Closing Bell - Closing Bell: Downbeat data and hawkish talk sinks market, Jack Lew’s economic outlook, Snap CEO talks user growth 2/16/23

Episode Date: February 16, 2023

The major averages gave up a failed comeback attempt following downbeat inflation and housing data, and hawkish fed talk. Former Treasury Secretary Jack Lew discusses what he sees in the economy, as some numbers show resilience while others show cracks. Snap CEO Evan Spiegel joins for an exclusive interview on the back of the company’s investor day presentation. Analyst Colin Rusch breaks down a big selloff for Tesla, after the automaker recalled more than 350,000 vehicles over self-driving software concerns. Plus the latest on crypto’s strong week, Shopify’s drop, and Labcorp’s CEO on post-pandemic plans.

Downbeat data and hawkish Fed speak sending the markets tumbling here in early trading, but we've come well off the lows throughout the session. We're actually at the highs of the day, still down across the board. 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. Down 140 on the Dow. Got as low as down 410 earlier in the session. We've been steadily climbing back ever since. The S&P 500 down four tenths of one percent. You've got every sector lower right now. Utilities at the bottom of the pack.

The Nasdaq down half a percent. Again, looking a lot better than how we were looking this morning after we got that wholesale inflation number. Another hot read on inflation. Ten-year Treasury note yield higher, 3.845. Coming up on the show today, we're going to unpack this week's muddled economic picture, what it means for the Fed's path, when we are joined by the former Treasury Secretary, Jack Lew. And then later, we've got an exclusive interview with Snap CEO Evan Spiegel, fresh off of the company's Investor Day presentation. We'll get his outlook for user

growth, his read on the digital ad landscape, and much more. First up, Senior Markets Commentator Mike Santoli here to break down all the action. At the market dashboard, and we were speaking about the resilience, really, of this market. Could have sold off a lot harder, given how we've come into it and some of the data. Another morning dip. It does get bought again, Sarah. You know, every day for the last two weeks, the low for the day in the S&P 500 has been within 1% of the 4,100 mark. And each time it kind of gained some traction there. We've actually up 1% for the week. So still managing to stay in the upper end of this range for now.

You see, it's been this kind of indecisive pattern since the end of January. But certainly holding most of what we got from the October rally off the lows. About 17%, 18% on a closing basis is where we are. And I think it could be because yields are somewhat tame, considering what could have happened with some of the Fed speak and with the PPI coming in hot today. Did not really make new highs with a two-year note yield. Did click to a new high.

Take a look at the higher beta, more aggressive, more volatile parts of the market relative to lower volatility stocks. This is a two-year chart now of the high beta versus low volatility ETFs. And we knew that we had a real fast start, people grabbing for risk, people trying to play a snapback in some of the more aggressive parts of the market. That's what we've seen here. I think the remarkable thing, though, is that over a two-year basis, you're now in the lead with the riskier stocks. You see by about three or four percentage points, even if you go to just 18 months, which is pretty close to the all-time high of the overall market, high beta is still ahead.

So you could say the market's running a little bit hot. Maybe it's getting a little overexcited in the near term and a little bit more disregard for safety and stability and fundamentals. But for now, that's also the mark of a risk-seeking market that tends to have those dip spots, Sarah. So what is it dependent on? Just the Treasury yields? Ten years stand below 4 percent? Whether yields stay well below the recent highs. Keep in mind, even though they've been going up for the last couple of weeks, we're well below the highs we saw in the fall. And then really, I mean, I think we're OK with incrementally adding potential Fed rate hikes at every six or seven weeks as the Fed meeting comes. But if it really seems like

they have to rush again and start going back to 50 basis point hikes, things like that probably can't handle it. And of course, the economy has been holding together well outside of manufacturing. And so that can't change either and have this market. There was a little talk about 50 basis points today from Loretta Mester of the Cleveland Fed. Not a voter this year. Mike, thank you. Mike Santoli. So the new economic data is painting a confusing picture for investors trying to gauge the economy and the Fed's next move. Look at today. We got producer prices, supplier prices really, which rose 0.7 percent in January, higher than expected, 6 percent higher than last year. This follows the hotter than expected CPI print, consumer price print, on Tuesday. But even with persistent inflation, consumers are still spending.

Retail sales jumping 3% in January, well above expectations. But debt is racking up. According to the New York Fed, household debt increased by $394 billion in Q4. That was the largest jump in 20 years. And then the housing data all over the map, too. Housing starts fell a seasonally adjusted 4.5 percent in January to the lowest rate. That was the lowest rate since June of 2020. But sentiment improved by the biggest amount in a decade. Joining us now to make sense of all of it is the former U.S. Treasury Secretary Jack Lew. Welcome back. Good to see you.

Great to be with you, Sarah. So how do you read all this data? Some of the really important ones like inflation and retail sales and jobless claims today, all coming in better. Look, at the core of it, the economy is doing pretty well. And I know for markets, sometimes good news is bad news. But with a strong jobs market, a strong consumer, it's not a big surprise that it's going to take a little longer for inflation to come down to where the Fed wants it to be. I actually think that the markets got ahead of the Fed.

