Closing Bell - Closing Bell 4/10/24

Episode Date: April 10, 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. 

Thanks so much. Welcome to Closing Bell. I'm Scott Wapner live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the sell off after the CPI and whether it is time for investors now to rethink the road ahead for stocks and the Fed. And we will ask our experts that very question over this final stretch, including Goldman's Jan Hatsias. He will be here to give me his first reaction to today's disappointing inflation number. In the meantime, your scorecard with 60 minutes to go and regulation looks like this. Stocks down, yields up. That's the immediate reaction today. And that happened this morning to that hotter than expected CPI. The major average is under significant pressure all day long. And as we begin this final stretch, we're just about at the lows, Dow down seven of the past eight days. We are tracking it all for you, including

rates. They moved even higher midday after a bond auction. So we have to watch that too into this final stretch here. All of it takes us to our talk of the tape. Is the record-setting rally now in serious jeopardy as rate cuts get pushed further and further out? With some now wondering if we'll get any at all. Let's ask Josh Brown. He's the co-founder and CEO of Ritholtz Wealth Management

and a CNBC contributor. He's with me, as you can see, at Post 9. He's the co-founder and CEO of Ritholtz Wealth Management and a CNBC contributor. He's with me, as you can see, at Post 9. It's good to see you. Rick Reeder, BlackRock, tweeting earlier, this was definitely a setback. That's the word he used. Does it change your view on the market? Does it change the game for the Bulls? I'm not one of these I told you so people, but I told you we were going to play this game cut off, cut on.

Today is a decidedly cut off day. It's exactly what you would expect to see if you think that we're set back from three down to two, from June down to July. That's exactly what's playing out on your screen. This is what I would tell you. You got small caps being hurt the worst. Again, textbook for a cutoff day. The IWM is down 3%. The S&P is down 1%. Value underperforming growth. By the way, one of the only green stocks on my screen right now, Nvidia, not a value stock. I don't know if you knew that. But the value stocks are taking it on the chin. And then you think about why. It's very obvious we've had this huge rally in industrial companies, in financials. That's what tends to dominate the value indices. On the small cap side, consider 40% of debt held by Russell companies

is floating rate versus just 21% for the S&P. So everything that's happening on your screen right now is exactly what you would have predicted if I would have given you this inflation print yesterday. Why is that relevant to tomorrow? Here's why. None of these weight panics have been a lasting hurdle for the S&P 500. We tend to process these things over 48 to 36 hours, and we will be back to the original game we were playing, and I think what you're seeing today is counter-trend.

The number one debate now, as silly as it sounds, is June versus July. the original game we were playing. And I think what you're seeing today is counter trend. The number one debate now, as silly as it sounds, is June versus July. The number two debate is two versus three in 2024. So let's say they go in July and they can't go in June. When's the next opportunity? They're not going to go in September. Too political. Can't do it in front of the election. So you get July, December. Those are your two cuts for 24. If that's a reason to not buy any of the stocks that you want to buy, I can't figure out that connection. So I think for the allocator that's watching this action, I think you're looking at an opportunity to get long, not to panic because you're getting slightly less relief on the interest rate side. Okay. So you then don't think that today marks some kind of game changer

for a rally that started at the end of October, has set new records. And even though we've had to rethink the direction of the Fed along the way, the greater trend is still up. Look, it's a game changer if you're one of these people who piled into semis in the last two weeks, forgetting that they're cyclical. It's certainly every single component of the SMH is down today, except NVIDIA. So, yes, if you chase the momentum trade because you thought rate hikes were going to continue to fuel it, maybe it's a game changer for you. I think most people have not been playing that game.

I think for most people, they're in a good position. They're looking at the rest of their portfolio. Some of it's very rate sensitive. Some of it isn't. And they're just fine on a day like today. And I don't think materially anyone would really say like, oh, my whole investing outlook for the next year has now changed. But if your investing outlook for the next few months was I'm going to ride the broadening trade because that's been working. You have a number of big name

stocks within a broad group of sectors that have been hitting new highs. Do I need to rethink that? And if I do, which are the sectors now that are most susceptible because of increased interest rate risk? Let's put it that way. I just gave them to you. It's going to be your small caps. It's going to be your values. Small caps, to me, obvious, right? Russell, as you said, down the most, down 3%. Why? Because rates are up. Okay, so that makes sense to me. What about industrials? A lot of those stocks have been doing incredibly well. What about financials? This Friday, we start talking about those because they start reporting earnings. What about some other areas that have done very well?

