Closing Bell - Closing Bell: Brace for a Broadening? 6/25/24

Episode Date: June 25, 2024

Could a significant broadening be in the cards? Charles Schwab’s Liz Ann Sonders explains where she sees stocks headed. Plus, EMJ’s Eric Jackson makes a bold call on Nvidia and reveals how he is navigating that name. And, Allianz’s Mohamed Ed-Erian breaks down what he is expecting from the Fed and this week’s inflation print. 

Cal, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with a tale of two markets. Index is doing pretty well this year. As you know, many individual names in this market though, not so much. Schwab's Lizanne Saunders is with us momentarily to expand on what she calls the great divergence and where it goes from here. In the meantime, here's your scorecard with 60 minutes to go in regulation. Rough day for the Dow. You know that by now. Under pressure for much of the day here. Home Depot, the biggest loser there.

And that's after Pool Corp warned about a slowdown in new construction projects. We'll watch those two stocks over this last hour. Elsewhere, United Health, Boeing, McDonald's, Goldman, all are drags on the Dow today. NVIDIA, though, it is bouncing back after some very rough sessions of late. There's that stock up near 6%. NASDAQ is a winner as a result. A lot of other mega cap names are seeing some buyers, too, and that's helping that index out very well. Keep an eye on Cruise Lines, too, over this last hour. Carnival posting a surprise profit, and that's spending, sending, excuse me, the space surging. Tongue twister. We got it. All right. Takes us to our talk of the tape. Second half for stocks and whether a significant broadening might be in the cards.

Let's ask Lizanne Saunders, Schwab's chief investment strategist, back with us. Good to have you back. Nice to be here. Thanks. I took a riff off of, you know, what you were telling our production team today about this tale of two markets. Right. Resilience at the index level, but considerable weakness, you say, at the individual stock level. Expand on that and whether you think it gets any better as we make the turn. Sure. So using the NASDAQ as an example,

admittedly an extreme example, but illustrative nonetheless, is you've had no more than a 7% maximum drawdown at the index level for the NASDAQ. But at the average member level, the maximum drawdown at the index level. For the Nasdaq but at the average member level the- maximum drawdown is 38% so that's a heck of a lot of churn and rotation under the. Surface

much more so than in the case of the S. and P. five hundred minutes manifested itself. In other ways to you can see the stat I was talking about it's only 15%. For the S. and P. but another way it's manifested itself. Is there's right now, I think

it's a 32 percentage point difference in terms of the share of the S&P above its 200-day moving average versus the share of the Nasdaq. It's 41 for the Nasdaq, 72 for the S&P, at least through last night's close. For what it's worth, similarly, what wide spreads of weaker breadth for the Nasdaq looking ahead tends to be more supportive of the Nasdaq in relative returns versus the S&P. You feel pretty good overall about where the markets are here heading into the second half? Depends on what you mean by the markets. I think there's opportunities being created at the individual stock level because of how much weaker breadth has been for the average stock. I would be surprised to see some consolidation and a bit of convergence where you continue to maybe see short periods of time, even extended periods of time, like we saw in the past week, where some

of the high flyers give back a little performance and you start to see whether you measure it by equal weight or just look at average members, look at traditional advanced decline ratios, where you start to see some grinding higher down outside of those mega cap names. And I think that would correct some of the concentration problem in a in a more benign way than if the market just sort of dropped like a stone all at once. Even if we broaden out to a much less concentrated environment, you still think people should stay large cap? Not necessarily. I think they should stay high quality. Now, on factors, quality-oriented

factors that we've been focused on, things like strong balance sheet and strong free cash flow and high interest coverage, there is a bias up the cap spectrum there. But even in the small cap indexes, there is a huge performance differential using kind of a quality demarcation. In fact, if you look at the Russell 2000, you go back to the beginning of twenty twenty three. It you know capsulating- the period of the aggressive monetary policy on the upside by the. The fed. Obviously there's a measure of

interest rate sensitivity which is greater for the so called zombie companies as it don't have sufficient cash flow to pay interest on their debt. If you go back to the beginning of twenty twenty three. The zombie companies within the Russell two thousand are down about ten percent the non zombie companies have sufficient cash flow to pay interest on their debt. And if you go back to the beginning of 2023, the zombie companies within the Russell 2000 are down about 10 percent. The non-zombie companies are up about 10 percent. So that's a 20 percentage point difference. And I think that's the way to

