The Halftime Report begins right now. Welcome good to have you with us on this thursday our Investment Committee at our table, joe terranova, jim lebben thal, John Najarian, Jenny Harrington harringt harrington ceo and portfolio manager. Lets begin on the markets stocks higher on reports of a possible detente in osaka. Kayla tausche on the ground in japan with her own reporting on exactly where things stand right now. Kayla . Scott, both the u. S. And china are trying to manage the narrative of exactly who would stand to get what if there were a truce or a potential deal that emerges from a meeting between President Trump and president xi this week. In a call held earlier this week on monday, between the u. S. Trade representative Bob Lighthizer and the vice premier of china, china was said to ask for a balanced deal, something it has asked for in the past and im told by two sources that ambassador lighthizer responded a balanced deal is not possible because of all of chinas past transgressions today we saw reporting first in the wall street journal that china wants certain things as part of its deal negotiations. It wants the u. S. To roll back a ban on Huawei Business in the u. S. And roll back all of the tariffs that the u. S. Has already put in place it also wants to lower the dollar figure of goods that it would buy from the u. S. As part of a deal. Donald trump, the president , has said that he actually wants to double or triple the amount of goods that china would potentially buy. Theres a lot of ground here to make up, scott larry kudlow, speaking for the administration earlier this morning said that there are are no preconditions to talks this week and he said theres still a plan b if the two sides dont reach an agreement, that the u. S. Would still go forward with the tariffs. Hear it in Larry Kudlows own words. If the talks fail he has said we will go to plan b which is another round of tariffs if the talks do better than that, then perhaps, perhaps, we might avoid that reporter although we should note everyone involved in the talks knows that its ultimately up to the president and what he decides to do behind closed doors in this meeting. Of course theres always event risk associated with the president at events like this. We know the base case according to ubs, citigroup, deutsche bank, Goldman Sachs is all a cease fire, but no deal this week back to you. All right Kayla Tausche on the ground in osaka, japan, for us, at this hour jim, i throw it to you if you come out of this weekend with some sort of tariff truce, no new tariffs for some period of time, six months, three months, who knows what, however many months is that good enough for the market to move higher . A simple answer yes how much higher . Cant tell you eventually you do have to have a deal eventually. If you get the absence of a cease fire, of a truce were in trouble. Lets use this anecdotally there are stocks i would like to buy today, we will get to boeing later and dont want to steal that thunder, i would like to buy boeing today, but theres no way i can knowing that this weekend is somewhat random, somewhat a roll of the dice. I dont know what President Trump or president xi is going to do. Very good reporting but what is said one day can be reversed the next day im not placing any faith in mnuchins 90 there comment. I look at that comment kind of like Charlie Brown running up to the football and lucy is about to pull it away. I need to see the results of this weekends meetings before i commit new capital. Jim wants to buy boeing if you think theres going to be a de tent coming out of this weekend, what else do you want to buy do you want to stay with the semi trade thats worked buy some industrial stocks look in the cyclical space so if the question is, do we have to make an allin bet, do we have to bet one way or the other the answer is no, we dont have to bet theres a deal or no deal, because there are other places to go i think weve talked about this before on the desk you can both own some of the growth stocks, some of the names like facebook or amazon, paypal, visa, that have worked but you can also own stocks that have nothing to do with china so we own waste connection, sher wynn williams, zoeta, a v Veterinary Company all names that are not related to the china deal growing earnings 10 and hedge your bet there. Its too tough to do. S p tech sector up 26 , the Top Performing s p tech sector over the last six months and year to date technology has a lot riding on the outcome of osaka. We talked yesterday about the my kron call where they said if these issues persist with huawei, that its going to affect their income out into 2020 and yet we had a number of firms upgrade or move targets up in my kron i think that reflects some optimism that something is going to get done. I will say as i have said before, that i believe, scott, youre going to see the chinese stocks react bigger to positive news out of this summit than youre going to see u. S. Stocks. Maybe, you know, youll see the ones that carrie named do very well on monday if, indeed, thats what we get, but i guarantee you, alibaba, jd, a lot of those stocks will rock and roll buy some of the names ahead or wait and see. Im in jd already, i have some unusual in alibaba and so forth. Tlae theres a number of stocks that move bigger and if nothing happens or just a delay of the process, i think they still hold the gains more than some of the u. S. Competitors might. Is, jenny, a keep talking, no new tariffs or moratorium on new tariffs, is that good enough to get stocks moving higher i think its good enough and i also think what jim said, there might be upside but how much is the bigger question. When you were talking the other day about the melt up scenario, i think a lot of that is baked in and people to a large degree are expecting some kind of truce, some kind of status quo, you know, trump maybe backing away a little bit. I think thats in there. I dont think weve got like were up 18 on the year i dont think weve got like, you know, up 