Closing Bell - Closing Bell 1/16/24

Episode Date: January 16, 2024

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. And this make or break hour begins with rates popping, stocks dropping, and now some new questions about the state of this rally. We'll ask our expert to make sense of it over this final stretch. In the meantime, your scorecard with 60 minutes to go in regulation looks like that we are right across the board. But I want to show you the intraday at the 10-year note yield because it started moving up when Fed Governor Chris Waller suggested rate cuts could come this year but was noncommittal on how many or when they might begin. What happened to stocks? They peeled back a bit on that as well. We do have some big

movers out of the Dow today. Boeing shares are sinking. Apple's red on reports of iPhone price cuts over in China. As far as tech goes, NVIDIA about the only bright spot today as its stunning move continues there. NVIDIA, or that's it right there, energy also weak as nat gas, plunges big time. Does take us to our talk of the tape, whether the bulls are too optimistic on their outlooks for the markets. Let's ask one. He's John Mowry. He's the chief investment officer for NFJ Group, joins us here at Post 9. Welcome back. Thanks, Scott. You get nervous as a bull. I mean, you see what's going on with rates. The market's been really choppy. What's on your mind? Well, I think, again, you have to contextualize where we are. I mean, if you think back to October of

22, the market was trading at 15 times earnings. Today, we're trading at 19 and a half times earnings. So I think that it's very important to contextualize that, hey, the market multiple is higher. But that being said, you've still got pockets of the market that are very attractively priced. And what gets me excited, Scott, is that some of the areas that are priced very cheaply, I think, work in two environments. One is that the Fed sticks the soft landing and they lower rates. But the other is that we still could slip into a recession. Don't forget that we have the longest yield curve inversion, the second longest going back historically. We still could get a recession. If you get a recession, I think you're going to want a different basket of stocks than some of the leaders today in the market. If you're saying that we could still have a recession,

the very areas that you say are cheap would be cheap for a reason, correct? Well, I think that the reason that you have staples cheap, that you have REITs cheap, that you have utilities cheap, all these areas were that people overpaid at the end of 2022, bracing for the recession. Now those stocks are cheap and people had a decision last year. You could buy FANG and then you could put your money in coupons and clip yield. And so you hollowed out this whole area, Scott, of the market. So I think all those areas should do well regardless of the environment. And look, I mean, there's a lot of uncertainty always out there, but I would rather put my chips in an area where I think that you've got multiple ways to win than just betting on what's already

Why would utilities do better in almost any environment, as you suggest, if rates are going to remain at, you know, at best where they are now. I mean, after ticking down a lot, right, from five to four in the 10 year, they're sticky. They're sticky now. And you got people like Waller coming out today and saying, yeah, well, we may cut rates this year, but maybe not as fast. I'm paraphrasing, of course, maybe not as fast or as soon as people think. So the spread between the two-year bond yield and the Fed funds rate is one of the highest

going back historically, Scott. So if you look at that spread, it's very wide. The Fed is going to need to cut. I think that people are very hung up on, is it March or June? And to me, that's like if you're running a marathon, if you're like, am I going to have a water break at mile two or mile three? It really shouldn't matter, particularly if you're a long-term investor. The reality is they will be cutting. And if they cut, that is going to allow other areas that have yield to be more interesting to investors relative to fixed income instruments, like utilities, like staples, like the REITs. Alternatively, okay, if we go into a recession, those should do better relative, Scott. So I think for those two reasons, I would be bullish on those more defensive areas,

plus the banks, as you know, we've discussed, because they'll benefit as the yield curve moves down and steepens. So you're not getting nervous at all as a bull in this market? And obviously, in terms of this program goes and this network goes, one of the more confident, dare I say, bulls who's come on? Well, here's how I'd answer that. Valuation should always shape investor expectations. When valuations are very attractive, I get more bullish. So the areas that... You made the case at the top, though, that they're rich.

What are rich? Overall market value. You think the market multiples justify? Well, I think 19 and a half times earnings is stretched historically. So you don't have to be a professor in economics or finance to show that. But below the surface, Scott, the Russell 2000 value, the mid cap value, those are very cheap. And below the surface, even within those, you have to look at pockets that are very attractive. Maybe they're cheap for a reason. Like I'm trying to say, I guess the rally that we had from the end of October until the end of the year, you know, OK, so small caps got a nice bid. People like, oh, wow, it's going to be the year of broadening now. Forget Fang. Just go and the mega caps. Now you can you've gotten a license to broaden out.

