Closing Bell - Closing Bell 4/16/25

Episode Date: April 16, 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 Wobbler live from Post9 right here at the New York Stock Exchange. This make or break out begins with this late day sell off in stocks and why it's the Fed share who might be responsible for initiating it. We'll have more on that in just a moment. We're showing you here the majors with 60 to go in regulation. We're sharply lower across the board, already weaker today thanks to a big decline in shares of Nvidia on new China export restrictions. There's been some new news within the last hour dragging those shares even lower. We'll have the very latest there too. Most of tech is falling today.

Big declines in several other chip names. Mega caps are lower across the board. Consumer discretionary stocks are very red too, led by Tesla. Watching all of that, it does take us to our talk of the tape, which is all of the uncertainty caused by President Trump's trade war. The Fed among those in a big fog over where inflation and the economy are really heading. Chair Powell was in Chicago today talking about that.

Our senior economics correspondent, Steve Leesman joins me now with more. The market definitely sold off as the Fed chair was talking. What do you think specifically it was, Steve, that unsettled the market definitely sold off as the Fed chair was talking. What do you think specifically it was, Steve, that unsettled the market further? I think it was focused on making clear that despite Scott heightened uncertainty and downside risk to the economy,

he remains focused on avoiding any secondary or knock-on effects of tariffs on inflation, and he won't respond with policy until he can sort it out. How long does it take for the tariffs to have their effects on inflation? To the extent it takes longer and longer, that raises the risks that the public will begin to experience higher inflation.

They'll come to expect it, and companies will come to expect it. So that risks higher inflation, they'll come to expect it and companies will come to expect it. So that risks higher inflation. Powell reiterated his hawkish remarks from April 4th that the Fed's obligation is to keep those one-time price increases from becoming an ongoing inflationary problem. And that would seem to dash any imminent hopes for a near-term or preemptive rate cut. Markets are priced for rate cuts in June, July, and October, and maybe even December just barely. So Scott, we're headed for an interesting perhaps conflict here, unless the market knows something about what the Fed's going to do that the Fed's not letting on that it's going to do.

Best bet right now, I think, is the Fed stands pat until it's clear that tariff one-time inflation doesn't become tariff two-time or more widespread inflation Scott. I don't know if this was a deliberate pushback on Waller from a day or two ago but it felt a little bit like that and the other thing I think is important to note here and I think the Fed chair alluded to this as much is that here and I think the Fed chair alluded to this as much is that the tariffs were so much higher than he and the Fed had anticipated that he's now talking about the effects of that causing inflation to be more persistent potentially than they otherwise would have thought. I don't hear the word transitory front and center anymore. So two things. One is he was repeating that about the tariffs being largely anticipated even after the April

9th rollback. So I think that is important. And I also think you're right. It's important that he's talking about more concern. That's why I played that sound that that quote from him because he's more concerned, it seems to me, about the potential persistence of inflation. On the Waller thing, he didn't push back, he didn't not push back, but from a strictly analytical point of view, Scott, he did not affirm the dovishness of

Governor Waller. And I may think, Scott, that's why the market was most disappointed because it did take a dovish signal from Waller and that signal was not reaffirmed by Chair Powell today. I tell you the other thing that stuck out to me Steve was this notion of picturing a scenario in which the mandates could be intention. That implies a degree of uncertainty about potentially what to do in that scenario. A labor market unraveling a bit more while inflation potentially remains more persistent puts them in a potentially bigger pickle. And I think that's what that alludes to the tension of the mandates that they have.

Yeah, and it's interesting, Scott, when you look at those probabilities, the market very firmly believes that the tension will be resolved in favor of the unemployment mandate. The idea being that we will have noticeable increases in the unemployment rate, and the Fed will see that and the Fed will respond. I don't hear that necessarily from the Fed,

because what the Fed is saying is this notion from its long run statement of goals, is that we're gonna look at which one is furthest from our goal, how much time it would take each to get back, and we'll decide policy that way. It may be the markets right but it's not a hundred percent. And I also just I feel like there's been a distinct change in tone when the Fed chair talks about the economy too which he's felt really good

about and he's made that case whether it's at meeting or at speech up until the so-called Liberation Day where it's really thrown things so far out of whack as I wrote at the top here they find themselves like everybody else in a pretty thick fog. Right and look at what the Bank of Canada did today they said we have two scenarios look at what the Bank of Canada did today. They said we have two scenarios. Look at what UAL did. Two scenarios. Everybody is operating as if there are two equal possibilities and it's very difficult to put a probability on either one. That's what markets do. You give possibilities, markets do probabilities, but it's very very hard now to think that I don't know 50 50 we could have a recession 50 50 the Fed could cut 50 50 the Fed could

I don't know. I don't think hiking rates but certainly stay where it's at right now. I also thought by the way something about the tone of power was interesting. He made comments about the negative impacts of firing scientists and some government workers. He also made comments about the idea that we are not necessarily going to get where we need to get on the debt by only attacking the discretionary part of it. Kind of a little bit of a minor broadsided doze saying you're not going to get there

by just firing federal workers or cutting discretionary spending. Yeah, I want you to stay with us. I'm going to bring in our panel, if I could, Lauren Goodwin of New York Life Investments, Chris Harvey of Wells Fargo Securities. Guys, I should also note the NASDAQ on your screen is down more than 4%. Almost 700 points. We've become more accustomed of late to seeing outsized moves like this, which are so not normal.

