The Halftime Report with scott wapner starts right now. Welcome, good to have you with us on this friday, our Investment Committee at the desk today, josh brown, stephanie link, jim lebenthal, the chief Investment Officer at Boston Private Wealth is here, liz young is bny melons director of market strategy, anastasia from Jpmorgan Private Bank and lets begin with the broadcom story. Its one heck of a buzz kill today. Price targets cut across the board, lots of stocks in that space are down shortly, not jus broadcom, amd, lam research, micron, you pick it in the chips and its getting hit pretty hard the chips have two things working against them the first is theyre like one of the last true global cyclical sectors that exists that have any real market cap and any real size so you see a lot of people express their views about the Global Economy in those equities and obviously, the tariffs are an issue because of how much cross border work needs to be done in order for chips to be manufactured, shipped, et cetera so there are huge question marks and thats happening at the same time that were getting a slowdown in cloud spending at the enterprise level as ive said on the show before, its highly likely that corporate capex peaked for this Economic Cycle in the Third Quarter of 2018. Everything so far thats come out since then has indicated that we are not going to see a resumption of that level of spending and a good deal of that spending happens at the cloud, at the server and so chips are both economically sensitive, theyve also got the secular thing going on with Companies Spending less on the hottest areas within chips and look, theres no pity in this group. Theyre high beta names, they get punished relentlessly when one of them is bad news, they all go down, amd is a great example. Heres a stock that hit multiyear highs. I think it hit three or four year highs on monday, its down 12 in the 4 days since and thats in a good tape so thats like what you can expect Going Forward for the semis and thats why im not, like, racing in to buy the dip in Something Like broadcom so, liz, the ceo says were currently seeing a broad based slowdown in the demand environment which we believe is driven by continued geopolitical uncertainties. This is a wakeup call on how destructive the trade war has been to certain industries, is it not absolutely. I think the real question here is are we getting to a point where weve raised tensions so high that theyre hard to reverse . And i dont really know the answer to that on an individual security basis i think other people on the panel can probably answer that better than i but we are getting to that point where as an industry, as a sector, were we cant reverse all of the damage thats done and even if we get a deal by the end of the year, it doesnt fix any of this so, cramer, this morning, calls it truly depressing broadcom call and he had such high hopes going into it because hes such a fan of the job stuff that hock tan has done truly depressing, a solemn hock tan, not good for the group, obviously, i thought he would have something up his sleeve, it turns out he did not this company also didnt lower numbers last quarter when everyone else did so they hadnt seen it yet so i actually added to it today because and this is a new position for me and im slowly legging in because i realize this is volatile todays day one of the buy. Exactly so its a very small position to start and by the way, i sold intel a couple of weeks ago and im using that money to buy this because i think this truly is quality on sale and thats my style. I want to buy quality when it gets hit this is the number one Management Team in the industry by far and they just derisked numbers. You think they still have cred, though you said they didnt take down numbers last time when everybody else did, they wait until now. And then they cut their guidance and get smoked i think they thought they could probably make up for wireless and storage weakness which is what we thought with better synergies from c. A. , which they actually did see better synergies from c. A. , they raised their operating margins by 3 in the quarter and that got overlooked the most important part is 60 of this business is networking and data center and enterprise and that business remains strong, going to grow double digits and already did grow double digits in the quarter thats 60 of the business, you still have synergies from the c. A. And i think the valuation is absurd, 30 discount to the group, Free Cash Flow yield of 9 , dividend yield of 4 , buying back 7 of their shares outstanding this year alone so i feel like down here, the risk reward is pretty interesting so, shannon, you own it and you bought it at the beginning of the year. You stay with it or you bail on it today steph makes a compelling case as to why todays a good entry point. It is and i actually agree with a lot of what youre saying, the reason we bought it back in february is we were becoming overall less constructive on the economy but we felt like if you wanted to have some exposure to a cyclical space this was, you know, you have to sort of take your bet within the semi space and we bought this based on the Free Cash Flow, based on the dividend yield i think from an execution standpoint, i think we looked at last quarter and said, well, this is management just being a better Execution Team than what weve seen in the other parts of the space so we still want to buy it i would say we have a full position already wed actually like to add to that but we want to wait a few days to make sure we get some of the sellers out of the market. Jim, we highlighted a note, june 12th, couple days ago, probably saying we told you so the chip space is messed up and its going to take more than longer than people think to get back on its feet to the point where it can really Start Performing again so, where are we now for somebody who owns not broadcom but other important names in the space intel and corvo, intel is my safer way to play it the chips, that is but theres some great data out there and i think we all know this the Semiconductor Industry association puts out monthly and quarterly figures and when you look at the trajectory of sales over the last 6 to 9 months what you see is that 2018 was a great year, it was up meaningfully the Fourth Quarter of 2018 was flat the First Quarter sales were down 15. 