2nd Half Playbook, Boeing Buys Spirit AeroSystems, Chewy "Roaring Kitty" Effect 7/1/24

David Faber (0:00)

Market Insight and Analysis. You're listening to the opening bell of CNBC's Squawk on the Street.

Good Monday morning, and welcome to Squawk on the Street. I'm David Faber with Leslie Picker and Mike Santoli. We're live from Post 9 at the New York Stock Exchange. Jim and Carl both have the morning off. Let's give you a look at futures as we get ready to start the second half of the year of trading. Man, half of 2024 is already gone, going by very fast. All right, let's get to our roadmap. It does start with, of course, Big Tech, which was the big driver of stocks for the first half of the year.

But one question, can Nvidia and AI excitement fuel further gains as we get underway for the second half?

Leslie Picker (0:38)

Plus, Boeing agreeing to buy its supplier, Spirit AeroSystems, in a $4.7 billion deal, and meme trader Roaring Kitty adding fuel to another big stock move, Chewy Shares, surging as Keith Gill reveals a more than 6% stake.

David Faber (0:55)

All right, let's start with the markets, of course, as we kick off the second half of the year. I was not here for the last two weeks of that first half.

I can't say that I'm sorry I wasn't, but of course, following Mike, all the ups and downs in particular, some of that bit of a sell-off in Nvidia and the like. But the talk has been, and will continue to be, much of the same, I would assume, in terms of the power of AI, what that will mean for these biggest of big companies that we follow so closely.

Mike Santoli (1:22)

Yeah, I mean, we held it together somehow, so did the market, with you gone, David.

But honestly, it really is one of the better halves of a year, 15% plus total return for the S&P per unit of volatility, right? The extent of the biggest pullback was 5.5%. So yes, a lot of that was due to the, not just technology, but I would call it just the quality mega-cap sector of the market, the quality S&P 500 ETF up more than the S&P this year, up 16%.

I wouldn't say it's been only that, though. It's not as if tech is kind of throwing a shutout against the rest of the market. The equal-weighted S&P is up 4%. That's kind of no big deal, but it's a 9% annual compounded rate. So it's not as if it's completely being left behind. The other things I would note, the cyclical parts of the market are still hanging in there against the defensive part. So if the market were narrow and it was these defensive type sectors that only benefit from a poor economy that were leading, that would be a little bit more of an issue. I do think the seasonal effects are on everybody's lips this morning in terms of first two weeks of July being the strongest, among the strongest of the year historically. And then also what happens after you have a big up first half.

And it usually you get upside bias, the follow through. We'll say that the final two weeks of June were supposed to be bad based on history. So that didn't happen. So I don't know how much you defer to the seasonals. You just say, hey, in a strong market, even the times that are supposed to be poor end up being okay. Earnings hurdle, I think is a big question. How high is the hurdle for earnings? Expected to be close to 10% with the standard beat rate. And you've seen some stocks get punished like Micron last week when they were kind of slightly less than completely optimistic. And finally the yield move.

I mean, after the first quarter, we finished on a high, everything was at a record. And then treasury yields crept up toward four and a half percent on the 10 year and then beyond. And we had that old debate of can the economy handle it? And we have seen since especially the debate on Thursday, yields going up and also globally yields are pushing a little bit higher. So not alarming, but something that I think might get the market's attention at some point.

Leslie Picker (3:28)

Yeah, it does really feel like an inflection point. There was a piece from Goldman's prime brokerage desk this morning, which talked about how alpha generation of performance has really stagnated in recent weeks. And it's created this dynamic of kind of what's next for portfolio construction. And this idea of do is now the time to really be truly diversifying away from some of the key winners that we've seen earlier this year.