Transcripts For CNBC Worldwide Exchange 20170127

Santoli in for wilfred frost and wanted to take us back to the 80s. That was back when people used real phones to call people. I get it. Lets check in on the global markets. After another pretty strong day on wall street, the dow finished higher above 20,000, again futures indicated to open higher as well. Up 11 points. Sort of a mixed picture. Less strength than we saw this time yesterday. S p futures up less than a point. Nasdaq futures are negative six. We have a lot of earnings to talk about. Google with a miss. Microsoft doing really well. Starbucks, some issues there. As for the tenyear treasury note yield, lets show you the sentiment barometer. Its been a story of higher yields all week. There we are. Bangon 2. 50 as wilfred would say. Not moving much this morning. First quarter gdp, a lot to dig through there. A lot of strength in the Third Quarter gdp. Well see if the consumer con if confidence translated into consumer spending. The forecast is for a downshift for Fourth Quarter gdp. European equities are backing off a bit this morning. Minor losses for germany, france, uk, and italy. Seems as if basically the the entire world got to dow 20,000 and participated, now were sitting around. Pausing. Pausing and seeing whats left. In asia. I think you were firmer for most of those markets. Yes. Japan, tacking on a bit. About a third of a percent. Shangh very modest losses in hong kong. So not finding the thrust for the next leg up. Lets go to the Broader Market picture and show oil was strong yesterday. Giving back a bit today. Down 0. 3 . W as for the u. S. Dollar, has not joined the party much. Many are wondering whether the dollar rally is over. A lot of wall street strategists say, no, it has to take another leg up higher. It is stronger against the yen by 0. 3 . Just below that 1. 15 level. Weve been around 117 the past few weeks. The euro is flat. 1. 0692. Just around 107. The pound weakens ahead of Prime Minister theresa mays visit with the white house. She spoke yesterday in philadelphia. Well hit that later. Its a bit weaker against the dollar, 0. 4 . Gold prices, lets show you where they stand. Gold is down about a half percent. Continuing what has been a down week. New data on where money is being put to work by individual investors. Investors pulled 5. 7 billion in u. S. Stock funds in the week that ended wednesday. During the same period money market funds took in 19. 8 billion, and taxable bond funds added 2. 8 billion. There has been a bit of a reversal of the rapid November December inflows into stock funds. Well see if theres real response out there. Kind of noisy in january. That is the question. Whether dow 20,000 ushered in a new wave of money being put to work in this market. A lot of reserve of conservatism out there in households. Well go through the individual tech movers. Was there anything in the Earnings Report last night, you were on closing bell, to derail the rally . Stock by stock, a lot to of them had run up, including alphabet, but no severe losses. Nothing said severe macro issues. Starbucks with its mobile order crowding issues. Now to politics, the mexican peso continuing to slide against the dollar this morning amid rising u. S. mexican tensions. The tension is now on how President Trump will be paying for his proposed border wall. White House Press Secretary sean spicer telling reporters yesterday that President Trump is considering a 20 tax on mexican imports along with other options to fund the project. But in a clarification, spicer said the president is not formally proposing it, but sort of put it out there. Everyone went nuts on it, this idea it could tax u. S. Consumers, who will pay for the 20 tax. The white house walked it back a bit. Among the responses, i found most strong, lindsey graham, republic republican senator, he tweeted hes not in favor of a tariff that would hurt economic growth. Any policy proposal that drives up costs of corona, tequila, margaritas is a big time bad idea. Mucho sad. Also playing off his own reputation of enjoying a drink. Then everyone wanted to know, do we import margaritas over the border . We got his drift. I dont think this will go away. The times lead today was sewing confusion on this, whether its a proposal or spit balling ideas. Not clear. The fts lead was is this going to be diplomacy under President Trump . Its the first real relationship. Escalated quickly. We saw President Trump certainly making it clear that he will follow through on some campaign promises. Whether we see this 20 tax or not, the big impact here is going to be on our agricultural products. Food, avenue rocados and other we bring across the border. U. S. Importeders are paying less, but when you enact trade tariffs like this, mexico can retaliate. And then you get this sort of trade war. It hurts economic growth. People raising the reminder that mexico is a friend and ally. In washington today, british Prime Minister theresa may will meet with the president in the oval office. Top of the agenda, trade once again. Yesterday may gave a speech to gop leaders in philadelphia at the partys annual retreated. To be invited to be the first serving head of government to address this important conference is an honor indeed. I defy any person to travel to this great country at any time and not to be inspired by its promise. May