Closing Bell - Closing Bell: Bracing for a Big Breather? 4/2/24

Episode Date: April 2, 2024

Is an overbought stock market about to take a big-time breather? Our all-star panel of Solus’ Dan Greenhaus, New York Life Investments Lauren Goodwin and Citi’s Kristen Bitterly break down their forecasts. Plus, Ken Squire from 13D Monitor breaks down the big battle for Disney’s board. And, Goldman Sachs’ Tony Pasquariello weighs in on where he sees the record rally really heading from here. 

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 rising anxieties over the rally as the jump in interest rates, well, it's sending stocks falling today. We're going to ask our experts over this final stretch whether the markets are likely to continue to go down from here and where they are likely to go. In the meantime, your scorecard was 60 minutes ago and regulation looks like this. The major averages under pressure for most of the session today. That's where they currently are. We are off the worst levels.

It's the 10-year yield. Well, it's hitting its highest level since last fall, and that's made the markets a little uneasy. The Russell 2000, the biggest loser today. And besides the move in rates, oil's higher, gold's higher, dollar's higher. Watching all that. UnitedHealth, not higher. It's the biggest drag on the Dow. On a surprise from the government regarding medicare plan payments and tesla's falling again as delivery numbers miss wall

street estimates it does take us to our talk of the tape whether an overbought stock market's about to take a big time breather let's ask our big time panel dan greenhouse of solace alternative asset management lauren goodwin of new york Investments and Kristen Bitterly of City Global Wealth. As you see, everybody's with me at Post 9 today. Nice to see everybody. Kristen, I'll come to you first. Is today about yields, nervousness about where they may go and that the Fed may not cut as soon as we hope? I think it's a little bit of a garden variety pullback.

I mean, we've heard day after day that we're either touching all-time highs or within reach of all-time highs. So I don't see anything to read into today more than geopolitics resurfacing, yields popping up. And I think the question is, everyone's trying to ask, you know, is inflation more entrenched? Is that something to watch? When you look at the backdrop, though, I have to say you have to go back to what we know is true. We know that there's $6 trillion of cash on the sidelines. We know that the Fed's trajectory from here is downward. We know inflation is coming down and we know that earnings have turned a corner as well. So when you have that fundamental backdrop, it's actually pretty constructive for risk assets overall. So you're still pretty bullish then? I'm constructive and you have to pick your spots and you have to stay diversified. So we're balanced within our portfolios. But I don't see, if you were to say those four things that I just said in any other environment where people weren't waiting for a Fed cut,

I think people would say that actually tees up pretty nicely for risk assets. Well, I mean, we can probably, Dan, do without a rate cut. What we can't necessarily do with is a continued backup in rates, right? I mean, that's going to be counterproductive to where the bulls suggest this market can go. Jonathan Krinsky of BTIG says above 4.32 on the 10-year will cause some turbulence. Strategas' Chris Ferron says the push-in yields right back to 435, coupled with a bid to the U.S. dollar, the strength in oil, the persistence from gold. We're inclined to raise our guard here.

Should we be raising our guard? Yeah, listen, I think, to Kristen's point, this comes in the context of a rally that's called 30 percent off the late October lows. You were overbought on a number of measures, not dramatically overbought, but overbought enough. And so I think when you put that all together, certainly you might think there could be a catalyst for some level of a correction. I mentioned last time I was on last week, the distance to the 200-day moving average,

not the widest ever, but fairly wide. And so is there scope here for a 5% or 6% pullback? I think absolutely on the basis that yields are backing up. But I would reinforce, or I should say align myself with the point of view that I don't think 4.3% is some deleterious level or even 4.4, even 4.5. I won't buy into that idea. The rate of change matters more than the level, meaning as rates adjust to higher levels right now, and we can have a separate conversation about why that is, that might cause some consternation for stocks in the context of what I just articulated. But once you settle in at 4.3 or 4.4 or 4.5, can equities not move higher? I mean, of course they can. And look no further than performance in the first quarter. The two-year, the 10-year, whatever you want to look at was higher by 30, 35, 40 basis points in the quarter.

And stocks, whether the equal weight or the market cap weight, still had a good performance. But stocks were moving higher because they were anticipating rates continuing to go lower, coinciding with Fed cuts coming. You can't tell me that no cuts, higher rates, and equity is just going to continue to go higher. Yeah, I will tell you that. Why? So, first of all, it wasn't just the prospect of rate cuts that drove stocks higher. The economy improved a couple of months ago first quarter GDP growth was expected to be call it zero

now it's going to be somewhere between two and three percent depending on how the March data comes in so the economy improved yes earnings expectations have come back in but we're probably going to beat those level I have to run through the numbers later we're probably going to beat that level I don't think that the whole reason the stock market was up, call it 5% equal weight, 9% or 10% market cap weight, is just because we were going to cut rates. So with that said, yes, if the Fed doesn't cut rates in June, or perhaps they push it out for another quarter or something, not the optimal scenario, so to speak. But if the economy continues to perform, we've come out of the earnings recession, then why wouldn't unbalanced stocks be higher?

