Closing Bell - Closing Bell: Break Out or Break Down? 5/19/23

Episode Date: May 19, 2023

Are stocks about to break out or break down? Tony Pasquariello from Goldman Sachs gives his forecast. Plus, Vantage Rock’s Avery Sheffield explains the key for investing in consumer stocks. And, Former Fed Vice Chair Richard Clarida weighs in on inflation, rate hikes and where he sees the economy headed from here.

Welcome to Closing Bell. I'm Scott Wobner live from Post 9 here at the New York Stock Exchange. We have a big interview coming up in just a short period of time. Former Fed Vice Chair Richard Clarida is with us. He's going to discuss with us whether the Fed is in fact done raising interest rates, as some are predicting. This make or break hour begins with more debt deal uncertainty, though, and it is weighing on the markets yet again today. Word that Republican negotiators called a pause in those talks, sending stocks lower right around midday. And that's pretty much where they've been. The S&P coming off its highest close of the year, sitting at or near that closely watched 4200 level for most of the day.

Just below it, as you see. Nike a big weight on the Dow today following that cautious guidance from Foot Locker. That stock having one of its worst days ever after its outlook disappointed investors. The Nasdaq taking a breather, too, even as Apple, Alphabet and Meta hit new 52-week highs in today's session. And that brings us to our talk of the tape, whether we're about to break out or break down. Let's ask Tony Pasquarello. He's the global head of hedge fund coverage at Goldman Sachs with me once again on set. It's good to see you again. Thank you, Scott. I thought we were about maybe to break out of this range. And here we go. You know, a headline on the debt ceiling dual brings us back below 4200. What's your outlook right now? So we walked into the office

on Wednesday and the six week trading range was the tightest in five years, less than three percent. We've obviously teased up towards the very upper end of that range, around 4,200. As someone who's been in the range trade camp, the collar feels a little tight at 4,200. But we've seen this level four or five times, and it's held every single time. I'm a believer it probably does still hold. I think the good discipline would be to lighten up a little bit on your risk at this end of the range. And I tend to believe, if I look at NASDAQ in particular, which has performed masterfully. I mean, we've talked about it every day, virtually this week,

and for good reason, because it has so outperformed and there's so much hype around the hope for AI. The question is, is it so overstretched to a point where it's going to have a pullback? I think fundamentally, there's still a lot to like, of course. We saw this in Q1 earnings, 5 for 5 with Magna. They beat expectations, return of capital, health of balance sheet again, Apple a $90 billion buyback coupled with debt issuance last week. They're all running plays very few companies can run. That said, I look at yesterday, the RSI on NASDAQ pushes above 70.

We have the largest one-day call option volume in nine years. It just feels a little bit short-term extended to me, although it's probably still the best game in town. Okay. So given your hedge fund client coverage, right, you have a really unique window into where the biggest and alleged smart money is placing its collective bets. We learned from the 13Fs that you're getting a big lean into AI, a big lean into mega caps. Steve Cohen the other day was speaking at an event, and it was reported from those who were in the room, he's bullish on the market. One of the reasons is AI. Is your client base, by and large, growing more, I don't know, optimistic on the market?

A little bit. I think the general posture of the trading community coming into this week was actually very defensive. I would have said this a couple of months ago as well. So when we look at Goldman Sachs prime brokerage data, again, always a very good kind of reveal of what people actually have on. Net exposure, length was in the bottom decile of a three-year look back. When I look at CFTC data and S&P 500 futures, and I remind myself every single day, S&P futures trade as much in dollars as the entire cash equity market, that position for specs was near a record max short.

So I think in general, risk-taking had been very defensive. I think if there's any place where people have been pushing a few chips forward, it would be those mega tech names who have kind of picked up that AI buzz. So toes are getting back in the water. That's fair to say. No one's jumping in. I think that's right. You know, we've constructed a basket of the perceived beneficiaries of AI winners. It's early. I think it's kind of still rough work

in this process. But what's so instructive is the reality is the perceived winners, the Googles, the Microsofts, the NVIDIAs, they carry the bulk of the index weight. And so I think this has been a very material tailwind for S&P 500 in general. You think the Fed is done? And, you know, this week was interesting because you had a couple different Fed speakers, right? Bullard and Logan suggest, oh, maybe we're not done. Maybe we need some insurance, so to speak. And then the Fed chair today, he certainly didn't seem necessarily as though he was on the same page, the hawkish page as they were. Walking in this week, I would have said we think they're done as a formal kind of view as a house.

