The pharma giants ceo joins us live and a big downgrade for one of the big streaming stocks we will debate in call of the day. The Investment Committee is ready to go. The Halftime Report starts right now. Welcome. Good to have you with us on this monday our Investment Committee, joe tear nova, josh brawn, steve wise brand and rob seechin. Lets begin with the markets stocks at session highs. Dow going for its close above 29,000 all this in what is a critical we can expectations are high. Positioning is pull bullish. The numbers better live up dont you think . Numbers i think will in certain instances have to meet high expectation i agree with that, scott but it seems we have rolled into 2020 and not much changed from 2019 you have been able to disburse allocations a little bit outside the u. S. Chinese equities are off to a strong start the iem both of those performing well. We are in earnings season. I think the pressure is on Financial Institutions more than any other sector i agree with what jim cramer said last week as far as the setup as never really never looked that worse. The pressure is on for financial decisions. Technology, where up in of the gains is coming from right now, any form of continued favorable news, i think it is not going to change the outlook and the desire to own the tech names. Does this feel like this is the moment of truth right after you have had the big run up into the numbers on expectations earnings are going to be good, growth is going to rebound it doesnt feel like we are overstating that the youth looks better sound good or you are going to have people saying that the move in the market is not justified. I think as mark twain said, whenever you find yourself on the side of the majority, it is time to pause and reflect. I feel like that with all of the annests upgrades everyone is bullish. There is no chance of recession people are saying. I think definitely this quarter is going to be so important. I think as you are big individual names, those companies that beat have good guyance will do well i think look for the companies that come in subpar. Five below today came out and announced and the stock has gotten hammered. I think as an investor know what you own. Once again, sign good, the feds none qeqe continues. Good time the talking about positions. Deutsche bank says it is stretched. The ideas that there are a lot of people on the same side of the boat consensus is things are going to be good. Money has been put to work in the market consensus is high. Goldman sachs gets another bump. It feels like its 20th in the last few weeks going right into the numbers, which begin in earnest tomorrow. Yeah. I think we have to look at beyond you how well the markets have done in the last three or four months and keep in mind we had 18 months of zero progress for the s p throughout all of 2018 and most of 2019. And even small caps still havent made a new high. It is not as though it has been going on and on and on and on. We did pay for the earnings recession of 19 throughout the course of 18. If you do get a little bit of a reacceleration of earnings you dont need a lot, i wouldnt say it would justifily further multiple expansion but it could keep the overall market where it is joe mentioned emerging markets i have been hitting that note all year relative strength for emerging moorkts right now is at the highest level we have seen since june of 2018 russian stocks, the rsx is how you can track. Highest since june of 14, six years ago. Then we have names we havent been able at that talk about for a long time. Freeport mcmarin is one of the most sensitive names in the market fcx, making a huge move. When was the last time anyone could say anything positive about fcx on the network transports, also economically sensitive, hanging at the higher end of the range that could be a breakout stall to come. I think we have got to look at more than just is the s p stretched . What is the overall environment, global stocks, economically sensitive stocks nice things are happening in price. We will see if the fundamentals end up confirming that three or six mondays from now. Lets bring it down a little bit to the earnings level to the banks specifically, right . They are going to start it off em to, wells and jp morgan get things going, and citi tomorrow. Your long goldman. Yep like it seems almost everybody is given where the can census is and sentiment. I have made reference to the upgrades which steamingly are coming every day and josh alluded to or joe did to cramers point last week of the set up being bad because the sentiment has been so good the set up is so bad because they better live up to the hype or else. I think the sentiment is worse for the big cap tech because they have had such a major move if you look i was doing a lot of work on the market this morning and over the weekend we are look at negative Earnings Growth for the Fourth Quarter. Just under 10 for the year and just over 5 in revenues for the year in terms of the bank. The banks and energy are leading in terms of optimism in forecasts Going Forward. So you say, say, so if they dont do well its the going to take the market down i dont think thats the case. I think what investors will look through, regardless of the Bank Earnings is loan growth and talk about how loan growth is going and if it is helping the economy move forward 678 you warrant to see that in terms of my positions, look i agree with you, when the market has moved like it has moved you have got take a look at it but i also see opportunities out there with the caveat that valuations are very high on your views josh i am not looking for a major move i am looking for actually earnings to move up that level, maybe 10 , maybe less. For me, this quarter is a throw away it doesnt matter. I dont see major changes in guidance for 2020. I see pretty much that the same dialogue Going Forward thats going to be enough to keep the market going. You will have hits and misses like today you always have those. In general, if you look at analyst ratings 50 buy ratings on the s p 43 holtz holds, and 7 sells. I dont get tremendous optimism from that sfwha what ramps up the pressure, word you could use is stocks are running into the numbers. This has not been a wait and see market it has been a figure out you think earnings are going to be pretty good. We are going to run right up into and it now they have to live up to the hype. They have to live up to it. We are below consensus on our forecasts for earnings when you look at the last two years, between joshs point, is that 18 you really had a lot of Earnings Growth, no Price Performance on stocks. 