Well, maybe because rates continue to creep a little higher if the economy, in Dan's words, continues to perform. Lauren? When I take a step back from the next couple of days, and look, we're going to have a bit of a wild couple of days. We have the jobs report on Friday. It's PMIs that have been stoking some of this concern, inflation next week, I see today's market activity as very much an inflation story, a concern that the economy is overheating, which is a concern, by the way, tactically, I agree, is the biggest concern for the market. But when you look over the next six, 12 months, I agree with Kristen. We are seeing a disinflationary process and we're starting to see cracks in the labor market. I still expect,

actually, that the labor market will weaken just enough that the Fed will be able to cut in June. You do? I do. For the right reasons? You said to be able to cut. They're going to have to cut? Are they going to be able to cut? You know the difference of where I'm alluding to. I do, of course. And my sincere hope is that, well, that's the wrong way to put it, is that they're going to have to cut, that they're cutting for the right reasons. Because the sort of green span moment that Chair Powell is having or was having a week ago, let's say, the idea that immigration and sort of

an immaculate disinflation is good enough to avoid an uptick in inflation, I expect that we're going to have more inflation and more inflation volatility and more rates volatility for the next several years as a result of the inflationary backdrop we're in. You think the bulls need a rate cut this year for this market to continue to go up or not? I get the feeling that Kristen and Dan say no, not necessarily the economy's good. And ultimately, that trumps most everything else, because that means that earnings are going to remain pretty good, which at the end of the day is probably more important. I think that that's the big if, though, if earnings can remain strong. And with an economic backdrop like we have, it's possible.

But we are seeing the consistent wage inflation, in particular, taking bites out of corporate profit margins across the board, across industries. And so that's an environment where over the course of the year, earnings may very well begin to weaken, in which case you'd absolutely need a rate cut to sustain the market. Now, if the Fed is cutting in June because we're starting to see the labor market weaken, that might be a very tactical set of good news, but it's ultimately not good for the equity market, right, because it's signaling that economic downturn that so many have been looking for. Do you think earnings are going to be good? I mean, Adam Parker, for example, if he was here, would make the argument why he's bullish, because he says that margins are going to be much better than people think. And ultimately, that's what matters more. Wages coming down, input costs, inflation is coming down. Prices aren't really coming down. So those

input costs down, prices remaining up, margins are protected, stocks go up. That's what he would say. Yeah. And earnings troughed in Q3 of last year. And so we've actually seen a broadening out of this rally. I think that's been kind of the key story, not just a U.S. story, but a global story. We have 75 percent of stocks that are trading above their 200-day moving average. And so this broadening out, when you think of us reaching the end of some type of bull market, you tend to see leadership narrow. This, you're actually seeing the broaden out. You're seeing resiliency in earnings. We actually raised our earnings forecast in terms of the growth that we're expected to see this year to about 8 percent. It's not knock it out of the park, but you're actually seeing a much better backdrop.

I do want to hit upon this idea of a rate cut, though. I think the rate cut is important psychologically to markets. So this idea that, okay, this is the trajectory that we've hit peak rates, there is a rate cut on the table. I do think that's an important signal to markets. I think it is something that we will have to see this year for the rally to continue. Don't you agree with that? Yeah. I mean, listen, like a lot of funds, we debate this all day. What is the market pricing? What do we expect? What can we do with this tactically?

Yes, a rate cut would be helpful for markets, but not because a rate cut itself is necessarily helpful, although over a time frame it certainly is. If the Fed believes that inflation, and I just want to take a step back here for a second, the inflation data is already in the ballpark of where the Fed lives. They want inflation at 2 percent, sure. It's 2.5. PCE was a much better read than either the CPI or the PPI. And that's right. And the PCE is what matters more. And by the way, the PPI. Prior to this whole episode, 90% of investment professionals had no idea the PPI was even released. So the fact that everyone's focusing on it right now,

let's just take a step back. No one pays attention to it for 25 years. But that said, the Fed cares about the PCE. It's already got a two-handle on it. And if, as everybody believes, the January and February data was a bit of an aberration, you're going to continue this skirt slide down into the mid twos where you are there already, at least on a headline basis. But core will continue to slide down to the mid twos. And the Fed believes, whether I believe it or not, or you think it's right or not, is separate from the fact that the Fed, particularly Jay Powell, continuously tells us that he feels comfortable and willing to begin and cut rates in the next

couple of months. Is that going to be helpful for markets? I think so. Obviously, it would be. But the question is, how destructive would it be for markets if there's none? And I'm saying I don't think it's particularly destructive because I will disagree with Lauren. The cracks in the labor market, I could put a video of people on CNBC for the better part of two years talking about cracks in the labor market. It doesn't mean that there aren't cracks in the labor market. I agree there are some signs of weakness. But historically, and by historically, I mean the last year or two, those cracks have proven to be aferable. They show up, they disappear. A couple months later, the spike in the jobless claims that happened that ended up being fraud in California or whatever.

