Closing Bell - Closing Bell: Can the Calm Be Trusted? 3/20/23

Episode Date: March 20, 2023

Suspense is building for a Fed decision – a choice between staying the course on tightening or backing off for fear of more financial upheaval. NewEdge’s Cameron Dawson gives her take. Plus, Mark Newton of Fundstrat drills down on the key levels to watch in energy. And, Baird’s David George is bullish on a key regional bank. He reveals that pick – and makes the case for that stock. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with stocks steadying after a dramatic weekend of forced bank mergers in Europe and central bank backstop measures globally, which all brings us to our talk of the tape. So can this calm be trusted? Suspense is building for a Fed decision, a choice between staying the course on tightening or backing off for fear of more financial upheaval. Here to help us answer those questions is Cameron Dawson, CIO of New Edge Wealth. Cameron, good to see you. Good to see you.

Thanks for coming down. You know, the S&P 500 is down all of about 1% since the day before Silicon Valley Bank really buckled. It's up 3% from the low of early Monday morning last week. Do we take that as a show of resilience here or of indecision or that maybe the rescues are enough for now? Well, I don't think all of the names in the S&P 500 are created equally because we have seen this resilience in the overall index really being driven by the safest of the tech names. And so there is a flight to quality. We're seeing staples start to outperform a little bit, healthcare outperform. So this isn't a full risk-on move. And we also see the number of names trading above their 200-day moving average fall rather

precipitously. It's only now 40%, which is actually lower than it was at those December lows, which tells you some fraying under the surface. There's no doubt. It's been relatively unimpressive as these things go five or six months out from what seemed like could be a significant market low. And of course, nothing that's happened in the last 10 days has made the economic growth picture particularly better or the credit conditions surrounding bank lending any better. I guess the only question is, did it do anybody any favors in terms of creating a more dovish Fed than we might otherwise have had? I think that's the hope. And I think that's the hope of what you're seeing within some of this tech trade, mostly in the speculative parts of the market,

because those are the areas that are most sensitive to liquidity. So if we are in a world where liquidity starts to expand because there's issues other places, then that's that breath of relief from those speculative tech names. The problem is broad tech overall is now trading at a valuation that's above where it was pre-pandemic and at the same valuation it was when money supply was growing at double digits. So how much of this easing Fed is already priced into valuations at this level? Yeah, in fact, I was just looking last week that the Nasdaq 100's premium over the S&P is back to where it was at the peak in late 2021. So you could say that that seems as if it's done as much as it might be able to do. On the other hand, today, that's not the dynamic, right? You have Microsoft down 3 percent. You have basically just a complete reversion of what was happening last

week. And we're holding together so far. Yeah, exactly. You are seeing a little bit of this give back because the reason that Microsoft rallied isn't necessarily because of Microsoft related things. They are triple A rated. So that certainly does help in that flight to safety. But I think that there is another tone happening in the market where we're seeing some of the cyclicals start to fade. That was a really big thing at the beginning of this year where industrials were leading, materials were leading. But now you're starting to see that cyclical trade start to lose a lot of steam. So one of our favorite indicators to watch is equal weight discretionary versus staples. So cyclicals versus defensives. And that's starting to roll over a bit. So I And that's starting to roll over a

bit. So I think that's important to watch as we go into the next couple of weeks. I mean, and the economic message from all that would suggest obviously more uncertainty, more downside risk than upside. And so what would you do tactically in that environment? I mean, is there anything to be done about that? Or is it just to be on alert that there are just kind of fewer pistons working for this market right now? Yeah, we were looking at our health care overweight and growing a little bit uncomfortable with it because it had underperformed so much. And we looked at it a couple of weeks ago and decided not to change it. And I think that we were very relieved that we did

that simply because now you're starting to see a little bit of a bid to some of that that defensiveness within the market. So I'd say don't necessarily chase cyclicals here. They are oversold in an uptrend. So if we see them break down, that would be a sign that the trade really is over. If they bounce a bit, maybe there's a bit more to go. I wonder, I mean, look, it was only two weeks ago that you had people jumping over each other to say the terminal rate for the Fed is going to be 6 percent. And maybe it's going to have to be more than six. And now massive debate equally kind of distributed right now on are they done or is there another quarter point?