stressed she wants to renew the special relationship between the uk and the u. S. And says the two countries must always stand up for friends and allies in other democratic countries. She has invoked that special close relationship. I think on both sides they would like that metaphor. British finance minister, Philip Hammond speaking this morning on trade. He pointed out that britain will not be able to start negotiating any International Trade agreements until brexit is completed. Saying britain remains a fully engaged member of the European Union which will not happen for two years, once that clock starts on article 50. So were talking 2019. They can start to sow the seeds today. You thought you might have visibility on these issues. Not so much. President trump going after defense contractors again in an interview with fox news last night. The president said the u. S. Needs more submarines, but he wants to buy them at lower costs. Im cutting the prices of submarines. Were lacking submarines, well build new submarines, but the price is too high. Im cutting the prices way down. Were keeping an eye on shares of two companies that make submarines for the government, General Dynamics and huntington ingalls. Well have to see how they respond to the tweet risk, this time it was a tv interview. Following President Trumps meeting with theresa may, he is scheduled to speak on the phone with russian president Vladimir Putin tomorrow. The white house said it will be their first conversation since the president took office. Hes also likely to speak with an Angela Merkel tomorrow. Lots of Economic Data and a few Earnings Report on the docket. Before the bell, reports from chevron, honeywell, american airlines, General Dynamics and abbvie. On the economic front, a first read on Fourth Quarter gdp at 8 30, durable goods at that time, and 10 00, consumer sentiment. We mentioned chevrons results, landon dowdy has more on what to watch. Beyond the numbers, here are the three things to watch. First, cash flow. A key issue is what chevron will do with its excess cash. You want to listen to see if the oil giant will reinvest t use it to improve its Balance Sheet or return it to shareholders. Second, production. Chevron is expected to be the beneficiary of rising oil prices. It started off with projects in australia and angola resuming eventually. And it holds a premiere position in the west texas permian basis. Third thing to watch, capital spending. Some on wall street believe overall investments could go higher than the expected 20 billion this year. As Energy Companies feel more confident about opec and nonopec memberss curbing production in the first half of the year. Some other stocks to watch. Earnings from alphabet missing estimates. The company saw its revenue soar 22 on strength and mobile search and video advertising. Heres googles ceo on the call last night. Computing is moving from mobile first to a. I. First with more universal, ambient and intelligent commuting that you can attract naturally. All made smarter with machine learning. So Sundar Pichai on that call. The takeaway from the call, they managed to grow the search business. Growing it on mobile. We know they get paid less per click. That is the story behind the mix. Thats been the story for 15 years or Something Like that with google, costs per click going down making it up on volume. I think there was modest concern about margins and about spending levels. I think people thought maybe they would reap some further gains from a lot of these cost initiatives at the less profitable units. I think the stock ran up in a couple days beforehand. Its basically back to where it finished last week. Its not as if it was a real disappointment. I think people thought more would flow to the bottom line. Intel beating on the top and bottom lines. Results there helped by growth in its Data Center Business and a more stable pc market. Here is intels ceo on the call last night. Autonomous cars for example will generate about 4,000 gigabytes of data each day. That is creating tremendous opportunity. Intel will play a central role because our products are key to turning raw data into high value insight and information. Clearly intel is getting in the sweet spot in terms of growth when it comes to internet of things. He mentioned autonomous cars. Theres demand. Theres demand for sure. The results were somewhat encouraging. The stock has not gotten to escape velocity. Its around the 2016 highs. I think the message was basically the story remains intact. Microsofts Cloud Computing business nearly doubling its revenue for the quarter. Another Strong Quarter certainly, managing to grow this Cloud Business very strongly. Almost several quarters in a row. Thats enough to offset weakness. Tremendous momentum. Paypals Fourth Quarter sales rose, but they are offering a cautious outlook citing currency fluctuations. The stock did back off a bit after the close. Starbucks shares coming under pressure. The company posting a smaller than expected rise in Quarterly Sales blaming congestion in stores prompting some people to leave before ordering anything. Starbucks is trimming its fullyear revenue forecast. Kevin johnson on the call last night. Now when customers walk into the store, you know, we have alleviated the congestion at the point of sale line, now we have congestion at the handoff line. They might look at the number of customers around the handoff lane, the number of beverages there, that might create the signal to them that they will wait to do their transaction. We cant specifically quantify the number. We do think that was the most significant contributing factor to our 3 trying to make it seem like a good problem to have. Too many people, too many orders. The mobile order business has been growing so fast. Its an engineering issue. A traffic flow issue. 