Maybe that was a head fake. Maybe that was nothing more than positioning. Maybe it's too soon to buy the Russell. Or maybe it was investors saying, hey, these stocks are way too cheap. I'll give you a statistic. 33% of the Russell 2000 value has been down consecutively back-to-back years. That's the highest percentage of back-to-back stocks that have been down in the RUJ going back to the great financial crisis. If you could get a time machine and go back and buy the RUJ coming out of the 2008-2009 crisis, that would be a gift. So you do have real stretched valuation opportunities that are way too cheap. You mean coming out of them when rates were zero? Well, rates aren't zero. Well, again, I think that investors are too hung up on where rates are

today. I think you need to look at where the valuations are sitting in many of these attractively priced stocks. Scott, I came on the show and I joked about chocolate chips and semiconductor chips. Today, it's the exact opposite. You've got very stretched multiples between semis. Chocolate chips are cheap. Pepperoni's cheap. Domino's pizza looks really interesting here. I like Domino's. My kids do too. I think investors need to be looking at a different group of stocks. I know that everyone's obsessed with AI. I know that everyone's obsessed with talking about FANG, what they did last year. These are amazing companies. But I think there's better ways to make money if I look at the market this year and if I look at the opportunities we're seeing across the cap scale. How many cuts do you need to make your thesis on this market work? Well, I can tell you what the market's pricing.

I know everybody knows what the market's pricing, and I want to know what you're pricing. What do you think? I think 100 is totally reasonable, and I think 100 is a very prudent thing for the Fed to get to before the year end. I think it could be more than that, Scott. The reality is if they do more than that, that means we went to a recession probably. So if they keep cutting aggressively, we could slip into that recession. So, you know, there is a soft balance between how much are they cutting and how much do they need to cut to stick the landing. But the reality is the Fed's got that hose kinked very tight. OK, and it's going to be a problem the longer they keep it kinked.

And so they need to loosen that. And the two year bond yield has been telling them this for months now. So the Fed, I think, is in a position where they have no choice but to begin cutting this year. And hopefully we don't go into a recession before that occurs. All right. Well, let's bring in our senior economic supporter, Steve Leisman, because I want him to join the conversation based on what Chris Waller had to say, because it was Waller, arguably, who ignited this whole rally, Steve, at the end of October. He's part of the reason we are where we are, where we've been in striking distance of a new high on the S&P 500. But what do you make of what John Mowry has to say here? Which part, Scott, that

he's waiting on cuts? I think that's right, that it may not matter quite so much how much or when the Fed starts. I think that's right. It was interesting today how wound up and dovish the market appeared to be in preparing for Waller's remarks and how disappointed he was because he was maybe ever so slightly less dovish than expected. We went into this thing, I'll give you an example, the probability of a rate cut in March was 73%. It's now around 67%. So it's come down. The market is still betting on it. The market had priced in, I don't know, almost seven rate cuts. And I'll give you a quote at the moment right now. It's looking at 375.

So still pretty much six or seven rate cuts. The market hasn't changed a whole lot on Waller. There were expectations he would add to his dovishness. He didn't really add to it. He more put a little bit maybe stricter or stronger parameters around the rate cuts, but he did say that they're coming. He also said, and I'm quoting here, no reason for the Fed to move. Well, I'm taking from his thing. No reason for the Fed to move rapidly as in prior easing cycles. I mean, isn't that a bit of a brushback to where the market

seems to be priced by suggesting, yeah, we're probably going to cut this year, but we may be real offsides with where the market thinks that we're going? I'm not sure, Scott. I think the distinction he was making there was between the prior times that the Fed has cut in an emergency situation when it looked like the economy was cratering. I think that was the distinction he was making. Look, the Fed has three rate cuts built in. The market has six. As you go into next year, the differential is less. And the year after that, they're about in the same place. If you look at futures going way out. What's really interesting, Scott, what is going on now, what I think is an unremarked development today, and I want to get a quote while I'm talking to you, but it is the collapse

of the 210 inversion. For a very brief half a nanosecond there, we took out the 1031 low of 1605. It was back, I don't know where it is right now. I can get myself a quote here, but it was like 1650, 1630, something along those lines. But the idea that you are one dovish Fed speak, one dovish inflation report away from the curve disinverting, I think that's an unremarked or little noticed development that could really both help out the economy, help out the banking sector, and make capital and lending more available to Main Street. That's going to be important here. Of course, the other take on that, or maybe the additional take, I should say, is that then you'll have people putting the economy on the clock, so to speak,