I never thought that we were headed for kind of leveling off and coming back down. If you're sitting at the Fed, if you're sitting making macro policy, you don't want to have to do this again. You want to get it right. But Cal is Fed. Yeah, and if you listen to what he's been saying consistently for the last six months, it's no surprise that they still have a little ways to go. And when they get to the destination, they'll stay there for a while.

You know, I don't know if they're going to move 25 or 50 once or twice or three times more, but for all of the news of the week, the question is whether the destination rate is just under or just over five. And where are you? Look, I think these numbers are stronger than had been expected.

There are also some lagging inflation indicators. Housing tends to lag in terms of when it comes through all the measurements. So they're going to have to wait and see. I think, in fact, they've given themselves room to kind of go 25 or 50 and still show determination that if they need to, they'll do it again. You know, if it were me, I would keep my optionality open for a few more meetings. Well, right. It kind of pushes back the whole pivot or pause excitement that the markets have.

I never thought that was credible. I've said publicly on many occasions, the market is ahead of itself. There's no good policy basis for turning around quickly. It's going to take a while. Monetary policy moves through the economy slowly. The Fed is going to want to see what the impact of everything that it's done is. And they won't see that the moment they hit what feels like the destination.

But that's why it's so surprising to see all of this strong data, especially in retail sales and jobs, because the Fed has done a lot of tightening. And all we keep hearing about is policy lags. When do those lags actually hit? The consumer is still in pretty decent shape. You know, there's still, you know, the measurements I've seen range from a one and a half to a little more than that trillion dollars of excess savings, savings that were built up during the pandemic. It means that there's a little bit of room for the consumer to kind of keep spending before they pull back. Until people start worrying

that they're going to lose their job, it's not the moment when you're going to see the consumer pull back quickly. I think we will start at some point to see a slower economy, and we will start at some point to see unemployment growing. With a little bit of luck, it could avoid a recession. And more likely, it's going to be bumpy. And with unemployment below 3.5%, there's some room for some bumps to still have what will look, in retrospect, as a good landing.

Well, the other thing is the financial conditions have improved so much. That's why sentiment in housing is up, right? Because mortgage rates have come down. Mike showed us the momentum stocks, which are gaining Bitcoin, is up. Does that sort of stuff tell you that the Fed has more work to do? Look, I'm not sure that the markets tell us what the Fed has to do. I think the markets have been a little off in terms of what the Fed had to do, just thinking they were done well before they were done, thinking they would turn around before they're going to turn around. I think that inflation is slower than it

was. The economy is remaining stronger than everyone expected. It will slow down some. Do they have to go up a little more? Are they going to have to stay there for a while? It looks like that's probably yes. I don't think it's a radical change of either direction or magnitude. It's on the margin. I wanted to ask you about President Biden's recent, I would say, ramp up of populist red meat when it comes to billionaires, for instance, the new billionaires tax. We talked about it yesterday with billionaire investor Sam Zell. Just listen to what he says about this. The idea of taxing unrealized gains is crazy. I think that putting people who are successful at risk of liability and no cash makes no sense whatsoever. And I think it would have a significant impact

in how you think about investing. Do you agree with this new plan? We have a fundamental problem that great wealth and asset accumulation goes untaxed in this country because it's very easy to do estate planning to make it so that you don't pay taxes on capital gains and the accumulation of much intergenerational wealth. It is challenging to have taxes that hit wealth

before there's a liquidity event. Right. You can't tax unrealized income. I think that we do tax unrealized income on your home, your property taxes, taxing unrealized income. So we have figured out how to do it on the asset that everybody has. I think it's a bit extreme to say there's no way to do it. I think it's challenging. I have believed that stepped-up basis, for example,

in taxing the appreciation of assets is a critical thing in terms of raising our tax base and reducing inequality. Whether you do that at death or on a regular basis is a technical question. I don't disagree. It's challenging, but it's not impossible and it's not crazy. Now, now, Bill Brainerd will will get to join President Biden's fight against Republicans on the debt ceiling. The White House says it doesn't want to negotiate. Republicans want to cut spending. How do you see this playing out? Well, first of all, there ought to be an agreement that we won't default. There should be no threatening that if I don't get my way in a fiscal negotiation, We're going to put the US economy into chaos.

I think we learned in 2011 that you get to the edge of the cliff, you don't know if you're going to fall off it or not. So there's been way too much comfort that this is all going to work out because it's always worked out. In 2011, we got closer to a default than ever before, and we didn't know if we had a way out until the very last minute. You don't know when the very last minute is. So they should do this, they should do it soon, they shouldn't wait until they're a week away. The separate

question is, should there be a discussion about fiscal policy? Of course there has to be a conversation about fiscal policy, both in the short term in terms of what appropriations are for this year, and in the longer term, in terms of dealing with the accumulation of deficits and debt. It shouldn't be in the context of threatening default. They need to be separated. Well, I think everyone would agree with the point about the fiscal conversation.