Well, earnings are the key because that's the thing that's going to remind people, oh yeah, this rally was not predicated on the Fed getting easier. This rally was predicated on the fact that last quarter, finally, we returned to nominal earnings growth after three straight quarters of earnings decline. And this quarter that we're in right now is supposed to be the second quarter continuing that trend. That's why I'm long. I want to be in the market for the fundamentals. How insane is it? Think about this mentality. You're upset today because the economy is too good for the Fed to rescue it, what are we doing?

What are we even talking about? So I think if your mentality is, I want to make a quick 5% on a Fed rate cut, I don't speak that language. That's not what I do. But it does increase if they have to stay higher for longer and we get even fewer rate cuts than some are now talking about, it does increase the risk, does it not, of a Fed mistake. And that's legit and serious. Which would be, what's the bigger risk of a Fed mistake, though? What if they cut too early and the next CPI print is 3.8?

To me, that's a bigger risk. Look, the bigger risk I think that the Fed could could could make right now, the bigger mistake is to undo a lot of what they've accomplished, which frankly is not that much. But whatever. If they were to see inflation seriously spike. So look, a lot of economists today are bending themselves into pretzels to try to explain why this print we got is actually not that hot. So they're saying, well, if you just think about it, X apparel, X food, X health care, X car insurance, it's not that bad. The reality is it's not great. So to me, the bigger risk is not the Fed staying where it is. The bigger risk is

the Fed moving too early and starting to cut. OK, so I don't see it the same way. I hear you. If there's an umbrella line that would say it's keep your eye on the ball, keep your eye on the ball, that the economy is good. Earnings are going to be decent. The Fed's still going to cut. It may not cut on your timeline of what you once thought, but cuts are still coming. And just keep your eye on the ball because you're going to want to be a player rather than throw your ball on the field, throw your glove out and go sit in the dugout. I think that's exactly right, Scott. And I would also say 70 or 80 percent of the audience listening to this are people that are making

ongoing investments. They're contributing to 401ks. They're adding to IRAs. They're putting new money into the market. If the reason you get to buy the stock that you've been wanting to buy down 10% from its high or 15% of its high is because the labor market is too good, if that's the reason that you get to make that next investment, that's a great reason. That's an unbelievable reason to get a discount. It's way better than the alternative. But do I worry about, you mentioned the chips. Let's take NVIDIA out of the conversation. It's a crowded trade. Do I worry about AMD? Do I worry about some of these other names? Yeah, it's a really crowded trade. There's a lot of expectations

already built into these stocks. People have been treating them as though it's some sort of unending secular growth story as far as the eye can see, just this like endless data center build out. It's unrealistic. It's unrealistic that all of those dreams will become a reality this year. So you could be bullish on AI and GPUs and CPUs and chip equipment. You could be bullish, but accept the fact that these stocks have run a little bit ahead of what the reality is going to be. Not a reason to wipe your whole portfolio out because semiconductors went red today. They're up so much. They could do what they're doing right now for the next six weeks, and you would still be far ahead of the game if you're allocated here. All right. Let's bring in Christina Hooper of Invesco sitting here listening to our conversation

as well. And, you know, even though you have the Rick readers of the world suggesting that, you know, this is a setback. You heard what Josh had to say. You think the market's overreacting today to this print. I absolutely do. And, Josh, I pulled a few muscles bending myself into a pretzel today. But truly, I mean, if you look at this, first of all, we have to look at it in the context of what other data we've received. Right. We have the prices paid subindex of the most recent ISM services PMI showing the lowest reading since March of 2020. We have the most recent jobs report, very strong in terms of non-farm payrolls creation, not as hot when we look at wage growth. And even if we were to dive down into this report, we saw a very significant increase not only in auto insurance, but auto repair.

