Closing Bell - Closing Bell: Critical Moment for the Market 5/4/23

Episode Date: May 4, 2023

Apple is reporting results after the bell in Overtime. Star Wedbush Analyst Dan Ives breaks down what to watch and what’s at stake. Plus, Dubravko Lakos of JP Morgan breaks down what the fed’s next move might be. And, Lauren Goodwin of New York Life weighs in on the turmoil in the regional banks.

All right, guys, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make-or-break hour begins with this big day in the markets, what's still to come in about an hour. Apple earnings, the final fang to report. There's your countdown clock, a little more than an hour and a half or so from now. Comes at stocks remain unsettled after another rate hike from the Fed,

more turmoil around the regional banks, which have been under a big time pressure all day long. Here's your scorecard with 60 minutes to go in regulation. The Dow weaker as several household names come under some pressure today. Boeing and Goldman Sachs, Disney and American Express among the biggest losers. NASDAQ waiting on Apple as big tech has led the way this year. Brings us to our talk of the tape, the road ahead for stocks and all that might be riding on the mega caps, especially now. Let's ask the star Wedbush analyst, Dan Ives.

He's with me here at Post 9. Good to see you. Good to see you. Man, I mean, all the stuff going on in the market and then, oh yeah, Apple, it's only the biggest stock in the market reporting. What do you expect? I think, look, it's the hearts and lungs of tech.

And I think ultimately what we've seen in Asia, I think an actual uptick in China, which is really the key to the Apple story here in terms of iPhone demand. And it's not roses and rainbows, but I'm expecting actually some positives in terms of services and uptick there. And overall, iPhone demand continues to be rocker Gibraltar because of that golden install base. It's expected down 4% iPhone sales, though, right? Let's not gloss over some of the issues that exist, right? They're expected to report a decline in sales for the second straight quarter, okay? It would only be the third time in a decade that Apple has posted back-to-back quarters of falling revenue.

So this isn't all sunshine and rainbows by any stretch of the imagination. No doubt. Now, you have a 500-bit headwind in terms of currency, which is obviously hurting the headline. But I think in terms of the China number, the street's really front and center. Can you start to see growth in China? And also what's important is margins and free cash flow. Margins have actually been up in terms of gross margins. And I think it just shows Cook is navigating Apple through the storm. And ultimately, I believe, especially in China going into iPhone 15, you're actually going to have a slightly positive outlook with some caution going into June. You nervous at all that the stock is up near 30 percent going into this print? Look, I still continue to believe many have hated the ultimate, from an institutional

perspective, in terms of this rally. I think many sort of under-own Apple in terms of this print. You really think people under-own Apple? I do. I mean, I can tell you from my conversation, I think maybe retails participate from institutionally speaking. This year, many have bet against it, waiting for the next shoe to drop. And look, this is the Kentucky Derby of tech earnings season. And I'm expecting positives that we see after the bell. Yeah, but I mean, you've already had a lot of the mega caps report. If you want to use the analogy of the Kentucky Derby, not every horse wins. Sure. Right. This one is arguably more exposed to the consumer than some of the others, which are more, you know, enterprise

driven. This, you know, obviously you have the services business too. How do you think about all of that? Well, I think in the services, in terms of app store, we've seen an uptick, which is important because I think key to the sum of the parts, we think services worth 1.2 to 1.3 trillion is an uptick on services. And then it comes down to, it's that golden install base. You got 2 billion iPhones. I believe ultimately about 25% of those based on our estimates have not upgraded. And I think that ultimately is really the key as you go into this next cycle. Why isn't the valuation at 27 times forward too rich? Because that's what I hear from people who don't own the stock. Sure. They say it's the valuation's too rich. And it makes sense, I think, at superficial value.

I've always viewed it as sum of the parts. You've got to look at the services business and ultimately what the hardware business is worth. And I think the important thing here on the sum of the parts, this is north of a $3 trillion mark cap. I also think that's important on the margin side. They're owning more and more of their ecosystem. They're being Intel at their own game. That's giving Cook and Cupertino the margin leverage. Well, you mentioned chips.

You're telling me that what Qualcomm delivered didn't make you nervous? Because if anything, they suggest that the handset slowdown is maybe not over. That doesn't move you at all? No doubt. We've seen similar caution coming out of Asia in terms of our checks. But I think what's really happening here is that Apple's gaining share in China from the Android. I think we have about 300 bps of market share. And that's why, despite the caution, despite the nervousness, I think it's a flex the muscles moment for Cook and Cupertino.

