Good morning. Welcome to Worldwide Exchange on cnbc. Im sara eisen. Im wilfred frost. Good morning to you from me as well. Welcome back. Thank you. Lets get straight to the market action. Should we pause and discuss vegas . Was vegas good . Breaking even is always a success. You cant be a cnbc commentator and breaking even is all that you need to do. You need not to lose. Shout out to some of the great dealers who say they watch Worldwide Exchange when they get home in the morning. At 2 00 their time . I like that. Good for them. They go from gambling in one sense to educated investing. Exactly. Not always, but we try to make it educated and give you an edge. But your trip to vegas has made me want to book. Im going soon. Back to the markets. U. S. Futures are mixed. You can see the dow fractionally higher. S p and nasdaq lower. Yesterday all three declined. 10 out of 11 sectors, the s p was lower. That sounds bad but overall declines were a third of a percent. The only sector in positive territory was energy. Slightly surprising because we did see oil prices down. Materials were the most negative sector overall. A bit of a split between those two commodity sectors. We did get a bill on the table. Well discuss that in terms of obamacare, encouraging how quickly it is coming, encouraging that speaker ryan suggested it could be passed by easter. In reality we expect it to take longer. What does that mean for the more financial impacting reforms like tax reform and financial deregulation. Lets look at the tenyear treasury note which was flirting with going above 2. 5 yesterday. It has broken through this morning, 2. 509 . Iing Economic Data to share with you. Australia left its cash Interest Rate unchanged. In asia, chinas Foreign Exchange reserves rose, the first increase in eight months. Lets show you what happened overnight in asia. Fractional declines for the nikkei in japan following that sethat selloff yesterday. New data out of europe, german Industrial Orders falling 7. 4 in january. The biggest drop in three years. The figure was almost three times the consensus of 2. 5 decline. Also just getting reviewed q4 eurozone gdp. 1. 7 year over year. European shares mixed this morning. The ftse 100 up slightly. Slightly softer uk house price and retail inflation data. All in all, a mixed picture. Want to pause on that german data. Yesterday was framing the fact that Deutsche Bank is going to tackle capital issues coming two weeks after unicredit has done the same. As a positive, if they can draw a line under the sector and some banks analysts have been framing it that way, potentially a turning point with them. Had a back and forth with jim cramer on twitter yesterday saying i love germany right now, yes, its encouraged, but in a relative sense. In the way theyre seeing their reflation trade, the way the u. S. Saw earlier. Where evaluations are, things are looking more attractive. Still a long way below u. S. Valuations, particularly if you look at bank sectors. It is all relative. We still have big, big problems if europe. Its more of a shortterm cyclical pick up and there are still big political hurdles to get over. Wanted to offset that resounding positivity off the back of what could be positive for the banking sector. We have a thursday ecb meeting. We do. They are reaching their 2 target. So far the quantitative easing has been working. The question is will some of these political shocks, especially in bigger countries like france have to bring the ecb the ecb always steps in as the lender of last resort when political problems are so great, that it impacts the bond market and leads to questions about a euro breakup, will draghi have to come back. It is still reliant on loose policy, lots of political hurdles. The one thing i agree with is that the euro is artificially weak because of politics. If we didnt have the politics, you could see a meaningful bounce. Also Central Bank Policy divergen divergence. Politics certainly a big factor affecting the youeuro currency. Wti hovering just above 53 a barrel. 53. 29. Brent just above 56 a barrel. Up a little less than 0. 2 . As for the u. S. Dollar, lets show you whats happening in currencies now. Speaking of the euro, it is weaker again this morning. 1. 0564. Dollar strength against the yen, not such pronounced moves this morning. But that is a trend worth watching, as we see whether u. S. Equities can bounce back. U. S. Dollar crossing above 114 again versus the yen. Still in a tight range. And kind of flattish for the year. Despite the fact that u. S. Stocks is broken out. As for the pound, its weaker, just below 1. 22. 1 tnt 1. 2183. Thats on the back of weaker House Pricing data this morning. When we drop below 1. 22, we get to 1. 20 quickly. We need to watch that. But the decline from 1. 25 to 1. 22 this morning has happened quickly already. All eyes tomorrow on chancellor Phillip Hammonds budget. Quickly gold. Five days of declines in a row. Longest losing streak since november as the dollar reasserts itself. The top political story, Republican Leaders on capitol hill releasing their much anticipated bill that would replace obamacare. Here are some headlines. It ebol lishs the mandate that people are required to have insurance or pay a tax penalty. It also gives states flexibility to set up their own programs. Among other changes likely to receive political attention, Medicaid Enrollment will be frozen at current levels. Tax credits used to pay for insurance based on age and income. Some parts will stay. The gop plan still requires insurers to cover preexisting conditions. And the other big one is that children can stay under their parents Insurance Plan until they are 26 years of age. Those are two provisions president obama asked President Trump to keep. Democrats argue the proposal will raise costs, cut benefits and limit coverage. House Speaker Paul Ryan says he wants this bill passed by easter, just more than a month away. House committees will vote on the 123page legislation tomorrow. Lets check out some stocks that