Welcome to the Halftime Report. Im melissa lee in today for scott wapner top trade this hour, nike just did it the Worlds LargestFootwear Company posting strong earnings. The street buying the stock hand over phys today. With us for the hour, josh brown, Jim Leventhal, jon najari najarian, head of Global Investments at ubs shares of nike are rallying. Jim, you own it. Are you buying more . I bought a little bit more. I was hoping to load up the boat today, but i just cant, for two reasons. And i would love to get jays opinion on this, but its up 9 today. Im not going to go chasing it i think it will go higher from here, but the question is, i thought the Earnings Quality was really kind of low you had Gross Margins that went do down you had revenues that were okay, but a tax rate beat. So whyd you buy a little when the stock was up so much when youre throwing shade on the quality of earnings . Ive got a lot of dry powder left to go in this name. Im not going to buy it all today. Look, i think this was a question, melissa, more than anything, of the expectations were so low, particularly in north america, that it was an easy beat. All of that put together doesnt get me all that enthused im glad with the position i have im also glad ive got more dry powder to commit youre snickering, josh, why . I like when you tell jim hes throwing shade at things i own the stock, too, melissa. And i did not buy anymore. I was a buyer in the low 50s i think at the same time as jim. We were buying a lot of the pessimism. And it turns out things are not so bad it was a sell on the news event for you . No, im going to stay with it but the last two times it had a positive reaction to an earnings quarter, one was actually a year ago this week and another one this spring. It kind of petered out around 59 60. Thats been resistance for almost 18 months now so i dont see what was reported this morning taking the stock materially above, and even as you look at that candle starting to form, youre seeing some selling, probably showing up, if it doesnt get above that technical level today. So i think, like, if youre in it, congraturitos. If youre not in it, i dont know if i would be buying it here it doesnt look that convincing were in a new up trend. Lets bring in jay seoul, an analyst at Morgan Stanley who covers nike. A 56 price target, jay . What would you say to people who own you werent vinced going into the quarter that this would be the blowout that it is. Melissa, thats exactly right. We thought the numbers would be less bad than feared and thats what we saw. What do we see in north america . Because were continuing to see sales trends decelerate. In 4q, sales only went up 0. 5 and the guidance for 1q implies sales will be down negative 2 thats the worst performance nike has had in north america since the recession in 09 and if we can see that improve, that brings some more money off the sidelines. If not, well see the stock remain rangebound, like josh is talking about. How about the confirmation of selling limited products through amazon Goldman Sachs analyst, who you probably know, had an estimate today that revenue could increase 300 to 500 million in the united states. That would be 1 of global sales. That could be meaningful, no it could be meaningful. I would say, the thing about nikes Pilot Program with amazon that its starting small if they get to that number, its going to take many years and nikes already very big on amazon nike is the most purchased brand on amazon of any brand really, what were seeing, make nike sells more directly to amazon rather than Third Party Sellers selling on amazon. So really, its a shift of who is selling the brand and its not going to be that big of a deal right now. The bigger trend is them controlling counterfeiting thats a big issue. I wonder if there are parallels that would be knead to alibabas and nikes presence on tmobile. We saw sales up 11 in the quarter. And they have a pretty big, right, presence on tmall and alibaba. Can we make up the parallel, its going to beef up its presence on amazon here in the u. S. Just like it did in china and it could see some sort of increase in sales because of that it could. Now, theres a difference between tmall and amazon. Tmall is a platform where that nike is able to present its brand in a way they really like, that they think represents them well on amazon, theyre still working on being able to present the brand in a way they feel comfortable, where theyre going to provide more product to amazon and be able to grow sales in that channel. As they work on that, well see amazon be a bigger driver. But right now, its not quite the same story as tmall sg a was down, and i think thats because demand creation was down, ie, lower endorsements does that worry you for anything in the intermediate to long run future or, look, thats obviously been a big number over the years, is this just a healthy pause in what was a big expense i think it is a healthy pause. Right now, you know, were kind of in between big global sporting events like the olympics or world cup or euro championships. And if we get into next year, nike says theyre sg a will be up 5 in total thats because theyre going to invest ahead of the olympics and euro championships and other big events we have in 2018 thanks. I thought it was i mean, obviously, currency, you cant dismiss it you didnt do that, mel. Im just saying that china was up 11 year over year, 16 excurrency. And the dollar being weaker, jay, had to be a pretty significant driver, especially into western europe, where theyre competing against adidas so aggressively. That had to be something that you could happening your hat on because of where the dollars gone absolutely. Theyre saying currency will be a 700 million headwind in this fiscal year and thats probably the biggest theyve seen in many years, at least in the last three. Next year, it wont be as bad. So to think about the stock going forward, its nice to see that headwind starting to dissipate a little bit are you going to revisit your estimates, your target, your rating on nike well, you know, our