Closing Bell - Bond King Gundlach Reacts to Powell’s Presser 12/13/23

Episode Date: December 13, 2023

Fed Chair Jay Powell held his final meeting and news conference of the year. DoubleLine’s Jeffrey Gundlach gives his first and exclusive reaction. He breaks down he sees rates headed from here and what it might mean for the economy. Plus, Ritholtz Wealth Management’s Josh Brown, Sofi’s Liz Young and Senior Market Commentator Mike Santoli break down the final minutes of the trading day as the Dow closes at an all-time record high. 

You're listening to Closing Bell in Progress. Welcome to Closing Bell. I'm Scott Wapner here at the New York Stock Exchange. Fed Chair Powell, as you see, wrapping up his final meeting and news conference of the year, a third straight pause in what can really only be called dovish language in both the statement and from the Fed Chair himself. As a result of that, stocks are rallying. I want you to take a look here.

The Dow, a new record high, was trading above 37,000 for the first time ever. Stocks are higher and sharply so across the board. Yields, they're going in the opposite direction. They are falling and they are falling sharply. Look at the 10-year note yield, 404. Just an extraordinary bit of events there in Washington. The Fed chair saying they're proceeding carefully. They're seeing what they've wanted to see in terms of inflation coming down. He mentioned their own estimates of PCE continuing to move closer towards target. Stocks up a little more on that.

He said the Fed is, quote, likely at or near the peak rate for this cycle. Stocks up a little more on that. Bob Pisani calling what happened today about as Goldilocks as it gets. Our own Steve Leisman, who's going to join us momentarily, suggesting, quote, the Fed took a step towards the market rather than the other way around. Joining me now is Double Line Capital's Jeffrey Gundlach. He's with us exclusively, as he always is once the Fed chair finishes. Jeffrey, welcome back for our final visit of the year. I'm glad you're with us today. Yeah, welcome back for our final visit of the year. I'm glad you're with us today.

Yeah, we've made it all the way to December, Judge. Interesting times. Yep, that's for certain. I mentioned what Pisani and Leisman have called it. What would you call today? Well, it's pretty dovish. I mean, the word of the day is any. Last meeting, the word was careful.

He said that multiple times last meeting. Market likes that because it respected the fact the curve's inverted and economy's slowing down, but that any word didn't have to be inserted. And it strongly suggests that the Fed inserted that because they believe, I think, that they're done. And not only are they done, what a lot of people don't realize is the Fed has been on hold for four of the last five meetings. So it's a trend. And we talked last meeting, November 1st, that we had started a bond rally that day. And what a rally it's turned into. It's turned into quite a good six weeks with the 10 year treasury yield down 100 basis points and the long bond, you know, up in the double digits. So we had a November to remember. One of my clients said in a meeting I did with him yesterday

with one of the best months ever for the investment grade bond market up over four and a half percent in the month of November alone. That hasn't happened since the 80s, which is really something because last time it happened, you were starting with yields up at 10%-ish. And here you were starting with yields at 5-ish, so half the yield. So you needed an even bigger basis point move in rates. So I thought the most interesting thing in the press conference came near the end, where if I heard it right, I think Jay Powell said that he wants to cut rates before we get to two, if I heard him right. And because he's respecting the momentum that inflation can have, just like

I criticized him two years ago for going too slowly. And inflation overshot by 500 basis points above where they thought it was going to 4% or so. It peaked out on the CPI at 9. And now it's coming down just as fast. And I heard a lot of people before the announcement were talking about, you know, you can take three-month PCE. You can look at core this and that, one-month data and everything, there's ways to get to 2% sort of numbers. And I'll just add one that I didn't hear today. That's core CPI-X shelter, which is at 2%. And the reason I bring that up is shelter is a bad construct. It's owner's equivalent rent, and it lags. And it appears to our research that that owner's equivalent

rent is going to come down by at least 400 basis points over the course of 2024. And since that's about 30% of CPI, there you go. So our CPI model suggests that we're only going to get one more month of a three-handle CPI year over year, and that it's quite possible at this point that the headline CPI could be 2.4 in June. And if that's the case, I think the Fed cuts rates, because I heard Jay Powell, I think, say that, you know, we can't wait until inflation's at 2, because he respects the momentum on the downside, because he learned a little bit of a lesson about the momentum on the upside. He said they're aware of the risks of waiting too long to cut rates. Jeffrey, he mentioned on numerous occasions today the possibility of cutting for the so-called right reasons. If the economy is just normalizing, you got from the outlook today the so-called dot plot, 80 points