I'll tell you what, the other thing before we broaden this conversation out is China, I feel like, is more of a question mark today than it was. You know, most were assuming, oh, China's reopened, everything's great. Everything's roses over there. Then Estee Lauder's like, okay, well, we're not seeing the amount of retail travel that we thought. Now, that's obviously different from inside in China, but you've seen some other anecdotal evidence, too, that maybe it's not like the doors just swung open and everybody rushed in. Yeah. And I'm not expecting the whole

champagne roses, but I know what you but you paint you paint an over you paint a very optimistic picture. And China is a key part of your thesis today. And to China, you have one hundred fifty million iPhones that are in a window of an upgrade opportunity. And I think it goes back to how they've been the rock of Gibraltar in tech and why the stock's doing what it's doing. It's because of that install base. They've had 100 million new iPhone users the last 15 months. All right. We're going to see. You'll stay with us.

Let's bring in now CNBC contributors and Apple shareholders, Joe Terranova of Virtus Investment Partners and Jason Snipe of Odyssey Capital Advisors. Joe, it's so relevant to you because you just added Apple back into your ETF after selling it several months ago. So what are your expectations now? So that's based upon the what. That's the reaction. And if you're looking at price, that's exactly what you should be doing. The stock is well above its critical moving averages

50-day moving averages at 159 Dan. I know you're the highest analyst on the street at 205 I believe what's interesting to me is that the 12-month average price target for Apple very surprisingly It's only 175 so that's a very muted expectation. That's roughly 4% higher from here. If you think and if you analyze the why, to your points, you're seeing a company that is going to have a second consecutive quarter of a revenue and earnings decline. You're going to have to see what that guidance is going to be. What are they going to message? How conservative are they ultimately going to be? So I guess my way to respond to your initial question about being long the stock is, I believe being long the stock is the right position to have, but I would not be surprised to, boy, they raised the bar significantly for Apple today. Yeah. And I wonder, though, what Qualcomm really did, Jason Snipe, in terms of where the bar is and where your head is now, because I feel like you may have been moved by that quarter from Qualcomm. Without a doubt, Scott. I mean, I was very concerned about the Qualcomm quarter. I mean, they raise concerns about the handset business and obviously weakness in China.

So for me, we were just talking about China being a very important factor in how Apple performs going forward. You know, you already mentioned decreased slowing revenue growth, both on the services and iPhone sales. Right. So that that's obviously a concern for me going forward. But I think Dan makes a great point. I mean, 2 billion, you know, the customer base, you know, there's 2 billion iPhone users. I mean, this is significant. They've been continuing to grow share,

you know, 45% of the revenue growth in the cell phone businesses was owned by Apple in 2021. 2022, it raised over 50%. So then the consumer base continues to grow. Also, I think which could be a positive for the stock is the average selling price for a lot of these, for a lot of their wearables and products.

So I think that could be an opportunity for them going forward. And I also like them opening up India. also the supply chains, not just the stores. I think that could also be a catalyst for the stock. So, Jason, answer this question for me, if you would, please. If you did not own Apple today, would you buy it? Would you buy it at 27 times earnings? I wouldn't. I wouldn't at this stage because I think you would likely be able to get it cheaper at some stage later on this year.

I mean, it's up 28 percent year to date to your point, 27 times forward. Earnings is expensive. I mean, it's a premium. And, you know, for for the cycle that it's been, it's obviously been cheaper. You know, so so I think for me, I'm just a holder. I wouldn't be entering in it here at this point. You know where I was going to go right out of that. I understand that. But quite candidly, the strategy is telling me it would be difficult to get it back at the December lows, 130, 140-ish. It would be difficult to get it back there.

And I'm not going to sit and wait for an opportunity that ultimately doesn't present itself. Jason's 100 percent right. The 10 year average valuation on Apple is at 18 times. It's sitting at 26 times. It's rich. I understand the fundamental arguments right now in a very unsettled market. Absolutely, Scott. I understand the fundamental skepticism. But quite candidly, the overall market environment lends itself to owning the type of stock that Apple ultimately is with that $90 billion buyback. Let me let me ask you about the market broadly as we pivot here. Dow's down about 260. It's well off the worst levels of the day.

But some of those regional bank stocks are still looking rather ugly today. Did the Fed make a mistake yesterday, Joe? Fed made a mistake in September of 2021. And everyone at the time said, OK, well, they made the mistake. Let's move on from there. No, you can't move on from there. They raised interest rates 500 basis points over the course of 13 months. That had a dramatic impact on assets sitting on regional bank balance sheets. The challenge and the problem, as I see it it is do they have options if we reach a moment where we see that there is financial instability? We certainly have a crisis of

confidence right now. And I thought where Chairman Powell failed miserably yesterday is effectively communicating what those options would be to the market, because the market needs to hear what the options ultimately are going to be. Is there a coordinated effort with the FDIC, Treasury and the Federal Reserve? I have no confidence that after hearing him yesterday, that, in fact, is in play. I mean, the market doesn't believe the Fed, in fact, at all. And on that note, let's bring in senior economics reporter Steve Leisman, who passed along something that just really was, I thought, stunning, Steve. A 60 percent probability now of a cut by July. That's what you see.