The interest rate strip thought they were done. Most Fed commentary. I think there's 19 occurrences of Fed commentary. A lot of it felt to me like they were trying to keep their options open. A lot's going to happen between now and June. We have another payroll number. We have another CPI number, presumably resolution one way or the other, the debt ceiling, and of course, kind of still the openness of the regional banking situation. So I think they're going to wait on as many pitches as they can. But as you say, the market did put June in play for a little bit. What I find so interesting about the bond market's expectations of the Fed, again, at the start of the week, you'd say they're basically saying the Fed may or may not this

summer, but the pause is probably in. And come September, they're going to hike once a meeting for eight straight meetings, which is a year in real time. And the funds rate at the end of next year is going to be 3%. I think that's a very kind of tidy profile of a soft landing. I don't think that was lost on the stock market. I think that's part of the strength we've seen in tech. I mean, is the risk that the Fed is going to be more aggressive than the market not only is priced for, but that investors expect? Because you know where the market has been placing its bets. As you said, the narrative was, okay, June's done. Now we're like, well, is it live or not? So that would seem to me to be a good place to talk about where the risks lie.

I think if one were to articulate the skeptical narrative or the kind of short-term bearish narrative, I think it's probably where you start. Maybe the Fed's not done. By the way, core inflation is still 5.5%. Wages are still growing more than 5%. Historically, it would be an unusual place to pause. So again, I think we have to wait and see how a few of these other events play out. But I do think it's a risk that was kind of reintroduced to the market's mind this week a little bit.

The other thing, you guys held a big family office event recently, I know, because I know people who were there. Is there a difference in the way that family offices are approaching the market now versus just pure hedge funds? I think there's an immense difference. So for the past five years, Scott, we've been spending more time with the family office community. I'm glad we have. I think there's an enormous amount of muscle, an enormous amount of firepower. We did a survey earlier this year, 166 families, 75% of those are north of a billion. We had a big conference this week. Steve Weiss was there, had nice things to say, could have him in the house. That was my mole in the room. He outed himself, so now you did anyway, so it's all right. We'll take it. He

was polite. We'll take it. But yes, the survey workers basically say they have a meaningful allocation of cash, and 35% intend to deploy that cash this year. Where? Public equities, private equity, private credit. So very much on the front foot, permanent capital, ultra long duration capital can essentially make moves no other investor type can. But I mean, I would think by a class of investors, it would be a bit more cautious than your typical hedge fund. I mean, in some cases, you have people who used to run hedge funds who are now running family offices. So maybe their perspective, their client base is obviously not what it was.

So maybe they're thinking differently about the risk curve. I think there's that segment of family offices. I used to run a hedge fund. Now I run family office money. And I probably run it in a very similar way that I used to run it when I had LP money run family office money, and I probably run it in a very similar way that I used to run it when I had LP money. And then there's kind of everyone else. There's the big American families

who continue to have operating businesses who have done very well in the past three or four years, continues to generate cash flow. Here's what's so interesting. If you look up there, weighting to alternatives, they're allocational alternatives. They have a 45% weight. Private equity, private credit, real estate, hedge funds, maybe a professional

sporting team. That's like 2x a normal ultra high net worth individual. So I do think they're operating, again, very much on the front foot. All right. It's good to catch up with you, as always. Tony, thank you. Thanks, guys. Tony Pasquarello joining us. Goldman Sachs, global head of hedge fund client coverage. Let's get to our Twitter question of the day. We want to know whether you think there's a bubble in AI stocks. You can head to at CNBC closing bell on Twitter to vote. We've got the results coming up a little bit later on in the hour.

In the meantime, let's get a check on some top stocks to watch as we head into the close. Christina Partsenevalos is here now with that. Christina. Well, let's start with Foot Locker shares because they are plummeting right now after posting its biggest earnings miss in three years. Revenues were light, same store sales were a solid disappointment, down 9% year-over-year, leading to actually

lower guidance. The stock is down 27% right now. But the CEO, Mary Dillon, said promotions and a drop in discretionary spending hurt their bottom line. Listen in. We skew more middle and lower income where the pressure is higher. I mean, the facts and the math are that pressure is going to be different depending on the household level of income. Footlocker does reply on lower income shoppers. Switching gears, shares of Farfetch are soaring despite the earnings miss. The luxury fashion online platform did post higher than expected revenues. Sales volume continue to grow in the United States and China, representing strong demand for high-end goods, even as consumers pull back on spending.

That stock is up almost 19% right now. Scott. All right, Christina, thank you. We'll see you in just a little bit. Sticking with consumer names, our next guest says the key for investing in them is to stay selective. Let's bring in Avery Sheffield of Vantage Rock back with us.

