Closing Bell - Closing Bell: Fed Reaction & Analysis 12/18/24

Episode Date: December 18, 2024

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

Welcome to Closing Bell. I'm Scott Wapner, live today from the New York Stock Exchange. The final Fed meeting of the year, officially in the books now, after another 25 basis point rate cut. Most importantly today, the Fed did reduce the number of cuts it projects over the next year to an average of two cuts in 2025. That's down from four previously. Chair Powell saying, pretty frankly, that inflation has underperformed their expectations since September, calling it the single biggest factor in today's decision and its outlook. There was also a dissent today from Cleveland's Beth Hammack. Fed Chair Powell saying during the news conference we just watched, as you heard,

the economy remains strong, the labor market solid, consumer spending resilient. And given all of that, Chair Powell also said the Fed can be more cautious as they consider further moves. Some are certainly going to read that as a pause is now coming. Stocks, well, mostly higher ahead of the decision, decidedly lower at this moment. As you see, we are down by more than 1% for all of the major averages. NASDAQ is down by more than 2%. Yields up the dollar, a very big spike there. And that remains a very big story that we will follow over the remainder of the trade today. For more, let's welcome in DoubleLine Capital CEO and CIO and founder Jeffrey Gundlach. Welcome back on What's Become a Tradition. And I'm glad to have you, Jeffrey. Good to be here, Scott. Your reaction

on what you just heard and what the Fed did? Well, there's a lot more confusion now than there was a couple of months ago regarding the future path. But the squaring of the two-year Treasury yield and the Fed funds rate is now complete. I talked several months ago about the Fed was behind the curve and needed to get aggressive in getting more in line with the two-year Treasury but now the two-year Treasury is at 4.35 and the Fed funds rate is at 4.38 if you take the middle of the range so they're exactly there. Underneath the surface though there were a couple of problems. The first thing he said at the beginning of his press conference as always is they're squarely focused on their dual mandate. And then he used the word cooling for the labor market, and he pointed out that it's looser than it was pre-pandemic. So that seems to be not trending

quite the way they might want. And at the same time, he said uncertainty regarding inflation is clearly higher. In fact, I think he let something slip on an ad lib. And I think he said, let's see, he said the forecast from a few months ago on inflation seems to have fallen apart, I think are the words that he used. So what we have now is a neutral rate versus the two-year treasury, yet the dual mandate that they're squarely focused on is not exactly trending in the perfect direction. The inflation data points have not improved since the September meeting. We follow about 30 different inflation primary inputs, and the number that are showing accelerating

inflation in the several quarters ahead have increased since September. Also, what's very interesting about what's happened over what's been really a very aggressive cutting cycle. I mean, they've cut 100 basis points in three months. So that's a 400 basis point annual rate. And if you go back over all these Fed hiking cycles or cutting cycles, Fed cutting cycles, going back to 1984, so going back 40 years, this is the first time that after the first cut in the Fed funds rate that interest rates have gone up and not down. The 10-year Treasury yield is up by 80 basis points from September 18th, and usually the

yield falls on the 10-year Treasury once you go into a Fed hiking cycle. So the takeaway that I got from that press conference was there's not going to be an aggressive cutting cycle as a base case in 2025. Obviously, the market went from four implied Fed rate cuts in 2025 to now the Fed's down at two, and the market is pretty much in sync with that. So much slower rate cuts and of course risky assets and a very highly valued stock market doesn't like the idea that rate cuts are less likely on sort of both sides of the mandate. Our intention with the path that was so comfortably in place per the press conferences in the mid part of this year. The confidence just isn't where it used to be. So I think the Fed is now extraordinarily

data dependent as we enter 2025. I know they're always data dependent, but at this juncture, it's critical that we watch that unemployment rate, which Fed Powell said, that job creation is not high enough to keep the unemployment rate steady. So the base case is that rate's going up, which is not the direction they want. And at the same time, some inflationary primary inputs are suggesting that we're not going to get to 2%. I thought the last question that was asked in the press conference was a perfect ending. Kind of, is it really, is it good enough to be at 2.5% inflation? Do we have to give up on 2% inflation? You know, is where we are the best we're going to get? And my takeaway from that