Yeah, the market thinks that the move yesterday was wrongheaded to the point that the uh they believe the fed takes it back as soon as what would that be two months from now so if you look at the probabilities right now scott 80 probability that they hold in june but there's that 60 or 63 probability that they take it back in july and then they take it back again and again and then look at this fed market gap this is a line that we had that a line that we watch all the time. The gap between where the market thinks the Fed is going to be at the end of the year and where the Fed thinks it's going to be at the end of the year. You'll note that we were a 50 basis point gap.

Okay, we can argue over two quarter point cuts or hikes. But now we're at 100, Scott. So there's a one percentage point differential between the Fed and the market for the year end. So there's some squaring up to do. The market thinks the Fed is going to be reversing course pretty quickly. The Fed is, yesterday, I think, held the line on that. You had Powell say he does not foresee cuts. And yesterday's hike, Scott, as you know, having talked to Jeff Gundlach and a bunch of other people in the fixed income market.

You had Roger Ferguson on this morning, another person who typically is somebody who supports what the Fed does, think that yesterday was a kind of wrong-footed move. I mean, Gundlach, and thank you for referencing that, he doesn't think that they should have moved because he doesn't think that the banking issues are over. Listen to what he said. These people are pulling money out because there's absolutely no reason to keep their money in. You can get higher interest rates by a lot thanks to the Fed's 500 basis point interest rate increases. You can get bills at 5.2 percent for a couple of months.

And, you know, the two-year Treasury has fallen over 100 basis points in the aftermath of these bank failures. But it just seems to me that the deposits are going to keep drifting out. And I don't think that this is the last chapter in this regional banking problem. Jason Snipe, did the Fed make a mistake tomorrow? Was it one too many? I think for me, as I look back from a year ago, 500 plus basis points over a year, I think it's really been about the pace in hikes. I mean, this is tremendous, the fastest in 40 years, right? So that is concerning.

So I'm of the view that they didn't need to make that last hike yesterday. I hope this is the last one. I hope they don't move again in June. You know, but as it relates to the banking crisis and all the other lag effects that I think we're starting to see play out in the economy, for me, that's why I didn't feel like it was necessary to move. And we'll see what they do later on this year. I mean, that's interesting to see that the Fed is, I mean, they're pricing in a 60 percent chance of cuts, you know, starting in July. That's really early. And that's not at all what they said yesterday. You know, Leisman, there's this idea. I know you've you've

heard it, too, that the Fed just doesn't get it when when Powell himself uses the words of the banking system being sound and resilient. And then not two hours later, we're watching PacWest shares down 50%. You're like, what are they looking at? Yeah, I don't know what they're looking at, Scott. What I do know is that my idea that the Fed should have held yesterday was based upon thinking that maybe they had concern with what was going on in the regional banks. And then you look at how the regional banks reacted to the rate hike yesterday. You can see it fell out of bed almost immediately. I guess it was around three o'clock or so

that it woke up to the idea when Powell said no cuts this year. I think it was somewhere around that time of day. And it's just continued to go. And I've thought that the Fed would care more about bank equity. I know that it doesn't care that much about equity in general and doesn't want you to think there's a put out there.

But when it comes to the banking stocks, I have to think the Fed has more concern. And really where we're at now, Scott, is a place where, if you listen to the question that I asked Powell, what did you do after the February 14th warning? And now he's the second senior Fed official to tell me not very much after that. It was not something that they took action on. So the question becomes, is the Fed able to supervise and run monetary policy? And it's a discussion we haven't had in this country in a long time.

Back in 1998, England separated supervisors from monetary policymakers. And I have to say, to the extent to which this is not seemingly a top notch issue where the Fed is now thinking about changing monetary policy because of the health of the banking system, it's maybe a discussion we should have again. You know, I remember that exchange, obviously, because I was watching it and you came off to me a little incredulous, Steve, that that's the answer you got. You even went back at the chair and said, I'm not trying to be argumentative. I think you was the gist of what you you were saying. I mean, it was a rather unsatisfying answer. I think it's

fair to say, right? Well, he's the he's the second Fed official to say that we had a background briefing with a senior official who also said there was no action taken after the February meeting. Yeah, but he's the big kahuna. He's the big kahuna, and he seemed to suggest that it's up to the vice chair. So it's a little unclear where exactly the buck stops on this. They wrote a report, and the report said the supervisors failed. It said the bank executives failed. I think all of that is true.

