Closing Bell - Closing Bell: Dow climbs back from early hole, The bear case for C3.AI, Citi’s rate hike outlook 2/17/23

Episode Date: February 17, 2023

Stocks closed well off the worst levels of the day, with the Dow clawing back from a triple digit loss to finish in the green. Citi’s Chief U.S. economist joins with his predictions for the Fed, and why rates could stay higher for longer. Short seller Ben Axler from Spruce Point Capital Management breaks down his new bearish report on C3.AI, which has more than doubled this year amid the hype surrounding artificial intelligence and ChatGPT. CAIS CEO Matt Brown makes the case for a rethink of the classic 60-40 portfolio. Plus the latest on Deere’s pop, DoorDash’s drop, and what to expect from retail earnings next week.

Stocks are well off the lows of the session. In fact, we're at the highs of the day right now as investors try to figure out whether the goalposts are moving on the Fed's rate hike strategy. The Nasdaq seeing the sharpest decline as we head into the close. This is the make or break hour for your money. Welcome everyone to Closing Bell. I'm Sarah Eisen. Take a look at where we stand in the market. Nasdaq's down, as I mentioned, six-tenths of one percent. The Dow is positive and it is up now, as I mentioned, at the highs, up 138, spent most of the day lower. The S&P 500 under pressure by about a third of one percent. You do have some groups that are green. That's the defensive groups like consumer staples, utilities and health care. That's what's leading this market. Technology, materials, real estate, communication services, they're all down. Here's the scorecard, though, for the week on the major averages, because despite the zigging and zagging, Dow S&P 500 are lower by a bit. The Nasdaq faring

better. It's actually higher for the week. And the Russell 2000 index of small caps on pace for a decent week of gains. If you look at the best performing sector of the week, that would be consumer discretionary. Names like Tesla really helping out. Energy got hit hard this week, down 6.6%. Coming up on the show today, we'll talk to Citigroup's chief U.S. economist about his outlook for the Fed after all of this week's data and why he says it's becoming more likely that rates stay higher for longer. Later, Spruce Point Capital's Ben Axler will tell us why he is shorting C3 AI and why he thinks all that buzz around chat GPT is just a distraction. He'll join us exclusively with his latest report out just this afternoon. Let's begin, though, with the broader market.

A volatile session following yesterday's late session drop. Senior markets commentator Mike Santoli with today's dashboard. How do you add it all up? Interesting, Sarah. It's been a choppy, somewhat anxious week, but really looking more like a prolonged pause for the last couple of weeks on the charts. Yes, we have a shot at closing flat on the week for the S&P 500. 4090 would be that number. We're less than 3% off the early February highs. So it seems as if there has been a lot of angst about the newly hawkish edge to some of the recent Fed speak, but not really taking its

toll so far on a net basis. So if you just look at the line coming off the October lows, that gets you, as I've been saying, around that 3,900 to 4,000 area of the S&P where you would still say it's an uptrend, we're pulling back, and it's not that big a deal. So far, very contained pullback, I would say. But, you know, anytime you want to hear people say that the rally has carried on too far, well, maybe so, but we were higher than that in August. So right now, trading range chopping around, still decently supported right now.

It's an expiration, monthly expiration Friday for options. Sometimes that kind of traps the market around certain index levels. Take a look at the 60-40 balanced asset allocation model here. This is AOR and ETF that tracks that strategy. It's a global version of it. What I find interesting is this sort of really nice pattern. I mean, you don't necessarily trade a 60-40 portfolio based on technical indicators, but that usually says we're getting well supported.

Now, even if you look at five-year annualized returns for the 60-40 strategy, it's pretty subpar. Less than 5% total return annualized. That's below what you've gotten historically. Last year was one of the worst starts ever for it. So you have maybe a little bit of mean reversion tailwinds there. Now you have some stocks and bonds that both backed off their highs so far in the last couple of weeks, Sarah. So clearly some headwinds to it, but it's better situated in a way than stocks alone.

Because bonds have worked better. Because bonds have worked better. You had the rally there. Now you have the income from a decent level of yield that provides a little bit of a cushion on an ongoing basis. Mike, thank you. And we're going to talk more about the 60-40 portfolio and why one firm is advocating now for a different ratio later in the show when we are joined by the CEO of alternative investments platform, Case. Let's turn, though, to the economy because it was a week of surprises for investors with inflation coming in hotter than expected, retail sales blowing past estimates, and the

housing data all over the map. Now Wall Street firms are changing their predictions for the Fed's rate path. Goldman Sachs, Bank of America, and Citi calling for 25 basis point hikes through June. They see a peak Fed funds rate reaching five and a quarter to five and a half. That's higher than a lot of these firms were in the past. Joining us now is Citigroup's chief U.S. economist, Andrew Hollenhorst. Andrew, you've been at June. These other guys are catching up with you, right? How long have you had this prediction? So we've had this prediction for some time. And basically what we thought would happen is what's transpired with the data, where we had a little period where core inflation looked cooler, where some of the activity data was coming in a little bit softer.

