Closing Bell - Closing Bell: Can the Bulls Stay in Charge? 6/21/23

Episode Date: June 21, 2023

The Fed is apparently intent on hiking even more, so what does that mean for the big bull run? Ritholtz Wealth Management’s Josh Brown weighs in. Plus, Cantor’s Eric Johnston is doubling down on his bear case … again. He explains why he is still seeing risk in the market. And, CME’s Terry Duffy weighs in on Powell’s testimony today and what more rate hikes could mean for your money. 

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9, right here at the New York Stock Exchange. We have a big interview coming up in just a little bit. I'll go one-on-one with Cantor's Eric Johnston, one of the biggest bears on the street. He still says stocks are going lower. So far, he's been wrong. He is not backing down, though. And we look forward to that conversation. In the meantime, this Make a Break hour begins with the head hawk on the hill, Fed Chair Jay Powell, saying two more rate hikes are probably likely. No shock that rates moved up on that. Stocks, well, they're trying to avoid a third straight day of losses, and they're doing a pretty good job of it at this hour, in this, the final hour. Here's your score card with 60 to go in regulation. The Dow in the red for most of the day. It's been fighting for positive territory, though. It was dragged by tech names like Intel

and Salesforce. The mega caps weaker, too, which is weighing heavily on Nasdaq today. It leads us to our talk of the tape, whether the bulls can really remain in charge with a Fed apparently intent on hiking even more. Let's ask Josh Brown. He is Ritholtz Wealth Management's co-founder and CEO, as well as a CNBC contributor right here, as you can see at Post 9. So Post 9 rules. Powell was on message. Yes. His message of last week. No surprises. So what do we do now? What do we do with what he had to say? I mean, he said, you know, we could get two more hikes. Look, I think I think every day is an opportunity to make sure that you don't react to whichever Fed head is giving a speech. And actually, Powell's going to speak tomorrow again. And I doubt it will differ very much. So this

looks like it was in the realm of expectations. Nobody is shocked at all by the news. But even if they were, you look back at the last six months since the year began. And pretty much every quote unquote Fed speech shocker has been a great buying opportunity. I don't think the Fed has the ability to scare markets lower with what it wants to do with overnight rates, especially when you consider the way we're seeing, number one, economic data surprised the upside. I can't believe it is, but it is. And then number two, the intermediate term and long term rates are not really moving on what the Fed has to say. And I think that's indicative of a market that understands that the balance of 23 may not be super red hot,

may not be ice cold somewhere right down the middle. And in that environment, American corporations have already demonstrated that they have enough levers to pull to deliver earnings, at least meeting expectations, if not exceeding. And that's the bigger story this year, not what happens with overnight Fed funds rate. Feels like the bulls are starting to come out of the woodwork. OK, price price has a habit of doing. OK, you're not wrong. OK, Savita Subramanian takes her most bullish position in at least 10 years. KKR is Henry McVeigh. The time to be negative was the end of 2021. Others talking about FOMO. There's more room to run. Do the bulls in your mind have control of this market now?

I think they do, because the things that you would be expecting to see if the bears were going to take control just haven't materialized yet. And they could. So I would never tell you that something can't happen in the economy. But what are the things that most people are focused on to try to understand if there's going to be equity market stability? Well, the number one thing is how is the consumer doing? And we know that the consumer has somewhat downshifted, but the household balance sheet of the consumer is not an issue. And after 525 basis points worth of rate hikes, you would have thought that those chickens would have come home to roost. Then you actually look at what's going on and you recognize

the biggest category of consumer debt by far is the mortgage. It's like 10x the next highest thing, which is student loans. Take those two things. There are no student loan issues right now, thanks to the federal government. Payments are coming back soon. Okay, fine. But right now, no issue whatsoever. That's about $1.3 trillion. Credit card debt's a trillion.

Mortgage debt is $12. There's no issues in the mortgage market. I think it's something like 60 percent of all households have a mortgage under 5 percent and they've all refinanced. And so what where is the credit issue that was supposed to arise as the Fed took rates higher? Where are we seeing the quote unquote cracks in the consumer? They don't exist. So I don't want to give people the impression that that can't get worse. We've had a lot of tightening. We're still shrinking the balance sheet. We're still shrinking money supply at a very fast rate. But at least like

wait to see some evidence of that case materializing. The number one knock from the bears throughout the beginning part of this year was the rally is top heavy. It's being carried by the Magnificent Seven, so to speak, and a few other stocks. We even now have a Magnificent Seven index to track the stocks that have dominated the conversation. I look at right now, month to date, okay? Month to date. And this is from sectors. Industrials, up 8.5%. Materials, up 8%. Financials, up 5%. My point is that a big part of the argument from the bears seems to be falling by the wayside

that this market is becoming more broad in a way that it hasn't been. Yeah, they're not talking about it anymore. And I get it. I would stop talking about it, too, because it's false. The New York Stock Exchange advance decline line looks great. There is no bull market that you could look at historically where you didn't have some follow through from the A.D. line. It took a while, but we got it. I don't know if it lasts again. We've got a situation now, though. I love this tape because you don't have to be in tech to make money. You don't have to be in the big seven names.

