Closing Bell - Closing Bell 7/31/24

Episode Date: July 31, 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.

You're listening to Closing Bell In Progress. On the labor market, I was wondering, how worried are you all about unemployment rising to the point where it triggers the SOM rule? And would that potentially affect how quickly you cut rates? So I would just say the question really is one of, are we worried about a sharper downturn in the labor market? So and the answer is we're watching really carefully for that. We're aware of that rule, which is really a, you know, a I would call it a statistical thing that has happened through history. A statistical regularity is what I'd call it. It's not like an economic rule where

it's telling you something must happen. So again, what do we see? What are our eyes telling us? We look at all the things we're seeing, and what it looks like is a normalizing labor market. Again, job creation at a pretty decent level, wages moving up at a strong level, but coming down gradually. Job vacancies have come down, but they're still high by historical standards. So again, I've been through some of the data already, but what we think we're seeing is a normalizing labor market, and we're watching carefully to see if it turns out to be more. If it starts to show signs that it's more than that, then we're well positioned to respond. Is there reason to think that the labor market might behave differently this time than it has historically?

I think, you know, history doesn't repeat itself. It rhymes. That statement is very true about the economy. You never assume it's going to be just the same. An example would be, is there a trend increase in the level of vacancies? There are many many examples so it's never exactly the same. Also let's remember that this pandemic era has been one in which so many you know apparent rules have been flouted like the inverted yield curve for starters. So many many received with pieces of received wisdom just haven't worked and it's because the situation really is unusual or unique in that so much of this inflation came from the shutdown of the economy and the resulting supply problems in the face of admittedly

very strong demand. So the whole situation is not the same as many of the other prior inflation out or downturns that we've seen or business cycles that we've seen. So we're having to learn, you know, we're having to, you know, to be very careful about the judgments that we make, I would say. So we don't assume that these regularities will just repeat themselves automatically. Mayor. Thank you, Chair Powell. I'm Mayor M ask the chair. Mayor. Thank you, chair Powell. Mayor, I'm with Bloomberg.

There seems to be quite a difference between what the anecdotal data are telling us such as the recent down beat page book and the hard data. Do you take those anecdotes seriously that the economy and labor market are cooling much the data. So I do take that seriously and the beige book is great.

What's even greater is hearing the reserve bank presidents come in and talk about their conversations with businesses and business leaders and workers and people in the non-profit sector in their districts. But I'll tell you it's a pretty

you know the picture is not one of a slowing or, you know, a really bad economy. It's one of their spots of weakness and their regions where growth is stronger than other regions. But overall, it's, you know, again, look at the aggregate data. Aggregate data is, you know, particularly PDFP, private domestic final purchases, is 2.6% and that's a good indicator of private demand. So we listen to all of that and it does, I think it's important to listen to anecdotal data and not just look at the aggregate data. Especially, you know, it's very hard, GDP data can be volatile quarter to quarter. So it's just hard to measure economic activity. There are a lot of, it's just difficult to do. So I look at both, but I wouldn't say that the anecdotal data is uniformly downbeat. It's more mixed. Thank you. Jolene Kent with CBS News. Chair Powell, thanks for taking our questions today. You have consistently said that the Fed does not consider politics in making decisions.

With a possible September rate cut on the table, it would be less than two months before the election. And former President Trump reportedly said that cutting rates so close to the election is something the central bank knows they shouldn't be doing. What's your response, and do you believe it's possible to really remain apolitical with a September rate cut? I absolutely do, and I think it's, first of all, we haven't made any decisions. I would say it this way. Haven't made any decision about any future meeting. I don't know what the data will reveal or how that will affect the appropriate path of our policy. I really don't know. I do know how we will make that assessment. That's what I do know. So if you take a step back,

the current situation again is inflation has come down much closer to our goal and that's happened while unemployment has remained low. We're very tightly focused on using our tools to try to foster that state of affairs continuing. That's at each of our meetings and all of our We're not going to be doing anything else. We're going to be focused on using our tools to try to foster that state of affairs continuing. That's at each of our meetings and all of our decisions our

focus is strictly on that and really on nothing else, doing our part, whatever that part may be. You know, we're using our best thinking, we're doing our best to understand the economy. We follow academics. We follow the many commentators who bless us with their commentary. But we don't change anything in our approach to address other factors like the political calendar. Congress has, we believe, ordered us to conduct our business in a non-political

way at all times, not just some of the time. I'll say this too. We never use our tools to support or oppose a political party, a politician, or any political outcome. The bottom line is, if we do our very best to do our part and we stick to our part, that will benefit all Americans. If we get it right, the economy will be stronger, we'll have price stability. People will find jobs. Wages will rise in real terms. Everyone will benefit. So that's what we believe, and that's how we will always act. This is my fourth presidential election at the Fed. I can tell you this is how we think about it.