press conference is the short answer to that is yes. I think that we're not likely to get to 2% inflation in 2025 and the Fed says so themselves. In fact, we'll probably start having inflationary pressures towards the middle of 2025 and the headline CPI rate will probably not be below 2.5% when the inflation rate starts heading up towards three. Now, obviously, all these things can change. We don't have great visibility on the second half of 2025, but unless the price of energy falls, which is possible,

with drill, drill, drill being the rhetoric of the incoming Trump administration, we'll see, but oil prices have been remarkably stable, and that's the real wild card is if they would go up for whatever reason, we would start to see significant inflation risk and there'll be no Fed cuts in 2025 if that's the case. Do you believe the projection of two cuts next year? How many cuts do you actually think they'll be able to do if you think that inflation is going to be even stickier than they may think? And they clearly think, as Powell said himself, quote, we see the risks as higher.

He called it, as I suggested out of the news conference, he called it the single most important thing that moved the needle today, the fact that their own inflation projections are higher than they were before. Yeah, I think looking forward for 2025, I would say that two rate cuts would probably be, I would say that's kind of on the maximum side right now, because I didn't hear anything really from that press conference that suggested that we're looking at rate cuts. I think you opened up by saying you might interpret what was said as there's a pause coming. I would say that that's absolutely the case, that I would say the odds of a cut in the January meeting are quite low at this point.

And I think that that speaks to the fact that they need a few months of data to try to figure out where their footing is right now relative to that dual mandate that they've been every news conference starts out with. We're squarely focused on it and they're not there. And it's moving in the wrong direction, I think, on both ends. So I would think that two rate cuts would be the maximum in 2025, surveying the landscape as best we can from here, middle of December of 2024. Their estimates have obviously been off in terms of where they thought the neutral rate was. Chair Powell saying today, quote, we are significantly closer to neutral now, obviously implying that they're close to being done because the neutral rate is much higher than they once thought it would be. Yeah, I take a lot of incoming, you know, unfriendly fire for my constant comment that the two-year Treasury is really the guidepost for the Fed.

But I deeply believe it, and I can prove it if anyone wants to spend 15 minutes going through some charts with me. It's been proven once again. They are basically neutral relative to the Treasury bond market pricing, the two-year Treasury. And he acknowledged that the neutral rate is higher. So it's fascinating what's happened. I mean, they've gone from this massive gap between Treasury yields and the Fed funds rate, and now with the Fed funds rate being down by 100 basis points and the two-year Treasury up

by 80 basis points, that gap is completely closed. So I think it's not illogical to believe that two rate cuts is, if anything, on the high side, as we survey, obviously, an uncertain landscape with a new administration coming in and the like. But I think two rate cuts is now sort of a maximum for the year, which is why we need to reprice some of the, you know, the P.E. ratios and the stuff that are to have been hoping for more than a rate cut or two in 2025. Well, we're repricing all right as we speak, at least in the stock market on the backside of what's happened today. Right now, the Dow's down 650. The Nasdaq is down

by two and a half percent. Our Steve Leisman, Jeffrey's come out of the room. I want to bring him in now, our senior economics reporter, Steve. The market reaction really tells the whole story. This was unequivocally hawkish today. He called the cut a, quote, closer call. He said inflation, the risks there, he sees them as, quote, higher and that they are closer to the neutral rate. What's your read? Yeah. The other thing that may be not apparent to people is that essentially not everybody obviously votes on the FOMC, but they do put their dots in. Everybody does. Who's even the non-voters and four of them wanted to hold rates steady today is a really interesting setup right now.

First, I want to put some numbers on what Jeff was saying. Scott, as I read this, and I'm reading this in real time, I do not see a second cut priced in for next year. I see the one cut, which is May or June right in there, at a greater than 50% probability. I don't see it for December. The most I can get right now for that second cut is something like 37%, 38%.

You can see that by looking at the probabilities. You can also see that by looking at the December 2025 Fed funds contract. There's the probabilities right there that does not go through, but only the one cut is priced in for next year. You don't have to take my word for it. But you can see that by looking at the December 2025 Fed funds contract, which is now trading at 4.01%. A little bit of this is curious to me, Scott, because the Fed did exactly what I guess I said Fed was going to do, which is the rate cut today and then project two more next year.