and saying, well, okay, we've had this happen now, the steepening of the yield curve. Now we're really on recession watch. Yeah, well, those same folks thought the 210 was going to lead to it. I'm not saying we're completely out of the woods yet when it comes to recession. I'm just saying it's been a mistake to underestimate the consumer, underestimate the strength of the economy. And to try, I think the mistake that people make is to take prior analogs and prior charts and overlay them onto what's happening right now. I think that's a mistake. I think you got to be available for new and different outcomes because every outcome that I have followed in this pandemic and post-pandemic period, Scott, has been new and different. And I think that's one of the things that getting back to Waller that he's saying,

yeah, we used to cut really in a hurry because we were late. We don't have to do it this time because the economy is strong. Unemployment is low. We do want to cut, but we don't have to get there in a hurry. I think that's a great point. I really do. The new and different outcomes is something that needs to be considered. You stay with me, Steve. I want to bring in Cameron Dawson now of New Edge Wealth who's at the table with us, too. You want to opine on what Steve just had to say? Yeah, we totally agree about new and different. We're actually calling it the strange landing this year, which is one where there is no historical analog. We haven't seen this similar kind of setup.

Think about it. We have fiscal stimulus, which is massive compared to not being in a recession. We have the Fed embarking on an easing cycle that if the bond market is right, it would be the largest non-recessionary easing cycle in the last 40 years. So this cycle is so very different and there isn't a historical parallel. Steve. Yeah, no, I was just going to agree. I hate to have a total agreement scott i know you like different points of view here but but i like what she just said the largest non-inflate non-recessionary easing cycle and by the way that's why the fed is going to move very carefully here if you could put up i know i didn't ask for this an inflation chart going back to 1975

and look at what i call the twin peaks right there. What you'll see is you'll see peak number one, the Fed cuts rates, inflation comes down. Peak number two, it is peak number two that has animated Fed policy from day one when it comes to this hiking cycle and trying to overlay this 70s analog on what's happening right now. We have peak number one. The Fed is deathly afraid of peak number two. And it hasn't happened yet. And I don't know if it's going to happen. You've got to be available for it. But don't be so sure. Remember, Scott, we talked about this, the two worst phrases in finance. This time it's different. And this time it'll be exactly the same. And I was thinking of the, I don't know,

the name that stokes the most concern in what the Fed chair, you have to believe, is thinking about is Arthur Burns, obviously. What do you want to say? Well, I think the longer they wait, you're pushing toward getting into that recession. So, you know, capital, you know, I kind of this image of, you know, Tom Hanks and Apollo 13, when they see gas and they're like, hey, we need oxygen. So they need to lower rates. These companies do need lower rates. And the real estate move you've seen in REITs so far coming off of the October low of last year, that's predicated on there is going to be some relief there. So there's a lot of companies out there that are looking to refinance.

That's why the RUJ jumped so much, because you do have more debt on those balance sheets. So I think that's a big deal. But I'm not getting off this desk, Scott, until we talk talk about em i don't know if you want to talk about that now so you have to stick around a little bit longer that's good i think that's for our benefit your take on this rally i pose at the top whether the bull case is is still intact if it's a little suspect what do you think now well as, as John said, valuations are stretched. It all then depends on earnings materializing. And as we go into this fourth quarter earnings season and get outlooks, if we don't get robust and healthy outlooks, I think

that then challenges the earnings outlook for 24 and 2025 and could be a source of volatility. If you look at where the market's trading on 2025 earnings, which means two double digit back to back years of earnings growth, we're at 17 and a half times. That's near the 2020, 2021 peak. So we're already very full in valuation. Doesn't mean we can't get higher because of liquidity, but we have to keep that in mind. Well, you know, rates coming down, economy staying good and earnings coming in where they're supposed to be. Fix that problem if, in fact, it's a problem. Do you think earnings are going to be good enough?

I think that there is potential for upside on the margin line. We're seeing companies be very good about taking costs out of the business. There's also upside. We heard from people like Goldman Sachs today and talking about upside to M&A, that animal spirit, a little bit of activity, investment activity coming back. And so there is pockets of upside. But we do think that you have to be aware that there's a deceleration in economic growth as well. Nominal GDP is decelerating in 2024, and yet revenue forecasts are expected to accelerate. That's a pretty meaningful divergence. Steve, lastly to you, before I do move on to the highly anticipated EM conversation that Mr. Mowry wants to bring into the desk. So last time, if there's value there, I want to hear it. If there's value there, I want to hear it.

