Closing Bell - Closing Bell: Debating Dimon’s Recession Call 2/23/23

Episode Date: February 23, 2023

JPMorgan’s Jamie Dimon making some headlines for his bold recession call. NewEdge’s Cameron Dawson gives her prediction for stocks. Plus, Alger’s Ankur Crawford drills down Nvidia’s massive stock move… and if there could be more room for it to run. And, Sebastein Page of T Rowe Price is bearish on the market but is finding some pockets of opportunity for your portfolio.  

All right, guys, thanks so much. Welcome to Closing Bell. I'm Scott Wapner. This Make or Break Hour begins with stocks still searching for some stability and all eyes, as usual, on interest rates. NVIDIA shining bright in today's market. Does the company's solid outlook mean the tech trade still has more room to run? We're going to ask a top money manager that critical question today. We do begin, though, with our talk of the tape, why Jamie Dimon is not breaking out his recession playbook just yet, even though he does say there's some, quote, scary stuff out there. So what does that mean for where your money is heading in the trading days ahead? Let's ask Cameron Dawson, the chief investment officer of New Edge Wealth, here with me at Post 9. Welcome. It's good to see you again.

Good to see you. I want to start with Dimon. Economy is good now. Yeah, there's a lot of uncertainty. He did talk about inflation taking a while to come down, and he was asked by Jim whether that meant higher for longer. He said, yeah. Still said, though, chance for a soft landing. What do you make of what Mr. Diamond has said? Well, I think this reflects what we're seeing within the data today, which is that we're not falling off a cliff. We're not seeing this imminent slowdown, imminent recession, meaning that a recession in the first half does seem off the table. But that scary stuff in the future may mean that we could look to

late 23 or even into 24 to see an actual slowdown. What about this idea of higher for longer? Because you make the case that the market hasn't priced that in. And it's a scenario that he talked about last week or a couple of weeks ago, and he brought up again today. Yeah, I think it's really important. The bond market is starting to price in this higher for longer. You've seen those rate cuts that were priced into the back half of next year get priced out or start to get priced out. But the reality is that the equity market is still trading at valuations as if the Fed's going to step in and save the day. So you still think that the stock market hasn't hasn't faced reality to where we are? No, it's not consistent with where interest rates are. The Nasdaq's trading at 26 times earnings. That's above the pre-pandemic peak and 44 percent above

where we were trading the last time real yields were this high. Now, we don't think we have to get rid of all of that valuation premium, but this is still a very rich market, very full valuations based on the Fed guidance. So what does that mean then for where we go from here? I mean, there are some people who are saying, well, we may revisit the October lows. We've seen far from that, though, like 15 percent from those those levels. What do you think? Well, I think the first step is to acknowledge that we found a valuation floor last year at 15 and a half times. That may be where we see an ultimate floor for valuations, meaning we don't have to go into those dire 10, 12 times earnings scenarios.

And then it's the question of what do earnings do? And if growth comes in better, maybe that saves us. That gives us a little bit of boost where we're not seeing earnings fall off a cliff. But we'd note that there's still a lot of risk around the margin line. It's not as much about revenues. It's about the risk of margin compression. Yeah, but what happens if earnings don't become as bad as people think because of, as Jamie Dimon still says, the economy's good. It's like a tale of two economies or two, you know, narratives that are out there. I mean, the economy's good. The job market's strong. Consumers are spending. That seems to be the reality of where we are right now. And here's the push-pull tug of war,

which is that if earnings are better, that means that growth is better and inflation is better, which means the Fed's staying tight. The Fed's not cutting, which means that you can't get that big multiple upside. So we could be in a scenario where we have multiple compression. Some of that's offset by better earnings. And that's where we get into this tug of war scenario where we're in this sideways chop. Why can't we have growth being good and strong and inflation coming down? You paint it as it has to be. But like if growth is good, that automatically means that inflation is going to be stronger than we think. And then the Fed's going to have to do more or at the very least not cut? I think that's the trillion dollar question, which is how much of the inflation episode that we have

was caused by stronger demand versus just supply chain issues within the economy related to the pandemic. Our view is that you already saw all the disinflation from the durable goods side of the economy related to the pandemic. So the inflation we're seeing today is a function of strong demand, tight labor market, and a lot of liquidity, which would say strong growth means inflation stays higher and thus Fed tighter. How many hikes do you see from here forward? Three, two, three? What's your number? So right now our base case is that we expect a hike in March. We're, I think, 50-50 chance right now on whether it's 25 or 50 basis points. That's dependent really on that February CPI data that we get on March 14th. And then we think a hike