Let's just look at a day like today. Tech is cooling off. Actually, it's the worst sector in the S&P. What's the best sector? An area of the market that's been in a slumber for a really long time. Energy. Okay, so let's take a look at what's going on. The semis are taking a breather.

You've got Intel down 4%, AMD down 5%, NVIDIA off 2%. 96% of the SMH names are above their 200-day moving average. Almost 100% of the index was there a week ago. So it's cooling off. That's great. What happens? Are people running to money market funds? No, they are not. They're taking a second look at a laggard sector and energy is having an up 1% day today. Actually, that's coinciding with crude oil at 72. And keep in mind, the high is 75 from May before energy came in. We might take that out to the upside and all of a sudden get energy participation in this bull market. You can't tell me it's seven stocks if all of a sudden

all of those XLE names start moving. By the way, zero percent of the XLE components are at highs. So there's plenty of room and plenty of opportunities. So when I say I love this tape, it's not that I think it goes unidirectionally higher. We're not even that we're not even doing that well today. It's just that there are opportunities everywhere you look. You could talk about housing. You could talk about you could talk about energy. You could talk about communications. There are just different ways that different styles of investing are working this year. You're still getting big inflows to Bank of America, says the biggest equity inflows since October, driven mostly by hedge funds and institutions. Six of the 11 sectors saw ETF inflows led by tech.

And that's for the second straight week. So the money's going to where the money's been made because people think that the money's still going to be made in the biggest sector in the market because it's been the biggest and best story of the year. Think back to one of the inside jokes we all had in the January to April period. Anytime the market did something crazy, like you would say, well, what's going on? Why is it up? Or what's the news? You say, oh, it's just positioning. But it's true. The positioning was as bearish as we had ever seen, like historic going back decades coming into this year and at the beginning of this year. And there were a lot of good reasons for that. That has to get unwound if the story of a second half or session is not going to materialize. So when you see flows like that, understand that's not just people making fundamental

decisions. That's sometimes professionals making career survival decisions and doing things for reasons other than what you would think, unwinding bearish bets or getting more exposure in a market where the Nasdaq's up 38% year to date, the best start for the Nasdaq ever in the first six months. What are you going to do if you're managing money for other people that then you have to answer to? So it's not shocking to see us heading into the end of the second half of the year with money chasing what's already taken place. But you also, you know, perhaps have a bit of a knee knocker market from those people who see a Nasdaq up 38 percent. Yeah. And like, I got to get more invested. My positioning's been off sides. But do I really want to put money into

stocks that seem to be pretty overbought? You look at things like RSI to tell you whether sections of the market are overbought or not. How do you view that? I'm glad you said that. That's why I love this tape, because for every underweight professional investor who looks at what's gone on and says, look, there was no way I'm buying Apple up here. And there's a lot. That's why all of a sudden you catch a bid in the transports, catch a bid in the housing names. Now I think oil is next. Catch a bid there. There are big liquid stocks in these other sectors that professional money managers, hedge funds, asset managers, they can play in those stocks without moving them too much as they try to put positions on. That's the opportunity. And this is really

important. I want to get this across. And we've done five or six blog posts about this already. One of the things the bears will always say during the early stages of a rally is that there's not enough participation. This is like a trope. And they're right, statistically. The thing is, over the last 10 years, if you have used that evidence in order to concoct a reason to fade the rally, you've mostly lost. Most of the time, that divergence, we call a negative divergence between breadth and price, has resolved to the upside. It's not aberrant to all of a sudden see the rest of the market catch up to the leadership. It happens every single time, almost every single time over the last 10 years. There are very few examples where