And I think if the economy continues to hold up, expanding in the call, the 2% to 3% range, earnings, as Kristen noted, were out of the earnings recession, continue to grow in the mid to upper single digits, that's perfectly fine for me. And over the last year, the economy has shown me, I didn't agree with it originally, but has shown me that it can do fine with a Fed funds rate in the fives. Can I disagree back? Please. One of the things that we're hearing the most from our private markets businesses,

we're really looking at Main Street, small and medium-sized businesses across the economy, across industries, is that actually 75 basis points this year would make a huge difference. And it has not only to do with the market sentiment around, oh, maybe the Fed could navigate a soft landing and expand the cycle a la Greenspan in the 90s, but also that demand isn't necessarily keeping up with even the reduction in costs that we're seeing on the inflation and wage front, which I agree is happening. And so that signal that companies can start thinking about how they refinance themselves is going to be really important. And I think that the longer that we see a Fed funds rate where it is today and no sign of abating, the more challenging the credit cycle is going to be when the economy does slow. You're telling me that someplace like the Russell wouldn't rip if you had 75 minimum basis points

of rate cuts this year? The only time the Russell moves these days up is when either rates come down or Fed officials talk dovishly, right? Look at today, down more than 2%. That's exactly what you're saying. Yeah, that's exactly the point. No, I know.'s exactly what I'm suggesting too. That's the key broadening, the key support for the economy moving forward. So, you know, is, and this is something where I really had to check my own assumptions because I asked the same question, like what could 25 basis points or 50 or 75 basis points possibly mean in terms of a

company's real financing costs. And the reality is that it is a meaningful impact to financing costs. And what I'm hearing from our investment teams is that it's also a meaningful change in the way companies would think about their financing over the next few years. Well, it's also a way, a meaningful way that investors are going to change the way they're thinking about the Fed and what this trend is. We've been fixated for 18 months on rate hikes and rates going from zero to five. Well, part of this hope, dream and everything else is based on the fact that we're going to cut rates and that that's going to be stimulant to stocks. You believe in the broadening story that we've got. I talk about the Russell, one day it's up, next

day it's down, depending on what rates do. You're a believer? I believe in the broadening story and I'm a believer in the rate cut story as well. I think this point that you were hitting upon is so important, though, because when we talk about where there's exposure, who's exposed to the short end of the curve, who's exposed to the long end of the curve when it comes to rates, I think when we're, we have to look at, for example, your average consumer within the U.S., when you look at the eligible homeowner population, you have about 65% are homeowners, of which close to 90% have locked in fixed rate mortgages. So you have about 50% of that population not really exposed to inflation, seeing appreciation in assets. If we look at investment grade corporates, same thing. You

had a lot of those corporates got their balance sheets in order, locked in low rates. The refinancing risk really comes up next year. So I think the rate cut is not just psychological, as I mentioned earlier, but then you have that kind of long and variable lag. What could happen at the second half of this year and into next year if we don't get them, which clearly is on Chair Powell's mind as well. And you don't think you're you're you said you're looking for 8% earnings growth, if I heard you right? This year and 6% next year. Okay, for the year. For the year.

Because I'm thinking about for the quarter. Yeah, for the year. For the quarter, they've come, right, expectations have come in from maybe 10% to 5%. Consensus expectations for the full year. So we raised in terms of full year guidance because we were thinking for full year, given some of, we weren't anticipating the first cut until the summer months that we would have seen like five percent. So our raise was five percent full year to eight. What about the momentum trade itself? High tech growth, mega caps, that area of the market, which is, I don't know, 25 percent of the S&P. It matters a lot.

