Closing Bell - Closing Bell: AI Regulation, Home Depot & Debt Ceiling Talks 5/16/23

Episode Date: May 16, 2023

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 at the New York Stock Exchange. This make-or-break hour begins with breaking news. All eyes on the White House right now as the president meets with congressional leaders to try and hammer out a debt-sealing deal. Our Eamon Javers in D.C. with the very latest. Eamon. Scott, we know some of the congressional leaders are on their way to the White House right now for this 3 p.m. meeting. They have left the building, so to speak, over at the other end of Pennsylvania Avenue. We're going to wait to see what they say, if anything, at their arrival and what happens in this high stakes meeting today at the White House. We have a new note out from Goldman Sachs in which they're saying that they expect that any headlines that come

out of this meeting, because it's still relatively early before that X date of June 1st or thereabouts, any headlines that come out of this meeting might be negative in the sense that they don't expect this to be the meeting where a deal gets done. Speaker McCarthy has had some very negative rhetoric over the past 24 hours, suggesting that he doesn't see enough progress being made here. So we'll see if that is the case. We know that there are cameras and microphones just outside where they'll be meeting. And if they do want to talk to the members of the press, they will be able to do that. We have gotten another note from the White House just within the past hour or so.

Scott, they've said that the president is now prepared to change his travel itinerary in Asia over the next week or so because he might have to be back here in Washington to negotiate on the debt ceiling. So they are signaling that the president does expect to possibly be in the throes of some negotiations here in coming days. So we'll watch for that as well. All of that starting in just a couple of minutes now here at the White House. All right. There is an undeniable sense of urgency. We know that. Eamon, thank you. We'll look for any details that do come out of that meeting. Eamon Jabbers in Washington, D.C. Let's take you to the scorecard here. Less than 60 minutes to go now

in regulation back here on Wall Street. Stock's been down for most of the day. Home Depot, as you know by now, a drag on the Dow as its worst sales miss in 20 years is taking that stock sharply lower. Tech has been an outperformer today. You can see the Nasdaq is the only of the majors in the green today. For more on where the markets are heading from here, let's bring in Anastasia Amoroso of iCapital and Emily Rowland of John Hancock Investment Management. Ladies, it's great to have you. Anastasia, let me begin with you. The scene set at the White House with these meetings over the debt ceiling. How are you thinking about this issue impacting the markets with the deadline fast approaching? Well, the deadline is approaching, but it's really not fast in terms of policymakers' terms.

Of course, Scott, you remember 2011 and how long it took to finally get a deal. And I have a very big suspicion that we're going to get to the same deadline, you know, to the very 11th hour of it. And so the markets need to be prepared for that and the volatility. And I do take Speaker McCarthy's word when he says that we're far apart, because as you know, the Democrats want a clean raise in the debt ceiling, and that is not at all what the Republicans want. And look, you know, to be party neutral here, and if you look at the Congressional Budget Office, in the projections, there's serious issues that need to

be tackled. Budget deficits running at 5 to 7 percent over the next few years. That puts us on the trajectory of 200 percent in terms of debt to GDP over the next 20, 30 years. So these are serious issues and you're not going to solve that in a single day's worth of meetings. Emily, how at risk do you think stocks are here? Yeah, I mean, stocks are barely yawning amidst this phenomenon that's going on right now, where the possibility of the U.S. defaulting on its debt is no longer zero. And so we're looking at things like the VIX, which is below 20. High yield bond spreads at 470 basis points, well below their 20-year average. The S&P 500 trading at 18 times forward earnings.

And the 10-year Treasury oil continuing to bounce off support between 330 and 340. So markets are really not, right now in our view, incorporating the risk of default. It will likely get resolved at the 11th hour, of course, but not without significant volatility. And I agree with Anastasia that 2011 is the best analog for today, given the political dynamics in D.C. And frankly, we saw the 10-year Treasury yield drop about 200 basis points over the course of that summer, from about 370 to about 170. And I'm not saying this is the exact same playbook. There are other dynamics at play. We had the European sovereign debt crisis sort of unfolding overseas at that time and other elements here.

But if that is the same playbook, we do think that we you know, this is a good time to embrace bonds. It makes us like fixed income even more. Yeah. The other issue that the market, Anastasia, is dealing with is the Fed. And, you know, I'm not sure that the market fully believes anymore that the Fed is necessarily done. We've had Paul Tudor Jones this week suggest that the Fed's done. Others have. And it was largely believed that they are. Yields are up today.