This is what we do. So anything that we do before, during, or after the election will be based on the data, the outlook, and the balance of risks, and not on anything else. Just a quick follow-up. Do your economic forecasts and models take into account the two very different economic plans of these two presidential candidates, Harris and Trump? And if so, how? No, we do not do that. We absolutely do not do that. We don't know who's going to win. We don't know what they're going to do. We don't act as though we know, and we just can't do that. You know, we basically, we have our forecast. We're not, we can run simulations of different potential policies, but we would never try to make policy decisions based on the outcome

of an election that hasn't happened yet. We would just, that would just be a line we would never try to make policy decisions based on the outcome of an election that hasn't happened yet. We would just, that would just be a line we would never cross. You know, we're a non-political agency. We don't want to be involved in any, in politics in any way, so we wouldn't do that. Nicholas. Thank you, Chair Powell. Nicholas Straczynski from Barron's Magazine. There hasn't been a dissenting vote on an interest rate decision in some time. If the data do evolve as you expect,

if you do have more confidence by the September meeting, do you get the sense that there will be a unanimous vote on an interest rate move in September? Basically, are there meaningful differences in committee members' assessments of how much more confidence is needed? So there's all, there are always meaningful differences. There are. And, you know, we talk a lot before, during, and after the meeting. We do have a very robust discussion of these things. You're right that in most cases, people, if they feel heard and they feel that they've, that their, you know, their position has been given serious consideration, for most people, if they feel heard and they feel that they've, that they're, you know, their position has been given serious consideration. For most people, most of the time, that's going to be enough. There are dissents. That's fine. You know, no one has a veto. You know, no single person has

a veto. So it just is a question of who will vote for and against. We've had, we've had, you know, dissents. We, we had, we haven't had so many during the pandemic era, and it just may be that, you know, we've, we felt more united because we felt, you know, under a lot of pressure to get things right. But before the pandemic, we had plenty of dissents, and I, you know, dissents happen. It's part of the process. There's nothing wrong with dissents, and if it happens, it's part of the process, there's nothing wrong with dissents and if it happens it happens. Jean. Hello, Jean Young with M&I Market News. Is a 50 basis point cut as a first cut at

all likely or even on the table? You know I don't want to say and it would be really specific about what we're going to do, but that's not something we're thinking about right now. Jennifer. Of course, I haven't made any decisions at all as of today. Thank you, Chair Bell. Jennifer Schonberger with Yahoo Finance. Not to get into the minutes,

but you said there was a real discussion today for moving at this meeting. I'm curious if you could provide some more color on the nature of the discussion today at the meeting about a possible rate cut as early as September. Well, so, you know, the way the meeting is set up, the first day there's a discussion of financial stability because it's every other meeting we have that and then we have an opportunity to comment on that then we have an economic go-around and then this morning we have the monetary policy go-around and I think in people's economic go-around and in their monetary policy go-around people express their views about this and you know there's a range of People, as you will know from the speeches that they give,

people have different ways of thinking about the economy. And so in the minutes we'll lay this out in a much better way than I can do off the cuff. But there's a range of perspectives. And but I do think that we are a consensus driven organization. People come together. This was a unanimous a unanimous decision and at the end everyone's and everyone supported the outcome not just the voters but everyone so I you know I would also say some people examine the

possibility you know the the case for moving at this meeting but overwhelmingly the sense of the committee was not at this meeting but as soon as the next meeting depending on how the data come in. But there is a growing sense of confidence that you could move at the next meeting assuming inflation comes. Well assuming that the totality of the data supports such an outcome no no question that that that's that is the case that as I mentioned you know we we think that the time is is is it's it's approaching and if we do get the data that we that we hope we get then you know a reduction in our policy rate could be on the table at the September meeting. Nancy.

Hi, Chair Powell. Nancy Marshall-Genzer with Marketplace. Former New York President Bill Dudley wrote an op-ed in Bloomberg earlier this month, which you probably saw, in which he said, quote, it might already be too late to fend off a recession by cutting rates. Doddling now unnecessarily increases the risk. Is he wrong? So this is the judgment that we have to make, and we're well aware of the judgment. We're, you know, we're, as I've said, we have to weigh the risk of going too soon against the risk of going too late. If we go too soon we can, you know, we had a lot of advice, you know, to go ahead and cut after the seven good months of last year. We didn't. We said we needed to see more. Then we saw some higher inflation. We've seen one quarter of good inflation and we've seen the labor market move

quite a bit. And as I mentioned, I don't think it needs to, you know, cool off anymore for us to get the inflation results that are related to the labor market. Not all inflation is, of course. So I think it's a difficult judgment to make. And what you see as a judgment of the committee is that that time is drawing near. That time could be in September if, you know, if the data support that. And have the chances of a hard landing increased? So I don't know whether they've increased. I think they're low. I think this is a, you don't see any reason to think that this economy is either overheating or sharply weakening. That's just not in the data right now. What's in the data right now is an economy that's growing at a solid

pace, a labor market that has cooled off, but nonetheless, unemployment is low. The data overall show a strong labor market. And, you know, so that's really what you see. It's neither an overheating economy, nor is it a sharply weakening economy. It's kind of what you would want to see. But, of course, the job is never done. You know, we're watching to see, you know, which way the economy heads. And I think if we are to respond to weakness, we're certainly, you know, well equipped to do that. But that's not what we're seeing. What we're seeing is strong economic activity and, you know, a good labor market and inflation coming down. MS. Thank you so much. In the minutes of the June meeting that came out a few weeks ago, there was a discussion

about communications and some Fed officials said maybe the Fed wasn't as clear enough about its reaction function. And when I talk to the commentators who bless you with their comments, they say that they really don't have a sense of what is going to judge, maybe not the first cut, but the pace of the cuts going forward. They don't have a good sense of that. Is there anything you can say? Like, how will we judge that? Yeah, I mean, I think the reality is that forecasters, and this isn't just the Fed by any means, forecasters have been continually surprised by,

for example, the strength of the economy last year. So I think we have to be pretty humble about giving forward guidance about this, that, and the other thing. We need to be pretty careful about that. And when you're saying you're going to be data driven, of course, it's always what the data, how they affect the outlook and the balance of risks, but it's nobody has great vision deep into the future. In terms of a reaction function, that's a long time, you know, discussion that people have had forever.

