Closing Bell - Closing Bell: Do the Bulls Have the Upper Hand? 12/12/23

Episode Date: December 12, 2023

Schwab’s Liz Ann Sonders and Trivariate’s Adam Parker weigh in with where they see stocks headed from here. Plus, Goldman Sachs President & COO John Waldron with his exclusive take on the markets, fed and the economy. And, T. Rowe’s Sebastien Page is breaking down his forecast for the fed and what he’s expecting from Powell in the New Year. 

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 the outlook for your money, whether a powerful new bull market is just beginning. We're going to ask Schwab's Lizanne Saunders and Trivariate's Adam Parker that key question in just a moment. And later, a Closing Bell exclusive with the President and Chief Operating Officer of Goldman Sachs, John Waldron, will be with me here at Post 9. All topics on the table, the markets, the economy, the future of the firm. In the meantime, your scorecard with 60 minutes to go and regulation looks like this. We are in the green as we begin the final stretch. A pretty benign CPI report today.

All eyes now, of course, on tomorrow's Fed decision and Chair Powell's presser. Interest rates, they are holding steady ahead of all of that. We're watching that closely, too. And it all takes us to our talk of the tape, the upper hand and whether the bulls firmly have it. Let's welcome Schwab's chief investment strategist, Lizanne Saunders, and the founder and CEO of Trivariate, Adam Parker. He's also a CNBC contributor. Both are with me here at Post 9, which I'm so thrilled about. It's nice to see you both. Nice to see you, too. Lizanne, so you first. What's going to happen tomorrow? What's the chair going to say? Is he going to rain on this market parade or keep it going? That's the open question. Whether he does it overtly by actually raining on the parade and pushing back

against the expectation of cuts starting possibly as early as March, or he just maybe gets at it by citing what has already been a massive loosening in financial conditions. In fact, it was a record single month in November. Well, because rates came down so much. And he may hint that that's doing some of the prospective easing. So that's to me what I'm going to be focused on, is whether he sort of does the opposite of what he did when he said that the move up in yields had done some of the tightening for the Fed.

What about you, Adam? What are you looking for? Anything upsetting to the pretty sanguine sort of environment that we suddenly found ourselves in? Yeah, I don't look at it that way. I just look at it like you don't even want them to cut rates. You want to dream that they could do it. The specter of doing it is a lot more exciting. I could see the market actually selling off when they cut. Why? What if they cut for the right reasons? I mean, you're assuming they cut because they have to. There are no right reasons, right? The right reasons would be the economy is in bad shape. No, it isn't. If the inflation's come down enough and the economy's doing pretty well. I'm not a Fed genius like everyone else on this program

has been for years. What I'll tell you is what I learned back in the day is full employment, stable pricing. Which one looks so bad they need to start cutting rates like crazy? Which one looks so bad they're going to have five cuts by January 25 or whatever's in the price? What I think the bold case is you think gross margins can expand for the average stock, and you dream that there's a combination coming someday without it happening. To me, that's the sustained Goldilocks we've been in. That's what I'm rooting for is equities go higher. Well, what about the idea, though, that, you know, the economy stays, you know, reasonably well.

Inflation continues to trend lower year over year. Of course, it is despite a month, you know, tenth of a percent pop in November that the Fed actually can cut for the right reasons that inflation has allowed them to do that. They don't have to because the economy is doing just fine. But if inflation is still above their target and their other mandate is not in the clear spotlight, meaning the labor market hasn't deteriorated, Powell has been really clear about not wanting to repeat the mistakes of the Burns era and declaring victory prematurely and then easing and letting inflation out of the bag again. So I think it's going to be the labor market that dictates the point at which the Fed goes from pause to pivot. Has the rally from November to now and how it's become more broad more recently, has it surprised you?

No. In fact, I think it was a necessary ingredient for sustainability of the rally. You and I talked about it right around the one-year point off the October lows, and it wasn't looking great then. Small caps were anemic. Banks were still in negative territory. The concentration problem. And now you've just kind of had this stealthy rotation where you ease some of the excesses associated with the concentration

without the bottom falling out all at once. So, so far, so good. It's nice to see that. Yeah, I mean, there's a statistically significant relationship between the change in the CPI and the change in gross margins for the average company. So when CPI ripped higher, it hurt profits and it relatively hurt the small caps. We know the big seven, they didn't really get affected by rising CPI. They have a whole bunch of pricing power and other strengths of being big. So if you want the market to rally and you want a sustained broadening rally, you need

to believe gross margins are going up. So that's where I spend most of my time with my clients. Is it lowering input costs? Is it productivity? Is labor increases less of a problem? Is it materials that are logistic? Which companies can beat gross margin expectations? Those are going to be winners next year.

You feel like it's time to be more bullish overall? We talked about this last week, and then I went home and self-loathe because I was responding to the incrementally bullish. And you know I've been bullish the whole year, so am I incrementally bullish, up 35, 40 NASDAQ, up 20, 21, 22 total turn S&P? Incrementally? I don't know. You know, you want to be bullish the whole time. I don't think we're going to have as much upside in the next 12 months as we had in the last 12.