But I also think the report failed to deal with what happened at the leadership of the Fed. There seems to also have been, Scott, another report almost a year earlier warning about the super focused on the big six or the big eight or the big 10 banks. And that what's happened is they were not as focused on this next, say, 10 to 20 size banks. And that's really the thing that seems to be in motion now, some of which are quite healthy. We heard Kovacevic in the last hour talk about this, and some of which have problems. And so the question is whether or not they should have gone slower. Let's remember, Esther George was the only dissent in this process of raising by 500 basis points because she was concerned about the banking system. Robert Kaplan and Eric Rosengren, both of whom left the Fed because of problems they had with their portfolios,

they were the two banking experts that I think you would turn to. They were the ones who said the Fed should not have hiked yesterday. So, look, I hope this thing works out and that there is stability in the banking system. We'll get new information at 4.30 today and at 4.15 tomorrow about the banking system. I hope Powell's right that there is stability. But the actions they took yesterday, I don't think in order to stability in the banking system. He also, Joe, said the Fed chair did that conditions have improved in the banking system. Look, I was I've been obviously I'm being very critical of them today. I want to be very respectful to what Steve just said. We're at 430. We're going to get information on the bank.

I don't need information on the bank. I could see it in the market. I could see that a three month to a a 10-year is out to $199. I could see that gold is trading to a nominal all-time high. That's telling me something. The 210 is telling you something, too, in this, you know, the re-steepening of the curve as well. I mean, the market clearly thinks they're going to have a recession, that the Fed's pushed it too far. The market is saying the economic contraction is here. The economic contraction is going to unfold faster than we expected. Credit tightening is here. Just look at the CDX market. If the Federal Reserve wants to look at something, high-yield debt issue

was all backed away today. They all backed away. And ultimately, as I said before, and I don't know if Steve has the answer to this, what are the policy options to respond to the stress in the regional banking crisis right now? Do we have that? Steve, I'll just leave us with this thought, too, because he did kind of double down on the idea that they can deal with everything, right?

They can fight inflation while dealing with regional bank flare-ups and he was almost wholly dismissive of the staff calling for a recession if you want a name for it they call it the separation principle we can do monetary policy here and supervision over there i asked that very question uh joe and i did not necessarily get an answer i think the fed feels as if the idea that they have this new banking fund in place where they can go and finance their paper that's underwater at par, they think that is sufficient. What I haven't

heard, I expect it's happened, is that they've told the supervisors to kind of sharpen their pencil in assessing interest rate risk at the banks and to be more forceful about it. I assume that's happened. Nobody's actually told me it's happened. Yeah, better late than never, I guess. Steve, thank you. Important questions. I'm glad we're asking them. Steve Leisman, our senior economics reporter, joining us. Dan Ives, of course. Thank you. We'll see what happens with Apple. Joe, Jason Snipe as well. Great to have everybody in that conversation. Let's get to our Twitter question of the day. We're asking, how will Apple stock trade after its earnings report? Higher or lower? Head to at CBC Closing Bell on Twitter. Vote. We'll share the results a little bit later

on in the hour. We're just getting started here on Closing Bell with another big story coming up. Look at that chart. AMD, it's up near 7% on a new report. You got to hear the details of that report. And we'll get the details of that report. And we'll get the reaction from top chip analyst Stacey Raskin. We'll do it next. Then later, J.P. Morgan's Dubrovko Lake Coast is right here at Post 9. We'll get his first reaction as well to the Fed. If he thinks more hikes are ahead, if he thinks more banking problems are ahead,

market unsettled. Dow's down 350. We're watching Closing Bell. We're back after this. We're back. AMD shares spiking late in today's session after a report Microsoft is helping to finance the company's expansion into AI processors. Joining me now, top chip analyst Stacey Raskin of Bernstein. Stacey, I saw this headline. I saw the stock pop and I said, get Raskin on the phone. ASAP. What do you make of it? I can't believe you published a report already, by the way. This is what I do. This is what I do. No, no. Look, so there's not a lot in the article.