Nice to see you. Nice to see you, Scott. This was an interesting week for retail. Yes. Sort of ending with week for retail. Yes. Sort of ending with a whimper the way that Foot Locker is trading, kind of overshadowing everything today. But how do you view it now? Right. So, you know, I like to be optimistic about the consumer.

I think the consumer is an increasingly tough spot. And we've seen multiple data points through the week, certainly this morning and actually in previous reports, even at the higher end of reports by companies like Canada Goose, like Burberry, showing that the U.S. consumer at both the higher end and the lower end is struggling more. Are you, by and large, worried about the consumer enough to say, you know what, maybe it's too hard to be too selective. So why bother? Right. So we're watching very closely. I am. Yeah, I think I think it's not why bother. I think you want to be a very prepared mind. So what we're doing is we're spending a lot of time looking at companies, not just the companies that you know that are going to sail through this fine,

right? Walmart's going to sail through this fine. It's an expensive stock. Like they reported great results. The stock's not up. The TJ Maxx, like great, great companies. But looking at the companies that are more sensitive, are more beaten up, but are likely to or that have the potential to really outperform and have enough going for them that they can surprise onto the upside over the coming year. Like that's where they're going to be opportunities, but the pressure on the consumer looks to be accelerating, not decelerating. So I think being a prepared mind is potentially the best place to be. I mean, I ask you the question because, you know, on a day like today, I look at Foot Locker and I'm

like, okay, Foot Locker has got its issues and it's talking about bloated inventory and you've got to have markdowns and more of them because they have to work through it. And then you look at Nike's down almost 4% in sympathy with that. So do I need to think differently about the Nikes of the world if I'm worried about the Foot Lockers of the world? I think I would think differently about some of these very expensive, great brands that are also potentially cyclical. I mean, we did see with Under Armour's earnings, certainly not perceived to be the same brand, have the same brand strength as a Nike, but we haven't had any data points yet, you know, on the largest footwear company in the world. And, you know, it's hard for me to imagine that given that Foot Locker has, you know,

65 percent of their sales from them, that they might not experience pressure to. And then the question, of course, with all these big brands is how is China going to do, how is Europe going to do? But if you see some weakness there, there's a lot of room for multiple compression. Are you reassessing as it comes to retail? The rebound from China has been weaker, I think, is fair to say, than some thought, particularly from a travel retail standpoint, right? Estee Lauder comes to mind. Are you thinking now differently? So I've been more cautious on the China rebound

myself. I think it's been very, there have been a lot of differences across brands, right? So companies that had, that both maybe produced too much inventory themselves or had customers like in travel retail that bought a lot of inventory ahead expecting a very strong rebound they are struggling those that have managed their inventory more tightly like actually look like they have decent results in china how long that will continue i think is a question but you have to look brand by brand and their inventory levels and their potential sell-in over the previous quarter to know i think where you're going to continue to see benefits. You're buying this AI move.

How do you think about it? Is it a bubble? You're laughing. I mean, why are you laughing? I'm laughing because it seems very bubble-like, but the bubble keeps growing, right? So it does seem like dot-com. It does seem like Bitcoin. Because as soon as I came out, I asked the CEOs of every company I was speaking to,

so tell me about your investments in AI. And they said, oh, yeah, we've been investing in AI for years. Oh, is your CapEx budget changed? Not really, maybe a little bit on the margins. And so it seemed more incremental rather than revolutionary. Certainly, companies are going to be spending more money on it. And you are hearing about incredible demand for the chips. But will that materialize into the revenue and earnings expectations people are thinking over the next five to 10 years? I think that's going to potentially be tougher. But what's going to stop it? I don't know, because demand is accelerating.

It's just I'm not seeing enough use cases that suggest there's going to be enough investment to justify the current valuations. And also what's interesting at a chip level is you are seeing the primary purchasers of AI put out announcement after announcement about their own internal initiatives that they think are going to actually be better than the dominant players chips over time. And that suggests there won't be a monopoly and spending might be lower than anticipated due to cost efficiencies. But it makes you pause, if nothing else, and say it feels a little reminiscent of that early run up in some of the stocks. Even though, let's be clear, and we showed this earlier in the week, the valuation gap between then and now is extraordinary. Extraordinary. In the early days of the Internet leadership stocks, if you look at those, I don't need to mention the names, but people remember what they are and how crazy the