There is value because a lot of people suggest that that is actually the place to be investing and not necessarily the S&P 500. But back to Waller for a moment. After Waller last time, we had many conversations, you and me and I think many others, on the idea of, well, is he out here with a message that the Fed chair himself is comfortable with him sending? And I wonder if we should be asking that question again this time, if this is part of a concerted effort now to try and talk the market into a more realistic place. So I think, let me go back to the first time. The first time, Scott, I'm pretty sure he was out there freelancing. And you saw that, by the way, that Chair Powell, two days later, had to walk back what Waller had said.

Since the press conference, the Fed, almost every speech has had one concerted effort, which is to be pulling back on the reins of the horse, trying to bring the market back to bear more into line with where the Fed is. They have been very unsuccessful to the point where I was really surprised, Scott. It's one thing when the street and the futures price in a really aggressive or dovish Fed. It's another thing when the Wall Street economists join them in that. It's a bit like your mother testifying against you in court. Once you lose mom, you're gone, right? So Barclays came out in favor of a March rate cut.

Goldman had come out in favor of a March rate cut. When I saw that, I'm like, the Fed is losing this battle. Fast forward to today, and I think what's happening is Waller does want to cut. He wanted to cut last time for the reasons he spelled out, because inflation was falling. He says we want to cut now. But he's joined the chorus, I think, in terms of the center of the committee, in terms of what they're trying to do is pull back the reins and create more alignment between the cutting forecast of the Fed and the cutting forecast of the market pricing,

in part because what the Fed wants is flexibility to do what it thinks is right at the right time. But I do agree with a comment John made, something I worry about. I am not sure how big that window is for the Fed to get rates right in order to stave off a recession. I don't think it's an infinitely open window. No. Well, look, he Waller does mention that as well. Right. Policy needs to proceed with more caution to avoid overtightening, whether overtightening means that doesn't necessarily mean more hikes. It could also mean just keeping rates too high for too long. So. All right. Well, we're going to leave it there, Leesman. You can certainly hang around and listen to Mowry. I reserve the right not to come back to you, but nonetheless, the choice is yours. The choice is yours. I want to hear this part.

Well, I actually want to agree with Leesman and Cameron because I think this is why I like the other areas like staples, utilities, REITs, and banks, because those don't need the same earnings growth to keep the multiple expansion going. They're already discounted. So this one gets me all excited because you've got companies that are trading at the steepest discount to their historical valuations going back a decade, Scott. Alexander Realty, a REIT that we talked about. It's an office REIT, caters to life science, pharmaceutical companies, deeply discounted, okay?

They beat FFO guidance. EverLife Science, massive operating margins, steeply discounted to its history, more defensive historically, but has given you double-digit returns over time. So there are lots of opportunities, but I think you're going to have to look a little bit in a little bit different areas for those pockets relative to the broader market. You agree? I would agree that defensives are unloved and under-owned and utilities are cheap. The thing with defensives, though, is that they have episodic upside volatility. So they do well for a short period of time and then tend to give it all back when people breathe a sigh of relief. So we see them more as trading vehicles versus long-term holds, because what you've seen

is this long-term downtrend with brief pockets of upside volatility when people get scared. Just give me a thought real quick before we wrap it up on the mega caps, just because they've been, you know, uneven. There was a lot of talk about this broadening out. Then it hasn't necessarily come to fruition yet. If it is going to happen, I don't know. What do you think? I think not all mega caps are created equal. And this is probably going to be the year we'll be talking about magnificent, a number less than seven. And so what will happen is that those that have earnings growth, earnings momentum will do better versus those that just benefited from multiple revision upside in 2023 and don't have earnings momentum are likely going to struggle. Who knew you could have this

much fun talking about Fed policy, emerging markets, staples and utilities. But somehow we managed to do just that. Guys, thank you very much. Cameron Dawson, John Marrow, and of course, our friend Steve Leisman for joining as well. Let's send it over to Kate Rogers now for a look at the biggest names moving into the close. Kate. Hey there, Scott. We'll start with shares of PayPal. That stock is down more than 4 percent on a downgrade from Mizzouho to neutral today. Mizzouho citing increased competition from Apple Pay and Zelle as a major factor that is pressuring the stock. And Gordon Haskett out with a restaurant outlook for the year, upgrading Domino's to buy that stock higher by more than three percent. The note says the company is seeing traction from its loyalty revamp and Uber Eats

partnership expansion. And Wendy's is down around two percent on a downgrade to hold on the firm's prediction for continued U.S. traffic declines in the backdrop of an increasingly promotional U.S. burger segment. Back over to you. All right. OK, Roger, thank you. We'll see you in just a bit. We're just getting started here. Up next, class is in session once again, even on a snow day. The dean of valuation, Aswath Damodaran, he is back. He's grading the health of the rally as earnings season gets underway. He'll also break down the most under and overvalued areas of the market right now. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. We're back as the sell-off accelerates. We head towards the close, of course, today.