I mean, the idea that Microsoft is doing their own processor is not new. Even the code name Athena, which is what it was, that's been reported on. Supposedly they've been working on it since 2019. The commentary around them offering financial support, to me I wonder if this is more of a semi-custom model rather than like a direct silicon sale. Your viewers may not realize this, but AMD has a semi-custom business. They will help customers design processors and sell them. Their game console business is very similar to this. And the way this works is the customer funds the development cost, and then AMD designs and builds the

chip. And then when they sell it, the customer gets those costs back. So, for example, the game console chips only have 20% gross margins. They're low. But there's no OpEx to develop. And so to me, offering financial assistance kind of sounds like that. And I think that certainly is good. There's nothing wrong with it. How material would it be? Better than no AI, but maybe it's not as good as selling the GPU.

Yeah, forgive me for interrupting you. I just want to try to get to the heart of it, too. Is it a game changer in the way that you would look at AMD when seemingly NVIDIA has all of the chip hype around AI? Yeah, well, look, if nothing else, it certainly helps to bolster the narrative, right? AMD has been trying, especially the other day, I didn't count how many times AMD said AI on the call, but it was a lot. And they're trying to spin that as the next growth driver for the company. And up until now, there hasn't been a lot.

They have a GP roadmap. The next product is called the MI300. You get a little in Super Compute, but hoping for a lot is a lot of hope. You don't know. This is something that maybe is more concrete and it does help to bolster that narrative, if nothing else. And so that is helpful. And so we'll see how this goes. We'll see if Microsoft is the only one. Semi custom models can can happen for many different players. But it certainly does help to bolster the narrative. Yes. I mean, let's not forget, too. What are we, just 48 hours or so removed from from AMD giving weak sales guidance?

And we're not talking about that anymore, are we? What's that? Sorry. I said, we're not talking about that anymore, are we? No, no, the stock is almost back to where it was before the earnings, right? And again, like in this environment, like, you know, this is everybody's looking for the AI winners and the AI losers right now. And, you know, look, everybody's been sending out these baskets of stocks in each category. And, you know, if this narrative can help you put A&E into the basket of AI winners, I mean, that's good, at least for the performance and the narrative.

Even if from a fundamental basis, my guess is significant revenue is going to be a while. Like, again, just the way these kinds of things work. But, you know, if it helps the story, it helps the story. But you're not. So it doesn't sound like you're going to be looking in the days ahead or the, let's say, even the weeks ahead to rethink your estimates. I doubt it has anything to do with estimates in the near term. I mean, even if you read it, they've been working on it for several years. If AMD has been involved for several years, by the way, there may already be something in the runway for the front on the semi customer. We don't know yet. It said that they may actually deploy the first gen next year.

The article itself kind of suggests it was sort of an acknowledgement that the first gen probably wasn't going to be competitive, which would be typical for these sorts of things. It takes time, and NVIDIA and everything else, there are pretty big gaps. So I wouldn't be holding my breath. But to be honest, when AMD first started selling server chips, like with their first epic product was called naples the initial sales were very small i mean it was more of a reference design than anything else it took years to ramp eventually did ramp right i mean they launched naples in 2015 i think so eight years it's ramping all right big big stock move um thanks so much for coming on needed to hear your voice today on this. That's Stacey Raskin.

All right. You'll be well. We have a news alert regarding the SEC and Chair Gary Gensler. Our Kayla Tausche has those details. Kayla. Hey, Scott, the chairman of the SEC posted a statement to the commission's website just moments ago that reads this in full. It says, as I've said, in times of increased volatility and uncertainty, the SEC is particularly focused on identifying and prosecuting any form of misconduct that might threaten investors, capital formation or the markets more broadly. That statement where he mentions, as I've said, it links to a similar statement from March 12th of this year, just immediately following the failures of Silicon Valley Bank and Signature Bank, when he made proclamations on roughly the same topic. But like then, now in this statement, there's no mention of specific banks, no mention of short selling activity or any activity in particular. So we will see what the SEC comes up with as it continues to investigate it. Scott.

All right, Kayla, thank you. Kayla Tausche with the update. Up next, the rate hike debate. J.P. Morgan's Dubrovko Lekos is back. We'll find out what he is expecting now from the Fed and if he sees a recession on the horizon. Closing bell right back. Stocks declining today off the lows of the day, the Dow turning negative for the year now as investors digest the Fed's hike and contagion fears around regional banks. My next guest says with current crowding, the risk of recession is far from priced in. Joining me now here at Post 9, J.P. Morgan's Dubrovko Lakos. It's good to see you. So, all right, we've got another rate hike. We're obviously still concerned about the regional banks. What's your view here?

My view is simple in that the risk reward for equities and risky assets remains unattractive. I think you have basically three disconnects in the marketplace. One is equity bonds, where bonds seem like they're onto something smelling weakness. Equities so far have been cheering sort of the fall in rates and a pretty hefty rotation into growth, growth stocks. Two, I think you got a bit of a disconnect between Wall Street and Washington, D.C. when it comes to the whole debt ceiling topic. That's an understatement. Yeah. Investors so far not really bothered by it. And then, you know, geopolitics, a tough one to call, but things are not easing.