valuation's got. I mean, is Microsoft at 30 whatever times earnings is not nearly as egregious as something like that, maybe in the current environment, just relative to where rates are and what the trajectory for that in the economy, or I can see that argument. Yes. Look, Microsoft might be an expensive stock, but Microsoft's not a stock that's going to fall off a cliff. I mean, they've got a lot of good things going for them independent of AI and AI is likely to be, I think, very value add for them. It's just a question of what multiple you want to pay in a market or in a world where short term interest rates are five and a half percent. Avery, I appreciate it. We'll see you soon. My pleasure. Avery Sheffield joining us. We're just getting started here on Closing Bell on this Friday. Up next, tech's transformational moment. The hype surrounding AI sending that sector higher,

as you know by now. Star Wedbush analyst Dan Ives, he joins us with his forecast. He's just back from two weeks of checks in Asia. He's going to tell us exactly what he saw on every stop he made. And later, what's next for the Fed? Former Vice Chair Richard Clarida gives his first reaction to Chair Powell's comments on inflation earlier today. That's ahead. You're watching Closing Bell on CNBC. We're back. Apple, Alphabet, Meta and the broader tech sector, he tried to say, all hitting their highest level in more than a year today as the hype around ai has driven a sharp rally in big tech but is the mega cap momentum and investor sentiment getting a little ahead of itself at this point let's ask our next guest star wedbush analyst dan ives he is here at post nine it's good to see you again as i mentioned

in the teas you're just back from two weeks of stops in Asia, checking on everything that's going on in tech right now. What did you learn? What was the biggest takeaway you got? I think from an investor perspective, I think a stark contrast to what I've seen the last few years, appetite for U.S. tech, how do you play the winners? I think you actually see more and more moving from China tech to U.S. tech. And from a supply chain perspective, stabilization. I think that's the biggest thing, specifically when it comes to Apple and semis. I walk away from that trip a lot even more bullish on tech in terms of what we see from

a demand perspective. Do you have a hard time, even as bullish as you are, justifying some of the moves in the stocks that we've seen? And if not, why not? Hey, look, I get that many people think, could this be a hype theme, crypto, metaverse, now AI? I mean, to me, Scott, I think in 22 years covering tech, it's probably the most transformational tech theme that I've seen.

So in terms of as an opportunity, I'm not saying in the next year that necessarily the monetization is going to be there to justify these moves. But when you look at Microsoft in terms of what's happening in Redmond, you look in NVIDIA, Google and others, I mean, we believe this is, based on our estimates, an $800 billion market over the next decade. How do you get that number? I hear people talking about every time we try and we're in a moment in time where we

try and justify a stock move or a group of stocks and their move. We use things like total addressable market and we come up with whatever number sounds amazing to us to try and justify that. Where's that number come from? To me, and I've talked to you about it before, from what we're hearing from the field in terms of cloud partners, from Microsoft across the board, for every $100 of cloud spend, $35 to $40 of incremental could be AI. And I think that's when you start to sort of trajectory that out, that's why the hype's there because that's when the Della, Jassy, what Google, what everyone's going after in terms of that opportunity. That's why I believe this is not hype. This is a real monetization opportunity. That's why I believe this is not hype.

This is a real monetization opportunity. It's a Game of Thrones going on. I don't want to just view one winner. But that's why I think this is different than maybe other themes we've seen. Well, I mean, it's certainly an arms race, right? An arms race means that you are going to spend a lot in the beginning to try and load up your arsenal, right, to be able to rule whatever

world you want to rule. But the payoff, that's unknown in terms of the time frame. When's the ROI on all the stuff that we're seeing, return on investment, that we're seeing now that's going towards AI? I think, and this was a big theme across Asia, that investors are wondering, when's the monetization? And I believe the monetization, especially when it comes to Microsoft and cloud, I think we actually start to get there by the end of this year. I believe monetization in AI, specifically on cloud, is going to be a lot sooner than expected, which is why, you know, with a lot of these names that continue to move higher. I get the skeptics, but what I believe is that it's this fourth industrial revolution that's playing out, even though it's a murky macro, and obviously a lot of jump balls going on from a Fed

perspective. I think this is different. I really view that it's sort of a golden age for AI, and that's what everyone's trying to figure out. Okay, if it's not just Microsoft and NVIDIA, has Google benefit? Salesforce? Does AMD benefit and others? I think winners, and there's going to be losers too. That's what everyone's trying to figure out in terms of this AI theme.