3 comps, one of the lowest in a while. Investors are adjusting to the idea of him taking over as ceo. Howard schultz will be on squawk on the street talking about that idea. Saying starbucks is best in class when it comes to operating. And if the problem is that mobile an digital is growing too fast that they have to figure it out better. This analyst and a number of others say they will. The stock is priced like a growth stock. Its been very strong since the election. Juniper network shares getting slammed. The Company Forecasting lower than expected quarterly results. And there you go. Down 8 it looks like after the market. Deal news this morning, tesco is buying uk Wholesaler Booker Group for 4. 6 billion. That deal gives the british Supermarket Chain exposure to supplying the cafe, restaurant an pub market which is growing faster than the eat at home market. Ubs reporting a drop in Fourth Quarter net profit. Results still beat forecasts thanks to a better than expected showing in its equities business. The bank is pointing to improving Investor Confidence in the u. S. At the end of 2016. Speaking to cnbc earlier today, Sergio Ermotti says that could be a sign clients are ready to get off the sidelines. We are realistic, we have data points pointing at clients and investors being more optimists and ready to be constructive about the situation. They are really looking for concrete actions by the new administration in the u. S. Ermotti says there could be momentous changes for the Financial Services sector if theres a hard brexit in the uk. When we come back, how will trumponomics play out for stocks . We dig deeper with lindsay piexta. First, a look at how the dow transports performed yesterday. The index hit alltime highs on the back of southwest having the best day in eight years. Whats Critical Thinking like . A basketball costs 14. Whats team spirit worth . cheers whats it worth to talk to your mom . Whats the value of a walk in the woods . The value of capital is to create, not just wealth, but things that matter. Morgan stanley anything with a screen is a tv. Stream 130 live channels, plus 40,000 on demand tv shows and movies, all on the go. You can even download from your x1 dvr and watch it offline. Only xfinity gives you more to stream to any screen. Download the xfinity tv app today. Making headlines this morning, white House Press Secretary sean spicer implying that President Trump is warming up to the gops proposal of the socalled border adjustment tax, a move that would have an impact on corporations and the overall economy. Here to discuss the implications of that and other taxes getting talked about is the chief economist at steiffel fixed income. Good morning. Good morning. We have to differentiate between the border adjustment tax which is in paul ryans house gop tax plan and this idea with a border tax with mexico. First on the border tax with mexico what are the economic implications of that . Any time you talk about limiting the free flow of capital and labor across borders, its a net drag on economic growth. Both for the u. S. And mexico. Be vo obviously translate into where it hits the consumer most, the pocketbook. When we talk about tariffs, you are talking about raising the costs of goods from clothing to sneakers to computers, to automobiles. That will hit the consumer at a time when were still talking about very marginal Income Growth here in the u. S. So, on net this will take a big chunk of Discretionary Spending ability out of the u. S. Consumers hands. So on the one hand you say this might actually restrain growth in some respects if implemented. On the over hand, it has a net inflationary effect. I w i wonder how that means for how Interest Rates get sorted out in the bond market. This could be a case of stagflation. We could see moderate support to inflation at the same time reducing overall topline gdp as well as Employment Opportunities at the same time. When i talk about modest support, inflation is not out of control in the u. S. At this point. Were still talking about just about reaching that 2 target, with the feds own internal forecast not anticipating prices to go beyond that level. This could help sustain that 2 pace. But not a concern about getting a out of control price pressure into the u. S. Economy. So, where are you on Fourth Quarter gdp, which will be announced this morning and whether we can keep the momentum into what mike has been reminding us every day is usually a bumpy first quarter. Its clear as we round into the final quarter of 2016, momentum did slow noticeably from that nice bump up we saw in the Third Quarter. This is likely to leave us with an annual pace of growth around 2 for 2016. So were talking about a tenth, maybe a couple tenths of a Percentage Points what we saw from the year prior. Nothing to write home about. Many Committee Members anticipated a bump up in growth and inflation in 2016. Looking