could be impacted. Very little impact. Starting with insurers here. We should say many of these stocks popped after President Trumps address to Congress Last week. They have had a strong run up since the election. Analysts say insurers could benefit from having more flexibility to offer plans, more of a market based driven system. The hospital stocks have been big movers since the election. Obamacare as a whole helped hospitals take off by cutting the number of insured patients who could otherwise not pay their bills. They sold off after the election on this idea of repeal and replace. They have come back strong in 2017 on the idea that the replacement will be elusive and hard to change versus the current system. Ill watch hospitals. One big mover there is Tenent Health care. A few etfs to watch as we go through the day. Xlv is the healthcare etf. And xhs focuses on healthcare services. This is the blueprint. It is out. It is a major step for republicans it also raises questions. Two key questions from republicans and as this gets digested, how much it will cost. No estimates on that yet. And will the tax credits, those credits to pay for healthcare, which is the big replacement, will those be enough to help low income people get healthcare so they dont have to deal with people losing out as a result of the replacement. Thats the key thing for those various healthcare stocks. This is encouraging for all of those other items on the agenda, whether its tax reform, financial deregulation, et cetera. We have a bill. We have an ambitious timeline from the speaker in terms of when this gets passed. We need to speak to john harwood and the rest at 5 30 to see if thats realistic. This is the first big item on the agenda we got. And we can start moving forward, rather than have these executive orders and rhetoric going back and forth. We need these to get through congress before the tax reforms. Thats the caveat, will it get through congress . A few republican senators yesterday flagged the idea coming from states like ohio where Medicaid Expansion has been key, that they will not vote for something if it puts an end to that. So will that be a question that everyone is asking about. 12 pag3 pages you said it wa . Yes. We will speak to mr. Harwood at 5 30 a. M. A pair of economic reports to watch t. The january trade deficit at 8 30, followed by consumer credit. Jack daniels and corbells sparkling wine report before the open. A couple whiskeys in vegas . Just focused on the gambling . Dont want to lose your luck. Its nice they offer free drinks. Only to the big high rollers. Moving on, still some more earnings, Dicks Sporting Goods and h r block. I now want to go. I can tell. The stocks to watch, snap, shares of snapchats Parent Company falling 12 yesterday and closing the regular session below the first opening day price of 24. Some analysts weighing in yesterday, not too positive. The question was how long would this pipeline debut last . I thought it was interesting on friday that shares rose 10 . Well see where this shakes out. Huge volume as well throughout. Friday was by far the biggest, almost double the next biggest bank of america. Yesterday it was the biggest in volume. Still to come, savit savita subramanian, well get her take on Global Markets as a march rate hike becomes increasingly likely. Welcome back. U. S. Equity futures are mixed to little changed after a selloff yesterday on wall street. Dow futures up two. S p futures down two. Nasdaq futures down five. Watching the healthcare stocks today, joining us is the head of u. S. Equity and quantitative strategy from bank of America Merrill lynch. Good to see you. Thanks. Great to see you. Before we get to some of your calls on the markets, in terms of this replacement of obamacare that the republicans have laid out, what are the market implications if any for some of these healthcare stocks . Sure. It depends on what the obamacare is replaced with. You know, what i fine interesting about healthcare, everything in the sector has traded down as though its the end of the world. And, you know, theres a lot of risk around healthcare. We dont know what the new the new kind of replacement will look like. We dont know what implications are for Drug Companies which are being scrutinized for pricing. But what i find interesting is healthcare is trading at the lowest of our data, which goes back 30 years. The sector is discounting risk. Where we will probably see the biggest impact is managed care companies, which analysts have written about. A fraction of the sector and has sold off aggressively. We are overweight healthcare, because i think the risks within the sector are overly discounted. And, you know, its actually been posting pretty strong growth. Its, like i said, cheaper than its ever been. So it looks to me like a buy at this point from an overall basis. Talking more broadly about your view on markets, i see one headline in your note, we expect the market to overshoot fair value what is fair value . How much further can we go past it and for how long . Yeah. Interesting. We have five different ways of calling the market that we look at on a regular basis. Our fair model is at close to 2,200 for the market. Our official target is 2,450 for yearend predicated on the idea that in the late stages of a bull market fundamentals take a backseat and sentiment and flow s and technicals drive more performance than valuation and Earnings Growth or these factors that we as fundamental analysts care about. So what you typically see at the end of a bull market is a market where fundamental investors dont feel good about buying, yet it still keeps going up. Thats what were looking for this year. The idea that theres a big wall of money still sitting in bonds and cash that has the potential to move into equities and drive the market significantly higher. It is a good point because the wall street bull market turns 8 years old this week. Thats right. So its always a good time to trache stock take stock market of where we are. What about