I think people have understood for a long time actually that we were very focused on bringing down inflation. Nobody was really confused about that. The data have, you know, again you've seen significant improvement in inflation just for the last quarter. Markets move around on that on the data really not so much it's not really what we're gonna do it's more just that the data keep coming in and markets are very very responsive to that data right now. Good, and Jeff for the last question. Thank you Mr. Chairman. I'm gonna change gears on you just a little bit from all

of the rate talk and whatnot. With Fed now being in the books for a little over a year, there hasn't been a whole lot of talk about central bank digital currency and wondering if you could give us an update on where things are with that. Is that considered a dead issue now? Is it still something that's being discussed within the committee and what's happening with that? It's not something that comes up at all with the in the FOMC. So more broadly digital finances is an area that's having, that has really significant implications for for payments generally instant payments and it you know it's

something that's going to really change the way it's gonna make more efficient and hopefully safer and all those things the way payments are made around the world and so we are we have people who are researching that and trying to keep up to speed because we play an important role in the payments sector both as a you know as a convener and as an operator too. In terms of a CBDC there's really nothing new going on there's not much going on at all we're not we don't have the authority to issue a CB you know a retail CBDC that's available to the public we're not seeking that authority so what we're

doing is keeping up with, keeping up with developments there. Pretty much every major central bank in the world is at least doing that. Some of them are actually seriously looking at implementing a CBDC. We're really not. We're really just evaluating, you know, the story and what's happening out there. So, you know, I think it's work that we need to be doing, which could be very beneficial down the road. But we don't have, on a CBDC, we don't have any plan to, we would need to go to Congress, and we have no plan to do that. We're not, no one here has decided that we think it's a good idea yet. Thank you. And welcome to Closing Bell.

I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. Fed Chair Powell wrapping up his news conference there. Stocks already up sharply before the decision, adding to those gains. The market clearly believing the Fed is teeing up rate cuts in the months ahead. You can take a look here. NASDAQ is, for one, the place to start looking because it's up better than 3 percent. That is the best day for the NASDAQ since February of 2023. But stocks are up sharply across the board. The money lines here from the Fed chair pretty clear, too. When asked directly about a cut coming in September, Chair Powell said, quote, there's a broad sense that the economy is moving closer to the point where it would be appropriate to reduce the policy rate on cuts in September could be on the table as soon as the next meeting.

He said that they've gained a greater confidence that inflation is moving closer to target. They do want to see more, doesn't want to see much more weakening in the labor market, simply thinks that it is normalizing right now and not getting any worse than that. So with that, let's welcome in exclusively Jeffrey Gundlach. He's the CEO and CIO and founder of Double Line Capital. Jeffrey, welcome back. It's good to have you, as always. Yeah, good to be back on Fed Day, Scott. Yep. Your reaction to what you just heard? Well, you kind of stole it a little bit. I said usually in these post-Pred press conference appearances, I have a kind of a word of the press conference.

And the word of this press conference is could. He said it several times. We could cut rates in September. So he also reiterated a number of times that they have a long amount of ammunition, a large amount of ammunition, if the economy does start to weaken. But what is interesting about, I think, the messaging from Jimmy Powell is he said that conditions in the labor market and in the economy broadly are sort of like they were pre- pandemic, on the doorstep of the pandemic. And yet the Fed funds rate is 525 basis points higher than that.

Okay, I'll acknowledge the inflation rate is probably about a percent higher than it was prior to the pandemic. But that kind of means that there's a lot of room for them to cut short-term interest rates. Our inflation model suggests that based upon where the commodity prices are and what we expect from shelter to happen, that we could get a two-handle on the CPI. We already have it on the PCE. But we could have a two-handle. We could settle in even in the low twos. And if you have a positive real interest rate that's even 1.5%, that would suggest you have 150 basis points of room to cut rates without

even thinking that you're being excessive about it. So I really think that we should expect to see the markets enjoy what the Fed said here, because they said not only could we cut rates at the very next meeting, but we could cut them a lot if we need to. And I think that's very heartening, particularly for the stocks that kind of got beat up, you know, the high beta stuff where interest rates cuts would probably be awfully helpful. He mentioned numerous times, in fact, to your point that the Fed is still restrictive. Should they have cut today? I think they should have cut today, quite frankly. But,

you know, what's what difference does it make, you know, six or eight weeks or whatever it is, seven weeks? I think the one thing that I find is funny when people asked about the political climate and saying, you know, they don't want to be political. And September 18th is less than two months away from the election. I just think that's so laughable that if you cut rates 25 basis points, that would have any impact on presidential politics. I think if you ask the average American what the Fed funds rate is, they wouldn't even know that it's a number. They wouldn't even know what it means, let alone to know that it's at five and three eighths today. So I just don't really think that that's very relevant. But I do think this is a pretty reassuring press conference for the markets. I thought Jay was very well prepared.