Do we feel like that, Kristen, is taking an extended break or not? So if 25% and then you have about 20% of earnings contribution, I think we could all argue the MAG-7 kind of became the MAG-1. I think the interesting thing about mega cap tech stocks and growth stocks is really that's almost the flight to quality play right now. So when I'm talking about this broadening out, we love like equal weighted S&P 500. We love the S&P 400 and 600 growth indices. I think if we see more flows go into that, it's because of almost a risk off type scenario where then you see the flows go into short end of the curve and mega cap

tech. Your flight to quality, or if you want to call it that, is credit related, right? I mean, that's where you see more opportunity. We're highly focused on total return. I think this, even if it's a three or six month risk, this reinflation or really reacceleration of growth is a major risk for not just valuations, but for how many investors are positioned. And so we're looking at taking incremental equity risk in high yield because we see very similar quality characteristics, as Kristen was describing, for investment grade as a result of pulling out maturities, reshoring balance sheets during the pandemic. We're also looking at a structural allocation to commodities and looking at broadening of the technology play and artificial intelligence play

by looking at smaller companies in the growth space, small and mid-sized companies in the growth space, as well as infrastructure equity. All of this is sort of portfolio construction around inflation, and we're taking a neutral duration position as a result. I just want to say, even though we disagreed repeatedly, I agree with everything you just said.

We are long a lot of commodities and commodity-exposed names. OK. We do a ton of work in high yield. I mean, high yield had a pretty good first quarter. Loans had a—high yield loans had a better quarter. And there's—the market there is telling you basically the same thing that the equity market is telling you. Yeah. But you think if rates continue to move higher, that spreads aren't going to widen? Listen, rates have continued to move higher and they haven't moved higher that

much. But I'm talking about you start to get above four and a half and then maybe you're talking more about not so razor thin spreads and credit. Well, I would push back a little bit because the royal you have to remember that the high yield market today is not your mother's high yield market. This is a much stronger, higher quality market, more weighted to the top end of the rating spectrum than it is the bottom spectrum. Cash levels are better. Debt levels are not particularly onerous, et cetera, et cetera. So it's not exactly how it used to be. And that's part of the reason why, despite the 30 basis point move in yields already you've seen this quarter, high yield spreads, depending on your index, are call it 300 basis points right now, which is not the tightest ever, but pretty tight.

We're talking commodities. What about gold? What do we make of this move in gold? We're up again today. We're about $2,300. You talked about commodities. Oh, of course. It's a reaction to the inflation story. And I think that gold and precious metals as a component of a structural commodities exposure can make sense.

It's not where we like to take all of our inflation risk, but I think it's an important part of the story. Well, when you said commodities, what specifically are you talking about? Productive metals, particularly those that are fueling the electrification digitization of the economy, as well as I think energy is an important part of the story. And of course, a little bit of gold as well. One thing I will just piggyback off of Dan from earlier is that everything he's described in terms of high yield quality, I completely agree with. It's why spreads aren't likely to widen as much as they have in past cycles.

They're totally going to widen if the economy starts to weaken. Sure. I think the difference is that your equity valuations will also be reacting to that. And why not take a nice spread while you're at it? Since we're on commodities, what about energy? Right. Oil. Energy is the best last month.

You know, it's up again. I think it continues to rise. You like it? I think for crude to really break out from here, it's either geopolitics or Chinese growth, to be honest. I do think, though, within the equity. Both of which you're getting. Both of which you're getting, but would have to continue. So, like, we've seen this range, and it's a very wide range, like 70 to 90.

But I think that breakout beyond 90 would require some additional support. I do think, though, when you look at energy companies, you have an interesting, compelling argument there in terms of share buybacks, free cash flow generation, dividends. Obviously, the earning story wasn't pretty last year. It's not great from an outlook, but you have to think that oil, with the rally that we've seen, is going to be a tailwind. So maybe not a core holding within a portfolio, but tactically can make a lot of sense. All right. Eighty-five bucks. WTI is a look at it right now. That was fun. I appreciate it very much. Thank you, Kristen, Lauren and Dan Greenhouse. Joining us here at Post 9.

Let's send it to Christina Partsenevelos now for a look at the biggest names moving into the close. Christina, let's start with Endeavor shares gaining after private equity firm Silver Lake agreed to acquire the entertainment company for twenty27.50 a share. The transaction, with an equity value of roughly, what, $13 billion, is expected to close by 2025 and see shares of Endeavor up over 2%. Shares of PVH, the parent company of Calvin Klein and Tommy Hilfiger, tumbling after reporting weak Q1 and full-year revenue guidance. While the retailer did beat quarterly estimates, PVH warned of tougher macroeconomics and slow growth, specifically in European markets.

Shares are down a whopping 23 percent. Scott. All right, Christina. See you in a bit. We're just getting started here on Closing Bell. Up next, Disney's big boardroom battle. Shareholder votes coming in as we speak. Ahead of the media giant's crucial meeting tomorrow, 13D monitors Ken Squire with us next.