I know, but I remember way back when watching documentaries and television news programs called the new gold rush. Same kind of stuff you're talking about relative to the Internet is how people are referring to AI now. I get it. I think everybody kind of gets it. But does that necessarily justify these near-term moves and some of the valuations that we now have in some of these stocks? I think for some, it does. I think for Microsoft, it's a good example where if they could really monetize AI relative to cloud, this is a stock that could ultimately have a four in front of it in terms of as they ultimately sum of the parts this

and monetize. Others, they obviously have to prove it. But I think that's why right now I don't believe it's hype because I do believe the monetization theme is probably as real as anything I've seen since the late 90s. All right. Dan Ives, thank you. Thanks for being here. That's the Wedbush analyst Dan Ives joining us here post nine. Up next, the former Federal Reserve vice chair, Richard Clarida. He breaks down his forecast now for interest rates. We'll get his take on the probability of a June hike, what it could mean for the economy. Don't go anywhere. Closing bell with that big interview is next. Fed Chair Jerome Powell signaling today that stresses in the banking sector may mean interest rates won't have to go as high as expected to curb inflation. So what does this mean for the Fed's road ahead?

Let's bring in Richard Clarida. He is the former Fed vice chair. It's good to see you again. Welcome. Thank you. So Powell today said we've come a long way. Our stance is restrictive, might not have to take rates as high because of credit tightening from the banks. Are they done for the time being? I think that they've certainly paused. Time being, yes,

let's agree. I don't think they want to declare a victory. It's not mission accomplished. Inflation is too high. But yeah, this was a very similar message than we got out of the press conference a couple of weeks ago. So I think that's what the chair wanted to convey, that they're going to pause at the June meeting, certainly, and probably in July. I chose my words carefully in the way I asked you that question, you know, for a reason for the time being. What you just said is very interesting to me in that, you know, June. OK, but you think you think they may pause in July as well? That would be my guess. That would be my guess. Now, look, they are data dependent. You know, they've gotten off what some folks have called the hamster wheel of hiking at every meeting, or at least if they pause in June, they will have gotten off the hamster wheel. And I take the chair at his word. Look, they have hiked a lot. Rates are

restrictive. There are lags. There are challenges in the banking system. So he also emphasized today that they do want to be looking at the incoming data. You know, you have some hawkish members on the committee, Lori Logan and Loretta Mester and some others. And so I think it's going to be a robust discussion. But I think the center of gravity now is that we have a pause, most likely for the summer. But what do I do with the hawkish, you know, speak that we got this week as you know, as Logan and then even Bullard saying, quote, it may warrant taking out some insurance by raising rates somewhat more. Echoing what, you know, Logan said and as you suggested, some others. What am I supposed to do with that?

Well, I think part of what's going on here is and we've we talked about it before on your show and I've written about it. There has been a tug of war between Fed messaging and market pricing. You know, just five, 10 days ago, the markets were pricing in a high likelihood of a cut in July, a slam dunk of a cut in September. That's all been taken out. Right now, the market pricing is, if there is a cut, it would be at November. And I don't think they're unhappy with that. So part of what's going on here is not so much trying to tee up a hike at the next meeting it's trying to get the markets away from teeing in

eminent rate cuts ah so you think that's really what Bullard and Logan were after is to try and get the the market to move away from this idea that we're gonna cut anytime soon exactly I mean I think also you know I respect them both I know them both I've worked with them I think that they do think probably the Fed will need to do more. But right now, you know, the chair doesn't want to go that far. And at minimum, their their their Fed speak has, I think, done something the Fed wants, which is to take out some rate cuts that they don't think are going to happen imminently. Do you think that Chair Powell is a little more worried about prospective banking issues propping up here and there than some of the other Fed members are?

I'm not sure about that, but he did emphasize it. And obviously the chair, I worked with him closely, chair does choose his words. And he could have chosen not to emphasize that. So, yes, certainly if I were back in the building, it would be on my mind as well. Again, you know, the banking system as a whole is sound. But, you know, there are challenges in several banks. And and I think he wants to certainly avoid appearing to be relaxed about that. So I think this is the wise course. And to be clear, as our Steve Leisman noted well earlier, these were not off the cuff remarks that were made today by the chair. He repeatedly referred to, you know, either notes

or a script or however he wanted to make sure that his words were clearly said and that the market clearly got the message. Right. Oh, absolutely. Look, anyone who watched the video could see the see the notes. Now, that's not new. You know, the chair has notes of press conferences and testimony. But yes, certainly, even though this was a, you know, fireside chat segment with Ben Bernanke, Jay Powell has always came prepared. What would cause them to cut, Mr. Clarida? If, you know, let's say the economy doesn't necessarily have to fall off a cliff, does it, for them to cut? I mean, inflation could come down much faster than the Fed maybe expects that it will. What's the difference maker here? Yeah, you know, the reality is, except for a couple of months in November and December,