So you're talking to somebody who looks at the word incrementally and says no, because incrementally it won't be as much upside. Am I optimistic? Yeah, I think so. But we didn't have that much upside over the last 12 months in a large part of the market. We had most of it in the top heavy part. And only of late have we started to kind of catch up a little bit. Not even that much. Nobody who allocates to an equity manager gives them that break.

Okay? Their benchmark's the S&P. It's up 22 total return or whatever it is. That's what they're compared against. So I think what people want when they charge high fees is they want the broadening rally so they can get in there and find out on smaller names. It's hard for them to know stuff about the big seven nobody else does. But I'm reacting to the overall indices being up this much and saying, like, am I incrementally more excited? No. Do I think the risk reward could be? Look,

you know I hate romanticizing the contrarian. Everyone says I'm contrarian, then they repeat the consensus. I do think that the risk reward could be skewed to the upside next year if the average stock gets more margin expansion and if we start believing earnings could grow three, four, five years in a row. And if that's the case, things look optically expensive now, but they middle of 24, you'll be saying, huh, maybe 25, 26, it looks cheap. And that's the recipe for a bigger rally than people think. And I think that's the tenor of your question. I mean, there's so many people ask you that question. Should I become more bullish? I mean, based on what your company does, is it time to be more bullish in the outlook for stocks or not? We've come a long way. Market's done really well of late.

It was very top heavy. Now it's broad. Is it believable? So tell me what the bond market's going to do. And I'd be able to probably tell you what the stock market's going to do. I still think bond yields are, for the most part, in the driver's seat. We have a negative correlation between yields and stock prices. I think a plunge in yields from here, assuming it

reflected a much weaker economy, that would be a digestion phase for the market. But even stabilization in yields, I think, would represent a positive backdrop. On the upside, then I think you have the risk of another, you know, July to October. Do you worry about that, though? I mean, do you think that rates have kind of, now they've come down a ton since, what, in the last six weeks? I mean, they're five percent down, like 80 basis points. The question is, is it true that the last mile in terms of getting inflation down is going to be the trickier one? We don't think we think inflation will continue to come down, but probably not in a straight line. And you've got obviously the energy swing factor, which

impacts headline inflation, not core inflation. But I agree with Adam. I think a scenario in which the Fed is actually cutting as soon as March is not a good scenario in terms of what is probably going on in the economy. That seems a little bit ahead of ourselves anyway. Yeah. Right. When the market was saying March and the probability started to go up into the high 30s, you're like, really? Now, obviously, it's backed off that. So we're at June. Does that make sense? Well, this morning, it was still 45% probability of a cut in March. I think that that's pretty sure. I think I saw five cuts by end of next year. So to me, the economy and corporate earnings have to get much worse. And I don't think everyone's going to just, you know, whistle by that graveyard the entire year.

So I don't think you want things to get like that. I think you want to believe earnings can grow a little bit and there's someday they'll be more accommodative. And that's the cocktail. There are some people who think earnings are going to grow a lot. I mean, I've had very bullish people on this set. Well, the consensus suggests that, but I think the consensus is not realistic. And I don't mean it's too high. I just think what's happened in this unique cycle, and it's a vestige of the worst part of the pandemic when analysts were getting no guidance from companies. Now, I think they're adjusting estimates much nearer term. You'll get into earnings season. They might make an adjustment to one quarter out, but they're not making those adjustments. So I'm not sure how valid the calendar year 2024 estimates are. They haven't moved. The quarterly estimates are moving

up and down a lot. So I'm not sure it's valid valuation analysis using a calendar year number for 2024. It's not basically reality. I don't think it actually matters. What matters is, do you believe earnings are going to be higher? Because on average... Well, do you believe they're going to be double-digit higher? Because that's sort of where we're thinking. That's where the market's betting. The bottom consensus is 11. I don't think that's right.

I think it'll be mid-singles or maybe a little bit higher, maybe 6%, 7%. So I think 11's too high. If you look back, I think forward earnings data have existed since 1978. On average, in January of each year, the analysts grossed up to 14% expectations. The actual has been 7. Obviously, the market's gone up a lot of those years since 1978. So I think she's spot on. It's not the downward revision that matters.