that narrowness preceded a meaningful fall. There are some, but most of the time it resolves to the upside. It doesn't always have to be, quote unquote, the canary in the coal mine. Sometimes it resolves nicely. What makes you nervous then? Is it a Fed that's more aggressive than even we think or even they say? Is it the next CPI doesn't cooperate? Is it earnings which aren't that far away? Are the beginning of what is a disappointing period, as some bears like Mike Wilson would say, is just a matter of when, not if, is coming? Mike Wilson's note this week, I think, made the best bear case, which is that a lot of the quote unquote revenue growth that

we've seen in the market over the last couple of years has been a result of companies getting away with price increases. That's now going to go in reverse. This is by design. It's what the Fed wants. That's good for the economy. Don't want four, five, six percent CPI readings. And it's good for Main Street and it's good for sentiment. Where it's negative is in the earnings expectations, especially on the cyclical side of the market. If, in fact, that price increase mechanism is now going to go in reverse and price cutting and discounting and clearing out the channels of inventory, if that's what's coming next, which it sounds like Mike Wilson, when he's looking at PMIs,

et cetera, that's what he's seeing. That might be a negative shock to revenue and therefore eventually earnings expectations, maybe not in q3 but in q4 it makes the argument that people are underestimating the amount of ai spend that the ai leaders are going to have over they're they're underestimating the amount of money that these companies are going to have to spend and that's going to hit on margins that's part of his note this week too everybody's focused on the hype and the sizzle but the amount of money that these companies are going to have to spend. And that's going to hit on margins. That's part of his note this week, too. Everybody's focused on the hype and the sizzle, but the amount of money that you have to pump into the system to develop and build out your AI systems are going to cut into your margins. Great question. Is AI a growth center or is AI

a cost center? It's both. For the S&P 400 that are in tech stocks. It's both, but let me let you in on a little secret. It almost doesn't matter because the earnings growth and the weight of earnings within the S&P is predominantly concentrated among companies that are going to find a way to make money selling AI solutions like Microsoft, Apple, Alphabet, NVIDIA. These are the big wheels. So I get the premise like, oh no, all of a sudden. The other thing I would say is I actually think the market would be OK if companies were getting aggressive and spending on R&D, on growth, if they could back it up with revenue growth. So the crux of his main argument, which is that the economic slowdown is going to be the thing that makes earnings estimates

unattainable. That would be the thing that that would be worth worrying about. But again, the thing is, outside of looking at year over year PMIs and things like that, there's just not a ton of evidence that that's going to necessarily bear out. You ready to broaden the conversation out? Why don't we? All right. Let's bring in Jessica. Let's bring in Jessica Inskip, Director of Education and Product at OptionsPlace. Nice to see you again. Educate us on your own market view in the here and now. Sure. And I agree with you, Josh, so very much. I think it is important to pay attention to the operating costs that will come in with implementing AI. And that's something that will come to fruition. And it may not take, even though you're increasing that operating efficiency through automation or whatever it is,

you may not see those enhancements translate over into earnings. And it may take a couple of quarters. So this is the next quarter that I think is something to be concerned of. Now, what I am paying attention to is the labor market, especially listening to Powell today. We have been talking about labor market imbalance and recognizing AI and automation as a solution to that imbalance. But just looking for cooling or that gap to really narrow, he mentions quit rates and participation. And I think that is important to take note of where that's coming from. So quit rate is on par with pre-COVID levels. Participation facing resistance because what we see participation levels at are also on

par or modestly above rather pre-COVID levels. And that's from prime age and those 16 to 24-year-old working group. So and there's a shortfall from 55 plus. And I don't expect those to come back. So meaning if we're looking for that uptick in unemployment or looking for any more aggression or moderation within the labor market with unless there's a larger influx of immigration, I see that as being a wall and a headwind that I want to be cognizant of. And yes, the Fed has seemed to underestimate the durability of the labor market.

And that's obviously, I think, a great understatement just by virtue of where the unemployment rate still remains and the fact that they haven't been able to crack it to any degree, even close to which they thought they might be able to some 500 basis points ago. Now, let me ask you this. Do you feel like right now the market is vulnerable or strengthening? So there's growth, but I think it's now turning into vulnerability. There was strength because we had lower earnings cuts. Now we're raising earnings expectations. We have higher participation. So we have income. People are going to spend money. But now there is shareholder pressure for that OPEC spending, like Josh was pointing out. So that have income. People are going to spend money. But now there is shareholder pressure for that OPEC spending, like Josh was pointing out. So that's going to take a hit to

margins. Now that pricing pressure and that pricing power that larger corporations were able to have in order to keep those higher revenues, that is also vulnerable at this moment. We have had a selective consumer. We have heard that. It's a resilient consumer, but selective nonetheless. They're spending on travel. And if you even look at the different cohorts or different income levels, there are some disparities there. And that is means for vulnerability. What do you think about that point of view? I think you're really going to have to see a meaningful uptick in delinquencies, in auto loans and credit cards before you could say that there's some sort of a tipping point. We've seen some uptick off the lows. Obviously, that should be expected.