most of the inflation news this year has been either as expected or worse than expected. But look, we're going to start to get relief on headline inflation as the housing market has turned and rental inflation drops down. And so, yes, if inflation comes down faster than they and the markets expect and it looks to be persistent and returning towards target, then they could cut sooner. They could also cut sooner if we get a sharper decline in the economy and a bigger increase in unemployment than they expect. But again, because I think that'll help to lower inflation pressures. When do you think the first cut comes? Like, you must be in your current role kind of thinking about that, talking about it with colleagues, gaming it out for people because

you've been in the room. When does it come? Well, I've been pushing back against the idea it would be this summer or September. As we move through the year, if they start to get better news on inflation, remember, they have cuts penciled in or written down for their projections in 2024. So I can certainly see if the data breaks their way, them entertaining the conversation about cuts in the November or December meeting to tee it up for next year.

But I would be surprised if we see it before. They really seem very unified in all their public comments that part of the plan is to keep rates at a restrictive level for for some time. So I think the hurdle is pretty high near term to cut. I'm also wondering everything to this point has been unanimous. What impact would there be if in June there were dissents, even if it was just one? Well, of course there can. And certainly during my time as vice chair, we had we had dissents to quite to be quite frank for your viewers. I don't think it makes that much of a difference. We're going to get the monetary policy that Jay Powell thinks that the economy needs. He's very persuasive and he can usually hold the committee together. But certainly, Jay Powell is not going to make a decision he doesn't want to make

because of a potential dissent. So but obviously, the dissent will convey information about about where the committee sees the risk. So, you know, it would be informative when we get it. But I don't think it's going to change a decision. But there wouldn't be a broader issue if there was a so-called fractured Fed, even if it was initially just one dissent, the mere fact that what was unanimous is no longer as we move into one of the more uncertain stages of this new regime from the Fed? I think it would depend on what the communication was, but certainly the chair could, either through his own or through through people on the committee representing his views could could convey the message. Obviously, if the committee went radio silence after a dissent, that would introduce some uncertainty.

I remind you, in 2019, the Fed had three dissents for several of our rate adjustments in the summer and and fall. And it wasn't great, but it's the direction that the chair wanted to go. So I don't think it's going to be decisive, but obviously it would introduce some uncertainty and some communications challenges. Are you surprised by how resilient the economy and the labor market have both been? And do you think the Fed chair himself is? Well, yeah, the labor market in particular, I think, is surprising most forecasters. And, you know, that's a good thing. You know, we have a record low unemployment

rate. And I just saw a survey today that job satisfaction statistics are back to like 35 year high. So there's a lot to like about this market. The one thing not to like about it is that wage pressures are excessive relative to the two percent inflation target. So, you know, I think that's that's the way that they're processing. But yes, the labor market has been very, very robust. Has it impacted in any way your own feeling on whether you think a soft landing is achievable? Well, it has, actually, ironically. The stronger is the labor market right now, and we haven't really seen any striking relief in wage inflation. It's down from the peak, but it's still elevated. I do think what that does mean is that in order to get inflation down into two point something, we're going to have to see a softening in the labor market. And the longer that's delayed, potentially, the more the Fed has to do.

Would you entertain in any way? Let's let's just say we get inflation down to target or at least close enough and we all move on and go on with our lives and the world's a better place, etc. Would you do you think that they would actually have a conversation in the room about changing the target? Well, sure, they can have that conversation. The chair's been pretty clear that he would be against it. I think the challenge right now is that if if they were to change the target, obviously to raise it, they wouldn't lower it. If they were to raise the inflation target, what it would do is it would push up bond yields and it would be very disruptive, not only in financial markets, but into the real economy. The bond market now, for all of the challenges and the twists and turns post-pandemic, the bond market thinks that the power Fed's going to get inflation down to two point something over the next several years. And if they were to suddenly change the target,

well, what we would see is what we oftentimes see in emerging economies when they devalue their currency and they say never again. And immediately the markets start to price in another devaluation. So you can you can make a case that several decades ago, the Fed and other central banks could have picked a different target, but they didn't. And so I don't think it certainly they can discuss it. I don't think it's likely that they'll pull the trigger and do it. You know, the other thing I'm thinking of, too, is, you know, obviously it's a dual mandate. You have stable prices, you have full employment. And here we are every day talking about the transformational AI and what that's going to mean. And I really do wonder how the Fed is going to view all of that, the possible disruptions that it may cause within