forward to 2017, again, were still talking about many of the same lingering themes. The consumer still under pressure without sizable Income Growth gains, still talking about employment at well below the needed level on a monthly basis. So you havent changed your view at all after the election, after this surge in optimism from consumers, businesses, investors, already starting to see some pretty decent data. You sound pretty negative where you were this time last year. I think were cautiously optimistic. If we look at the trump administrations proposals, there are a number of pieces in there that could very much prompt growth. When we talk about alleviating some burden and barrier on the consumer, business investment, the missing component to the recovery, if we can get that cycle jump started, absolutely we would revise our forecast higher. At the same time were hearing progrowth notions. Were still talking about protectionist policies. Particularly as we just discussed, raising taxes, export taxes or tariffs. Theres a balance, and it remains to be seen which way the pendulum will swing with the incoming administration. There are uncertainties. Lindsay, thank you. Investors dont seem to be focused on the protectionist rhetoric, even in this idea that the 20 tariff from mexico seems like the markets dont want to react. They do react in the hope of good stimulus. When we come back, a round up of stocks to watch. Lots of earnings movers. Stay tuned, Worldwide Exchange is right back. Still to come, the mexican peso continues to slide today on rising tensions between the u. S. And mexico. Well talk about u. S. Corporate earnings with Wolfgang Koester. Stay tuned, youre watching Worldwide Exchange on cnbc. Good morning. A new world order. President trump and british Prime Minister theresa may will be meeting at the white house today. Earnings central. Shares of google parent alphabet tumbling. Plus mexicos cover girl. Awkward timing of the first ladys latest magazine spread has twitter in a tizzy. Its friday, january 27, 2017. Youre watching Worldwide Exchange. Good morning. Welcome back to Worldwide Exchange. Im sara eisen along with mike santoli in for wilfred frost today. Lets check in on the global markets. Futures remain resilient after another up day on wall street yesterday. Dow futures higher. Nasdaq lower. Got a lot of earnings to dig through. For now dow futures up 15. S p up less than a point. Nasdaq futures down 4. 5. Maybe alphabet is part of that story. Down 2 after its report missed the mark. Early action in europe is somewhat negative, pausing after two strong days overseas. The german dax down 0. 3 . Ftse 100, just ticking positive here. That is the outperformer. Not just the ftse 100, but the british economy turns out was the Fastest Growing g7 nation of 2016. Despite the brexit. Just like everyone predicted. Part of that is the weaker british pound. Part of that is we have not seen the impact of brexit yet. Sort of this inbetween period. Which is very good for the uk as Prime Minister may meets with President Trump at the white house today. As for the action in asia overnight, a stronger picture. The nikkei closing higher by 0. 3. Same with the shanghai comp. And hong kong closing after a string of moves. A look at Broader Markets outside of equities. Oil backing off. Its been bouncy in this range. Strong today. Alternating strong and weaker. You do see natural gas backing off 3 there. A jumpy one. Tenyear note has been on the rise, regaining some of that altitude that it had lost between middecember and last week. Pretty much flat this morning. Above 2. 50. 2. 51. Yesterday the u. S. Stock market lost speed late morning as the tenyear note started to go back down again. Seems like this is the lead dog in the markets for the moment. Look at the dollar. Currencies also been kind of pressured, below the highs eventually. Definitely you hear a lot about it being a crowded trade, going in, consensus of the dollar going up. You have a challenge to that oneway view. You see not too much movement. Though stronger against the yen. I think that Fourth Quarter gdp number will be a catalyst in terms of what you can take away forward looking for the economy from some of the confidence into the real Economic Data. Well see what the dollar does. Been mostly positioning for a while now. As opposed to the actual fundamentals. A look at gold. Also back on its heels for a while now. Down another half percent, well under 1. 190 an ounce. 1. 183. The dow had a record close again yesterday. It did. I think it was a digestion day. Still heading for a positive week. Some stocks to watch today, which could impact the trade, alphabet posting Quarterly Earnings below wall street estimates. The company did see revenues soar 22 on strength in mobile search and video advertising. Theyve just getting paid less per click when it comes to mobile. They still have a near monopoly on the mobile search advertising market. Near monopoly and no limit to supply. Thats what theyve been telling you since they came public, but once in a while it gets the focus. The question will be for some of these big cap tech stocks like google and facebook, they rely on advertising. If the economy has this uptick has many are expecting from republican policies that would be overall a good thing. But these companies are also very global. Yes. And we know their