Closing Bell - Closing Bell: 3/20/25

Episode Date: March 20, 2025

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 Wobner live from Post9 here at the New York Stock Exchange. This Make or Break Hour begins with the markets, Post Fed and what to do now in the weeks ahead knowing that more rate cuts aren't coming quite yet but tariffs likely are. Here's a scorecard with 60 minutes to go in regulation today. No real follow through in stocks as you see as the majors are mostly muted. Nvidia and Meta are a couple of the standouts. We'll keep an eye on those and of course the markets as a whole. Interest rates, they are falling. Again, just as they did post-PAL.

And on that note, here to discuss all of it in a CNBC exclusive interview is Double Line Capital CEO, CIO and founder, Jeffrey Gundlach. Jeffrey, welcome back. It is great to have you as... Well, can you hear me? Jeffrey, can you hear me? All right? We'll work on that in a minute. Luckily, I have Gabriella Santos

here of JP Morgan Asset Management as well. All right, now I'm going to break away once Jeffrey is ready to rock and roll here. We get the audio figured out. What do you think? The market was positive right after Powell, obviously.

Why? I think it was honestly just a relief that it really doesn't seem like Powell, and honestly a lot of members of the Fed are really that worried about needing to react to higher inflation. I think it was interesting to see that there were upward revisions to inflation only for this year,

but not next year, the year after. So the Fed's on hold, but not next year the year after. So the feds on hold but if anything the next move is a cut and the and the market really likes that asymmetric risk towards much more dovishness. So it doesn't matter that they took their growth outlook down the thought now is that well the Fed put is here if the economy weakens they're gonna cut and they're trying to look through any inflation caused by the

tariffs at least that's their base case. What does that mean for the environment though for stocks which are obviously dicey. The market's been unsettled uncertainty is the word of the moment. How used it himself yesterday and we've

probably said it every day. So I think it's a twenty twenty five version of the fed put in the sense that it's a bias to cut rates, but in a reactionary manner to further slow down in the economy. So they'll need to see layoffs pick up, claims move higher, the unemployment rate move higher before they're willing to provide a bit more of a rate cut move to the economy. So to me for stocks, it's just pricing in at the moment, a little bit of downside risk to growth estimates, but should growth slow down a lot more than this

due to policy out of DC, then stocks still need to price this in. A lot of this correction has really been about the Mag-7 and a correction in momentum, not really pricing in something much worse on the economy. Okay, on that note, I will come back to you in a little bit. Now let's welcome in Jeffrey Gundlach. He is the double-line capital CEO, CIO, and founder.

We got to figure it out. We got to figure it out. It's great to have you as always, Jeffrey. Thanks for being here. Okay, good to be here, Scott. We finally missed a Fed Day after over three years of not missing one. Oh, no, I I can't hear you at all and I'm not sure if any of you can either. So let's do this Let's try and work on this again. Sorry folks live television is what it is But I promise we'll get this figured out and we will come back to Jeffrey in in just a moment Do you think that the Fed is correct? Gabriella for looking through or attempting to look through inflation the

way they are? Or is that going to end up being a wrong move? Transitory was back. The word trans- Yeah, that was a bad word to use. That was a bad one. Just in the sense that sometimes transitory can persist for longer than the word implies and causes the Fed to react.

But we do ultimately think it's a one time price increase and it should be short lived if inflation expectations don't get unanchored. Yeah. Do you think if you work through the mega cap pullback and the momentum correction, is there still more do you think that needs to happen in parts of the market that need to correct even further? I mean, multiples have come down, the overall multiples down.

Multiples of the most high flying names have come in. Is there more work to do? So I think that's such an important point because there's a certain narrative of around policy uncertainty and a slowdown to economic growth. But I think that's more secondary to just a correction in the Mag 7 and Momentum after an amazing two years. And after a situation where there was a lot of concentration in a lot of portfolios, and now what we're seeing is revenge diversification, meaning quite a snapback of the rubber band with the rest of the market doing better value outperforming by a thousand basis points, international by 1200 basis points. And I think this is an unwound of concentration that had built not, you know, this year or

six months, but that had built over two years, if not longer. So yes, we do think there's more to unwind, and we do favor rebalancing things a bit as the rubber band snaps here. How much risk do you think is around April 2nd, the next tariff deadline? It's going to be overhanging this market until then at the very minimum. So I do think that is an important date.

I think there still is a certain expectation by some investors that come April 2nd, there will be more clarity on trade, there will be more visibility around the strategy of reciprocal tariffs and what kind of negotiations could take place. I think the risk is part of it is not negotiation. There ultimately are higher, longer lasting tariffs that weigh more on corporate margins and on economic growth overall.