He even seemed to over-prepare it. I thought he was reading more of his remarks, and particularly in the answers to questions, he seemed to go to a script. But that's okay. He had a thread in the needle,, I guess he really had to do, because it's clear that the employment data is not is getting worse. That's pretty obvious. I mean, the quits rate is going way down. The unemployment rate is now seven, seven tenths off its lows. It's being artificially suppressed by government hiring, which has been in an interesting uptrend over the past 18 months or so. So I think it's clearly weakening. We see continuing claims on the rise. Initial claims

are in an uptrend. So I think he wants to reassure people that he's watching these things. He's hopeful that the unemployment rate doesn't go up by two tenths or three tenths one of these months, but it has been rising. And so we do have two more employment reports before the next Fed meeting, and we have two more CPI reports. So I think those are going to very strongly inform the rhetoric that we get and whether or not we get a cut of 25 basis points. He seemed pretty clear that they're not really considering at all, based upon the mix of the economy and inflation right now, cutting rates 50. I think that would be, you'd have to see unemployment rate go up to probably 4.3, 4.4,

maybe even 4.5 over the next two months, which seems unlikely for him to consider a 50 basis point cut in September. But there's cuts coming. The yield curve has been de-inverting. We're hanging out at about, I don't know, 15 to 20, depends what minute you look at it, basis points, higher yield on the two-year than the 10-year. That was out at almost 110 basis points several months ago. So it's been a big narrowing, but it's still inverted. And we still believe that there's a very safe place to be is in the two-year, the three-year, the five-year Treasury, which should have pretty big rallies when the Fed, should they even cut one time, I think we'll start. We de-invert the curve and head to a steeper yield curve. The long end of the curve, I feel, is still in the

throes of angst over these interest rates and the level of the debt and the level of the deficit. I know I talk about this all the time, but it's extremely important in our world today. And I think the yield curve will steepen quite a lot in the next recession. I have to say, you sound to me rather sanguine about where the Fed is today, maybe more so than you've been since they started this whole thing more than 18 months, almost two years ago. I am pretty sanguine because I think things have shaped up pretty nicely. And I think that Jay Powell is aware. And I really hearken back to that. He says he's got a lot of room to do things in terms of the Fed funds rate going down. And that does make me more sanguine. I think the inverted yield curve is a problem. I think these high interest rates, high short-term

interest rates and high credit card rates, I think this is a problem. And we see that the bottom end of the economy, say the bottom 40% of the population, they are really hurting on these price levels. And one way that we can monitor that is the usage of food, free food, you know, food lines, whatever you want to call it, has really gone up a lot over the past 18 months or so. In some regions, it's tripled. So everybody out there that has the wherewithal, I encourage people to give to these types of public services. The government can't do it all. I think it's much more effective if it's done on the private level. So donate to these public services. I'll come back to you in just a second. Our Steve Leisman

has made his way, Jeffrey, outside of the room where the news conference was taking place. Steve, the Fed chair seemed to not only set the table today for rate cuts in September, he all but served the appetizer as well. Is that your take? Yeah, I think that's right. I thought the statement was a bit more circumspect. I thought he could go either way. And there were times when the chair was saying, hey, it may not definitely happen. But then there were times when he sort of indicated not just one cut, but what I asked him about, Scott, was this idea of you've said in the past that this is a process of rate cuts, that one cut won't do anything. So I asked him again if he was envisioning this as a process. And here's what he said.

We can afford to begin to dial back the restriction in our policy rate. And I think we're just as part of a process. In terms of what that looks like, I mean, I think most rate, you know, you would think in a base case that policy rates would move down from here. But I don't want to try to give specific, you know, forward guidance about when that might be, the pace at which it might happen, because I think that's really going to depend on the economy, and that's highly uncertain.

So it's worth, Scott, looking at where the market is priced and how that's changed from before the statement in the press conference to now. Right now, we're looking at 100% probability of a rate cut in September, And then that kind of goes on. You look at a 73% probability of a second cut coming in November, 71% by December. So, oh, sorry, it's actually higher than that. It's 74%. That's about 10 points higher than it was, Scott, before the statement today. So the market increasingly confidence, not just one cut,

but this idea of a process of cuts. And we still have Jeffrey Gundlach, obviously, with us. And Jeffrey, I hope you'll oblige us here. You know, Steve has what I think is a good question for you as you talk about the yield curve still being inverted. Steve, you want to ask Jeffrey what I know is on your mind? Well, the reason why it's on my mind, because I just talked about this idea, Jeff, which I'm sure is on your mind, this idea of steady rate cuts on the short end. Jeff, how does the curve or does the curve disinvert in that process? Well, I think short rates fall. Two-year treasury rates fall, three-year treasury rates fall, five-year treasury rates fall. And the further you go out the curve, the less they're

going to fall. I thought Steve's question to Jay was really good. It actually jogged my thinking about how much room he has to cut, because Steve asked, is it one cut or is it a normalization process? And I don't know if Jay kept that question in his mind as he continued after Steve's question, but he seemed to, if I try to read the tea leaves, it seems to me that Jay Powell's answer was normalizing. I think he knows that the path of inflation is likely lower in the near term. One thing that he did speak to was the seasonality of inflation. And I think that's a bigger point than most people appreciate. The first quarter, even though these numbers are seasonally adjusted, and Jay pointed that out, even though it's

seasonally adjusted, there's this bizarre pattern that is quite strongly in place for multiple years that the first quarter comes out hot and then the second half of the year comes out cool. And so we have a couple of PCE headline numbers, not the one coming up, but the two after that. The ones that are rolling off are 0.4. It seems unlikely to me that you're going to get 0.4 replacing them. So we still have downward momentum likely on that headline inflation, and it's further supported by the uncanny seasonals that seem to be in place that the fourth quarter inflation is less than the the first quarter and certainly the second half is less than the first half so these are further