of cuts next year. As I mentioned, how Leisman characterized this, the Fed moving closer to the market rather than the other way around. Would you agree with that? Do you see cuts and several of them next year for the right reasons? I don't really see them for the so-called right reason. I think that's what's baked into the dot plot and a little bit less so, but somewhat to the shape of the yield curve, that they're just going to cut by three quarters of a percentage point or so, says the Fed. I mean, I think that's pretty unlikely. I think that if they cut rates that much, they'll have to cut them more than that. So I believe that we're going to see the yield curve

de-inverting in the first part of next year. I think we're still going to have bonds rallying. We've broken down below the trend line on the 10-year treasury yield that goes back a couple of years. And there's a lot of room below it. I would guess that we will see the 10-year treasury yield in the low threes sometime next year. And that would be consistent, in my view, only with the Fed cutting more like, I don't know, 200 basis points or even more next year. So I think we're looking for a recession next year. We've been talking about this. The market seems to be picking up on that.

And we're starting to see the good part of the pivot from the Fed, which is relaxation of financial conditions. And that leads to, for the first moment, risk assets doing well. And, of course, they've done very, very well since the last Fed meeting. And I suspect it's going to not be a trend change before year end. But I believe that I noticed the action of the stock market was interesting today because as the 10-year treasury got all the way down to 4.0 percent and it couldn't break through down to a three handle, I noticed that the stock market started to lose momentum. And then when it backed up on the 10-year to where it is now, just a few basis points, but there's something about if you break below four on the 10-year that I think it almost sounds like a fire alarm going off relative to the economy. And I think we might start to see the correlation of

strong bonds and strong equities start to break down. When it comes to fixed income strategy, I outlined that I didn't like T-bill and chill. That's what we talked about last meeting. I said, there's nothing wrong with a five, 56-month bill, except the fact that you only get it for six months. You want it to be a little bit further out the curve, say three to five years in credit and marry that with long-term treasuries. And all of that has worked. And I think that it's likely to continue to work in the new year. We have been advocating strongly for this type of a strategy and we've gotten a lot of interest from large institutional clients and one of them called that was about to pull the trigger maybe two weeks ago called us today and said, gee, did we miss it? Which is really interesting because I think that

all this money that's in money market funds and it might be over allocated to other assets and bonds and institutions, I think the logic that people have that money market bloat is going to go into the stock market is wrong. I think it's unlikely for investors to go from risk-free six-month T-bills to the magnificent seven at massive PEs and all-time highs on the Dow Jones Industrial. I think they're much more likely to go from their mountain of cash in T-bills into bonds. And so I think that the strategies that I've outlined in the past couple of times we've met, which have been this mix of credit in the middle of the capital structure and long-term

treasuries, I think you stay with it for now. I've been thinking about that movie Braveheart, where they're about to attack and the Mel Gibson character is saying, hold, hold, hold, hold. You know, they want to fire or do whatever their assault is, but they have to wait for the right moment. I think you have to wait for the right moment to alter this bond strategy. And that right moment will be when the recession comes. I mean, maybe maybe some of the money and money markets is split. Maybe some goes into bonds for the very reasons you suggest. Maybe some goes into stocks because they see the possibility of a powerful new bull market developing. I'm going to go to hang on just for a second, Jeffrey. Steve Leisman's just stepped out of the room and I do want to go to him because Steve, this was extraordinary on a number of levels, I think. Number one, the Fed chair in his news conference did nothing to walk anything back from the statement. He did nothing to hawk it up, so to speak. And I know he sounded like

it would be premature. And he said as much premature to declare victory. There was no jumpsuit. There was no aircraft carrier. But he doesn't seem like he's that far away either from doing just that. Yeah, I think this was a pretty big day, Scott. I think that the Fed pivoted today. I think it went from having this bias to hike to being in neutral with a forecast to cut rates. I think that's a pretty big deal. And he acknowledged in response to my question that, yeah, they sat around the table today and yesterday, and they talked about rate cuts. Here's a quote from the press conference.