And now we see the data that's come out over the last two weeks. It started with that strong jobs report, retail sales. That's telling you activity is OK. And most importantly, core inflation still coming in strong. We see it in CPI. We see it in the producer prices also, PPI. So you're not changing the forecast, though, to include a 50 in there, are you, despite some chatter around that? There's been some talk about 50. I think looking at the data today, you could go back to that last meeting in February and say maybe it should have been a 50. But you can't go back and do that. They did slow down to 25 basis points. I think there's a pretty strong feeling across the committee that they're trying to find where

that right terminal rate is. And as they're searching for that terminal rate, they want to move it a little bit of a slower pace. So 25 basis point pace, I think, is going to stay for now. If we had a big reacceleration in inflation, maybe we could get a 50 basis point hike again. But I think that's relatively unlikely. March is going to be 25. I mean, one reason the market has been resilient in the face of rising expectations for now a June hike starting to get priced in is that it looks increasingly likely that the soft landing scenario plays out, you know, where the economy is in better shape at the end of all this. So I think we just want to be really careful in distinguishing between a soft landing and a landing that happens later and is maybe even a little bit harder.

So what we see in the data now is a U.S. economy that's still overheated, that's still producing inflationary pressure. And that's good news for activity in the short term. We're hiring a lot of workers. The economy is still growing. Services consumption has been strong. That's all good news. The challenge for the Fed is that with all that demand out there, all that spending power, inflation stays high. And does the Fed eventually need to move even more aggressively and push even harder on the economy? So the risk to your forecast now is

more hikes, not less. More hikes. Yeah, I think if activity holds up, if core inflation stays around where it's been, or maybe even picks up, and it could with how tight the labor market is, you could actually see the Fed hiking beyond the 5% range. You could start to think about the 6% range. I think that's still not the base case, not the most likely case, but that's the risk. The other thing all of economists are doing are pushing out their recession forecast till later. Is that something you've done? Right. So we haven't actually moved ours. We've had ours in the second half of 2023. We think we might still get there in the second half of 2023.

But to your point on the data over the last couple of weeks, it's not there in the data. So we'll see. That could be pushing out. But you think it's coming? We think it's coming. I think if you look at the historical record, if you look at the tightening that the Fed's put in, the historical experience is to bring inflation down. You need a tightening of financial conditions that slows the economy. That's probably going to be a recession. That's probably how we get back to 2 percent. Which also actually speaks to the fact that stocks may have been overexcited here and you think that there's some sort of correction that needs to happen. I think there's a little bit of a differential between the narrative that's in the fixed income markets and in the equity markets.

And I think that that soft landing narrative has been quite strong in the equity market, maybe with some of the data that's come in now around inflation being a little bit stronger. Markets are starting to reassess that. When do you pencil in a cut? So great question. You need to see inflation coming down, certainly below 4 percent, before can think about cutting, probably more getting into the 3 percent range. We think that happens in 2023, maybe early 2023. But remember, 2024, but remember that early is now that's premised on a slowdown in 2023, a slowdown in growth in 2023 to get that lower inflation in 2024. So you don't see cuts this year and maybe into next?

I think cuts this year are very unlikely. It'll probably be next year at the earliest. Got it. Andrew, thank you very much for talking us through all that. Thank you. Appreciate it. Thank you. Look at shares of C3 AI. They've more than doubled this year as the buzz swells around chat GPT and artificial intelligence. But investment manager Spruce Point is short the stock, has been for some time.

Spruce Point founder Ben Axler will join us exclusively with a first look at his latest report on the company. You're watching Closing Bell on CNBC. Dow's up 111 points. Artificial intelligence. It's been the talk of Wall Street this year, thanks to ChatGPT. The excitement leading to a huge rally in shares of C3AI, which has the ticker symbol AI.

But a short seller report from Spruce Point Capital Management is raising new concerns about the company and the stock price, saying the price movement is not reflecting fundamental reality. Spruce Point initially shorted this stock back in February of last year. It's sharing its latest report with us here first on Closing Bell. Joining us now for an exclusive is Ben Axler from Spruce Point Capital Management. Ben, welcome to the show. Good to see you. Thank you for having me.