Jack Lew, thank you very much. Appreciate the time. Good to be with you. And perspective always. The former Treasury Secretary of the United States. Look at shares of Snap having a strong start to the year. They're up around 20 percent. Stock is still down more than 80 percent from its 2021 peak. Coming up, CEO Evan Spiegel joins us for an exclusive interview fresh off the company's

investor day where Snap unveiled its roadmap for user growth. Dow's down 202. You're watching Closing Bell on CNBC. Look at shares of Manchester United moving sharply higher just in the last few minutes as Qatari investors prepare roughly $6 billion opening bid for the soccer club. That is according to Bloomberg. It's expected to be the start of a bidding war, with reports earlier today saying that Saudi Arabia's investment fund would also bid. The stock has run up big ever since word that it would be for sale. Shares of LabCorp are in the green today after beating earnings estimates but missing on revenue. It's a 9% decrease from last year thanks to foreign currency and a decrease in COVID-19 PCR

and antibody testing. Joining us now in a Closing Bell exclusive is LabCorp CEO Adam Schechter. Adam, it's good to have you back. Sarah, it's a pleasure to see you. Thanks for having me today. So are people still testing for COVID? How much have the numbers declined? So the good news is that we've had a significant decline in the number of tests for COVID. We've also had a significant decline in the amount of COVID-related work we do with regard to vaccines and antivirals. The reason I say that's good news is because that means that the country and the world is getting past the COVID pandemic.

At the same time, we're seeing our base business increase and show real good signs of growth. So back to 2019 levels pre-COVID for the regular testing that we get done? So if you look at our regular testing, we're actually seeing increased levels from 2019. If you look at what we reported today with our earnings, we saw a 6% growth in our base business if you put aside COVID testing. If you look at what we provided guidance for for 2023, we see 10.5% to 12 and a half percent growth for a diagnostic business, and we see five to 7% growth for a drug development business.

So I'd say we're really back on track showing strong growth in our base business for both segments. Where are the new innovations coming from, Adam? What has you most excited when it comes to testing for new diseases and illnesses? I'll tell you, there are so many exciting scientific and technological advances that we're working on. Whether it be liquid biopsy where we're trying to work so we can

diagnose cancer from a simple blood test to things in Alzheimer's disease, autoimmune disease, rheumatoid arthritis. You know our business is based upon science, innovation, technology, and I believe we have some of the best scientists in the world working on these disease areas. I was going to ask you about the liquid biopsy for cancer testing, because Grail, Illumina's Grail, has been doing that and is trying to ramp that up and get it more into the mainstream. There's going to be competition coming, exact sciences. So are you partnering with some of these companies? How do you do that? And when does this become a standard of care where we go get a blood test to see if we have cancer?

So it's going to take some time to validate these blood tests to ensure that you get the most accurate results. But I believe over time we'll be able to get there. We have our own internal development for these liquid biopsy tests. We just launched a new one that was developed by a company that we acquired last year called PGDX. But at the same time, we are looking to partner with other companies. What we want to do is bring the broadest set of offerings to the patients and the physicians in oncology. And I think with all of our diagnostic testing capabilities, with the new innovations that we're working on ourselves, as well as the partnerships that we're putting in place with others, we'll be able to offer the broadest range of oncology diagnostic tests that the world can offer.

Keep us posted. Adam Schechter, thank you very much for the update. Appreciate it. Yeah, nice to see you. Thank you. You too, from LabCorp. We've got some breaking news comments now from St. Louis Federal Reserve President James Bullard. Steve Leisman has the details. Steve. Thanks very much, Sarah. St. Louis Fed President Jim Bullard saying that he can't rule out a 50 basis point rate hike at the upcoming March meeting. And he said he advocated for one at the last meeting as well. I'll read you some other comments that are now on the wire here, reading wires from Reuters. He says he sees a policy rate in the range of five and a quarter

to five and a half percent as appropriate. I can tell you that I know he has been at that level, which, as you know, is a quarter point above the average Fed official. He does see the drop in long term yields as confidence that the Fed will fall, that the inflation will fall, and less need for inflation, sorry, inflation premium inside of Fed rate hikes. So he's the second person, Sarah, to kind of advocate for this and to acknowledge that he advocated for it at the last meeting. Loretta Mester, Cleveland Fed president, also saying she wanted a 50-basement rate hike at the last meeting and saying the Federal Reserve can accelerate rate hikes if necessary. Not much impact in the bond

market, which as we've been reporting, has already sort of started to think about the idea of an extra quarter point maybe going into June or perhaps being down to 25. But the stock market did indeed fall off on this news. Last I looked, Sarah, it was worth about 20 points to the downside for the S&P 500. Is he a voter this year? Because I know Mester is not. And I'm just wondering if any of the voters have talked about 50 basis points. I think Jim was a voter last year, Sarah, if I'm not mistaken. I did not update my. I don't think he's a voter this year. But, you know, as you know, Sarah, the dynamic of the board that may or may not matter all that much in the sense that the objective is for the board to more or less come to consensus and that, you know, people who are dissenting is very rare in the board. So it is interesting that there is this wing that wants to do more now. Bullard, you know, Sarah, has been an advocate of this front-loading

idea. He thinks front-loading of interest rates has been really helpful, as the chair has as well, by the way. The idea of front-loading rates has helped the Fed get further in front or at least catch up to the inflation problem. Well, yes, it would be interesting if the center of gravity moves a little bit toward the 50, or if we see some hawkish descents at some point. Steve, thank you. Steve Leisman. Let me just tell you, Sarah. Yeah. Sorry, just very quickly.