And especially going back to this idea that the market hasn't priced in a substantial economic slowdown or margin compression. Well, I mean, Wolf Research was out today essentially saying that April 2nd is not being appreciated enough by the market and it's likely to be worse than people think. That much of a shock. Is that a real risk? I think it is a risk. I think we have to listen what President Trump and the administration is telling us.

Tariffs are thought of not just as a pure negotiating tool. It's also thought of as a revenue razor, which means they have to be more permanent than just a negotiation tactic. And it also needs to be, and it's also used as something to bring manufacturing jobs back. So I do think we need to take tariff risk seriously, something that could cause a bit of a slowdown economic growth, a bit of pressure on margins. But with anything, winners and losers here, the winners we see as sectors insulated from this, think utilities, one of our favorite sectors.

Well, that's exciting. Super exciting, it is. Have we learned nothing from last year? There's a sector that's got a bit of a mix of contracted power, which is a theme on data centers that did well last year, and then this year, third best performing sector, I think, more from regulated utilities, which which are huge defensive play.

Okay you've been great thanks for helping us out and stay here please because we'll talk to you on the other side I think we're gonna try this again if you don't succeed try try and try again Jeffrey can you hear me now? I hear you can you hear me? I can thankfully I can. The CEO and the founder of Double Line. It's great to have you as always, a day later than normal, but nonetheless, it is so good to have you for your perspective and maybe better. You've had 24 hours now. Take it all in, right? You heard what Powell said. You read what they did. They cut their growth outlook. They take

their inflation expectations up. and maybe most importantly, for the way the market viewed everything yesterday, they kept two cuts for 2025. But you've had the time now to think about it. What was your takeaway? Well, the word of the day certainly was uncertainty. He said it so many times, and you can't really blame him. I mean, obviously April 2nd is looming

it's not that very far away at all and We have to see what happens with the tariffs the the one thing Powell said that I think the market liked a lot I mean, I think there is no inkling of tightening I mean, he still has two cuts on the dot plot, which is sort of strange because, and there was a lot of pushback from the reporters asking questions, like what is this about these cuts on here if you're upgrading your inflation? And it's a good question, but Powell was very much on the defensive, I thought, yesterday. But the market obviously likes the fact that there's still two cuts in place. And you can kind of see why.

The two-year treasury is down a little bit under 4% now, which is quite in sync with a couple of cuts. They did downgrade growth to 1.7, real growth for this year, and they upgraded inflation, depending on what index you look at, to about 2.6, 2.7. But if you take the 1.7 and add on that inflation rate that's predicted, you're right at about 4.3, 4.4, which is sort of where the 10-year treasury is. So he used the word, in addition to the word of uncertainty, he used the word inertia,

which I thought was a really interesting word. I, he used the word inertia, which I thought was a really interesting word. I think he only used it once, but it's an interesting word. It kind of says that he doesn't really know. He said nobody has high confidence in their forecast right now because there's too many moving pieces on all of this. But since the Fed started cutting rates back in September,

bond yields are still up and The stock market is really doing very very little since then So this is an unusual time period where the Fed cutting rates by a hundred basis points and talking about two more We have not seen a rally in the 10-year Treasury bond the price of 10-year Treasury bond is down And we have also not really had a rally in stocks since the Fed started starting cutting interest rates. There's that old phrase don't fight the Fed which is supposed to mean the Fed's cutting you're supposed to stay long risk but it sort of isn't working this time and I think that's

going to continue to be a theme as we move forward in time. I think that we have a really big problem with, and I talk about it every time we meet Scott, with this interest expense. You know, it's over three billion dollars a day in interest expense on the Treasury debt. And it's interesting that the Fed has cut back quantitative tightening down to five billion dollars a month. I wonder why they didn't just go to zero, quite frankly, because five billion dollars a month isn I wonder why they didn't just go to zero, quite frankly, because $5 billion a month isn't even two days of interest on the debt.

So you're really into the rounding category. But one of the reasons I think they did that tapering of quantitative tightening is I do think that there's a desire to have interest rates go down. And one way to do that is by having less, you know, quantitative tightening going on. So all in all, I think it's a wait and see situation for sure.

And it is interesting that the Fed did give the market the idea that the tariff thing might not be an ongoing escalation problem. It might just be a one time on the inflation rate. I thought that was a little bit surprising that it was so clear, clearly stated on that one. And so we'll see if that happens or not, but it would seem that the inflation rate is going higher. Our inflation model agrees pretty much with the dots that the Fed has for this year of about two and three-quarter percent inflation rate. And it'll be a little bit, it should be fairly calm in the next couple of months

except for the tariff effect, which nobody really knows what the answer that's going to be. So since this cutting cycle began, not a lot of money being made out of financial assets. What's really working are the real assets. The are up gold is up a lot and it's going out just really Right gold above three thousand and holding now and Bitcoin You know, it's just gold on leverage really the way I think about it And so of course, it's it's up the most since the Fed started cutting rates. So The tenured Treasury rate is the same as it was two and a half years ago And the range on the low end was 3.6 and the high end was 4.8.