think about it, as opposed to just simply a cap bias. It's the quality. It's the strength of balance sheet. It's the interest coverage that matters. And it matters up the cap spectrum and down the cap spectrum. What do you make of the lack of volatility for the most part in the first half of the year fits and starts here and there but nothing really to to point to and say wow you know this really volatile markets do you feel like that's going to return in the second half because we're going to be talking more about rate cuts and the election. But Spoke had a stat, which is really just astounding when you sit back and realize how reasonably sanguine everything has been. S&P has gone 334 trading days without a one day drop of 2 percent. I mean, we're talking nearly a year before a 2% drop in the S&P? Because it's been biased in performance up

the cap spectrum in that relatively small handful of names, and that's kept index level volatility relatively low. But Scott, in response to the first part of your question, at some point, I think the answer is definitely yes, that the path of least resistance for volatility goes up. And undoubtedly, you can plug in Fed policy uncertainty, election uncertainty, geopolitics into the mix of what could be the trigger for a pickup in volatility. Just election-related trends, you do tend to see a pickup in volatility in general, but you do also tend to see a pickup in sector volatility as traders tend to focus on what the policy proposals are and the likelihood

of them actually turning into policies between in the span from the campaign to to post-election. We're going to certainly be debating, I think, in the weeks and certainly months to come what rate cuts are really going to mean for the markets as we've recalibrated our expectations on what we think is going to happen and when. I want you to listen to what Corvex Management's Keith Meister told me the other day about the impact of rate cuts on the market. And I'd like your thoughts on it as well on the other side of that. Let's listen. I think rate cuts will actually be a negative for the market. You do? Yeah. I mean, sure. Like, why would we be cutting rates? We'd be cutting rates because things are rolling over. Right. So if we can stay

with short term rates at five and a quarter, five and a half, longer term rates at four and a quarter and full employment, I think that's a healthy backdrop. What do you make of that? I think it's the why behind rate cuts. It's not just simply the Fed shifting to rate cuts. I think there probably will be areas that get hurt with lower rates. A lot of the mega cap companies, cash rich companies have been earning more interest on their cash and they're paying interest on debt. But on the other hand, at least on the margin it helps down into the zombie category the companies that are more. Leverage to traditional banking system or the credit markets and a little bit of reprieve there could give some. Some life there really what's key is not just the why behind the fed moving from. Pause mode where we

are right now to cutting, but also the pace that they're cutting. One key differentiator in terms of better market performance versus worse market performance, even things like cyclical performance relative to defensive performance, comes if you break past cycles into slow cycles versus fast cycles. So when the Fed is moving slowly on the downside, that's better. And it's why I always say to people who are looking for the Fed to be aggressive when they start cutting be careful what you wish for because of the point made an aggressive easing cycle especially in contrast to how aggressive the hiking cycle was probably means that the Fed is combating some combination of recession and or financial crisis. I don't think that that's certainly not financial crisis in the cards, but it's the speed that really has been an important differentiator to how the market has performed in the past. We've been discussing with Steve Leisman over the last couple of days, you know, whether the market is underestimating the possibility that July could be a live meeting,

right? The market's all but written that off. I think the prospects of a cut are 10% at this point. Of course, we're getting PCE this coming Friday. And I just wonder, what do you think the market reaction would actually be if there was a July cut? But it was for the right reasons, maybe with a little sprinkling of, hey, you know, there's some softening in certain aspects of the economy. And we don't want to, you know, risk those becoming worse. And we actually feel confident now after another PCE report, which would be like three in a row that would give them some confidence.

We'll have to see what the PCE report is, but it's unlikely to be at the Fed's target. And if they want to be pure Pure to that promise then absent a deterioration further deterioration in the labor market- July is probably a bit of a stretch now if in the. Period between now and the meeting we do see more acute

deterioration in the labor market to move up in the unemployment rate something more significant even in what we've seen in unemployment claims- we've been saying that the Fed may get to a point where they've got enough weakness in the labor market that they can point to as representing a green light for starting to ease policy absent a move in core PCE down to their target. But we probably are going to

need to see a little bit more weakness in the labor market for them to jump as soon as July. But let's not forget, I mean, they've said it explicitly on numerous occasions. I'm speaking primarily, of course, of the Fed chair himself. They're not going to wait until Target to start cutting rates. They just need to wait until they have some level of whatever confidence they feel they must have. Yeah. And the question is, how do they define confidence in terms of what kind of string are they looking for? They did get cold feet, obviously, when you had the three months in a row of hotter than expected inflation readings and you got the batch most recently of cooler