So you shorted it back in February last year. I think you're up on it. It's down from that point, but it was down a whole lot more before this year and all the hype surrounding AI. What are you doing now? Well, we're revisiting the thesis. I mean, if you look back at what we said a year ago about the company's aspirations being too high, about concerns with the product and its adoptability, about the price target, about its use of capital, everything came true. In fact, we scored our predictions. The only thing we were off on was the magnitude of the decline of the stock price. It went down to $10 below our target. So we fast forward to today and what's changed? And the answer is really

nothing other than a press release and an attachment of the company to the latest AI buzz, which is the chat GPT. But there's so many unanswered questions here, such as how are they going to make money and what is the customer use case here, that we see nothing but a billion-dollar valuation increase, all based on speculation and hope. And based upon our field research, which involves talking to former employees knowledgeable about this situation, we have real concerns about the promotional timing of this press release by the company, and also about, again, how will it translate into revenues and upside potential for shareholders? So the press release you're talking about is when C3 AI said its generative AI product would be launched March 2023. And we're waiting for that. And that got investors excited.

We asked the company, Ben, in anticipation of this interview for a comment. They didn't want to provide one. But we have talked to Tom Siebel a number of times here on CNBC, including on this show recently. And we asked him about all the hype around the equity market and his stock price. And here's what he said about that. The complexities and vagaries of the equity markets are a little bit beyond me. And, you know, it certainly has its mood swings that are a little bit, again, this is beyond my ability to really deal with our business. Okay, we're building a rapidly growing,

you know, enterprise application software company. And our objective is to establish and maintain a market leadership position in enterprise AI. Are they not doing that, Ben, establishing a market leadership position in enterprise AI with all sorts of companies like Alphabet, Amazon, and Microsoft? Well, I would encourage you to go back to our original report a year ago. There's no question they have quote-unquote partnerships with the Amazons and the Googles and the Microsoft. But what does it mean? Are they actually paying these partners to distribute their products or are they getting paid? It's very

unclear. And so, again, we have a company here that has high aspirations that has a knowledge product in enterprise AI. But what does that have to do with generative AI? And how are their customers, such as Baker Hughes and the U.S. Air Force, going to use a bot that generates text and images? It's just not clear what the revenue and business model is here and why investors should be enthusiastic. Now, let's bear in mind here, the analysts who we generally disagree with have not raised their revenue targets of $1. And let's also recall here the companies talked about going cash flow positive, and yet the market analysts still have it going negative. So this company has a real credibility problem, and the stock is getting

well ahead of the actual fundamentals and understanding of how this company is going to make money. The CEO has said numerous times in interviews that they're going to be profitable in the next few quarters. I mean, he's made a lot of comments that haven't come true. He's also said the stock's undervalued. But yet, to the best of our knowledge, the company wasn't buying stock when it was $10 a share. And also the insiders weren't buying either. So if he's always believed it's undervalued, why not use that $85 million buyback to buy stock at $10?

So I think there's a lot of, you know, evidence here of companies saying one thing and something that drastically different happening. And we think the setup is yet again here where once earnings come, investors are going to see this is an aspirational story that frequently disappoints Wall Street. I do wonder, you know, the stock being up 77 percent in the last three months, just how much has to do with the fact that its ticker symbol is AI and retail traders have kind of rushed back into the markets. And you've seen a lot of these sort of meme stocks getting love again just with this whole trend and buzz around AI. I mean, one could argue their two best assets are number one, the cash, which, by the way, the cash is being depleted.

And number two, the ticker. You know, outside of that, you know, I have to remind everybody that this is a company that frequently pivots its business model to what the best and hottest technology trend is. So if you use the Wayback Machine, first it was C3 Energy during cap and trade. Then it was C3 Energy during cap and trade. Then it was C3 IoT during Internet of Things. Then C3 AI when the AI buzz was hot during COVID. And are they going to change the ticker to C3 GPT? I mean, one can only speculate. But again, this is a company that has a history of promising things that just don't pan out. And with the stock getting up and adding over a billion dollars here on speculation, we think investors are just setting themselves up for disappointment. And if you don't believe me,

again, look at what Deutsche Bank, JP Morgan and all the bulge brackets have to say as well. They're also constructively negative on the share price. So what and what is what is the animal and animals, animal analysts primary concern there? Are they also doubting the status of these partnerships with Microsoft or the ability to be profitable? I think both. I mean, it's very reflective in the price targets. I mean, you have analysts sitting at $11, $12 a share. And again, I point to the fact that the consensus revenue estimates haven't increased one iota since the announcement of the generative ai suite and also since the announcement of another air force contract which we point out by the way

is almost recycled news this is news the company put uh in a press release back in december um so there's you know again there's a lot of uh hype here a lot of unknown um but our our base case is actually to agree with the sell side analysts here. And we have an applied downside of 45 percent going back to where we initially predicted the stock was. So I guess you don't think that it could be a takeover target or an investment target like a chat GPT was for Microsoft. Well, you know, let's critically analyze that statement. OK, I mean, the company with a 10year history. To the best of our knowledge, they've never disclosed a strategic committee or, you know, an unsolicited offer or anything related to a takeover. So, you know, why should it be a takeover now just that they're integrating some third party's search into their enterprise? I mean, that's kind of