And we're pretty much in the middle of it. So this is kind of a grinded out type of a market. The one thing that has happened, and I think that people say that bull markets climb a wall of worry. I don't feel like we have a wall of worry quite yet. I keep hearing things that are kind of explaining things away. Like Fed Chair Powell said, you know, the break-even inflation rate is above four. There's a University of Michigan, I think, survey that's shot up to four or five for

the next one-year inflation. And he chooses to downplay that by talking about the five-year, five-year forward, which for most people isn't even really a thing. You know, it's a prediction of what the inflation rate will be five years from now for the five years subsequent to that. So it's an inflation rate that's way out there. I don't understand why anybody thinks they have a handle on that, but the the five year five year forward has been relatively stable while shorter term inflation considerations have been have been upgraded.

And so I think that we're in a very stable place. I like the word inertia. We're in the middle of the trading range. Spreads have started to widen on credit, though. That's the other thing. So if Powell chooses to talk about five-year, five-year forward and downplay near-term inflation, I hear a lot of people saying, well, stocks had a quick 10% drop, but credit spreads have been really well-contained,

well-behaved. I don't really think that's an accurate characterization. The junk bond spread got out by about 70, 80 basis points from what its narrow was last year, and that's not insignificant. And also the VIX, while it's come down in recent days, it's still very elevated. And if you overlay a chart of high-yield spreads, the incremental yield on high-yield versus Treasuries with the VIX, there's a very high correlation there for pretty common sense

reasons. But the high-yield spread looks on that chart that it should be widening more as we move forward in time. So I think there's a lot of downplaying of risk that's become evident in the market. Do you think that, I mean, Powell called the move on quantitative tightening a common sense sort of thing. Do you think that that was using the balance sheet as a tool more so than actual you know monetary policy cutting interest rates? They still do have the tool of the balance sheet that they can use it they are using it and the reason

they are willing to use it now is for some of the reasons that you just mentioned. Mindful of the credit markets he talked about some tightness in money markets but that's where he really stopped. Yeah I mean the quantity of tightening is effectively zero at this point which means we might be setting

the stage for quantitative easing I think I think that. He let it slip a couple of press conferences ago. That he wanted to get the balance sheet down so that they'd be in a position to have the potential to grow it back up again should an economic need take place for that to happen. So he's got a couple of things going on here. He's getting close to quantitative easing.

And in spite of upgrading his inflation dots, he still has two cuts in the market. So I think he was really trying to balance everything out understandably because of the tremendous uncertainty. I do notice that the US has stopped outperforming since the Fed started cutting interest rates. Europe is outperforming and even emerging market stocks have started outperforming. And I think that that's sensible given this Reindustrialization concept in Europe one of the things that might be an unintended consequence of all of Trump's rhetoric is You know

He's he's making people think about how much can they rely on the United States for for their weapons for their defense? For their cooperation and that's probably going to continue to make Europe very, very bullish versus the S&P 500, which has been my concept for a couple of years now. It didn't really work or not work, but all of a sudden, on a year-to-date basis, Europe is doing really well, and emerging markets are doing pretty well, too. So I think the time is here for... I did a webcast last week called, or two weeks ago

maybe called Not in My Neighborhood, which was a shorthand for it's probably time to pull the trigger for real on dollar-based investors diversifying away from simply United States investing. And I think that's going to be a long-term trend And interesting and it's interesting to me too that you really focus on the word inertia because I wrote it down to ask you specifically about it where the Fed chair said it and I'll quote the full sentence. There's a level of inertia where you just say maybe I'll stay where I am where he's talking about we need to just sit and watch because we're not exactly sure what's going to happen.

My question to you though is there a danger that they wait too long and the economy starts to deteriorate faster or and they're too late to act yet again? Yeah, I mean I think that's the risk. He's trying to balance this tension between their dual mandate. I mean inflation rate is acknowledged to be going up. So they're not making progress towards the 2%. And yet, the unemployment rate, while low, it seems to be incrementally moving higher, and the deportations may have disruptive effects on the employment market as well. So he's in a difficult situation

because he has to balance all of these cross currents. And I think that's why the reporters got so antagonistic. They're sort of saying, you know, you're saying on one hand, on the other hand, you're going to need another hand for all this. And Jay Powell, I mean, I give him credit. It was a tough press conference for him. And he made it through.