than expected. I think they want to see, to some degree, an established trend and not continued choppiness. But they also don't tend to move starkly against expectations. Now, maybe you could argue they did that at the beginning of the year when the market was pricing in a March start and six to seven cuts. As you know, Scott, I'm sure we talked about this many times on air. I thought the market was way over its skis at that point. There was nothing in the data either on the inflation side or the labor market side of their dual mandate to justify that. Now, the market is, I think rightly so, come more in line with what the Fed has been suggesting. I don't even want to say telegraphing because they're data dependent. But I think a shift from what is the current market expectation of a September start to

a July start, absent data that suggests, OK, you know, it's time to start easing, might not be such a positive surprise for markets. Let me ask you lastly, before we broaden the conversation out, when you're the chief investment strategist of a firm that is so front-facing as you guys are to the individual investor, and you see NVIDIA do what it's been doing, and you know that it's really piquing interest among your client base, how have you managed to navigate this whole environment where, you know, some say froth, maybe it's justified. I'm sure the questions that people are getting at Schwab from clients and individual investors are, you know, fixated on this issue. The volumes that you've seen around this name have obviously

been elevated. How is the chief investment strategist? Are you processing this whole thing? So I'm not going to make a recommendation, buy or sell on any individual stock, including NVIDIA. Now, as you know, Scott, we have Schwab Equity Ratings, which rates over 3,000 stocks. And it does it with ABCDF, which is kind of hold and A's, buy and B's are buys and the others are sells. And so we can point people to for any stock to the Schwab equity ratings. But it's also that's where the financial consultant comes into play, because we have nine point two trillion dollars of client assets. So there's no cookie cutter answer, even if it's not at the stock level of should we do some rebalancing? Should we trim some of these outside holdings? And

and what do we look to add? that's all a function of what the both strategic and tactical asset allocation is within portfolios and where their concentration risk might be- in other names particularly if they own company stock so. There is no one cookie cutter answer

especially when you're talking again about more than nine trillion dollars of individual client assets so we bring back to the broad messages around discipline and periodic rebalancing but the specific what do i do with this stock or how do i make the adjustments in my portfolio that's where the consultants working directly with them come into play yeah i i hear you on that all right let's broaden it out let's bring in vict Victoria Fernandez of Crossmark Global Investments, Ed Klisold of Ned David's Research. Good to have you both with us as well.

So, Victoria, we're about to make the turn, as I said, second half of the year. You feel pretty good about where we are and where we might be heading? I don't know, Scott. I'm a little concerned about some of the weaker economic reports that we've been receiving as of late. Obviously, the consumer has been what's holding up this economy along with Nvidia and a couple other names really driving the returns in the market so far this year. So if we look at some of these reports telling us that the consumer is slowing, right, you look at the tailwinds for the consumer, it's the compensation that's slowing, it's savings, savings has come down, it's the compensation that's slowing its savings savings has come down its availability of credit we've seen that decline so it gives me a little bit of concern as to the strength of

the consumer which feeds into the fact that corporate revenues i think could start to decline as well when are we going to see maybe earnings revisions start to come through again these are the things that have been undermining some of the positive news in this market. So it does give me a little bit of concern. Corporate revenues are key. You talked a little bit about McDonald's earlier. You look at some of those companies that have been relying on increased prices for their revenues, not increase in unit sales. Unit sales are the same as they were back in 2019. I think we're going to continue to see some pressure there. And you know, you can just get a negative feedback loop from there where margins are being put under pressure. That leads to more

layoffs. That leads to consumer demand declining. And we can just keep going from there. So you don't want to stand in the way of a market that continues to make new highs. But I think you have to take a step back and look and see if there's areas, like Lizanne was talking about earlier, where you can broaden out your investments a little bit and be ready if the market takes a turn. Okay. I'm trying to figure out what the practical thing to do is based on what your perspective is. If you think equities could be vulnerable for the very reasons you suggested, when you say broaden out your exposure, what exactly does that mean? Are we talking in

other asset classes beyond equities? Or are you saying within the stock market itself? It's both, Scott. So I think you should look at some of these sectors like a health care, add a little bit of staples. I think if yields start to move up a little bit because the Fed doesn't move as fast as what the market's anticipating, you could add a little to financials. But I think you also have to look at your overall portfolio allocation. Why wouldn't you add a little bit of fixed income in order to have some cash flow? Why wouldn't you add something like a covered call strategy? Again, generating some income to buffer any kind of volatility that we may see in the equity market, a little bit of global exposure, some absolute return strategy.