The government stimulus programs were now a long time ago. But it's just it's not showing up in such a way that you would change your expectations for how the second half goes. It's very, very difficult to manufacture a pronounced economic slowdown with 3.5% unemployment. It's really hard. Now, one area where the Fed has had an impact, and it's taken a long time, and you could barely see it, you have to squint, and you have to really get specific on what data you're looking at. But the jolts is cooling off. This game where I quit my job, and the next day I get a new job for a 15 percent raise. That game is now over. You're just not seeing it.

But you're also not seeing all of these headlines that we're reading about, about layoffs, whether it's Google or Goldman Sachs. You're just not seeing that in the bigger aggregate numbers, which I think speaks to the dynamism of our economy. Also, because the companies that appear to be the most bloated on the backside of the pandemic have already self-corrected. They've already found the years of efficiency and they've done the dirty work before the Fed had to weigh on them to do it. I would argue tech's recession started last year. Certainly venture capital's recession started last year. There was a ripple effect. It started with smaller companies being told to batten down the hatches and then investors stop writing checks. And then that translated into a slowing enterprise sales environment for the public software companies. And here's where we are. It's already over a year of that kind of cost cutting.

All right. We're going to leave it there. Josh, thank you so much. Appreciate that conversation. My pleasure. Here in person at the New York Stock Exchange. Jessica, we'll see you soon. Thank you as well. Jessica Inskip, let's get to our Twitter question of the day. We want to know how many more hikes are coming from the Fed this year. What do you think? One, two more? How about none? And that's CNBC closing bell on Twitter to vote the results later on in the hour. Let's get a check on some top stocks to watch now as we head into the close. Christina Parts and Nevelos is here as always with that. Christina. I want to talk about Madison Square Garden Entertainment. It's firmly in negative territory as Sphere Entertainment plans to sell almost 5.3 million shares of the stock. MSG Entertainment spun off the Sphere segment just last month and says it

will purchase around $25 million worth of that offering directly from Sphere, which really, if you do the math, is only a small portion of the second offering, resulting in what else? Stock dilution. That's why you're seeing shares down almost 11%. Let's talk about Peloton. Under pressure as Wolf Research downgrades the stock to underperform. Analysts say they lack confidence in the company's pricing power, its recent strategic initiatives, and of course, demand. Everybody seems to have a bike already.

Shares down over 7%. Scott, you have a bike? I do not. Me neither. OK, cool. You have to tread, though. Oh, you fancy. All right. We're just getting started here on Closing Bell. Up next, doubling down on the bear case. Cantor's Eric Johnson is back. He's raising the red flag again on some big risks he's still seeing. He'll join me at post nine. He makes his case. We debate it next. You're watching Closing Bell on CNBC.

Welcome back to Closing Bell. The market rally taking another pause after the S&P 500 hit 14 month highs last week. My next guest warning again of significant downside ahead. Here to make his bear case again is Cantor Fitzgerald's head of equity derivatives and cross asset, Eric Johnston. Welcome back. Thanks for having me. I've given you this platform repeatedly to make your case that the market was in a bad place, that stocks were going to go down sharply. You repeatedly came here and said your conviction was very high and it hasn't materialized. In fact, we're up more than 20% off of the low.

Why are you still bearish? So, to be fair, we resumed our bearish view at 39.50. We've been wrong. Our market's moved up about 10% since then. That's obviously in the context of being bullish from June of 20 for 50% rally in the market. We called the exact top in January of 22. Market sold off 25%. Let's talk about the here and now. And then We called the exact top in January of 22. Market sold off 25%. Let's talk about the here and now.

And then we called the bottom at 3,600. These are tactical calls that you made repeatedly. And so this one, we have been wrong so far. I firmly believe that this market still has material downside to it and that owning equities is a very poor risk reward right now. Why? So let's talk about a few different things.

So number one is the market's trading at 19 and a half times earnings. So if you look back the last 50, 60 years, the multiple has been higher twice. It was during the two bubbles of the Internet bubble and the COVID bubble. Now, are we ripe to go into another bubble? It's possible. I don't think we are based on where inflation is, where rates are, and where we are in the economy. Okay? The second point is where we are in the economy.