in June is very likely if we continue to see data not fall off a cliff. Fed funds is pretty much there, though, right? Bullard, I mean, you saw the market's reaction yesterday to Bullard, who said 5-3-7-5 makes sense to him. That implies three more 25 basis point hikes. The market didn't fall out of bed on that. No, no. And I think that we are seeing the bond market, like I said, really come to this reality. But we haven't seen the correction within equity valuations. Does it have to happen? Maybe not. But what it does is it creates a really high bar that if you don't get good news on the inflation front, if you don't get good news on the earnings front, when you're trading at high valuations, there's not a lot of margin for error.

What do you make of what Nvidia delivered and what it says about the tech trade, even though you mentioned a few moments ago the valuation or the multiple that the Nasdaq is currently trading at? Yeah, I think that what we're seeing is this very big divergence between tech names that pulled forward a lot of earnings during the pandemic. They're seeing a very rapid deceleration in their earnings versus tech names that are starting to see a reacceleration in some of this exposure to an improving economy or specific kinds of niche growth stories. And that's exactly what NVIDIA was today. Would you fade the tech move from the beginning of the year?

Is that a sell the rally move for you? Well, we think that we do have that very high valuation that is a key headwind. And if the Fed stays higher and tighter for longer in bulk, yes, we would want to fade the tech move. We're remaining neutral tech. We didn't chase the rally higher, but we might take a little bit of money off the table in the event that we do see valuations too high. All right, let's bring in Stephanie Link of Hightower Advisors, Eric Johnson of Cantor Fitzgerald. Stephanie is a CNBC contributor. It's good to see both of you. Eric, I'll go to you first because you're still super negative. And I'm wondering what still prevents you from being

positive even incrementally because you seem to be doubling down every time you come on. Yeah, there's not a lot to be to be positive about. You know, we would disagree with this newfound view that the chances of a soft landing, no landing or the chances of recession going down. We would disagree with that view completely. I think if you look at all of the coincident indicators, payrolls being one of them and the current strength of the consumer, they're doing great. The labor market remains somewhat tight. But that's not a forward-looking indicator. If you look at the forward-looking indicators and you look at things like the fact that we're at 3.4 percent unemployment rate, which is by definition the top of the cycle.

There's a delayed reaction to Fed hikes to some to some degree, whether it's six months or two years. The leading economic indicators negative for 10 months in a row. Consumer excess savings they still have, but it's going down by the day and will likely be zero by the middle of the year. Credit usage is surging. All of that I can go on. All of the leading indicators suggest that the economy is going to decline throughout this year and will likely go into some sort of recession, but for sure will be in decline. And if you look at prior to all prior recessions, people were calling for soft landing and payrolls were very strong. And we see that changing. And what makes our conviction so high is that valuations, and this was touched on earlier,

valuations right now are excessive. The equity risk premium is 1.5 percent. To put that in perspective, the average over the last 10 and 20 years is 3.2 percent. If we were to go to 3.2 percent, that would be 3,100 in the S&P 500. So valuations are excessive and earnings estimates are still too high. All right, Steph, you can debate with the best of them. So have at it, because Eric's view is so different from yours, it's striking. Well, yeah, so I agree that payrolls are a lagging indicator, but initial claims are a leading indicator. And you are now again another week of sub 200,000 in initial claims. And you're down on the four week moving average about 6 percent year over year.

So labor market's still very tight. Wages are still strong, even though they're coming down a little bit, they're still strong. So real incomes are actually going up for the consumer. And I would just simply point out that the consumer, it's not all gloom and doom. I went back and I looked at Walmart, Kroger and Dollar General on a three year stack basis for comps. That is an indication of demand. And Walmart saw a 24 percent increase on a three-year stack basis to comps. Kroger at 22 percent and Dollar General of 17 percent. This is just an indication of what companies are telling us that they're seeing. And so the consumer remains strong. Resilient is the word that I would use. And then also I would look at the ISM services and the composite numbers. The Chicago Federal National Activity Index came out. It's the first positive number that came out in four months. And so there is underlying momentum. And yeah, this is also