So yes, I think you broaden out within equities themselves, but I think you also look at other asset classes in order to help buffer any kind of movement you're going to see in the second half of this year. Ed, are you as concerned about the maybe near-term direction of the market as Victoria sounds like she is? Not quite as concerned. I think the big picture is that we're looking at an economic slowdown. Odds of recession are fairly low. I do think earnings revisions are going to need to happen over the next several months. For example, estimates for S&P 500 operating earnings are looking at, say, 7% for Q2, and they're 20% for Q3, Q4. There's no macro reason to get that big of a jump. But if we can maintain still decent earnings growth and we get to Fed to move towards a

rate cut, we think December, but possibly before that, then it's still a recipe for a bull market. I do have some concerns about the recent technical damage percentage of stocks above their 50-day moving average. That's looking at last few months. At each new high in the S&P this year, there's been a lower and lower percentage. So it is a bit of a narrowing. Now, percentage of stocks above their 200-day moving average, so longer term, still well above 60%. So most stocks are in long-term uptrends. Just the short-term has

gotten a little bit worse. We just want to make sure the short-term doesn't become the long-term. So we're looking for a pullback in the third quarter. But the start of a bear market doesn't seem to be a part of the economic cycle here. Victoria, you say your bigger fear is that the Fed cuts too soon and stokes more inflation and a melt up in the markets. Can you expand on that, please? Yeah, I mean, look, we're not where we want to be in regards to the Fed's target on inflation. You guys were mentioning that earlier. Steve Leisman actually was talking earlier today on the network about the month to month changes and how if we're just slightly higher than where we've been over the past few years, it will be almost impossible to get back

down to two percent. So if that's case, and the Fed keeps pushing off those rate cuts, if the labor market doesn't weaken enough for them to make a move, then you have short-term nominal rates that are higher than your nominal GDP growth. That's going to lead to some kind of a pullback, to a financial crisis, to a recession, whatever words you want to use to describe a pullback. And then you could have some elements where the market anticipates that the Fed is going to then come to the rescue. You have that Fed put that is in place.

You're going to stoke inflation higher as you have more stimulus put into the economy. We're in an election year, Scott. We know more stimulus is coming. We've already seen it with the employment retention tax credits. Those are ramping up again. That's another $80 billion coming into the economy. So I think there could be some elements where you're stoking inflation and the market anticipates a Fed put. So you're going to stoke a melt up in the equity market as well. So you don't think the Fed is going to cut because they can cut because inflation is they have more confidence that inflation is working back to target. They're going to cut before the before inflation gets to two percent. We know that they will cut.

They will cut before it gets to two percent. I'm just not sure if we're going to have that trend and give them the confidence that they're looking for in the next few months. I mean, I agree it might be December when they do that, but you look at some of the inflation numbers. Yes, core goods CPI was deflationary, but you look at essential goods, shipping, insurance, that's on the rise. You look at non-discretionary inflation, that's over 5%. So I do still think there's some elements that are going to keep inflation a little bit higher, and that's going to cause the Fed to wait a little bit.

Lizanne, do you have any worries that the Fed makes a mistake by either going too early or waiting too long. Well, so one thing I would say, Scott, when you said the Fed definitely will start cutting before inflation gets to their target, not necessarily. I don't think it's a high likelihood scenario, but a scenario of a turn back higher in growth and, you know, a huge, you know, positive jobs report and inflation still above their target, then I think the biases stay put. I don't think that necessarily shifts to a tightening bias again, but I think that would be the scenario under which the Fed wouldn't do anything, wouldn't start cutting with inflation. But therefore, it rests on the labor market side, on the growth side. I think there's always a risk of a policy era, especially in this incredibly unique cycle where we are dealing with so many crosscurrents, so many bifurcations. Not necessarily false readings by things like the inversion of the yield curve or the LEI.