were perpetually studying the company and following trends so i think what were looking at is, the main thing were looking at is the north American Business, like i said before and you know, obviously, if the data dictates that we should revisit our numbers, then we might. So is there anything out of this Earnings Release that makes you think or rethink your inline view of the stock . Or makes you just even reevaluate . Well, melissa, ill tell you what was most interesting to me is that really, with nike, it comes down to product. We like to talk about everything but the product. But at the end of the day, thats whats most important and nike has some interesting products that are coming to market that are very interesting. The vapor max is something weve heard a lot about. And i was in europe, i was in zurich and i was in edinburgh and visited some footlocker stories and the commentary from the people who work in the store is that the vapor max is doing tremendously well. Its outselling the adidas ultraboost, even though its about 50 pounds higher in terms of price and you know, thats an important thing. We heard on the Conference Call that nikes tone around vapor max and the new products they have coming is very bullish. People have a wait and see attitude about those type of things before theyre willing to invest behind it but i think its important to watch how those new products perform. Because that can be something that really drives that north American Business and gets them back on track. I think like from an investing standpoint, right, so i know youre trying to get each quarter right and youre trying to have a few on what the next which direction the next 10 might be but just from a long i read phil knights book, shoe dog and you think how many cycles nike has been through and how many different permeations, you know, how many different versions of, oh, now the mall is dead, now the mall is back, now theyre going to do Departments Stores and maybe they should do more with athletes foot and footlocker thats been going on for three decades at this point. And to me, it almost doesnt matter, because if people want the product, the channel that they sell it through is secondary. If they do a deal with amazon, maybe its not as good as sales on their own ecommerce efforts, but like, at the end of the day, does it really matter that much . If youre a longterm investor in nike, should you care so much about where theyre selling it, which channel . Well, josh, what you should care about if youre a longterm investor, if you have the luxury of a three or fiveyear time horizon, is that nike is just in the beginning of completely reinventing how they make shoes. We havent talked about this a lot, but they are completely changing how they how the supply chain theyre going to bring product faster to market, use more automation in the process, use much more digital type of design systems. Does the cost go down or the time to market go down both. And i think right now nikes had a hard time controlling inventory. Its going to help them control inventory, help them reduce markdowns and so feasibly the margins will be higher in the future . Absolutely. It might take three to five years to see that, but if you have a long time horizon, its a big part of the story. Jay, thanks for coming by, Morgan Stanley aaron, what do you think about the discretionary, athleisure . I think any company that has strong secular growth stories will do well in this environment. Obviously, north american sales have been weak but you are seeing them on the cutting edge, really starting to invest in their r d and their Product Pipeline and i should think that that should help them but more broadly speaking, Consumer Discretionary right now, given the valuations thats trading about 19. 8 times versus a 16 market multiple historically, right now Consumer Discretionary is not a place that i want to be investing. I think there are better value sectors in the market that offer a better and much more attractive valuations. You look at the Energy Sectors trading at five times cash flow. I would rather be rotating it so there are more value sectors that have underperformed at this point in the cycle, relative to the consumer the discretionary doc, what are you seeing in terms of activity . People reaching for nike, or no . Yesterday they were aggressively selling puts in nike i went on with kelly on closing bell and we talked about that they were selling 14,000 of the 52 puts with the stock at 53 that is a big bet that the stock trades higher rather than going lower. What price did they get they sold those for 80 cents yesterday. Not bad in essence, they would be buying at 51. 20 if, indeed, the stock went down, which it didnt, so those vaporized i was short puts, long stock, short calls at the 55 strike, so i had to cover that today, mel, but im out of the stock for now. Shortterm, anyway and i do like jim, i would get back in if we see so now youre saving your best material for kelly evans. Thats whats it was late in the day. The final half hour of trading, but when somebody makes a bet that specific, josh, as you know, they think they know something. You think scotts not watching will scotts on the beach somewhere. Back to you, mel. Thank you, josh brown all right, dow and s p are on pace to finish their best half to a year since 2013 lets bring in jonathan krinsky, chief market technician at mka partners great to have you with us. And specifically, i want to talk about whats been going on in just the past month or so. Weve seen sort of a clear rotation going on that has really changed sort of the sector winners in the past month. Defined rotation into banks. What are you seeing here in the chart . So, one of the arguments for much of the Second Quarter is that the market was very narrowly led in a handful of big cap tech stocks. Whats happened since the early part of june, those tech stocks have sold off. We know about the weakness in f. A. N. G. And technology, broadly. But the s p is flat since that time so how has that happened because weve seen money come out of