You're not supposed to get a 4% move in today on the Nasdaq like we're seeing here. What did you take from from Powell? And I think it's undeniable that the market is not feeling good about what it heard. Yeah, I think that's right. And you really laid out what I think is a critical point, Scott, which is that the Fed's mandates are now moving in opposite directions and the chair's admission of this and acknowledgement of this is so critical because what it shows us is really a couple of things that I think the market is digesting. First, if everything's a 50-50, as Steve is describing, then news like this in either direction can whipsaw the market, upside and

downside. I think second and critical is that even if the Fed were to step in with a rate cut, what good does that do to clear supply chain tensions? It does very, very little. And third, what the Fed does is becoming more and more divorced with what's happening in market interest rates. So with inflation expectations on edge, certainly near term inflation expectations de-angered, if the Fed's cutting rates in that environment then you might still see market rates move higher, like the 10

year yield move higher. That's so challenging for real purchasing decisions in the economy. And so investors are seeing this and saying, wow, if the Fed's stuck, we're stuck too. Now, Chris Harvey, including the other day, you have been resilient in yourself of sticking with your idea that we could still have a really good return this year in the stock market. And I thought you articulated your views very well, whatever it was, three or so days ago that you were with us. Market doesn't like what it heard from the Fed.

How does this all factor into the way you're thinking today? So Scott, what I think you need to do for the next, let's just call it three months, market's going to trade in five, 6% increments. It trades up and your portfolio's not doing so well. You need to take risk out. It trades down, your portfolio does well, then put a little bit more risk on it. We need to be that tactical?

That's hard for people. It is hard for people. So if you don't like it, then take the risk out on up days. Wait until the second half of the year. I think you're going to have a lot more clarity in the second half of the year on tariffs on the Fed and the economy and what I see is a Fed that's cutting rates next year and the important thing is if we go into a slowdown or recession there's a difference between a recession that's caused by an exogenous shock which is

what we're seeing and one that's caused by balance sheets that are upside down and backwards which we are not seeing. What if it's caused by the hand of one person? Well that's the exogenous shock right? The exogenous shock is we don't know. We don't exactly know what we're handicapping, the degree of tariffs, the timing of tariffs. So markets are rightfully so being a little bit skittish in pricing and risk. The other thing that you're seeing in the bond market is their pricing, confidence and and credibility issues, something we haven't seen a long time. US is still a very high quality entity, but now there

are questions about how high quality and what premium we should put on that. And so when you wrap all these together, you're still going to get a lot of volatility. If you're an institution, you can't just walk away. What you want to do is protect your portfolio with some sort of low vol, but you also don't want to put your head in the sand. There are still some good risk wars out there, and you want to slowly start taking advantage of some of these sell-offs,

because the secular AI trade is still one of the best secular trades out there. How concerned, Steve, do you gather the Fed chair and group are about what we've witnessed in the bond market, and with the dollar for that matter and I think he was asked specifically about the dollar but you tell me what you

think is you know top of mind for him on those two topics. Right. I think that they're concerned. I don't think it's rising to the level that they feel they need to act. I believe the question was about

whether or not there were dollar swap lines, unless I missed something he said specifically about that, Scott. I'll have to go back and check the transcript. But the Cleveland Fed president, Beth Hammack, did mention today that it was an odd risk-off set of trades that happened with the bond market selling off as well as the dollar selling off. I don't think the Fed is particularly concerned right now though I would imagine they are in touch with their central bank counterparts around the world to do something if it's needed to be done.

He did mention Scott, I thought that it was important when he said, these are bigger tariffs than Smoot-Hawley. And you remember what was going on back then, there was a global depression that happened back then. And so I think you should not understate the sense to which the Fed sees what's going on right now as absolutely historic, historic for the US economy and historic for global trade flows as well as historic for currency relationships around the world that could ultimately involve them in

some way. Yeah, I mean it's historic in so many different ways the apparent willingness of of the president of the United States to upset the economy and the market at the same time what's also been upset I, as I was alluding to a little bit with the bond market and the dollar, are these classic safe haven moves, these hedges, if you will, that investors who watch our programs during the day wonder how they can take cover from this trade war storm. And there haven't been that many places to hide.

