SOTS 2nd Hour: A Record Rally, A New Activist Target and Let’s Make A Deal 10/21/24

Carl Quintanilla (0:06)

Good Monday morning, welcome to another hour of Squawk on the Street. I'm Carl Quintanilla with Leslie Picker, David Faber here at Post 9 of the New York Stock Exchange. Sara Eisen has the morning off. Starting the week off a little soft, Dow's down 100, a lot of big industrial earnings headed our way in the next few sessions. Yields creep up a bit, got back to 414 on the 10 year. And energy as well, reclaiming 70 after a 6% decline last week, one of the worst weeks of the year.

Leslie Picker (0:31)

Good morning everybody, happy Monday. We are 30 minutes into the trading session. Here are some movers we're watching, striking Boeing workers voting on a new labor deal that could end the strike this week, the latest this hour, but shares are up 3.8% right now. Cigna reportedly resuming mega merger talks with rival health insurer, Humana. Those stocks headed in opposite directions right now, with Cigna down nearly 4.5% or more than 4.5%.

Some moves in the activist space as well, Kenvue, a top gainer on new Starboard, has taken a position in the consumer products maker, will break it all down in just a moment. Those shares up more than 6% and take a look at shares of Disney, announcing James Horman will become board chair next year and that it will name CEO Bob Iger's replacement in early 2026 More on Disney's succession plan ahead on the show.

Carl Quintanilla (1:22)

Got a new note out by David Costin and Goldman Sachs today, saying the S&P will serve up just 3% annual returns over the next decade. That's far short of the booming gains of 13% from the last decade. And it comes as the S&P and Dow do hover near record highs, coming off the longest winning streak of the year. Let's talk more about where this rally goes from here this morning with Fundstrad Global Advisors, Head of Research and CNBC contributor Tom Lee, who recently raised his target to S&P 6K. Tom, good to have you. I loved your note the other day, looking at what S&P revenue has done in the face of declining inflation.

And your general point is that real revenue has accelerated and that kind of explains why equities have been so resilient.

Tom Lee (2:06)

That's right, Carl. You know, as you know, many investors and pundits thought as inflation fell and it's been cut in half in the last two years, that that would cause revenue growth not only to hit a wall, but that earnings would stall. But instead, S&P revenue growth is gonna be over 5% this quarter.

And on a real basis, that's over plus 2%. And that's the strongest, it's really one of the strongest numbers in more than two years. And so it is a really high quality earning season so far. And you know, close to 80%, or actually more than 80% are beating earnings so far. So it's a good beat season, but it's early. Right.

Carl Quintanilla (2:44)

And how much of it is due to financials? Is any kind of tailwind, although we heard various comments about this, is if a Fed tailwind does exist, is it likely to affect other areas of the economy as much as the banks?

Tom Lee (2:59)

Well, you know, in your opening comments, you talked about industrials and that's something to watch because last week financials reported and it was pretty much universally better than expected. And financials are doing really well year to date. But the other group that's very sensitive to the Fed cutting would be industrials. And there's a lot of industrial reports this week. It's about a quarter of the S&P, but I'd say it's so far so good. And again, industrials are doing well in the face of an ISM that's kind of been at rock bottom for two years now.

Leslie Picker (3:28)

Tom, how much would you ascribe the recent momentum to aspects of the election as that draws near just over two weeks away?

Tom Lee (3:38)

I think that's been a dynamic. I mean, I've been fooled by seasonality because I figured from September to Election Day, markets would be very tentative because this is an extremely close race. I mean, this is a coin toss according to Nate Silver. But something that Stan Druckenmiller said last week might explain a lot that markets are betting that Republicans could take the Senate and that actually could ignite animal spirits. So there may be underlying momentum that the Republicans take parts of Congress and that's why markets are bullish.

Carl Quintanilla (4:12)

Are you at all worried? There were some comments out of German PPI was down one for year on year, Tom, but there was some ancillary commentary about worries about a reflationary period, largely due to geopolitical events. We mentioned oil coming back a bit today. How worried are you about that?