leading to stubborn, sticky inflation. And it's not going to change the Fed's path. But I kind of think the economy is so much more momentum than it's getting credit for. And I think that's going to translate into better earnings, not great earnings. Scott, you know that, but not a collapse at any by any means, because I do think overall everyone's talking about the expensive market. But I think that the E is wrong. I think the E is going to be better than people suggest. In other words, Eric, you're too negative. You're not focusing on any of the positives. You just assume that the Fed has done a lot and it's ultimately going to have a toll on the economy and the consumer is going to run out

of money and delinquencies are going to pick up even more than they already have on credit cards. And this whole thing is going to come eventually to an end. So what's what's great about our view is that even if earnings don't go down at all, the market is still overvalued at this price. So if we have this great, perfect landing, perfect landing, we have growth, inflation comes down, Fed stops hiking, stocks are still too expensive and will likely move lower. Now, here's what I would tell you around earnings. On October 1st, OK, of last year, the estimate for the next 12 months was $235. We've now had two and a half percent GDP in the fourth quarter. We're looking like two, two and a half percent in the first quarter. And the earnings essence have gone down from 235 to 220. That's in

a two and a half percent GDP growth environment. And the reason why it's happening is for what we've been saying, which is that margins are too high relative to history. Their companies were over earning post-COVID and that earnings overall are well above trend. So even if we doing? Are we going back to the lows? I mean, what's your ultimate call on, if you say stocks are too expensive here and they need to trade lower, how much lower do they need to go? So yes, I think we're going to new lows. I think we're going to the low 3,000s. The timing of that is tricky, but I do think, but I feel high conviction that's going to happen in 23, that we are going to go into the low 3,000s. But I do think, but I feel high conviction that's going to happen in 23, that we are going to go into the low 3000s. And I think as the economy deteriorates over the course

of the year, stocks will not only get hit on valuation, but also get hit on this declining economy and declining earnings estimates. And the key thing is, is that if I'm wrong about the economy and somehow from this three point four percent unemployment rate, five and a half percent interest rates, somehow we just we just skate right through and all is wonderful. I think that there is very little upside, if at all, in this market. And that's why we feel so good about it. Cameron, is is Eric's perspective too bleak? Low $3,000? I mean, as much as you suggest that the market's overvalued, overpriced, does that make sense? Well, it depends on what valuation multiple you want to put on those ultimate earnings.

But I think Eric brings up a much lower one. And we talked about that trough last year being 15.5 times. Maybe in a moment of fear, you go below that. But he raises a really important point, which is that what's the earnings base we grow into for 2024? Because right now the market has $246 a share for 2024. That's about 11% growth. That's really a lot of growth, mostly if the recession gets pushed out and we see some recessionary scenario next year, which means that maybe it's 230 for 2024. And that means that our valuations today are still unattractive. Steph, you get the last word.

X technology earnings are actually running up six and a half percent. Overall, earnings are running right now down two percent. But I think that the struggle points of this market have been technology. NVIDIA's reaction is telling you a lot. It wasn't a great quarter, Scott. It was fine. It was less than feared. Guidance was actually encouraging on AI and data center. But look what the reaction is telling you that's what that's very very important and i was initially concerned that the nvidia quarter kind of didn't propel the market higher we couldn't sustain higher this morning we rolled over but now look we are actually we're actually rallying yep i'm looking at the market now and i think that's because the bond market is telling us that we're

making progress in inflation it's still really high but we're making progress in inflation. It's still really high, but we're making progress in inflation and expectations got carried away to the downside for earnings overall. So it's a stock picker's market. But I think that the gloom and doom scenario is I just don't see it at this point, not given all the data points that we're seeing. Yeah, maybe NVIDIA is simply telling us that there's so much hype around AI. And that's why the stock has the lift that it does, even after being up more than 40% year to date. We shall see. Everybody, thank you so much. Stephanie, thank you.

Eric, we'll talk to you soon. Thanks, Kyle. I am certain of that. Cameron Dawson, I appreciate you being here as well. We're just getting started here on Closing Bell. Up next, NVIDIA's major move, Aldridge. Ankur Crawford is here. She's doubling down on the bull case for that chipmaker.