We're not even going to get to five. So, you know, you could I think you could spin that either way and say, like, the one big thing we were worried about two weeks ago, at least front and center, is no longer as scary. Yeah, I think that's maybe some of the relief you've seen in valuations as well if yields have fallen. But what we've seen in the bond market is this very aggressive pricing of interest rate cuts into the back half of 2023, really starting at the June meeting. And if the Fed doesn't deliver on those because they still are in this inflation fighting tone, which really depends on not having more banking crisis or this becoming something more systemic, then that might mean that these very aggressive bets for rate cuts are a bit too ahead of themselves. And you could see some upper pressure on yields. But it certainly is a wild

whipsaw. And we haven't really ever seen anything like it in that Fed funds market. Yeah. And actually, we rarely see the market basically split evenly ahead of a Fed meeting within two days. Do you think it matters that much what they do or what they say or what would your expectation be? It matters what they say and it matters about the dot plot. So we get an update to the dot plot on Wednesday. And if we see the dots move higher and remember Powell told us expect the dots to move higher. But that was, of course, before all of this bank stuff happened. If the dots move higher, I think it's a reflection that the Fed might think that this is more idiosyncratic, that they've contained it. If the dots don't move or even they move lower,

projecting in more rate cuts either in 23 or in 24, that would be a reflection that it's systemic and maybe they see something we don't see. Yeah. And I have to say, it's not that easy to make that call because you do have these false dawns sometimes when you have crisis psychology in the markets. And you would think they expected what they've done to be enough at this point. And it's, you know, you hear people say either this is a massive overreaction to two banks being in distress, maybe four banks, depending on how you want to count them, or there is something really rot underneath. Yeah. And I think that's one of the reasons why if they don't hike at this week, that would be

a sign that they probably see something that's riskier underneath the surface. And so I think it's a question of how much of this, which has really been a duration liquidity issue on high quality assets on the balance sheet. Is there a risk that this becomes a credit issue? Is there more underneath the surface that we need to be concerned about? And if that deposit flight from smaller institutions continue, could that effectively reveal credit issues on some of these balance sheets? We just don't know yet. That for sure is the thing to be concerned with, because I have to say the losses on treasuries and mortgage backed securities are smaller now than they were two weeks ago because

of the rally in bonds. But we'll see how it develops from here. Let's bring in Matt Miskin, co-chief investment strategist at John Hancock Investment Management. And Matt, so how are you reading all of this ahead of the Fed? Do you think that any opportunities have been surfaced by the recent upheaval in the markets or is it a warning sign? We're leaning into the quality factor. And it's funny that Cameron just brought up balance sheets. That's exactly what we're talking about as well. We believe right now you really need to start any stock screen, any part of the market you want to look at. You've got to start with balance sheet analysis. And the quality factor, we believe on a relative basis, is going to be making a comeback over 2023. 2022 was a tough year for it. We think better balance sheet companies, earning stability, high return on

equity is going to be the pockets opportunity within the market. So any dips like today where you're seeing sell off in that part of the market, we would actually look at it opportunistically and we would rotate further into quality as the year goes on. Matt, you know, depending on how you define it and how you run the factors to get you to that quality bias, it's going to end, you're going to end up with a ton of tech in there, right? I mean, a lot of the biggest NASDAQ stocks have all those attributes you just recited. Is that okay? Is that what you're after? Is it something to be sidestepped? We actually like technology as a quality part of the market. It

is 40 percent of the MSCI USA quality index. 20 percent is health care. Cameron just talking about health care. That's another sector we like as well because of that higher quality element, not as expensive as other parts of the market. and it's more defensive. So we like more defensive parts of the market combined with quality. We are okay with large cap tech. We think those balance sheets are strong, the margins are strong, and we prefer that relative to other cyclical parts of the market, which we think are going to be weighed on more as growth decelerates over the course of the year. So growth decelerating, if that's what it is, not terrible. Really growth falling away in a big manner and getting us into some kind of harder recession is probably something that's not priced in, certainly, to earnings estimates. Is that

your expectation, Matt? Yeah. So what you're seeing right now, I mean, earnings estimates have come down a smidge. But frankly, the places that have the highest earnings growth estimates for 2023 are financials, industrials and consumer discretionary. And we do think those are too high. We don't think consumer discretionary can do 20 percent earnings growth this year, but that's what the street is looking for. Earnings growth estimates in technology aren't that high, frankly. They're low single digits. So we actually see some of the cyclicals, and Cameron was also talking about this, that's a cyclical love that was happening to start this year, we actually think is going to fade over the course of the year. And you can see this rotation.