There hasn't been much change in the probabilities that we're looking at here. It's still 87% chance of probability of a 25-base point hike. So the Fed funds futures market is not embracing this 50 at this moment. We're seeing a little leg lower, down 300 now on the Dow. Steve, thanks. In stocks, yeah. Let's check in on the markets. As we said, just a tad bit lower than we were, I don't know, 10 minutes or so. The S&P is down a percent, though it's been a down day all day, every sector lower. Ever since we got that hot PPI report,

wholesale inflation numbers came in better than expected, which is worse for the markets to see that higher than expected inflation. Just looking at where the pain is felt right now, consumer discretionary technology and communication services, those had been the best performing sectors for the week and really for the year. They're under the most pressure right now. Consumer staples and health care hold up the best. Snap's investor day just wrapped where the company announced it now has 750 monthly active million monthly active users, I should say. We'll talk exclusively with CEO Evan Spiegel about his message for shareholders when Closing Bell comes right back. Snapchat parent Snap just wrapping up its investor day at its headquarters in Santa Monica, where the company announced it now has 750 million monthly active users. They're also

expecting to reach more than a billion users in the next two to three years. Joining us now in a CNBC exclusive interview is Snap CEO Evan Spiegel, along with our very own Julia Borsten, who covers the company. Julia, over to you. Sarah, thanks so much. And Evan, thanks so much for joining us here today at your headquarters on the heels of this Investor Day. We really appreciate it. Julia, thanks so much for having me. It's great to be here.

So I want to talk, first of all, about these user targets. $750 million now, a billion in the next two to three years. There's so much competition for consumers' time right now. TikTok, first and foremost, among your rivals. What makes you confident you're going to hit that one billion number? When you think about the core of our service, it's really about visual communication between friends and family. And that's what has continued to drive our growth over time. Snapchat opens up into the camera where people can choose from all sorts of augmented reality lenses to express themselves and share those with friends and family.

And ultimately what we've seen over the last 11 years or so of building our business is that communication with friends and family is something that brings a lot of joy into people's lives and that they really like to do frequently. We shared today that in the United States, for example, people open Snapchat approximately 40 times a day on average. And that's really because they like to talk with their friends and family. So I think that communication, especially visual communication with friends and family, is going to continue to be a big driver of our growth. So there are two pieces of this that you're focused on.

One is the engagement and the other is the monetization. You talked a lot about today about this idea of shifting focus to direct response ads. Where are you in this journey of better monetization of your relationship with your users? Direct response has always been a core focus of our business. It's why it makes up about two-thirds of our revenue today. But it has been beset by some of the platform policy changes that disrupted the way that people measure and buy direct response advertising. So we've been working really hard over the past year or two to help people measure their advertising in new ways using things like our conversion API, for example. We've been making a lot of improvements inside the application itself to the way that people

engage with advertising, whether it's improving the performance of our web view to increase on-platform conversions or changing the way that ads appear in our service. And then, of course, we've been working very hard to recalibrate all of our machine learning models against those types of conversions and to focus more on last-click conversions, which are increasingly important to advertisers in this environment where measurability and observability has been impacted. I want to return to this machine learning conversation in a bit, but you mentioned today that you have a new team. You had the loss of two of your big executives who went over to Netflix, and it comes at a time when there's a lot of competition for ad dollars in this digital video space, which is really where Snap is. I mean, there's communication, but you have a lot of premium content with ads on it. How do you think of Netflix and some of these other streaming ad

platforms as competition for what you're going for in terms of growing ad market share? Well, when we thought about the evolution of our team, what was really important to us was to combine engineering, sales, and revenue product into one organization so that we can much more effectively go to market with a highly complex and technical sale. Selling direct response and advertising today is a very sophisticated process because for many of our largest clients, it requires custom integrations, for example. And so Jerry's leadership as our new chief operating officer has helped us combine engineering and sales and revenue product to better and more effectively serve our partners.