We've just had strength and weakness roll through at different times in different pockets of the economy and I think it. It makes the job of the fed a little bit trickier because it's. Today's apple compared to histories. Oranges so a policy mistake yeah and I and you know on the comment made about that the fed put. I don't think their fed put still exists as it relates to pure weakness just in the equity market I don't think their inclination is to step in just to stop a correction in the equity market, especially because it would help tighten financial conditions and potentially alleviate some of the inflation problem. I think there is still a Fed put as it relates to the economy, but I wouldn't apply it to just market weakness. We'll make that the last word. I appreciate everybody. Thank you. Lizanne, we'll talk to you soon. Victoria and Ed, we'll catch up with you in a bit. All right,

let's send it to Pippa Stevens now for a look at the biggest names moving into the close. Pippa? Hey, Scott. Shares of Novo Nordisk hitting a new all-time high after its weight loss treatment, Wagovi, was given the green light for long-term weight management in China. Novo's other obesity treatment, Ozempic, won approval from China in 2021, and demand for that drug has been soaring in the country. And Rivian jumping 8% after Guggenheim initiated coverage with a buy rating. The firm sees a credible path to break even gross margin by the fourth quarter and said a reduction in cash burn alleviates some near-term overhang on the stock. Those shares, though, down nearly 50% this year.

Scott? All right, Pippa, I appreciate that. Thank you, Pippa Stevens. We've got some breaking news on the IPO front. Angelica Peebles has that for us. Angelica, tell us. Hey, Scott, that's right. Bloomberg is reporting that drug trial software maker Clario has filed confidentially for an IPO. Bloomberg saying in this report, citing sources familiar with the matter, that Clario is targeting a listing for next year. Now, they're saying that the underwriters are JPMorgan Chase, Morgan Stanley, Jeffries, and UBS. And we're still reading through this, and we'll let you know, but they are

targeting a valuation of about $10 billion. Back to you, Scott. All right, Angelica, I appreciate that. Thank you. Angelica Peebles up next, navigating NVIDIA's volatility. EMJ's Eric Jackson, he is back. He's going to make a bold call, too, where he thinks that stock is heading. He'll do it after the break. You're watching Closing Bell on CNBC. Welcome back. NVIDIA is back.

Well, at least for today. Up 6.5%. It is still down around 11%, though, from record highs set just last week. EMJ's Eric Jackson, he holds the stock, and he joins me now to tell us how he's playing it. Eric, it's good to see you, man. How are you, Scott? Well, I'm good. I'm not as good as you think NVIDIA is going to be, though. I mean, these are not typos. You think it's going to head close to 70 times P.E. before the end of the year and it's going to hit six trillion dollars in market cap at 250 a share.

Do tell. I think so. I think so. By the end of the year, as people start to look forward to what they're going to do in 2025. Yeah. Like I know you talk all the time, Scott, to people like Stacey Raskin, who says, you know, this stock is still cheap. And yet nobody seems to believe it. But here are the numbers. Over the last five years, NVIDIA's average look forward price earnings multiple has been 40 times. Yesterday, after this two-day correction, it was 39 times forward price earnings. But there have been three times in the last five years where it's had a look forward price earnings multiple of over 50x and two times in the last five years where it's gotten just about to 70x and then it pulled back so we just haven't seen that euphoria yet it didn't it didn't just pull back at those times it got destroyed it got destroyed yes a couple of those times so you know this is a high flyer you know

and expectations can reset on a on a bad earnings, but they can also get equally overhyped on good news. And despite the fact that stocks had an enormous run, the euphoria hasn't yet caught up in terms of the go forward multiple. I think what's going to happen in the second half of this year, as people start to see how well the Blackwell chips are selling, how good the gross margins are on those, and start thinking about what's to come with the Rubin chips around the corner, the next generation after that, I think we'll start to see that euphoria reflected in a lofty go-forward price earnings multiple.

And if that happens, this thing could go to $6 trillion market cap. You don't think they're over-earning at all right now just based on the flood of orders? They're kind of the only game in town. Well they're selling to these big hyper scalars. But think about it. Who are they going to sell to. They can't make enough of these chips to sell to everybody on the planet. So they've got to prioritize.