Now, overall, Mike, it's going to be tough. We do think this market is going to be a challenging one. We are leaning a bit more into bonds versus stocks. But in the equity part of the portfolio, we're seeing these opportunities in higher quality assets that have been on sale last year. And that's where we think this relative opportunity exists today. You know, Cameron, I don't know if this is going to be the question that comes right away on Wednesday or if it's going to develop thereafter. But don't fight. The Fed has been pretty trusty as a maxim for a while. It's kept you out of some trouble, even though the market's more or less chopped sideways for months here as the Fed is tightened. But if the Fed pauses, if the Fed indicates it's going to be pausing, if the Fed is in emergency management mode and is trying to keep the system liquid, what is fighting the Fed mean?

Is fighting the Fed staying defensive and being bearish or is fighting the Fed, you know, buying riskier stocks? So it's interesting because that moment where the Fed pauses, we saw it in 16, we saw it in early 2019, was really good for risk assets. But that's because there wasn't a big, huge earnings cliff. And so the difference is when we saw the Fed pause back in, let's say, 2007, it was really bad for risk assets because there was such a huge earnings cliff. And that's what is the uncertainty about the fallout from banking issues. Will we see tighter lending conditions work their way through economic growth, restrict economic growth and end result have a bigger downside adjustment to earnings. Right. And Matt, I know that in addition to your leaning toward quality, you think it's U.S. over the rest of the world at this point, or U.S. over the rest of the developed world? Yeah, I mean, you go outside the United States,

you pick up more financial exposure, you decrease your quality factor exposure. You know, you look at Europe right now. To me, it looks like it's trading on another planet. The highest sector exposure is financials. That's been holding in exceptionally well. It's bucking the trend of overall global financials underperforming. And then it's the high dividend factor and momentum. And yet those two factors are the worst performing factors. And yet European equities are the best performers in the world. So we actually see a big mispricing in risk assets when we look abroad.

You know, the China reopening trade has really faded. It's been much less of a significant pull through in demand than we think is actually was priced in. So we would trim some of that exposure, bring it into the U.S., move up in quality in position for continued volatility. In terms of the actual banking stocks, Cameron, let's ask. Regional bank stocks down 40 percent as a group. They're basically collectively trading around book value. Book value, of course, you know, that's a rear looking snapshot. But not all of them are going away. And I just wonder if it's the kind of thing where, you know, they've priced in something a little more severe than we thought was going to be happening a couple of weeks ago.

Possibly, but I have a feeling that they're going to remain very volatile. There's going to be opportunities. But Chris Verone, who's a great technical analyst, always talks about avoiding the scene of the crime, meaning that you have areas that really are hit hard and that usually it takes a long time for them to recover and become relevant or kind of stable parts of the market again. So certainly babies have been thrown out with the bathwater. Certainly there are pockets of opportunity, but I think that we're still in the midst of this happening, which might mean to have a little bit less of a shorter of a time period, you know, trades, not investments. For sure. And we are in one of those kind of treacherous feedback loop moments.

Hard to predict. Cameron, Matt, thanks very much. Appreciate the conversation today. All right. Let's now get to our Twitter question of the day. We want to know which of this year's sector winners would you fade right now? Communication services, technology or consumer discretionary? Head to at CNBC Closing Bell on Twitter to vote. We'll share the results later this hour. We are just getting started here on Closing Bell. Up next, our most valuable pick,

one Wall Street firm upgrading a key regional bank to buy. The analyst behind that call joins me next. We are live from New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back. About 42 minutes left in the trading day, and the indexes are sitting on gains as they have been most of the day. The S&P 500 up six-tenths of 1%. NASDAQ underperforming, giving back some of last week's outperformance, and the Russell 2000 up 1%. Let's now get a check on some top stocks to watch as we head into the close. Christina Parts de Nevelos is here with that. Hi, Christina.

Well, I have a theme for today, Mike, and it's about relationships. One proxy fight is getting heated. Biotech firm Illumina is pushing back against activist investor Carl Icahn in his recent board member suggestions. Icahn owns roughly 1.4% stake in Illumina, but he's been critical of its 2021 $7 billion acquisition of a cancer developer called Grail. Icon argues the price that they paid was way too high, whereas Aluminum just today is saying that Icon's board nominees,

quote, do not add value. And that's why you're seeing the shares down 3%. Shares of Foot Locker dropping even after the CEO, Mary Dillon, hyped up a renewed relationship with Nike with a focus on, quote, sneaker culture. In other words, a brand revamp for the company. But investors are focused on the softer profit outlook for this year. Shares are down substantially, almost 6 percent. Mike? Yeah, big turnaround from this morning, Christina. Thank you.

Thank you. Time now for today's most valuable pick. It's U.S. Bancorp. Shares moving higher after Baird upgraded the stock to outperform in a move to take advantage of the recent sell-off in bank stocks. The firm calling it a rare opportunity. Joining me now on the CNBC Newsline is David George, who is the analyst behind today's call. David, thanks a lot for calling in here.