Earnings season underway. The bank's reporting and investors looking ahead to the start of big tech next week. The big question, is the market overvalued or not? Let's ask the Dean of Valuation, Aswath Damodaran of NYU Stern School of Business. Welcome back. It's nice to see you again. Good to see you, Scott. Simple question. Is it a simple answer? I think right now the market is overvalued. I mean, my estimate is about 9, 10 percent.

And part of the reason, I think, is the expectations game has turned against the market. I mean, if you remember at the start of last year, when recession was almost guaranteed, rates were going to go up, inflation was out of control. And every strategist that you had essentially said it was going to be a terrible year for stocks. Turned out to be the exact opposite. Everything turned out to work in the opposite direction. My fear is that we've moved too much in the other direction. Now people assume there is no recession. Inflation is under control and everything's going to be OK. So I think this year, good news is going to require a lot more than it did last year. And that to me is why I think stocks are in a dangerous

place right now. What if, in fact, inflation is coming down at a pretty good clip? And what if the economy is holding up pretty well? Then that would obviously throw the equation into a different answer. That's already priced in. And I think that's the problem is we're pricing in the good stuff. And I think the worry now is there might be surprises. In fact, there will be surprises. You go back to 2008, every single year, we've had some big surprise that nobody saw coming. And I'm sure there will be a big, it's an election year. I can't see this year going by without significant big surprises. So to me, that's the danger you face investing in stocks right now. What about the prior guests that we just spoke with who suggested, certainly one of them, that staples, REITs, utilities, all these unloved

places of a year ago are cheap on a valuation standpoint. How do you view those? Well, part of the reason they're cheap is they didn't have a recovery last year. If you look at what stocks did last year, even though overall stocks were up 26 percent. Lots of sectors actually had single digit and utilities and energy were actually down last year. And if you take utilities, which had a bad year the previous year as well, it's been two bad years in a row. So in a sense, they're better priced. And as a defensive investment, I think they're OK. But they're not going to make you 20 percent returns this year. That's not going to happen. Maybe some people would be that. You know what? That's just fine. I mean, I don't necessarily look for 20 percent return. I just want some, you know, a relatively good return. Is there an area of the market, Professor, you look at and say is particularly

attractive because it is cheap enough? I think utilities would be the place I go for that reason. I think that energy is always up and down. It had energy at a great year the previous year. It gave back some of those winnings. I mean, utilities have been surprisingly down over the last two years because, I mean, last year you can't blame interest rates. The T1 rate actually ended the year at exactly the same level that it started the year. So from an interest rate perspective, it should have been a good year, but it did not have it. So maybe it's overdue. And that's, I think, one reason I would look at utilities going forward. All right. Let me talk about two stocks before we wrap it up.

Apple, OK, got a bunch of downgrades already this year, at least two, if not three, which is rare in and of itself. And the stock hasn't traded all that well. Fundamental questions exist. There are technical issues with the stock. How do you view Apple from a valuation standpoint right here? Apple's, I think, dependence on the smartphone makes them exposed to upgrade after upgrade. So I think they've built other businesses up to the point where they have some resilience built in. But it's been a long, good run for Apple. So if anybody owns Apple stock is complaining about this year, it's because they bought the stock very recently.

I mean, this is a stock that's done well for its investors, and it's time to give up some of that good stuff. And how about NVIDIA, which, if I recall correctly, you've justified the valuation on numerous occasions during in which we, you know, we spoke throughout last year. The stock has been incredible, Professor. Now, the earnings and the guidance have been equally as stunning, too. So how do we assess this here? I mean, NVIDIA, I think, is much more difficult than Apple to work with because of that AI monster inside its engine. I mean, I did find it overvalued in the middle of last year and I sold half my holding. I'm glad I didn't sell all of it because clearly the stock did really well after I sold it. But it doesn't make me less nervous about the fact that you're paying for incredible success on the AI front and that's

being priced in. And I'm not sure how much more good stuff that can come from AI that can keep the stock going up. Yeah, I don't know. That's what we said when the stock was 400. Now it's 500. And now it's on the way to six. Professor, thanks. We'll see you soon. Thank you. That's Professor Aswath Damodaran, again, with the NYU Stern School of Business. Coming up More on this late-day move lower in stocks. Move up in yields. SoFi's Liz Young. She is here with me at Post 9 Next to make the case for how to be positioned right now,

including the four areas investors should have on their buy list now. That's right after this break. Closing Bells coming right back. We're back and under pressure heading into the close today. The S&P on pace now for its worst day in about two weeks. Let's bring in SoFi's head of investment strategy, Liz Young, with me here at Post 9. We're back and under pressure heading into the close today. The S&P on pace now for its worst day in about two weeks. Let's bring in SoFi's head of investment strategy, Liz Young, with me here at Post9. Are we on solid footing here with this market? Are we feeling a little dicey?