As long as it's being down revised, you think the growth is still going to happen, markets can do okay in those conditions. Did I hear you making the case for small caps? Smaller. I think there's opportunities, but stay up in quality. I would absolutely fade the low quality areas, just smaller. I think there's opportunities. I think there's a lot of active money, both professional and individual, that is itching to find opportunities outside just the Magnificent Seven. Continue to think you want to be much more factor-focused than sector-focused. You know, strong ROE, strong free cash flow, interest coverage, profitability. And I think that's the way to approach it. And there's

opportunities down the capstone. I wouldn't index to approach it. And there's opportunities down the cap center. I wouldn't index to a Russell 2000. There's no profitability filter, still 32% zombies. But I think there are opportunities outside of the mega cap names. Speaking of like energy, which you've liked, are you still on that train? Are you about to hop off? No, no. Two things. One, I parse the quality thing a tiny bit, which is I think in growth stocks, you want high quality. And that's two thirds of the battle if you're trying to beat the S&P. A lot of the other stuff has rallied a ton though,

in growth. In thinking value stocks, you don't necessarily over time want high quality. You want future quality that doesn't look like it today. So when you define it systematically, you don't want quality across the board, you want growth quality over time. In terms of energy, look, my view is that we're short being able to produce 107 million barrels in 5 or 10 years,

and the path toward getting there is unclear. So I think ultimately demand will exceed supply. The thing that worries me tactically is the same thing that worries everyone else, which is Hess sold to Chevron without a premium. And so when you start thinking about it, he probably knows his assets better than they do, and he probably thinks he can sell it without damaging Chevron stock as much as damaging his own. Underneath, tactically, it's not great, but I don't see how we get 107 million barrels down the line. So ultimately, we're going to have much higher oil,

but the path from here to there can always be filled with 19 hard-to-predict variables. So I like it long-term, but I have no idea about three months. But when you're talking about quality growth, so I know we've been obsessed with Magnificent 7 and the performance has been incredible, but of late, all those other growth stocks have done incredibly well. Like the ARK type names,

they just had their best month ever in November. Right, when the bond yields come down, she's spot on. You had the highest correlation you've had in years between negative if you look at yields, versus equities. What happened is all the riskier companies were more of the values way out in the future. They go up because, you know, their cost of capital came down. Sure, but what if rates stay low? Lower. Lower.

We didn't pre-prepare, and you know I usually disagree with people and it gets a little awkward. In this case, we agree a lot because I don't, I think if they keep, if they plummet, it's because the conditions in the economy got much worse than it's really a risk of three. If rates plummet? If the 10-year yield goes to three or two and a half in a hurry, that's because things get bad. Of course. If it stabilizes where we are here and maybe the two year comes in, you un-invert eventually, that I think could be very supportive of higher multiples for equity. So I think that's where I agree. If you can tell me the exact mapping of the 210 level and slope, I could probably do okay picking stocks.

You know what one thing we have to do though, anytime we talk about growth and value? Explain what you mean by growth and value. Are you talking about indexes? Are you talking about the factors of growth and value? If you remember, we may have talked about this mid-December last year when S&P did their rebalancing. The mega cap eight were all in S&P's pure growth index. On December 19th, the day of the rebalancing, only one was left in the pure growth index. Tech went from being 37% of that index to 13% of that index, energy became the highest weighted sector

in S&P pure growth. In part because of that, Russell 1000 growth is up 37% year to date. S&P pure growth is up 2% year to date. So when people just say growth and value, I always think, what are you talking about? Are you talking about the characteristics? Are you talking about our preconceived notions of what are growth and value? Even if you're talking about the indexes, what indexes? Yeah, we're, you know, we're, try a very weird nerds, right? It's all systematically assigned, you know, it's mutually exclusive and exhaustive. I mean, you can't both be in growth and value like Russell used to have with Exxon or whatever. So for us, you know, it's not that shocking. I mean, if you grow fast, you don't have a dividend, you don't have any debt, you're expensive,

you're a growth stock. So it's all systematic, but it's probably pretty correlated. The problem is that if you're not a growth stock, you're put in a value index. You don't necessarily offer value. It's funny. You're just not a growth stock. We do it for this reason in thirds. We have like a growth, neither, and value because I think that neither zone is a little bit different. But, you know, so I think we're getting the same answer, maybe showing our work a little differently on the path. What's the point at which, Lizanne, I'll ask you first, that money comes out of money markets and then goes into equities and that sort of spurs the next leg of whatever kind of market, whatever kind of bull market this may be, if in fact this can hold up.

But every flow has been strong, too. So I'm not sure a lot of the money in money markets is the traditional sideline cash that's itching to go into equities even this time where you know that you have so much money in cash come from maybe other areas typical deposits other areas even within fixed income or the equity market where a lot of income-oriented investors are saying, huh, now I can actually get 4% or 5% in a money market. There was that sort of similar size in relative terms of capital in money markets in the 90s, and it didn't leave. But you had a strong equity market, and you had sort of this meaty amount of money in money markets. And I'm

not sure we should necessarily think of it as some, you know, moment in time source that's going to fly into the equity market. I think it's probably pretty sticky. The world's so much different than it used to be where you could really bank on these flows from across asset allocation or regional allocation. I mean, pick one multistrat or pod shop, pick any one. They have 35 quant teams. Those teams are running 600 to 1,200 gross exposure, hundreds of longs, hundreds of shorts, and they have three-hour to two-day holding period.