Two years near the highest it's been all month. Austin Goolsbee today, Chicago Fed, not sure if we've put enough restraint on the economy yet. He said, you know, within the last hour or so. Well, you can't blame the market because look at the data we got on retail sales today, and it is just fine, 0.4% a month over month growth. And it really tells you that the consumer is just fine. The consumer is resilient. The consumer is spending selectively. So all of a sudden, this narrative for soft landing is really taking hold once again. And the banking turmoil that was front and center, you know, to Emily's point, you can't discern any volatility in the equity market. So, you know, I think that's why the markets are saying maybe the Fed still has to go 25 basis

points. But I do want to mention one thing, Scott, about where the markets may actually be positioning for this debt ceiling. If you look at the one month volatility and if you look at the call volatility, it is continue to come down. But if you look at the put volatility, the 90 percent put, for example, for one month out, it has not come down nearly as much. So I think there is demand for put protection out there. I think investors are trying to hedge their bets one month out. You know, whether the Fed raises rates or not, I think is the debt ceiling hedge. Oh, we've been watching the shortest of short parts of the yield curve on one month, three months, six months of all over five percent. You know, one of those is at a 20 year high. But, you know, the idea, Emily, that the Fed. We thought was done. What if they're not?

What's the risk in that? Yeah, we know that the Fed has shifted back to this data dependent stance. And frankly, as of late, the data has come in a lot better than feared. That's our new mantra for the year. We're going to get some bumper stickers made better than feared, whether it was the earnings coming in this quarter, much better than a low bar. Some of the economic data, you just look this morning, homebuilder sentiment, industrial production, retail sales all coming in better than feared. So this does kind of open the door for the potential that the Fed does go one more time in June. It's not our base case. We're seeing financial conditions tighten. We're seeing loan

growth slow. We're clearly seeing demand falling, as we heard from things like Home Depot this morning. Kind of really this narrative around the consumer slowing and demand starting to slow. Inflationary pressures are clearly starting to subside, but we're not in a recession yet. In order to have us be confident that we're going there, you've got to see more cracks in the labor market. And the labor market's been incredibly resilient. Really hard to think about a recession happening when consumers are out there spending and doing so because they have jobs uh so that's what we'll be looking for in order to kind of you know understand what the fed's going to do next

maybe one more hike here in june probably not i'll tell you the other thing that that's on my mind that i want to get your perspective on so home dep Depot cuts its forecast. Berkshire Hathaway sells RH, restoration hardware. Made it clear recently they, for all intents and purposes, have no interest in investing in banks other than the one they already hold or the two that they already have. They're on a mountain of cash, right? They haven't seen anything apparently attractive enough

to deploy some of the capital that they have. What's the message in that? The world's greatest investor is clearly cautious. Yeah. I mean, yes, we're reading into it, but I can say from all of those things, you sell RH, deals with high-end consumers. You virtually want nothing to do with the banks and you haven't found anything good to buy yet. Look, this is a very narrow leadership market and you know we talked about retail sales if you look within the details the consumers are not buying furnishings and they're spending less on gas stations and gasoline but guess what they are still spending on online retail and what they're not spending on gasoline they're spending on food but that's a very narrow part of the market, Scott. And so, you know, the message is you're getting paid 5% in cash. So

why not park your money there? You're worried about the recession. So get paid while you wait. And I think, you know, what the market is telling you is there's no good catalyst for the upside right now. And there's no cost of missing out if you could get 5% cash. You know, we talk about the U.S. consumer. You know, we talk about the U.S. consumer. You know, we talk about that being strong. We talk about the Fed potentially ending its hiking cycle. But guess what? We all talk about it. And therefore, that's priced into the market.

So I think, unfortunately, this, as Emily, you called it, the yawning market may continue here because we're in this dead man's zone where we are below some of the long-term thresholds that would get investors back into the market. And we're above the short-term threshold. So there is not this immense selling pressure. So it feels a little boring, but that's why investors are sitting in cash. Well, you know what? You know where else they're sitting, Emily? And it's no secret that many of the biggest investors in the world are sitting in the most mega of mega cap names, the ones that are the most directly exposed to AI. We learned it again yesterday with the 13 F's as they continue to come out. That's where the smartest and biggest money seems to be placing its bets in an otherwise

uncertain market. You call it defense. You call it good balance sheets. You call it on the cutting edge of AI, et cetera. But that feels like a statement in and of itself. Yeah, absolutely. AI is going to be just such an important megatrend going forward from here. And most importantly, it's going to help increase productivity, which is something that's been lacking from this economy right now. We have too many people not doing enough stuff. And so that needs to improve here.