What's the story? Because we did eke out a gain last week. We're like 10 of 11 weeks still. So that's not too shabby. Yeah. I mean, we're not in a downtrend, I don't think. I think we're just at this pause point. And if you look back at the previous all-time high, really, in the last two years, what we've done is we've gotten back to the point that we were at before recession fears were priced in. So here we are. Maybe the market has decided recession is not necessarily in the cards, but we're still struggling to get above that previous high. And there isn't a lot of risk appetite in the market so far this year, which is interesting after such a ferocious rally into the end of last year. So you use the word pause. Is it the pause that refreshes?

We're just taking a little bit of a break, assessing where we are. We need more earnings to come into the system, and then we can spit something out one way or the other? I think we need some good news. We need some really solid good news in order to break above this pause. And what the market is doing right now is trying to figure out, will we or won't we start cutting in March? So far, the idea of that has been bullish. It's been supportive. But I think what's going to happen is, depending on the direction that occurs between now and that March meeting, if the market starts to go down and the Fed

comes through and cuts as the market is falling, we as investors, we as the big we, are so obsessed with market direction as the real tell of what's going on. If the market is on its way down and the Fed cuts, I think it'll be interpreted actually as bad news. And there might be some fear that gets baked into that. You think March is too soon, though, right? I do think March is too soon. What seems realistic to you? Does it even matter? There are some who make the case it doesn't matter. The fact of the matter is that the

trend is that the Fed's going to be cutting. And historically, that's been good for equities. Well, interestingly, when they start cutting rates, historically is when the market starts to struggle. I think what's been good for equities in this cycle is as yields come down it seems supportive, particularly on the short end of the curve, it's supportive to valuations or at least it reinforces that high valuations are okay. They're not necessarily scary. But I do think March is too soon. I think that we would need to see more deterioration in the data, in the economic data, more of a slowdown before they can start cutting. Because if the market is still interpreting that

as a bullish signal, you really run the risk of overheating, reaccelerating after a cut that was done prematurely. Fine line though, right? As Waller suggested today, there is the other risk of overtightening, of leaving rates too high for too long and then causing a recession you didn't need to cause, the old snatching defeat from the jaws of victory. Right. But the narrative, and this is something that I keep thinking about, the narrative of the Fed hasn't really changed that much. I know we called the December meeting a pivot as if they had made this grand turn of statements, but they really haven't. Well, the positioning certainly has, right?

They are themselves looking at three cuts. Now, the market may be at six, but the mere fact that they are looking at three is way better than what they were looking at before. Sure. But from the start of this cycle, even when they started hiking rates, they had said over and over again, we'd rather err on the side of going too far or staying high for a little bit too long rather than cutting too early or not going far enough. Yeah, but that changed, though. I don't know that it has. There was a pivot from that to the idea of, as I said,

causing undue harm, right? I mean, they were pretty clear, including the Fed chair, seemed to make that pivot in his own way. Right. Because the data had cooled. But there's really no harm so far that's been done or that's evident in the data that they're watching. I think that they'd be comfortable with a little bit of harm. And they did talk about months ago, there needing to be some pain.

It's inevitable that some pain will result from a hiking cycle like this. I don't know that we've seen that pain yet. And even the Fed themselves is expecting below trend GDP growth this year. So far, that hasn't materialized. I think that they should wait until some of that starts to materialize so that there's a buffer that if and when they do start cutting rates, there's room for the economy to reaccelerate in the near term, but not get problematic for inflation. In the near term, as long as we can show up the 10 year, again, we're like 407, you know, so we've moved up on these Waller comments theoretically. As long as rates are above or around this level,

do equities have a problem or no? I think they have a problem getting further up, right? And as yields rise, I think it does put a ceiling on upside potential in the S&P because you have to remember how we got to this point. What started to drive that rally at the end of October was the idea that they were going to cut. We had cool CPI prints

and we had this huge rally in stocks. Huge rally in bonds too, right? Yields came. Yields were like on a waterfall. Yep. And we had some historic days, drops in the two year of 20 something basis points in one day. That's what, a lot of that is what drove this stock rally. So if yields rise again, I think it works in the other direction. So we're showing your playbook here. Let's go through this. Dividend stocks because yields are coming down? Yields are coming down.