Like, that's what's happening. Yeah, but I'm saying maybe this time is, in fact, different. Like, we know that because rates were so elevated that putting your money in a money market where you could get 4% or 5% was so much, the risk-reward on that was so much higher than taking what was seemed to be a tremendous risk in equities because of the fed's regime of hiking so if if we know that there was an outsized amount of money that went into money markets if the coast is deemed clear why wouldn't that money go in and by the way maybe

it goes to bonds too if you think that yields are going to continue to come down and bond prices are going to go up. Yeah, I mean, I think there's two different issues. Like, it's all horizon, right? I mean, I don't know any actual human being who buys the 10-year and holds it to duration. I mean, unless... At Schwab, we do. Well, my clients are like people who are institutional equity investors with a 12-month holding period. Take that.

Right. But at Schwab, when you run like $40 trillion or whatever, and then there's going to be trillions that are holding it. But, like, to me, I could see somebody saying I'll buy it tactically or something, or I could see it holding the two-year or something like that to duration to pick it up. But to me, that's like a small part of what's – you asked about inflows and equities driving a much bigger equity market. Also keep in mind, though, for all the talk about the record amount of money in money markets, as a share of equity market total capitalization, it's fairly small. So the firepower has to be judged with that ratio in mind, not just the dollar level of what's in money market funds.

I'm going to leave it there. You guys were great. It was so much fun having both of you here in the house. Lizanne Sa in money market funds. I'm going to leave it there. You guys were great. It was so much fun having both of you here in the house. Lizanne Saunders. Happy holidays. Yeah, of course, to you both as well. Thank you. Thank you.

We'll talk to you again soon. We're just getting started here on Closing Bell. Up next, a must-see exclusive, Goldman Sachs president and COO John Waldron. He joins me right here at Post 9. We'll get his exclusive take on the markets, the economy, the Fed, and the firm. Just after this break, we're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back to Closing Bell. Stocks in the green today as the Fed kicks off its two-day policy meeting. Investors looking for any clues at all about the outlook for rates and, of course, the economy. Joining me now in a CNBC exclusive, John Waldron. He is Goldman Sachs' president and chief operating officer, came to Post 9 for us. I appreciate it.

It's nice to see you. Great to see you, Scott. Thanks for having me. So we have this meeting now. We're going to get a decision. We don't really expect anything, but the news conference is going to be eventful. Do you think they're done with the hikes? I mean, our forecast is that they're done. You know, it feels like the data is giving them license to be done, but they have said they're data dependent. And so I think a concern of mine is the market falls too much in love with the fact that they're done and the data will matter. But our forecast is clear that they're not raising from here, and the debate has obviously shifted to when do they start easing.

Yeah, what's your best guess on that? I mean, maybe the market was a little ahead of itself thinking March, but what are your thoughts? I feel like the market got ahead of itself. The Waller commentary seemed to get very heavily interpreted. Yeah, it sure did. And, you know, now obviously the market's backed more into a June posture. You know, our view is it's definitely second half of 24 if it's going to start happening. It's more likely in the second half of the year than it is in the first half. How would you assess the job they've done from the beginning of when they started until now, given everything that we've seen and where we are? I feel like they got a

slow start and they were too much in the transitory narrative for too long. But once they got started, I think they've done an excellent job. And I have to say, if they can engineer a soft landing, which are very hard things to engineer, it will be extraordinary and very good for the economy. So I'd say right at the moment, I have to give them a high grade. Are you surprised how the economy has hung in there the way it has? I am surprised. I'd say a number of us at our firm, our economists, I have to give Jan Hatzius a shout out. Jan Hatzius has been very much on the soft landing. Sure. He keeps lowering his probabilities of a recession. He was early and he's gotten more bullish as it's gone on and he's been right. And a number of us in

the practitioner, you know, mode, we're a little bit more cautious and have been a little bit more, you know, that's not pessimistic, but more concerned. And we've all moved a little bit to the more positive side. I think the U.S. consumer came into this in a much stronger position than any of us gave the U.S. consumer credit. And that's had a huge impact on consumer behavior. And obviously it's a 70% U.S. consumer credit. And that's had a huge impact on consumer behavior. And obviously, it's a 70 percent U.S. consumer, 70 percent of the economy. So that, as goes the consumer, so goes the economy. How about the markets? Have they surprised you? I mean, if I told you at the beginning of the year, we sat down like, OK, the Fed is going to hike

as much as they did. The economy is going to hang in there. And the stock market is going to have, for all intents and purposes, a great year, especially lately it's become more broad. You would have told me at the beginning of the year if I said that, what? I would have said it would have been a tougher year in the markets. Now, I think what's interesting in the equity markets is the performance of those seven stocks versus the rest of the marketplace. There has been more damage in the equity market in terms of some of those non-seven stocks. So if you look at the 493 stocks, the average multiple is quite a bit lower. I think it's at 14 and a half times. 14, 15, yeah.