The other question, the question of when will it become appropriate to begin dialing back the amount of policy restraint in place, that begins to come into view and is clearly a topic of discussion now in the world and also a discussion for of discussion now in the world and also a discussion for us uh at our meeting today scott i thought the chair might have tried to hold back the water on the dam one more meeting i guess the data yesterday um and today especially the ppi and what it says he mentioned this specifically we talked about it on your show at noon today. What the data today says, what's going to happen to the PCE numbers next week, made it kind of untenable for him to hold back and to maintain a position that was too hawkish. And just real quick, we have been talking about this number that Jeff was talking about,

this CPI-X shelter, which has been below 2% for several months now. There's that number right there. You can see it. It's down below 2%. And then, okay, so it's not fair to take shelter out. The reason you take shelter out is because the shelter component they use there is lagged about three-quarters, Scott, from some of the other market-based indicators that are out there. And if you fold those in, you really don't have a problem. It may be that the Fed is already there. And the concern was that the Fed would keep rates high and depress the economy for too long based on bad data. Steve, I appreciate it. Quite a day that I know we're going to be talking about

many more times in the days ahead. That's our senior economics reporter, Steve Leisman, just out of the news conference with the chair. Back to Jeffrey Gundlach, who's with us exclusively, of course, from Double Line. So, Jeffrey, how come you're not willing to go as far as to say, you know what, I no longer think that we're going to have a recession? I'm wrong at this point. The economy is better than I ever thought it would be at this point. Inflation's come down much quicker than I ever thought it would be at this point. And you know what? Maybe the Fed's going to pull this off after all. Well, I don't think inflation's come down faster than I expected to. It's really followed the trajectory pretty closely, and it's going to continue to fall

further. I just think that a lot of the way the market works through cycles, I thought, as is so often the case, Brian Kelly, I think his name is, was on that segment before the announcement. I know you're talking about David Kelly, and he was talking about a pivot that he saw that this was a pivot today. Yeah, not just that, though. He points out that when you first start raising rates from low levels, it doesn't have real market damage. But then, similarly, when you start cutting rates from high levels, you start to affect the economy in a negative way, somewhat counterintuitively, because people might wait for lower interest

rates if they think they're coming to do things that can accelerate the deterioration of the economy. And also, the Fed themselves is projecting a 4.1 unemployment rate, which would be up about 70 basis points from the low. And whenever the, historically, the unemployment rate has gone up by over 50 basis points, it tends to accelerate from there to a higher level, goes into another gear. And it's very consistent historically. I think there's an I think there's a contradiction between the dot plot of the of unemployment rate going to four point one and and history. So I think that the Fed's going to be wrong on the low end for the

unemployment rate for twenty twenty four. And I think that once you get the market de-inverting the yield curve and you start to really get the bond really cemented into the DNA of investor psychology, I think that's usually the peak in risk assets. That's why I say it's OK now for the Braveheart idea of hold, hold, hold. But you're going to have to pivot. And I think that's usually the peak in risk assets. That's why I say it's okay now for the Braveheart idea of hold, hold, hold, but you're going to have to pivot. And I think you're going to have to pivot in a very intense way in both stocks and bonds when we get into the next recession. Maybe I'm wrong and it doesn't happen next year,

but I think the odds have gone up, not down. We saw GDP now was about 5% or so in the third quarter, and it's now running substantially less than that, and we're talking about maybe 1% next year. And I just don't think that's the way the economy works. Just like inflation overshoots on the upside, it overshoots on the downside, I think that the economy is going to undershoot on the downside, and the unemployment rate is going to go up.