So first, more generally, you know, what do you base this assessment on that, in fact, a lot of the regional bank stocks have been unduly punished, given what we've seen in the deposit flight and concerns about longer-term earnings power? Well, hey, good afternoon, Mike. Thanks for having me on the show. I think what you say is from a concern perspective, these stocks are down 30, 40 percent in a week. And we think that presents probably the best risk reward set up for many of these stocks since the financial crisis. This is not a crisis,

in my opinion. Clearly, there are a couple of companies that have had meaningful challenges from a deposit perspective. But I just don't believe that Silicon Valley or Signature are really relevant comparisons for the likes of U.S. Bank, PNC, Truist, and the like. Many of those larger regional banks, Mike, are actual beneficiaries of this period we're going through, and they're really more relationships-focused, less transactional-focused like the Silicon Valley might be, and their funding bases are significantly more granular, which is really critical in our opinion. So with a 6% dividend yield, just over six times earnings, we think it's an incredible opportunity to get more aggressive on these stocks.

You also say that investors are getting carried away with mark-to-market accounting or with trying to run the numbers of, you know, if they had to sell assets at current levels, what would it mean for the books? What are you getting at with that? Well, I kind of mean what we say on that. I think market participants are getting carried away with mark-to-market accounting. Mark-to-market accounting is great in a vacuum, but that's not how banks work. Banks use pre-provision earnings to pay for their expenses and credit costs over time. And I think one of the lessons that we should have gotten from the financial

crisis is that is not how banks work. What investors are not really considering when thinking about mark-to-market accounting is the valuation of deposits. They're valued at zero. And as we're finding, Mike, these deposits have very significant value. And the deposit franchises or the implied deposit values of banks like U.S. Bank and some of their peers are quite, quite low and I think represents just a significant undervaluation in our view. Yeah, of course, U.S. Bank always has been considered well managed, definitely on the higher quality end of the spectrum. Is there anything else going on specifically either geographically with competitors or things like that that might make them more of a beneficiary?

I think so that next level up in banks, to the extent there is a modest amount of deposit movement, we think that companies like Truist, PNC and USB will be big beneficiaries. But I think it's important to note that what we've seen so far from a deposit movement perspective is really not a great read-through for the vast majority of the industry. And most banks have a very granular funding profile. Their average account sizes are much smaller. They've got more retail accounts. So it's really not something that is a crisis in our opinion. There's a crisis perhaps in confidence, but this has really been, in our opinion at least, just a full-on panic, which is the kind of times we like to step in and tell our clients to get

more aggressive like this morning. Yeah, and I wonder if some of the maybe responses or pushback you might be getting from clients. We hear you that it looks cheap. Certainly U.S. bankrupts in a good spot, as are a lot of the other larger regionals. But is this really the time to get aggressive in banks? If you do think that the economy is going to have some bumps, credit might erode. They're going to, no matter what, still maybe have some net interest pressures because they're paying more for deposits over time. And what's the hurry to own it here might be the question. Yeah, that's fair. I think that's a fair, certainly a fair question. From our perspective, the price you pay really dictates your returns.

And at these valuations, we feel like there is a tremendous margin of safety in buying several of these stocks here. I'm in full agreement, Mike, that credit is going to deteriorate. And that's kind of how credit operates. It's very cyclical. But in the scheme of things, it's important to note that these companies are stress tested for a two year depression every year in every asset class simultaneously. So the industry is prepared for that. And certainly if the stocks were 30, 40 or 50 percent higher than they are today, then I would be more concerned about it. But at these prices, we think there's a tremendous margin of safety here. Would you think that there are going to be deals coming

in any significant number? Is that a relevant piece of the story? I think it depends on how this current period evolves. If we start to see a more discernible trend of deposit movement from perhaps small to medium and medium to large, I think an indirect impact of that could be that you see increased consolidation, which again would be a benefit, we think, to some of the larger banks that have got the intellectual and economic capabilities to absorb those and take costs out of a commodity business like banking. For sure. Well, we are seeing USP up just about 5% today. See if it's the start of something. David, really appreciate you coming on. Thanks a lot. Thanks, Mike. All right. Up next, debating oil's bottom, if it is one. Top technician Mark Newton is with us, and he's charting the key levels to watch in the energy space. That's after this break. Closing bell. It's going to be right back. We're getting a news alert out of Washington. Eamon Javers has that for us.