We're at full employment. Prior bull markets have been declining employment. Where you start a bull market in 2010, the unemployment rate's 10%. You can then add jobs to the economy and grow the economy. Same thing happened in the late 90s, right? You were adding jobs. You have not seen bull markets start with full employment. In fact, we've been below 4% unemployment rate four times in the last 75 years. Each of those ended in a recession. Why? Because you ultimately need a cleansing in the economy to then start

the next cycle. As I said to Josh, maybe the cleansing happened in the most bloated areas of the economy, the tech economy. OK, that's number one. And maybe the labor market is just different on the backside of the pandemic in ways that you, others who have been negative and even, dare I say, the Fed itself have been able to understand. So I think that's a good point. It's possible, right, that we could just stay at full employment for a much longer period of time than I think and that others think. But I think if that happens, we are going to have subpar economic growth. And the reason is simple, right? Ultimately, economies grow or decline

based on jobs. You add jobs, the economy grows. So I think that is possible, that we could stay at this 3.7% rate for a while. But I think in that scenario, growth is going to be very subdued and is not going to warrant then a 19 multiple when you can have a money market fund at five and a quarter percent. Right. Because rates will stay where they are. Right. Long end rates probably go higher in that scenario. Not if inflation continues to decelerate and come down. I mean, obviously, the Fed is eventually going to move rates lower. They're not going to they're not going to just see the terminal rate at five and a quarter or five and a half or wherever they go to for forever. I mean, there's an argument to be made that, and I would argue,

that if the S&P is at 4,400 and the unemployment rate's at 3.7 percent, inflation's not going to come down to a reasonable level that will be palatable to the Fed. Now, it might take six months, et cetera, to get there. But the point is, is that when you have full employment, inflation is going to stay sticky, especially with asset prices where they are right now. Did you think that the market or that the economy, I should say, would be weaker by this point than it is? Yes, you did. Absolutely. Did you think that the labor market would be weaker by this point than it is. Absolutely. So what are we missing? Sure. Here's the big thing. We have a two trillion dollar budget deficit. That is a

two trillion dollar annual stimulus package that we have that is more or is equally offsetting the monetary policy that we've had in place. I've been shocked that Powell hasn't talked about this more, but that's a massive offset. It's looking like the deficit's gonna be two trillion dollars this year, right? If you pay a dollar in taxes, the private economy gets a dollar fifty back. That is a 50 cents that's going to the private sector,

and that's exactly what's happening. The second thing is the liquidity flows, right? We all know the Fed is in QT, okay? However, the Bank of Japan, right, six months ago, was growing their balance sheet. And so the liquidity flows have actually increased by a trillion since the October lows in the market. So those have been tailwinds for the economy and for multiples that have been there. Now, we think the liquidity flows are going to inflect. What about the idea of, you know, a market that was pretty top heavy, obviously, is no longer. And it's coming a little more into balance by virtue of

what I read earlier in the program of sectors that were dramatic laggards, which now month to date are actually, you know, showing their weight and showing a little muscle for the first time. So you have a more broad rally than you had before. Yet another knock out of the Bears case. Yeah. So in fairness, that was not mine. I'm not a big believer that that breadth or being top heavy, heavy in and of itself is a negative. But what I would say about those at the top is that we've got Apple trading at 31 times earnings. Right. They're growing their revenue at zero, their earnings at slightly negative. There's all sorts of justifications out there around why Apple right now should trade at 31 times earnings, why Tesla should be at 75 times earnings, and on and on.

And I think a lot of times people assign a story to price, and that eventually comes back to haunt them. Now, Apple could go to 35 times earnings first. It's very possible. But ultimately, it comes down to you have to do your analysis. You have to take price, momentum, all that into consideration. But you can't let price dictate your views. It has to be one small component of it. So what has to happen, lastly, for you to say, you know what, I've seen enough. I misjudged certain things that I thought were going to happen that didn't. I've gotten some great calls made over the last however many periods of time that I've been making these market calls. But this time, it's just time to move on. What has to happen for that to happen? I mean, I need a cleansing of the economy. I think

until we get a cleansing, what does that mean? It means the unemployment rate going to 4, 4.5%, which you can then grow to, or the multiple coming down from 19.5% down to something lower, 18, 17, 16. Until we see something like that, paying these prices for equities, I think is going to be a bad investment. And I think from a trade perspective, which I'm also, as you know, very focused on, I think right now the technicals and the momentum is very strong in the market. And so from a short-term perspective, I don't know where the next, you know, two to three percent is, but I think the next 10 percent or more is down. Do you feel like you're fighting the

bulls in a way that you haven't had to in an awfully long time at this point? Yes. I mean, there's tremendous momentum. There's obviously people that are capitulating. And that's one of the big, big things that has changed is positioning and sentiment is significantly different than it's been in the last year and a half. And I think that's a major tailwind for our view, right? Because now hedge funds have increased their exposure. CTAs are max positioning. Strategists are now capitulating and throwing in the towel. And I think that when you see a lot of the changes that people are making in their views, it's very focused on priced momentum and I can't take this anymore, rather than a actual bullish fundamental view on the market.