And as part of that, we've also regionalized our leadership. So we have three regional president roles, Ronan Harris in EMEA, Ajit Mohan in APAC, and we currently have the America's Role open where we're looking for America's president. to market is helping us better serve our customers all over the world and increase our average revenue per user in APAC and EMEA regions because historically we had more of a U.S.-centric focus that's driven a lot of our growth over time. So I'm very excited about how this new structure is informing our growth. And ultimately, what that structure reflects is a very different sales process and go-to-market than streaming video. Direct response advertising on mobile with full-screen vertical video, with conversion on platform inside the application is critically important to helping people grow their businesses and is differentiated when it

relates to streaming advertising, which is not necessarily bought in the same way or experienced the same way by customers. Evan, it's Sarah Eisen in New York. Thanks for joining us. Big picture question from me on growth. I was looking back at the numbers. So in 2021, you grew revenues 64%. In 2022, 12%. And this year, analysts expect the growth to be flat.

So what is that? Is that the macro environment what else are you facing here yeah our growth has certainly decelerated very rapidly from the beginning of last year i think at the beginning of last year we were you know prior to the invasion of ukraine we were growing around mid 40s in the mid 40s percent year over year and that following the invasion, of course, you know, the uptick in inflation and higher interest rates has decelerated dramatically. So we certainly are feeling the pressures of the macro in addition to, you know, things like

increased competition and some of the platform policy changes. So we've really been working through a number of really challenging circumstances for the business. But as you pointed out, the growth we've seen in terms of our community gives us a lot of optimism and excitement that as we work through these changes and we're better able to generate revenue with our community of over 750 million people around the world, that that will contribute to the long-term growth of our business. You just mentioned competition as one of the headwinds, and I'm curious if you could dig into that a little bit more. Is it still TikTok and Reels, and is that getting more fierce or better in some way? Yeah, we certainly have a number of

enormous competitors, whether that's YouTube or Meta, TikTok, as you mentioned. The competition for mobile video is going to continue to remain fierce and so that's why we're so focused on adding value in ways that's differentiated for our community starting with communication with close friends and family, immersive augmented reality in our camera and inspiring people to create and either add to their story to share with friends and family or of, of course, submit to Spotlight, which is our destination for more entertaining video. That's grown 100% year over year in terms of time spent last quarter,

and that's something we're really excited about. But kind of taking a step back, if you think about the overall depressed rates of growth for advertising as a whole, that means that as that pie is smaller, competition is fierce. And so we're really focused on taking share through direct response advertising, which through this period of time continues to grow for us in the last quarter. And that's because it drives a measurable return on spend for advertisers. One thing that you've been very good about is giving very detailed updates about where you see the advertising market in the moment. And you gave an update for the first quarter just based on the first couple of weeks of the first quarter.

That was a pretty wide range of between negative 2 and negative 10 percent in terms of first quarter growth. Where are you seeing things now? And what's your overall outlook for what the ad market is going to look like this year? Do you have any sense of whether it will rebound in the second half, which is something we've heard from other CEOs? Well, I think, you know, broadly speaking, we don't have any specific updates to share about this quarter. But broadly speaking, as you look through the year, the comps get a lot easier in the back half. And so I think when you're talking to leaders about, you know, how they're seeing growth in the back half of the year, I think folks are hopeful that the economic environment will stabilize a bit.

Maybe, you know, rate increases will pause. Some folks even think that rates could be lowered. I'm not sure if that's in the cards this year. But I do think just based on the much lower comps for a lot of digital advertising businesses in the back half, that makes folks more optimistic about what growth prospects could look like in the back half of the year. Yeah, certainly will be an interesting one to watch. I have so many more questions for you, but I'm so sorry we are out of time. growth prospects could look like in the back half of the year. Yeah, certainly will be an interesting one to watch. I have so many more questions for you, but I'm so sorry we are out of time.

Evan Spiegel, thanks so much for talking to us here at your headquarters on the heels of your Investor Day presentation. Thanks so much, Julia. Sarah, back over to you. All right. Thank you, Julia, for bringing us that interview from Santa Monica. By the way, Snapchat was once a CNBC Disruptor 50 company, and we are now in the process of accepting nominations for the 11th annual list of innovators. If you are a private venture-backed company, you can scan the

QR code right there on the screen or go to CNBC.com slash disruptors to learn more. Still ahead on the show, shares of Tesla taking a midday dive after the company recalls more than 350,000 vehicles over concerns about its self-driving software. We'll talk to an analyst about the potential cost for investors. When Closing Bell comes right back, we continue to go lower here, down 350 or so on the Dow. Just want to show you what's happening with stocks in the last 10 minutes or so. We've taken a leg lower. We're heading south down on the Dow now, 343 points. Low of the day was down more than 400 early in the last 10 minutes or so. We've taken a leg lower. We're heading south down on the down now 343 points. Lower the day was down more than 400 early in the session. That was

after the hot inflation numbers on wholesale inflation. The S&P is down 1.1 percent. Mike Santoli joins me. I'm sure the hawkish Jim Bullard, St. Louis Fed president, comments did not help. I think that was the push that we got in the last half hour or so. Coming after Loretta Mester from Cleveland also saying the same thing, which is they would have considered or voted for a half percent increase at the last meeting. They think maybe the Fed's going to have to be more aggressive, get short rates up toward the five and a half area. This is not out of the range of what folks were saying in December. Remember, that's the last formal outlook of the Fed committee. You did have members then saying that. I think we had a market that, you know, as I mentioned earlier, the low for the day every single day in the last two weeks has been 4,100 on the S&P, plus or minus 1%. Well,