And that is going to create a totally different response. We're going to have to have a lot of money printing, I think, to battle the coming recession. And that's why you might have to pivot across the board, because the inflationary consequences of that could be very substantial. So this is a long view type of thing. But for now, you know, I think the Fed's pivot needs to be digested by the markets. And obviously, a lot of that digestion happened today. And we'll see how the rest of the week plays out, because that pretty much takes us to the end of the year. I want to sort of get your overall assessment of this Fed, because I remember so many of the conversations that we've had through this calendar year, ones where you've suggested that, you know,

Powell was Mr. Magoo, going to drive into a wall, other times suggesting he was up on this ladder and it's time to like paint or get off the ladder. Yeah, that was at the beginning. And here he is with this, what I felt today was a bit of a confident air about him in the way that he described this battle that they've waged over the last 12 months and feels like they're in a pretty good space. How would you assess that? Well, I think he does feel that way. And it may be transitory. He might just be in that Goldilocks sweet spot of that. But the Mr. Magoo thing was about how the Fed historically just keeps raising and raising until something falls apart.

And he hasn't done that. As I said at the open, we've had four pauses in the last five minutes, five meetings, rather. That's a lot different than Mr. Magooing it and just bumping into dumpsters and stuff. He seems to have gotten in sync with the leads and lags a little bit better. I think he's learned something over the past three years, thankfully.

And so we're at that point where he has repeated, as Steve Leisman said, he realizes that not all the tightening has gone through the system. So that's anything but hawking it up. That's him saying some of the tightening is still yet to be felt.

That's going to be the case as long as we're higher for longer. As long as the Fed funds rate stays where it is, you're having problems in the system. You have a lot of loans. You know, you've got banks that have investment portfolios yielding 3 percent and the Fed funds rates at 5 and 3 eighths. So they're losing money on that. You've got small companies that are having elevated borrowing costs and every single day it becomes more painful. And every month they have debt at lower interest rates

that is rolling off the fixed rate debt that was maybe issued a few years ago at 1%. That's rolling off and that's higher. And so this is working its way through the system. He understands that. And so I compliment him on that. He's learned. And I think the way I, the only thing I can fault the Fed for in the past five meetings is that they shouldn't have hiked at all. They should have stayed on pause the whole time. But that's pretty close. And one more thing I want to say about economic indicators is the commodity price trend, which

has been straight down in a nonstop way on a moving average basis for the better part of two years. And the Bloomberg Commodity Index just can't get above its 200-day moving average and stay there. In fact, the gap is getting wider. And so it's interesting that gold's up today, not surprisingly, with interest rates down. But commodities broadly on the BCOM are unchanged. So the stubborn weakness in the Bloomberg Commodity Index is further suggested to me that inflation is going to be lower than people think. And I'm wondering if we won't have a zero year over year inflation at some point in 2024. You know, I understand why you make the

bullish case you do for bonds, which is as you said had a historic rally november was the best month for treasury since the 80s for obvious reasons we've dropped near 100 100 basis points on the 10-year for example but why shouldn't people buy stocks today why shouldn't they say you want to buy because they're because they're up massively since the last fed meeting and they're and they're in pretty rarefied territory, and the economy is going to be slowing, and earnings are going to be less robust than people think. But if you want to own stocks, and of course everybody owns some, I think that one trend that has been very clear throughout 2023, for good reasons, is that equal weighted stocks like lower interest

rates and they don't like higher interest rates. The Magnificent Seven don't care, really. They're in a world of their own. But we've had a lot of talk about equal weighted versus market cap weighted. And we've seen equal weighted do quite well since the last Fed meeting. And there's a reason for that. The Fed hikes hurt the equal weighted more than the last fed meeting and there's a reason for that that the fed hikes hurt the equal weighted more then the market cap weighted because it's a smaller companies that get taken out by higher interest rates and so i start i think you want equal weighted uh... rather than market cap weighted this juncture and so i don't think

there's a terrible valuation in the people waited market but no i think it is a market skips maybe fifteen times in in the equally but almost as i said it cap weighted market skates. It's maybe 15 times in the equal weight, but it almost sounds like... It's a little too high. Someone could take what you're saying, though, but someone could take what you're saying, Jeffrey, is making the case for an everything rally that the equal weight part of the market, the S&P 473, or 493, for lack of a better description, obviously, is going to get a boost now if the Fed truly is done hiking and the next moves multiple of which are cuts. The economy is still hanging in there. Why not? Well, I just think that the everything rally concept is a realization of what's happened in the past six weeks. And we kind of expected

that because we now have the full Fed pivot. It sounded pivot-ish, but it was more balanced back in November 1st. But now we have a full Fed pivot with the word any showing up and Powell talking about lags and all that stuff. So I just think that we're getting late in the cycle. And you can hang on there with risk assets. And I'm not exactly advocating against it, particularly in the higher credit sectors, but not investment grade, but maybe double B sectors of parts of the bond market.