Why he thinks the vote might not be as close as people originally thought. He explains after the break. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back. The boardroom battle at Disney nearing the finish line. As reports suggest, the company is currently leading billionaire Nelson Peltz in the shareholder vote. That final count coming tomorrow with the annual meeting looming. Joining us now, Ken Squire.

He's the founder and president of 13D Monitor, a CNBC contributor. It's good to see you. Good to have you on Closing Bell. Great to see you, Scott. Thanks for having me. You, like many, are gaming this out. You suggest it's not going to be as close as many people think. What leads you to believe that? Yeah, I think that, you know, with the news, with T. Rowe announcing they're on the company side, and I have no reason to believe that the reporting on BlackRock is not true, that they're on the company side. Going into this, I think Vanguard is probably the big shareholder that's most likely to support the company out of the index funds.

And, you know, it could be a clean sweep for the index funds from the company. And if that's the case, that's 17 percent of the shares. And, you know, in a fight like this, maybe 70 percent of shareholders will vote. So they're almost halfway there just with those three big index funds. We always focus, of course, on the big guys, so to speak. But there is a sizable retail contingent here, too. I guess turnout, the vote matters. What's happening behind the scenes, do you think, in the final stages here? Yeah, the company and Tryon and their proxy solicitors have phones to both ears. They're calling everybody they can.

As I'm sure you know, that even if you voted one way, you can change your vote. And it's really only your last vote that counts. So they're frantically making the calls. You're right. There's 30 plus percent retail in this in this company. I retail, I think, will tend to go with management unless unless unless a really good argument is made to them. It's hard to hit all those small retail investors and get any real mass out of it. So this was you know, this was a great fight for Nelson Peltz. I if I was voting, was a great fight for Nelson Peltz. I, if I was voting, I would be voting for Nelson Peltz. I think he should be on this board,

but I think it's really an uphill battle at this point. Tell me why you'd be voting for him. I think that, I think that this is a board that, that needs an experienced shareholder when it comes to succession. This is not about last quarter. It's not about next quarter. It's about long-term. It's about long term. It's about holding management accountable. I think having a director on the board like Nelson Peltz that can debate, that can hold management accountable is invaluable here. When it comes down to it, this is basically Nelson Peltz versus Marie Olena Lagomacino. That's who he's running against. And if I'm a shareholder, I like the board with Nelson on it.

Well, I mean, what I find interesting, too, is that, you know, the stock has gone straight up in the last, you know, several months. But both sides could potentially use that in their favor. Iger could say, look, the only reason the stock has done what it's done is because of these plans that I've already laid out that shareholders already like. Whereas Nelson Peltz can say the only reason the stock's done what it's done over this last many months is because I'm here and my chances have increased of getting on this board and I'm going to be able to make a difference. And that's what shareholders want. And not only can they both say that, they both

are saying that. And they're both right to some extent. I mean, Disney had a good quarter that helped the stock. I don't think the stock would be where it is. I don't think Disney would have done everything they've done if Nelson and Tryon hadn't shown up. But again, this is not about last quarter. It's not about next quarter. It's about CEO succession and and having having a board that has experience with that. And I think Nelson would be a very experienced director to help with that. You have a better read than than many others, if not all others, on where we are in terms of activism in general. How would you characterize the current environment for activist investors right now? It's as strong as I've ever seen. I mean, going back 10, 15 years,

you know, over the last five or six years, even through COVID, activism was taking a backseat to growth stocks and high tech, you know, Magnificent Seven. And in a market that now is no longer rewarding growth, but is really looking at profits, there's a lot of CEOs and management teams that need to develop new skill sets. And that's where activists are coming in

now and looking at companies like Etsy and like Twilio that are hyper-gross companies that stopped hyper-growing and now need to improve margins. And it's just a field day for activists out there, a ton of opportunity. Ken, I appreciate your insight as always. We'll see you soon. Great. Thanks for having me, Scott. You bet. Ken, Ken Squire, 13 D joining us here. By the way, don't miss Ken Squire on last call tomorrow evening. He's going to react to the vote. So you heard what he thinks is going to happen. He'll react to actually what does that's tomorrow seven o'clock eastern time once we actually know the total up next how sustainable is this strength stocks are sinking as you know

in today's session because rates are rising well goldman's tony pasquarello is back with us we get his take on where he sees this record rally really heading from here. Closing bell right back. Stocks are selling off across the board today, continuing their rough start to the second quarter. My next guest says now is the time to keep an eye on the momentum trade as the bull market's risk reward could be turning on its head. Let's bring in Goldman Sachs' Tony Pasquarello, head of hedge fund client coverage. Welcome back. Thanks, Scott. So you say the trend is still higher, but that the risk reward has changed. In what sense? So I think we should just kind of level set what's led us to this point, which was a very strong Q1, of course, extended a remarkable run off the October lows that totaled $12 trillion in market cap appreciation. And to