And that gives us solace that we think that we're ultimately going to be right. We'll make that the last word. And we will talk to you again soon. Thank you. Thanks, Scott. That's Eric Johnson from Cantor joining us once again at Post 9. Coming up, a long way to go. That is what Fed Chair Jay Powell had to say today about the inflation situation. So what will more rate hikes ultimately mean for your money? CME CEO Terry Duffy, he'll join me with his take next. S&P falling for a third day in a row as the market rally loses some steam. My next guest says uncertainty around rising interest rates has elevated risk management from, quote, supporting player to star attraction when it comes to investing.

Let's bring in Terry Duffy. He is the CME Group's chairman and CEO. It's good to see you. Welcome. Thanks, Scott. Appreciate you having me on. Yes, it's good to have you here. So what's your take on what the Fed chair has been saying, including today, leading us to believe that there may be not one rate hikes to come this year, but two? You know, Scott, I've been a little critical over the years, and I've even said this to you many years ago. I thought the Fed would miss many of opportunities to take the advantage of tightening rates throughout the last several years. And then we did it all at once. But I got to be honest with you, I didn't see the markets reacting the way they have, especially with all these tightenings over the last year.

I think when I kind of agree with Josh, I was watching your show a little bit earlier. I think actually the Fed's done a pretty amazing job in the last 12 to 14 months here by taking, you know, up 500 basis points. And, you know, the equity market's still continuing to rally. So I think there's a lot of people that didn't believe that could happen. Maybe I'm being one of them as well. But I'm here to manage the risk, not predict the prices. But all in all, it seems like the Fed is going to continue on its path and the equity markets are going to continue on its own path. And I actually think that's a good thing. And it benefits us here at CME Group by trading both

asset classes. Do you feel like you want to manage your risk even more because you've been somewhat surprised by the durability and stability and strength of this market rally? I think that's a great question, Scott. And if you all you have to do is replay your show and listen to some of your guests, especially the last one, you got a big bear and then you'll have a big bull come on earlier. There's such a disparagement of opinions out there just on your show and throughout the world about what people think the market's going to do, whether it's going to be the first half of 23, which people seem to be wrong, or the second half of 23. So then we'll get into 24. So I think there's no question about it, Scott. People need to manage their risk through all these different asset classes because no one

knows for sure. But we do know one thing, Scott. There's a tremendous amount of uncertainty up and down all the different asset classes from energy to commodities, to interest rates, to equities. And that's a global, that's just not a U.S. issue. That's globally. So I think, yes, you have to continually be very vigilant on managing risk because margins are thin. And right now we should take advantage of that. And I hope people manage risk. We saw what happened with SVB Bank and some of the others by not managing risk. And I hope there's some lessons learned from that. So again, managing risk is critical to the growth of any organization. Yeah. Why do you think we've hung in there the way we have, Terry? I'm sure you must get asked that question. How have we stayed so strong? I do, Scott. And I try to avoid it because of what I do. I manage

to risk. But like I said at the outset, I mean, when you look, I think people were so paranoid of any interest rate hike whatsoever. And if we couldn't have free money, then the markets couldn't go up. I never subscribed to that. I mean, I don't think you have to have interest rates at zero for equity markets to go up. So I think the market has finally realized that over the last year or so. And I think that's one of the main reasons why the market has continued to impress even the biggest of bears in the world. You know, I'd love to get your opinion on something that Howard Lutnick had to say in an article in the Financial Times, which I presume that you've seen, given the reaction on your face as I'm reading you this question.