But even there, I think you will have a reversal come the middle of the year. So we can hang in there for now. But I think stocks are pretty overvalued versus where they were, say, I don't know, six weeks ago or certainly back in March. It is a stunner. Lastly, before I let you go that, you know, as far as yields have come down, you mentioned, you know, you'll have low threes by the, you know, the end of next year sometime. We could have high threes by the time I say goodbye to you here today, which is remarkable considering we were at 5% not that long ago. Yeah, October 23rd. In fact, the New York Times had a business section article that I saved because it said rates are not going to come down anytime soon as the cover of the business section.

I said they're ringing the bell. But there's an old saying, I'll leave you with an old saying that old timers like me used to cut our teeth on, and that is stocks need bonds, but bonds don't need stocks. And right now, stocks are needing bonds and they're getting it. But we'll get into that phase, I think, in the second quarter or so of next year, where bonds don't need stocks, but stocks won't be participating the way bonds will. So that's how I think about the pivot. But I also think it's going to be a year of great volatility in 2024. Well, we'll look forward to spending it with you. I can say one of the true highlights of this year, Jeffrey, was spending every Fed Day with you exclusively here on Closing Bell. I look forward to doing the very same thing next year.

You have a good one. Stay healthy. Happy New Year. We'll see you. Good luck, everybody, and good luck in the new year. All right. That's Jeffrey Gundlach once again exclusively from DoubleLine with us right here on Closing Bell. Let's bring in CNBC contributor Josh Brown of Ritholtz Wealth Management. I'm crying. I have tears in my eyes. What is your assessment here now? What does this mean for stocks moving forward? Let's just take it from there. Some stocks are overvalued, but on the whole, the asset class, not overvalued. That's the only thing I just... Jeff just spoke for 30 minutes. The only thing I disagree with him, the blanket statement that stocks are overvalued.

You can buy small caps for 12 times forward earnings. You can buy mid caps for 13 or 14 times forward earnings. You can buy large cap basic materials nine times earnings. I feel like there's a lot you could be doing away from the S&P 50, most of which are tech consumer discretionary. There's a lot you could be doing where you are not overpaying for stocks, especially if you want to take the Fed at their word that we're going into a cutting cycle. I just, I categorically disagree. Money markets were the trade of the year, $6 trillion in money markets right now. We don't need it all, quote unquote, all to go into stocks. If any meaningful portion of that six trillion goes into stocks, doesn't have to go into the

SPY ETF. It can go into dividend aristocrats. Look at them. NOBL. Look at the way they're treating the VIG, V-I-G, Vanguard dividend. This is where the money is flowing right now because everybody understands this. You could buy stocks without buying the seven stocks. And that's the trade right now. I think that trade carries us through. I have tears in my eyes. This is like the end of a romantic comedy. Everything fell into place.

We're going out. We're going out with a VIX at 12. What else do you want? We have vanquished. Who's laughing? Liz? I will see you in a minute. We have vanquished 9% inflation. We did it. We did it without a single person losing a job. Please, please understand that. We just printed plus 199,000 new jobs last month, and the war on inflation has been won. VIX at 12.

Stocks cheap enough to buy. All of the most widely held stocks in America having massive double digits, in some case, triple digit rallies off the lows. Plus, we averted a potential banking crisis. What else could you have asked for out of 2023? I don't know. I don't know. You make the argument that the bear case is firmly

dead. No, no. The 2023 bear case is dead. The 2024 bear case is still ahead of us. There are probably going to be reasons to be concerned. But right now, as we end the year, you think about all of the things that went bump in the night, all of the things that we focused on day after day that could go wrong. None of them went wrong. They still could. They haven't. That's the story of, by the way, the story of 2023, a lot of conventional wisdom got turned on its ear once again. One of the big ones I was talking with a housing market expert yesterday. You had Fed funds, essentially, you had mortgage rate go from 6% in February to over 8%. It actually started from 2.6% two years ago. What did homebuilders do this year?