ludicrous to think that. And furthermore, again, if there were strategic interest here, why wasn't the company buying back their stock hand over fist when it was $10, $11, $12 a share? I mean, that would be a no-brainer trade if management really thought that there was a takeover offer or some meaningful upside. Well, Ben, appreciate you coming on and sharing your new research and your new thesis here first. Well, my pleasure. I always enjoy being on CNBC. I hope everyone, yourself, have a long and healthy and happy holiday weekend. Thank you. You too, Ben Axler of Spruce Point.

A lot of hype lately about AI, not a lot of pushback. So an interesting point to talk to him about. Let's get a check on the markets here. We're up 90 points on the Dow. It's the only one of the big ones that is positive. The S&P and the Nasdaq both lower. Nasdaq down three quarters of a percent, but it is the one winning on the week and the only one higher of the top three. Within the S&P, it's staples, utilities and health care. The defensive's leading. Technology and energy are struggling today. That's why the Nasdaq's down. Small caps, though, having a winning day and week. Take a look at DoorDash giving up all of its post-earnings pop and more during the session today. We're going to tell you what's why the Nasdaq's down. Small caps, though, having a winning day and week. Take a look at DoorDash giving up all of its post earnings pop and more during the session today.

We're going to tell you what's behind the reversal straight ahead. And as we head to break, check out some of today's top search tickers on CNBC.com. Ten-year yield right on top. It hovers around the 3.8 where we climbed to yesterday. Tesla higher 2.3 percent, reversing some of yesterday's decline on the recalls. The two-year yield, very sensitive to interest rate expectations, higher today. Draft kings up almost 14%, and the S&P 500. We'll be right back. Welcome back to Closing Bell.

New details are emerging about former Barclays CEO and former J.P. Morgan executive, Jess Staley, and his ties with the late disgraced financier Jeffrey Epstein. Eamon Javers with the latest on this developing and crazy story, Eamon. Yes, Sarah, we're now getting our first on-the-record response here from J.P. Morgan to what we learned this week. In a filing late Wednesday, attorneys for the U.S. Virgin Islands wrote that J.P. Morgan's banking relationship with Epstein was known at the highest levels of the bank. They released a 2008 internal J.P. Morgan's banking relationship with Epstein was known at the highest levels of the

bank. They released a 2008 internal J.P. Morgan email in which one banker says about Epstein's account, I can't imagine it will stay pending Diamond review. Now, that's an apparent reference to J.P. Morgan chief executive officer Jamie Diamond and an expectation that he was going to personally review the Epstein accounts in 2008. Now, Epstein remained a client of J.P. Morgan until 2013. But a spokeswoman for J.P. Morgan told me today, we have not seen any evidence of such a review. That is, that they've gone back and looked to see if Jamie Dimon reviewed the Epstein accounts,

and they haven't found that. A source familiar with the bank said the 2008 email that surfaced this week was sent by a J.P. Morgan banker, but the J.P. Morgan doesn't know why the person said this. The source familiar who spoke to me has not asked Diamond directly if he remembers reviewing Epstein's account. Now, the source also noted that at the time, back in 2008, Epstein had pled guilty. He'd been sent to jail and registered as a sex offender. But that's not something that J.P. Morgan would close people's accounts over at that time. And the source also noted that felons are allowed to keep their bank accounts. As for a wire that Epstein allegedly sent to a woman with an Eastern European name after a conversation with then J.P. Morgan executive Jess Staley. Well, the source said a wire transfer like that

isn't something the bank would be typically looking for under its anti-money laundering protocol, Sarah. I should also say, in a filing this month, J.P. Morgan wrote that the USVI lawsuit is what they call a master class in deflection that seeks to hold J.P. Morgan responsible for not sleuthing out Epstein's crimes over a decade ago. And yet they say at USVI had access at the time to the same information, allegations and rumors about

Epstein, which it alleges J.P. Morgan should have acted on. Sarah, back over to you. Eamon, what about these emails that have come to light this week from Epstein and Staley about, you know, disgusting things like Snow White and Disney princesses. So what we learned this week is that Jess Staley at J.P. Morgan at the time had a deep personal relationship, friendship with Jeffrey Epstein. He was at Jeffrey Epstein's private island in the Caribbean on a number of occasions, exchanged emails back and forth, pictures of young women back and forth with Epstein. And the email you're referencing about Snow White is an intriguing one because he says to Epstein, say hello to Snow