Hi, Eamon. Hey there, Mike. Well, the White House is expressing support for Fed Chair Jay Powell. And in the press briefing that just wrapped up a couple of minutes ago, NBC's Kelly O'Donnell asked the White House Press Secretary, Karine Jean-Pierre, if the president views Powell's stewardship of the events of recent weeks as a risk to his position as chairman of the Federal Reserve.

The press secretary at the White House responded, no, not at all. The president has confidence in Jerome Powell. The White House going on to suggest that it's simply looking at this as the Fed's decision this week on whether or not to raise interest rates. So an expression of support here from the White House for Jay Powell. Mike, back over to you. Yeah, and reassurance of Fed independence, which is always nice. Eamon, thank you very much. All right. Well, this year's worst performing sector so far, energy,

could find a bottom in the next week and enjoy a, quote, sharp two-month rally, according to Mark Newton, global head of technical strategy at Fundstrat. He joins me now at Post 9. Mark, good to see you. Thanks, Mike. Energy, I mean, maybe people kind of really loved it a lot six months ago. Questioning it right now, obviously had a rough go. What are you seeing that suggests a little cyclical low here? I guess three different things. One is a cycle composite that I developed that looks at energy and WTI crude over the last 20 years, and that is close to bottoming in the

short run. It looks like we're going to get a pretty decent lift during a seasonally very bullish time for energy. Second is that a lot of these energy ETFs and actually crude itself have gotten oversold in the short run. There's been a lot of pessimism in general towards the market. And we look at, from what I hear from a lot of the fundamental sources, that oil demand is set to pick up pretty sharply in the second half of the year by potentially as much as two and a half barrels, two and a half million barrels a day.

So all of those combined to suggest that energy is looking increasingly like a very good risk reward at a time when everybody wants to avoid it. Does it seem like the kind of thing that is going to reassert leadership or you feel like it's just got a comeback in it here? That is difficult to say technically just yet, only because we've seen such weakness since November. Crude oil has given back all of its gains, really, for 2022. So that part is going to take some time. But I do feel confident that we're going to get a decent lift between now and summertime. What about more broadly and how the market has managed to at least kind of hang in there in the face of this banking stress and, you know, some damage below the surface, perhaps, but it's the indexes are hanging in there.

A lot of that is 100 percent due to technology and to its credit being the largest sector. So for the first time in a while, we've seen a lot of sectors really start to roll over in the past couple months. And that is troublesome when you look at performance of industrials, materials, certainly financials being third highest in the S&P. Tech to its credit is held in there. And it's not just the FANG. It's a lot of semiconductors and many other parts of tech. So if you see a broad-based rally in technology, yes, that does have the potential to carry markets higher or keep them resilient in the face of bad news, particularly when everybody is pessimistic. Does it seem like that's poised to happen?

I mean, I guess there's a couple of contrasting views on that. One is that, well, the NASDAQ, relative to the average stock, has had another one of these big runs of outperformance, it looks kind of stretched. On the other hand, as you say, semis, things like that, looking like they're in decent shape. If we can get some stabilization in the financials group at a time when tech is still doing well, I would argue that everybody who's a naysayer, and when technically stocks are hitting multi-month highs and big percentage stocks like Apple, Microsoft, Meta, then normally it's time you want to double your position and not listen to the naysayers. Things are going well for a reason. And the market is typically one of the best economists that any of us know.

That being the case, what's your broader read on where we are field position wise, right? You have the October low. S&P is up like 12 percent, but still kind of hasn't quite gotten free of the lower end of that range. I understand. I think the events in the last month give me a little bit of concern that if we don't see sharp rebounds out of financials and energy and industrials, and particularly health care soon, that it could be setting up potentially for a challenging maybe four to six weeks. I'm still quite bullish between now and the end of the year. My target is 4,500. I think we might have to get through, you know, a little bit of a choppy second quarter, but sentiment is right now so negative across the board that if tech is acting well, it really makes me want to participate. So with regards to your

ballgame thinking, you know, I think we're, you know, potentially through the fourth inning, you know, we've seen a bear market and my thinking is we're going to have a pretty decent bounce in the next couple of years before potentially we see a late decade, potentially a pullback. So I think that the recession potentially could be postponed. It probably can't be avoided completely. But for this year and next year, I'm clearly in the no landing. I think that hopefully this banking crisis won't be systemic. I think that, you know, hopefully this banking crisis won't be systemic. I think we've seen evidence of mismanagement and this and that. I think we're, you know, we're hopefully with interest rates having come down sharply in the last couple