So we think AI is important, you know, and of course, it's led to very narrow market leadership. In fact, there's been some data that have been produced over the last couple of days suggesting that markets would be down this year if it were not for some of this mega cap leadership. We see it as quality. As you know, we've been talking about the importance of really emphasizing high quality stocks and portfolios, ones with tons of cash, great balance sheets, more durable profitability. So this makes a lot of sense to us that there's been a rotation into technology. And by the way, we're talking about big mega cap tech, not unprofitable growth at any price. Tech companies that are going to need to issue debt, need to issue equity in order to grow. We really think that that's a place you want to avoid right now, avoid more cyclical names.

And again, focus on these high quality winners that should be able to produce better earnings as we head through this choppy environment. Does narrow leadership, Anastasia, matter to you? Is it a great myth or does it matter? Well, look, if you look at the evidence, it does tell you that any time the market breadth is this narrow, the next three months, the next one month worth of returns is typically negative. And you can't expect something like a 10% correction. But I kind of have to go back to the fundamental reasons for why we have this narrow leadership. The economy has not fallen apart, but at the same time, so many parts of the market are not investable. You know, how many investors you talk to want to step into the banks? You know, how many investors want to be buying cyclical stocks? I think some come on

on this network more than some. I mean, plenty of people are into the cyclical trade. They'll tell you that earnings growth over the next couple of years is going to be better in industrial stocks than it is tech. I had somebody make the case to me exactly that on halftime, just not three hours ago. I feel like I probably know who it is. But at the same time, you know, investors are not focused on the next one or two years. Investors are focused on the next what to do in the next month or three months. And it's hard to call for a cyclical rebound in that. Now, if I were to say one bullish thing for the cyclical trade I will say start

looking at earnings revisions and earnings revisions breadth after you know just all the earnings revisions being cut down earnings revisions are actually starting to come back up and if you look at the GDP growth uh you know tracking for the second quarter guess what we're looking at two two and a half percent once again so um but until we have the full evidence is going to go back to the tech trade. Yeah. And we'll see Nasdaq again, as we said, not up a lot today, but it is in the green. Everything else is in the red. Ladies, thank you. Anastasia, it's good to see you here in person. Emily, we'll see you soon. Thank you very much. Let's get a quick check on some top stocks we're watching now as we head towards the close. Christina Partsenevelos is back with that for

us today. Christina. Well, let's start with Etsy, one of the worst S&P 500 performers today, after Morgan Stanley analysts suggesting that the online marketplace is hitting its limits after surging throughout the pandemic, meaning the company went from a growth stage to now a more mature marketplace, which obviously has negative implications for valuation in their view, and that's why shares are down over 5% at the moment and one of the worst performers. Meanwhile, shares of AMD are moving in the opposite direction after a 13F disclosed hedge fund, Third Point, took a new position in the chipmaker. Keep in mind that the regulatory filing is backwards looking, but reveals that Third Point has a 1 million share

stake in the chipmaker. It's one of the top performers right now, and it's up 5%, Scott. All right. Good stuff, Christina. Thank you, Christina Partsinovalos. We will see you in just a bit. We are just getting started. And up next, we have top tech investors Lo Tony and Rick Heitzman. They are in the house here at the New York Stock Exchange. We're going to get their takes on the AI arms race as lawmakers hold that hearing on Capitol Hill. Does bring us to our Twitter question of the day. Are you thinking about increasing your exposure to AI stocks? Yes or no? Head to at CNBC closing bell on Twitter. Please vote. The results are coming up a little later on in the hour. We are live from the New York Stock Exchange. You're watching Closing Bell on CNBC.

Got some tape here from the meeting inside the White House on the United States. The President of the United States. The President of the United States. The President of the United States. The President of the United States. The President of the United States. The President of the United States. The President of the United States.

The President of the United States. The President of the United States. The President of the United States. I don't have any comment to make. We're just getting started. And we'll be available at the sticks when this is over. Thank you so much. Thank you so much. Thank you so much. Thank you so much. Thank you so much. Thank you so much. Thank you so much.

Thank you so much. Thank you so much. Thank you so much. Thank you so much. Thank you so much. Thank you so much. Thank you so much. Well, if you could decipher any of those shouted questions, you are better than me. But that's a live look or not a live look. It's a look inside the Oval as the president and the vice president, of course, and congressional leaders are meeting as we speak on the debt ceiling.