ceos have had this controversial relationship with donald trump during the campaign at least. They had that meeting of the minds at trump tower. I think theres a lot of hez tans hesitancy on what they can expect. Well hear some more commentary on that as we go. Intel beating on the top and bottom lines. Results were helped by growth in its Data Center Business and a more stable pc market. Heres intels ceo on the call last night. Well, theres the chart. Its trading at the upper end of the range. It had a first reflex move down on the report. People took a second look, heard the call and the stock firmed up. Microsoft reporting earnings that wall street census. The Cloud Computing business nearly doubling revenue for the quarter. That continues to be the story for microsoft which has become a strong outperformer. There is the threemonth chart. It goes back higher if you look at the fast Cloud Businesses. Two years ago people said buy for the dividend, now buy it for the growth. Starbucks coming under pressure. Starbucks blaming congestion on the reason why people are not ordering anything. Lots of data today. Before the bell results from chevron, honeywell, american airlines, General Dynamics and abbvie. On the economic front, a first read on Fourth Quarter gdp at 8 30, durable goods at that time, and 10 00, consumer sentiment. A new report on currencies and corporate earnings in focus. Joining us is the man behind the research, Wolfgang Koester from fire ops. How many corporations are exposed to the mexican peso which has weakened about 20 in the past year . I dont know the exact number the exact number of companies that are exposed. But the issue with it is is nobody really will know. And the volatility that thats creating is going to show up in earnings. Thats going to be the issue. Who has the surprises, what are they actually meaning to them. Thats the issue. So what at this point can you gauge as the aggregate impact of currency being cited as a factor in shortfalls . Were seeing an increased amount as you would expect. Q3, the report we just came out with, what we do is quantify an look at 800 north American Companies and 400 European Companies and purely quantify who is talking about it, and who is literally quantifying it. Then we add those numbers up, we look at what that is. In this case its roughly 10 billion headwind for the aggregate of the subset of the 1600 companies that reported, which is a significant number. What makes it worse is that the average company that reported on it actually missed and had the impact by roughly four cents earnings per share. Think about if you have a company like paypal coming out saying we expect it to be x and the average number is 4 cents less, its been significant. The sad thing about this, its manageable. Right. Which you have been saying all along, through hedging techniques and others. So 10 billion head wind in q3. Does that mean q4 will be a bigger weight . It could very well be. So what we in general are seeing and expecting is that youll see some surprises out of the political rim that were seeing now. We feel that actually youre starting to get less and less concerted effort by the g20 countries to keep the market somewhat controlled. So you may go back to the mid to late 80s, i remember, when you literally have these gapping markets where one minute the euro is 1. 07, the next its 1. 04. That impacts and hurts companies who are not understanding and or managing currency risk properly. That will hit the bottom line harder and harder. Top sector that got hit in q3 . The pharmas going in there. Som some industrials in there. Does anyone manage is well . Yeah, absolutely. You have companies that you mentioned earlier. Google does a great job at this. Pay pal, they could be doing a better job. You heard that. You talked about it in an earlier segment, they mentioned that currency headwinds, not only do they have it, but theyll continue to have it. Pay pal could continue to do a better job managing that. Well talk to you again. These currency headwinds are not going away. Wolfgang koester of fire apps. Time for top trending stories. An adorable viral video alert. This father and daughter singing you got a friend all while the dad plays on his guitar. Destiny you got a friend in me you got a friend in me yeah you got a friend in me is this what you do with your daughter . Doesnt take much to get daughters to start singing movie songs, which that has become. But i cant say i participate or they ask me to. Maybe you should. Thats your next viral video. Miranda priestley fans rejoice. Elton john is writing music for the Devil Wears Prada musical. Elton john says i cant wait to sink my musical teeth into this hunk of popular culture. I wonder on broadway. It seems like this is everyone is mining the back library of movies for broadway shows. Anything to keep it going. Melania trump hitting vanity fair in mexico. She explains how she deals with her president ial husband and how she may be the next jackie kennedy. The photo originally appeared in gq magazine last spring. Was this like they did this to taunt people . You wonder about that. Whether its a quirk of the editorial pacing, or whether this is, look, somebody is well in the news and headlines. Get some buzz on the newsstand. Coming up, todays mustread stories. First a look at european equities and where they stand right now. One