All-time highs. Up 50% on the year. That's not supposed to happen. A lot of things that weren't supposed to happen. And the big story, the Fed was not supposed to be able to, quote unquote, win the war on inflation without costing us any jobs and without throwing us into recession. Because as the Fed chair, I thought this was interesting, too, and we didn't get to talk about it yet in the news conference. He was discussing why, in his mind, the inflation that was caused in this cycle wasn't traditional. It wasn't caused by

some out-of-control demand. It was caused in many respects by supply shocks. Sure, you can criticize the fact that they waited too long. They were buying mortgage bonds when mortgage rates were low. And you can criticize the government for piling on with a lot of the stimulus. But in many respects, maybe the reason why we're even having this conversation is because those things happened. And the reason why he can maybe declare victory at one of these next meetings is because better late than never, they were aggressive, they were quick. And now we're going to see what happens. So Jeff was quoting from Braveheart. I'll do my own. William Wallace said, we all end up dead. It's just a question of how and why. Every bout with inflation ends up dead. It's just a question of how and why. The

1970s inflation paradigm was the wrong paradigm. I'm not the only person, obviously, that pointed this out, but I still think it's really an important lesson. The real paradigm to have focused on was post-World War II. We had tons of stimulus in the system. That's what was necessary for the arming of the country and the world against the Axis. That inflation took like 10 years to work itself out of the system. We had rising rates throughout the 1950s, and yet stocks were able to work, and we didn't really have any meaningful economic issue. That was the right paradigm. We had this massive burst of stimulus to make sure that society didn't tear itself apart, and we told people to stay home. It worked. We actually did too much of it. But it was not this lingering issue in the way that it was when we had oil embargoes and the like. It was man-made. We created it and we were able to allow enough time to go by

for that inflation to moderate. And it's not fully out of the system. And people are still paying high prices for shelter, for health care. Auto insurance sucks. I get it. I'm not saying like everything's great. Considering how much worse things could have been in this fight to bring inflation down from nominal 9 percent back on the road to two, it could have been way worse. And it wasn't. I mean, we're not and and that goes to, and we're not insensitive at all about the layoffs that have been announced, which layoffs continue to be announced in some respects. On a net basis, thankfully. Not to the degree at which some suggested at this point,

at least in the cycle of both an economy slowing and a Fed hiking, that the worst case projection had gotten. Judge, last thing on this. You have eight point six million open jobs. If you were ever going to be laid off, this is not the worst time for that to happen. Of course, we care on a net basis. We did not have to throw millions of people out of work to tame inflation. That is the story of the year. So let's do this. Stay with us. Let's take a quick break. When we come back, we'll forecast the Fed and the market. So far as Liz Young joins us here post nine, we'll get her first reaction to the news conference.

More importantly, what it means for stocks moving forward. We'll do that when in the closing bell market zone. I should remind all of you once again, the Dow Jones Industrial Average at this very moment is above its all-time high, and it is set to close at a new all-time record high. Right now, it's above 37,000. So we'll watch that over the final 10 minutes. Right now, join Josh Brown. As you can see, he's back with us. So far, Liz Young is here.

CNBC Senior Markets Commentator Mike Santoli. Everybody here to break down these final moments. Liz Young, to you first. To the Bears. Throw caution to the... Out. Throw caution... I didn't say you.

Throw caution to the wind now or what? First of all, I'm excited to be in the market zone. I never get to do this. All right, well, welcome. Don't blow it. I think you can throw caution to the wind for a little while. Things change today. And Gunlock used the word pivot.