Markets obviously nervous about the deadline that's fast approaching, said to be the earliest part of June. The Dow's been down all day. It's still down about 250 points. We do want to turn our attention, though, to another event down in Washington today. That was the hearing on Capitol Hill where OpenAI CEO Sam Altman was testifying, calling on lawmakers to create more regulations and safety standards around AI. With me now is Lo Tony of Plexo Capital and Rick Heitzman of First Mark Capital. Lo is a CNBC contributor. It's great to have you guys.

We just take a look at the events that are taking place in D.C. and we may have to break back and give you some of those details as they come out. So I beg your pardon for that. AI, did you see any of Altman today? I saw some of the recordings. What do you think that regulations are going to look like around AI, if in fact we get them in whenever that might be? I don't think that anyone wants to repeat the mistakes made with social media. So I think they're going to take this seriously although I would say we probably are behind the curve again given how fast the technology is moving I hope they approach this not trying to use a blanket but really thinking about

like a product manager think about some specific use cases although you can't capture everything there's always going to be some edge and corner cases how long do you think it's going to take before we actually get something substantive boy I'm going to suspect before we actually get something substantive? Boy, I'm going to suspect we'll see something hopefully before the election, right? Because I think that's the big concern right now is when we look at what happened with social media and distribution. Now we can have distribution at scale with content that can be created with AI. I mean, Altman was even talking about that today. You know, one of his greatest concerns in a what appears to be a sea of concerns is action around the election and how quickly we need to have any kind of regulation come into play.

What do you think? I think we definitely need to have something, hopefully something this calendar year, because you're already seeing models leaking and you're already seeing applications out there which can do deep fakes, which could do a bunch of things, which could not only alter the election, but really affect the economy. Is it too late? And part's of Lowe's point. Trains kind of left the station on this and now we're chasing it and trying to catch up. Which often happens in government. But what you really want to do is figure out what are the use cases you could really lock down as soon as possible. I think deep fakes, I think verification, especially by the big platforms who want to know, is this really Scott saying this is what's going on in the economy? Is this really low commenting

on technology? There's ways to watermark it and there's ways to create some kind of veracity in what's happening and artificially created both audio and video. Do you think that the lawmakers who are going to be drawing up these regulations fully understand the power of what they're even drawing up regulations about? No. We know that historically. We always have the people in place in the government that never really are able to comprehend and understand what the technologists are doing. So I think this time it's really important to have the partnership, and we actually see

people like Sam Altman coming in and having an open conversation and talking. And I think we've seen a lot of outreach. I think Senator Blumenthal might have spoken to, you know, 100 people from tech. We also see that technologists understand the importance of regulation and being on the front end. So those are all positive signs. But, no, to your point, the lawmakers never fully comprehended it. If they comprehended it, they probably would be in Silicon Valley making a billion-dollar company. I mean, frankly, Rick, in fairness, I don't know if any of us fully understand what the power of this technology has the capability of doing.

No, we spend a lot of time, especially over the last several years. We've been investing in AI for over the last decade, and we're still looking at use cases, figuring out not only what the economic implications are, but the ethical implications, and being really focused on how could this be used poorly or how could this be used by someone who's a bad actor. And we bring that up with our companies all the time. And oftentimes, the companies don't even understand as they open the Pandora's box.

I hear a lot of talk about AI being this tremendously big bubble that's being inflated. Just put AI next to your name and someone's going to buy your stock or you're going to be able to go public at a crazy valuation. What do you make of that kind of talk? Is there validity to that?

Or you must be approached all the time from young companies to invest in our product because we have AI. It almost feels like people took their PowerPoint presentations, did a search and replace for crypto with AI, right? It almost feels like that sometimes that people are trying to incorporate AI into their pitch, even if it's not a pure play AI company. But I do think it's important that we separate, right, looking at this from a speculative nature of investing and trying to chase the stocks that are publicly available that are going to see a run versus what's really happening with the technology and the advancements that we're seeing and some of the potential pitfalls. How do you address the idea of a bubble? And I'm not sure if we have

it back at our headquarters or not. This graphic that we made up to address the idea of a bubble? And I'm not sure if we have it back at our headquarters or not. This graphic that we made up to show the difference of valuations, PE, there it is. Thank you guys very much. Sort of hot tech then and now. Yes. Look at what the forward PEs were for the so-called hottest stocks in the market back then, the Qualcomm's, the Yahoo's, the Cisco's, astronomically high valuations versus the players today. Is NVIDIA extended? That's for you to say, not me. But nothing even close to what they were back in 2000 at the peak of the tech bubble. Well, these are also the biggest companies, right? I mean, Cisco was early in their journey. Yahoo was early in their journey in terms of growth.