But I think there's an interesting thing setting up. Let's listen to what Powell said about how restrictive he believes the Fed still is now. I would say we are, though, in a new phase in the process, as I said. So and that's just because we've reduced we've reduced our policy rate by 100 basis points. We're significantly closer to neutral. We still think where we are is meaningfully restrictive. And I think from this point forward, you know, it's appropriate to move cautiously and look for progress on inflation. So he had said earlier that they're significantly less restrictive now than they were before, but still meaningfully restrictive.

And this sets up this debate. I'm going to call it Powell and the Fed against Gundlach and the markets, which is that if you think the Fed is meaningfully restrictive, as Powell says he is, then he's going to drive down inflation further and he can do further cuts. But Jeff, obviously, and the market itself, expressing some pessimism about whether or not the Fed policy rate is one that will drive down inflation further. I think that's the battle now for 2025, Scott. Steve, thank you very much. Steve Leisman, our senior economics reporter. Part of the issue, of course, Jeffrey, and you know the Fed chair was going to be asked about it, and he's going to be thinking about it as the calendar turns. To what degree is the new Trump administration's agenda inflationary in its own right.

They just don't know. Tax cuts. That's right. Tariffs. Stronger economic growth. It throws a real bit of uncertainty into their own calculus. It does indeed. I think Jay Powell tipped his hat to that concept.

I think he used the analogy of a room full of furniture that you walk into and the lights aren't on. You've got to watch out. You've got to walk more slowly. You've got to be careful and be feeling your way. So I think that's a beautiful analogy. I'm glad he used it, because I feel like we're back at that place again

that we were a little bit differently, but some of the same dynamics going on back almost three years ago when I used the Mr. Magoo sort of analogy you know with a car that's bumping into the trees and stuff because you can't see very well well Jay Powell just said they can't see very well right now and that's acknowledging what you just said judge and that is that who knows what's going to happen. It seems like Trump is angling for an inflationary-ish policy. Tariffs would raise inflation perhaps by several tenths, depending upon how they're applied, and we don't even know how that's going to happen yet.

And what's going to be the stimulus to the economy? Is he really going to be expanding the deficit, which would be really dangerous, you know, by having tax cuts? We already have a big problem. This is, we have rising interest rates. They're already up on the long end by, you know, over 300 basis points over the past couple, three years. And, you know, this is causing further pressure on the budget deficit, which I talk about all the time. But now that rates have gone up 80 basis points in a Fed cutting cycle, I think there's tremendous uncertainty on what's going to happen with inflation, the deficit and the economy. And the base case is one that is not going to make Jay Powell's job any easier.

Probably higher inflation through tariffs, at least initially. And the unemployment rate seems like it's heading higher per Jay Powell's own analysis. So it's a tough period now with assets as high as they are in terms of valuation. One thing that I think is interesting for investors now is it seems unlikely that you're going to get a big drop further in the Fed funds rate. And that means that we're back to attractive yields being somewhat sustainable, possibly, on things that are pretty safe and rates are high enough that they give and there are spreads that you can get a yield above inflation. So you go back to those double B bank loans, which were under pressure with the Fed cutting,

but now that the Fed is much more likely to be on hold, those yields, you know, they're pricing above a four and three eighths sort of a base rate. You put a couple hundred basis points on there and you're cruising along at about a 7% type of a yield without a lot of risk. And the chance of that yield dropping thanks to rate cuts is demonstrably lower today than it was a month ago, say. So there are real rates. Jay Powell is correct about saying that. The inflation rate is sticky. He says it's now going sideways at about 2.5 to 2.75 year over year.

But treasury yields are up at 4.5. So there is a real rate there, and you can get real rates of return out of intermediate dated bonds if you take moderate credit risk, and it looks like that's going to be earned for some time to come. So I think that there's a good environment for that part of the asset class. Go ahead, Scott. Forgive me for interrupting you, Jeffrey. You can't see it because you're looking straight into a camera, but you're looking at a market that is deteriorating as we have this conversation. We're down more than 800 points now on the Dow, near 2 percent, but it is the Nasdaq, Jeffrey, down more than 3 percent. That's a loss of more than 640 points.