White. That was fun. Epstein says back to Staley in the email chain that came to light this week, which character would you like next? And Staley says Beauty and the Beast. Not exactly clear what that's about, Sarah, but it does seem, you know, to indicate the depth of their relationship, at least the tenor of their relationship, what they were talking about. And the pictures of the young women they were sending back and forth to each other give a sense of what the context of the relationship really was. Eamon Javers, ew, that's gross. Thank you. Appreciate it. Up next, the CEO of Alternative Asset Management case on why investors should be rethinking the traditional 60-40 portfolio and diversify into alternative investments. You got the Dow up 104 points. NASDAQ is still

under pressure, but keep in mind, it's higher by almost half a percent to finish the week. Closing Bell will be right back. Welcome back to Closing Bell. 28 minutes left of trading. The 60-40 portfolio showing signs of life in the early innings of the year. But our next guest is now making the case for a 50-30-20 split instead, which leaves space for alternative investments. Joining me now is Matt Brown, CEO and founder of Case, an alt investment platform for financial advisors. It's good to see you, Matt.

Great to be here, Sarah. Thanks for having me. So this would certainly help your business, right, if 20 percent of the allocation was for alternative investments. How does it work, what you do, connecting the financial advisors to the alt funds of a Carlisle or a Blackstone? Yeah, that's exactly right. So our mission when we set out was to create a technology company that connects financial advisors, primarily independent financial advisors, so RIAs and IBDs, with a broad menu of alternative investment funds, such as private equity, private credit, hedge fund strategies, real estate, et cetera. And the problem that we were solving was that there was a very unlevel playing field. The biggest institutions in the

world have been investing in private equity and alternatives for decades, allocation percentages up to 30 to 50 percent, while advisors really had one, two, three percent, primarily because there just wasn't an efficient way for them to access and incorporate those alts in a portfolio. And that's what we solved. So how have the funds been doing lately? I mean, the public market got killed last year. NASDAQ was down 30 percent. A lot of people sought refuge in private and alternatives like private equity. How's the performance been? So as a platform, we're neutral, but we can observe, which is great. So we've seen a tremendous amount of volume in what we're calling a very uncertain time.

You know, we have political uncertainty. We have economic uncertainty, you know, interest rates, inflation, etc. So advisors at a pace that we've never seen are now moving into alternative investments because they see that alts when added to a portfolio can not only reduce some of this volatility, but also put them in a position to capitalize on opportunities that the public market wouldn't offer them. So strategies like private equity and private credit have been really in demand. And then the more liquid side, macro hedge funds also in demand, those that can navigate the global market. So it's very interesting our position to be an observer of trend and flow and watching what the advisors are doing. What do you say to the critics like Cliff Asness, for instance,

who wonders about the private equity model because it doesn't get marked to market? You know, that they get these exorbitant fees because they're shielding people from the public markets when, in fact, they're not reflecting the true valuation. I think due diligence on funds and their evaluation policy is critical. One of the things that we noticed in the financial advisor community is that they lacked a lot of the resources to do deep dive due diligence. And as a result, we partnered with Mercer, who does a very thorough investment and operational due diligence review of all funds, which of course includes their mark to market policy. So we've seen many funds of course,

look at their marks on a quarterly basis and make adjustments. So we feel very comfortable that the industry is really institutionalized and is quite transparent on that topic. So how have the flows looked so far Matt this year when things are feeling a lot different? Stocks are working, 60 40 is working, right?

Bonds are working, you're getting a higher yield. Has that been a competitive headwind for what you're doing? Yeah, just the stats that we can observe. We have over 100% growth in the advisors that are now using the platform year over year and also increasing in the early months of this year. Volumes, meaning the amount of capital that they're putting across the platform into alts, is again up high double digits very broadly across many different funds and strategies.

We don't see any slowdown in the allocation of alts. I think we have to remember that wealth management, north of $40 trillion in assets, has very low allocation rates. So even going from 1% to 2% to 5% or 10% means that trillions of dollars are going to come out of the traditional fixed income equity portfolios into alts. So there's just a lot of room to grow. So there's a lot that is in the word alts, right? PE, hedge fund, all sorts of products that you offer. What's the hottest right now?

Well, as I said, we can observe a lot of trends, but we're definitely seeing a large amount of flows going towards private equity and private credit. Those tend to be areas that not only have the right strategies, but a lot of the firms that offer those strategies, a few you mentioned, others like Apollo and others, have actually been very thoughtful about creating fund structures that enable wealth management to be able to invest easily in these strategies and then, of course, scale that across their end client book. This is what we're talking about. It's not about the asset manager or the financial advisor. This is about getting better outcomes to the end client with a more balanced and diversified portfolio.