Right. So it's quite a bit lower. So it actually looks relatively inexpensive. But a lot of the stocks have come down a lot. So there's a lot more dispersion. This was a less of a trend market and much more of a market evidenced by dispersion. And so that's not surprising. The seven stocks are surprising. The fact that some of these other stocks have had a harder time this year is not surprising. Are you a believer in the broadening that we've seen of late? Because that's kind of what's taken us to this next leg. November was amazing for all of these other areas of the market, the equal weight S&P outperforming just about everything else. Yeah, it seems that it needs to happen. The market needs to get broader. That seems to be the right direction of travel.

I'm not a portfolio strategist, but I think David Koston, who's our strategist, would agree with that, that our projection and prediction is that there'll be more broadening in the market, and I think that would be healthy for the market. I know you were just in China, and that's been really confounding to a lot of people. We've had this recovery here. Europe, I think, has done better than expected as well, and China remains this sputtering story. You're just there. What'd you see? Economy is very weak. You know, I think I think they're surprised by how weak it is.

You know, these other economies coming out of covid had a V-shaped recovery. China's really the only major economy that has not experienced a V-shaped recovery. They didn't stimulate. So I think one major difference is that there wasn't a significant amount of fiscal or monetary stimulus to aid that recovery. And obviously, they're weighed down by significant number of challenges. The property sector issues are real. A lot of the growth that we witnessed in China for the last five or 10 years was real estate and property growth. And obviously, that's coming home to roost now. The FDI challenges are real. Money is flowing out of China, not into China.

That's not helping their cause. My experience when I was there was it almost felt like there was negative animal spirits. You feel like in the U.S., we had positive animal spirits as the economy was coming back from COVID. I feel like it's the opposite in China. So I think they're going to have a tough time. I think that they're going to have to tackle some real structural challenges. I think they're focused on that and they're going to get after it, but it's going to take a while. And I feel like they're going to grow below trend for a fair period of time.

Why isn't that having more of an impact here? You used to say, well, China sneezes, the rest of the world catches a cold. Now it seems China's got a pretty good cold, and yet here we are. Well, the U.S. consumer is still, to me, the most important factor in terms of U.S. economic performance, not China. It's really the U.S. consumer. The U.S. consumer, as we talked about, is doing well. By the way, Europe is having a tough time. So I would say the European economies are not exactly firing on all cylinders. So I think some of what we're seeing in China is impacting other

economies. I just think the U.S. right now is really outperforming because the U.S. consumer is surprising everybody in terms of the resilience of the spend. Let's talk about the markets as it relates to your business directly at Goldman. We keep wondering when we're going to see this new flood of M&A. What sort of pent-up demand do you see? Michael Arrigetti of Ares was on the network several hours ago today, said he's seeing a pickup. What are you seeing? I mean, it's bread and butter business for you. Well, the M&A market, if you think about the M&A market, there are kind of three pieces to it, simplistically the way I think about it. There's large deals. There's the kind of middle market, which is increasingly governed by private

equity flow. The private equity component of the M&A market has gotten upwards of 40% of the total volume of the market in the last few years, which is abnormally high. And then you've got sort of smaller, niche-y corporate deals. The smaller niche-y corporate deals are pretty healthy. Pretty active flow, pretty active pipeline. Corporates want to do deals. There's a lot of positioning going on around portfolios and that continues to be good. Larger deals require regulatory approval. That's getting harder. And so I think that is a chill on the larger deal market. It's getting a little better. We saw a couple of big energy deals of late. There was another energy deal announced yesterday.

So we're seeing some deals, but it's not as strong as it has been historically. And the private equity community has been quiet. So I like the fact that Mike Garagetti said that he sees a pickup. We see a pickup, but I wouldn't call it a significant pickup. I would call it the beginning signs of a pickup. When do you think it will become significant? I feel like it's gonna take a while to get going.

I think the private equity community is still trying to figure out how to find equilibrium in those portfolio companies. There is $9 trillion of portfolio company value sitting in private equity hands. That's an enormous amount of installed base of activity that is going to come in the next few years. But I don't think the gun goes off on January 1 that it all starts flooding the market. It's going to take a while to get on track. People have to figure out how to get financing. Prices, buyers and sellers have to come together. There is a lot

of liquidity that needs to be delivered to LPs. So I think that's a catalyst and a stimulant. But it's not going to happen overnight. I think it's going to take a little bit of time to build. What does it tell you that, I mean, there have been instances and many really to this point where companies have pushed back on the government and won. Does that in any way you think embolden people to do deals that they didn't think they could do, that now they're willing to have a fight? I think that certain companies will be interested in doing that, but I don't think as a broad-based trend, most companies want to sue the government to get their deal done. So I still think it has a negative impact overall on large deal activity.

It doesn't mean that there aren't exceptions to the rule. It doesn't mean that people aren't going to sue and win. But most of the time, if you're in a corporate boardroom and you're trying to advocate for a transaction, that's not the way that you advocate to get a transaction done. And so I think broadly, it still has a, on the margin, a negative impact on the marketplace. What about the IPO window? How firmly do you think it starts to open and when? We're getting more bullish on the IPO window. I think, you know, if you think about the capital markets broadly, whether it's equity or debt, we're at half the 10-year averages. So we're running at a very low level of activity and have really for the last 18 to 24 months. It's been pretty persistent for a long time.