months. That is a big positive for the banks. A lot of people aren't talking about. For sure. You know, I was talking earlier about how not to say this is a prediction, but there's enough history of an October low. And then in March you have a little bit more anxiety, and you kind of get down to or near the low, and then it's been a recovery from there. I mean, you don't want to be too specific about that it's going to happen again, but it's interesting. Typically, bear markets in the second year of a decade almost always bottom out in February or March of the third, and that's according to W.D. Gann from 100 years ago. So there is some thinking that this might happen. And seasonally speaking, in a pre-election year, you know, we're in one of

the most bullish times of any of the four year cycle. So, you know, I like trusting the seasonals at a time when people are negative and I have tech acting well. And, you know, if I can see a little bit more strength out of health care, I think, and financials have a better than expected bounce, you know, that will certainly put the market on better footing. All right, Mark, great to catch up with you. Thanks. Thanks so much. All right. Up next, we're tracking the biggest movers as we head into the close. Christina Partsenevelos is back with all that. Hi, Christina. Well, we have a change of the guards at one cruise line and a big upgrade for Slim Jim's. I'll break down the price movements after this break.

About 22 minutes till the closing bell. Here's where we stand. The S&P 500 just under 39.50. It's right around the highs of last week as well as today. You have the Russell 2000 also still outperforming after having a tough week, up 1.3% right now. Let's get back to Christina Partsenevelis for a look at the key stocks to watch into the close. Christina. Well, there's a change of guards at Norwegian Cruise Line Holdings, which is the parent company. Frank Del Rio will step down from his position as CEO, president and as a board member as early as this June 30th. But he's going to stay on as a consultant and he's going to be replaced from within. Del Rio will be replaced by Larry Sommer, the current CEO of Norwegian Cruise Lines. He's been in that position since 2020. Shares are off about 1.7 percent. The maker of Slim Jims and Ready Whip getting upgraded from

sell to hold today by Deutsche Bank. The bank says Conagra's current valuation right now reflects its cautious outlook, noting that it remains at a greater risk of consumer trade down, consumer trade down behaviors, I should say, when compared to many of its peers. But you can see shares are up almost 2 percent today. And then lastly, this interesting story, CNBC has learned that Virgin Orbit is scrambling to secure a funding lifeline and avoid bankruptcy, which could come as early as this week if they don't get a deal. The rocket builder paused operations just last week for most of the company. And that's why shares are down a whopping 29 percent right now. Mike? Absolutely. Christina, thank you. It is the last chance to weigh in on our Twitter question. We asked which of this year's sector winners would you fade? Communications technology, or discretionary?

Head to at CNBC Closing Bell on Twitter. We'll bring you the results of our Twitter question. We asked which of this year's sector winners would you fade? Looks like technology nosing out consumer discretionary as the one that folks want to bet against right now. Communication services coming in third. Up next, we're forecasting the Fed, what Powell's next move might be and what it might mean for your money. Plus, the best safety plays amid all the uncertainty. That and much more when we take you inside the Market Zone. We are now in the closing bell market zone. Keith Lerner from Truist is here to break down these crucial moments of the trading day. Plus, Morgan Stanley's Lauren Shank with a deep dive into the world of online dating

and the one stock that could be a good match. Welcome to you both. And Keith, let me start with you on the broad market action here. You know, the index continues. The S&P quite resilient here, barely down for the month. That's thanks in part to the big growth stocks doing a lot of the work on the upside last week. But also, you know, we're at one of these moments where central banks rescuing the financial system with liquidity measures. Maybe the Fed's going to be done earlier than we thought. Are those things that you think can continue to support this market or not? Well, first of all, Mike, great to be with you. It's nice to see some green on the board today. As far as our

positioning at the end of January, early February after that rally, we actually went to more defense and took some, you know, took some money out of stocks and raised a little bit of cash. And right now, as much as the market's been exciting, we see it as somewhat unexciting. So we're still more in that defensive position, even if the Fed decides to pause or a lot of people are looking towards the end of the Fed tightening cycle. History suggests that is not a cure-all, especially if economic data weakens later this year, which is our expectation. But, Mike, I think part of the reason you have this balance this tug of war right now because you know the fed came in the the the overall markets acting pretty orderly as a whole but

if you look at the overall market you're still trading around the 17 multiple with above average macro risk uh in the fixed income market we've been overweight high quality but yields have come back uh quite a bit as well so in our view now, it's good to be somewhat defensive and patient at this point, because we're not seeing any really compelling opportunities across the capital market space right now. So with what's going on in financials or the severe pullback in some energy areas, none of those things feel like they're timely for you? The first thing with financials, after you see a shock period in the market, typically there's a long period of basing and back and forth. And they get somewhat quiet after you see these shock periods.