There's a lot of money in money markets. Everybody knows that. I think investors start to search for where should I put it. If yields are coming down, you're not going to be making 5.5% in a money market anymore. So people are starting to think about, okay, do I redeploy it into risk assets or into stocks? And where would I do that if I still want that income? I think dividend paying stocks can do pretty well this year. Why do you caveat financials with the for now? Because for now, I think there's still

a big belief that we are going to have a soft landing. That's certainly a possibility. And if that's the case, then you've got yields in a place that are a little bit more attractive for financials than they were. You've got a re-steepening of the yield curve. Leisman talked about this earlier. We're probably at about 17 basis points between the twos, tens right now. That's a big difference from where we were three months ago. So some of that helping financials in the sense that you've got a more attractive NIM that could happen in the near term, right? And they'll trade on that. If you don't have recession fears that come in with certainty, cyclicals don't get hit yet.

So that's why for now, I think financials can hold up. Real quick, and also health care you like, which is the best performing sector of this young year. Yeah, well, it's very early to say that it's going to be the best sector. Yes, the best sector of the year. But health care is one of those sectors that actually plays both sides of the fence. In large cap, you've got parts of health care that can be very defensive and are seen that way. But you've still got biotech and pharma that have a lot of growth potential, not as interest rate sensitive, not as sensitive to all this volatility in yields.

All right. Liz Young, thank you very much. Thank you. All right. Up next, shares of Spirit plunging today. A judge says not so fast about that deal with JetBlue. Boeing shares are slipping yet again as well. We're going to tell you why. Closing bell is coming right back. Welcome back to Big Stories. We are watching in the airline space today. Let's get to Phil LeBeau with the details on both. Phil? Scott, we're going to start with JetBlue and

Spirit and the quote of the day from Judge William Young. For dedicated customers of Spirit, this one's for you. What did he do for those customers? Basically said, you're going to be able to keep your low fares and your cost-conscious business the way that Spirit has it right now. And in a ruling that a lot of people said, look, I'm not surprised. The writing was on the wall when this was first proposed. The $3.8 billion merger between JetBlue and Spirit has been blocked. He ruled in favor of the DOJ. Now, what's interesting here is the breakup fee when this was first agreed to, JetBlue agreed to a breakup fee of $70 million and potentially paying Spirit shareholders as much as $400 million, though there are some fees that have been taken off since then. So this could be costly for JetBlue. In a joint statement, the airline said, our combination is the best opportunity to increase much-needed competition and choice. As you take a look at shares of both,

JetBlue actually rising a little bit after the decision came down, but man, spirit just got hammered. And by the way, we're showing you back to July of 22 when the proposed merger was announced. They are assessing their legal options. The airline index, not a surprise that we're seeing it under pressure today. Look, there are a lot of headwinds here. But if you're looking at the airlines and saying, hey, maybe we'll see a merger, maybe we think Alaska and Hawaii will go through because that's up next, a lot of people are saying maybe not. And that's why the airline index is down for the day.

Another headwind that's out there for the airlines, it's Boeing. Let's shift gears and I'll show you what's the latest with Boeing. An outside quality advisor was named. Admiral Kirkland Donald, who is the chair of Ingersoll Industries, has been named as the outside counsel. Huntington Ingalls, I'm sorry, Huntington Ingalls Industry has been named as an outside advisor. There are 40 to max nine inspections that have taken place. Will we get those results in the next day or so? That's the big question. And the outlook in terms of production at Boeing is in question. There are more than a few analysts who are saying they're

at 38 a month right now. Are they going to be able to make it up to 50 per month by 2025, 2026? Boeing is moving quickly to address these quality questions. It has announced a number of steps, announced them yesterday, including adding outside quality assessment teams, people who will check the work on the production line in Renton, Washington. If you take a look at Shares of Spirit, keep in mind that Boeing has also said it is sending people, Scott, its own people, Boeing people, to supplement what work they already do, checking the work at Spirit Aerosystems in Wichita, Kansas. Scott, back to you. Phil, I appreciate it. Thank you, Phil LeBeau. Summing up a couple of important stories today for us. Up next, the $35 billion deal that's shaking up the software space. We have details

behind one of the biggest tech sector acquisitions in many months. We'll do it next. Up next, interactive brokers reporting results in overtime. We'll tell you what to look for when those numbers hit the tape. That and much more when we take you into the Market Zone next. Here we go. We're in the Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of the trading day. Wall Street analysts getting even more bullish, if you can believe it, on AMD and NVIDIA. We're going to dig into those calls. And Kate Rooney looking at a theme that Wall Street is watching as brokerage firms get ready to report, including interactive brokers.