here we are back right around that level, just testing it. You can look at this and say, well, the market has been essentially using up a lot of energy just to stay still over the last couple of weeks. Or you could say this is traction. It shows people are underinvested. They're buying dips because they believe the economy is in firmer shape. We are going to continue, I think, to face those tests for what's the yield level that really is relevant in the here and now to stocks after this run that we've had at this value. We're not even making new intraday highs, though, on the two-year yield. No, we're not. That's right. We saw that earlier this morning. And Steve mentioned earlier, the probabilities aren't changing. We're still at a high likelihood

of a 25 basis point exactly in March. But but the question is, does the conversation inside the committee and in the market change? Exactly. And it is it is all filtered through where the market has been and where there has been this real reach for risky stuff. And mentioned, you know, the high beta stocks get overexcited. So you're seeing that the Nasdaq is giving back some of the outperformance. Jack Lew said it was misguided. He thought the market was way too excited about cuts, about pauses. Well, probably, look, if the market rally is premised on the Fed's going to get dovish and we're going to get rate cuts in the back half of the year and it's going to be the

Fed to the rescue, I don't think it's justified. I really don't think, though, that we know for sure that it's mostly about that. I think it's about the Fed destination being in sight. We know where we're going to settle, where the highs are going to be in rates, and then maybe we get cuts from that point on. But I think the market recognizes that would require real economic weakness. It would require the labor market to suffer a lot, and I don't think that we're priced for that. So it's one of those things where it could just be you have a sturdier economy as one push,

and then you have a higher for longer Fed as the pull. Yeah, soft landing is helpful. Right. Fed pausing is helpful. It Fed as the pull. Yeah, soft landing is helpful. Right. Fed pausing is helpful. It could be either one. Exactly. No landing is tricky. Right.

No landing is tricky, which is what, I mean, stronger numbers gets tricky. Mike, thank you. We'll see you in the Market Zone in just a minute. Tesla is also taking a leg lower in these last few minutes, but the selling started this afternoon when the company announced a recall related to its self-driving software. We're going to talk to an analyst about that in just a moment. We are down now about almost 400 on the Dow. Again, every sector lower in the S&P 500, near the lows. Consumer discretionary

at the bottom of the pack. We'll be right back. We want to show you some pictures we are just getting in of Sam Bankman-Fried. There he is leaving a New York City courthouse just moments ago. He was there today for a bail modification hearing regarding his use of encrypted apps while out on bail. A judge asked prosecutors and Bankman-Fried's lawyers to send proposals on revised bail conditions next week. So we got a glimpse of him. I guess he goes back to California now, where he's been at his parents' home. Let's hit Tesla. It's sitting at session lows right now. The company announcing a recall impacting nearly 363,000 of its vehicles, warning its full self-driving beta software may be causing crashes. Let's bring in Colin Rush, senior

research analyst at Oppenheimer. He has a hold rating on Tesla. There have always been questions, Colin, about this self-driving software, whether it was really indeed that. How surprising is this recall? This isn't surprising at all. There's been a lot of debate and speculation around when NHTSA would get involved in regulating this technology a little bit more aggressively. This is certainly a collaborative effort between NHTSA and the industry. And seeing this sort of issue come up, given the accidents that have been well-publicized, is not a surprise. I think what's interesting is what ultimately is the cost to the company and to the brand. And it looks like the cost to the company is going to be not terrible here. They've got about two months to actually rectify this with an over-the-air update. And certainly, I think the brand has held up relatively well, even through

Elon Musk's acquisition of Twitter and the recent price decline given the demand activity that we're seeing right now. And so, you know, it will be interesting for us to see who actually signs up for the service as we get into the back half of the quarter and into the next quarter. And just to be clear, this is on the self-driving software, which is an upgrade in itself on Tesla. I think the number is surprising people. Tesla cars are not self-driving, right? Hasn't this always been kind of a weird gray zone in a marketing question mark? Yeah, it's an enhanced driver assist at this point with the option for the company to layer out an incremental functionality. You know, certainly the ability to navigate an urban environment is something that, you know, everybody's working on in this

space. And a lot of this is really around, you know, where the edges of the use case for the autonomous driving and self-driving functionality. I think what we're seeing here is that there's a lot of trial and error. And this is called a beta because it is a beta, right? And they're doing the testing out in the field, and that's where they need to be doing testing to get more information around corner cases. And they have a very active user base that's helping them do that testing right now. All right, Colin, thank you very much for your take on Tesla. Someone who covers it very closely from Oppenheimer, Colin Rush. We're going to go straight here into the closing bell market zone with the Dow down almost 400 points. CNBC Senior Markets Commentator Mike Santoli here, as always, to break down these

crucial moments of the trading day. Plus, Kate Rooney on both cryptos and Shopify on the move today. Mike, we'll kick it off with the broad market, which is selling off right now. We're seeing a more than 1% decline on the S&P. Consumer discretionary is the worst performing sector. That's Tesla and Etsy, which is down 8%. No real news there. It has earnings next week.