And I think he's calmed the markets down pretty well because this is one of the few meetings where we don't have some sort of violent reactions. In this one it was actually pretty favorable from the stock market. Go ahead. I'm surprised that we've gone this far into our interview and neither one of us have used the word transitory yet like he he did yesterday, which was a surprise to many people.

You included? Yeah, that was a weird one. Yeah, I thought that was a bad place to go. And I think one of the reporters kind of almost meanly goading him into it. You know, he said, well, last time you said that, you know, last time, and Jay was obviously rattled by that because he said, well, if you meant last time that, you know, last time and Jay was obviously rattled by that because he said, well, if you meant last time that the tariffs came, he didn't want to go right to the one that was from, you know, 2021-2022. But saying transitory on the tariffs, I mean, that's a little bit

dangerous because we don't even know what the tariffs look like. But he's trying to, he's trying to, you know, thread the needle. And I thought he did just about as well as he could. And the term inertia, I think, reinforces that. He's basically saying no move's better than a bad move. And I think that that's gonna be their philosophy for the next meeting as well. I don't believe we're gonna see a cut at the next meeting. When do you think we get the first one?

I think it might be in June, July type of timeframe is when the first cut will come. You know, it's interesting as they try and gauge and game out how the whole tariff issue is going to work and whether in fact inflation caused by tariffs, if at all, is transitory. I'd love your reaction to what the former Fed Governor Kevin Warsh said in his op-ed. It was back in January, but it's poignant now, where he essentially made the case that it's up to the Fed itself to make sure that tariff inflation is transitory. Quote, it's the Fed's duty designated by Congress to ensure that changes in relative prices

don't become embedded in the economy. The Fed's job is to stop second order effects of price changes. I'm wondering if you agree and if you think they can actually do it. I think Jay Powell sort of parroted that yesterday as well. Whether they can do it or not is a real unknown. I mean, this is a very difficult situation. You've got an interest rate and you're supposed to be dealing with geopolitical cross currents. You're supposed

to be dealing with tariffs. You're supposed to be dealing with an inflation rate that is not cooperating, and all you've got is this one number, and then you've got your quantitative easing or quantitative tightening. I don't know. I feel like the second order effects, if you will, I really don't know the answer to that question where they can pull that off or not, And I think we're just gonna have to use that inertia concept again and see how, what path this goes down and what responses we have both fiscally and monetarily and balance sheet from the Fed.

So this is, I think this is why we're stuck in this range, where we are living in the middle of the interest rate ranges. We've been very constant on the two-year treasury being the guidepost for the Fed, and they're still in sync with it, talking about two cuts this year. So I believe that investors should have already upgraded

their portfolios. We certainly have at Double Line. We've been upgrading all of our funds. In the funds where we have leverage. We've been decreasing the leverage with the lowest leverage in our leverage funds of all time since the hit since the founding of Double Line, you know, 16 years ago. And so I think there's the rally that's happening with high yield being a little bit better in the last two days, stocks being a little bit better. I think that we're gonna have another bout of risk,

and I think that you don't have high-yield spreads widen by just 70 or 80 basis points, and then just stop there. I think it's gonna widen out. The utilities are outperforming, and when utilities outperform, that usually means that treasuries outperform high-yield bonds.

And that's been happening for sure. And I think that this is the early innings of the purpose of a higher-quality portfolio in fixed income. I still don't like the long end either. I'm not a fan of 30-year treasuries. I still like shorter maturity bonds, you know, two years, five years. It's really the same playbook we've outlined

except in past visits, Judge, except this time I think you should be doing it more aggressively because it's already begun. I think the de-risking of bonds is gonna start happening at a greater velocity. And so we want to have, and we do have, lots of dry powder for buying things when they're truly cheap, because we're not truly cheap at anything right now. Yes, things are better.

The PEs, not as bad as it was, but it's still not in a buy zone from a value perspective. And I would say the same for the periphery of the credit market. So we're still playing wait and ready, aim, aim, aim, but we're not pulling the trigger. Yeah, well, you like a lot of people because there is such a degree of uncertainty that it's hard to have definitive moves in the market

because you just don't know what tariff policy is going to be. You don't know to what degree the economy is going to continue to weaken as well. And I want to ask you about that. On the chance of a recession, the chair said, well, there's always a one in four chance. Quote, it's moved up, but it's not high. You've had the Treasury Secretary on this very network talk about a detox that is needed. You have had an administration that really has not gone out of its way to talk people off of the idea

of a recession. I think in some cases you can make the argument that they have almost telegraphed that you could have one. And if you do, we'll be better in the long run anyway. Your thoughts on all that? Well, the change in government spending, I hope, is going to be to less government spending. Certainly, that is the purported idea of this Doge situation.