But no one cares. So even if the Fed, let's just say the Fed's done, okay, for argument's sake, the risk-reward is still not improving. If you look at the past cycles going back 50 years, 60 years, market was typically good short either right at the last hike, potentially that was yesterday, or at the first cut, which could be in three months, could be in a month, could be in six months. And so it's a question of how do you think about that potential lag. But that's what history suggests. And to me, I think the picture is, you know, when I think bigger picture, the fact that you've got an earning cycle that remains under pressure, you have a market that is trading already at a relatively high multiple with a lot of these good mega cap tech stocks pretty

crowded, very narrow leadership. Banking crisis, which maybe parts of it are fixed, but maybe parts are not. And the fact that central banks are still sort of hiking it, it's not just the Fed, but also ECB. I think it's just a very tricky outlook. It's sort of a whole group of issues, which I'm not surprised to hear you talk about. A lot of people are, including Jeffrey Gundlach, who I spoke with yesterday. Let's listen to what he said as to why he's turning more bearish. I'm really turning more bearish at this point in time. I think the markets for risk assets are too complacent, given this cocktail of higher interest rates, quantitative tightening, and credit contraction. Certainly,

we should expect higher default rates and lower quality fixed income securities as we move into the end of this year. And I'm strongly of the opinion that investors should be going up in quality and bond portfolios. What do you think of that? No, I fully agree with the term, especially complacent. I do think there is complacency building. And if you look at various parts of the subprime market, whether it's credit card or auto loan or multi-purpose loan, I mean, you're definitely seeing more and more cracks and delinquency rates moving higher. You have the whole question mark around commercial real estate office. I believe there's also some complacency perhaps in like the multifamily resi side because supply is coming online in some of the states in a big way. And you're going to ask

the question, what are these developers going to do with all these like employees and workers, right? And you saw some of the construction in a big way. And you're going to ask the question, what are these developers going to do with all these employees and workers, right? And you saw some of the construction numbers or construction workers actually not moving in the right direction. You're seeing some layoffs there. So it's a tricky backdrop. Cost of capital being elevated for such a, you know, first cost of capital going up at such a fast pace after we were at, you know, 0% or 1% for so long

and then persisting at these higher levels, I think that's just creating a whole suit of problems. And we don't know exactly where the risk is going to pop out, but I kind of say the risk of unknown unknowns is simply moving higher the longer we stay at this sort of higher interest rate level. We talked to, Leisman was with us a few moments ago, market now pricing in a 60% chance of a cut by July. Is that a negative or a positive if that happens? I mean, I think once that happens, I would argue it's a positive.

Oh, yeah. But the problem is, what's the call it pain threshold for someone like the Fed, for someone like Powell? And we're not there yet. So you still have between now and then. And in the meantime, you know, you could see a lot of headline, a lot of volatility, a lot of pain. So I think once you get to the point where you start seeing signals that the Fed is definitely looking to cut and ease, and then the regional bank side, the business model starts to make more sense, then I think you start getting some relief. But we're not there. So Gundlach likes longer-dated treasuries, still likes Europe over the U.S.

Emerging market's OK. He's been buying gold. What's the Dubrovko playbook look like right now? So our playbook on the equity side has been generally tilting towards the defensive trade, defensive sectors. I think on a day like today, on a day like even yesterday, you're paid to be long utilities, health care, especially the more defensive parts of healthcare. Again, these are defensive sectors. That's what I would be leaning into. And when I look at a lot of the data, I don't think the market is pricing in a recession. And so I think this rotation from cyclicals

into defensives is only 35-40% at most underway and more rotation to continue in that direction. So in other words, I think the defensive trade will become a lot more crowded than what it is right now as we get closer to an eventual contraction. Well, because it was crowded last year, right, to the point at which it got what some would argue was too expensive. Now, obviously, there's been a rotation, so it's not too expensive. No. Staples, utilities, health care. Staples is my least favorite. It's our least favorite on the defensive side. I would put health care and utilities above Staples just because I think a lot is priced on the Staples side. But no, on a relative basis, that's where I would want to be.

I'm not sure that this is like a buy the dip moment and go back into the cyclical trade for the second, for the third time. In fact, I would argue that industrials could very well be the next shoe to drop. It started with tech last year. We're dealing with the banking sort of fallout right now. I think industrials could likely be the next sector to see a fallout. Speaking of tech, Apple obviously is going to report in about an hour's time. What's hanging on that, given what mega cap tech has done in terms of, you said, breath is so narrow. But overall, tech has done incredibly great, obviously.