put that in context, the US GDP is $28 trillion. It was a 99th percentile rally in a five-month period. So totally extraordinary, bulletproof run. At some point, you're going to be due for some consolidation, retracement. Maybe we're seeing a little bit of that today. I would say this. We're still believers. I'm still a believer in the bull thesis. I think the economy remains strong. We're forecasting the better part of 3% GDP growth this year. That might be part of the local complexity, by the way. A believer that the Fed put is alive and well, should they choose to exercise it. And then the background, which doesn't matter in daily today, you believer that the Fed put is alive and well, should they choose to exercise it. And then the background, which doesn't matter in daily today, you've got the AI story and you've

got the GLP-1 story, which we think have a lot of room. But again, just sober about the fact that risk reward today is different than it was three months ago or six months ago. And so where that leaves me with kind of like the tactics of navigating the market is stay in the fight, simplify your portfolio into the parts of the market where you have the most conviction and the highest quality parts of the market, and then take advantage of the fact that options are cheap. Put options are cheap. And so I'd like that pairing of staying in the risk you want with downside protection

and move along the path from here. How much of your undoubtedly bullish view on where we are still is on the idea that we're going to get three rate cuts, which you still think we're going to get three. So if I told you, Tony, we're not getting three, we may get two, we may get one. Some say we might get none. What happens to your thesis? So you've got it. I mean, the official view is they're still going to go three times this year, starting in June, four times next year, one for the road in 2026. We're going to end up with three and a quarter percent terminal fit funds rate as it relates to the kind of this year and the near term sequence, I don't mean to be

dismissive of it, right? Because the Fed is the biggest variable in the game. I think if you don't get the rate cuts because the economy continues to be better than expected, I think that's OK. The notion of adjustment cuts is they're nice to have. The notion is they're optional. And so the Fed doesn't elect them because, again, we're printing way higher than trend growth. I think it's OK. Now, it might change the complexion of the rally a little bit. It probably changes some of the mix.

It probably involves a little bit of correlationship. So I'm not dismissive in a world where people have a lot of risk on it. That's going to be an easy ride. But again, for me, it's always a question of why haven't they why haven't they elected the put that I mentioned? So economy's really strong. Fed says, you know what, we don't even need to cut as I've heard that argument, obviously, too. Why would they cut the economy? It is great. But the market has sort of is counting so much on the idea that rates were going to come down. Here we are on a rate-induced sell-off, even though we're well off the lows. And look, UnitedHealth is accounting for a lot of the 360 on the Dow. I totally get it. But to your point, the mix, the Russell's getting crushed today.

Why? Because rates are up. So it hurts the broadening story in some sense, doesn't it? It does and it doesn't. I have no problem with the Russell taking it on the chin. I think we all spend far too much time talking about the Russell. I always remind myself, S&P 500 catches 75% of listed equity market cap. Russell catches 5%. So sometimes I think, again, it soaks up too much airtime. Much ado about nothing. Much ado about nothing. I would say if I look at the first quarter and we would all say, hey, the broadening took place, long-awaited broadening took place. It wasn't just tech and communication services.

It was energy. It was industrials. It was financial. If this has more of a cyclical tilt to it, I think that's fine for those old economy plays. I just don't think it's a Russell story. I think the other important pattern of fact is, and I mentioned this before, if we were sitting here in early January, the market was pricing nearly seven cuts. Now we're pricing less than three, and S&P is 425 handles higher than it was back then. MegaCap, you've talked about sort of keeping your eye on the ball.

Are you okay with keeping your allocation to MegaCap where it was? I think it was overweight, right? You'd suggest being overweight MegaCap, which is already a sizable portion of the S&P. I don't need to peel that back at all? Is this just a rest? What's happening here? Here's how I think about it. Exactly. And that's the word choice. Keep your eye on the ball. Don't constrain your imagination, particularly as it relates to an NVIDIA or a Meta or an Amazon. I was thinking about the fact you and I spoke a lot about around Q4 earnings. Hey, Magnificent Seven earnings growth was plus 60%. The rest of the index was minus two.

As we head into this next year earnings period, can they sustain that degree of outperformance? Probably tough. And so I think kind of upside convexity locally from here is likely to be less than it has been. But like I said, I want to stay in that fight. The other interesting pattern within tech this year, and this could be within the Magnificent 7 or within the most profitable companies, there's been a lot of dispersion, right? So of the seven,

you have five up, two down, huge tails, Nvidia versus Tesla. Our basket of US Megacat tech stocks is up, call it 24% on the year. Non-profitable tech down 16. So we have a 40 percentage point spread between the best and the least profitable. So the market, even in kind of a rip-roaring sensation, has been very discerning about where it wants to place its bets. I think that's a healthy thing. Are you optimistic heading into earnings season overall? The bottom-up consensus is on the board at plus four. Plus four or five, right?