Why she thinks there is still more room to run. And that brings us to our Twitter question of the day. We want to know what you buy, NVIDIA, even with today's big game. You can head to at CNBC Closing Bell. Please vote. We'll share the results a little later on in the hour. You're watching Closing Bell right here on CNBC. We have about 40 minutes to go in regulation of the trading day before we get to overtime. But you know what I mean. And we're

picking up some steam, too. Dow's good now, a little more than a third of a percent, 126. It's been choppy throughout the day. S&P back above 4000. So we'll keep watching that along with the Nasdaq because obviously of NVIDIA. Let's get a check on some of the other stocks to watch as we head into the close. Seema Modi here with that. Seema. Hey, Scott, we've got two good reads on the consumer, starting with Etsy delivering a fourth quarter revenue beat. CFO sharing that the online marketplace is now nearly three times the size it was pre-pandemic. He also offered a cautious outlook on the rest of the year related to the macro environment, but that did not stop Bank of America, Canon Corp Genuity, from raising their price target on the stock, currently up about 3% on the day. Wayfair, though, plunging after a wider

than expected loss and a nearly 20% drop in active customers as Americans spend less on furniture and more on food and travel. You'll see the stock is tracking for its worst day since March of 2022, but still holding on to a gain for the year. Scott? All right, Seema Modi, thank you very much. NVIDIA having its best day of the year after giving strong guidance. And our next guest says the AI-fueled bull case is nowhere near over. Let's bring in Ankur Crawford, Executive Vice President and Portfolio Manager of Alger.

Joins me right here, Post9. Welcome back. I'm looking at the stock right now, 14%. Yet I hear people all day say, well, the earnings weren't that good. I mean, you own it, so what's your take? Yeah, I think, you know, let's take a step back from the earnings today. And NVIDIA is going to be the dominant compute engine over the next decade, driving cloud, accelerated compute and cloud, driving, you know, regenerative AI.

And so how can you not own this at some point? So I think that's what you're seeing is a reaction in the market. People were hoping that they would guide down. They didn't. They actually guided up and they've inflected growth in all their markets. Now, as bullish as you obviously are, OK, about the stock, it's still 20 percent away from its its high. It's a double off of its low. So even at these levels, with the earnings that they had, this is justified. Do you think this move that we've seen? So I think an interesting thing about enablers of markets and businesses that are demand creators is when you have exponential growth in their end markets, oftentimes the long term is underestimated.

And that very well may be what is happening with NVIDIA today. That the TAM potential is so unique and large that over time, the estimates are just too low. See, I'm glad you used the TAM, total addressable market, right? Because you know what happens with tech, right? We get around these buzzwords. It's eyeballs and then it's TAM and now it's AI. Is there too much hype? No, there's absolutely not too much hype in AI. AI is something that is revolutionizing the way we will work, the way we will compute, the way we will interact with our society. It is not too much hype. I think it feels like a lot of hype on the consumer side because chat GPT was just revealed. But people have been

working on AI for three decades. And the promise of AI has always been what we're seeing in chat GPT and then some. So on that note, then how do you think about Microsoft versus Alphabet, for example? Microsoft has seemingly all the hype about it. And now we're wondering, oh, well, this dominant place that Alphabet had in search, is that now going to be at least lessened to some degree? Yeah. So what I think is really interesting about kind of this innovation engine that we are seeing that is actually not linear anymore. It's exponential change in what we're seeing. And in part, it's because software is starting to write software. We're no longer limited by a developer writing code.

It's going to disrupt markets that we thought were impenetrable. Google, three months ago, I would never have thought that the Google search engine was at risk and their margin structure was at risk. And you really think it is today? I do. I do. I think, and you know, hats off to the management team of Microsoft, that they had the foresight to really take the investment in ChatGPT and propagate it throughout their entire platform. That they were able to recognize what is about to come. Do you own Alphabet? You know, I'm not sure what we're allowed to say but we we do own it and we're underweighted but are you oh so you're underweighted okay but you're you're rethinking even as in the mega cap universe the kinds of stocks that you're now going to own for a large degree because of ai and where all

this is going and it was even before ai i think this is a reshuffling of the decks and technology i think there are business models that are about to be created that we didn't even expect. It's a little bit like, you know, when the iPhone came out, would you have imagined that there was a company like Uber that came and kind of, you know, took down the taxi medallion companies? And so I think we're at that cusp right now where 10 years from now, there will be businesses that are created at this moment that will disrupt even those businesses that have disrupted over the last two decades. So interesting to look at right now as you're talking and we look at the tech stocks that we showed on our screen. You know, most have moved into the green, except, of course, for Alphabet. And there seems to be a lot of debate about that.