And I know Apollo is an investor of yours, right, Matt? You were last valued more than a billion dollars last year. What are your plans? Plans to go public? Well, you know, TBD on that. I think in this market, we're focused on growth, focused on scale. We've doubled the number of teammates that we have at the firm. Huge emphasis on getting our technology and remaining kind of that state-of-the-art spot

that we've always been in. A lot of the automation, digitization, and machine learning that we've brought to the market have smoothed out the entire transaction process. That was very archaic and one of the main reasons why advisors have not allocated to alts. So we're trying to bring a modern approach and it seems to be working. We'll keep an eye on you. Matt Brown, thank you very much. Founder and CEO of Case. Thanks so much. Take care. Appreciate it. We are at the session highs for the Dow. We're up 130 or so. It's a more defensive feel in today's market. What's leading the Dow is UnitedHealthcare,

Amgen, McDonald's, and J&J. The S&P 500 is down a third of a percent. It's a more defensive feel in today's market. What's leading the Dow is UnitedHealthcare, Amgen, McDonald's, and J&J. The S&P 500 is down a third of a percent. It's being dragged lower by tech and energy. And the Nasdaq is down a little more than half a percent. Up next, Wall Street is buzzing about how the threat of losing some of its most iconic characters to the public domain is already turning into a horror show for Disney. Details straight ahead. What is Wall Street buzzing about? A dark turn for Winnie the Pooh. What it means for Disney.

A new R-rated horror movie using Winnie the Pooh intellectual property is getting a wide release in theaters this week after the beloved kid-friendly characters entered the public domain at the beginning of 2022. It's already a hit in its first theatrical market, hauling in a million dollars in Mexico's box office, which is more than 10 times what it actually cost to produce. This marks the first of what could be a rush of films poaching from Disney's catalog. The filmmaker behind the Winnie the Pooh slasher film is already planning horror movies based on Peter Pan and Bambi. Yikes. And the big cheese Mickey himself is entering the public domain next year, or at least the iteration from the original Steamboat Willie short. Disney will still have a trademark on that version of Mickey,

but not copyright protection, which could create a legal quagmire around the character. New releases would have to make clear there is no affiliation with Disney. It's a thin line to tread since the brand and the character are synonymous. We spoke with Comscore senior media analyst earlier. He said it's more of a nuisance than a real threat and that Disney will have to pick its battles in fighting off any reinterpretation of its characters. Comscore saying blood and honey is pulling in good numbers at the domestic box office already. Meantime, Disney is still the champion of the box office. Its new Ant-Man and the Wasp sequel grossing nearly $18 million in Thursday previews ahead of this holiday weekend. And speaking of this holiday weekend, I just want to tell you all that today is my last day of closing bell.

My friend Scott Wapner will be anchoring this hour after the weekend starting next week. And I'll be hosting Squawk on the Street from 10 a.m. to noon, along with my friends Carl Cantania and David Faber. I also just want to say I'm so proud of this show and this closing bell team. Aaron, Zev, Leal, Karina, Karis, David, Donna, Mike,

and our leader, Lisa. Thank you all. I'm beyond excited about moving to the mornings where I'll be working to bring you the best interviews with the newsmakers and all the intel on the markets and the economy, as I always try to do. So I will see you Tuesday at 10 a.m.

But first, I've got one more market zone left, and we have got a number of stories to cover. Deere's blowout earnings report, plus what to expect when retail earnings kick off next week. The market zone is next, with the Dow up 111 points. We are now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day, as always. Plus, same emojis here on Deere and Melissa Repko on next week's slew of retail earnings. We'll kick it off with the broad market though, Mike.

Higher on the Dow, it's the defensive names that are getting a boost today. The S&P is pulling back half a percent. Any catalyst here as we look to end the week now? Lower on the S&P by about half a percent. Higher on the Nasdaq? You know, I think the catalyst is mostly just the context, people trying to digest the new edge of hawkishness from the Fed this week, the little bump higher in yields. And I do think one of the takeaways is the market really has been able to churn in place as

opposed to really give up much. Now, who knows if that's going to last? There has been a loss of momentum. Some of the more aggressive parts of the market that kind of led out of the gate this year have rolled over to some degree. And you mentioned defensive stocks retracing a little bit higher today. But for the most part, it's about, you know, we're going to be data point to data point on the economy to fine tune the outlook for the Fed. So far, yields calmed down today a little bit. So I think that's probably one of the reasons why the market was sort of held in a narrow range. I mentioned earlier, monthly expiration probably has sort of muted the volatility around this 40, 50, 40, 100 area of the S&P. Let's talk deer because it is the top performer on the S&P 500 today after reporting blowout first quarter earnings,

also raising its full year guidance thanks to strong demand and higher prices for its agriculture and construction equipment. Seema Modi joins us with the story here in a 7.2% pop for the stock. I guess, Seema, the question is how much longer this cycle goes for deer? That is definitely the question, Sarah. I'm just happy that it made it into this historic market zone. But listen, there was this investor angst going into today's report as to whether farmers can continue to spend millions of dollars on upgrading their agriculture equipment. But today's report really saying that those concerns are overblown. The order book is full for 2023, Sarah. However, some weakness in the smaller tractor business and CFO Josh Jepson telling me that's really due to the weakness they're seeing in the housing sector and higher interest rates.