19, you had really no Earnings Growth and you had a lot of Price Performance on stocks. When you look at that in the aggregate, they were up 20 . Earnings are up 20 . The markets are up 2 across the same period. Earnings have to do reasonably well there is another factor thats a little bit more macro than that. Thats in the manufacturing day. If you want to believe in this cyclical recovery, and we are starting to see some of these sectors, emerging markets, very cyclical if you are going the see the cyclical recovery, you need ism to start to corroborate that some of the Economic Data so it is not just a story of earnings. I think it is a story of economic recovery. The consumer has been incredibly strong and been a very supportive force in this market advance. What lacked a little bit is Business Confidence, for offense reasons. If you see manufacturing come back, i think that corroborates Business Confidence and you can get markets to continue to move higher at a major pace. Which bank is most susceptible to a disappointment or a pullback of their stock price this week . I look at goldman . Isnt the answer always citi . I dont know. They have had a meteor snik wells fargo. Yeah. I think with goldman you have to be discrete when you are looking at the bank this year. Gold plan is in a transformational stage, they are you no going to be the Third Largest private equity firm out there. A third of their authorities are Software Engineers acquisition of United Capital in the rna space s. Who knows what happened with the apple credit card thats the consumer based side but the federal looks at loan growth to deposits the deposits is the denominator, the deposits at the bank with loan growth. Thats at an alltime throw since 199 1995 ipgs thats a i think thats a point of optionality i think they are most susceptible to i have been buying the stock it is not at full position. I would actually buy that to your point. I missed it. I saw the breakout, i talked about it on the air, i just didnt buy it because i suck i agree with you this is a story about what the next five years look like under the transformation it is not about what was Free Cash Flow in the Fourth Quarter of 19 nobody really cares. I would be surprised if there was an opportunity to get in on a pullback from goldman sachs. Thats generally not how the market works stop ruining my dream. I think trading vechb going the look better than it has looked in recent quarters. The s p hits a new record intraday high as we speak. It goes to the point of the optimism and the run up into earnings season. The other point i think to keep an eye on beyond the banks is one that we have been talking about you know daily, the upgrades in sectors that outperformed the market. Like technology. Another good example is today. Apples price target goes to 375 we said apple is the proxy on the market to 375, a new street high. At d. V. Davidson facebook again called a top pick up to 280. Go down the list nvidia, which we mentioned last week price targets, up, up, up, and away tesla tops 500 for the officers time ever today. I think we have to look at these names individually though and not say it is a melt up. They are just buying anything. In many respects some of the large mega cap growth tech banks, it has been a group thing again. They are part of that group for a reason it is not a hereditary title these companies became what they became lets look at apple. Apple is going to sell 85 million pairs of air pods this year i will buy three of them because i keep losing mine put me down for three. This is a category for apple that didnt exist just a couple years ago. They sold 85 million pairs this year if they do that again in 2021, it will become the third best selling product line that the entire company has they are going to do 15 billion in sales just of air pods next year there is reason. There is a reason the sell side is raising after apple to upgrade it i am not getting into the watch and the 11 and on and on i think thats indicative of, we could do the same thing with alphabet. They are on the doorstep of a trillion dollar market cap going to join the club momentarily. There has been an index fiction of markets tech has been a part of i. A lot of the push up in tech has to do with investors are buying indexes, and the sector is the beneficiary of that. The sector is trading a of the a huge premium to the market multiple the highest in 11 years relative to the market multiple i also think the gains have been there, and it is really tough for investors to take money off the table because the gains are so significant and the tax bite is so large. Anybody going to take pause if you have four of these stocks at a trillion dollars in market cap . Isnt that a conscious. No. Thats not a valuation indicator. To you point i think this is general optimism among all the analysts it is an optimism indicator, isnt it it is you have got the price targets raised they make a decision when it goes close to the price target do i go to a hold or up crease my price target and justify staying on here. Everybody has been choosing choice b. Exactly to me, thats trouble. All of these analysts missed their price targets . They missed that dramatically . Is that why you think goldan maxx faces the highest pressure after earnings. Yes two of the names are not tech stocks google, alpha is in the communications sector. It is not included in xlk. Facebook