things that support the notion of cutting interest rates um jay's right to say we don't know what the data is going to be just like i loved his answer when he said i don't know who the data is going to be. Just like I loved his answer when he said, I don't know who's going to win the election. It would be ridiculous to try to factor one party's policies versus another. You don't even know if it's going to win. But I do think that these things, seasonality of inflation is important and will be further supportive of the Fed cutting rates. I expect the Fed is going to cut rates in line with what the market is predicting. And if I had to take an under and over, I would think the Fed is going to cut rates more than the market thinks over the next. I think

we have 150 basis points of cuts coming, but certainly by a year from now. It's interesting that the Fed hasn't touched the Fed funds rate over the past year, you know, and it's since the last Fed meeting are virtually unchanged. There's almost no changes anywhere. So the market seems to have settled in and is waiting for the cutting cycle to begin. And I think they're going to get rewarded with that. Interesting. Steve Leisman, thank you, as always, of course, for joining us after after leaving the room with the Fed chair. So, you know, Jeffrey, you've been pretty explicit as well in calling for a recession every time we've been speaking and having these conversations. The Fed chair today, as you alluded to earlier, said he thinks we're well positioned. He likes where we are.

The chances of a hard landing, he said, quote, I think they're low. Has your own view changed? No, I have the same view. I think when we look back at what today, and it'll be history when we look back at it, a couple of years from now, I kind of believe that we will say that we were in a recession in September of 2024. Interesting. Because, I mean, he still thinks that the economy, obviously, is doing pretty well. Yes, there are some spots of weakness, said the Fed chair, but overall is good. You take issue with that, too, based on what? What you've been hearing from CEOs about the consumer?

I think it has to do with a lot of anecdotal evidence and a lot of the, if you just don't look at one data point, like the establishment unemployment rate survey, there's a lot of things around that are not nearly as encouraging. I talked about the quits rate is way down. Even leisure and hospitality, the unemployment rate is rising. Unemployment claims are rising. Temporary, the full-time employment is being supplemented by part-time employment. Some people are working a full-time job and a part-time job. They're counted as two jobs. But that's just one person

who's trying to keep up. People keep their head above the inflation waters. So I think, I don't know, I just feel that I hear a lot of people anecdotally that talk about, I lost my job. I can't find a new one. One guy, I don't know, they're just anecdotes. But I lost, I was working in the same industry for 10 years and my company had to close down. I lost my job and I'm applying every week, sometimes two jobs a week, and nobody hires me. I can't get a job. That's starting to happen. So employment is a lagging indicator. Everybody knows that. But the trend in employment has already changed for the worse. And it's masked, I'll say it one more time, the government hiring is a little bit curious. If you want to make your data better, you can manipulate it by having your area

of the economy do some extra hiring. And that appears to be what's happening. Government employment was on a downtrend, flattened out, and now it's been rising. So I don't think the economy is that strong, Scott. This is why you have the questions that are out there suggesting by the time that the Fed actually does cut rates, is it going to be too late? Are you suggestive that it'll be too late by the time they actually act because of the anecdotal evidence and maybe some other data that's been out that you're seeing? Yeah, that's exactly what I think, because I've been at this game for over 40 years and it seems to happen every single time because employment is what's holding them up from cutting rates. Real rates are really high. You know, we've got the you've got the PCE down at two five, two six. You got the Fed funds rate almost 300 basis points higher than that. So that's pretty restrictive. And unemployment is trending higher. And all of the other underlying aspects of

employment data are not improving. They're deteriorating. And so once it starts to get to that level where they have to start cutting rates, it's going to be more than they think. And I think we're going to see about 150 basis points of cuts. That's my base case over the next year at the most. Well, I mean, that's, I guess, obviously why you still think that treasuries on the short end are still a good value here because presumably rates in subsequent months would continue to move lower. So you haven't missed your best opportunity yet. Yeah, I mean, rates are lower. I mean, when the CPI came out, it changed inflation expectations. People were surprised by the week's CPI number. And all of a sudden, the expectations

for inflation out six to nine months have come down by about 50 basis points. But one thing that might be worth thinking about in portfolios is the Fed is going to start cutting rates. I love the analogy. I think it was Tyler who said it. It looks like they have the T out, and now they've put the ball on the T, and they're going to whack it. First, they weren't even carrying a T. Then they put the T in the ground. Now the ball's ball on the tee and they're going to whack it. First they weren't even carrying a tee, then they put the tee in the ground, now the ball's on the tee, and they're going to start cutting rates. That means that the best trade of all for the past couple, three years, which is floating rate assets, floating rate higher quality bank loans,

which I've been recommending for meeting after meeting, you might want to start, you don't have to do it tomorrow, but you might start gradualistically shifting into fixed rate security. So if you have double B bank loan types of things, which have performed extraordinarily well, maybe it's time to rotate into double B fixed rate high yield bonds, which I think are very safe. The high yield bond market is tight on spread and the economy is weakening, but the quality of the double b high yield market is pretty good relative to store the standards

and so i think these i wouldn't be afraid of learning the double b high yield market and of you know i think percent are not easily obtainable but can be found in uh... in a low risk manner so we've actually started in the funds that where we do this type of thing start to make those types of movements just very recently. In fact, this week,

interesting from gluten rate and fixed rate. Oh, I know our viewers appreciate the actionable advice from you. Speaking of gold, you've liked up 40 bucks. Was it session highs as we were hearing the commentary from the Fed chair and certainly parsing the statement. Do you still like gold? I do. Gold seems to be kind of in a world of its own. I think it has a lot to do with geopolitical problems globally, which just seem to be getting worse. Just think of what's happened in the last three, four weeks, Scott. It's almost hard to believe that it's the same month, you know, as July 1st, because we've had an assassination attempt. We've got bombings going on with Israel, Iran, you know, and their neighbors to the north. So don't forget about Ukraine, which hasn't gone