And lower government spending is going to lower the pace of economic growth. I mean, we've been living on $2.2 trillion as the actual budget deficit for the last 12 months, $2.2 trillion. And if you're going to get that down to any sort of sensible number, it's going to knock a lot out of GDP. The one thing I think that is really bizarre is people that say that we're going to get

growth up to like 3% real or something like this, or even 4%, 5% nominal. And at the same time, we're going to balance the budget deficit. Balancing the budget deficit is not going to help increase growth. That's what the detox is all about. You've got a problem. You know you have a problem. You've got to start solving the problem.

And I've been in favor of this for a long time. I think cutting $100, it's kind of disheartening that cutting 100 lousy billion dollars out of the potentially out of the government budget is being met with hysteria, as if that's even a drop in the bucket. I mean, it's nothing. So we need to cut a lot more than that if we're going to get to a true detox. So I don't know if that can happen because I think the cutting will weaken economic growth which may lead to a counter response. It's one of the problems when you get yourself

in one of these vicious circles that we've got ourselves in. But I do think the chance of recession is higher than most people believe. I actually think it's higher than 50% coming in the next few quarters. Wow. Higher than 50% for a recession. I think 50 is 60 is where I am. And I don't think you're going to get a rally out of the long end of the Treasury bond market.

I think that already happened. We had that Pavlovian response and we had the tenure down to 360 and now we're back up at right about four and a quarter and I'm not sure we're gonna go below four again in spite of the fact the economy may weaken. How much of a risk is stagflation? I read one person's comment today within one news article saying that we already have a quote whiff of it, but it's with a small s, not a large s.

Is it a real risk? I think it is. It's certainly non-zero. I mean, the tariffs could very well be inflationary, and the inflation rate is going higher anyway because of the base effects of what's rolling off from last year. And so I think they just downgraded GDP. So we're getting closer to recession, and they just upgraded the inflation forecast, although just for this year.

I do think it's kind of wishful thinking to think that somehow magically it's going to go back down to 2% in 2027, but I think that that forecast is mostly hope that that's going to happen. We don't see, I mean, with the Fed saying they're going to cut interest rates and tariffs coming on, I have a hard time seeing how the inflation rate is going to settle in at 2%. I want to get your take too. You had to figure this was really just a matter of when, not if, that the president was going to weigh in, of course, related to the Fed and interest rates, in which the president

posted last night, quote, and we'll show it and I'll get your reaction to it, the Fed would be much better cutting rates as U.S. tariffs start to transition, ease their way into the economy, do the right thing. April 2nd is Liberation Day in America. What's your reaction to that? It's kind of power for the course, you know, that's kind of the type of stuff that he does relative to the Fed.

But I think he's not gonna make any progress with that because the word is inertia. We're not in a period of flux. I don't think he's gonna be jaw boned into changing his interest rates. Jay Powell should wait and see, he's gonna wait and see. And so I'm glad you wrote down that word inertia because that struck me as well. And I really think that defines what the posture of the Fed is for the few months ahead.

I also thought that the op-ed from the editorial board in the journal today was quite interesting where they made the argument now that tariffs quote give the fed an inflation foil that chair Powell and company can basically pin any spike in inflation from here forward on the president not themselves that it gives them quote convenient cover you agree i don't see how you could disagree with that i I think that's right. I mean, if inflation goes up, you know, in April, May, then it's pretty easy to say that it's tariffs. And, of course, Jay Powell said pretty clearly that he thinks the reason that inflation expectations have gone up by the consumer is tariffs.

I don't know how he knows that. It's certainly a candidate for the reasoning why these surveys for inflation have gone higher and the breakeven has gone higher. But I don't know, I think people still are just distressed about the price level. We've talked about this before. The prices went up so much over a three-year time period and yeah eggs are down a little bit And gas is down oils down a little bit But the price level is still very very high and that's I think that's really what's hurting The that's one of the reasons for my view on the consumer and the economy

I think the consumer is still grappling and perhaps is running out of wherewithal to grapple with prices of necessities. And I really, it seems like inflation never really goes down. The price level never really goes down. The inflation rate can go down, but the price level doesn't. We're going to be lingering with that. And that's putting downward pressure on consumers' wherewithal. Do you have more worry on that note than the Fed chair seems to have, at least at this

very moment? I mean, he's made the case multiple times here that it's dangerous to read into surveys too much because survey doesn't often end in reality. A consumer that answers questions that they're more concerned doesn't necessarily mean that same consumer is not going to go spend. Yeah, there's that lack of the wall of worry again. You know, Jay Powell did say the hard data is solid, it's the soft data.