If you look at the Treasury market, obviously yields, as I suggested at the outset here, are higher. You're at 450, Jeffrey, on the 10-year. You're at 435 on the 2-year. We've seen the dollar spike as well, which is going to be very unsettling to some, certainly multinationals, when it comes time for earnings. How should we think about all that? Well, we've had such a powerful run in risk assets since the Fed started cutting rates. You know, we had about a 10 percent gain in, say, the S&P 500. We had a loss of nearly 10 percent on 30-year treasuries. So it's a very unusual situation that the valuation has gotten that out of whack during a Fed rate-cutting cycle. So yeah, the market is clearly overbought. The P-E ratio, the CAPE ratio is up at 38. I mean, these are high valuations, and there's

a lot of overbelief in the market because it's been so good. And unfortunately, human nature is to project forward what's happened in the recent past, and particularly when it goes on for more than a few months. And so there's a lot of overinvestment that, you know, there's a lot of profits to be taken. Let's just put it that way. And so it's not surprising that what everyone expected, the so-called, it's kind of an oxymoron, but the hawkish cut. But I don't think they expected so much uncertainty to come out from that press conference on pretty much all sides of the future outlook. And what you're saying is there's a lot of uncertainty and who knows what the economy might have to experience. I think that all kind of

explains that there should be some sort of at least a short-term repricing. You never know. Fed Day can be a head fake. You never know. We have to see how the rest of the week evolves. But I wouldn't be surprised if we saw lower prices in the aftermath of this Fed commentary. It certainly is justified. 940, the loss now on the Dow. You said ahead of the election, Jeffrey, quote, if the House goes to Republicans, there's going to be a lot of debt. There's going to be higher interest rates at the long end. And it'll be interesting to see how the Fed reacts to that. We sort of alluded to this already, but I want you to go deeper on that because we obviously had the red wave in the election. And now we're trying to figure out where we're going to go from here and how the Fed is going to react to it.

You wrote a guest essay in The Economist recently as well, where you talk once again about your worry about the ever-growing deficit. They, being the administration incoming, think that they can grow their way out of this problem. Do you disagree with that? I think it's hard to grow your way out of the problem if you're doing nominal GDP that's really strong, because nominal GDP being really strong would mean higher long-term interest rates. And my thesis that we are in secularly rising interest rates now at the long end seems to be being borne out. I mean, here the Fed has cut rates 100 basis points and the 10-year treasury yield is up by over 80 basis points since that time period. So I think that you have a risk

that the interest expense on the debt is going to be really problematic in that nominal growth scenario. Because if you get so much debt that is leading to this nominal growth, you're going to have not just more bonds, you're going to have a higher interest rate on those bonds. And this is not hypothetical. It's happening in real time. The Fed has cut rates 100 basis points, and the 10-year is up 80 basis points over that time period. I think that has something to do with the market sussing out the fact that we have an interest expense problem. We used to pay $300 billion a year in interest expense and now it's $1.3 trillion a year in interest expense. And we still have all of these bonds that were issued in 2017, 18, 19, first part of 20, down at 1% interest rates,

they're being rolled over now at four and a half. And so it doesn't look like we're going to get a lot of relief out of that four and a half, because that's where the short rate is, and that's where the long rate is. And so we're going to continue with this interest expense problem. So I have a hard time believing that you can do this magic trick of high nominal GDP and low inflation and low interest expense. The arithmetic just doesn't add up. And that was that's that's kind of the point that's being made, that we've talked about interest expense problems for four decades since or three decades anyway, since Ross Perot did the voodoo stick on his infomercials. And of course, what I always say in the investment business and the macro economy,

things can happen as you expect, but will always take much longer than you think is humanly possible. So here it is 30 years later, 32 years later than Ross Perot, and he was right about a debt interest expense problem. He was just at least 30 years too early. It takes longer than you think, but I think the worm has turned here, and I don't think you can have a nominal growth solution. You need to have some sort of action taken on this expense issue, and I hope that this Doge, I don't know what you call it, it's a group of people I suppose, it's not a cabinet position or anything, but the Department of Governmental Efficiency, so-called.