That contributed to why it was hotter than we expected. And those are areas that I would argue are the caboose of inflation, right? They're reflecting higher auto prices, which are moderating. So my argument is that disinflation is an ugly process. It is far from perfect, and we should expect to get some data that contradicts the overall narrative,

but the narrative can still hold. So will the PCE bail us out? I'm betting that it may very well, but it doesn't have to. Is it better? Well, really, it doesn't have to? It doesn't have to, in my mind, based on all the other data I've seen. I still believe in the disinflationary narrative, but it should, it needs to for markets to feel better. Because right now, there's's a risk off vibe to the market with good reason. I get the overreaction. It will take PCE to probably turn this around. Let me ask you this. OK, so we can come to agreement that, well, the economy is really strong, therefore you don't need any

rate cuts and you don't really need one in June as long as you still think you're going to get one perhaps in July, as Josh suggested, and maybe another one into the winter. But how long is the market going to be patient enough to wait around for? What happens if July then is off the table? Is that the point of no return for the rally? I mean, at some point, you have to believe that the market's going to throw its hands up in the air and say, you know what, maybe we're not going to get any. and that's going to be a problem. So historically, what we've seen is that a lot of the rally in stock markets occurs after the last rate hike. It's not predicated on the first rate cut. Certainly that helps, but I think there can be a significant amount of distance between the last rate hike and the first rate cut.

So long as markets believe that's the direction we're going in. But having said that, I do believe that the Fed needs to cut by July because we have to worry about the long lagged effects of monetary policy. It could be an 18 to 24 month lag. So we have to worry about the damage that may have already been done if the Fed doesn't start to reverse. That's what I was asking Josh about the idea that if you stay too high for too long, you risk a policy error that may not be so easy to reverse. Absolutely. Well, June. So the odds of a June cut. I mean, rates are trading like AI stocks right now.

It's really an extraordinary thing. The odds of a June cut are now 22%. Yesterday they were 50-50. That's a pretty big move. By year end, they're pricing in 43 basis points, which implies 100% chance of one cut. And, you know, obviously like 60-70% chance of a second cut, which is fine. But to Scott's point, I think that's probably the floor of what the market can withstand. Looking at the 10-year auction today, which was punk, looking at the two-year, absolutely slammed.

Like, from my perspective, you can have that happen one time. I don't think you're going to have that twice without material damage in some areas of the stock market that start to scream, hey, actually, this is now the real risk, not undoing the progress, but taking us over the cliff. Where do you stand on that debate? So I really do believe that we have seen an enormous amount of volatility in expectations around rates, and we'll continue to see that. And that's okay, because I think that really markets have been driven largely by expectations around the Fed. Not so much whether or not we'll actually see some kind of dramatic sell-off, but movements on a day-to-day basis change because of expectations around when the first rate cut will occur. I think that can continue. Markets have learned

to tolerate that. And we can come back from big sell-offs. I can't work both ways, though. If part of the reason why the market rallied from October was on the expectation of cuts coming reasonably soon. So if now cuts are pushed off to, you know, further than we thought, how can we not have some sort of market reaction to that unless the stronger economy and good enough earnings trump everything for the moment? No, we can have a market reaction to it, but I think it will be relatively short term in nature, as we've seen in the past, right? That this is a situation where we could see a sell off for a week or two. We could have the bounce back occur because of PCE. I think this is going to be an environment of higher volatility. And we may feel at the end

of this, by the time the Fed actually cuts rates, we might feel like ping pong balls. We have PPI tomorrow. What do you want to see there to confirm that you're right? Well, I don't have high hopes for PPI and I don't think it's that important a data point, but I'd like to see it in line with expectations. Maybe after today, it's not all that important

because maybe the market is voting on part of this sell-off is figuring that tomorrow's not going to be a great one either. But what about the idea that if now we need to rethink at least the level of where rates are going to be for a little while, because we're not going to get the cuts when we thought? You know, Jonathan Krinsky at BTIG is talking about the idea of long duration assets likely to struggle in this kind of environment. Whereas maybe I thought those stocks were going to work because I thought rates were going to continue to come down. Do I need to rethink that? Well, it depends on what your time horizon is. Recall there was a period this winter

where we actually saw longer duration asset classes, investment grade bonds, have relatively poor performance compared to high yield bonds because they had shorter duration and there were expectations that the Fed wasn't going to move as quickly, wasn't going to move as much. That can easily happen again in a relatively short period of time. It just depends what your time horizon is. If you can tolerate weakness for a couple of months, then I don't think it's an issue. How would you address that same point from Krinsky today? So I wanted to ask a question building on that, because you hear a lot about there being this market wide vote

that the soft landing is the way that this year ends. And there's a lot of complacency in markets. Right now, you have valuations for stocks, certainly at the high end. Historically, you have credit spreads at near record tights, which is extraordinary given how many rate hikes we've had, plus the shrinking of the Fed's balance sheet at a rate that we've never seen before. You couple those with these ideas of there being structural forces. Jamie Dimon wrote an entire section of his letter, structural reasons for higher, for longer, that really the Fed is not even in control over. Ongoing fiscal spending, the remilitarization of countries around the world, restructuring global trade, lack of investment in the energy infrastructure.