valuations, especially post the election. Where does that leave stocks . How expensive are they . Where do you come down on this debate about where veil wag eva can trigger thats a great question. We look at about 20 different ways to value the equity market. Basically the only way the market looks cheap now is relative to bonds. Thats been the case for the last eight years now. But heres the thing, valuation is a terrible nearterm market signal. In fact, im a quaunt, i look at r squareds a lot, and thats basically zero when you think about what happens to the market over the next year or two. What does matter is the next ten years. We think at this entry point, returns over the next ten years could be below average. For the next 12 months, the most important signal to look at is sentiment. While it has grown more optimistic postelection, we see a lot of asset allocators sitting in overweight positions in bonds and cash. Thats where i think the catalyst for stocks could reside. So you see more room for upside just based on the fact that more money will shift around from bonds to stocks . You dont see signs of exuberance or hope and optimism running high on some of these policies . Absolutely. Not yet. That keeps us calling for upside rather than down side. One moddinmodel, we track how b or bearish wall street strategists are on stocks. Right now wall street is recommending a 53 allocation to stocks in a balanced portfolio. And thats pretty light if you think about the run rate allocation which has been more like 60 , 65 . So, our view is with, you know, with skepticism last year turning into optimism, we are not at that point of complete exuberance, equities are the only asset class in town, you have to buy, buy, buy. Thats the point at which we would be sellers. We dont think were there yet. Thank you very much for joining us this morning from london. Were hearing that so much. Evaluations are stretched, theyre high, theyre long, no matter what, above average no matter which indicator you look at. But theyre not indications of market timing. On top of that, people like jim would tell you that earnings season is playing catch up to that. And if that continues at that pace, theyll be justified. Im not on that side of the view. Still to come, philadelphia slaps a tax on sugary drinks and Beverage Companies are seeing sales declines, job losses and consumer cost hikes. Sara is the only person that knows all the facts on this story. She will be telling us what we need to watch out for after this break. And well ask what other cities could soon follow philadelphia. You wont see these folks at the post office. They have businesses to run. They have passions to pursue. How do they avoid trips to the post office . Stamps. Com mail letters, ship packages, all the services of the post office right on your computer. Get a 4 week trial, plus 100 in extras including postage and a digital scale. Go to stamps. Com tv and never go to the post office again. There goes my sensitive bladder. Sound familiar . Then youll love this. Incredible protection in a pad this thin. I didnt think it would work, but it does. Its called always discreet watch this. This super absorbent core turns liquid to gel, for incredible protection thats surprisingly thin. So i know im wearing it, but no one else will. Always discreet for bladder leaks. Welcome back. An epic battle brewing in the city of brotherly love and it started with a new sugary drinks tax. The stakes are high for the Beverage Industry as other cities are looking to follow in philadelphias footsteps. Sara has been digging into the story and has some new numbers for us. Its a big deal, philadelphia is the first major city to tax sweetened drinks. For context, the cost of a 2 liter bottle of soda, a little over 2. Two months in, started in january, an according to the industry, theres been a 40 drop in sales for pepsi. A 10 to 15 bump on sales outside the city. Not an offset there. So pepsi says theyre in the process of cutting 80 to 100 of its 423 jobs in the philadelphia metro area. We can report fresh numbers out of cocacola. Supermarkets have seen a fall of 30 to 50 in volumes of beverages sold. Many are cutting shelf space for beverages as result. For soft drinks, teas, juices by as much as 50 . Coke is also finding that traffic is falling in supermarkets around the border. No job impact yet at coke. They have not announced layoffs. They have more than 700 people in the metro area. Heres the interesting thing. If you talk to the Mayors Office, you will hear a completely different story. The city raised 5 5. 7 million i january from the tax, more than double what was projectsed. It is expected to bring in 91 million for the year, its funding libraries, parks, prek programs which the city says has created 240 jobs, most of them full time. The city says it is a big success even with falling sales and is skeptical of the job losses announced at pepsico. It is working to fact check those claims. This is important, because other major cities are watching. Cook county in chicago, they passed a similar tax which will go into effect in july. Boulder and San Francisco also pass the similar measures. One to watch is santa fe which has a hearing on the issue this week. The bottom line is not so material yet for some of the companies we cover, cocacola and pepsi, were talking at the city level, but if we start getting to the state level on this, thats when it could really be a problem for north american beverage sales. Keep in mind, consumption of soda has already been declining for ten years. This does not help if the prices are raised. The Mayors Office not concerned. Is their original to boost tax revenue or encourage people to drink other things . Seems like its the latter theyre driving more than the former . The way they campaigned on this issue is that to raise tax revenue for programs like prek, which they say are already working. You might say the drop in sales in consumption is a good thing ultimately for the city and the municipality because it could g