bright spot is the fotse 10 in the uk. Prime minister theresa may meeting with donald trump today. That meeting we will cover. Youre watching Worldwide Exchange on cnbc. Welcome back to Worldwide Exchange. Time for our must read stories catching our attention in the papers. My pick in the Washington Post written by Newt Gingrich and close donald trump aide. He was on the transition team. Margaret thatcher is the real model for the Trump Presidency. Those who fear trumps presidency might note that one of the first goals is to begin working on a Bilateral Agreement with britain. This is a much more sophistic e sophisticated president than his critics believe. He draws parallels between Margaret Thatcher and donald trump. Something that Prime Minister may yesterday mentioned, that thatcher relationship with ronald reagan. You will hear a lot about this. But what we hear on wall street is some of the critics of trump do say hes antitrade, hes bashing trade, and that is an interesting point that he is hosting Prime Minister theresa may to work out the first bilateral trade agreement. That is a sign that trade deals are getting done. They can get done. Maybe take a few years. And exactly what kind of new flow of goods and services between these two companies. I do think its workable. Its just a question of is it applicable to every region of the world. Absolutely. Especially some of those tpp countries. My pick this morning is from usa today. Trumps wall is a huge waste of money. Physical barriers certainly have a significant place in Border Security but major expansion of the existing barrier should be done in the context of a cost benefit analysis. The surge in spending in border enforcement has already reached the point of diminishing return. The idea here is for one, since in the last decade theres been a tremendous amount of new spending on physical barriers and border patrols, actually its a 40year low of people being seized at the border coming in. So its one of these solutions in search of an immediate problem, and is a wall the way to do it . Even though its not a big dollar item, i think it will be one of these potential friction points of is this really what we want to do right now . Which is why i think we need to hear from the rest of the republicans. It was a Trump Campaign promise. Yeah. It was something that resonated in his rallies and on the trail and in some rust belt states in the midwest and also the border states where he talked. Hes making good on it. He feels this is his mandate. The question is what will it take to check that off and say i fulfilled the promise. We are approaching the top of the hour, the team is getting ready for squawk box. Becky quick has more on whats coming up. You were talking about diplomacy and trade. We will talk about that all morning on squawk box. Thats the story when you look towards washington and see whats happening. Theresa may will be here. Its a huge story m talking about that and the impact of what it could mean for our relationship and trade. We have Robert Tuttle joining us this morning talking through the special relationship you all were talking about. Theresa may does seem to have a lot to in common with donald trump, though theres one area where they dont see things eye to eye. Thats when it comes to president putin of russia. Thats an issue they take a bit different stance on. Also as you mentioned trade, the issues with mexico, obviously that exploded a bit yesterday. Well dig through what that means from the other side of the fence. Well talk to the former president of mexico, vicente fox. Well be joined by the former finance minister, guillermo ortiz. This is a change in the way weve been having a relationship with this country over the past 20 years. Huge things are shifting. Well dig into that. Theres a 60 billion trade deficit we have with mexico. Well see how much mexico may be willing to bend. And we have the White House Former white House Counsel of economic advisers, and how he sees the economy right now. Well see you guys at the top of hour. Thank you. Coming up on the week of dow 20,000, we want to know what advisers are telling clients. Well talk to tom lee next. You cant predict the market. But through good times and bad. At t. Rowe price. Weve helped our investors stay confident for over 75 years. Call us or your advisor. T. Rowe price. Invest with confidence. Cathys gotten used to the sme. In her kitchen rbage. Yup, shes gone noseblind. She thinks it smells fine, but her guests smell this. Ding, flies, meow febreze air effects heavy duty has up to. Two times the odoreliminating power to. Remove odors youve done noseblind to [inhales] mmm. Use febreze air effects, till its fresh and try febreze small spaces. To continuously eliminate up to two times the odors. For 30 days febreze small spaces and air effects, two more ways. [inhale exhale mnemonic] to breathe happy. At bp, we empower anyone to stop a job if something doesnt seem right, so everyone comes home safely. Because safety is never being satisfied. And always working to be better. Welcome back to Worldwide Exchange on a friday. An up week for stocks and for futures, at least the dow and s p. The dow futures up 19 off another record close on a historic week in which the dow surpassed 20,000 for the first time ever. With us is thomas lee. Good morning. Good morning. A more cautious tom lee