Each one of these feeds into longer term, structurally higher inflation or rates or both. So what would you say to the person that says, let me get this straight, peak valuations, you want me to buy, and we think one or two rate cuts are going to matter relative to these huge forces out there that the Fed can't do anything about? You make a great point, but what I would argue, no, not at all, because we have a lot of cash sitting on sidelines. A tremendous amount of cash that could easily start to move in once yields do start to come down. And we also have some countervailing forces against the idea that rates will be higher over the long term. And I would argue AI.

We haven't seen all these AI stocks go up for nothing. Exactly. I agree with you. Absolutely. So I think it's too much to say that all the forces are pushing rates higher over the long term. There are some powerful countervailing forces as well. So you flagged, Josh, a stock that jumps out to you as one of the best in the market today, that being Delta. Do you want to address it? I don't think you own it. I'm not long the stock. It hit my list of best stocks

in the market, coincided with an earnings beat. Delta is arguably going through the best few quarters in the company's history right now, as are most companies involved in consumer and or business travel. Basically, what this speaks to is more than just the strength of the travel market. This is an economy-wide phenomenon about the consumer. And we're not saying the word resilient consumer. This is not resilience. This is something else. I would argue the consumer is absolutely unbridled in a way that I can't remember a time that was comparable other than late 1990s. Do you see it that way? A and B, does it concern you? Is there any way to go anywhere to go from here but down?

Well, I think we can stay relatively static, right? The consumer has been, I would argue, very resilient. I don't want to say, you know, over the top, but there has been a strength there that has been driven by very low unemployment. And I think that strength continues because we're likely to continue to see relatively low employment and improved real wage growth. And so that tells me that we're likely to see consumers continue to spend. They'll be selective in what they spend. And certainly there's going to be some component of households that are coming under more pressure. But in general, where we've seen a lot of the wage growth is lower income households over the last several years. This is a much better

picture. So how are we getting rate cuts if what you say continues? Because we've seen progress on disinflation. We do not need to see economic weakness to get rate cuts. We are in very restrictive monetary policy territory, and the Fed admits that. We're going to leave it there. Christina, thank you. Thank you. Josh Brown, thanks to you as well. Let's send it to Christina Partsinevelos now

for a look at the biggest names moving into the close. Christina. Let's look at Roblox. It's looking for some help with its ads. According to the Wall Street Journal, the online gaming company hired ad tech firm Pubmatic to help with sales of video ads on its platform, a platform that averages more than 71 million daily users. The report says that ads will be bought through an online bidding process and be seen by users 13 years or older. Let's hope so. All of this is just about monetizing the platform and you can see shares are up just over 1.5%.

Decker's though the worst S&P 500 performer right now, down about almost 7% on a Truist downgrade. The analysts are concerned about demand falling at the footwear company, specifically calling out weakness with the Hoka sneaker brand. Christina, thank you. Thank you. We'll see you soon.

We're just getting started. Up next, Goldman Sachs' Jan Hatzius is with us for his first reaction to today's hotter-than-expected inflation read. He'll tell us what it means for the markets, rate-cut expectations for his own as well, for the economy, for everything. Join me next at Post 9 after the break. We're back.

Goldman Sachs now pushing back its rate cut forecast after this morning's hot CPI print. Here with his first take on the data is the man behind that call, Jan Hatzis, chief economist and head of global investment research at Goldman Sachs. Good to see you. It's nice to see you. You were surprised today. I was. We thought it was going to be a low 0.3 and it ended up being 0.4. There's also some read through into the core PCE numbers, which ultimately are going to matter more. We'll learn

more about that tomorrow morning with the PPI numbers, but we've also lifted that to 29 basis points. And since it was already, I think, a little bit cuspy whether they would cut in June with this, it seems less likely. Could still happen, but it's not my expectation. Okay. So you were at three cuts. Now you're at two cuts. What makes you so sure two is right, that that's the right number now? Well, we're never sure. As I said, I think it's possible that they cut in June and you could still get three cuts. I think that certainly could happen. But likewise, it's also possible that it moves back further. I mean, it's always very dependent on how the data come in. I think it tells you a lot more about the Fed than it tells you necessarily about the underlying adjustment in the economy. The disinflation, I still think a lot of the trends are improving, and you can see that in the labor market as well.