You suggest the 60-40 portfolio was not designed for this and it ain't gonna work in this scenario. Tell me more. Yeah, that's right. The 60-40 portfolio was designed for a time when inflation was lower and more specifically, inflation volatility was lower than what we're seeing now. And the moves that we're seeing in asset classes, like treasuries, like the dollar, are related

to that inflation volatility just as much as risk preference. And so as we're looking at where investors can seek shelter, we're actually seeing the volatility of the markets right now as having some pretty clear investable through lines. Chris got to this at the end of what he was describing earlier, but alongside supply chain re-globalization and trade dynamics, there's a decade or more worth of trend in this direction. We don't think that's going anywhere. And so there are resilient equity names, quality that we think can be found, but we're looking

more and more into how you can build income in a portfolio. So whether that's dividend paying equities, whether it's holding on to some of the asset classes like gold that don't provide income, but do provide a bit of a ballast. And despite the volatility in fixed income, I completely agree with what Chris was describing that we're not seeing a balance sheet issue, especially in the two to three year term for US companies. And so the opportunity to take some equity like risk in those, yes, still price volatile, but income generating fixed income opportunities we think can help investors navigate some of the volatility we're seeing.

How do you address that? How do I address that? So one thing I just want to get clear is we're talking a lot about inflation. If you look in the bond market, break-evens or inflation expectations are actually coming down. Now you can take that one of two ways. They're coming down because everyone thinks

we're going to recession, or they're coming down because people are looking through some of the short-term news. One of the things the Fed has always said is we expect longer-term inflation rates to come down to our 2% rate. Break-even rates to come down to our 2% rate. Breakevens are coming down to their 2% rate. I know, but like one year inflation expectations

in the most recent reads more than one suggest otherwise. But two year break evens are also coming down. They're much higher, but they are coming down. So directionally, that's right. The other thing is a recent CPI. In addition to that, the conversation I'm having with people is just because prices go higher doesn't mean they're going to buy.

Just because if a car price goes higher, doesn't mean that people are going to step up and buy that. They'll change their basket, they'll substitute that basket, and they'll try and mitigate that. If that demand still is hot while prices are high, then we have a problem. But if people start to pull back and the US consumer is pretty savvy, I do expect them to rearrange that basket. So we have to be really careful

about the way we talk about inflation and what we're doing. Just getting back to your conversation about where you hide and what you do, you know, the two years still a good place to be, low volatility is still a good place to be to anchor. And if you're a longer term investor, again, a lot of these AI trades, whether it's in utilities, industrial technology,

are in a bear market, right? And you can make money long, I believe you can make money longer term in it and you want to start legging into it on days like today. Steve, it wasn't but, you know, two, three weeks ago where if you thought the Fed was gonna become more engaged, anytime soon, May was off the table. It was like, okay, well forget, it's not going to happen in May,

but if they do anything, it's going to be in June. Now I feel like we're just pulling things forward that we've introduced the idea that, you know, I don't know, May could end up being live in a way that we didn't think it would be if things continue to develop in the way that they might? I don't think so, Scott. I think that that's what the market hopes, but that's not what the Fed is saying.

The Fed is saying, I mean, you could make an argument. I'm not saying this 100% clear. You could make an argument. The Fed is telling the market, you're even wrong about June. With that 70% probability about June, I personally have been saying for a very long time, I don't see how the Fed feels as if the inflation story is clear to the point where they could cut rates in June.

So what you need to talk about, Scott, is, well, first of all, I don't think the Fed cuts because the stock market is down. What you would require in the month of May would be an unemployment rate that shoots up considerably and probably a negative print on the jobs numbers, which I suppose could happen, but I don't think the momentum in the job market, if that were to happen, you could maybe get May to being a live month.

But I still think that if you're listening to what the Fed chair is saying, that we need to be clear, we don't have secondary inflation, that the Fed is standing pat, maybe even through June. I keep saying this, the market keeps ignoring me, I guess it doesn't matter. The unemployment rate right now, I mean, I've got so many numbers in my head. Where are we, four three? Is that where we are?

Four two, four two. Is there a number, like a line in the sand kind of a number that if you approach it, the Fed starts to freak out to the point where they would be willing to move that way, even if it was in the fed shares language intention with the other side of the mandate. Scott, I got to look at the calendar because the meeting is on May 7th and I'm not sure. Okay, we're going to get the employment report on May 2nd, I believe. Okay, May 2nd is the employment report.

May 7th is the meeting. If you had a three-tenths, maybe a three-tenths increase in the unemployment rate, that might be a number that would catch the Fed's attention and say we should cut or maybe signal rate cuts. But Scott, I don't get why it's hard for people to put them in the shoes of the Fed here, that you're going to be looking at what could be a one or a two percentage point bump up in the inflation rate. I just have a hard time thinking that the Fed is cutting into that.