away. And of course, we have this presidential election nonsense going on where, you know, switching out candidates. This is a very, very dangerous geopolitical time. If you were thinking about making a move that you would hope that the United States would not counter, this seems to be the time to do it. You remain concerned, I know, speaking of politics, about the deficit. You published a new paper this morning, as a matter of fact, on the federal debt and deficit spirals is how you're terming all of this. So what do you think happens then in the months ahead? Obviously unknown as to who's going to win the election. One of the candidates, the former president, wants to re-up the tax cuts that are going to expire. You told me the last time we were sitting in your office there in Los Angeles, you think that would be a bad idea. Obviously,

the Democrats have certainly stimulated the economy, to say the least, with their own spending plan. So how do you shape it all up now well this deficit problem is what's feeling up it is a problem in that uh... we can afford the interest expense and just keeps getting worse and fed being higher for longer keeps these rollovers of bonds are maturing and there's a lot of them there if they're refinancing them up three four hundred five hundred basis

points it's been some cases from where they were. So we have the interest expenses, a percentage of tax receipts is at a completely unsustainable level, and the trajectory makes it very unsustainable. We're headed to a place where we're going to have a substantial fraction of tax receipts under our current structure go to interest expense. And it's getting to the point where you can't ignore it anymore. You know, the interest expense is higher than the official defense budget. And it's rising in a vertical manner.

This has to be addressed. So how do you address it? Well, you can alter the entitlements. I know that's not going to happen with whoever gets elected here, but we have to talk about that, at least at the midterms of the presidential election, because we can't afford this huge amount of retirees that are expecting and receiving these benefits, whether they need them or not. That isn't going to solve the problem exactly because the unfunded liabilities are so big, but we're going to have to come up with some

very unconventional solutions to this. And this is what makes the investment business and our political system structure so fascinating for the next four, five, six, seven years is that it's in that time frame that we must address these problems. Otherwise, interest rates on 30-year treasuries will start going up in spite of recession. That's what's worrying me here. If the recession comes, the deficit goes up. It goes up even more. And the response, as we saw certainly in 2020, 2021, is more government spending and more government money printing, which would lead to a high degree of fear, deservedly, that we would have a repeat of the inflation spike of 2022. We now know that modern monetary theory has been completely debunked. They said you could print money and it wouldn't matter, inflation wouldn't go up.

Well, that didn't really work very well. We're still talking about inflation being too high three years later. And so that response would be devastating to the long end of the bond market. So we'll see if they start going there. You might see a metaphor to what happened in the UK, where they had some bad fiscal policies, and the interest rates on the long end went up like 100 basis points in a very compressed time frame. It may have even been in a day. That's the risk that we have if we don't get these policies back on track. And that means having a government that isn't pumping out this type of a deficit.

But if that's the case, the change in deficit spending decreasing would be a direct hit on GDP. So it's a really interesting conundrum. And I hope that we have the right character, the right personality, the right brainpower to help figure this thing all out, because it's coming at us now. It's not our grandchildren's problem. It's our problem. On that note, my final question to you is, who are you supporting in November? Well, I don't support anybody. I've never been so foolish as to say I support somebody. I don't donate to political parties. I haven't in forever.

But I do think that the Electoral College looks pretty strong for Trump as of July 31st, 2024. But the way these things are moving, the way events are, it's like I think it was one of these Soviets. I think it was Lenin or Stalin. He said there are years in which nothing happens or even decades in which nothing happens. And then there's weeks in which everything changes. And it seems like we're in one of those compressed time frames of change. So, you know, stay buckled up. But at least the Fed seems to be on top of their their job. And they're saying things maybe in code, but they're saying things that I think suggest that they're thinking about

the right things. Okay. We'll leave it there for now. I so much appreciate you joining me. And in September, we could be talking about the first rate cut in this cycle, Jeffrey, and we'll be doing it from your office at Double Line. I look forward to that as well. We'll see you then. Right. And when you come to the office, Scott, you're going to have to stop by the Buffalo AKG Art Museum. We have a show up by an artist that most people don't know. But it's one in the 1960s and 70s was an absolute superstar. Her name is Marisol. And she created these sculptures that are really interesting.

A lot of times people go to an art exhibit and they want to go see Van Gogh. And they go there and they see all the Van Goghs that they already know exist. Most people don't know how great Marisol's artwork is. And this show, I think it was one art magazine said, this is the art highlight globally of the entire summer of 2024. And it's up until January. So I'd like to take you there, Scott, if you can spare the time. I'll see if they'll give me a couple of days off. We'll discuss offline. it's up until January. So I'd like to take you there, Scott, if you can spare the time. I'll see if they'll give me a couple of days off. We'll discuss offline. Jeffrey, thank you. I'll see you in September. All right. Good luck out there, everybody. Thanks, Judge. All right. That's Jeffrey Gundlach joining us from Double Line, as always, on this Fed Day.

We do have about 15 minutes to go before the closing bell. Some of the gains have moderated a bit, though. The Nasdaq is still looking at close to a 500-point gain. Pippa Stevens, though, is watching the individual names as we head into the close. And we do have some big earnings ahead as well, Pippa. That's right, Scott. And Humana is a big loser here after lackluster earnings guidance overshadowed better-than-expected second quarter results. The health insurer reiterated its full-year bottom line forecast of about $16 per share, lower than what analysts polled by Street Account had expected, the stock down 10 percent. DuPont, though, hitting a two-and-a-half-year high on the back of better-than-expected Q2 results.