the tech stocks and go into some of the more value sectors, financials and health care in particular are up about the same amount that technology is down. As long as money is coming out of one sector and going into another, we think that the overall market should be okay here so basically youre saying that, you know, my gosh, tech can actually sell off and the markets can still go higher, as long as that money remains in the stock market yeah, and, you know, so the bearish argument was that, well, if those f. A. N. G. Stocks roll over, the whole market is coming down and f. A. N. G. Stocks, thats exactly what happened, but the market didnt really go down there are some other stuff that we, you know, were watching thats also pretty constructive, that doesnt get a lot of attention. Yesterday, the microcap index hit an alltime high generally thats a pretty good sign for risk taking and as far as overall breadth, if you look at Something Like percentage soft stocks above the 200day moving average, as of yesterday, that hit the best level since late april yes, weve seen some weakness in tech thats probably not surprising the tech sector was up almost 50 since the brexit lows to its june peak. So if we had told you a year ago that tech was going to do that and then maybe pull back 10, 15 , even, you know, that wouldnt be the worse thing. But its really that rotation thats healthy at this point, would you stick with banks and health care and i guess embedded in that question, do you believe that tech will continue to go lower our call a few weeks ago is that were going to see a bit of a rotation out of growth into value. That started to work so, yeah, banks, health care looked pretty good to us in the third quarter. You know, again, tech, its not a bearish call, its just that after such a run, i think theyre probably due for a breather so for our money, the next quarter is probably better spent in the value areas jonathan, thanks for joining us, jonathan krinsky, mkm. I think thats music to your ears, jim. It is music to my ears. Look, its been a good month of june if you look at one comparison, the russell 1,000 value versus the russell 1,000 growth, theres two Percentage Points of outperformance over growth lets put that into perspective. Yeartodate, growth has outperformed by 9 Percentage Points so were clawing back from what jonathan is talking about, that earlyyear leadership in what was arguably, some people dont think so, but arguably a narrow leadership in the f. A. N. G. Man stocks i think that this rotation will continue im seeing people who are looking at the companies im involved in and say, why not theres a margin of safety in the dividends, et cetera theres a lot to find attractive in the value space right now and beyond just valuation, when you step back and think, what started this . We started to think that rates bottomed around 215 and have now moved up almost 15 basis points. Thats an enormous move over the last two weeks typically, when rates are moving higher, value outperforms growth it typically comes with the expectation that growth is turning and inflecting more positively, which weve seen over the last couple of weeks. I mean, the data out of today from the from the michigan number, from the chicago number, from milwaukee fed all were great. And so i think people have just got too bearish on the expectation for growth in the economy. Were now starting to see rates move higher, and all of that is leading to this value performance. And granted, the move in yields this week were stunning for the bond market, but so were talking about 12 basis points, 15 basis points. Are you ready to say, value is doing better firstly, i dont think that rates are rising indefinitely. I do still think that were probably at fair value, between 225 and 260, so were going to be in a range. We were below that range were moving back into that range right now. I think, though, as we continue to see rates move, you know, 10, 12, 15 basis points higher from here, thats going to continue to support the value sector. In addition to that, you also have valuations, which are extremely attractive if you look at the valuation gap between the s p value versus the s p growth right now, theyre at historical lows. Theyve been this is typically where theyve bottomed from a valuation perspective gap, its about a fourpoint differential i really like the move in the financials here. When jonathan was talking about sector rotation and things, at times, you can get screwed up by trying to get hahead of that rotation you kind of feel that these stocks that now have the ccar behind them, mel, as well as great earnings in this most recent quarter, that tends to tell me that were going to be seeing xlf 25, 26, 27, as its moving up and breaking out here, to the upside. The financials im long the xlf im long jpmorgan. I think you could be long many of the stocks in here that will keep working, because theyre going to return more money to shareholders and because these stress tests are behind them i got a chance to sit down with chairman and ceo of Morgan Stanley, james gorman, yesterday. And we talked about the changing environment for banks. Heres what he said. The banks are sufficiently capitalized. And with that came, in many cases, significant increases in dividends and buybacks so, you know, very healthy dynamic. You know, do the banks represent good value we increased that dividend again, a number of banks did so the yield now on these stocks is around 2 the yield alone, and then the trading, in many cases, is still a discount to book and heres an interesting stat, to sort of frame this. Theyre still trading at a discount to book the move over the past 12 months, so Morgan Stanley, for instance, is outperforming tesla over the past 12 months. Thats how stunning thats how discounted the banks had become at one point in time. Would you stick with the bank trade going to the second half yeah, i would and im long jpmorgan and schwab, which are two names i feel like i talk about daily they continue to work, and schwab in particular looks like its on the verge of