also. Facebook wasnt up there. What was the other one that was up there. Facebook is up there. Facebook, not tech stock, amazon not a tech stock. It is consumer discretionary. Look at adobe, when they missed 260. New high by the way for that name, alltime high. Analysts came out and said we are ground 2k3wr5iding it because their growth is going to slow company came out and said you are wrong. That was at 300 a share. Now it is up 10 with no new news. I think what is interesting about the trillion dollars, i think it is a just a headline. When you talk about adobe and how powerful apple has become. Apple and head sets from their air pods, which i also have probably five because my kids keep losing theirs, will do 12 billion in revenues from their ear pods more than adobe makes in a year. An incredible amount of revenue. Apple, you look at their multiple to the s p, apple was under a multiple of the s p from 2012 up until last year. People are saying is it too expensive . It traded below the multiple since 2012 right and how many people were saying when it was trending doordthe higher end of the multiple, how many were take this company is about to pull a rabbit out of the hat and invent a new heara. Even if you put a Consumer Electronics multiple on that, it would be worth money that what it is valued the company would really be off to the races but you are looking at it in a vacuum the other side, their iphone business is still 40, 50 and their still biggest contributor to urge mos. It is their bottom line. You cant just say wearables or hearables, you have to look at it all and they have down earnings and down revenue thats not typically if you took the name apple off that company it would be selling at half the multiple it is selling. Returning hundreds of billions of dollars to shareholders it is a very big part of the equation whats interesting about the discussion around tech it reminds me of something 20 years ago in march of 2000, there is almost nothing that can derail the positive energy and complacency thats built around this sector. I think valuation, regulation, and some other things are challenges to this sector. Sure, but it helps that the growth at any price stocks have already been popped. Thats the first crack. Exploded. They have exploded. Thats a good thing, though apple and Microsoft Companies earnings billions of dollars there is no comparison to 2000. I agree. There was a lot of Companies Earning above the pie in the sky numbers in 2000 that also got brought down with nasdaq they just werent sisco it still got taken out of the wood shed okay you cannot avoid the sector yes, you can do slightly better but when a sector breaks down, a sector breaks down i am not calling for in a. You were going to Say Something earlier. You said you are underweight something . Our firm is officially underweight tech valuation. Okay. For how long . Probably since december i am not sure i am giving you the right date. Our condolences. We have not been able to participate in that and have chosen not because of the enormous gains our clients have in those positions we think the secular trends are powerful. Why are you getting off the train. For valuation reasons it is a tactical call, it is a trade. For me, i am long term a secular bull in technology i think over time owl of the powerful trends remain in place and earnings ultimately catch up with some of the valuations. But i think you have got to mix in some of the cyclical exposures which have been laggards to allow your portfolios to work if that doesnt. Somebody want to take a stab at tesla, above 500. I was going to say, what is interesting about tesla is that, you know, take aside their factory in china, take aside what they are doing with their cars when you look at them as an autonomous player you know tesla started creating their own chips in april of last year. They stopped using nvidias, they have samsung manufacture them. They are in every single car that comes off the manufacturing line and tesla now has over two billion hours of drive time that goes up into their system that when you get a little bit more 5g Adoption Across the United States a little bit more Software Enhancements their biggest competitor would be waymo which answer has 16 million hours of drive time. When you want to talk about autonomous driving it is partially in the, is to. I think this company is innovative but i have never seen a sector where somebody has a price target of 10 and 500s teslas drive hours are human, and waymos are actual autonomous they are nowhere near the exact same drive time models how do we explain the price target have you ever seen anything like this a price target that goes at oppenheimer from 385 obvious leap thats in the rear view, the analogy there, but to 612 . From 385 to 612. Sometimes the explanation is not the fundamentals of the company. Listen, maybe euphoria in 2020 looks different than euphoria was described in prior decades as indicating a top of the market i think there is something going on positionally. In tesla it extends further. Think about coop, twillo, z scaleio. Up 20 year to date. Has something fundamentally changed . No look at all the ipo names. Beyond meat. Up 10 again today i think euphoria looks at momentum and price and the way people are positioned. I think right now wait. It is also more created amongst fewer investors. In 2000. Yes. 55 52 of american households had some kind of stocks exposure. Either mutual funds or individual stocks. Now it is 55 ask. The population is so much bigger than it was 20 years ago you have way less people involved you dont see euphoria until people that havent invested in 15 or 20 years come back into the market and they are actually doing the opposite they are buying bond funds every chance they get. Euphoria, you call it what you want, mike santoli is looking at whether it is peak happiness. He is at the New York Stock Exchange go back two years actually, one year and 50 weeks ago is the moment, late january of 2018 that i a couple of months