Why wouldn't you prioritize to these hyperscalers who are putting in orders, you know, as large as they possibly can to lock up as many of these chips that they can currently get their hands on, the H100s, H200s. And so that's supposed to be a bad thing. That's supposed to be a sign that, you know, it's overly concentrated to these books? Well, it's not a bad thing. It is what it is. But, I mean, you have to extrapolate what you think the future is going to look like

based on everything that you just said right now. I mean, there are other competitors out there who are going to be making chips and selling them to potentially the hyperscalers too and other players as well. Granted, NVIDIA has the whole football field to itself, so it can go up and down the field unabated. There's no defense, but eventually there might be some defense on that field. Years down the road. So they've got, they've got the, they've got, you know, to use your analogy,

Scott, you know, they've got 80 yards of of clear turf in front of them to to keep running towards touchdown nobody's catching up to them there's just a bunch of you know you know lazy uh linebackers behind them so i think it's years away from that happening uh they're gonna they're gonna take advantage of that lead that they have and it's not expensive you know know, KOTU had an earning slide recently that, you know, talked about how this is not Cisco in the dotcom era. Back then, Cisco's go forward PE multiple got to a peak of something like 136x. Again, we're below the mean for the last five years. So even though the stock has done so well, it is still relatively cheap compared to where

it's traded in the past. Look, you mentioned Raskin. I mean, your points are well made and they're valid, too, on the valuation in the past. He pointed out when we most recently spoke that before this run even started, NVIDIA was at 60 times. Now, as you said, it's 40. So obviously, on a historical basis, it's nowhere near as expensive as it once was. I can promise you, though, if it gets to 70 times and it has six trillion dollars in market cap. I mean, the conversation is going to be different at that point, don't you think? You, me and everybody watching will be ringing the register at that point, Scott, happily. You know, at some point it will it will get to crazy,

silly levels. But I think we've been over eager to get to that point faster than, you know, the realities of where the stock has traded, you know, in relation to its revenues and its actual earnings. All right. The six trillion dollar man. We'll see what happens. Eric, I appreciate the conversation as always. We'll see you soon. Eric Jackson up next, the road ahead for the Fed and the markets. Another critical inflation print is looming over this market this week. Ali Ans is Mohammed El-Erian standing by with what he is expecting, how it could impact your money. We'll do it next. Welcome back.

Not the time to be cutting rates and hikes are still on the table. Well, that was the hawkish message from Fed Governor and voting member Michelle Bowman today. Further raising the stakes ahead of the next critical inflation report, which comes this Friday. Joining us now is Mohamed El-Erian, Chief Economic Advisor at Allianz. Welcome back. It's good to see you. Thanks for having me, Scott. All right. P. Welcome back. It's good to see you. Thanks for having me, Scott. All right. PCE on Friday. Let's just kick this around.

If that comes in favorable, OK, should the Fed consider cutting in July? In my opinion, absolutely should consider cutting, but I don't think it will. Well, why do you say it that way, that absolutely they should consider cutting in July? So just think of the conversation you had earlier. You had disagreement about what's happening to inflation dynamics. You had disagreement about the growth dynamic. You even had disagreement about the impact of lower interest rates. We're living in this very uncertain world. If you look at the tails of the distribution, which you worry about in an uncertain world,

they're heavily tilted in terms of the economy slowing much faster than people expect. In such a world, if you want to deliver a soft landing, you've got to start cutting sooner rather than later and not go too far in cutting. So the most likely mistake right now, the most likely policy mistake, is a Fed that got shaken by two pretty bad calls in the last few years will end up being overly cautious and will end up not helping to preempt what could be a significant slowdown. You used the word I was going to use.

So you think that they should do a preemptive move to cut rates to protect, in quotes, the economy? Correct. So I have two views. One is I think this economy is slowing much faster. And in particular, the household sector no longer has excessive savings, no longer has much debt capacity. This is not about a K-shaped economy. This is about an economy that no longer has buffers. So if the Fed gets the labor market wrong, we are going to have a much faster slowdown than they can even imagine.

So that's the first issue. The second issue, which is much more controversial, is that I don't think 2% is the right target. I think, in fact, if they pursue 2%, they'll run an overtight monetary policy and they'll end up sacrificing the second part of their mandate. This is an economy whose underlying equilibrium inflation rate is higher than 2%. It's closer to 3%, Scott. So it feels like over the last couple of days, at minimum, I'm talking about, you know, the Fed speakers that have been out between the interviews that Leisman, Steve Leisman, of course, has done. There was, you know, Austin Goolsbee yesterday. Do you feel like the conversation is starting to tilt towards the idea that we have to be especially careful of the risks of waiting too long to start cutting? Maybe at the margin, Scott, but not enough. And there's a reason for this.