But overall, they continue to spend more on research and development. So the quick question is going to be, prices are expected to moderate at the same time their costs are going up because they're making this big bet on technology. What does that mean for profitability going into the latter half of this year? And so that's going to definitely be a question sort of April to May, looking into the second half of 2023, Sarah. But for now, investors clearly loving the company's outlook and the stock you can see up over 7%. And I love that you've called this a historic market.

It is. Thank you for that. What about the infrastructure bill now that it's getting implemented? Are they a prime benefit? I think of a deer or a caterpillar as the prime benefit. Are any of these companies talking about that? I'm so glad you brought that up. That's exactly what Josh Jepsen, CFO, said, is finally you're

starting to see the benefits of the infrastructure bill at the state level. So you're seeing spending increase for construction. So that's helping their tractor sales. That's helping sales for drillers. And that read-through is certainly being passed on and helping deer. And we didn't really hear Caterpillar really reference that as much. GE did a bit. But you're starting to see more companies saying that the benefits are kicking through. And that certainly played into their results today. Yeah. I mean, Mike, how does the stock look? How much is factored in there as far as some of these factors that are helping deer? I mean, deer and actually you can put Caterpillar and Agco in there as well. They are reflecting a lot of outperformance by the heavy equipment area in general. These long cycles that are working, there's some of the company's rare ones where you are seeing some upside to earnings forecast.

And they don't yet really look expensive because the earnings support has been there. So I do think it's part of a broader theme. It's not just a one-off. We don't know if it's going to last forever. We don't know exactly how elongated and intense the CapEx cycle is going to be. But this has been a bit of a sweet spot with an industrialist. Seema Modi. Seema, thank you. Appreciate it.

Let's hit DoorDash. It's taking investors on a wild ride today. The food delivery company initially rallying after reporting a revenue beat and then upbeat guidance, although its fourth quarter loss was wider than expected. Meanwhile, several analysts expressing concerns about how a potential slowdown in consumer spending would impact this company, something DoorDash's CEO addressed earlier on TechCheck. Listen. The consumer is weaker this year than they were last year, and that's because there's been several quarters of persisting relatively high inflation. And so we're certainly cautious. And all of this is built into the guidance. Quite a turnaround, Mike. Stocks down 7.5% now. Yeah. And I do think it reflects a few things. One is, naturally, the stock is up huge off the lows, up 50%, like a lot of these high

growth stocks that had been really killed last year. I think the company itself in its report pretty much has control and a good story to tell on things under its control, like, you know, the subscriber business and overall volumes. But there's a sensitivity to what's going to happen to growth rates, given the fact not just that consumers might soften up, but it's an expensive stock. It's all about the cash flow to come in years out, not right now. It's still pretty like 20 times EBITDA cash flow right now. What I did find interesting is the tone that the company struck in its shareholder letter, basically telling investors we are going to focus on free cash flow per share as their long-term metric. And historically, for all companies, that is a very closely tied to shareholder performance and shareholder reward. So I think that's a good

message. You're going to have to buy back a lot of stock to offset stock-based compensation and all the rest of it. But in the near term, it is all about just the pacing of how the consumer acts right here. They already have 50 percent of the market domestically. So there's going to be growth sensitivity and valuation sensitivity even when the company does the right thing. Mike, I just want to point out the move here in consumer stapled utilities and health care because they're all working today. They all worked last year in terms of outperformance and took a backseat as the market expected the Fed to pause, perhaps the Fed, the economy to go into recession. Two things that we're questioning, you know, this year so far about whether whether there's good values here if you do think we're in for more turbulence.

Well, if you absolutely believe that we're in for more turbulence and the economic cycle is on borrowed time and treasury yields are going to stay pretty tame, then, yeah, you would expect that would provide shelter. And I do think that that's been the day to day argument in the market is whether in fact that's the playbook for this year and therefore the underperformance of defensive stocks have given you a way in or if in fact right now the cyclical leadership is actually telling a better message right now. So I think on a one day basis the pullback in Treasury yields from the highs has just allowed them to bounce a little bit. Utilities have been pretty weak coming into today. So hard to say that today changes the overall conclusion you draw from it. Energy getting hit really hard. It's down 3.5% as a sector for the week. It's down almost 7%. What are you seeing overall in the market internals?