As I said to you about private equity, private equity also is a big stimulant to the capital markets activity. The refinancing wall that is coming in particular private equity-owned assets is pronounced. So this year, in 23, $13 billion of refinancing in high-yield and leveraged loan markets, $24, $75 billion, $25, $220 billion, $26, over $400 billion. So there's an enormous amount of refinancing that has to happen. Some of that will get refinanced in the debt market. Some of that will require IPOs and other modernizations. Some of that will be M&A. So we're getting more optimistic that that is going to start kicking into gear. And as we've now gone through the rate increases to more of an equilibrium, people adjust, prices adjust, and mindsets adjust. So we're

getting closer to seeing a window opening for the IPO market. Okay. Big story today for you guys. Ed Emerson runs your commodities trading business, stepping down, said to be close to you. Why is he stepping down? Well, the first thing I would say is our commodities franchise is terrific, has performed exceptionally well, and Ed's done a great job. He's gotten paid a lot, $100 million over the past three years. Ed's done a great job, but it's a very deep team. As with everything at Goldman Sachs, we have a very broad and deep team. Our leadership across commodities is incredibly strong. It's a very global franchise. We've got strong leaders and deep team. Our leadership across commodities is incredibly strong.

It's a very global franchise. We've got strong leaders in the US, strong leaders in Europe, strong leaders in Asia. Very excited about the team we've got in place right now to go lead that franchise going forward. Ed's decided he wants to go on to the next thing in life. That happens at Goldman Sachs. He's not the first, nor will he be the last person to do that. We wish him well.

He's going to stay on for an extra year and help us in the transition, which is terrific. And I think it will work exceptionally well for us. So we're ready to move that franchise forward. And I think the franchise is going to perform exceptionally well. He's going to stay on for an extra year and help us in the transition, which is terrific, and I think will work exceptionally well for us. So we're ready to move that franchise forward, and I think the franchise is going to perform exceptionally well. He was said to be a fairly vocal critic of David Solomon's leadership. Does that have anything to do with him stepping down? No, I don't think so. I think Ed was getting to a place in his career where he was deciding what he wanted to do next, and I don't think it's any more complicated than that. And I think he'll be a great leaver. He'll transition well. He'll make sure the business is in good hands. I think Ed cares a lot about that commodities franchise, cares a lot about how it transitions, and cares a lot about Goldman Sachs.

Speaking of criticism of Mr. Solomon, how would you assess what the last year has been like for the executive team? The criticism, the controversy, did it hurt your ability to focus? What are your thoughts? has been like for the executive team? The criticism, the controversy. Did it hurt your ability to focus? What are your thoughts? Well, I would observe we've accomplished a lot in 2023. It's a little bit of an eat your broccoli here at Goldman Sachs. We had a lot to do. None of it was particularly

rewarding on this. On the on the surface, we had a lot to do under the covers. We repositioned our consumer franchise pretty significantly. We sold the number of assets. We sold our green sky business we sold our united capital uh business we sold our marcus lending platform we sold approximately approximately 10 billion dollars no it's a microphone you just put it right on your uh yep you can even hold it if you want okay we we sold we sold $10 billion of real estate. Yeah.

And we've taken about a billion dollars of operating expense out of the firm, which gives us flexibility to invest back into our talent, into our people. So we've accomplished a lot this year. It's clearly been a transition year and we've got a lot in front of us in 24 and 25 that we're very excited about. Yeah. I mean, you've been overhauling your asset and wealth management businesses. You know what?

I'm going to help you out. And I don't care that it's live TV because we're going to do it anyway and make sure it works out the right way. How about that? How about that? There you go. All right.

Thank you, Scott. Yeah. I mean, you've been overhauling your asset and wealth management businesses. You've seen several people leave on that front. Do you expect more top-level talent to move on? No. I think we've got a strong leadership team at the top of the firm.

It doesn't mean that there won't be people leaving. There are always people leaving at Goldman Sachs. It's part of the process of our next-generation leadership rising into new positions. Our asset and wealth management business has gone through a significant amount of transition. If you think about what we've done there, we've merged internally four different businesses into one integrated platform. So you can almost think about it as having done four mergers in essence. There's a lot of integration in the context of doing that. So there are going to be changes anytime you do something like that, whether it's an internal set of mergers or an external set of mergers. We've got a great team on the field. The business is performing. We will have raised

60 or so billion dollars of alternative assets on that platform this year. Our management fee target of two billion dollars of alternatives will be hit this year. We're close to our 10 billion dollar target overall. Our wealth management business is gonna grow high single digits this year. Businesses are really performing. We've had an excellent year.