But a lot of the consumer names are getting hit. A lot of the tech names also getting hit, which had been holding up relatively well so far this year. The Microsoft, interestingly, Cisco is the winner in the NASDAQ today. How do you read the current sell-off based around some of these Fed headlines? I mean, a combination of, look, the market for two weeks has been trying to digest this big move we got coming into the year, and especially in some of the riskier parts of the market and the higher valuation parts of the market. So we have that going on on one side, confronted with a little bit of a move in yields.

Not so dramatic today, but the idea that we're having to adjust to a Fed that might be on alert to do more versus less. So all those things funneling together. Earnings in general, not a great earnings season. It's almost done. And yet we've kind of gotten through it OK because it's been more or less measured declines in first quarter forecasts. And people were able to hang their hats on the fact that a lot of it was priced in already. So I think that's what's going on. As I mentioned, 4,100 seems important, at least tactically, in this market for the S&P. I was saying after January, if it backs off to $4,000,

$3,900, that type of area would still look relatively normal in the pullback zone. But I guarantee you it would get people a little bit nervous because there's a lot of kind of newfound or tentative bullishness in this market because of how the market has behaved. So I think that would get to be a little bit of a gut check quickly. Yeah. And if you're just joining us, some comments from St. Louis Fed President Jim Bullard this hour, not helping sentiment. He said he would have backed a 50 basis point hike last meeting instead of 25 and that he would do so again in March. He's not a voter, but clearly that's where the conversation has gone. Loretta Mester of Cleveland Fed also said she would have seen the case for a 50 basis point hike at the last meeting.

Let's hit Bitcoin because it is holding on to gains today despite this late day sell off. It's now at 13 percent this week, hitting its highest level since August. And the crypto related stocks are having a strong week as well. Kate Rooney here. Is there a reason, Kate? Sarah, well, it does really go back to what you and Mike were talking about, these high beta tech names. Some of these stocks, Coinbase, Silvergate, MicroStrategy, they're on the extreme side of that higher beta tech play. They're also some of the most shorted names in the sector. So you've seen short squeezes play out. That's part of the dynamic, especially for Coinbase. And it's really seen low institutional interest. I'm told a lot of

this has been driven by record retail trading. So there's just a lot of risk going into some of these names. And like I said, really on that opposite side of the spectrum for Bitcoin in particular. Ironic that this is coming in the face of what has been, I'm told, just objectively bad news and bad headline news for the industry. A consensus here is I'm hearing that the worst may be over in terms of some of the incremental regulation we've seen from the SEC. It's not an all out ban. You're getting sort of these piecemeal either enforcement actions or pieces of suggested regulation. There's also some data suggesting that the opposite is actually happening. What I mentioned with crypto stocks

and that really being driven by retail when it comes to Bitcoin itself, there's some data showing that it's actually high institutional interest in some of what you might call the whale buyers coming in, dipping here and seeing an opportunity because it had been so depressed, especially last year. Yeah, that was always the question is whether they'd come back in and buy. Kate, we also want to hit Shopify with you because that stock is sinking, even though it had a surprise fourth quarter profit and a revenue beat. Investors concerned about the company's weaker than expected sales guidance. Earlier on Squawk on the Street, Shopify president Harley Finkelstein said he was surprised by the market reaction. Listen. We showed great growth on the top line.

We also showed growth on the bottom line. And all the while we're we're making these changes like some of these layoffs that, again, not fun to do, but that isn't necessary. We're taking our medicine because we want to be a long-term, you know, 100-year company. Shopify's fall taken down a lot of the e-com names today. I mentioned Etsy earlier. It's down sharply. Kate, what can you tell us? So the long-term trajectory here for Shopify, Sarah, really does seem to be intact right now. There were a lot of analysts that were surprised based on the fourth quarter. That's a strong holiday season. The near-term results are really what's causing some of the jitters here. So that offset some of the potential long-term strength. There's questions over margins. They've got a lot

of competition now with this buy with prime that Amazon is doing, questions about merchant growth. And then Shopify didn't give annual outlook. They gave outlook for the current quarter. But that was causing some fears in terms of what to expect going forward. And you can see it really sunk the stock this week and today, yesterday in particular. But really fears over struggling for profit, even though they have raised prices here, and what the slowing revenue growth is going to mean for this company. But again, had gotten a bit of a bid going into earnings and has been

one of those winners during COVID that got damaged last year and has sort of been all over the place. Very volatile. Absolutely. Kate, thank you. Let's stick with e-commerce. I mentioned Etsy. It is under pressure. There was a short selling report, Citron Research, claiming the company is one of the largest counterfeiting platforms in the world and can no longer defend counterfeit products as a small percentage of revenue. Mike, what do you make of this? Well, it's hard to know. First of all, if there's anything particularly fresh about this, or if there's going to be some kind of consequences related to any of these efforts or if it's just been one of these overhangs over the company that's really from its existence, you know, selling various goods that might be held by licenses somewhere else. I don't know if I read the current move down 8 percent. It does seem extreme relative to what