We moved to a different part of the conversation, right? We went from they were talking about maybe hiking. Now they've basically declared that's over. We're talking about considering when we should be able to cut. Now, the idea of the market pulling cuts forward, though, I think is precarious, right? We continue to pull them forward. We don't have a lot of time between now and March. And the Fed likes to foreshadow things really far in the future. First, we talk about cutting. Then we actually cut, right? So they need a little more time

than that. I think pulling it forward is dangerous. The other thing that I know I've mentioned on this program is that the period between the last hike and the first cut is usually okay. So I think you can, for the time being, jump into this rally, let it run, let the clock run on it. But as soon as that first cut comes into view, you get more nervous. Mike, save for a cut happening today, this was about as dovish as the Bulls could have ever hoped for, right? I think it was high hopes exceeded, because I think we really did expect more or less a nuanced type of pivot, and it was much more explicit. You didn't have to read between the lines. He didn't throw out as many of the typical disclaimers of saying, don't really look at

the dots. They don't mean anything. As I said, that's what he sometimes does. He didn't hawk it up. That's right. To walk back anything from the statement. Now, that being said, and of course, you know, you mentioned the Dow. The S&P is within 3% of its record high. It's pretty rare you get within 3% of the record

high. You don't at least make a run at it over the next couple of months and maybe hit it. So all the things moving in the right direction, a lot of technical repair in this market. The Fed is now no longer pushing against it. We got confirmation, too, of a couple of things I'm trying to look at, which is the Fed is not really targeting market levels. It's not looking for bank shots of trying to influence financial conditions this way to get inflation to do what it wants. It cares about inflation. It's the only thing that matters. So therefore, the atmospherics around it, they don't have to look at job openings anymore. It's all about the inflation numbers. That being said, so much has worked in favor of this market in the

last two and a half months that you have to start to sit back and say how much is left. You had the soft landing celebration rally. You had the rate relief rally in banks. You had kind of the low quality, heavily shorted garbage that got washed out. And you had a repositioning rally because people didn't own enough stocks. A lot of that's different right now. So I think you have to be at least cognizant of the idea that it's a it's a everybody can clap and say we did it and it's a it's a culmination

type moment, you know, and then figure out what it takes from here and maybe a 4 percent nominal GDP economy next year if we're lucky and everything comes through. It's a different tone than what we've been dealing with recently. I mean, Josh, he had a chance today to express any sort of concern or worry that financial conditions have loosened given, you know, the 10 years down 100 basis points in six weeks and stocks are up an awful lot in six weeks. And he really didn't do that either to Mike's point that they are. If this doesn't tell you that inflation is the only game in town, then nothing ever will. Well, he also has to be intellectually consistent. So if we're saying during the tightening cycle that it operates on a lag, then let's also say that cutting rate, the risk of

cutting rates is probably not an immediate risk of things getting too loose because that operates on a lag as well. At least that's how I would choose to see it. I'm curious from you guys, the two-year, we talk a lot about the 10-year, the two-year down 30 basis points today, four spot, four, five. Is it down enough? Well, a one-day move in the two-year, first of all, you look at that chart and take the title off of it, you'd think that was some kind of small cap or tech stock. Looks like Snapchat after it reported earnings. Right. So first of all, just volatility that big in the Treasury market is not a comforting sign to me.

Is it down enough in one day? I think that's plenty in one day. I think over the course of the first quarter of 2024, it's going to come down considerably more, especially if we expect rates to be cut starting in March. But then that what that means is the yield curve uninverts, right? And you've got a re-steepened yield curve, which might be good for things like financials. And again, you've talked about the valuations, I think, earlier in the show. That might be a good time to start towing into something like financials. But an uninverting yield curve at the beginning of cuts is usually a dangerous time for markets. Mike, the top two performing sectors, utilities number two, XLRE, S&P Real Estate number one.

Not a shock to me. Is there anything about that surprising to you? No, pure rate beneficiaries as well as under-owned. And what to me is a little more significant is one of the biggest drags in the S&P today is Microsoft, which is down. Because Microsoft's the ultimate defensive, widely-owned, universally-owned stock. I'm glad you went there because it's exactly where I wanted to go. Microsoft's down, Alphabet's down, Meta's down. Now, we're down a smidge.

Rotation, not sell-off. However, that's where I want to go. There's going to be a lot of talk, and there already has been, about this great pivot that happened today. Did Chair Powell, Mike, do you think, just clear the way for investors to make a pivot and embrace this broadening move? And does it put any of these mega caps in near-term risk? I think the answer to the first question is largely yes. I think the market has been leaning that way. You know, recently you've had the equal weight has outperformed the NASDAQ 100 in the last month.