the labor market, and whether it has to change its own methodology in the way that it sort of games out or thinks about the future of employment in this country? I think it's an excellent question. It wasn't even on my radar screen a year and a half ago when I was there. And certainly now it is very important in the sense that, you know, you can see not just in 50 or 25 or 10, but you can see over the next several years scenarios where widespread adoption of some of these tools could lead to drastic changes in the demand for workers, to wages, to the income distribution. So absolutely, it's probably not on the front of the radar screen now, but it will be, especially once we get on the other side of this

inflation curve. Shouldn't it be on the radar now? I mean, the danger, of course, would be like, sadly, other things that have happened, right, that the Fed has been late to react in certain instances. And this is one where you wouldn't want to have that happen. No, no, I sure we're on the same page. I'm saying I don't think it's going to change the decision for June or whatever. But I wouldn't be surprised at all. The Fed has a great team of staff economists, and they probably do have a dedicated staff, you know, working on these scenarios right now. What makes this striking is a lot of technology, a lot of revolutionary technologies basically require changes in workflows and capital stocks

in order to be adopted. And this is something that, depending upon your view, could be adopted actually quite quickly into existing work processes, which means it could the change could be quite accelerated. So I'm sure they are looking into that. Yeah. Richard, I appreciate it so very much. Always good to catch up with you. Be well. Thank you. All right. That's Rich Claret, a former Fed vice chair.

Up next, we're tracking the biggest movers as we head into the close on this Friday. Christina Partsenevalos is back to do that. Christina. Christina. Yeah, earlier we told you about weakness at Foot Locker. Well, there's another name selling off on concerns about high promotions and weak retail spending. I'll have the details and more after this break. About 15 minutes to go before the closing bell. Christina Partsenevelos is looking at the key stocks she's watching. Christina.

I'm going to start with shares of drug maker Catalan surging right now about 15%, even though they cut their full year forecast, they delayed their quarterly earnings. But investors are buying into this name after management said they can sufficiently service customer demand and that the supply situation was pretty healthy. So in other words, a vote of confidence for shareholders. Catalan has been dealing with problems at various production sites just this year, and you can see the stock up over 16% at this point.

Shares of Ulta Beauty right now are trading lower after analysts at Oppenheimer cut their price target to $575, down from $600. The stock currently is trading at $491, down over 4%. They say there's limited upside in the stock and are worried about excessive promotions eating into margins. Ulta reporting next Thursday, Scott. All right, Christina, thank you. Last chance to weigh in as well on our Twitter question. We asked, is there a bubble in AI stocks? Head to at CNBC closing bell on Twitter. The results after this

break. The results of our Twitter question. We asked, is there a bubble in AI stocks? The majority of you said, yes, there is. About 70%. Wow. Speaking of, one of the best performing so-called AI stocks is NVIDIA. We're going to set you up for those results coming next week. We're going to break down the key metrics you need to watch that and more when we take you inside the market zone. All right, we're now in the closing bell market

zone. CNBC senior markets commentator Mike Santoli here to break down the crucial moments of the trading day. Leslie Picker on the big move lower in the regional banks. And Christina Partsenevelos on NVIDIA ahead of its pivotal earnings release next week. Mike, I turn to you first. 4,200, the line in the proverbial sand. We were there and now we're not. Yes. We're not that far, but we're not. We're roughly there, at least in broad terms, at least enough for people who have been believing, and I think it's

the prevailing opinion that it is, something of a cap on the market to get you to rethink that, perhaps. Multiple things can be true at once when you get in these scenarios, which is the leadership of this market looks a little bit overbought and overheated. It's time usually for a rest when that happens. You've only seen the most tentative signs of a broadening out of this market. Yes, semis have participated, but just barely had small caps avert a breakdown. So I think it's still very contingent as we get through this expiration today, maybe have the market trade a little looser. But I would have to say on a net basis for the week, most things were constructive

because the things we were most worried about didn't get worse. And we brought down a little bit, too. And the market responded to that. We did somewhat. Absolutely. Yeah, the equated S&P is up for the week. As I say, the Russell finally bounced. And the regional banks, you know, they put some distance between the lows and where they're trading right now.