some of the other high growth baskets are doing. But a lot of these stocks are down a bunch. And you mentioned Shopify. And so it's all about where you're measuring it from. Off the lows in the fall or last summer, it's up a ton. Today, it's taken a big hit. Off the highs, still pretty rough. So I don't necessarily think this is going to be the thing that's make or break for Etsy, but maybe interesting that people want to get aggressive about creating a little bit of a skeptical thesis around this company that's not really about the macro and it's

not really about how the company is executed. I think the company would, I haven't talked to them about this, but would push back pretty hard against this as well and focus on what they're known for, which is their individual artisans and unique art, furniture, clothing, what have you, that you buy on Etsy. I mean, I could tell you that, you know, eBay for 25 years has kind of been in the crosshairs of a lot of this stuff and to what degree they have to stand behind, you know, the authenticity of various goods.

And I don't know, it seems like it's a pretty noisy area here to work through. Mike, as we head toward the close, you know, it's not an all-out sell-off. You know, you are seeing some strength communication equipment. Cisco's having a really strong day in reaction to earnings. You've got some of the health care names, fertilizers higher. It's not exactly like it's some defensive move or, you know, growth scare or anything like that. No, it doesn't feel like some kind of a big shock or a game over type day, but absolutely showing that there's been this comfort that we got in, as we've been talking about, dips being bought and the market seeming like it was kind of Teflon some of these short-term moves.

So we have an excuse to pull back a little bit here. You have the six and 12-month Treasury bills back above 5%. So a lot of the atmospherics here, I guess, contribute to this idea that we're taking a half step back. As I said, you can interpret what's been happening the last couple of weeks as the market churning and spending a lot of energy doing so, even though right now, as I said, you still have two, three percent downside from here in the S&P before you even have to say it's more than a routine pullback after the New Year. I know we hit it, but just to reiterate the data today, you know, producer prices coming in hotter than expected. Jobless claims under 200,000, just continued strong labor market,

no evidence of all these tech layoffs. And it does feel like the market waffles between cheering for good data as a sign of a soft landing or a better economy, better earnings, better market. And we're thinking that the Fed is going to have to do more for longer. Yeah, there's kind of no free lunch on either side of it. You also have the Fed index really come in below expectations. So that was a crash. You have this kind of hot, cold economy, manufacturing certainly retrenching. A lot of the leading indicators of overall activity seeming to point lower. At the same time, the consumer won't quit. Retail sales hot. Job market has no give in it, really. And so what does that mean for policy and for valuations? The top line and even the overall earnings base of the S&P is up a lot in the last couple of years. We're just barely off the peak.

And we've been up a lot, to your point, coming into today, which says a lot that today is the Dow's worst performance in about a month since January 18. It's been a strong period, and it's just down 1.2%. We've got two minutes to go here in the trading day. What do you see in the internals? And by the way, the S&P also flat on the week so far. So the internals definitely eroded here. They were kind of 50-50 in early afternoon. And now you have two and a half times as much declining versus advancing volume. I wanted to take a five-day look at the S&P really to illustrate that intraday strength pattern until today. Every one of these days, going back to

last Friday, you had, if you bought the open and held it to the end of the day, you made money. And you see they tried it again today, and we've given it back. We're essentially trading back to the morning lows right now. But that did show you had this kind of stickiness to the lower end of this range. It's been in place for a while. Volatility index is perked up. It's now back above 20. So you had a lot of folks that were looking to, by the way, a lot of heavy bets in VIX futures in this direction, too, in the last couple of days. People feeling like S&P looks like it's at the upper end of a range. Volatility at the lower end of its one-year range. And people are bidding to see if we get a little more turbulence maybe in the second half of February.

You jinxed it at the top of the hour when you said another morning dip bought. And then we head right back. Oh, I jinxed it. That's funny. You were telling me about that, too. I thought we were both agreeing that this pattern was very impressive. We both did. We were impressed and then we jinxed. And now we're back at the morning lows. Exactly. Mike, thank you. As we head into the close, there's a Dow. It's down 440 points. Microsoft, Amgen and Boeing are the biggest drags right now. 28 out of 30 Dow stocks are lower. Only Cisco and Home Depot are higher in today's trade. S&P down 1.4%. And as Mike said, that leaves us flat for the week so far, which just shows you how strong everything has felt. Consumer discretionary technology, communication services are your worst performing sectors. The NASDAQ down the most. It's down 1.75. It is breaking a three-day win streak. And you've got weakness in places like a Microsoft,

Tesla, on the recalls, Amazon, NVIDIA, Apple. That's all weighing hard on big tech. That's it for me on Closing Bell. See you tomorrow, everyone.