I think the market's decently higher than that. I mean, so I don't think the bogeys— Wait, wait, hold on. You think the market's pricing in more than that? I do. I do. I think market expectations are higher than that. Now, it's a nice glide path. That's risky.

Yeah, exactly. And that's why I think it is a more—depending on where you look, I think it is a more demanding setup for earnings this time around than it was going into Q4 and Q3 numbers. Not a reason to run to the hill for the hills. But like I said, if I can pick up vol to protect myself along that path, I'm very happy to do it. And even though it feels like the market's gotten beat up, look, the VIX was 13-something at the end of last week. It's 14-something today. The cost of a good night's sleep, whether you worry about the left tail or the right tail, is still pretty low.

I would much rather, like I said, I would much rather have that to stay engaged than try to trade in and out of a market that really hasn't sustained any form of a drawdown in a long time. On a day, lastly, where we're talking about oil up and gold continues to run, how are you personally thinking about commodities? So, you know, we've liked them. We've had a full-throated, structurally bullish call coming out of 2020, in our view, like in oil specifically. Another one recently, if I recall correctly, in the last couple of weeks. Exactly correct. And it's just kind of market to market. We're in year four of what we think is a 10-year structural bull market in commodities. I think this is an important point that links back to an earlier point in the conversation, which I think people are wondering if the Fed doesn't kind of give me the adjustment cuts,

what's going to happen to risk? I actually think if you look at the oil market or gold or the back end of the treasury market or the ratio of cyclical stocks for defensives, they're basically saying to you, the economy is doing just fine. This looks more like a reflation trade to me a high nominal growth environment trade to me. Then it does a stagflation trade. Appreciate

it as always- Tony Pescarello Goldman Sachs thanks for coming over. All right we have a big interview on the docket for tomorrow we don't want you to miss I'm going to be sitting down. Exclusively with greenlight capitals David

Einhorn that's from the sewn investment conference tomorrow about two fifteen eastern time. Tomorrow, please don't miss that. Up next, we're tracking the biggest movers into the close. Christina Parts of Nevelos is standing by.

With that, Christina. We have the Biden administration holding firm on its proposed Medicare advantage rates. And that's hurting insurance stocks. I'll have that and much more after this short break. We're about 15 out from the closing bell. Back to Christina Partsanovalos now for a look at the key stocks she's watching. Christina.

And we are watching health care insurance stocks because they're falling as the Biden administration fails to boost Medicare payment rates as much as investors were hoping for. You've got big players like CVS Health, UnitedHealth Group, and Humana sliding right now. Sea of Red, Humana the worst, down 13%, as centers for Medicare and Medicaid services announced rates will only increase 3.7% for 2025. However, let's talk about shares of ChampionX jumping after agreeing to be bought by American oil field company SLB in a $7.7 billion deal, all stock deal, I should say. The deal is expected to close before the end of 2024. And you can see up Champa next 10 percent, SLB down one and a half.

Not too bad. Christina, thank you. Thanks. Christina Partsenevelos. Still ahead, Tesla's tumbling. That stock sinking in today's session. On the back of some crucial delivery data. We're going to drill down on that number. How it could impact Tesla's bottom line in the months ahead.

Closing bell. We'll be right back. Coming up next, GE's power spinoff making its market debut today. What the CEO had to say about its first day of trade. When we take you inside the market zone. And tomorrow, another reminder, do not miss an exclusive interview with hedge fund manager and New York Mets owner Steve Cohen. That's on Squawk Box, 815 a.m. Eastern. That's a big get. Closing bell. We'll be right back. We're now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day.

Plus, Sima Modi on GE Vinova's first day of trading. That after GE finalizing its split today. And Phil LeBeau on why Tesla shares are selling off. Michael, to you first. We're off the lows. We are. A lot of it has to do with UnitedHealth, at least in terms of the Dow. What do you make of today? We had this little wobble. It didn't, at this point, change the character of the market.

We definitely went up to the edge of it, and I'll say it in a couple of ways. One, we spent a lot of time today underneath last week's low in the S&P 500, just marginally. Right now, we're just in the zone of where we were at last week's low at the 20-day average. So all these little short-term tactical things that say, are we definitely still in buy the dips mode? It seems like it, but I'm on alert. Obviously, the bond market throughout the day firmed up, meaning yields came in off their highs. So that kind of gave clearance. And there are some idiosyncratic things, as we're going to talk about, going on, driving some downside. And that's Tesla and the health care stuff. So you can set a lot of that aside and say, we have the market we thought we had. We came into this quarter with investors

pretty filled up with equity exposure, looking for an excuse maybe to do some pent-up selling. So I remain a little bit on guard for the possibility that we have a little more of a chop to deal with. All right. Look who's back. Look who's in the market zone. Sima Modi. GE Vrnova. They're going to ring the closing bell today, right?