Three things that come to mind. I think, one, the fact that rates are coming down and rate expectations are coming down are definitely helping sort of bid up the tech, the growth sector. You're seeing some multiple re-rating there. Two, I think the AI theme has definitely caught a lot of attention this year, the whole theme around AI, LLM, and a handful of names happen to be tech benefit from that. And then I think tech has been pretty responsive in terms of cutting costs,

and they can do more on that front. And I think that's helped them protect the numbers, margins, earnings, and thus I think this sort of rotation. But then again, the question is, tech also has become more cyclical over the years. And so if you believe that the cycle slows and eventually contracts, will tech be able to dodge the bullet? I'm doubtful. When you look at what's happened in

in AI around some of these big tech names, do you sort of sit there and say that this is a bubble? A lot of these stocks like Nvidia, for example, obviously they have great products around AI. They're up for a reason. But do you feel like there's a giant AI bubble being inflated at the same time we're sitting here concerned about the overall state of the market? So look, I think like AI and so forth, I don't think it's anything new. It's a theme that's been in place for many years. And I think it's a theme that's going to remain in place for many more years to come. I think the question is just of how hyped has the theme got, how priced or overpriced have some of these stocks become. You mentioned, for instance, NVIDIA. That's what I would be worried about. Because again,

if you look at leadership this year, increasingly thin, and it's increasingly more concentrated in a handful of names. And so that's where I would just be somewhat more cautious. All right. It's good to catch up. Thanks for being here. That's Joubrav Galeikos, JP Morgan, joining us right here post-night nine up next, a game changer for the banks. Why top portfolio manager Lauren Goodwin thinks one of the regionals could stand to be a big catalyst for the broader sector. We're counting down as well, as we said, to Apple. Those earnings in overtime will break down exactly what to watch for when the numbers hit the tape. And a quick programming note. Do not miss CNBC's Pro Talks tomorrow, hosted by Mike Santoli.

A special live event from Omaha ahead of the Berkshire Hathaway shareholder meeting tomorrow, 11.30 a.m. Eastern. Closing bell. We'll be right back. Some top stocks to watch. Christina Partsenevelos on the case, as always. Christina. Thank you. Well, we have a new IPO that just hit the market. Words I really haven't heard very often lately.

Kenview, tickered KVUE, is a health spinoff from Johnson & Johnson. It includes such brands as Tylenol, Band-Aid, and Neutrodina. It had its debut on the New York Stock Exchange with shares. Look at that. Already 21% higher, trading at $26.78. That's the biggest IPO we've seen in over a year since Rivian went public, and also the biggest restructuring move in Johnson & Johnson's 135-year history. Paramount now the worst S&P performer today, down about, look at

that, 28% after the company reported earnings that fell short of estimates and slashed its dividend to $0.05 a share from $0.24 a share. That's the first dividend cut since 2009, right after the great financial crisis. You can see Paramount shares down 28%. Scott? Yeah, yeah, ugly day. Christina, thanks so much. Christina Partsinevelos.

Last chance to weigh in on our Twitter question. We asked how will Apple stock trade after its earnings report, higher or lower? Head to at CNBC Closing Bell on Twitter. The results after this break. The results of our Twitter question, will Apple be higher or lower after earnings? Well, higher barely wins, but it does, at least for this moment. Wow. All right.

Speaking of Apple, just a few minutes away from that report. Up next, Mike Santoli breaking down what he'll be watching when we take you inside the Market Zone. 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, New York Life Investments' Lauren Goodwin on why trouble at PacWest may change the game on the U.S. banks. Mike, I begin with you. It's the day after, right? Trying to process what we witnessed yesterday and what we're still feeling today with the banks. We are. And, you know, with everything that's cooking right now, I think we've gone from being frustrated that we've been in this range and the market has seen cap,

to I think being maybe grateful that we remain in this range. Because a lot of what's going on, the Russell 2000 breaking down below the December lows, two-year yields plunging, the regional banks, again, setting new lows. You would have thought the broader market maybe could have held to the lows of the day. But I feel like the market's waiting for a couple of other cards to be dealt with Apple, with the jobs number tomorrow, before you make bets one way or the other. The other part of it is the weakest parts of this market have already been weak for so long because of the divergences that we've had this split.

They didn't have that far to fall. One final point is we're seeing some differentiation within the regional banks. You see, since the lows of the morning, you had this big flush lower. You have seen some get some bids. So M&T is up, and New York Community Bank's not down so much. So I do think that that's in a very, very kind of preliminary way a positive. It's like an East Coast, West Coast thing at the moment. To a degree, yeah. Risk-reward still not great is the prevailing thought, whether it's Gundlach or Dubrovko-Lakos, who was sitting in your chair a little bit earlier. That's a hurdle.