But for the timing of Fed cuts, these numbers do matter. What if the disinflation case is suddenly becoming harder to make, and it's going to be much stickier for much longer than any of us thought it would be? Are you entertaining that possibility? I think that's less likely because for that I look not just at the CPI or PCE numbers, but I also look at, for example, the adjustment in the labor market, the fact that job openings have been trending down, the fact that quits have been coming down, the fact that wage growth continues to come down. All of that to me says we are disinflating, but it is taking longer.

And I think the reason why it's taking longer is that some of these lagging categories in service inflation in particular, things like, you know, for example, auto insurance and health care costs, they've got a longer tail than we anticipated. So July seems to be now your base case. Is that fair to say? That's right. July is the first cut in our new forecast. So the PCE now becomes ever more important. What's your read through from today? What we might get tomorrow? By the way, before you even answer that question, does this make you now worried about what's going to happen tomorrow? Or is it a foregone conclusion at this point that PPI is not going to be great either?

It's not a foregone conclusion. These things are not that closely related month on month. PPI will be another input into the PCE number. What they really care about is PCE. But most of the information for PCE comes in today's number, and then a smaller amount of information comes in tomorrow's number. Oh, well, that means to PCE, I need to worry about then. If that's the Fed's most preferred measure, and I get more data from today's CPI into the PCE, that's, I guess, the principal reason why June would be pushed off. Exactly. And that's why we push it off, because we now have a higher expectation for PCE and probably too high for them to cut into. What about this notion that some have raised, Jamie Dimon included, that the market just got well over its skis? My words, not his. On the idea that we're going to pull this off, that we're going to have a soft landing, that we're 70 to 80 percent voting from a market standpoint.

And that's just way too optimistic. What do you think? I'm still very optimistic about a soft landing. I'm optimistic that the economy remains very resilient and that growth continues to be pretty good, maybe even more than pretty good. We're at close to 3 percent GDP growth for this year. And I also am optimistic that we are rebalancing the labor market and we will bring down inflation over time. For me, none of those things have changed.

However, what has changed is the timing of the Fed adjusting because that's going to depend a lot more on the month-on-month inflation news, which has clearly been disappointing. As much as the idea of cuts gets pushed out, does the idea of a possible Fed mistake go up? How would you address that? I think there's always the possibility of a Fed mistake. And of course, they change their views in light of new information. But I don't think the likelihood that they're going to make a mistake is necessarily higher now than it was in the past. If you look at what's been happening over the last several months, they've been moving in a more hawkish direction. They've been delaying the cuts. But that's been in response

to data. That's what you're supposed to do. You feel like we're at the point also within the Fed itself that we're going to have more of a fracture as it relates to when you get the first cut. And just the overall idea of cuts that we've been in, you know, unanimity from the beginning here. And now we may have a changing road and some diverging paths. What do you think? Well, there has been, I think, a reasonable range of views. And you saw it at the March FOMC meeting where you had basically 10 people with three cuts or more and nine with two cuts or less. So that's what I meant by it was already sort of cuspy. And yeah, I mean, there is a range of views, and it's clearly greater than it was a couple of years ago when they all thought inflation is much worse than we thought.

And so we have to hike aggressively. And there was a lot of unity. Do you think there's a chance also, lastly, of a proactive, if you want to call it, move from the Fed to give the market a nod in some respects. They cut 25. Maybe they do that in June to say, we get it. We are going to cut. We want to cut. But we're not going to do too much too soon to risk a mistake on many sides. I would, again, I wouldn't rule it out, but I think the data have to support it. And there is now less time for the data to support it sufficiently to get there in June if they want to see, you know, a few good inflation reports to outweigh the three bad inflation reports that that we've seen. Again, it could happen, but it's not my best guess. Jan, I appreciate your insight as always.