But nonetheless, for those who have not seen it, he seems to be taking a pretty good shot at you guys in terms of the stranglehold he thinks you have on the Treasury futures trading market, calling it one of the great monopolies in America. Now, he obviously wants to shake that up with a rival marketplace. But how would you respond to Mr. Lutnick? Completely inaccurate. In order to have a monopoly, you can't have competition. And Scott, as you well know, there's many highly correlated products to the U.S. interest rate market around the world that compete with U.S. equity. So it's not a monopoly. What it is, it's a pool of liquidity that creates efficiencies for the end user at the most cost effective way. What Mr. Lutnick is proposing, and I've known Howard a lot of years, is a me too strategy, Scott. In the year 2023, me too strategies don't work. You need to have a value added proposition

in order to attract clients away from efficient pools of liquidity. It's not a monopoly. It's a, I would say a very ignorant statement to say it's a monopoly. You have to understand correlations amongst many different markets around the world that compete with US interest rate markets.

You heard your last guest, I think works for Howard, talking about the Japanese bond market. That can have a competing effect on U.S. markets. You look at what's going on in the U.K. right now with the way the markets are trading over there. There's a high correlation here, Scott. So people have alternatives, and when they have alternatives, it's not a monopoly. Maybe we'll have to have you and Howard on this program to have this conversation. I would love it. You know, he's a tough one, though, Scott. He's a tough one to hang out with, man. He goes hard. Our producers are already hard at work. Terry, thank you. It's good to see you. Be well. All right, buddy. Thanks, Scott. That's Terry Duffy of the CME, of course. Up next, we are tracking the biggest movers as we head into the close.

Christina Partsinevolo is standing by with that. Christina. Higher priced items, higher wages, revamped stores, the latest promises to turn around, outdated Dollar Tree locations. The market likes it, but will they make it happen? We discuss next. About 15 to go before the closing bell. Christina Partsinevola is standing by once again with the stock she's watching.

Christina. Well, I want to start with Tesla. Barclays raising its Tesla price target by $40 to $2.60, but downgraded the EV maker to equal weight, saying the recent rally is driven by AI and ignores near-term problems with margins and demand. They like Tesla long-term, but right now they're going to move to the sidelines. And that's why you're seeing shares down almost 5%. Let's talk about Dollar Tree right now. Dollar Tree is planning some major upgrades to its stores, with the CEO even acknowledging the decor is, quote, right out of

1975. The company also projected earnings of $10 per share in fiscal 2026, which is above expectations. Market likes that. This turnaround plan comes after activist investor Mantle Ridge took a stake in the retailer just about two years ago. The stock is off the highs of the day, but it did actually have its biggest intraday swing since May 2022. You can see the stock up four and a half percent right now. Scott. Good stuff, Christina. Thank you so much.

Last chance to weigh in on our Twitter question. We asked how many more hikes are coming from the Fed this year. One, two, more than two, or none at all. Head to at CBC Closing Bell on Twitter. The results after the break. The results now of our Twitter question. We asked how many more hikes are coming from the Fed this year. The winner is two.

Taking Jay Powell at his word. 41.6 at this very moment. After the break, we're setting you up for KB home earnings. The Home Builder reporting results in just a few minutes in the OT when we take you inside the market zone. And a programming note, do not miss CNBC's newest documentary,

China's Corporate Spy War, focusing on the risks U.S. companies face when they rely on China for their supply chain and their revenues like Starbucks, Apple and Tesla. Premieres tonight, 10 p.m. Eastern. We're back right after this. We're in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down the crucial moments of the trading day. Plus, Christina Partsenevelos on Intel and the sell-off in chip stocks today. Diana Olech on KB Home ahead of its earnings in the OT.

I'm looking at NVIDIA. I want to start there. The stock got down to $420,000, right? It was part of the NVIDIA and Tesla and some of these other stocks and high flyers coming a little bit back down to earth. B bid right back up. Yeah, it's barely down now. Four thirty two. Yeah. The market in general does not act as if people feel overloaded with equity risk. Now you would think that maybe people should because we came into this week.

Everything was pretty much in place to have at least a standard pullback. And it's still pretty much in place. Very overbought indexes. The leadership of the market in particular running red hot, like NVIDIA and other names like that. Seasonally, last two weeks of June, typically are weak. We're up 25% in the S&P in eight months. All of it fitting together. Sentiment starting to get a little more optimistic, if not overly so. But yeah, it feels as if there is a latent bid. You've seen traction in the breath numbers today, too, where you actually had about three quarters of all volume

to the downside to beginning. Now the majority is to the upside. All that being said, it feels like a much more symmetrical bull bear outlook in the short term than it did for a while. We've chewed through a lot of the big perceived risks. And now I feel as if people are trying to find a reason to warm up to the market. I don't think that's wrong. I think there's a lot of room to go from where we are to outright greed-driven FOMO recklessness. But you also, you know, you have to sort of allow the market to relax a little bit to the downside, perhaps, even if it just happens through rotation and going sideways and churning. Josh Brown's point was, and why he likes