I want to ask you broadly about the market. When you sat down, you described what you have been witnessing. And I think we've all been feeling a, in your words, ping pong market, right? Because we're just, things seem so, as Jamie Dimon said, even though they're all right now, there's still so much uncertainty. And one day is different from the next, potentially? Yeah, I think there's this tug of war right now about soft landing, hard landing, Fed funds rate, X versus Y. And they all have very different outcomes. And the reality is nobody really knows. And until then, we ping pong between $3,800 and $4,200. And you won't break out, neither will you break lower until we have the data. And, I mean, again, like the consumer has been incredibly resilient.

You know, the low-end consumer will likely remain employed through this recession. What are the implications of that? It will be different than any other recession that we've seen. I appreciate you being here. That's Ankur Crawford joining us back here at Post 9. Coming up, we're breaking down the bear case. Our next guest forecasting a rough road ahead for stocks. Lots of arguments, as you can tell already from our program today

on both sides of the argument. We're going to highlight some pockets of safety for your portfolio when the closing bell comes right back. They see a window of opportunity for equity markets to rebound. Let's go to work. Countdown to the opening bell. The most important hour of trading starts right now. Where do you want to be? In a still, cautious and uncertain environment. Now is not the time to be in a still cautious and uncertain environment? Now is not the time to be a hero.

That is the advice from our next guest as the S&P 500 tries to avoid its longest daily losing streak since December. Let's bring in Sebastian Page, T. Rowe Price, head of Global Multi-Asset and chief investment officer. Welcome back. It's good to see you. I mean, it's obviously so easy to be bearish. All you have to do is tune into any program. And most people who come on lay out the negative case because it's easy to make. But why are you? Yeah, the bearish narrative is easy to make. And I'm going to start by saying I'm not an Uber bear, but I do think that it makes sense right now to be underweight stocks. I mean, just think of the bearish narrative. And you just had a guest kind of go through it. The yield curve is inverted 80 basis points. PMIs are dropping like a rock. Manufacturing down 16 points.

Services down 20 points, even though they've jumped back up. Inflation is sticky. You had a guest talk about the equity risk premium. It's as compressed as it's been since the great financial crisis. Earnings expectations look high at 3.5%. Our models predict that housing could go down 7% to 10% this year. And on and on. The leading indicators are flashing red. You know, we've had a few good prints, retail sales and employment and so on. But really, the bearish truck is coming, Scott. I know, but there's no indication that the bearish truck is going to, you know, smack into the wall. If you look, Jamie Dimon has been, you know, notable for being out there with some pretty bleak calls when he talked about there being a hurricane. And I know that, you know, exactly what I'm referencing. And he was on the network today and he could have doubled

down on that. And frankly, he did not. He still maintains there's a chance for a soft landing. Bullard economy stronger than we thought. Markets overpriced a recession in 2023. Have we just gotten too uber negative given how strong the economy, at least bearish set of data has to be interpreted a little bit differently is that we still have about drawing down on these savings. But two trillions of accumulated savings going into a recession is a very unusual, never seen before situation. And you had Stephanie earlier talk about the consumer and the strength of the consumer. Three percent, you know, retail sales in January. That's pretty good. The employment market is just really strong. And yes, everybody will say the bears will say, look, it's just a lagged effect. And I agree with it. You have to wait it out. You've had 475 basis points of hikes. Let's see. Let's let time pass to see how this is going to unfold. There is a lagged effect. And, you know, employment is a lagging indicator. But still, I mean, we just created 517,000 jobs and the claims are coming in low at 192,000.

So after 475 basis points of hikes over a year, we have a 50-year low in unemployment. So there's something about the response function of the labor market to the Fed tightening that makes it look quite resilient. At least at least at the current time. Now you say you are playing quote unquote aggressive defense. What does that mean? There you know we talk about the market being expensive at 18 price earnings ratio. There are areas in financial markets that asset allocators are getting pretty interested in because they are actually cheap.

I talk a lot about quality small caps, the S&P 600. The price earnings ratio there is so depressed to 2008 financial crisis level. It's hovering around there. So to me, those quality small caps are pricing in a very hard landing. So I'm comfortable, and it's nuanced, playing offense and defense. I'm comfortable being underweight stocks, having a cash buffer, waiting to get back in, but at the same time, being long small caps. No one wants to be long small caps into a recession. This is actually right now an opportunity to be contrarian and add some juice to the portfolio for the next 12 months.