The chemical maker also boosted its full-year earnings and revenue guidance. DuPont had net sales of more than $3 billion in the second quarter, an increase of more than 8% from the prior quarter. And Match Group surging 14% on track for its best day on record after the dating app company posted better-than-expected second-quarter revenue. Revenue per payer also increased, and the company said that monthly active user declines have stabilized. Scott?

Pippa, thank you. That's Pippa Stevens. We're getting some news on Pershing Square as well this afternoon. It's a busy day. Leslie Picker has that for us. What do we know, Leslie? Hey, Scott, that closed-end fund you and I have talked about several times now, Pershing Square is planning to withdraw the IPO of PSUS. That is the ticker symbol that would have been for the listed entity. Bill Ackman, Pershing Square CEO, saying in a statement, quote, over the last seven weeks, we have met with institutions and family offices and held numerous town halls for Pershing Square USA. While we have received enormous investor interest in PSUS, one principal question has remained, would investors be better

served waiting to invest in the aftermarket than the IPO? He goes on to say this question has inspired us to reevaluate PSUS's structure to make the IPO investment decision a straightforward one. And he goes on to say we will report back once we are ready to launch a revised transaction. Of course, Scott, the key issue here is closed-end funds do tend to trade at a discount to net asset value. So there isn't really a benefit in buying in an IPO of one of these things because you want to see it trade higher. Otherwise, they'll just buy in on the aftermarket. And as we've been reporting over the past week or so,

the initial anchor that was floated in the media was $25 billion. That went down to $2 billion in a prospectus filed yesterday. And now it appears that Pershing Square is indeed withdrawing that IPO of PSUS, the closed-end fund. That's very interesting, Leslie. Thank you for the latest on that. I do have another story that I wanted to discuss with you because Richard Handler, the CEO of Jefferies, sent a note to their clients and he also posted it on his Twitter and Instagram accounts that I think you'll want to opine on as well because a rather bullish letter on where he sees the capital markets going in the year ahead where he says, quote, the bottom line is this, the IPO market is open and there is meaningful

demand for companies that are priced appropriately and have strong management, durable business models and solid long term prospects. He goes on to say we're in the early innings of a normal capital market cycle, one that is not contained to only larger companies, as there are significant early signs of a rotation into small and mid capitalcapitalization equities. He does, Leslie, point to what's happened in the Russell 2000 outperforming the S&P by 10 percent in July. And he sums up his note today by saying, quote, nobody has a perfect crystal ball. But from what we see today, we are optimistic that normal IPO activity levels are not that far away. It seems like a perfect story here to follow what you've just brought us about these plans from Bill Ackman and Percy Squibbett.

This sounds to me to be the most optimistic commentary on the capital markets that I've heard in this entire period of interest rate hikes and all of that. Yeah. No, I think it's really important to highlight just what this rotation means for the IPO market, because for the bulk of this year, you talk to people and you say, well, it seems like the IPO market should be open. You've got stock markets hitting highs, near record highs on a very frequent basis. Volatility is low. You know, why aren't we seeing more IPOs? Well, the reason is, and we talk about this all the time, just the overall concentration in the market tied to larger cap companies. So with a rotation, you have more small cap names that serve as

comparables to companies waiting in the wings to go public. So it's easier when they're trading at higher valuations. It's not as important when you have a Microsoft or an Amazon trading well in the market. It is important to see some of those smaller and mid cap names that serve as comparables to private companies waiting in the wings. A boost in those names definitely serve well and bode well for companies looking to go public and get a decent valuation. Yeah, that matches some of the optimism I think we've heard, you know, in the last couple of days from the likes of David Solomon, Goldman Sachs, the CEO, obviously looking at bluer skies, Leslie, ahead for the capital markets. And Rich Handler of Jefferies has a pretty good front row seat as to what's taking place as well. So

appreciate you very much, Leslie. Thank you all things. Capital markets really. For us today up next. We're setting up for big earnings in overtime do not forget about meta Qualcomm and Arm Holdings they are among the big names reporting today we're going to tell you what to watch out for. Ahead of those prints plus I

capitals Anastasia Amoroso. Right here at post nine with her reaction to what happened today. With the Fed. We'll take inside the market Zone next. We're now in the closing bell Market Zone. iCapitals Anastasia Amoroso is here to break down how these crucial moments of the trading day are shaping up.

Plus, we're going to get you set up for all the big earnings out in overtime. And there are many Julia Borson, the key numbers to watch for on Meta, Steve Kovac looking ahead to Arm, Qualcomm and Lam Research. Turn to you, Anastasia, first. Nice to see you here. Your reaction to the Fed today? I mean, rate cuts are coming. Rate cuts are coming. And that is extremely good news for markets. And that's why we're seeing this broad cheer across all the different markets. And Scott, one thing we said in the beginning of the year, this is likely to be a year of a broader opportunity, said if the Fed cuts rates, and here we are.