the tape where it is, pointing to energy, for example, which has been such a dramatic laggard leading today. It's just one of those sectors that after doing nothing is actually showing some signs of life. Yeah, June has been a month where you have had people reaching for things that haven't participated. It's been about mean reversion. That could be a bit of a reflex. It could be that sort of end of quarter. Let's rebalance and make sure we're not leaning too heavily in any one direction. And you can kind of spread your bets a little bit more. Don't think that means it's a you know, this is the magical kind of all in market that we maybe have been hoping for. Again, I feel as if it just feels a lot more of a closer call in the near term. There's now an uptre it just feels a lot more of a closer call in the

near term. There's now an uptrend in place. You've built up a cushion. You get a pullback, even if it's a few percent. Look, we've absorbed a 5% drop in the semis, and we're going to talk about that. That's something that maybe you didn't think we could do a couple of weeks ago. And in fact, the rest of the market has managed to take up the slack for now. That's the good cue to you, Christina. You know, Intel needs a good cushion today because it's falling hard. It's down 6%. That looks to me to be just about the lows of the session. What's going on here?

Well, it has to do with their foundry meeting that happened earlier today. But just, Scott, really quickly, NVIDIA is also hosting their stockholder meeting tomorrow, so that could be adding to the sell from the stock. But let's talk about Intel. You noticed the drop in the stock just around 12 p.m. Eastern, and that's because their meeting was underway. It was focused on their internal foundry model, which is a segment of the company that would have its own profit and loss statement as early as Q1 of 2024, and also keep an arm's-length relationship with the device business. That means treating Intel like a third-party customer. The goal,

though, for Intel is to become the second biggest foundry in the world, of course, after TSMC, Taiwan Semi, and post-cost savings of roughly $8 to $10 billion by the end of 2025. Today, Intel said they will sign up their first foundry customer by this year, but we didn't get any names. Investors aren't really loving that, as well as the fact that it'll take Intel time to ramp up utilization rates at this foundry, cut costs, and of course, sign up these new customers. It not only drove Intel lower to your point, Scott, which is over 6% lower, but also AMD, which is down about 5.5%, even though AMD is a fabulous chip maker, which means it doesn't have a foundry business. So all of this, though, the news today from Intel is a step in the right direction, it seems, from a street reaction thus

far. But it's an uphill battle, it seems, for Intel to regain leadership, especially because they want it to happen very quickly now. All right. Yep. Christina, thank you. Christina Partsinevolo. So what's happening in the chips? As for what's happening in housing, Diana Olek, KBH, man, what a run. Forty 42% for that stock in just the last three months. Yeah, the builders have been on a tear for sure, Scott. But this was a tough quarter for the housing market because mortgage rates started in early March over 7% on the 30-year fix, then dropped back a little bit, but then shot back up over 7% at the end of May. KB did report in an update just after its last quarterly release that net orders were down 24% year over year in the first two and a half weeks of the quarter about to be released.

And it also gave an outlook of net orders down 14% from the year ago quarter. That said, we did see a big surprise to the upside from Lenar last week and a big jump in May housing starts reported yesterday as really tight supply on the existing home side is pushing more demand to the builders. Builders sentiment turned positive this month for the first time in nearly a year. So it's a lot to digest. Scott, we'll see you coming up. We'll be looking for you in OT. Diane Olick, thank you very much. Mike Santoli, we have about 90 seconds or less. Rates are moving higher. Equities move a little lower in the end. Rates are perking up a little bit. The 10-year has remained kind of still in this downturn. People looking at that 385 area. We

haven't broken above that decisively yet. And housing fits right into that, right? You've seen buyers kind of more or less made their peace with mortgage rates around these levels, certainly for new home demand. Maybe it doesn't make the inflation job much easier, but it shows you the capacity for the bull case of rolling downturns within the economy that doesn't all strike at once and spares the overall economy from an outright recession. So we'll see if that can take place. It just feels as if there's enough in terms of household balance sheet, demographic demand for housing. And if housing's not really on the down and oil hasn't really done anything in the last year, those are usually the preconditions for a recession.

Among all the ones that are in place, those are two that are not in place, at least at the moment. So you're going to have the bell in a moment. And the Dow right now is down triple digits, about 100 points or so. S&P 500 down near 24. So it looks like we're going to have a finish here that's red across the board, yields, as we just said, looking pretty green across the board as well. I'll see you tomorrow.