So in our view, we're more or less neutral financials here. And then energy, we had been overweight most of the last year. We downgraded that early this year. I do think the structural case for energy is still there. So if you have a longer time frame over the next one, three years, I think fine. I think the challenge that energy had is that it just got overcrowded and the energy prices have come down quite a bit. But it is one of the cheapest sectors. But again, that's also where we're more neutral. I mean, the one area that we're still overweight, Michael, is industrials. We still think there's some structural positives for that sector as far as reshoring.

We think there's this strategic battle with China is going to mean defense spending will continue to move higher as well. And then also the stimulus bill that was passed last year was underappreciated. There's hundreds of billions of dollars of infrastructure spending happening the next several years. So we do like that sector. But again, there's times in the market to be tactical. That's one of our key themes this year is to be tactical. And we did that with the market move up earlier this year. But at this point, you know, you don't have a fat pitch.

You're in the middle of this kind of 3,800 to 4,100, 4,200 trading range. And interest rates have come down. So it's okay to be a little bit patient. We have high conviction that there will be better opportunities to deploy capital. Do you think that that type of opportunity is going to have to be a real flush toward the lows of last year? I mean, it seems to be the call. If you think it's a thirty eight hundred to forty one hundred range, it doesn't necessarily mean A retest of the lows but you know it seems like a delicate. Balance here the Fed is dealing with with. Inflation in the risk to growth. I and

then of course the financial system. Kind of credit contraction that we're seeing. Now it's a good point and my guy I know you know this well I mean markets historically haven't ever bottom before recession. But they typically

don't go down twenty percent before the recession even starts. The one example actually which was interesting was.. You know, the market actually dropped from March of 2000 to about March of 20. I'm sorry, 2001, about 26 percent. It had a reflex rally of about 17 percent, which is eerily similar to what we've seen now. And then markets made new lows. But back then you had a crisis, which is 9-11. So I know that's something that's hard to predict. But I think either you move down

to make a more compelling risk reward, Mike, or you're kind of in this slog where it's just not that exciting. I think there will be tactical opportunities within. But if you don't have more of a flush, then you're in an unexciting environment where, you know, being overweight, fixed them, getting paid to wait still makes sense in our view. And if you if you got a deeper flush from our perspective, that's where we would probably be more on the offense, you know, based on, you know, what was what's happening at the time. Do you think there's a lot more downside to earnings? I mean, we've already seen a lot of degradation in the 2023 earnings consensus from the middle of last year. It was above 240, I think. What are we down? 20 bucks on that measure.

And the S&P is more or less where it was like 10 months ago. So it's kind of absorbed it. It's found a way to stay supported here, even as some of the biggest stocks have not done well. Do you think we're because in 2000, 2002, that was the story, right? First, you got valuation coming down, then earnings fell apart. Yeah, no, I just you said the last 10 months, I just looked at the average price for the last year of the S&P. It's 4000. So it makes sense that we've been going up and down between that level. To answer your question more specifically, I do think there's some more downside to earnings. It is notable that earned forward estimates have stabilized the

last month and I think that's why the market. Has been somewhat resilient. And also because nominal GDP is actually still relatively strong. But I take is that all these rate hikes- and then- so all these rate hikes will filter into the

economy. And then as as as as even Washington and we're watching as well as we think lending trends make lending trends become tighter and that weighs on earnings. More towards the back half. So we do think there's more downside in earnings. But I think the economy got off to a good start this year.

So I think that's more of a back half story. And that's why until then I think the market is back and forth in a trading range. Ultimately, we're likely to see more downside later in the year. Gotcha. We want to get to Lauren Schen Shank here on the online dating call. And Lauren, it's great to have you here. I was very interested in part because it's been so noteworthy how Match and Bumble have been really poor performers after great runs kind of during the lockdown pandemic times. And I did wonder what the market was suggesting about the long-term

growth outlooks for this area. So what has been pressuring this group and what are you suggesting could be a better outlook for them perhaps in coming years? Absolutely. Thanks for having me. So there's two factors we think have weighed on these stocks. One is there has been some macro pressure primarily on the a la carte revenue side, which is your one-off purchases. So a lot of softness when gas prices were at their peak. The second is this concern that the industry is over-monetized, oversaturated, mature. And that's what we really tried to address in this note today, which we don't think is the case.