5 april, which is the most recent data down 14. 5 and yet think about this semis are up on the year take a look at the socks or smh, its been all over the place but what thats telling me, at least, is that the market believes that this selloff is due to inventory pull forward, inventory stuffing in the advance of tariffs okay if thats the case, then we go one of two directions. We either get a china trade deal in which case demand picks up and that inventory gets run through and were all fine or we dont, and the demand that we see now, down 15. 5 , year over year, is where we stay and chips are in trouble so the reason im pointing this out is that the market is telling us, again, through the chip space, its telling us that it expects a china trade deal sometime soon. If not, the chips would be off far more on the year so the interesting point, i think, liz made a great point in raising the question of whether you do so much damage and destruction from the trade war that you cant reverse it immediately. The markets got this view and weve heard it on the desk too, you get a trade deal, market rips higher and everythings great again and and the businesses can just snap back in ways that theyve already made adjustments that they have been unsure about when theres going to be a resolution definitely two parts of the story. First of all to your point about disruptions already in place in the markets, companies are seriously thinking about their supply chains and even if we do get a china trade deal this is not going to be a quick fix and going back to status quo because were hearing from Companies Like iericson noek ykia, for exe theyre relocating so i think that damage, so to speak, is irreversible however, if we think about a trade here, if we do get a trade deal with china, or trade detendeten detente, if we get a rollback of some of the huawei restrictions we could have a snap back in Semiconductors Semis before today were up 9. 6 because the hopes for a trade deal were starting to build once again. So i would actually be looking to pick up some of this secular semiconductor stories on the pullback i mean we talked about cloud datacenter spending, weve hit a soft patch a little bit from the 50 growth rate last year but i think thats going to start to come back up 5g, artificial intelligence, these are all Semiconductor Enables businesses so i would look at those names. I think thats a really great point. The volatility is not in the earnings the volatility is in the sentiment and so if you have a deus ex machina that comes along where all of a sudden you flip a switch and say you know what, trade tensions are off, look at this signed piece of paper i have which is probably a chinese food menu but whatever, all of a sudden its not that the fundamentals have changed so much for these semi companies but its like a cloud lifting and that reaction could be instant. It could be algorithms first and then people coming in once theyre already up 10 and taking them up 15 even if youre including short cover so i think thats a great point so do you take any of whats happening in the chip space and say, you see, i thought maybe the tech trade was a little ahead of itself in the to begin with and this is further evidence of that well, the big thing that youre seeing in tech is this bifurcation of businesses that are, i would call them asset light, recurring revenue model businesses that have not lost a step at all. Theyre all at alltime highs, you want to talk about service now and workday and crm and i can reel off 30 of them at this point. Those stocks have not been trading on tariffs they move a little bit with the nasdaq but theyre doing their own thing and then the chip stocks are right in the cross hairs so if all of a sudden you have a rotation and people say, okay, i just made 50 straight points in the software company, i couldnt even tell you who the ceo is but now all of a sudden theres action in the semis thats positive and weve taken trade off the table, yeah, you could see the nasdaq continue to roll but with a whole new group of stocks hitting the 52 week high list while the prior winners take a pause weve seen that throughout the post crisis period time and again in different areas including tech so thats not out of the realm of possibility so the implication is, yeah, you should be looking at some of these semi names that are down 20 points or 12 this week as in the case of amd and say, this is an interesting way that i can add some potential upside to the portfolio. Thats just the point, actually, because i thought i would walk in this morning and the stocks would be down 5 , 6 , 7 and theyre down its not pretty, right, i mean, i own a few of them but its down like 2 or 3 and the really secular stories, the ones that you want to own for the longterm are down like 1 so you know, i think that these stocks have already had a correction, they rallied huge off the december lows, but theyve already had a correction and yeah, maybe theyre anticipating a trade deal or some sort of reds lusoln there but i think the valuations are already capturing so much negativity and the good Quality Companies are getting thrown out with the bad i take your point you look at the overall market and you could say, on another day, boy, a company like broadcom, which is so important, and they really cut their guidance and the nasdaqs down 0. 