I mean, I've said this several times, that when the biography of Powell is written, it's going to read a lot more like Paul Volcker than it is Arthur Burns, which means I do not believe this Fed will countenance a rise in the inflation rate in monetary policy. I believe they will lean against it. So I can't say enough that I think the market is overly optimistic about an imminent or near term, even the next couple months rate cut. Wouldn't that be something, Lauren, if Powell,

I hear Steve and he knows more about this in his pinky than I do in my two hands together. So I get that. But if the Fed share was forced to make the bet of all bets, if the labor market starts to deteriorate but inflation ticks up a little bit but he still convinces himself that it's going to be transitory that it's only short-term whether they would make that bet and put it on paper through a rate cut. The swing vote in that circumstance

if the the feds mandates continue to move in the hard data in opposite directions, is going to be financial conditions. Because what financial conditions can help the fed to assess is look, the data right now, especially the data of the last couple months, Steve's right, it's not going to be rapidly deteriorating because real economic conditions haven't had time to really reflect any deterioration. We don't know that that's happening.

So what financial conditions will tell us is how is the market digesting the outlook for inflation, the outlook for employment. And if financial conditions are deteriorating to a point where you can't access liquidity, you can't finance yourself as a company in this economy, then the Fed might be more interested in acting. But I'll say this, here in the next couple of months, I agree with Steve. Even if financial conditions are deteriorating in that way, it's really difficult for me to see the Fed using interest rates as the way to address that situation because there's very little that a lower policy rate can do to stave off supply

chain disruptions. Financial conditions on the other hand there are ways that they can step in whether it's with liquidity I think only in an emergency situation and temporarily would they use bond buying but we might see those tools used first before the policy rate. Well I mean they they clearly believe that their toolbox is bigger than just one item in it. It's a large item, obviously, but I think they believe that they have other things at play. I alluded to the fact of your S&P target is still,

I think it's the highest as it currently stands on the street. And you made your case as to why you think even if we don't get to that number and it's just a number, we can still have a good go of it. It's 7,007 is where you stand. Can we get there without the Fed? We can get there without the Fed. So the way we get there without the Fed is we get agreement in North America, in large parts of Asia, in Europe, on tariffs. Again the economy was in a pretty good spot where we were before. Second half, one of the things that we've talked about is M&A activity and IPOs.

We can see that start to bubble up. You start to provide more confidence, right? People will expect the Fed if inflation, what's driving inflation is tariffs, then that fear should start to come down. Rates should start to come down and that should start to push equities up. And what we're seeing in the first part of earnings season is underlying fundamentals

are okay. And as you were talking about, there's just a ton of uncertainty that people are dealing with. Well, what if we're learning in real time that both the Trump and Fed puts are much lower than we thought? And that it's not the stock market that's gonna initiate it. Like the only reason that people suggest

they pivoted the way they did now, because the bond market was screaming at them to do something. But let's just say, for argument's sake, the bond market remains calm. Rates either remain where they are, they don't start getting out of control like they look like they were doing.

The rate of change was so dramatic in a handful period of time. either remain where they are, they don't start getting out of control like they look like they were doing. The rate of change was so dramatic in a handful period of time. But let's just say that the bond market remains calm, so that's not a forcing mechanism, but that the equity market, we've learned, needs much more downside. Steve said the Fed wasn't going to react to a falling stock market. Maybe the president isn't either. So let's just talk about the Fed one more time. OK, so it's in the Fed's best interest to do what they did. They should be hawkish.

In the past, they've pivoted too early. As Draghi said, the power is in the promise. If they continue to be hawkish, then- Isn't he the one who also said, do whatever it takes? He did say, well, do whatever it takes. He said- It's a big promise. You forgot about that one. Isn't he the one who also said, do whatever it takes? He did say, well, do whatever it takes. He said that. It's a big promise.

You forgot about that one. Yeah. Always call me on packs. I appreciate that. But what happened today? We had some bad news about Nvidia. We had people thinking, for some reason, the Fed was going to be dovish.

They turned out to be hawkish. Fed's doing its job. Its job is to bring down inflation. One of the ways you do that is through communication. They're communicating we're still going to be tough on inflation. And now the market's taking this and it's a little bit upset by that.

That's fine, right? Because what we're seeing from the bond market is, hey, we're not as worried about that. What we're seeing from the market in general is, yes, we think the Fed is going to start to cut and ease three or four, three, maybe four times the second half of the year, and that's good. So overall, I think we're in a decent spot,

but if you can't stand the volatility, either start bringing the risk in a large degree, because it's not going away, or just go to cash. Steve, I gotta let you go, but I'll give you the last word based on what you just heard briefly please. Well I think it's interesting to talk about the stock market here when JP Morgan last week sent a spreadsheet out to its clients saying if you want to figure out what's going on with one of your companies that you own and tariffs here's a spreadsheet because they can't do it nobody can do it. The lack of

visibility on earnings to me is remarkable. The lack of visibility on the economy is something that I don't know that anybody's ever seen here. I don't know that you can, and I've heard this from other investors, obviously don't do the stock market very well, but they've said you can't short this market because of the tweet risk from the president and You can't go long because of the policies he's put in place So I don't know what that means if everybody is standing fetal position Maybe you're well, maybe you're maybe your bid-ass spreads widen because nobody because there really isn't a market out there my checks on the financial plumbing so to I had a nice chat with a gentleman

about the asset-backed security market. These things are still clearing. They're wider. High yield was wider. And I just point out this Nvidia thing is completely self-induced. This is a direct line from the president's tariffs to one of the America's great companies Saying its earnings will be down and bringing down the stock market with it And and I think the knock-on effect of that scott is important that the president

Sees this almost every day happening and he doesn't change his policy And so I think that is another negative on top of the initial negative of the policy itself. I think we're alluding to that too. Steve, thank you very much. That's Steve Leesman, our senior economics correspondent. You guys are not off the hook yet. I need you to stay with me. I want to go to Christina Parts-Nevelis now because she's been following Nvidia all day. We already knew that it was a bad day that was shaping up here because of these export restrictions to China.

