their holdings and performance and found some investors might not be getting what they expect. The name can sometimes just be marketed. Consider the biggest and most famous of the if i dealt contra fund. It moves up and down with the s p 500. Its three top stakes are facebook, berkshire and amazon, and fidelity even admitted to us that despite the name, its just another largecap mutual fund. But its not just them. We found contrarian named funds from columbia and janice, both with almost identical performance with berkshire and citi in their Top Performings, but some of the smaller Contrarian Funds actually do what youd like low correlation to the market while beating it. They contain funds with one thing in common, less than 1 billion in assets with one list of holdings. If i tell told us the last few years have been challenging for active managers. David nelson at bellpoint said many funds threw in the towel and became closet index funds. So here we are at the end of the year. Its probably a good time to check again whats in your portfolio. Back to you guys. Good morning, eric chemi, thank you. Got it. We will have much more on these markets, the march to 20,000. That is not happening today. The dow is down 30 points. Well be right back. See ya next ar. This season, start a new tradition. With ls starting at 19 a month infiniti. Emr the dre. The marketetic buthugh go times and bad. At t. Rowe price. Weve helped our instors ay confide for over 75 years. Ll us or ur advisor. T. Rprice. For over 75 years. Investith confidence. Welcome back to squawk on the street. Im Jackie Deangelis reporting from the energy desk. You can see the stocks are backing off, but the energy index is not. Crude is trading over 54 a barrel, which is significant in the marketplace. Usually this is bearish for crude. A lot of people are also worried about opec not coming to the table to play ball as it has promised. And also, were going to be watching very closely the u. S. Production numbers here to see if they eclipse this potential cut that opec is throwing on the table. About a yeartodate high when it comes to crude oil, and you can see the rest of the Energy Complex higher as well, with the exception of nat gas, which has reached some highs as of late, taking a little bit of a step back. Now, the optimism that were seeing in energy today is coming from the optimism thats been supporting this equity market rally we have watched as well on that march to 20k. A lot of people are expecting energy to perform well next year and thats whats holding crude up right now. Kay kayla, back to you and squawk alley. Thank you so much, Jackie Deangelis at headquarters. Good morning. It is 8 00 a. M. At amazons headquarters in seattle, 11 00 a. M. Here on wall street, and squawk alley is live. Breaking my back just to know your name 17 tracks and ive had it with this game good wednesday morning. Welcome to squawk alley. With me at the new york stonge at post 9, brian