5 and the overall market isnt down all that much either, im wondering if its because it seals the deal for a rate cut and the markets taking any bit of bad news as a positive because it may not seal the deal today but it could help, you know, wet the envelope at least to seal it i dont think it seals the deal for a rate cut. I still hope that the Federal Reserve watches Economic Data more than it watches Stock Movement however maybe this is both, right maybe this is maybe a further sign and maybe the clearest one, you know, most recently that the trade war is having a really negative impact. Well and what it could do is bake through into Consumer Sentiment and then that becomes an economic number but what i think were seeing here is stocks are number one expecting that the fed is going to prop us up in the meantime and then eventually we get a trade deal so, its like were just expecting the next six months to be kind of preventing a nose dive in the s p from the fed and then we get a trade deal maybe late in the year and everything takes off again. But the data today was actually really good right i mean, right right thats whats youre in the conundrum. Manufacturing is horrible but the consumers actually theyre showing signs of life and then even the Industrial Production numbers and the Capacity Utilization numbers, i mean, were not going down i mean, after the numbers today, gdp could be for the Second Quarter 2. 5 instead of sub 2 thats a big change. Its the great conundrum. Why should the fed cut rates when the stock market is 2 from a new alltime high and the data continues to come in pretty good and you can easily make the case that if you and liesmans going to be here in a moment, that if you combine the gdp for the first and the Second Quarter, so if youre doing, maybe, 2. 5 , you need to cut Interest Rates liz hit on something really important. Just real quick. I think what you said is really important because youre talking about how the consumer loses a little bit of confidence and that becomes an Economic Data point. I feel like the transmission mechanism of the stock market is faster than ever to hit the consumer, especially when you look at umish where people are upper middle class that are answering these surveys and they do know whats going on in their portfolio. The transmission mechanism from weakness in a Semiconductor Company to consumer could take six to nine months stock market, could be a onemonth story. Before you guys answer that, Steve Liesman has a rapid update for us, literally right now. Which plays right into this conversation steve, great timing on this. What do you have for us . Yeah, scott, put all the data together, the strong retail number sales, decent Industrial Production, business inventories, were now at 2 for the Second Quarter remember, this is a number thats had a one handle through most of the quarter and the data thats come in and its up 0. 3 from where we were before. Heres some of the forecasts, bank of america agreeing with stephanie, theyre up 0. 4 atlanta fed comes up 0. 7 to 2. 1, action economics, 1. 9, Deutsche Bank and joe at 1. 5 and 1 respectively there you go theres the forecast out there and then the Third Quarter is running 2. 1 so First Quarter was 3. 2 we put it all together, the Fourth Quarter at 2. 2 and if w do this one and the next one its a 2. 4 economy and i think your question is a good one. If you have a Federal Reserve that believes the potential of the economy is 1. 8 and were running 2. 4 , do the math, does that auger for a cut and i know we were talking about that interesting stuff there, whats happening from trade and whats happening in the Manufacturing Sector and Capital Spending which have all been on the weaker side but its the consumer that seems to be pretty strong here and at least for now, holding up the economy with stronger wages and plenty of employment thats out there, scott. Amorosa appreciate the point about the gdp tracking now 2 but i think as the fed you have to look at the preponderance of the evidence and sort of the other indicators, the forward looking indicators so if you look at global pmis were just on the cusp of 50, if you look at new orders they do not look good and then you couple that with a payroll story that we got last week, if you look at employment, the cyclical sectors of the economy are basically created no net new jobs for the month of may. Then you couple this with the inflation story, core pc inflation for the duration of this Business Cycle has undershot the 2 and on top of that throw in trade uncertainty, Business Confidence that is starting to pull back and i think its thats whats ultimately driving the economy, so i think the fed is certainly not a done deal to lizs point but i think the preponderance of the evidence is starting to build. Steve im going to go out on a limb and say that the fed, and you know better than me, that the fed doesnt think it made a mistake in december and if it cuts rates now, you could say its an admission that it did. And theyre going to come back and say, well, we could hike in december because the economy was Strong Enough to do so and you just told me that were going to do 2. 4 in the economy and thats evidence that we made the right move and now youre calling for a rate cut