Shares were already down all day. And then there was a new report within the last hour or so that led to another leg lower. What was it? Yeah, it was a new report about congressional investigation. The House Select Committee on the Chinese Communist Party has launched its first ever investigation into the chipmaker Nvidia to determine if it knowingly provided critical AI technology to Chinese firms in violation of export controls. This is according to the New York Times you're seeing on your screen, but I can also confirm

Nvidia has been questioned by Congress on this matter, but this right now is additional scrutiny. And that's why you saw the stock, you're seeing it hit session lows right now, down 10%. Nvidia responding within five minutes ago, just on my phone saying that from a spokesperson, they follow the government's direction to the letter, quote, if the government felt otherwise, it would instruct us. Our Singapore revenue indicates the billing address

often for subsidiaries of our US customers. The associated products are shipped to other locations, including the US and Taiwan, not China. Nvidia was already though trading lower, as you mentioned, after announcing a $5.5 billion Q1 charge following new US government export restrictions on the sale of these advanced chips to China. Evercore ISI actually put out a really interesting notice this afternoon saying the CFO of Nvidia doesn't see much market for those H20 chips outside of China and that the production lines use completely different manufacturing processes so they can't really be repurposed for Blackwell chips which is this upcoming

iteration and so that's why Nvidia had to write off so much, 5.5 billion. Morgan Stanley indicates these license requirements will reduce data center revenues by 8% to 9% over the next few quarters. AMD, lastly, also warning of an $800 million charge due to these license requirements with the assumption that more are coming for Broadwell, Marvell. Overall, that's why you're seeing the chip sector down today.

Scott? Yeah, and I would also say, you know, when you, in this report that you just did, talk about, well, it's the, you know, the age 20, it's not a big demand outside of China. I feel like a good part of this story, it's not even about the chip. It's about the process. It's about the willingness of the administration to get in the business of Nvidia. It just points to to get in the business of Nvidia. It just points to other things that may be down the road. Well, especially since Nvidia was convinced

that the H20s weren't gonna be banned. Keep in mind, just a week and a half ago, Jensen Wong, the CEO, was at Mar-a-Lago, had dinner with President Trump, and the assumption, NPR even put out a piece, the assumption was, okay, Nvidia's okay. They can continue shipping the H20s. And then all of a sudden a sudden as of last Wednesday April 9th, then they were told no forget it You're gonna have to

Fill out these license requirements to ship all these chips to to China and that could take anywhere up to 12 months Which is why there's such a negative reaction estimates coming down price targets coming down because this is not a ban But it's being treated like one because it going to be so difficult to do anything with these chips now. Yeah. Thank you, Christina. Christina Parts-Novellos, just bringing us up to date on certainly the stock of the day, one that was getting even worse as we approached the close.

What do we think about tech? I mean, I said the Nasdaq's just getting crushed. Yeah, it's, in the near term, it's so difficult to know. I mean, I just don't know with idiosyncratic news like we've just heard how to handicap that. I just don't know exactly what will happen along tariff lines, export bans, et cetera. Here's what we do know.

The COVID-19 pandemic, yes, we can go back that far, I think. The COVID-19 pandemic showed everyone, normal people, why supply chains are important and why protecting them is important. There was this just felt reality that if you couldn't get a computer chip from Taiwan, you couldn't buy a car. Then just a couple of years later you have chat GPT and artificial intelligence making this so clear how important of a global economic and national security situation we have in the technology supply chain. And on top of that, as much as we, the United States, China, whoever might want to be completely self-sufficient in that supply chain, it is completely impractical in the next three to five years.

The US runs chip design. China runs testing and packaging and some materials. Taiwan is excellent at making the chips. Europe is excellent at making the equipment that makes the chips. We all rely on each other. And so the investment that is going to be required to really hone in on this economic and national security issue just cannot go away. Okay.