It's very tough to look at what the bond market is doing, seeing the signs of some funding stress, seeing the very clear message that the bond market at least thinks it was a policy mistake, and say it's time to grab onto a lot of risk. On the other hand, I think the index itself has done its best to digest this in Microsoft, we trust, at least again today. Lauren Goodwin, as we said here as well, and you're concerned about the regional banks.

I am. The difference between what's happening in PacWest and some of the others is that these were foundationally good banks. And so there's a difference between idiosyncratic events and a slow-moving, slow-burning bank run. And really what that means for the economy and for the markets ahead is that the economic data, the way it's been evolving, it's going to start moving faster. And tightening credit conditions impact with not as long of a lag as people think employment. And so for investors, one of the things that I'm really thinking about is, yeah, maybe the next couple of days we sit range bound waiting to see what happens. But there's some very clear markers of what would trip this market downwards. It's employment falling off. It's the Treasury general account falling off after the debt ceiling gets resolved, if that does happen here in the next couple of weeks. And

it's earnings. If those are three, four months away, then volatility is actually a good thing for investors. So I think we wait a couple of days, see what's range bound and then move on. It's no surprise when you see the turmoil in regional banks that, as Leisman was saying earlier, the probability now for a rate cut is 60 percent in July. Right. So we've spent the time saying, well, the market's predicting a cut in September. Now it's creeping up and higher and higher and higher and closer and closer and closer. I think what this says is that the market is getting more worried that something bad is actually going to happen. The way I read a cut in September was not, oh, the Fed's going to cut 25 basis points in September or November or whatever it is. But instead, that after most people expecting the market to do or the Fed to do pretty much what they've said

they're going to do, stay put. Instead, the transition becomes, oh, there's a major event that's going to have the Fed cutting 100 basis points. I'm going to act like I heard everything that you just said in that moment. Just to that point, there's been, for example, some huge trades in VIX call options today, right? People betting on a huge spike in the VIX point, there's been, for example, some huge trades in VIX call options today, right? People betting on a huge spike in the VIX pie, let's say September, above 40. It doesn't mean in the market's collective wisdom, it's saying we're going there. It's saying it looks like we have some of the ingredients for something to break further. And let me either put that on as a bet or put it on as a hedge. It's the same thing in the short-term Fed funds market,

where it's like, look, the probabilities suggest you want to put some chips on a long shot here because maybe it's not as much of a long shot. If there is a cut as early as July, do you see that as a positive or a negative? I asked Dubrovko that same question, but how would you answer that? Strong negative, strong negative.

That means if the Fed is cutting in July, it's not because inflation's under control and they see a sustainable economic picture ahead. It's because something is breaking and it's breaking hard. And so I think we need to hope, actually, that the Fed does what it says it's going to do and stay pat, because the alternative is likely to be more of a risk off. There's your two minute warning as we head towards the close. Again, Apple earnings are yet to come. Do you think, Lauren, that it was a mistake what the Fed did yesterday?

Did you think they were going to go? I thought they were going to go. I thought they could have held. The Fed is so focused on inflation. That's what they should be focused on. That is their mandate. We probably, with the tightening credit conditions that we're seeing, we probably could let this thing run its course at this point.

But, you know, with inflation not under control, a pause is not the same thing as a pivot even today. Yeah. Yeah. It's been great having you here. Mike, Apple, it's all about it. The last, the final fang. Yeah, I do feel as if Apple's done most of the job it's supposed to do, which is kind of protect the index and hold its value over the last year and have a good gain this year. If you look, it's kind of bumping up against the street's collective price target right now. When it has done that over time, it's in the low 170s. You see it right there. The street's going to need some excuses in this report to have a much brighter growth outlook, to get some more kind of clarity on where it's heading in terms of the next product growth cycle, whether they can latch on to the energy running through the AI storyline,

you know, as silly as that sounds. We'll see if that can happen here. Otherwise, you're just buying the balance sheet. Everyone's saying buy quality. That's because they buy back 4% to 5% of the stock every single year. Share count is down 40% in 10 years. Stock's up 900% in 10 years. So either that's an amazing formula for continued gains because Buffett's not selling his 6%, or it's done what it's going to do for the most part, and you should say thank you.

Happening at a critical moment. Obviously, Dow's down near 300. It's dramatically cut its losses as we've head towards the close today. I'm going to send it into overtime with Morgan and John and Apple on the doorstep.