Obviously, Yahoo petered out. But, you know, it's the next companies is where you're going to see those high multiples. And whether we see them on the private side or whether you're going to see them in IPOs in 2024, those are the companies which are going to go out and head scratching multiples, some of which will be real, some of which won't. Are we rhyming with, in any way, with the hype around AI and what we did in 1999 as we approached the Januaries and into the real peak of the bubble? You know, I think a little bit of is what Rick said, right? When we look historically, AI has been around for a decade. Most of the benefits from that first wave on the public side accrued to the large companies that could incorporate it into existing technologies. Google search ads, Facebook recommendations to the algorithm

in the news feed, and even Netflix on general recommendations around movies. I think what we have this time is we will see the large tech, because of their massive scale and existing product base, using AI. But I do think we're going to see some changing the world companies that will come out with some big opportunities and some of the more niche verticals where there's some proprietary data that's available to train some of these models. Think financial services, think health care. I think those are going to be some really interesting areas to watch. Talking about that, taking the next leap, I'd love to hear quickly from both of you, Rick, you first. The IPO market is what we're waiting for to thaw out and get back to some normality. When does that happen? I still think Q4. I know we get asked about this all the time, whether from our investors or from

you. I still think it's Q4. Of 2023? Of 2023, you're going to see a couple of things pop through. And whether they're fast growth AI companies, which are taking advantage of some or whether they're you know the best enterprise companies with the blue chip customer base best of class metrics but the best we're going to see is Q4 as I think it's going to be incredibly slow summer into the fall. How would you address that? Yeah I would agree it's definitely not going to be before Q4 I think we'll probably see it extend a little bit into next year as well. Okay it's great having you guys here in person the best. Hello Tony, Rick Heisman we'll probably see it extend a little bit into next year as well. Okay. It's great having you guys here in person. The best. Low Tony, Rick Heisman. We'll see you soon. Thanks. All right. Coming up, one of Barron's top financial advisors, Treasury partners, Rich Saperstein is here to break down the market action and his strategy. We'll find out how he's

navigating this directionless market. We'll get his top ideas as well. Plus, we're celebrating Asian-American and Pacific Islander heritage throughout the month of May, sharing stories of influential AAPI business leaders. Here is the co-founder of Mendocino Farms. I'm very proud to be Taiwanese American, but it's been hard growing up in America. I've faced a lot of challenges with racism, sexism, people wanting to put me in that Asian stereotypical box, but I've embraced these adversities because it's made me a stronger and more resilient person. We can be so much more than doctors, lawyers, and engineers, but we can also be creative artists, athletes, CEOs, and

entrepreneurs like myself. I want my kids and the kids of the next generation to understand that they belong in this country and that they're not just Asians living in America, but they're Americans living in America. We're back. The Dow remains lower as investors turn their attention to the debt ceiling in that meeting between congressional leaders and the president. We just showed you at the White House. Tech remains a bright spot and our next guest expects it to stay that way. Let's bring in Treasury partner CIO Rich Saperstein. He's here with me at Post 9.

He's one of Barron's top-rated financial advisors, so we need your advice, especially right now. Welcome back. Thank you. Are you still sitting on a pile of cash? Yes, we are. Why? Why are you still so negative in the market? Well, we're not exactly on cash. All the cash was moved into bonds, as we spoke about last September. But if you look at the facts on the ground right now, you have M2 negative for six months.

Money supply. Right. Consumer spending is down. Availability credit is tightening. Leading economic indicators that prospectively tell what's going on, they're dropping. So we expect the economy to slow in the second half of the year. I mean, it's been much more resilient than people have thought. I would assume you included. The consumer, even though retail sales were slowing, they're still pretty good. Employment is pretty good. Those are the two positives, but Home Depot will, the report this morning will clearly refute that.

Yeah, but I mean, there were other factors going on in there too. And even if we throw up Home Depot shares, they've come off the mat of where they were. And there were some other extraneous factors that came to play there too. But if you look at the first quarter performance, market's up 8%, but the equal weight is flat. So it's really been driven by big tech, which is the largest component of the S&P on a cap-weighted basis. So the tape really isn't trading too well. This has become the issue of the moment. The top-heavy market, right, the mega caps are pulling the weight of everybody else.