Well, you know, it always happens that way. That's why I look at these consumer confidence surveys and the like, and they're not terribly encouraging. So first, you know, first spreads on high yield widen by 10, then they widen by 30, then now they're out by 70, and the next thing you know, they're out by 150. And the soft data turns into the hard data. So I don't like dismissing, and Jay Powell's pretty good

at following this too, although I don't think he did it that well yesterday. You know, you don't want to throw out the data that you don't like just because you want to focus on a narrative that you want to, you know, is favorable for your messaging. So I don't take, those are leading indicators, so I don't dismiss them.

Let me lastly ask you before we go. I think a lot of people, I don't think, I know a lot of people came into this year with high hopes for this market. New administration, talk of relaxing regulations, tax cuts, and all of these pro economy and market agenda items. I'm wondering what you make of the market

since inauguration day where almost everything has been down. Are you surprised? What's your view? No, no, I'm not surprised. There's an old phrase that's worth heeding, buy the rumor, sell the news. And in the aftermath of the election victory in November, everything went strongly

up. And it's quite common for once it gets started, then you start to realize that we've already priced in the good stuff. Entering this year, we had the highest record for investors' ideas on how well stocks would do in the next 12 months. It was like the highest ever, which is always a bad sign. And so there was a lot of optimism built in, but that was because the market rallied in anticipation of all of this happening. And now you have to get on the other side. We said back at the last Fed meeting, I said, I have no interest in these momentum names, I want equal weighted instead of market cap weighted,

and obviously that was a very extended trade. It reminded me of the late 1990s, and I don't think this is over. I think this is the first move, and I think we're gonna see risk get cheaper, and you wanna have dry powder so that you're in a position to take advantage of it at that time.

That's my primary recommendation. We've already done that in a significant way over a significant period of time here at Double Line. That's a good place to leave it. And this will be continued, of course. May 7th, you have April off, but I'll see you on May the 7th. Well, I think we're doing it live.

I'm going to be at the New York Stock Exchange, I think. We are, and I can't... So maybe we can do it there. We are. You'll be sitting right next to me here at Post 9, and I can't wait for that. Jeffrey, be well. Thanks, as always. All right, good luck, everybody.

All right. Thanks. You, as well. Jeffrey Gunlock, double line. All right, back to JP Morgan Asset Management's Gabriella Santos, who's here. OK, 50% to 60% chance recession. And says your utilities trade, sure, it's been working, but that's not a good sign. A few things stood out to me.

OK, the floor is yours. You tell us. Thank you. Thank you. So the recession probabilities are so tricky, you're right, to assign a certain probability. We are not at the over 50%, meaning we don't think it's the most likely scenario, but we do think it has moved

up versus a month ago, which is to say there's more downside risk to the base case of 2% growth. I think this discussion about soft versus hard data is really interesting. I don't think it's just about consumer confidence, not lining up to consumer spending. It's also been the ISM. If you look since the pandemic, ISM services manufacturing would have suggested a stagnant economy. Instead, we got above potential growth. So we'd be careful with extrapolating the soft data all the way out into recession probabilities or specific growth estimates, but there's clearly more downside risk.

In terms of utilities and more defensive stocks doing well, utilities, healthcare, for example, you were making fun of me about it not being overly exciting, but I'll link it to something that was just mentioned around real assets. Because I think the most exciting way to actually express a lot of the themes inherent in the utility sector is within private markets, within infrastructure. So if you own an infrastructure asset, you benefit as a recession hedge because you got to keep the lights on. People keep paying you.

You benefit as an inflation hedge because you're allowed to raise your utility prices. And hey, kicker, maybe there's also some capital appreciation coming from this rise in electricity demand for the first time in 20, 30 years. What about lastly, before I let you go, his comment that, yes, we've seen a lot of upset in those high momentum names and in his mind as you heard the de-risking is not over. I agree I think this has not been about the market pricing in a recession at all. The stocks outside the magnificent seven are only down three percent from their February 19th all-time highs. This has been about a momentum unwind in the Mag-7. I would put banks in that, remember how well they did last year?

And what happened? Really, the Mag-7, for example, peaked Christmas Eve, and what happened since then? Earnings surprises came down. Grade is not excellent enough. And we had Deep Seek Monday, which is a reminder that disruption in these technological breakthrough moments is a feature, And we had Deep very concentrated years. I think there's more to go in that. There's also more room in case growth does slow down a lot more and we want to make sure we have some quality defenders.

All right. We'll leave it there. You're the best. Thanks for your flexibility today. We greatly appreciate it. Gabriella Santos with us once again. We're just getting started here. Up next, Apple reportedly making changes in its AI executive ranks. We have the details and what it could mean for that stock coming up. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. We're back with Apple shares losing some earlier gains after new reporting the company is shaking up its AI leadership. Let's bring in Steve Kovach. He covers the company of course. Also requisite capitals, Bryn Talkington. She does own the stock, is a CNBC contributor. Steve, start with you though. What do we know?