I know there's a lot of focus and inquiry in the press around people leaving, and going but the business is actually performing well and our team is extremely motivated to drive that franchise forward do you feel like the firm is right sized now no more no more layoffs we should expect from what was already announced we reduced our head count about 3 000 people this year uh that was the largest since the financial crisis that was necessary like a lot of companies i think a lot of clients that i talked to were you know adding a lot of heads, you know, during the COVID period and into that recovery period. And I think everybody needed to kind of rationalize what they had done.

We're no different. I feel very good about our headcount right now. I think we're in a good place. We can grow from here in a measured way, obviously dependent on how the economy does and how the marketplace does. But I feel very good about where we're sized right now. What about you? You happy you're going to be there for a while? I'm happy. I'm looking forward. I'm very interested in 2024 for Goldman Sachs. I think we've got a real opportunity in front of us. And I intend to be very focused on helping us deliver on it. All right. I appreciate you spending time with me here on Closing Bell. Thank you. Good. Good to be with you. Thanks. That's Goldman's John Waldron joining us right here at Post 9. We do everything. We have conversations. We fix microphones.

We do whatever we have to do. Up next, forecasting the Fed. T. Rose, Sebastian Page is back. We'll find out what he's expecting from Chair Powell tomorrow, how he's navigating the market as well as we round out the year right after the break. Stocks are higher today as investors react to the latest CPI report ahead of tomorrow's policy announcement from the Fed. Joining me now to discuss Sebastian Page, the chief investment officer for T. Rowe Price. Welcome back.

Thank you, Scott. All right. So let's talk in stages from reluctant bear to neutral on stocks. Now, where are you today? So we're still neutral on stocks. And I've been watching your lunchtime show and your conversation with Lizanne and Adam earlier. And, you know, it's all about those long and variable lags. You have to worry about those. And that's keeping us from going all the way full bull long stocks. And, you know, at the same time, I think you called it the big mattress, the big mattress of money that's cushioning the economy into this landing here tells us that things should be OK. And the Fed is, you know, about to cut rates.

But what makes you think that the lag you're not going to have the big effect that the more cautious market observers seem to think is still to come. Look, I expect a soft landing, but I think the risk there is look at, for example, credit card debt or look at weak companies that need to roll their debt into much higher interest rates, or look at commercial real estate. So there's still fragilities. And again, it feels comfortable and neutral. It's kind of the return of the balanced approach. We're going to get some volatility on growth, but most of the volatility on inflation is kind of gone, at least the crazy volatility in inflation. So it just feels like a neutral kind of environment here as we get more data come in. But yes, Scott, I mean, those lags have hit on a rolling basis. They will probably continue to hit on a rolling basis, which means there's still some fragilities

in markets. I just find it interesting that that somebody who suggests that we're going to have a soft landing isn't more positive on stocks. One would seem to naturally follow the other. By the time you get overweight or whatever language you would use to describe a more positive view, the market would have gotten just further away from you know yet and looks got here's a different way in which were positive where actually long small and mid caps under the hood slightly short duration long credit long emerging markets

so we like to take the long risk positions where relative valuations are more attractive. So you give it neutral on top, but under the hood, you could add some octane in there and just recognize that this is kind of a balanced outlook. Scott, bottom line is a lot of it is priced in. You know, in November, we just had the record, record easing in financial conditions, the largest one month easing in financial conditions in November. The dollar pulled back. Equities rallied. Spreads compressed. Rates came down. I'm not sure that's what the Fed wanted, Scott. We'll see. We'll see. I guess we'll hear from the chair himself tomorrow.

And we can't wait for that. Sebastian, thank you. I appreciate it. Sebastian Page, once again, joining us on Closing Bell. Up next, we're tracking the biggest movers into the close. Christina Partsenevelos is with us as always. With that, Christina. We've got two companies and two sudden C-suite departures. And that's rocking their share prices. I'll reveal the company names next.

We're less than 15 from the Closing Bell. Christina Partsenevelos joins us once again with the stocks she's watching. Christina. Well, let's start with Lucid Group under pressure after announcing the abrupt exit of its chief financial officer. The company says it's already searching for a replacement CFO and that its vice president of accounting will fill in the role for the time being. And that's why you're seeing shares off almost or eight and a half percent right now. And Moderna also in the red after a sudden executive exit. Its chief commercial officer is stepping down after less than two years on the job.

The company says it's increasing its focus on vaccine sales, which will now be overseen by its CEO. Those shares down 50% this year, trading over 5% lower right now. Scott. All right, Christina, thank you. As always, still ahead. Kava shares are surging. The stock is now up more than 16% as the company's IPO lockup expires today. All the details ahead. Closing bell right back. Another big interview coming up tomorrow,

as always, just after the Fed, after the chair's presser, we're joined by Jeffrey Gundlach, double line. It's a CNBC exclusive. Can't wait for that. His first reaction to the decision, the commentary from the chair as well, right here on Closing Bell. Up next, shares of Oracle.