Thanks for sharing it with us first. All right. Jan Hadzius, Goldman Sachs, right here at Post 9. Coming up, more on the market pullback. Bond yields hitting their highs of the year today. Citi's head of research, Lucy Baldwin, is with us next.

We'll find out how she's sizing up the recent spike in volatility and whether the bull case for stocks is starting to look a little tired. We'll do that when Closing Bell comes right back. Welcome back. We're still deep in the red as we head towards the close. We're off the lows, though, after that hotter than expected consumer inflation read, raising doubts now about when the Fed might cut rates. Joining me now, post nine with her Fed playbook is Citi Research Global Head Lucy Baldwin. Nice to see you. Thanks for having me. All right. So how, if at all,

did this morning's shocker for many impact your outlook? It wasn't a game changer from our perspective. So, yes, it was a hotter reading than the consensus expected and slightly hotter than we expected. But as we look into how that translates to core PCE, which of course is the key Fed measure, for us, it's not actually so material in the sense that a number of the categories that were hotter this time don't really translate. So of course, we'll see what the PPI print brings.

But for us, we're still sticking with our call that we're going to get a cut in June and that will be the first of a number of cuts this year. We're still expecting 125 basis points of cuts this year in total. Okay, so we're getting cuts. Does that mean you're bullish stocks? It actually does mean we're bullish stocks, but not super bullish. So I would say it's sort of constructive with some caveats.

So our Goldilocks scenario that we've been talking about this year for stocks is 5,700. But really, for that to come through, you really need to see more of a soft landing. So less cuts and the Goldilocks scenario of actually quite good growth, but not too hot, not too cold, and inflation coming back to trend. So our base case in aggregate for the S&P is 5,100, which is obviously broadly kind of where we are. Right. But there are a lot of areas within that where we are quite constructive on the market. Are you not super bullish in large part because we've already had such a huge run? Is it difficult to be super bullish now given the run? I mean, directionally, it sounds like you're positive because you have expectations of rate cuts.

But those expectations of rate cuts started months ago. That's why we're here. Yeah, absolutely. Look, I think for us, you know, valuation, if you look at it versus history, we're at like 90th percentile level. So 90 percent of history, it's been cheaper than this to buy the market. It doesn't mean for us it's the trigger to sell the market here. And our thesis is probably you get a broadening out both in terms of earnings growth, but in terms of the stocks that are actually going to perform. So we don't expect last year to repeat in terms of you know 60 of the performance being driven by the magnificent seven and to some degree we've seen that already as the magnificent seven has shifted into the fab four

and you've started to see some of the big secular themes playing out more broadly whether that's across ai or healthcare or obviously energy security and transition. If your outlook for the Fed and the number of cuts that you expect turns out to be wrong, will your outlook for the stock market be wrong? I think, so just to break down what we're saying on the economy, right, our core view here is that you're going to see growth softer in aggregate this year than last year, like nearer 2% global growth than 3%. And we think really tightening is going to start to bite, services starts to sort of unwind, the heat in that segment,

and also you're going to really start to see, as well as those two things coming through, less fiscal than we saw last year in terms of the delta. Is that going to be enough to trigger a recession is then the sort of big question that we get all the time. And for us, it's really this view that the labor market is starting to really weaken in the US whether it's the higher rate whether it's the quit rate whether it's SME business confidence obviously the NFIB print we saw just recently in terms of that confidence level forward capex expectations people not really feeling confident about getting the next job like all of those things we think

mean that when you project forward you could get a payroll number that could really surprise people. Something like a 50,000 print in May, I think, would be a big shock to the market. So you think it would be a negative shock? Because, you know, we're in this back and forth debate based on what we feel like doing at the moment as to whether good news is bad news, bad news is good news. So a softening of the labor market may actually at this particular time be looked at as good news because we figure it'll be, you know, disinflationary. Yeah, you're right. Look, for the equity market, for sure, the perfect scenario, that 5,700 Goldilocks scenario we've got is like two or three cuts for the year. So kind of where we're now getting to for the market, but where that's not

so much driven by sticky inflation, which is what we've just seen today, but more because growth's really, really good. And I think if you've got that dynamic, that's the best scenario for the equity market from here. But I don't think that's quite what you're seeing with the CPI print. And our core view is also that this inflation, this last mile is much stickier. And I think structurally, when you look out next year and beyond, the inflation backdrop is also pretty complicated due to supply chain reconfiguration, the energy transition and security concerns and the whole of the sort of geopolitics. I mean, you're laying out a scenario in which we could have structural inflation for longer than we think. Is that going to Would that impact returns for the next couple of years,