I happen to think that high yield bonds at over 9 percent yield are attractive as well from an asset allocation perspective. Despite fairly tight spreads, you have low default rates and, you know, 9 percent yield on high yield bonds to me is a more attractive risk return tradeoff than just straight stocks exposure. You know, speaking of being contrarian, obviously, the move in technology to start the year has caught a lot of people by surprise. It doesn't sound to me like you could possibly be a believer in the move that we've seen in that area of the market to start the year. You know, the thing with technology is you have to separate between the non-earners and the more speculative and maybe the crypto space, and then the companies that are able to grow cash flow.

Some of our portfolio managers really like the growth at a reasonable price types of companies. I'm not a stock picker. Look, from an asset allocation perspective, we're tilting towards value. So this says something about from the top down how we think about technology. But I do think that the sort of the speculative part of technology that has done really well year to date has been mainly driven by the super depressed positioning. And the one thing I would say, Scott, is we talk about the equity risk premium. A lot of investors are waiting for tech price earnings ratio to go back to where they were

when rates were at 2% on the 10-year. But really now with rates at 4% or around 4% on the 10-year, that might actually not happen. So you have to be selective. All right. We're going to leave it there. Sebastian, I appreciate your time very much. We'll see you soon. Thank you have to be selective. All right. We're going to leave it there. Sebastian, I appreciate your time very much. We'll see you soon. Thank you, Scott. That's Sebastian Page, T. Rowe Price joining us. Up next, we're tracking the biggest movers as we head into the close. Seema Modi is standing by with that. Seema. Scott, we are seeing this growing trend this earnings season where Q4 numbers are beating expectations, but the guidance, the guidance for the rest of the year falling short. We're going to bring you two names following that trend after this short break.

Got about 20 minutes to go until the close of regular trading, and we're trying to make a little move here. Dow's up by about 137, 140, as you see there. Microsoft and Chevron and Boeing among the leaders there. S&P on pace now to close back above 4,000, so we'll have to watch that closely. And then the Nasdaq, of course, getting that nice lift today from NVIDIA, which is up 14%, having its best day in a long time. Let's get back to Seema Modi for a look at the key stocks to watch

as we approach the end of regulation. Seema. I like that, Scott. Two long-time holdings of Cathie Wood under pressure today, starting with Unity Software down over 10%, 14%, after very weak first quarter and full year revenue guidance. That is due in part to weakness in the advertising market, which Unity does not expect to recover in 2023. And turning to Teladoc, which also issued weaker than expected guidance. That stock has fallen more than 90% from its February 2021 all-time high.

But at least one analyst says the worst is over, with SVP Securities upgrading the stock to outperform. The stock currently trading at 27 a share. By the way, tune in next hour. We will hear from Unity Software's CEO first on CNBC. That's coming up. Scott, back to you. All right, good stuff. Well, 90% down for Teladoc from the high.

That's crazy. Seema, thank you. That's Seema Modi. Last chance to weigh in on our Twitter question. We want to know, would you buy NVIDIA even with today's big gain? Head to at CNBC closing bell on Twitter vote. We're going to bring you the results after this quick break. The results of our Twitter question, we asked, would you buy NVIDIA even with today's big gain? And you said no. Sixty nine percent said no. I mean, the stock's up 14 percent after a huge run doubled off the bottom. I can understand that.

Up next, top technician Mark Newton is flagging a must watch signal for a potential market rally. That and much more when you take you inside the market zone. It is that time we are in the closing bell market zone CNBC senior markets commentator Mike Santoli here to break down these crucial moments of the trading day plus city Scott Cronert

with his market outlook fund stretch Mark Newton here as well with a chart he says you must watch all right Mike Santoli I'm looking S&P looks like we're going to close above four thousand is barring some crazy finish here important or not I

wouldn't say of paramount importance but I think the attractions interesting that we found in this afternoon. Sometimes the short-term moves are pretty inscrutable. Sometimes the mechanics are right there out in the open. A little over two hours ago, 10-year yield starts backing off, cracks through 390, goes lower, S&P takes off right away. So to me, that's right now the seesaw that we're on. That doesn't have to be the case longer term. I think

it's happening in the context, as we spoke about a couple of days ago, of what could just be a 5% shakeout. The trend looks a little bit better than it did the last time we kind of rolled over from a rally high. You're starting to see, you know, we gave up about half of the latest move, but no more than that. So, so far, the economy is not getting worse fast enough for those economy bears to be right. And then it's really the yield stuff to be afraid of. And that's why we got some relief this afternoon. All right, Scott Cronert, you don't expect much more upside from here. But how much downside do you expect, if any? Well, we're viewing the S&P as fairly valued right around the 4,000 level. So we're kind of playing in more of a trading range right now where we were a week or two back.