Yes, Scott. This is coming from a Bloomberg report and here's what we know so far. There's going to be a executive reorg after that failure to ship that AI upgrade to Siri a couple weeks ago. So let me go over the changes that we're hearing about right now. Apple's AI boss, his name is John Gianandrea,

he's actually losing the Siri team and now another executive named Mike Rockwell He's gonna be the exec in charge of that He is previously in charge of the Apple vision Pro team and he's gonna be running Siri And this is also something of a coup for another top Apple exec that software boss Craig Federighi Rockwell is in turn going to be reported to him So ultimately at the end of the day Federighighi is in charge of Ciri here. And lots of folks are kind of asking today

why Gian Andrea only lost the Ciri team and not his job. Tim Cook, by the way, has fired leaders in the past. Scott Forstall most famously after that Apple Maps launched the Bockel back in 2012. Another interesting angle here with Rockrail running Ciri, yes, the Vision Pro, it did ship on time and works exactly as advertised, though it's not exactly setting the world on fire.

It's a hot new product like the iPhone or AirPods or the Apple Watch, and getting Siri AI right is way more important than the Vision Pro. Now we have no word on Apple how things are going to turn around. They're not even giving a comment today on these reorg changes, and all they're saying right now is they need more time to get AI with Siri working properly.

And there's already some chatter that's not gonna happen until next year at the earliest, so those of you who believe in an AI iPhone super cycle, you're gonna have to wait until later this year or early next year, Scott. All right, Steve, appreciate that, Steve Kovach. Bryn, what do you think of this shake up in AI? I mean, they need to do more than shake up.

You know, I sold half my position in December. I'm in that camp of Steve of saying the people that thought we were going to have some super cycle, I never saw that even remotely happening. Apple has a Trojan horse in Syria. The problem though is that horse is still in the barn and that could ultimately be the AI agent that everybody uses but the problem and the vulnerability with Apple today is Apple is a hardware company. They've always been a hardware company. 75% of the revenues come from hardware.

They are now reliant on third parties to do a venture with them, whether it's ByDuo or Alibaba in China or OpenAI here. I think that makes them incredibly vulnerable to being able to pull this off and actually have an upgrade cycle which is what they need to get revenues going because this is a hardware, not a software company. Yeah, why do you own the stock? Sounds like you don't really want anything

to do with it right now. No, I just think it's gonna be, I think it's gonna be a market performer. That's what I thought last year. I cut the position down in half because I felt there was too much euphoria and too many people saying, we're gonna have this super cycle.

So I was like, no, my money can be elsewhere. I'm talking with earbuds. I have all the Apple. I have incredible respect for Tim Cook and his team, but who is their Mustafa Suleman, right? And so it's like Microsoft hired Mustafa Suleman, who for those who don't know, co-founded DeepMind to go and run their AI.

They need a big person outside, like Microsoft, hired Mustafa to come in and really take the reins because I think we're in unchartered waters for Apple. So we'll see. I think it'll be a market performer, which may not be great this year, but I'm definitely not ready just to completely sell the stock.

Okay, Bryn, we'll leave it there. Thanks for being with us, Bryn Talkington. Up next, Quantum Day is underway at NVIDIA's GTC Conference. We'll take you there live, bring you the highlights as well when we come back. We're back, NVIDIA's GTC Conference underway with its Quantum Day front and center for investors. Christina Partzanevalos is there live and joins us now with today's highlights. Christina? Well, Scott, NVIDIA CEO Jensen Wong really walking back his CES remarks from just two months ago where he dismissed quantum computing as being 15 to 30 years away from practical

use. NVIDIA demonstrating a renewed commitment by announcing today a new quantum computing lab in Boston. At today's Quantum Day roundtable, Jensen invited quantum computing executives to really explain why he was wrong, but several did actually just the opposite. Rigetti CEO said their technology is accessible on AWS and Azure, but still quote not good enough yet for any practical use. Jensen quickly cut him off when he said that, and then IMQ stated, his executive, that for the quantum

industry, it's going to be another 10 to 15 years to get to where NVIDIA and all the other giants are. Regretty, D-Wave, IMQ, quantum computing actually tumbled throughout the day and throughout the panel. And you can see almost all of them with Regretty, I guess the best out of the pack, only down about 9%. But today's sell off really suggests that investors may not have fully grasped the reality behind the industry's marketing message of near-term practicality, Scott. Yeah, those stocks have been so incredibly volatile.

Christina, thank you very much for that. Christina Parcinellos out at the NVIDIA event for us. Up next, we'll run you through what to watch for when FedEx and Lennar report at the top of the hour back after this. We're now in the closing bell market zone. CNBC's senior markets commentator Mike Santoli here to break down these crucial moments of the trading day. Plus two earnings reports in OT. We are watching Frank Collins got FedEx.