I think you just made one of the most important points of the entire day. We learned this once, okay, what disrupted supply chains do to inflation. Other things were at play, which probably accentuated where inflation went to. You don't have the level of inflation that we got to without the disrupted supply chains from the pandemic. We're going to do this again. Are we going to play this game again? I understand the idea of trying to bring critical underscore critical manufacturing of chips and things like that to the United States so

we have less reliance for national security and other reasons. That takes time. So are you going to blow up the global trading system today in a way to get there and risk the idea that you lose control of the inflation picture yet again some three years or so since we learned our lesson the first time and the market's gonna have to live with the ramifications of that experiment and that's what this is in part. I think that's a great summation what we're beginning to hang our hat on we're listening to Scott Bissen and he

started to use the words like we'll get certainty we'll get clarity which means that we should start to see progress if we see progress between the US and Japan on tariffs then I think we'll see that template. If we don't see that progress in the next one to two months, it's a difficult environment. What we think is going on, and I think we can all agree, and a lot of my clients say the same thing, we agree with the principles, we don't like the execution. And so what the administration is trying to do very awkwardly is say, okay, we want, this is about national security, whether it's technology or otherwise, we want that built with a friendly. Friendly is either in North America, parts of Asia, in the EU, but it is not China.

And what we're trying to do and what we're saying is China is that existential threat. The issue, and again, you said it very eloquently, is we are, there's a tremendous amount of concern about supply chains. If we do this, and the administration seems to be learning on the fly, if they pull back, we can pull out of this, but if they get a lot more aggressive, yes, you're absolutely, positively right, we're gonna have some big, big problems.

You can only front load purchases, big ticket ones, so much. Maybe you're not in a financial position to buy that car today that you intended to buy tomorrow. But I do remember the sort of effects and impacts that happened during the pandemic, where dealerships were asking for prices that were 10 to 20 percent above MSRP. Why? Because you couldn't get enough cars. The one thing that is different is there was transfer payments from the government to individuals. They had a ton of cash.

We used to joke around to people that if you raise prices 25%, people would say, I'll take two. The consumer is in a different spot at this point in time. So we don't see that kind of demand going forward, which means that any inflation is not, I don't think is going to be sustainable. And again, we have to get back to something

that's very, very difficult to handicap. How long will these tariffs be in place? How much is it a negotiating ploy and how much progress are we going to make over the next one, two and three months? All right, we're about 35 minutes past the hour, just to bring everybody up to date. NASDAQ is the big decliner today it is

down by a touch more than 4% near 700 points. The Dow for it for that matter is down almost 900 points that's 2.2 percent you're such at an elevated level still in the Dow that in a 900 point decline ain't what it used to be but you're still down two and a quarter percent, nonetheless. Guys, thanks for helping us get through this. I appreciate you so very much. Lauren and Chris, we'll see you soon for sure. Let's bring in Mohammed Al-Aryan now.

He's the chief economic advisor at Allianz. I appreciate you reaching out and your willingness to come on and discuss this. What is your takeaway from what Chair Powell said because it has clearly had a negative impact on these markets. It has because he said very clearly there are no good news

cuts anywhere on the horizon that is cuts warranted by low inflation. There are no bad news cuts on his radar screen because he's worried about persistent inflation. And then he brushed aside

completely what I call the awful rate cuts. because he's worried about persistent inflation. And then he brushed aside completely what I call the awful rate cuts, those that are prompted by market malfunction. So across the board, he said, look, there are no rate cuts coming for now. The stock market heard him. The bond market seems to ignore him, but I don't think it is ignore him. I think the bond market is realizing that this economy is going to slow quite a bit. So while

I agree with Steve that it's unlikely you get a June cut, what you're seeing in the bond market is real concern about the growth outlook. And that's why you're seeing in the bond market is real concern about the growth outlook and that's why you're down seven to nine basis points in maturities up to five years. You think the Fed's going to be fine? I know what he said and I hear you and I think your explanation sounds right. That's all fine and good until something actually happens. Are they going to be forced to do something do you think? So there's a game of chicken going on right now between the administration and the Fed.

The Fed does not want to cut. It thinks that the policy problem is elsewhere. The administration would like the Fed to cut. I think the only horizon, the only scenario you get a Fed rate cut anytime soon is if we get close to what we had last week which is bond market malfunction. You know Scott more than anybody else you know there's a big difference between unusual volatility and malfunction. Unusual volatility you can get done at a price you may not like

the price you may not like the bid-off spread but you'll get done. Malfunction is you can't and therefore what do you do? You go do something else and you spread the disruption through the market. So only if we get back to where we were last week, market malfunction will we see the Fed act anytime soon. Right, but did we do anything to solve the method, so to speak, to the bond market madness? We really didn't. We settled things for the moment.

But I would suggest that I'm not necessarily sure that the mechanism that led to that has been cleared up in any way. So it hasn't on the tariff side. It hasn't in terms of foreigners selling But it has on the Fed side Susan Collins came up on Friday and she said very clearly if that's malfunction We will intervene So, you know the market heard something that it wanted to hear which is more durable than the 90-day

that it wanted to hear, which is more durable than the 90 day postponement. And that's more durable than what else it heard about foreigners are selling bonds. I mean, we just wanted to know, I think at that moment that the cop was on the beat, that they were ready, willing and able, even though it's obvious that they would be ready, willing and able to do something.