Yes, we approached 4,200, probably the higher end of that range. We went into this year thinking that 3,700 was an appropriate downside target, at which point we'd want to get more aggressive in terms of buying stocks. We haven't really backed off of that. I think what I would point out is it's kind of interesting with today's action. You're closing the 10-year right about where we started the year. This year really has been, in our view, a matter of following rates up and down with the influence on that mega cap growth cohort of the S&P. So we're prisoner to rates. I mean, that's just the way it is going to be for the foreseeable future. If rates tick up, stocks are going to tick down. Mike was talking, too, about what the 10-year had done and the way that stocks reacted as we head towards the last few minutes here.

Right. Well, I mean, that's the way we see it for now. But again, it's important in terms of teasing out where this is being felt. And we've been making this analogy that the S&P can't go materially higher without the NasDAQ essentially leading it. And that's where that rate sensitivity comes in. It's more specific to that large cap growth part of the market that that last year proved to be so sensitive to rates on the multiple compression side. That's where your release valve is up and down as we follow the shorter term rate direction. Yeah. So, Mike, OK, 4000 is where the level that Scott sees. You heard Eric Johnston, Cantor, low 3000s is where he thinks we might trade. How do you react to that?

I mean, it's both plausible. I would absolutely say that to me, the October low has looked pretty good. It's got a lot of the kind of characteristics of something where you where it should actually be relatively durable and I could keep pointing out that was sort of a stagflation. Narrative that was driving us there right so if you're talking right now about our economy is better than expected maybe the fed has to go an extra quarter point or so- that's not fatal. To where we are right now it doesn't necessarily mean you should retrace all the way lower. Would the market be more

attractively valued down there? Would it mean better forward returns from that level? Absolutely. I mean, that's the tradeoff. You want the pain now and set up a much better rebound? Or do you want to sort of hold these levels and then maybe have it be more of a grind from here? Scott, when you hear people like Eric Johnston make a call like that, can you get your arms around how we could go down to the low 3000s in his thinking?

We feel pretty good with where we are with our S&P earnings outlook for this year around this 216 level. I think to talk about an S&P level that's closer to that 3000 level, I mean, you need to have a much more dire circumstance unfolding in terms of recessionary influence on the earnings outlook. We don't see that in the cards, certainly for the first half and most likely into the second half. So again, my emphasis would be that earnings stability here probably limits some of your downside, which makes us more susceptible to the interest rate movements as a key driver of this. I appreciate you being here, Scott. Thank you. Mark Newton, to you, you are the level guy. You're the one who looks at all this stuff. $3,000 or $4,000? What makes more sense to you? Well, I'm a bull, Scott.

Look, I don't think we've seen sufficient deterioration to think that this bull market rally has run its course. We pull back exactly to where we need to, to really hold the uptrend from October. It's about a 50% exact retracement in both price and time to the move up from late December. You know, this whole narrative shift over the last couple of weeks with the stronger economic data has caused sentiment to get worse and worse and worse. And so now we're actually approaching pretty bearish near-term sentiment levels. And look what's just happened in the last 24 hours. Now we see treasury yields starting to roll over. And that is specifically what investors need to be watching to think that this market likely can extend. The market meaning

both the bond market, but also the stock market, in my view. Wait, so you think rates may have topped for at least the near term again? There's certainly enough evidence when you look at just a trend over the last few weeks and getting down. We're at, what, 387 today. If we break earlier week lows, 384, then that's going to jumpstart a pretty big treasury rally over the next couple of months. And I think equities get up towards 4,200. Above that, it could get up towards last August highs, 4,325 or so. So I think, look, we have weekly momentum clearly in place. We're at this is actually in very good shape. Now we're combining that with with skepticism, with pessimism. Everybody thinks, you know, the central bankers are so hawkish. We have to continue to hike. Well, rates might not do exactly what they're saying. We're actually