We've had so many monetary policy pivots, it's embarrassing. It's absolutely embarrassing how often this Fed has pivoted. And the big mistake, its recent mistake, of course, its big mistake was 2021 when it called inflation transitory. But let's not forget that it fell in love in the fourth quarter with soft inflation numbers. It embraced them fully and then had to reverse again.

You know, we talked about, you talked about with Lizanne earlier about the market going in with six to seven weight cuts in terms of its expectation. That's because it believed the Fed. And the Fed was saying, I love what's happened to inflation. And then, of course, they got the shock of January, February and March. So this Fed feels burnt and therefore is not taking enough of a strategic view of the economy.

Well, why is that embarrassing? I mean, they reacted, haven't they, as they should. As the data changes, the market reprices the idea of when it thinks there are going to be rate cuts. It's not like the Fed cut and then had to go back because inflation all of a sudden perked up to start the year. They didn't have to do anything. The market had to adjust itself. Whose fault is that?

So, Scott, you forget about forward policy guidance. You forget about why we have dot plots. You forget about why we have a press conference. The whole idea of forward policy guidance is that you provide an anchor to the market. It is not that you swing the market around. You know, you talk with Lizanne about how low equity volatility has been. That's not the case for fixed income volatility. Just look at the four weeks going into the last Fed decisions. We had the two-year go up to 5%, go down by 20 basis points, go back up by 20 basis points, go back down by 18 basis

points. That is not how the Fed should be anchoring markets. So because they're so overly data dependent, because they're doing exactly what you said they're doing and they're lacking a strategic view, they are adding to the volatility as opposed to providing an anchor. That's not what they're supposed to do. Mohammed, we'll see what happens. I appreciate you coming on. It's nice to see you again. Thank you, Scott. That's Mohamed El-Erian. Up next, we're tracking the biggest movers as we head into the close. Pippa Stevens is standing by with that. Hi, Pippa. Hey, Scott. It might be swimming season, but one discretionary stock is sinking.

We've got all the details coming up next. We're 15 from the bell. Back to Pippa Stevens now for a look at the key stocks that she is watching. Tell us what you see. Well, Scott, SolarEdge is tanking more than 20 percent, hitting a nearly seven-year low after the company announced plans for a $300 million convertible note offering, taking the street by surprise. SolarEdge also said one of its customers has filed for bankruptcy and that they may fail to collect what's owed and that it now expects a negative free cash flow of 150 million for the current quarter.

Meantime, Pool Corporation in the red after lowering its 2024 guidance, saying discretionary pool spending has been hampered by the macroeconomic environment. The company cut its annual earnings guidance and said year-to-date net sales are trending down 6.5%, with the company expecting full-year 2024 net sales to be in a similar range, stock down 8%. Scott? Yeah, yeah. Home Depot selling off and some of these other names, too. Pippa, thank you. Pippa Stevens. All right, coming up, Carnival getting a big boost today thanks to some record-setting numbers. The whole cruise space is doing very well today. We'll break down the details, how it's impacting those other stocks, as we said. The bell's coming right back. Coming up next, FedEx reporting top of the hour.

We're going to run you through everything you need to be watching. We'll take you inside the market zone. We'll do it next. We're in the closing bell market zone. CNBC senior markets commentator Mike Santoli is here to break down the crucial moments of the trading day. Plus, see Momotie on Carnival's major rally. The cruise ship stocks as well.

And Frank Holland looking ahead to FedEx. Those earnings are coming out in overtime today. Michael, I've turned it to you. Okay, so NASDAQ day because NVIDIA's bounced back quite nicely. Yeah, and the rotational toggle has gotten really almost absurd and comical at this point. Yeah, it has. S&P closed 54-64 on Friday. It's 54-66 right now. It was down 17 points yesterday.

It's up 18 points today. Yesterday it was broad. Today it's 54.66 right now. It was down 17 points yesterday. It's up 18 points today. Yesterday it was broad. Today it's narrow. Without a lot of new macro stuff to absorb and react to, the market is caught up in this kind of tactical back and forth. It's almost like, so the S&P 500 is at the fulcrum of the seesaw, and everything moves up and down around it, and it keeps the index almost solving for a flattish S&P index.