I think hearing it out loud was a bit of a security blanket of sorts at that moment of need for the market whether it really represented any you know great leap forward or not. I agree and I was surprised the chair Powell brushed aside the

question on market malfunction he just brushed it aside- which I don't think was such a good idea you need to hear as you say, that the cop is on the beat. Mohamed, I got to go. Thank you so much for coming on. I appreciate you, Mohamed Elyrian, jumping on to help us understand what's happening within these markets, reacting clearly to what the Fed chair had to say.

We're going to take a quick break. When we come back, the former Dallas Fed president Robert Kaplan tell us what he what he thinks the feds next move should be. We're back after this. It's been a very busy news hour as you know and I have some new news for you something we'll call new on closing bell exclusively today. It is regarding Bill Ackman this afternoon, his Pershing Square revealing today in a 13-F filing a 4.1% position in Hertz as of December 31st. That news, sending

shares sharply higher in the session, as you see, I'm told from a person familiar that the stake is actually much, much higher than that, about 19.8% through shares and swaps. Pershing, in fact, now the second largest shareholder in Hertz. I'm also told that Pershing received a confidential treatment provision from the SEC, which allowed them to delay the filing beyond the normally required reporting period, which gave them the ability to accumulate substantially more shares since the end of December. Worth noting, too, that not all of those types of SEC requests get approved, they did. Hertz has had a lot of issues, as you probably know,

over the past several years. It fell into bankruptcy in 2020 during COVID, then emerged with a new management team and a big bet on EVs. It bought 100,000 Teslas, but ran into unexpected issues with the fleet and its strategy. It later sold a third of the fleet but declining Tesla prices led to much lower resale and residual values. Hertz still has some Teslas in its fleet and hasn't fully abandoned the EV strategy just yet.

Here's where Ackman's bet comes in according to a source familiar. Since Hertz took the Tesla hit, the company has locked in replacement cars at much more favorable terms. There's also a tariff play, believe it or not, here on the belief that they'll only increase the residual values of existing vehicles since used cars aren't hit with tariffs. So between the new management team and the prospects of generating a material amount of cash flow, Pershing is said to be very optimistic of a continued turnaround. We've reached out to Hertz. We'll let you know if we hear back.

But there is that stock moving substantially as we approach the close today. Up next, much more on this big market sell off. Market zones next. All right. Let's do the closing bell market zone. Goldman Sachs vice chairman and former Dallas Fed President Robert Kaplan joins us on what he thinks the Fed should do now. CNBC Senior Markets Correspondent Bob Pisani on these crucial and fast moving moments as

the trading day comes to a close. Mr. Kaplan, I'll begin with you and I thank you so very much for being with us. What did you make of what the Fed chair said? I think he said the right things and made clear that the Fed is going to have to be concerned about inflation, need to watch this situation unfold, and that they may act, but they're going

to need to see a lot more information before they jump in. I think that was the right message for him to give. I mean, he talked about inflation Potentially being more persistent right they've been going with the idea that this could be temporary and transitory This sounded like something a little more longer lasting perhaps. I also thought it was interesting I'd love your take as well on this idea of developing tension within the mandate

Yeah, so he had to say that there's a risk that inflation might be more persistent. Here's why. When you get a tariff increase, most companies I talk to, they're waiting to see how this unfolds, but they're going to negotiate with their suppliers. They're going to do some price increases and some will come out of margin and many will take two or three years to recover the margin. That means more than one price increase. Price increases over two or three years and that's why he said this has potential to be

more sticky than a one-time price increase and I agree with him. And on the tension in the mandate, you and I have talked before, if unemployment stays well-behaved and inflation is sticky, they won't be able to act. If unemployment spikes, then they'll have to look at acting and think maybe the demand destruction may offset some of the cost shocks. But they're going to have to see that first and analyze it before they act. And that's certainly not by May.

And that's one meeting at a time. And I think he's trying to convey that so they keep their options open. How concerned do you think he is right now about stagflation, which you told me the last time that we were together is basically here. You described what you thought were the conditions to describe it now. Yeah, I'm sure they're concerned about slowing growth and about sticky prices. Having said that, a lot of this scenario is going to depend on what is done over the next several weeks. Are we going to negotiate with trade partners down to zero, down to 10%, down to 20% or

higher? If we negotiate reciprocal agreements down to zero, then that's one thing. But the concern is this administration would like more revenue than that from tariffs, and they may negotiate down to 10% or something higher, and that's gonna create a sticky cost issue, which will translate it potentially into sticky prices. Do you think the Fed understands at this point

that, of what you just said, that there is a high likelihood one could certainly suggest that these tariffs are for lack of a better word permanent because because they want the revenue. I think that view is emerged recently in it's only been two weeks seems like longer since the Rose Garden ceremony I think

people started to realize from that day forward maybe this is somewhat about reciprocity, but it's about a little bit creating tariff revenue. Once people realize that, I think that's part of why you're seeing as much turmoil as you're seeing in the financial markets and among companies and their guidance uncertainties. What would you be doing or thinking about I think better asked about what's been happening within the bond market obviously more settled over the last couple of days which has everybody feeling a little bit better at least about that. How should they be thinking about that? How would you?