And what we see across the board, you see bonds rallying, you see stocks rallying, you see tech rallying, along with some of the rotation trades. So I think it's really, really good news. And September, even though Fed Chair Powell didn't say it, is the base case, and the markets are clearly gearing up for that. I mean, there are suggestions. Look, some just straight up saying it, like Jeffrey Gundlach just did, that the Fed's always late and they're going to be late again. And history has proven that out. They're going to be too late to cut. And the labor market and the economy are weaker

than people think. Look, that may be true. But I think what he also said is they have a lot of room to catch up. And I do agree with Jeff. I also agree with Steve. I think that's one of the most critical questions for the markets right now. It's not about September, but how much more is the Fed going to cut and how quickly. If you look at the markets, they're anticipating that we actually get three rate cuts towards the end of the year, about 100 basis points into the end of next year. So if Jeff is right and we get something close to 150 basis points into the end of next year. So if Jeff is right and we get something close to 100 basis points, even if they're behind, let's say, a month or two, I think that still propels the markets

higher. Even if it's for, I mean, look, he says that because he thinks it's going to be, these are my words, not his, obviously, for the wrong reason, that they have to cut that many times because, as he said, the economy is weak. Yeah, I think. But if they make those moves in a decisive fashion, they could probably save the economy, so to speak. And Scott, you know, there's nothing broadly that's wrong with the economy, but there are pockets of weakness. And the pockets of weakness, for example, you see defaults, delinquencies for some of

the smaller companies go up significantly. You see high yield default rates that are rising. But I think if the Fed eventually acts decisively, they can stop that. The reason why I think this is such a big deal for markets, it's not just a sentiment boost, but this is actually the boost to the bottom line of the companies. And if I think about the consumers, the fact that you might be able to get an auto loan that is a lot cheaper or a mortgage loan. If I think about a middle market company that had to stomach the pressure of higher rates, this is a really big deal. Okay, so what about the rotation trade? What happens to it now that the Fed has set the table, as we've been saying, for what

probably is going to happen in September? I think it's on. I think the investors should be squarely focused on the beneficiaries, again, from the fundamental standpoint. So that's why I still think regional banks is one of the best rotation trades out there. There's so many benefits from the superyield curve, as well as small caps and utilities. Defensives actually outperform post-Fed cuts. Yeah, we're inching towards the close here, trying to hold on to these substantial gains that we have. Anastasia, it's good to see you. Good to see you. As always, you'll be back with me in just a moment. Let's get to Julia Borsten because she does have the key numbers to watch for regarding Meta. Oh, yeah, another big report's coming in just a little bit.

Another big report is coming indeed. Now, after Pinterest shares plummeted on disappointing third quarter guidance and YouTube's results fell short of expectations, Meta's outlook will be under particular scrutiny. Now, the company is expected to report nearly 20% revenue growth, slowing from last quarter's 27 percent revenue growth. And it's also supposed to report expected to report 59 percent growth in earnings per share. Now, after last quarter, Mark Zuckerberg raising his capital expenditure guidance for the year due to AI investments sent meta shares lower. CapEx will again be in focus, as will any indication that

it's going to ramp up spending further or that Meta's AI investments are paying off with consumers and advertisers. Now, Meta shares are up nearly 50 percent over the past year, but the stock has dipped recently as part of the rotation we've seen out of tech stocks. It's down about 11 percent in the past three weeks. Scott? It's going to be exciting. Julia, thank of tech stocks. It's down about 11 percent in the past three weeks. Scott? It's going to be exciting. Julia, thank you very much. That's Julia Borson. Steve Kovach has his hands full in OT as well. ARM, Qualcomm, LAM Research. Talk to us. Yeah, and what a day to be doing that. All of those are reporting today as we're seeing just this huge chip rally going on here. Microsoft gave a gift to chip names last night, saying it's going

to spend more on CapEx this fiscal year, which started in July, by the way, compared to last year. Now, Alphabet and Meta both signaled the same over the past week as well. The semi-ETF today up more than 7% last time I looked. And for Qualcomm and ARM, we're going to be looking for color on, in part, Microsoft's co-pilot PCs. There's a big push there. Qualcomm is already making those processors for them. And Arm plays a role in those chip designs and should also be involved when NVIDIA starts making chips for co-pilot PCs as well.

Qualcomm guidance will also be a good read on smartphone demand overall going into the back half of the year, the important holiday quarter. And it also makes modems for iPhones. So any color on that as well, Scott? All right, Steve, thank you. Once again, you're hearing some of the sounds here on the floor of the New York Stock Exchange as we head towards the closing bell in less than two minutes' time. Try to hold on to the substantial gains that we've had.

I mean, we certainly are from the Nasdaq's point of view. The Russell 2000 is up near 1%. S&P is going for 1.5, largely because growth stocks like those mega cap tech names are positive today. Dow has given back, though, a good amount of what it had during the Powell press conference. What do you think that's about? Do you think any part of this market was hoping for a bigger cut in September? And the Fed chair sort of slammed the door on the idea of 50 basis points. I think so. It's interesting because the bond markets are actually pricing that in. There's

actually an over 100% probability for a 25 basis point cut, meaning they're expecting maybe 50. But I think what happens to the markets, you're pricing and going to the event, and then you typically consolidate after. So I think that's exactly what's happening with the Powell conference. But I do really like the move in chips, Scott. And I think some of it has to do with the Fed, but a lot of it has to do with the fact that Meta and others are spending on AI CapEx. So I think we want to buy those stocks on this pullback. In case you haven't guessed it, Synchrony is ringing the closing bell. It's coming. It's coming close.

They want to make sure everybody knows. Duly noted. These reports like Meta and then Amazon and Apple, how perfect do they have to be given what we've seen with Alphabet and Microsoft? They have to be perfect. They have to show revenue growth acceleration on top of CapEx acceleration. I'm not sure we're going to get that. All right.

Well, the markets have reamed for certain as they think the table is set for September. Now we just have to wait and see. That is moments away into overtime.