in 2017 than were used to. Are you surprised to see the strength in stocks . Go a new surge of buying this week. Its been impressive. Sort of fits the idea that people last year thought late cycle profits peaking, now everyone is like, whoa, theres a lot of legs left in the economy. So im not totally surprised. But, you know, stocks and economy dont always have to be in sync. So were in this view that this is the First Six Months of the year is going to be decent Economic Data. But maybe markets trail a bit. Why is that . Is it about how far weve come in the last couple of months or questions about what the fed will have to do the rest of the year . Where do you see the catalyst coming for that . Yeah. Thats part of it. The bond market is not as op optimistic as the stock market. Corporates who were steady buyers in stocks may pause a bit because they have to figure out tax reform and border rules. Hey, weve had a nice move, its hard to build on a 10 move with another 10 . What type of correction are you looking for here . Its hard to tell what downward reinforcement takes place. In the First Six Months after an election year, 27 of 29 times from december 31 to the low in the first half youre down. So sh so, the only exceptions are 1929 and 1913. I think 2150 is where you will see sometime this quarter. Typically in that first year of a new president you get a chance to buy the market again is what youre saying. Thats right. Part of it is the shift from perception to execution in the administration. Well have to see. Im sure were all rooting for keeping america great. Which sectors will lead this move lower . Will it be the ones that benefited most since the election like financials, industrials, materials . Thats really good question. I think the last four years have been sort of the stocks that were the qe stocks, growth, secular growth, bond proxies. I think bond proxies and secular growth are less attractive. You want to own more the cyclical stocks. So are you what does that include . Are you confident in owning oddly we think the strategy that works is c. A. R. P. , the Old Industrial sector, the banks, and telecoms. You mentioned last year everyone was fixated on the idea that the cycle was at risk of ending. This year you have a new set of policy ideas and people are dialing back saying its the beginning of something. The markets have been rolling for years now. Where do you think we are in terms of profit cycle, economic cycle, market cycle . Again, its the the answer to those questions lies within looking at industries. 40 of the economy was in recession, because it was transports, industrials, energy. Thats where Profit Margins can really expand. Like a year ago or so. Yeah. Exactly. In energy, 15year low on Profit Margins. Machinery, industrial conglomerates. Energy margins going back to median will add almost 10 dollars to s p profits. Thats almost 10 growth from one sector. It feels like the market is looking at this Trump Presidency and congress with a Glass Half Full approach. Rallying on pro growth policies, good news policies, and ignoring some of the more economic harmful policies, like a 20 tariff floated with mexico yesterday, didnt see much of a reaction. Why do you think were in this mentality . Theres obviously a lot of talk. Some of it is alarming. It seems disruptive to global trade. In a way, the reason the market if you want to explain why the market seeing things half full, the last eight years have been tough on the private sector. Businesses have been worried about regulation. The last eight years saw the largest jump in restrictive regulation in the history of the economy. Its been a tough eight years. Thats such a sigh of relief that the market can deal with some trade tensions. Exactly. The bank is a great example. Four regulations in the last eight years added 60 billion in regulatory costs. Wow. Tom lee, always good to check in with you. Youre watching gdp report and the bond Market Reaction to it. That does it for Worldwide Exchange. Squawk box is next. Only at t offers you all your live channels and dvr on your devices, datafree. Its entertainment. Your way. Good morning. Riding the stock market rally. The bulls are in control as the dow logs another alltime high. New gdp numbers could drive todays trading session. But we do have tech earnings in focus. Microsoft beats, alphabet misses. A full rundown of the biggest movers straight ahead. Plus washington watch. Prime minister british Prime Minister theresa may will meet with President Trump today. Everybody is saying this is like a Reagan Thatcher thing. Well see. Well tell wlyou what to expect. Its friday, january 27, 2017. Squawk box begins now. Live from new york, where business never sleeps, this is squawk box. Good morning. Welcome to squawk box on cnbc. Were live from the Nasdaq Market site in times square. Lets look at the dow. The dow coming off of a new record high. Its now on pace to break a twoweek losing streak. The big winner yesterday, the dow transports. That index gaining a half percent and logging its sixth positive session out of the last seven. Those gains were led by southwest airlines. The Company Stock closing 9 higher after Quarterly Earnings and revenues beat expectations. We spoke yesterday with gary kelly, the chairman and ceo. That was the real thing. That is what lit a fire. It was the interview on squawk box