They are falling today pretty sharply. We'll break down what's weighing on that name, what it could mean for the other software names as well. That's when we take you inside the Market Zone. We're now in the Closing Bell Market Zone CNBC senior markets commentator Mike Santoli here to break down the crucial moments of this trading day. Christina Partsinevola says the details behind Oracle's sharp slide after earnings and Leslie Picker on the surge in shares as that company's IPO lockup expires today. Mike, I begin with you. And this is really fitting this trend that we've had,

as you suggested earlier, this pickup around midday and then a little bit further ramp into this final stretch. And nothing has really popped up to activate the sellers in the face of that, right? You might have been looking toward a little bit of a note of volatility potential out of the CPI. We didn't get that. The Treasury auctions went off fine. Bond market absorbed it. So you pretty much have things falling into line with what's now, I think, become a gathering consensus of persistent disinflation. The economy's OK. And more to the point that the Fed is not really the swing factor at this point. We're in a pause. We're going to remain in a pause. We kind of know what's going to be said tomorrow. And there's no real urgency to get a change in that story or to rush toward the moment when we're going to get an E.

So I think the big criticism is it's just a little bit too neat and tidy. The markets are getting a little bit overbought. The VIX is under 12, 11.8. So it seems like a lot of this stuff is building at some point to a move where it's like we got here. We've culminated that outlook. And hard to say, you know, where that moment comes. But that's the thing that hangs out there. And then, Christina, there's Oracle, right? Down 12 percent as I look. It's the second straight quarter. Oracle failed to impress. And that's why you're seeing the drop right now. Last time was 13 percent after post earnings. But they failed to meet their cloud growth expectations,

even though I have to say it grew 52% year-over-year. Street wanted 57%. The company blamed the pace of infrastructure build-outs and lack of GPU data center capacity, with the CEO Safar Katzing on the call. We're talking about hundreds of millions of dollars that we would have been able to recognize if our capacity was available. And then you also had Chairman Larry Ellison say, it's a matter of supply and not demand, and believes the cloud infrastructure business will keep growing past 50%

just over, quote, the next few years. That shows a theme, Scott. Access to NVIDIA GPUs is the difference between beating and missing in the public cloud business. But it wasn't just the cloud for Oracle. You had the November print also fell short on software as a service revenue, total revenue growth, CapEx, revenue guidance for Q3, and cash flow. Oracle, though, aims to compete with Microsoft Azure, Amazon Web Services, Google Cloud. But as UBS puts it, Oracle is testing investor patience, Scott.

All right, Christina, thanks for everything today. As always, Christina Partsenevelos. All right, Leslie Picker. Now, what am I missing here? I thought a lockup expiration was supposed to be bad for shares. Not up 20%, like Kava's up. Yeah, that's definitely the conventional wisdom. Up 20% right now. It's a relief rally, essentially, related to that lockup expiration this morning. It's been six months since Kava's IPO

and therefore restrictions on the 97 million shares that weren't floated on day one are now lifted. To your point, lockup expirations, especially for these highly volatile new issues, can pressure stocks in the weeks and months leading up to them. Kava's 69% short interest, though, that is a percentage afloat,

largest in the restaurant sector, according to S3 Partners. The research firm said Kava saw more than $30 million worth of new shorts selling over the last 30 days, despite its lack of loan availability and expensive borrow costs. So it's likely that today's surge in the shares is due to a just traditional technical short squeeze. Shares are now more than 70 percent above Kava's $22 per share IPO price, but they did double on day one in mid-June. So down a little bit, down about quite significantly from that, Scott. All right, Leslie, thank you very much. That's Leslie Picker following Kava. You heard the sound effect, which means we're

within the two minutes now before the close, about 90 seconds. So it's going to be interesting tomorrow, I think. I'm sure Waller's name comes up, likely at the news conference, where somebody asks, was he speaking for himself? Or is that the broad view of the committee now that cuts, if inflation continues to come in like it has, are coming? And we'll see what the Fed chair says. Well, and the answer might even be located in the summary of economic projections, where collectively they're going to say, here's where we think Fed funds is going to be, here's where we think inflation is going to be, and here's where we think unemployment and all

the rest of it. So it would be consistent with Waller's view to say, you know, we don't want to become incrementally more restrictive as inflation goes down. But again, I think the takeaway is going to be no hurry to make a change. Longer rather than higher is now the mantra. And I think that the Fed Fund's futures pricing stuff in is a little noisy at this point. If it's beyond a couple of months, it's really noisy. Let's remember, in March of this year, after SVB, we were pricing in three cuts by the end of this year. OK, and that was only a six, eight month span. So obviously, and stocks, by the way, are up 18 percent since March.

So it shows you that it's a little bit of a what if exercise as opposed to a precise projection. But I think the market's ready for what he's going to have to say. The mega caps have had a nice move here into the close as well. So the Nasdaq is going to be the outperformer today, and we can't wait for tomorrow. Again, Gundlach following Sherpao. It's going to be a big one. I'll see you then.