10 from here based on any thats great debate to have because i think theres a differing view on the desk doc, youve made the case on numerous occasions you think theres considerable upside. I think theres more than 10 . You do . If, not just to exactly what jenny is saying, i think that were not likely to see that 10 pop all at once. I think we could easily bleed up 10 on a, a positive outcome and then putting some details to that agreement, whatever the agreement is, if its struck i think between here and First Quarter of next year, 10 to 12 is what i would be looking for based on it not being priced in right here. Its a big question, joe, as to the market has moved higher on expectations of the fed coming to the rescue, maybe some positive expectations out of the g20 as well who knows how much upside is there if any. So the question is, you sit at basically alltime highs and youre asking can we continue to make alltime highs over the coming months. The challenge is to look at all the potential headwinds out there and to stay invested i would argue the hardest thing to do right now is if you have been playing offense and you are invested, whatever your allocation to equity, specifically equities might be, whatever cash youre holding, im not going to speak to that, invested in the marketplace right now the hardest thing to do is stay invested in the market and not give into the temptation that we potentially could have a 10 decline because scott, it looks so obvious. It looks so obvious that things could fail this weekend. We could go to plan b. It looks so obvious that potentially the federal government doesnt give the market its quarter point cut all these things look too obvious and everyone sees it and everyone is positioned defensively and thats why for me the hardest thing right now is to stay committed. So position defensively okay staples have been going up bonds have been going up gold has been going up the bond proxies you got to have something come out of that and into more offensive sexectors, dont you, jim . Many of us have been talking about the barbel approach, taking the defensive names on the one hand and adding to it on the more agrees severe side, the f. A. A. N. G. S or semis i think thats the way to play it right now but i have to say this of those barbels whats getting really expensive is the defensive names in a low Interest Rate environment. Its hard to commit capital there. So i do think theres probably some places in the middle of the barbel you may not like these names, but joe, i think you make a great point, hard to stay invested and you have to some of the sectors you might not like to look at the health care, beaten down by the talk about medicare for all, democratic debates dont help in that regard, great value there if you cant stomach the relatively low yield of the defensives and you cant handle the risk of the au gressive growth names, bristolmyers. Bristolmyers has a decent yield. Merck has a tee cent yield its impolite in Proper Company to mention the financials but i will be impolite today. Theyre up today. Thats today. Look thats the risk there is that its dead money its hard to lose money at the big center banks when theyre trading below book value or at these multiples and you may get higher returns of capital on there than expected. Thats an idea in the middle of the barbel to play this is going to sound insane and i almost hesitate go ahead. Almost to ask this question if the fed cuts rates, okay, in july and, you know, continues with this dovish language, and you get a big leap towards a major deal with the chinese, the dow is at 26,500 is 30,000 in the not that disney futu distant future its not crazy at all. If you look at a chart from the end of january, put up a chart from january or the dow, of year and a half now, for a year and a half, the stock market is up 5 , i mean its really not its not been much of a market, 2018 it was down 3 , we regained that, but over this period of time if you say were sort of flat almost flat, for 18 months. 18 months. Then its not you havent been able to get out of this great big range that youve been in like a mountain range. You set to the top here and then youve got these peaks an valleys and then back at record highs. Weve been asking what is it going to take to firmly get out of that. Sure. Thats the blow off top that some are starting to talk about if all of these things fall into place. Okay. 30 blow off top takes you to the 30,000. Unthinkable point. 30,000 for the dow. The question at that point can you step away from the bathroom for a moment or do you need to stay tethered to the screen when it hits 30,000 is it sustainable, durable, are we at a point where its going parabolic at that point. The last part of the equation in getting to 30,000 that i think gives you the answer is earnings. Thats what i think. Valuation. Thats got to be a contributor to getting to 30,000. You have to have some otherwise you have to have Earnings Growth, not just earnings treading water and not sinking like we not that long ago thought we might do. You know what i mean. Yeah. You have to have growth over 5 a year. Gentleman asked me on twitter yesterday about whether or not the reason for the fed dovishness right now is the stock market and i said no, its theyre finally hearing what a lot of us were saying in december, that was that Economic Conditions not going upside down, but they certainly had changed and we were in a slowing sort of mode and if that continues, thats why i think powell said about being preemptive with, you know, that hes willing to be preemptive. Didnt say i am preemptive and i gave you the june cut because, obviously, they didnt do that none of us really expected it. But he has enough wiggle room between july and september to get us back to where the Economic Conditions hopefully to your point are much better and if we get a trade deal or at least the beginnings of one that is one of those factors. The risk is the disappointment, of course, that you you really dont get the grand deal