It obviously is not going to just persist this way forever. Probably a better bounce in NVIDIA on a one day basis than I might have expected, given that it wasn't just a fleeting, you know, kind of morning relief that we got. But we'll see, you know, where it goes from here. I do think we're kind of building toward as we get to month end, PCE, we're going to be able to sort of reset the pieces of what's going into the market into next month. Seema, talk to us about Carnival and these other cruise lines, because that is a big story today. It really is, Scott. This was a robust earnings report and no one was expecting it. The bullish commentary from CEO Josh Weinstein, not just about demand this year, but even the read on early 2025,

Scott, is quieting critics out there who were questioning whether travelers would continue to pay up for vacations, cruising specifically. In fact, Carnival says even with higher prices, it's still more cost-effective than hotels. Here's what Weinstein told us earlier today. We just were able to report records pretty much across the board. And not only is the records in the actuals for the second quarter, but the bookings we took in during the second quarter for the future are records as well. So we haven't seen that sign of a consumer slowdown. If anything, we were seeing an acceleration.

Occupancy for the quarter came in at 104%, above the 98% same quarter a year ago. Weinstein added that the focus now is fixing the balance sheet, paying down debt, returning to investment grade. And Scott, that is what has held the stock back. If you look at how it's performed since the pandemic low, it's still down sharply, whereas Royal Caribbean is up about 200% from that time frame. So today's sharp move certainly to the upside is certainly helping Carnival's narrative, but a lot more room to run here. Yeah, I think CCL is the best in the S&P today.

Seema, thanks for that report. That's Seema Modi. All right, Frank, set the table for us. FedEx and OT. Hey there, Scott. You know, FedEx shares, they're trading lower since last earnings, where the global logistics giant

reported a surprise beat on earnings. Since then, weakness in the U.S. and the global freight markets have really weighed on the stock. Guidance will be especially important. Estimates have revenue returning to growth, profit improving 18% year over year. But there are two big questions. First, FedEx is guiding for $2.2 billion in fiscal year, 25 savings from its cost-cutting drive initiative. How much of that will flow through to the bottom line? And also, the full impact of losing the post office air contract to UPS. Wall Fargo pegs the profit impact at $500 million, but there are still a lot of questions about what the loss of that volume will do for margins at Express,

where FedEx gets just about half of its revenue. Back over to you. All right, Frank, I appreciate that. You have got a thought on shippers like FedEx? Yeah, it's tough to separate out FedEx's sort of corporate-specific, you know, the sort of restructuring that's been ongoing and the fact that it's had this big kind of reversion to the mean move to the positive against UPS from the general weakness in, you know,

transports that carry stuff. Because that has been really a weak point in the market for a while. You look at general transport to stocks, inexpensive right now. FedEx often looks kind of inexpensive, but even UPS at this point does. So I don't think the bar is all that high. I think you can't escape the idea, though, that the overall market is trying to grapple with mixed signals about whether growth is faltering or not. Don't want to make too much about the reaction in Home Depot and Walmart today. They're really just giving back yesterday's gains.

But it does seem as if we're a little bit sensitive to the idea that things can be slowing down in terms of big-ticket physical goods as opposed to Carnival and things like that, where I'm still caught up on 104 percent occupancy on Carnival ships. OK, so that means they got, you know, virtual stowaways in addition to everybody else. All right. So let's see what happens with PCE on Friday. Given what you said about, you know, this little glimmers of worry about or trickles of worry, I should better say, about the economy. And look, no one expects at this point July to be live, really, right? The market was, what, 10% chance of a cut?

Let's see what happens if this report comes in favorable. And then what the percentages do for July and how the market digests that and starts thinking about it. Exactly. July, I don't think people really believe it's live. It could become that of a really benign PCE number. But what I think they do believe is that July could solidify the case for September. It becomes much more of a telegraphed move

in the next meeting unless something changes. It also, if it is a friendly inflation number on Friday, it'll just preserve this idea that the Fed has freedom to move if needed, as opposed to being a little bit trapped in the sticky inflation story if, in fact, employment starts the weekend, you start seeing the consumer falter. So that, to me, is the key thing in terms of what's at stake for Friday. All right. So 54.71 is where we look on the S&P right now. We'll settle,

of course, as we edge towards the close. But a pretty good day there. Dow's under pressure. That's largely a Home Depot, Goldman, I said Boeing, United Health are the drives there. NVIDIA, though, leading the Nasdaq high. What else is new? I guess that is new for the first time in a few days. I'll see you in OT. I mean, I'll send it to OT. I will not see you in OT.