Tell you what, these mega caps, you know, I may be taking a little bit of a breather. But, you know, Apple today, I would think it was Alphabet, Meta. You're talking at some pretty lofty levels now. They are. So they've, broadly speaking, all recaptured half the valuation crush that they underwent last year. I was just looking at Microsoft, Alphabet and Meta, as well as NVIDIA, over the last three months, have had significant upside revisions to earnings. So it's not just, I mean, mostly it's valuation because they've had monster stock moves, but they've seen their fundamental outlooks improve a little bit, meta a lot. Like I think over three months, the earnings estimates for this year are up like 23%. So you have things

that are at least no longer as much of a headwind, which is peak valuations on peak earnings. That's how we got into this November of 2021. And now it's much more about, yeah, they're looking a little bit rich, but at least maybe we see a path for them to resume growth. All right. Leslie Picker, big move lower in regional banks. And I'm wondering if the Fed chair's comments today had anything to do with reviving the worries about what's happening there. It could be a little bit of that, Scott. It could also be the CNN report that came out earlier that did send at least the ETFs lower some individual names as well, saying that Treasury Secretary Yellen would be open to consolidation as a way to kind of calm

some of the bank stress that's out there. That CNN report, citing people familiar with the matter, I have made several calls on this, have not yet been able to confirm that reporting. But the market sense is essentially that, oh, things must be so bad that Secretary Yellen would be willing to allow for greater consolidation to take place in order to kind of stem the issues that are out there? Yeah, I mean, the Fed chair, you know, was talking about more so along the lines of, well, you know, maybe rates don't have to go up as much because of potential credit issues with the banks. I mean, it just gets everybody kind of focused on that

issue, not to mention the uncertainty, Leslie, around the debt ceiling and just the overall feel about more, you know, potentially sensitive areas of the market. Yeah, they've definitely been reacting to the debt ceiling news largely on a positive basis this week. Any kind of development on that front or any positive headline they've seemed to be reacting to. There's also on the fundamental side of things, we saw Western Alliance post additional deposit increases this week. So that kind of creates this feeling that maybe things are starting to stabilize, at least on the deposit front and the customer concern front.

And then, of course, there were those 13F filings. You had Berkshire Hathaway getting into Capital One, Michael Berry buying some regional banks on the long side in the first quarter. So all of those things are kind of votes of confidence, which helps in the stock prices of these banks off of their lows, as Mike alluded to. But again, today, kind of whipsawing back into the red on some macro headlines, as well as, you know, the potential for things to be really bad out there, so bad that the Treasury Secretary would be willing to consider additional consolidation. All right. Good stuff, Leslie. Have a good weekend. Christina, NVIDIA. Yeah. I mean, the stock's a double. The stock's a double this year alone.

So there's a lot to live up to next week. Well, it's because it's the main beneficiary of AI right now. So heading into earnings, yes, we're going to want to hear all about the data centers. Yes, we're going to want to hear about GPU sales. But we have to think, too, gaming is another major contributor to revenue. There could be some weakness coming out of China. So that's something that we're going to be looking at. We're also going to be looking, is there going to be any supply glut? Is there going to be any issues getting silicon? Because there's such a rapid demand for a lot of these AI chips. But this name is trading at, what, 29 times sales, 182 times earnings. This is an expensive name.

A lot of people are expecting it to keep growing. So that's why it's got guidance for this name. Guidance is going to be so important to see where are we going with this ramp up in GPUs. Will there be enough? Who else is going to be buying it? And what are they going to do with their products? Are they going to continue to ramp up their orders with TSMC? So that's another name to pay close attention to out of this earnings report. And we will. Christina, thank you. Got to run because I have some breaking news on the airlines. Phil LeBeau has that for me. Phil, what do you got?

Scott, the Justice Department has won its lawsuit to undo the Northeast Alliance. That is the alliance that allows JetBlue and American to essentially run a code share operation for their flights in New York and Boston. And this was one of those suits that people were watching closely to see if the federal government would be successful in saying, oh, no, we disagree with what was approved during the Trump administration. And there were a number of people who thought there was a good chance that JetBlue and American would prevail. But again, the DOJ has won its antitrust suit. This would undo the American Airlines and JetBlue Alliance. I should point out that both JetBlue and American have said in the past that if they were to lose this opinion from a court, that they would be appealing that decision. So I would expect that we will see some type of appeal formed or filed soon. JetBlue, we have reached out for a comment, have not heard from them.

And American, they say they will have a comment likely later this afternoon. Scott, back to you. All right, Phil. Thank you, Phil LeBeau. As we approach the close, we have less than 45 seconds to go now. You know, retail, big week this week. Discretionary, which we don't talk about nearly enough, is the third best performing sector of the year. You have a lot of questions here now with Foot Locker, and I'm watching Nike out of the Dow down 3%. It is incredibly uneven in spotty, and certainly apparel and chain stores have been the worst of it and getting discretionary. It's a matter of whether you think that the home builder stocks are telling you that the consumer and households are in decent shape along with things like semi-foot, you know, transport, retail. It's not been a great story, but there's time, as you said, for this rally to broaden out.

All right, good stuff. Have a good weekend, Mike. All of you have a good weekend as well.