I know they're not going to take a huge chainsaw to expenses, but hopefully this is a step in the right direction. At least we can start. I know you're not going to find hundreds of billions just laying there on the sidewalks that could be comfortably cut. But at least let's move in that direction. Let's start with not promoting Egyptian tourism with six million dollars of borrowed money from the U.S. taxpayer. Let's start there and then move more aggressively as we find our way. Down more than eleven hundred now on the Dow. So we're falling apart a little bit as the market tries to come to grips with what Chair Powell had to say, even as the market was pretty much set up for fewer cuts already, the Fed moving towards it. But I think the market trying to suss out, Jeffrey, what all of this means for the coming year and whether we'll actually get the cuts that the Fed is even projecting now,

whether inflation remains even more sticky than it fears. You told me last time that you like the intermediate part of the bond market, of the treasury curve, the so-called belly. What about now? Yeah. Well, I still like it. And it's not so much that I like the belly. It's that I don't like the long end. And you have to be somewhere. And so I don't want to own 30-year treasury bonds. I don't want to own 30-year Treasury bonds. I don't want to own even anything longer than 10-year Treasury bonds. There's no extra yield there for it. I mean, you're only getting 14 basis points going from two years to 10 years.

So I think you hang out in lower duration than an index fund, and you have a middle-of-the-capital structure type of a portfolio. This is what we've been doing pretty much all year, Scott. We've lowered our interest rate risk systematically, not in a large way, but systematically over the course of this year. And I think you can get yields that are in the 6% to 7% range without a lot of risk out of fixed income, but you want to do that not in long maturities. You want to do that in a portfolio that's sort of two to five to seven years at the most, so laddered out that

way. And I think you've had a pretty good year. There's plenty of fixed income types of products of this ilk that I'm describing that are up over 8% total return year to date, which is very substantially higher than index fund. And I still think that that's the playbook as we turn the year, although I do note that it's very interesting how often the market changes direction right at year end as people reposition for the new year. I wonder if we won't see interest rates start the year with a rise to the upside again as we did entering 2024, rates start the year with with a rise to the upside again as we did entering 2024 especially at the long end well i mean it's the most difficult thing to to project

you know here we are at the end of the year as you say no one wants to sell a lot of things although they are obviously today you have tax considerations to make but when you turn a calendar into a new year there could obviously be some selling related to that. Let me ask you about Bitcoin, because we haven't talked about that in a while and you've watched it like we all have. Country seems captivated by this move that we've seen since the election. What are your thoughts? Yeah, I think of Bitcoin as owning gold on substantial leverage, maybe even as much as 20x leverage. And gold has moved up a lot, and Bitcoin obviously has moved up a lot more, particularly in the aftermath of the election. I believe that both gold and Bitcoin, their strength has been a harbinger of skepticism regarding the fiscal path that developed countries are on.

And I think that that has probably been relaxed a little bit today, perhaps, but I think that the positioning in gold and Bitcoin will probably continue to increase. I view that people are viewing them as more asset allocations than speculations as we look into an uncertain future regarding the economy, the Fed, the pace of inflation, unemployment, all of this stuff. And the need for fiscal rectitude starting to become more clearly in focus, which I think will happen. So I continue to hold gold. It's quite high. It's not going to like this rise in the dollar. It's not going to like the fact that the Fed is less likely to cut rates. So in the short term, I think we'll probably see sideways movements in both Bitcoin and gold. Do you own any Bitcoin

at the current time? No, I've never owned Bitcoin. It's just not for me. I just can't stand investments that are that unanalyzable and that illiquid and that high risk, high volatility. It's really the volatility that I'm allergic to in Bitcoin. So I don't think I'll ever own Bitcoin until such time as we have a total regime change and we would actually have a cryptocurrency or a digital dollar, if you will. I think we're ways away from that. But if we ever get there, then you're going to be sort of forced