too, or not? Yeah, I think you're certainly going to get much more volatile inflation as we go forward than we had post-GFC, for sure. And I think structurally, it is going to be higher than clearly that period of time as well. But I think within that, you've got some tremendously positive secular themes coming through in equity markets, right, which I think is really critical for investors to play, particularly that AI space. Right. You got AI, GLP-1s, as you know, some keep talking about these transformational trends. What about in the very near term, if now we're pushing rate cuts back, things that we thought were going to work within the stock market that now might not.

I've had some recommendations this week for small and mid caps. I've had others suggest we can't buy those until we actually get rate cuts. It's not a shock that the Russell is down how it is today, underperforming everything else. What do I want to stay away from now that I thought maybe yesterday was OK? Yeah, as you say, you know, the natural sectors that are going to struggle with this are sectors like real estate. I mean, we've obviously discussed many times the cracks that are emerging in parts of the real estate sector. And clearly, you know, that pushing out of rate cuts is going to possibly trigger some incremental risk in subsectors there.

I would say, as you point out, right, the smaller mid-cap space, but also, you know, sectors like software, right? If you think about what's happened this year, software has really seen a shift in sentiment. And that's going to be a relatively exposed place as you think about the impact of rate cuts being pushed out. I would say, in contrast, areas like internet and I think areas like semis, despite some rate sensitivity there for sure, I think there's just so many secular themes there that you've got to stay invested and look for those opportunities in those sectors. Now, all of that said, you know, we are definitely being much more cautious with that overall aggregate market outlook, as you as you point to this year and being much more selective in terms of looking for growth and quality. I appreciate your time very much. Thank you for being here at Post 9.

All right. Up next, we're tracking the biggest movers into the close. Back to Christina Parts and Nevel of Snout, who's standing by with that. Christina. Standing by with some good news. Two stocks bucking today's downward trend. We'll tell you the names and why they're moving higher when Closing Bell returns after this break. We're less than 15 minutes from the close.

Back to Christina now for a look at the stock she's watching. Christina? Mediterranean food chain Kava. Seeing its shares jump about 5% today on an upgrade from hold to buy by Truist. The analysts say investors should buy the dip. No pun intended. Shares are down about 10% on the month. That's why.

Because Kava has, quote, a long runway to growth. Separately, though, Kava topped Yelp's list of fastest-growing retail brands based on net new locations and consumer searches on its platform. Crazy Fedotip, anyone? That's my fave. GoodRx also getting some love from analysts at KeyBank, who upgraded the telemedicine service firm to Overweight with a price target of $9. Shares are trading just at about $7 right now. They like the strong subscriber growth and the increase in downloads,

which I think is a positive sign for future growth. Shares are up about 3.5%. Scott? All right, Christina, appreciate that. Christina Parts-Neville is still ahead. A home builder headache. Housing stocks coming under pressure today. That space having one of its worst days of the year.

We're going to break down what's driving the move lower. Rates are obviously having an impact there. We're back on the bell after this break. I want to tell you about a big interview because you don't want to miss it. Amazon CEO Andy Jassy will be joining Squawk Box for a CNBC exclusive tomorrow at 8.30 a.m. Eastern time. We'll talk about Amazon's AI ambitions, the health of the consumer and more. We should also note it comes as Amazon stock has now turned green and that stock is trying to hit a fresh new high. So look forward to that. Up next, a bright spot and a

down tape. Alibaba shares are bouncing after bullish comments today from founder Jack Ma about the company's turnaround. Have those details and much more in the Market Zone next. Market Zone now. CNBC senior markets commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Deirdre Bosa on why Alibaba is higher during the sell off. And Diana Olick on homebuilders heading for their worst day since October. Mike, I'll begin with you. We're off the worst levels, and we do have some nibbling in some of these mega caps like Meta, NVIDIA, and Amazon. Yeah, it didn't ever get all that disorderly.