with the chinese and then you dont get, as joe said, the rate cut that the market has now examine come to fully expec where does the multiple, whats the right multiple on the s p. Wasnt long ago we were at lower. Wasnt too long ago we were at 16 times, now at 17 if we went to 30,000, it would be 18, 19 times multiple its hard to figure out what the right multiple is given the super low rates. One could argue almost for 20 times. Or you have the disappointment i think the whole emotional behavioral side is really critical not only with respect to trade like the numbers from trade are okay, but its the Business Sentiment thats the problem the number is driving the market up more like that could it could but the disappointment could be overwhelming. You cant get an erosion of Business Confidence and Consumer Confidence at the same time. Joe has made the case that the consumer has been the one holding you in large part and now youre starting to see the numbers come off a little bit as well which you did earlier in the week. Thats your worse case scenario. Right and there has been fraying and with that fraying if the Federal Reserve is not going to come in an support the consumer and give them the confidence to go out and spend again thats problematic. I also thing and i know its a little bit out of left field but lets not take the situation with iran off the table. Right. Just yet. That is probably the biggest risk to the market so if lets broaden it out. We said okay, heres what we think the scenarios could be coming out of the weekend, what sectors you would want to play if, in fact, this unfolds as some say its likely to do then lets go down another notch to individual stocks that could see a bump apple has been moving higher again. Because of this. North of 200, it was like 201 the last we checked. Pull up apple as well. Its sitting around that 200, 233 i think is the high. Yes. We got a chance to take that out. October 3rd, 233, may 1st, 215, the figure you have to get to i think a lot of the reason that apple is moving high as well is that theyre making this purchase of drive. Ai, the Autonomous Vehicle talent that theyre capturing there. I think thats gaining the interest of a lot of investors i also think lets not mistake for one second that there is going to be extreme volatility surrounding apple on whatever the outcome might be of the g20 youre talking about the stock has the ability to move 20 in either direction favorable or unfavorable. Keep that in mind, but from a fundamental standpoint i think the recovery in apple is warranted. I think you have a nice back and fort between apple, keeping me in it but not adding to it. On the one hand we know the Services Part of the business is growing rapidly and with great margins. The ying to the yang is the fact that cell phone, smartphone business is not great right now and we can rationalize that any way we want. We can say its trade tensions or waiting for the 5g rollout, but its factual that there is a smartphone slowdown that wasnt anticipated here and they are still largely an iphone business. Thats known. So is the its a ying and yang. 17. 5 of apples revenues squarely coming from china right and let me point this out then, scott, so january 10th, just after tim cook basically sent the letter to the troops saying, you know, hey, this is going to be a real problem for us, that is that they were going to cut prices in china and all the rest, 17 of sales all that sort of thing, they were both the same price alibaba and apple were both give or take 152. Now apple is roughly 50 higher. The other is half of that. Alibaba. So im saying that, you know, despite all these headwinds, apple is already here. Alibaba has got a lot of catching up and it will do it i think quickly if, indeed, they get this deal. Thats why i keep pointing to this one as one of the top ones that i would buy if we get positive outcomes babb. You think you get catch up. From alibaba. I do. I think that outperformance like crazy over the next quarter if we get positive outcome right here if its just a stretching out of this, apple continues to just outperform. Somebody paint me as alibaba is moving higher, somebody paint me the perfect scenario for apple it take out that old high of 233. Heres what apple has going for it its a low p e stock 15 times earnings. Its growing, continues to meet expectations they can beat expectations now for next year if theres a deal. Youve got the f. A. A. N. G. Risk on trade with the added option of the china deal resolution which matters more to them than any of the other f. A. A. N. G. Stocks. Its momentum im sorry. I agree. You mentioned with the f. A. A. N. G. Trade but thats the only way i can justify it and it will probably happen. Justify what . The rally to 233. Heres the deal. If people come back into the markets, retail or otherwise, but primarily retail, doing passive investing and buying spider and russell 1,000 growth, the biggest component in each of those indices is apple the money just naturally flows there if confidence comes back to the markets. Thats fair but why is apple not at 233 because theres actual fundamental reasons. I disagree. China. China thats it. Okay. If we solve that riddle this weekend, then youre at 233. Im going to channel my inner weiss here because i like to do that when hes not own, throw him a bone, im going to do it, they are not as innovative in the smartphone area as they used to be. They have services, the drive a. I. , thats getting to be a crowded space between waymo, tesla, gm with cruz, we can go on and on. That drove it yesterday but i dont think thats the longterm Driver Services it, but its still 17 of the business. Its not enough. I dont think its all china. I know every time scott feels sorry for me i dont own up and its up a lot, back to the reason we dont own it which is that most of the Earnings Growth has come from increasing prices. Hasnt come from natural sales Growth Services hasnt picked up enough you have basically flat Earnings Growth for a while now you have 10