Yeah, definitely on the softer side today, Sarah. So we did start lower. We were down close to 1%. And you do see more declining volume versus advancing volume. But on that point of somewhat cyclical leadership, look at the Russell 2000 small caps on a week-to-date basis relative to the S&P. You see it still kind of opened up a little bit of a lead here, also outperforming on a year-to-date basis. So there is a bit of a risk appetite that's at play in the markets. The volatility index now in the 20s, or just over 20 right now.

So we're up off the lows near 18. That makes sense. We're starting to brace for maybe a different Fed message and yields are on the move, but still kind of bumping along the bottom end of that one year range, Sarah. Mike, thank you. We'll let you get ready for overtime, which I know you're hosting today. Thank you. I appreciate it. Let's talk about retail because it is retail's turn in the spotlight. A rush of big earnings out next week. The list including heavyweights like Walmart, Home Depot, also smaller players like Overstock, Wayfair, TJX, and Etsy. Those reports will give us some insight here on consumer spending and sentiment. Melissa Repko joins us now.

What are the expectations at this point, Melissa? The overwhelming message I'm hearing from Sarah is that investors expect a more cautious tone. They expect that retailers will set the bar a little bit lower and will also have a lot of cautious expectations when it comes to CapEx and things like hiring, that they're going to be really careful about the way they plan for the year ahead. And some of them may also tout that they will have healthier margins in the year ahead. Remember, looking back over the past six months, a lot of them have been hammered by excess inventory and also have been paying higher for freight. So as that recedes, perhaps even as sales rate slow,

still they'll have healthier margins. So that could be the good news here for investors. Is it still, Melissa, a case of COVID disrupting this retail business? Like if you're in electronics or apparel or home goods and furniture, you're hurting right now versus those that are more tied to the consumer staples, the groceries and the services? I think the story is actually becoming more about inflation

and less about COVID. So people are thinking a little bit differently about how they're spending money because the budget may be changing and their priorities are changing. Because as the world opens back up again, we're seeing services really come roaring back. And for retailers that sell goods, that may not be good news. In January, we saw stronger than expected retail sales, but it's important to note that that was led by restaurants and bars and the sales seen there. So that could come at the expense of some of these retailers that are planning for the

year ahead as they sell things and not selling food and drinks and travel. Yeah. Walmart in particular, what are the analysts looking for there? Well, for Walmart, one of its huge advantages is it sells necessities. It sells groceries. You know, it's really a powerhouse in that area, and that could really help it. Another important thing to listen for is progress that Walmart is making

with alternate revenue streams like advertising. That could help with its margins as well. Walmart shares up 1.5%. Melissa Refko, thank you very much. Thanks, great to see you. For helping us get ready for those retail earnings. Great to see you as well. Just want to show you a deep dive here into the markets as we head into the close. The S&P 500 down a third of one percent. There's the Dow.

It's up a third of one percent. It is outperforming today. And that's because you have names like Amgen, the health care names, really. Amgen adding 73 points. Excuse me. Amgen adding 40. UnitedHealthcare adding 73. McDonald's, J&J, Merck, P&G. That's what's working today. What's dragging on the Dow, Microsoft, Home Depot, and Chevron. Home Depot reports earnings next week. A third of 1% lower on the S&P 500. Staples, utilities, healthcare, industrials, and financials are all higher. Into the close, you've got energy, technology, materials, all these sectors with a 1% decline. Communication services also lower. But on the week as a whole, you are seeing the NASDAQ outperform. It's up six-tenths of 1%. While

the S&P 500 is down a third of 1%. There's the NASDAQ right now. What's helping the NASDAQ is Tesla. Tesla's having a rebound day. Amgen's in there as well, T-Mobile. But some of the big cap tech players are under pressure today. Microsoft, Nvidia, Apple and Amazon. What's also getting in the way here could be higher treasury yields, a little bit firmer. Actually, they're a little bit lower right now. Higher treasury prices and a stronger dollar, which is sort of reasserting itself here this afternoon. It could be weighing on the trade. You've also got some of the winners of this year a little bit under pressure, potentially taking a breather,

as Mike Santoli said. Keep in mind, this is a year where we're still a lot higher for the market, and a lot of the groups that have been driving it were the hardest hit of last year. These tech names, the momentum players, that's what's working. Even the ARK Innovation Fund, which I was just looking at, having a good week and an overall good year and a rebound year. As we head into the bell, take a look. Dow up 127. It's near the highs of the day. Spent most of the day lower. No real economic data, but we're still trying to digest all those hot reports lately.

Hot PPI this week. Jobless spends below $200,000. Hot retail sales. That's going to do it for me here on Closing Bell.