So what? So what? Why is that such a big deal? Well, we're overweight big tech. So that plus our other asset allocated parts of the portfolio. So we're OK with that. We don't have a problem with big tech pulling the market. No, but people cite that as one of the reasons to build the bearish case. Oh, breadth is terrible. It's so narrow. So what? Why does that matter so much? No, we're building a cautious take, not because tech is leading the market, but rather because the fundamentals are deteriorating. We had 15 years of free money, quantitative easing, as well as a $5 trillion fiscal push that we're taking is a big lag to

burn that off. So we're wringing out those excesses. Figure second half of the year is when we'll start seeing a slowdown. Do you think the Fed's done? Yeah. So they're not raising anymore? I don't think so. But keep in mind, there's a lot of conjecture about the resolution of the debt ceiling. The debt ceiling will result in a trifecta of tightening. It'll supercharge QT. Here's how it works. Yellen's been burning down the Treasury General Account, the TGA, in not issuing treasuries. Powell's still doing QT. So the offset has been pretty constant if you take

away what Powell did for the banking crisis drama. So once the debt ceiling is resolved, which maybe we'll get it, okay, who knows, Yellen's going to have to rebuild her checking account. So it's estimated that she'll be issuing an extra $600 billion worth of treasuries in the second half of the year. That's a tightening. Combine that with QT and then add that to the banking drama that has resulted in bank willingness to lend decreasing. It's going to be some real tightening in the second half of the year. So your base case then must be recession?

Slowing. Can't tell whether you define it as a recession or not, but... But I mean, if it's just slowing, hasn't the market priced in slowing? No. No, not at all. It hasn't priced in slowing? No. Look, we did $53 in S&P earnings Q1. So the estimate for the full year is $220. We don't think it's happening.

If you put 18.5 times earnings right now on $220 is where the market is now. If it goes to $210, it's 19.5 times earnings right now on 220 is where the market is now. If it goes to 210, it's 19.5 times. If it goes to 200, it's 20.5 times. Either way, where is the market going in an environment where rates are 500 basis points higher? From nothing. Yeah. 500 basis points from nothing. Do you think yields have peaked? Yeah, they have. That's why last fall we spoke about aggressively extending maturities. And that leads to another conclusion.

A lot of people are buying, you know, two, three, four, five, six-month treasuries thinking they're going to get 5%. It's great. Well, we would avoid that and we would extend out much further. The economy slows. They're going to have huge reinvestment risk on those beautiful 5.1 percent three and six month treasuries. So you like the long end like like gunlock likes. Oh, yeah. Well, we've been buying 10 year corporates. We've been buying long callable

municipals. You know, the FDIC right now is auctioning off billions of dollars of municipals right now every single week. You think the Fed cuts this year? No, not at all. What happens when they do? Is that bullish or not? It will be depending on where things are. So here's how I look at it. And this is where the market, I don't think, got the memo.

If the Fed cuts, that means that we're slowing dramatically or significantly. Right. Or there's a tail risk event, neither of which are positive for stocks. But see, people say that, and it may not be positive for that moment, but I have other people saying that cuts are always bullish. They are in the short run, but the reason for the cut is because the economy is slowing. You mean in the long run? No, in the short run. Like the market, the fanfare of the markets will be, oh, the Fed's cutting. We're going to go up.

But let's face the reality of stocks follow earnings. Slowing economy will result in lower earnings. All right. Go back 10 years. S&P did $100 in earnings. Sold it 13 to 14 times. Right now, the estimate is for $220 this year. And we're at 18 and a half times.

So we've had multiple expansion in the last 10 years. And I don't think we're going to get $2.20, Scott. Does the wine you make taste better than your view of the market? Absolutely. Vignangico. All right. We'll leave it there. Rich Saperstein, thank you. Thank you. All right. We'll talk to you soon. Up next, we're tracking the biggest movers as we head into the close as well. Christina Partsenevelos is standing by with that. Christina.

I hope you get some of that wine, Scott. What does streaming platform Hulu and Florida Governor Ron DeSantis have in common? I'll have that stock answer and obviously much more after this short break. We have about 15 minutes to go before the closing bell. Christina Partsenevelos is back with the stock she's watching. Christina. Well, let's start with the parent company of the Elmer's, Glue & Sharpie. Newell Brands is cutting its dividend by 70%, and shares actually could potentially hit a 14-year low at the end of today. Stock is down over 4%.