Yeah, so the first thing I'm looking at is credit spreads. They have widened out over the last few weeks. That's corporate credit spreads. Then I look at the dollar, I look at gold, and I look at the 10-year treasury. And I don't like what I'm seeing in that gold is running, the dollar was weakening, maybe stabilized a little, and the 10-year is backing up. It's improved a little bit, but in a period where

you're expecting a slowdown potentially, and the markets are selling off, you wanna see the 10-year and the dollar being a haven for flight to safety. That's critical to this country, particularly when we've got $36 trillion of debt to sell and growing. And also, you're trying to fight inflation. If the dollar gets unduly weak, that doesn't help either.

But what do they do about it? I mean, they have a toolkit, but they're not a Home Depot. I mean it only goes so far. They're not in the driver's seat and they know it. I think the only thing they can do now is jawbone, make sure there's orderly market function and I think it's in the hands of the executive branch at this point to negotiate these deals and get closer to zero than say 10 or 20 percent. I think it's also critical, by the way, on the labor market front, which hasn't been getting as much press, that they clarify the status of millions of undocumented workers who are in the workforce and who are uncertain about their futures here. And I think that's not in the hands of the Fed.

That's in the hands of the executive branch and the Fed realizes that. They're gonna react to what the executive branch does, but they're not driving this and they know that. Well, I mean, that's a pretty profound statement too, declarative just to say, you know, they're not in the driver's seat and they know it. I still believe that there is a view within the market that they may not be driving it,

but they're at least riding shotgun, if you will, that they have the ability to lean over and grab the wheel in some respects if they have to. Yeah. So Jay Powell's purpose today, I I believe and I agree with the way he handled it is to make clear they're vigilant they're watching market function they're watching all these elements even talked about deficit reduction and the challenges if you don't look at entitlements he's making clear that he's on top of all this but what he doesn't want to do is make the markets feel he's about to jump in.

I think he wants to keep a little distance so that the executive branch can do what they're doing. I certainly don't think he should be or wants to communicate that they're about to jump in and ameliorate some of this. He wants to communicate exactly what you said we're watching, but no, we about to act. We're ready but we're not going to jump in at this point. Robert take care we'll see you soon. Robert Kaplan, now the vice chair Goldman Sachs was certainly the former Dallas Fed president. I appreciate you joining us. Bob Bazzani is here, our senior markets correspondent. This was

all Powell driven. Well yes but I would I would say this. I think Mr. Kaplan's right. I think Powell gave a wide-ranging interview. I thought it was very interesting. I think he said all the right things. And none of it was terribly surprising. Tariffs are highly likely to generate at least a temporary rise in inflation. That's not surprising. So why did the market drop? And I think it's not Powell. It was the way the market was positioned and what they wanted to hear didn't quite match the rhetoric they wanted to hear the Fed put they wanted to hear Powell sound a little more dovish and he didn't deliver on that right

now he's standing pat and he should be standing pat he said I'm not sure what side we should be on on this should be cutting rates who would be more vigilant on inflation side that was not particularly what the market wanted to hear. It wasn't that Powell said something wrong or the market thought he was wrong. I'm not intimating that he did, but the mere fact that I would suggest that you'd like to be able to take comfort in a Fed chair

who can see through the windshield, not one who has such deep fog around him that even he doesn't know what this is going to bring. We are all being humbled by the fact that we have very little visibility. You had Debravko Lacossant yesterday, he essentially said the same thing about earnings outlook for 2025.

They don't have a clear outlook at well. And essentially Powell is implying that. So here's the problem, if there are no imminent rate cuts, if he said, well, implied worth standing pat, that's not what the market particularly wanted to hear. The bottom line is, given that the tariffs may be around for a while,

the earnings outlook does not support the current valuation. That's it in a nutshell. This is why growth stocks have been hit hard again today because it's hard to argue how are you gonna have notable earnings growth in this kind of environment here. So what's the right price for the S&P 500 Scott? We talked about this on Monday. What's the right multiple?

Our earnings going to be up 10% this year is the multiple 20. Our earnings could be up 5%. Is the multiple 18. Look at these numbers. This is an optimistic scenario, right? This is where we are right now. Earnings are up 10% and with a multiple of 20, you get what you started on Monday, 53, 40. But more realistically, look, if your earnings are only up 5% and the multiple is 18, you're

at 45, 72, we're 800 points lower. And that's optimism. Do me a favor, just throw up shares of Hertz. I just want to hit this one more time because they're up substantially on our report a little while ago that the position that Pershing Square and Bill Ackman have taken here is actually much larger than was originally thought. We gave you that report earlier this hour, shares now up better than 50% on the day. So that's a story to keep watching. We certainly will. We'll continue to watch the markets. You'll definitely see and hear more from Bob Pagani as well.

Bob, thank you. Bells ringing.