So we've kind of front-run that idea. And in terms of how much risk the mega caps are on, I don't know. I mean, so Microsoft's given up 130 basis points of outperformance in a day. It has a lot to give, right? It's not as if it's about kind of really damaging those trends. I think it's much more about where the incremental dollar goes, what's less owned versus what's crowded. And, you know, it'll sort its way out from there. And maybe that means the index itself has a little more of a struggle. But it explains the 12x because we have things moving in different directions. You have low correlation for now. And to me,

again, I keep saying this. It's one of those things that reminds me of like 2017. You've finished the year on a massive flourish. It was a melt up market. Early 2018 is when you had that weird volatility storm out of nowhere because people got just completely kind of wedged into this low vol melt up mode liz do you agree with gunlock that he doesn't think that money's gonna pour out of money markets into stocks where the that's one of the bull cases here for the next major leg to you know this this the way, S&P just hit 4,700. Again, just to let you all know, again, Dow Jones Industrial Average had a new all-time high and could very well close there for the first time ever either. Anything above 36,799 and change is going to get us to that mark. But

what do you make, Liz, of that idea that money has now gotten the go-ahead, so to speak, to come out of cash and into stocks? It may go into bonds, too. But a good enough portion of it is going to come into stocks, and that's going to make a difference. Well, think about the reason it went into money markets in the first place. It went in because you could get 5%, more than 5% in dividends or in a yield with little to no risk. So you'd have to convince people to come out of a 5% yield. And that may happen as the two-year comes down, because it won't be as attractive anymore. You have to convince them to come out of a 5% yield with little to no risk into parts

of the market. I think the expectation on some is parts of the market that are already overvalued. I don't think that's going to happen. And I think you see sort of a slow flood from money markets as rates come down. But I think he's right. It doesn't all go into tech. It doesn't all try to jump on a bandwagon. It probably goes into the more attractively valued areas of the market. But we talked about this the last time I was here, too. That's the tipping point. If money comes out of money markets and people have enough risk appetite to deploy it

into cyclicals, not just utilities, not just staples, cyclical sectors and credit and high yield, then that tips us into maybe we breach the all-time high. You've got a rally that looks a lot more durable. Josh, the Russell, better than 3%. It's 3.3% right now, approaching 2,000 on the Russell 2000. I just think you have a smorgasbord of laggards that are now almost putting in overtime to try and catch up, which is exactly what the thesis on the desk has been really since before Thanksgiving, the way that this year would come to an end. It's all playing out. Look internationally. Look at how European stocks look like they want to finish this year. Specifically,

European financials, which have no business ever going up, rallying like there's no tomorrow. Then look here stateside. You got ARK up 3% today. You got Biotech up 3% today. The businesses underlying those stocks are not rate sensitive. The stocks are rate sensitive and they are moving. Metals and mining up 3% on the day-to-day. I mentioned all the dividend payers. These have been lagging sectors all year. And in some cases, sectors where there's been a lot of pain. Utilities have been absolutely awful, but they pay a yield. Yields are coming down in risk-free. Therefore, you are going to see rotation into those high dividend payers or the dividend growth names. And I think it has legs into January. I don't think we're done. Mike, we're on three-handle watch for the 10-year. We're at 401. And that's going to be a considerable story moving

forward. Yeah. I honestly, a lot of folks, for good reason, thought it'd be sticky in the 410 to 390 area. We'll see if that does hold. It is interesting, as Liz said, you would expect maybe some re steepening if, in fact, you know, this is going to be the Fed is done and we can kind of reaccelerate a little bit in the economy and inflation expectations, maybe a bottom. I mean, you kind of have to start thinking in reverse of how it goes. But for as long as it lasts, it just takes the pressure off. The biggest impact, regional banks, they're flying because, you know, they're basically having their balance sheets refreshed by every move

while we're in the long-term yield. So everything is, you know, it's hard to really find fault with a lot of it except for the pace of it and the idea that nothing just started today. Today was just an extension of a lot of the things that got underway a couple months ago. Yeah, better than 500 points now, highs of the day for the Dow. Josh Brown, thank you so much. Same to you, Liz Young. Mike Santoli, as always, he's going to stick around, of course. That bell marks a new record high for the Dow Jones Industrial Average, going to close above 37,000 for the first time ever. I'll see you tomorrow.