The new dividend yield, though, is still above 3%, so that's higher than the consumer discretionary XLY ETF and one of the highest-yielding dividend stocks on the S&P 500. Newell wants to use the money towards getting risk off the balance sheet and towards internal supply chain consolidation. Did you guess the name? Shares of Disney are over 1.5, almost 2% lower right now after the CEO of Comcast, which is the parent of CNBC,

said they will likely sell their 33% stake in Hulu to Disney at the beginning of next year. Comcast CEO saying that the final price for Hulu will likely be more than $27.5 billion, which was the valuation set back in 2019. Separately, but related to Disney, the entertainment giant has asked a Florida court to dismiss a lawsuit by Florida Governor Ron DeSantis over special tax district rules. The saga, the battle between both continues.

It does. Christina, thank you. That's Christina Partsenevelos. Last chance to weigh in on our Twitter question. We asked, are you thinking about increasing your exposure to AI stocks? You can head to at CNBC Closing Bell on Twitter. The results after this break. So more breaking news.

We're going to get back down to Eamon Javers in Washington around those debt ceiling talks. Eamon. Well, Scott, it's official now. We told you that the president was considering changing his schedule. And now we know that he is changing his schedule. This just in from a source familiar with the president's planning for his trip. President Biden has decided to return to the United States on Sunday immediately following the completion of the G7 to ensure that Congress takes action by the deadline to avert default here. Obviously, the president aware that that puts him back in D.C. now for the last week and a half before that June 1st X date, where we think that the running room is going to run out here for the U.S. government in terms of its finances. So the president signaling to Republicans and to the world that he's taking this negotiation very seriously and will be here in Washington for the conclusion of it. That decision just

within the past couple of minutes, Scott. It goes towards that sense of urgency we spoke about at the top of the program. Eamon, thank you. Eamon Jabbers in Washington. Let's get the results now of our Twitter question. We asked if you're thinking about increasing your own exposure to AI stocks as some of the biggest investors in the world are doing. And the majority of you said no. Some 61 percent at that. Up next, shoppers pulling back at Home Depot. What those results are signaling as investors turn their attention now to Target and Walmart coming up later this week. That and more when we take you inside the Market Zone.

We're now in the closing bell market zone. CNBC senior markets commentator Mike Santoli is here to break down the crucial moments of the trading day. Greg Mellick of Evercore with his reaction to Home Depot's earnings and outlook now for Target and Walmart this week. And Philip Boe ahead of Tesla, the annual meeting this afternoon. We'll get to everybody in a minute. Mike Santoli, we're at session lows on the Dow. We're pacing for the sixth negative day out of the last seven. NASDAQ's gone a touch negative as well. What do you make of it?

Yeah, it's very heavy. This market is, for as flat as it's been and static as the indexes have behaved, it's not been in gear. And so we continue to see that. You know, auto's down been in gear. And so we continue to see that, you know, autos down a couple of percent. There's definitely a slowdown taking hold type type of a feel to things today. On the other hand, you know, industrial production better than expected. Auto manufacturing ramping up and, you know, it's goosing the second quarter GDP number. So it's kind of this feeling of we're not really headed quickly to a resolution on the recession, no recession.

Or debt ceiling. Or debt ceiling. And I did enjoy, I was about to say even before Rich Saperstein mentioned it, that all of a sudden a resolution to the debt ceiling is being spun as a negative by folks who have already been bearish. Because they're looking at the aggregates and say, well, Treasury hasn't been able to issue any debt. And so in effect, that's, you know, keeping more liquidity in the system. I mean, look, the aggregate math says that to me, that's not a reason to be incrementally bearish as if we get a resolution on the debt ceiling. Positioning and attitudes continue to be almost the biggest insulation against more downside

because you're still seeing more evidence of people remaining cautious. Some people's version of cautious is owning a ton of bank stocks. That's not purely defensive, but it's behaving that way. So I still think that we're in this just sort of confused and cautious state. And again, you can't tell me that the market's not reacting to slowdown because in the last month, the S&P has been flat. Autos down 10 percent, energy down 12 percent, banks down 7 percent. You know, we're listening to what's going on. It just isn't reflected in the one big cap index. Yeah. So, Greg, I turn to you. Home Depot certainly, you know, raised some issues about a possible slowdown with the consumer. The