But Mike Santoli, I begin with you, your assessment of this day. Dow's come off the lows, yields popped a bit, and that was, I guess, a bit unsettling. We have definitely still in payback mode under the surface, though. I keep pointing out very negative volume skews. So most stocks are resetting lower. I don't think it's really put a flutter into the indexes that much. We know why, because of the big stocks that are managing to hang in there. Although I'm really watching last week's low.

It's under 4,700 in the S&P, so we're not close to it. But until you break that, then you're not really doing anything except churning around. But I think that the yield move and the volatility move have gotten people's notice. So a slightly more unsettled tape, I think, in a traditionally weak third week of January. What do you make of this just continued bullishness around AMD and NVIDIA? And NVIDIA itself has certainly helped the, you know, the tech sector stave off some perhaps greater weakness because Apple's been so unsettled lately. For sure. It's one of those things where you can just sort of reiterate the thing we think we knew. You put some numbers on it, like what you think the total possible AI-related revenues are for AMD. That was

the call today from Barclays. And there's a kind of an excuse for it to perform better. I do think it's notable. AMD and NVIDIA really separating themselves from the average semiconductor stock at this point. The equal-weighted XSD has not really done a heck of a lot at all. Those stocks kind of stealing a lot of the oxygen. The market craves secular stories one way or another, and they're going to try to play it for now. There you see that over the last six months, how they've gotten that big lift. KeyBank raises targets on both. They're talking about higher demand into this year as well.

And then, Kay Rooney, there's Interactive Brokers. So we're getting some of those in overtime as well. What are we looking for here? Yeah, Scott, so results today for Interactive Brokers, it's highly dependent on trading volumes and then customer balances for this name. So better equity environment in the fourth quarter is expected to boost results for IBKR and then the rest of the brokerage industry as well, which we'll get tomorrow for Charles Schwab. Trading activity is measured by daily active revenue trades, also known as darts. It's a key metric to watch for investors. Account growth last quarter and the prior quarter when they reported was up 21 percent. Investors are going

to see if that momentum for that double digit growth can continue. Net interest income could be affected by falling benchmark rates. So something to watch as well. The brokerage firm is expected to see a boost from margin lending as well. Stock is up about 13 percent in the past year. It's outperforming competitors like Charles Schwab, which I mentioned, reports tomorrow as well. Make sure to catch Interactive Brokers chairman Thomas Petterfi. He's coming up in overtime. Don't want to miss that interview. Scott, up for you.

And we will. We'll look forward to that. Kate, thank you. That's Kate Rooney. You want to talk about these stocks for a minute? Sure. I mean, Interactive Brokers is really the pure play on what retail is doing, even sort of mini hedge fund institutional stuff. So it is

transaction based, held up a lot better. Schwab is an asset gatherer bank, really. And the concern there is is the obviously the balance sheet. It's interesting that retail investors sentiment, if you measure the survey stuff, looks like it really got over its skis at the end of last year. But the activity wasn't really there. The flows didn't really reflect the fact that retail was all in jumping back in with both feet. We haven't had this kind of sustained multi-month move that I think pulls a lot of people in that direction. For the most part, you know, you haven't had a lot of money spill back out of money market funds. So, you know, that could be potential energy for these stocks.

But at the moment, it remains to be seen if it's really going to get there. Will you going to start like, you know, kind of treading water a bit and waiting till mega cap comes in with their own earnings? I think even before that, I think you're going to get a decent run of earnings, you know, that are going to give you a bit of a read on whether we're OK here. Once you get past the banks, I think, you know, mega cap tech is a little bit later than that. For the most part, though, we're still in this game of the economic surprise index actually dipped negative. It's about the lowest level it's been in a year. It's not low in general, but it's low for the past year. And that in combination with, OK, I guess we got to worry about if the Fed wants to intentionally be late. That's where we are. We're in that little bit of a pinch. But again, we're two percent off the highs, not even that for the S&P. So I don't

think it's too crucial. Well, I mean, we we intents and purposes, we blew off a FedEx warning. We blew off a Nike warning. And now we'll have to see if some of these companies that play in those specific economic areas. Yeah, I mean, the transports are weak. Just talk to the cyclical areas you want to hear from to make sure things are okay. Yeah, I just thought, thank you, Mike. We'll see you tomorrow. Dow's going to be red.

S&P red, too. I will see you tomorrow.