Yes. It's a momentous day specifically, Scott, for CEO Larry Culp, who spent years transforming GE, right, into a company that is now a pure play aerospace company, less debt, stronger bottom line growth, and over time now really trying to grow internationally. Here's what Larry Culp told CNBC earlier today about this transition. I think that's what you see today with the launch of an independent GE Aerospace and a GE Vernova. Right, we're on the other side of $100 billion in debt reduction. We set these two businesses up as we did GE Healthcare on a strong financial basis. And what we've done operationally is not only more than quadrupled our free cash flows but driven that 190 billion of market cap

expansion that we've have seen since the uh the dark days in the fall of 2018. we've been talking about ge now 40 this year the question is can culp and the ceo of vernova stock straslick can he replicate the success and create Vernova into this, the new GE, if you will? This is a standalone energy company that has power, which is profitable, electrification, which is being fueled by data center demand, profitable as well. The key challenge, Scott, is going to be wind. Offshore wind is a loss-making business, a billion dollars a year. Can they turn that around? That is the key question and for the outlook of this company. And a long road getting to this point, huh?

No, it has. And this is one of those deals where, for a long time, GE wasn't getting credit in its valuation for the best parts of its business. And this was the way to strip it away and get it. And by the way, power generation being something that's working now, for a long time it was a bit of an albatross. It was unprofitable. And now they're on the other side of it, just at the moment when everybody is looking for ways to play the need for more power globally. Although politics came into the conversation that I had with Larry as well. I mean, this is an election year. If we have a Republican in the White House, the subsidies attached to renewables, how does that change? And what does that mean for a lot of these newer age energy companies? All right, Seema, thank you so much.

That's Seema Modi. Philip Bo, bad day for Tesla, and it's all related to deliveries. I'm not sure it was a huge surprise that they missed. What do you think? It's a surprise they missed by this much, I can tell you that. There were no, no estimates for deliveries to come in as low as they did. Most people thought, ah, 410 to 420. That was the whisper number out there among analysts. Oh, no. Look at how bad these numbers

were. Coming in at just under 387,000 vehicles delivered in the first quarter, down 8.5% compared to the first quarter of last year. By the way, first year-over-year quarterly decline since 2020. The consensus, look how far off this was compared to the consensus. Consensus, 457,000. Now the question is, what will be the estimate when the analysts are looking at full-year deliveries? Going into today, it was 2.06 million. It's not going to be 2.06 million. Some are even talking about full-year deliveries declining compared to last year. And as you take a look of shares of Tesla, the next big benchmark, Scott, April 23rd. That's when we get the Q1 results. And you know what everybody's going to be looking at, automotive gross margins.

How much pressure are they facing right now? That's going to be the next thing that people will be focused on. Phil, thank you. Phil LeBeau with the latest there. You want to comment on what you witnessed here with tesla shares this year i mean it's been not been a good year that's to say the least 30 33 since the last week of december thereabouts um i mean earnings for the current year even before you've probably going to see a wave of downward revisions is under three bucks

a share right so as much as the stock is underperformed, it hasn't really gotten cheap. So it's very difficult to know, unless we're going to talk about when it gets really oversold and you have some technical support maybe just underneath, why it would necessarily turn around here, because you're still talking 50-plus times an earnings number for this year that's likely vulnerable to further cuts.

So we have a jobs report later this week. And, you know, it's going to be fun to watch the markets over the next couple of days leading into that, especially yields. What happens in the day ahead and see whether, you know, stocks can withstand a continued backup? Yeah, at least a nuisance. The idea that the longer end is at the high end of this range in terms of yield. We do have the market sort of positioned for a stronger economy. Still think that the Fed has got to find a way to cut in there. I do, because they've told you that unless inflation doesn't cooperate, they're inclined to cut.

So just saying, oh, it's okay if they don't cut because the economy is strong, sure. But they've told you they're going to cut even if it doesn't cut. So it has to also mean that equation is going to cooperate. That's why I do think you want to look at the wage growth number and all the implications of that. Well, if one big bell wasn't enough, we have many smaller ones ringing at the same time right now. And there's a big one.

We're red, though, on the Dow and the S&P, NASDAQ, too. I'll see you tomorrow. End of OC, Morgan and John.