CEO, Ted Decker, saying on the conference call today, quote, a newer dynamic now that we're really seeing again just this past quarter is a more cautious consumer given the broader macro concerns, including credit availability. So what's your takeaway from that alone? Well, from that alone, I think you're seeing the reality of there's still a lot of wood to chop, particularly in those bigger ticket consumer discretionary categories, like a lot of home improvement areas where consumers are getting more cautious. And our view from our home improvement lead indicator has been the industry will run negative all year, and it will certainly underperform overall retail sales just because we're coming off such a strong market the last few years. And existing home turnover was down

a lot last year. And now home prices are probably going to start to slip. Is this a warning shot for Target especially? I think it is for any discretionary retailer that had a strong unit demand through COVID and then with the stimulus checks of 21. And so that's why Target's not one of our top five, and we've been in line rating on the stock into their earnings tomorrow. What about Walmart then? Walmart, we actually like. That's in our top five, and we upgraded back in March.

And the point there is we're starting to see real traffic momentum in the business. So one way that consumers can save money is go back to Walmart, where prices generally are better than theirs and competition. And they have a very good, strong assortment across many general merchandise categories. So we think discretionary products still likely to disappoint really much across retail. But for certain retailers that have traffic momentum or trade down benefits like Walmart, we think it actually could be a decent quarter and back half of the year. Greg, I appreciate it very much as we look ahead to those key earnings reports. Phil LeBeau looking ahead to that key meeting a little later this afternoon. Tesla, Elon Musk before his big sit down with our colleague David Faber.

Yeah. And the annual meeting, Scott, is typically one of those events where Tesla investors get all excited, and we sometimes don't get a whole lot of clarity from Elon Musk in his comments. But there are three things that people will be focused on. One, what does he say about the profit margin outlook? They've intimated they could go down to zero as long as they have future revenue growth. I'm not sure he'll get into that much detail. The Gigafactory growth now making 5,000 vehicles a week at the Gigafactory in Austin, where the annual meeting will be taking place. And then there's the next leg of growth. As you take a look at shares of Tesla over the last year, remember, Cybertruck production is scheduled to begin later this year. But what does he say about a lower priced so-called Model 2,

$25,000 vehicle? So those are the things, Scott, that people will be focused on. Curious if Elon Musk touches on any of those in great detail. What do you hope to hear from him in the interview that we're all excited about, obviously, with David Faber, as I mentioned. It's going to be that CNBC special event at 6 o'clock Eastern time this evening. Well, I'm excited that it's not just going to be about Tesla. He's also going to be talking about Twitter, AI, SpaceX. David's going to touch on a whole range of topics. So that's what I'm most excited about. With regard to Tesla,

I want to know what they're going to say about price cuts and profit margins. I want to see if there's any greater detail that David can get out of Elon Musk in terms of how low are they willing to go? He does seem willing, Phil, and maybe more so than he has at arguably any time to sacrifice margins for demand. Yes. They believe that they have the hammer when it comes to volume. Look, they are the brand when it comes to electric vehicles, certainly in North America. And you can make the argument that they are one of the top couple of brands in China as well as in Europe. He wants to take advantage of that position.

All right, good stuff, Phil. Thank you. See what comes out of that meeting. And, of course, from the interview, again, 6 o'clock Eastern here on CNBC, Mike Santoli, two-minute warning. I'm looking at Utilities Week, Energy Week, Industrials Week, Materials Week. There's a lot of weakness around. There's barely any green on the board. It only comes from comm services and tech. Yeah, we have a situation where, as I said before, the day gets kicked off to reinforce the concerns about slowdown, the state of the consumer and therefore the cyclical sweep. On the other hand, yields are up. Yeah, I was going to say yields are up.

And that to me was also because people were making a big fuss about how the retail sales gain was essentially a price effect. It was inflation. I don't think the yield move is that significant necessarily in the grand scheme. But it does show you that we don't have any kind of signed and sealed assurance that the Fed is definitely done. They're certainly not talking that way. No. Look, everything points to we're caught in between. I could also tell you that homebuilders are up again today.

And we had this great homebuilder sentiment survey. And there are these pockets of the economy that are not really lined up to drive further downside. So I think that's why it's more of a puzzlement than it is people being desperately bearish right here. Everyone remembers 2011, not really for the details, but how it was a sheer panic on the debt ceiling and the downgrade, and it never felt smart to feed into that panic, even though it's hard to resist when it seems like these big kind of cataclysmic system failures might be in play. Yeah, Dow's down six of seven. And that's the way we're going to notch it today, is we're off by more than 300 points

as the bell starts to ring here at the New York Stock Exchange. So we'll keep our eyes on the White House. We're looking ahead to the Tesla meeting and the interview.