to play by the rules of the game. I always like to get your thoughts as well. Let's do this lastly on what the best looking portfolio should be right now. You you have not often suggested 60 40. You suggested the breakdown should be smaller and in different areas. So given what we know today, the kind of year we've had in stocks, where you think we're going in terms of yields, what you said about the dollar and gold and Bitcoin. What do you think the right portfolio breakdown looks like right now? I think now you should be increasing cash because the yield on cash appears not to be going away. So it looked like there was a chance, you know, that we would have a shrinkage in the cash yield, but that's not likely to

happen based upon today's press conference. I would actually hold about 30% in cash right now because you're not giving up much yield versus other assets that have volatility and risk. I like that bond portfolio that I described obviously because that's how I'm managing my money and my client's money. And I would have half of my money in that and about 30% in cash waiting for volatility to give you better entry points and to risk your assets. And then 20% I would own in basically at this point, I would own U.S. stocks at this point. It's not a very high allocation, but I think that U.S. stocks continues to be supported by the strong dollar, which should maintain for some time now that the interest rate differential is likely to stay in the dollar's favor as we move into 2025.

Jeffrey, we're going to leave it there. I so much appreciate this past year visiting with you every Fed Day. I know our viewers do. I certainly feel smarter after talking to you after one of these decisions and that news conference. And I look forward to a new year of doing this.

Happy and healthy 25 to you. Same to you, Judge. And good luck, everybody. Happy, healthy holidays. And let's have a great 2025. All right. There you go. That's Jeffrey Gundlach, Double Line.

We'll see you on the other side after the new year. We are in the market zone here on Closing Bell. Hightower Stephanie Link and CNBC Senior Markets Commentator Mike Zantoli here to break down these crucial moments of the trading day. It's great to have you both with us. Step up. Go to you first. 963 is the decline as we speak on the Dow, but it's pretty broad-based. Very broad-based, but remember, we're still up 23% year-to-date,

so we have had a great year. But this was not the meeting that we wanted. This Fed, I mean, it was a hawkish cut. Not only that, but they said it was a close call. We all expected 25 basis points, but the close call, you mentioned there were four that did not want to cut, that don't vote, but they didn't want to cut. One dissent, that's number one. Number two, I mean, four cuts to two, I think, was kind of expected. Some thought maybe three.

But then again, he talked about, well, the reason we're not cutting as aggressively is because inflation is too high. Well, then that begs the question, why are they cutting to begin with? And I thought he was very confusing in terms of the labor market. He went back and forth. Is it hot? Is it cold? I don't know. So the point being is, why did they cut today? And are we now going to have to think about next year them not cutting at all. And that's what the market is digesting. I mean, he was explicit, Mike, really, in saying that he doesn't see a hike as one of the possible outcomes. But the point was made today, you just don't really know. And they don't really know. They just don't know what inflation is going to do.

It's been stubborn, slightly stubborn, I think, is how he characterized it. Well, you never know. And he always tries to wave you away from the summary of economic projections. But the reality is there's a lot of dissonance in there. All right. It's tough for saying. So they're saying year end PCE only gets down to two and a half percent. Yet somehow there's two cuts in there. And yet four people said don't cut today, even before we get down to two and a half. And so naturally, as you get toward neutral and you start to have both mandates kind of almost have this interplay where it seems like they're working against each other, then the market has to throw up its hands. Now, the market was also

in a very brittle spot. That's right. Super narrow. The Nasdaq 100 is getting crushed right here. Tesla down 7 percent after being up a few percent. So all that mechanical stuff looks very short-term, like a systematic sell-down, a liquidation, because you had the VIX jump to 24. I said earlier, very wrongly, that the VIX at 15 looked high based on the S&P being so static for a month. And that's clearly the case that too many people thought this might be a clearing event,

and we get a catch-up by the average stock. We're getting a catch down by the mega caps. All the round numbers are gone. Six thousand S&P. Yeah. Forty five thousand Dow. Twenty thousand composite. So we're going to reset. We're at the 50 day moving average in the S&P. So technically speaking, this could be your flush. This could be where you finally have people, you know, kind of lose a little bit of their hope for the short term. Not that much has changed. I think the big problem here, though, is if rates are going to be around this area, you're just not going to clear the housing market. OK, mortgage rates are above 7 percent, which the Fed chair himself called weak. Exactly. And so I think no more cuts is perfectly fine if everybody had maximum confidence of the durability of the economic growth trajectory. But you're still at about 3% GDP growth without housing.