The good news is, and this has been the case for a while, this has not been an acutely Fed-dependent market. Now, it's been part of the story that we were going to get rate cuts, but the market's sort of showing you here there's other things going on. What I do think has changed to a degree with the inflation number is a month ago we were living in a world without tradeoffs. OK. There were no tradeoffs between a good economy and what the Fed was going

to be able to do on easing. They were going to be easing into record high stock market and a 3 percent GDP. And it was going to be great because inflation was going to be taking care of itself. Now you might need a new theory of the case. You need to revise your theory of the case. And the risk is not in the here and now, not that the economy is going to buckle under four and a half percent 10 year yields. The risk is that the Fed has to say, you know, we thought we could get lucky. We thought we didn't have to really choke off growth in the services sector to get inflation where it wants to be. Maybe we were wrong about that. That's going to take a while for them to come to a conclusion.

But it's a more complicated story, one that does involve tradeoffs in a market. And I've been on pullback patrol since we were under 5,100. So we're still above that right now. So we needed a grab on some excuse to let out some of the pressure. And we've done it. In four weeks, we've gone sideways in a somewhat constructive way. All right. Come back to you in a moment. Deirdre Bost is following why Alibaba shares are higher during this sell-off today, Dee. Well, put simply, Jack Ma is back, or at least he's writing memos to Alibaba staff. And that's

about as much as we've got over the last few years. Investors are taking this as a positive signal. The charismatic founder is no longer persona non grata and may even come back to help in this turnaround. The stock really tells the entire story here. November 2020, that is when Jack Ma all but disappeared from public life and regulators began going after Ant Group first and then affiliate Alibaba. Billions of dollars in value wiped out since then. Baba's loss, though, has been e-commerce rival Pinduoduo's gain. Look at how PDD has outperformed over the last 12 months and, by the way, managed to do what Alibaba could not, break into the U.S. market with Timu. This year, however, look at what's

happened. A bit of a turnaround here. There's more optimism around Alibaba's story, and part of that has to do with Jack Ma, still one of the most recognizable Chinese business leaders ever. And remember that the CEO, Daniel Zhang, stepped down. So Alibaba coming in at just the right moment, Jack Ma coming in at just the right moment could be positive. But I will say we haven't heard a whole lot yet. So this could be premature. OK, depreciate that, dear Jabosa. Now to Diana Olick on what's happening in the homebuilders today. Ground zero of sorts for this move higher in rates and this inflation print this morning. Yeah, you said it, Scott. The average rate on the 30-year fixed jumped nearly a quarter of a percentage rate point following this morning's

hotter than expected CPI. We are now at the highest level since the end of November. The homebuilders, of course, are taking it on the chin. The home construction ETF ITB falling below its 50-day moving average, down over 3% on the day, but still up about 6% year to date and a whopping 57% year over year. It includes not just homebuilders, but home remodeling names like Lowe's, Home Depot, and Sherwin-Williams. And of course, mortgage names like Rocket and United Wholesale Mortgage. Rocket down over 10% on the day. And let's not forget the REITs, of course, having a particularly rough day across all sectors, Boston Properties, Avalon Bay, and Digital Realty, just to name a few. REITs are particularly rate sensitive, given commercial real estate

financing and, of course, potential dealmaking or not dealmaking, Scott, given these REITs. Diana, thank you. Diana Olick following that story for us today. Micah, come back to you. Got less than 90 seconds to go. So the market's going to be patient, right? It's going to have to be more patient than it thought. And the question is, for how long can that last? Yes. Well, we're going to get a little bit of a clue. Honestly, we keep pointing to the PPI number tomorrow. I think there is a sense in there that the market recognizes the narrative can shift, at least in subtle ways, you know, in less than 24 hours. If you start to draw the lines to the PCE inflation number

and also keep in mind how the Fed might want to talk around exactly what's going on. So I do think that we are going to have to be more patient. The consumer cyclicals are telling you that this is not without hazards, that the idea that the economy can just kind of plug along effortlessly, you know, as far as the eye can see, with either rates going up or inflation still impinging on some people's spending power. I think we have to keep that in mind, too. It's not a foregone conclusion.

So you don't really sound any loud alarms. You have to recognize that, you know, it's just not as free and clear as we thought it might be in the ideal case six weeks ago. Well, we shall see. We're going to go out red, obviously, today. But it certainly looks like we're going to be off the worst levels where we traded most of the day. Dow will hover around 400 or so, a decline there. I'll see you tomorrow. I'll send it in to OC now with Brian Sullivan.