seeing evidence that they can peek out here and roll over. So if that that happens, you know, markets, equity markets are going to rally. You want to take a stab at this, Mike? You look at the internals, Brett, that look good to you like it does to Mark? In general, it has looked good. So that's kind of built up this base of, you know, the benefit of the doubt that you might be able to give the market at these levels. Valuation is not compelling, but it's also not going to be fatal to further upside. Keep pointing out that outside of the very largest stocks, valuation is really not that challenging. And I also don't think that it's the level of rates that corresponds to a particular index level. I keep pointing this out. We were at 4000 the S&P in May of last year,

and we were at 3 percent on the 10 year. So it's the speed of the move. It's what it means about whether we're chasing inflation or not. Real rates are now actually, you know, pretty generous at this point. Arguably, bonds become a good buy. Maybe that means that yields can hover or come in a little bit. And, Mark, you mentioned this sentiment shift, I think, with the way that you characterized what we've seen over the last couple of weeks. It's been justified, hasn't it, though? You got that really strong employment report, and that made everybody sort of stand up and say, uh-oh, yeah, you know what that means,

more hikes and hire for longer. Well, that's the entire point, Scott, is that when everybody leans in a certain direction, you generally don't want to be there for very long. Look, you saw the equity put-to-call ratio hit the highest levels of the year yesterday at 0.80. AII sentiment is now back to bullish. You know, the CFTC data with large specs are still very negative, minus 200,000 short S&P contracts. And you actually see CFTC data also being quite negative for treasuries also. The lowest levels we've seen, the highest levels we've seen in shorts for almost four years. So that's interesting to me. It means that people clearly are all betting that rates are going to go higher and that stocks should go lower. I like to take the

other side of that. So in the words of Trina Stasio and Tom Marshall, everything's right, so just hold tight. I think we move higher. And in general, weekly momentum and breadth support my view. I think we're going to be fine. And really, any further pullback that causes sentiment to get even more bearish, that's going to create a really good opportunity. I don't think S&P gets below 3,900. Today's move looks important, but it's really 40, 60 that we need to get above. Above that, we can really start to accelerate higher.

So I like technology. The move in semis today continues to be very, very good. The majority of your polls suggested people don't want to buy NVIDIA. Well, the SOX is showing tremendous strength. It's the best part of technology. People need to be in semiconductors, and increasingly they're going to want to be in counter-trend pullbacks for groups like energy and also health care.

They're going to start to look a lot better in the months to come. Well, we've got a lot of negativity on the program today from many people, but, Mark, I appreciate you bringing that different perspective to us. I think we'll be fine. Technology, likes, semis, good. I mean, NVIDIA, does NVIDIA's strength today speak for all the semis? I would say it doesn't speak to the strength in all the semis, but it is feeding off of a reset in attitudes about the group.

I was saying earlier, the consensus price target on NVIDIA is right where the stock is right now. It's $23 thirty six you know why everyone was too bullish when it was way higher. A year ago- they kind of cut their estimates expectations came down so. That process I think can. Support

things for a while also seen some. Data about outflows from your S. and P. in- ETFs as well as the QQQ over the rolling like last two or three months. It's reached actually kind of extremes to the point where you'd say that people are not all in. So, yes, there was a big grab for risk at the beginning of this year. You've talked about the short covering element of

that, but also a chase. People definitely thought that they kind of found the old magic in some of these old stocks again, but it faded quickly. In other words, as soon as the market stopped going up, as soon as the high growth speculative names rolled a little bit and gave back some of the gains, you did have people back away from those bullish bets. If Newton's going to be right with his call, which is certainly more bullish than many, does he need technology to perform well to get him to where he thinks we can go? It's the shortest path. You need the big growth stocks to work to some degree to get there. Without it, you know, you're sort of, a lot more has to go right in terms of other sectors.

I still keep pointing, though, to more traditional cyclical areas that have kept afloat. Home builders, maybe they shouldn't, but they've been outperforming. Industrials, if you're worried about the economy, how many days have we talked about industrials hitting new 52-week highs or even new all-time highs? Truckers, industrials, and

industrial metals, things like steel. So again, a lot of that market, those could be head fakes internally, but they can't all be false moves. Yeah, well, important or not, closing above 4,000 on the S&P is going to be viewed by some as very important. And we'll see. We look like we're going to do that. I'll see you tomorrow. That's it for us here on Closing Bell. Let's get to overtime with Morgan Brennan and John Ford.