That's number one. But I think the consumer is still in fine shape, and that's the bulk of the economy. That's what we care about. You used the word resilient when you were talking about consumer spending. Because that's what the facts are. But on the other side, I'm a little disappointed the yield curve is flattening, too, right? So that's starting to go against what I was thinking. We want a steeper yield curve for a lot of various different reasons, and that's not happening.

But it is bearish steeping, meaning the short-term yields are going up a lot because you're just taking cuts away. One of the issues, you know, you mentioned it, Mike, about some of these stocks that have gone up a lot. Broadcom is down 7 percent now, up like, you know, 25 percent since Friday. Some of it got a little bit asymmetric to the upside when you look at what the fundamentals were. And that's a good case study to look at. You own that stock. Oh, my gosh. I mean, it was ridiculous. It was up 41 percent in three days.

And it was a fine quarter. Guidance was better than expected. It has lagged Nvidia. So I think you had some selling Nvidia, buying Broadcom. It's a great story long term, but my goodness, no way did it deserve to be up that much. So what do I do now? I mean, what do I think about for the broadening of the market, which you've been making the case for very consistently, that you don't have to necessarily stay

in the largest stocks in the market. You can go down the market cap scale a little bit. I've got the Russell here down almost 5% today. NASDAQ, obviously, the most rate-sensitive areas of the market are the ones that are getting hit the hardest. So what do I do? Right. So they have seen a blow off top for sure, especially the Mag 7. They've accounted for the entire performance in the month of December. Everything else is down 3 percent. So I would say you kind of migrate to other sectors. You stick with the themes. I still

do like housing, as you know. I still like cybersecurity, as you know. I think that reshoring is for real. It's a 20-year theme. That's still good to go. Aviation, pick some losers maybe that have lagged this year into next year. We've talked about Las Vegas Sands, Boeing. We've talked about Target. I mean, there's a lot of names out there that maybe they can hang in and they don't go down as much because they certainly have been the laggers. So that's kind of what I'm doing. I'm doing a little bit of barbell, Scott. It's tough

to do anything on a day like today. Energy, materials, health care, Mike, the biggest laggards on the year. You still have some big fat numbers out there. Tech up 36 percent as a sector. Financials, by the way, financials today getting hammered pretty good. If you're not getting any more help on yields and on the rate side, it does become very tough for financials. Again, it gets to the housing market. You have to create this new equilibrium on rates, valuations, and economic growth and inflation if that's where we're headed. I think you can take a little bit of heart in the fact that the majority of stocks have been pre-sold into today. We've been talking about how nasty breath has been for the entire month of December. The equal weighted S&P is back

to where it first traded August 30th. OK, the average stock has really retraced. There has been no post-election rally in the average stock at this point. Was it something like 91 of the 500 stocks in the S&P had been down? I mean, it's not to your point. You may have looked at the marquee and all the lights and thought this market looked great to you if you were focused on the Amazon new high every day and the Apple new high every day and the Alphabet new high every day. But, you know, you get the jackhammer out and you look under the street. By the way, we also are getting PCE inflation on Friday, right? Yeah.

And Powell did say the indicators actually could be pretty tame based on the pre-reports. So that might be the little exhale that we get on Friday. Who knows? You don't necessarily bet on that. I just want to say, you know, it's an illiquid time of year. Things can get exacerbated. But today seems like a little bit of an outsized response to an admittedly jarring thing where we thought the Fed was going to decelerate and we saw the break-lapse. Yeah.

Well, I mean, Jeffrey Gundlach said it himself. And you all know this and all of our viewers know it. You can't look at a Fed Day reaction and assume that it's going to be the start of something new. Which leads us to the bell, which thankfully is going to end this session, which is ugly across the board. The Fed did cut, but it was hawkish on the aftermath of that.