If you look over the past decade, the industry growth has really been driven by user growth. The rollout of these mobile products and the adoption of a simple subscription product, that was the easy leg of growth, if you will. From here, we think it's more dependent on monetization. So monetizing those users that are still free, that haven't paid for anything, but also increasing the amount that the paying users are spending, that is going to, we think, fuel the leg of growth going forward. We still see a double digit cake for the industry through 2030. So very much not mature in our view. You make the analogy

to what happened with video games and just draw that out just briefly in terms of why you think this industry can resemble that. Absolutely. So if you look at the video game industry, user growth has actually been slightly negative over the past decade, yet revenue in the industry is up over 230%. So we think it's a really interesting parallel for an industry where there hasn't been as much user growth as people probably expected or thought that would be necessary in order to drive the revenue growth that it's delivered, but has obviously still been a very successful industry, and the stocks in that space have obviously done quite well.

So we think there's sort of a similar analogy here. Yes, user growth is important, but ultimately isn't the major driver or what you actually need for this business or these industries to be successful in the medium term. Now, you do like Match Group. What is Match going to do to try and get, I guess, the average revenue per user, get people to pay for more attributes of the service? Yeah, so Tinder's obviously had a little bit of a hiccup in terms of its growth rate.

We think from here, it's really dependent on product innovation. So they brought an entirely new executive team there, primarily to drive better a la carte features, some product optimizations, some pricing optimizations. We think that is going to fuel the second half of revenue growth for this year. And then going forward, it's kind of about monetizing two different groups. We think Gen Z, the younger users that are aging in, who may not be as likely to sign up for a 30-day subscription, introducing something like a weekly subscription, which Bumble does, that might be easier to convert a user to do, or more a la carte features beyond just a super swipe.

So one-off purchases that you can make that enhance your experience, but ultimately don't tie you down to an ongoing revenue commitment. And the other side of it is monetizing power users. So the top 1, 2, 3% of users who are willing to spend $50, $60, $70, $80 a month, we think, but don't really have the products that are available to them today in order to do so. And so rolling out some of these more a la carte features that are about gamifying the experience a little bit more and provide incremental value when you do spend more over time. Interesting. A one-week subscription. It seems to raise the stakes a little bit to make it work.

All right, Lauren, hey, great to have you run through that with us. Thank you very much. Thanks for having me. All right. Appreciate it. Keith, with the market as stable as it's been here, do you think it changes what might happen Wednesday with the Fed? Is there going to be clearance for them to push through another hike? Yeah, no, it's funny. We were discussing this on our team last week and I said the Fed, as much as their PhDs and economists, they're just like us and they're watching the market. So a lot of what will depend on where the market is. And as you mentioned, it's been pretty serene, pretty orderly.

So I think the base case is they do 25, probably with a dovish conference from Powell afterwards. And again, historically, it would be normal for the markets to rally off of that. Our position would be anything that we get closer to 4,100, that 4,200 level, we would fade that rally. Because we think later this year we'll be talking more about the slowdown in the economy. And rate cuts by themselves is not a panacea when you look back at history. Gotcha. And you think that they will the two year note yields now back up to almost four percent. So do you actually think they're going to be cutting hard in the latter part of this year? I think the market is getting ahead of itself. And I would say, you know, earlier the market was pricing in the three rate cuts.

If that happens, that likely means the economy is actually weaker than people expect. And that will be good for corporate profits. So in our view, that's not the scenario that you want as an investor either. Right. Yeah. And that in that case, you know, the bad news for the economy is probably just bad news. Keith, great to talk to you. Thanks very much. Appreciate it. Thanks, Mike. As we run toward the close, we are going out pretty close to the highs of the day. That 39.50 area has been sticky.

I mentioned it was also right around the highs from last week when we did have those rallies in a down market in general. Also, oil has gone from negative in the morning. It has bounced a little bit. WTI crude up 1.2 percent. Decent breath today. I mentioned that, you know, it's the largest stocks that carried the day last week. Today, it is much more the broad list of stocks with small caps outperforming and the Nasdaq 100 actually lagging after really doing all the upside work last week. Microsoft mentioned was the big winner last week, up more than 10 percent and is now down two and a half percent at this point. The volatility index is down below 25. That's not necessarily calm levels, but it certainly tells

you that some of the panic that was might might have been expected over the weekend after those bank rescues has not come through. And those bank stocks themselves are bouncing, perhaps not making any real dent in the decline so far. The regional banks index up 1% to 2% has been down some 40% from its highs. That is going to do it now for Closing Bell. The Dow is up 380 into the close. S&P is going to get above that 3950 level. We're going to send it on over to overtime. It's Morgan Brennan and John Ford.