Diana Olek with Lennar. Michael, I'll begin with you first. Your reaction to what Jeffrey Gunlock said. Watching high yield spreads move wide a little bit. And the market's not done de-risking in his mind. It's hard to say that absolutely that has all been cleaned out. This idea that you have excessive exposures.

Goldman's out with some numbers saying hedge fund overall leverage still remains elevated even though they've cut back on their long exposure. So I do think, you know, we sort of just touch those threshold levels of saying, yeah, we barely got over bought in a significant way overbought in a significant way, oversold in a significant way, sentiment has definitely reset. But in terms of the macro piece of it, I do think we are very much on slow down watch.

It's going to feel like something like stall speed if we go down toward 1% GDP for half a year, whether we call it a recession or not, or whether there's downside from there. So I think that's where we are, and the question is, to what degree the market can sort of look through some of this stuff. I mean, barring some unexpected outbreak of certainty

and clarity in the next couple of weeks, even the bulls, who say that last week was a decent low, are suggesting the market really has a lot to prove on the upside and probably can't get toward those old highs. Yeah that's right still as we've talked about guilty until proven innocent. Frank Hollins watching FedEx we said earnings are an OT what do we need to watch? Hey there Scott FedEx shares have actually underperformed the S&P and the Dow transports falling about 11% since its last earnings. Fears of an economic slowdown also tariff

concerns they just continue to weigh on this stock. Revenue is expected to increase by about 1% year over year while profits expected to grow by about 18% year over year. Really the key metric here, Scott, it's guidance. FedEx lowered its full year revenue and profit outlook last quarter. This time, those numbers and the commentary on the call are gonna be really seen as a read

on broader economic activity because FedEx has so much exposure, not only to the US economy with the global economy FedEx has exposure to the US consumer through its ground e-commerce business exposure to business spend an international trade through its Express division and exposure to the manufacturing and industrial sector through its freight division that does LTL trucking back over to you. Hi Frank you let us know when the numbers hit appreciate that Frank Holland Diana Olex watching

Lenar what do we need to know there? Well, Scott, Lennar's stock has been hit hard in the past year as costs rise, but some analysts are suggesting its Q1 earnings could boost the builders entirely if it beats by just a little, as expectations are just so low right now for the builders. Tariffs, of course, are the wild card,

some in place already, and others that could happen early next month. I spoke with Lennar's chairman, Stuart Miller, last week about that. Affordability has tested the ability to actually build production at margin. And tariffs are an overlay that will add to construction costs to the extent that they go into the, go into effect and, and take hold and remain permanent. More important than the numbers will be commentary on what they're seeing in the all-important

spring market. Builders also have much higher inventories now, so that'll be a focus as well, Scott. Good stuff, Diana. Thank you very much for that, Diana. I'll look back with Mike Santoli. We've got about two minutes to go. You'll see the animation in a moment. Utilities, just want you to take there.

Gabriella Santos talking about it as a place to be. Gunlock acknowledging the move there and saying, yeah, not a great signal. Well, that's the thing, right? So the stuff that looks purely defensive, traditionally defensive, and when it does outperform, it usually does mean the overall index is going to struggle a little bit. And we're talking about a period of cloudy macro backdrop. I do think it makes much more sense to prefer utilities for stability and for dividend growth and yield than it does you know runaway demand from from AI. That story seems like it's taking a back seat at this point but that's been a leadership you know much of this year during this tumultuous period.

Some of the traditional defensive, again, it's one of those tricky things where banks are holding up okay. Yeah, credit spreads have softened up, but they're not really at worrisome levels just yet. You look at things like everything outside of the Mag-7, and it doesn't look like the market has struggled that much, yet the S&P 500, it keeps hovering around these levels

from the July highs, let alone, alone you know later part of last year so I do think that's why you've kind of thrown a little bit of a wrench into this seamless bull story and I do think that you know the Fed meeting yesterday didn't necessarily provide much of an impetus one way or the other but a Fed that's tolerant of slightly more inflation and ready to rescue the economy if needed is way preferable for equity. Equity holders can deal with 2.8% inflation by the end of this year if it's sticky. That's much better than zero GDP growth.

Yeah, and that was the great point you made multiple times yesterday in your read of what happened in the Fed meeting. I mean, the market's kind of in no man's land a bit between now and April 2nd. Let's see what happens with reciprocal tariffs. It's supposed to be seasonal strength during this time. We'll see if it happens. All right, we'll see. Mike, thanks so much.

That's Mike Santoli. So we're going to go out, as you see, red on the board. I've given back a little bit of what we did, Coach Powell and company yesterday. I'll see you on the other side.