Closing Bell - Closing Bell: First Fed Meeting of 2024 in the Books 1/31/24

Episode Date: January 31, 2024

The first fed meeting of the year is officially in the books – along with the first news conference by chair Jay Powell. The question on everyone’s mind going in was when will the first rate cut come? We break down Powell’s comments and what it might mean for the market with DoubleLine Capital’s Jeffrey Gundlach. Plus, our all-star panel of Ritholtz Wealth Management’s Josh Brown, Sofi’s Liz Young and senior markets commentator Mike Santoli react to Gundlach’s big market calls and what it all means for your money. 

Welcome to Closing Bell. I'm Scott Wapner here. Post 9 here at the New York Stock Exchange. The first Fed meeting of the year officially in the books, along with the first news conference, of course, of Chair Jay Powell. The question on everyone's mind going in, when will the first rate cut come? Clearly, the chair was noncommittal on that. He did say in his comments a few moments ago that it will likely be appropriate to begin reducing rates sometime this year, that the hiking cycle most likely done. The money line of the whole day seems to be that question he got about a March cut in which Chair Powell said, quote, probably not the most likely case. Well, stocks didn't like that at all. They sold off

pretty quickly. That's pretty much where they sit now. You can see we've got one percent plus declines for the S&P, the Nasdaq and the Russell Dow has gone negative by about two thirds of one percent. Think the bottom line cuts in play. Who knows when? Who knows how many? That's probably just the way Chair Powell wants it to. So on that note, let's bring in Jeffrey Gundlach. He is the CEO, CIO and co-founder of Double Line Capital, joins us for our first Fed meeting of the year. Jeffrey, welcome back. What's your assessment of what you just heard? Well, you're right that the money line was we're not cutting in March as a base case. And I think that that's going to be the case because we have an inflation model. I've talked about this at every after every Fed meeting. And we knew that inflation was going to come down.

But for now, we think there's going to be a stall in the inflation rate coming down. And that will probably mean that the market isn't going to get the Goldilocks picture that it was euphoric about a couple of weeks ago. And that is that the Fed's cutting. It's going to come soon. It's going to be quickly. That's not going to happen. So I think risk assets got to a very high level of enthusiasm, It's going to come soon. It's going to be quickly. That's not going to happen.

So I think risk assets got to a very high level of enthusiasm, not just stocks, but things like junk bonds, bank loans, very, very high prices relative to where we've been on average over the past couple, three years. In fact, a lot of these markets are kind of back to where we were at the beginning part of 2022. And so I think that Jay Powell did a really good job of being candid, I would say. There was a lot of more, less hand-waving, I guess, and more statements. And the one on March was obviously the big one that tanks the stock market and got the bond market a little bit less enthusiastic, although the short end is still down significantly in yield.

So on we go to the next meeting, and we'll see what happens. But the baseline here is the market can't expect a rate cut in the next two or three months. Does March really matter when it comes down to it, as long as even the Fed chair admits they're likely to cut at some point this year? It's the trend that matters more than the date. Isn't that correct? That is correct. But the market really not very long ago was was pricing in March pretty heavily. And that led to very high valuations on a lot of risk markets. And the longer that the Fed stays at what is going to be about a 200 or 300 basis point real interest rate on Fed funds, there's risk to economic growth that's going to build as we move

into this year. You know, everybody knows that the employment market on the headline establishment survey looks really good, but there were a lot of downward revisions in the last employment report, and the household survey isn't as strong. And there's also data that never gets reported to the extent it should be, which is unemployment data that's reported on a state level. The states do this, too.

And they have 51 states. I think they have D.C. in there as if it's its own state. And something like 85 or more percent of those 51 state reports have rising unemployment over the last six months. So there's a strange mathematical inconsistency that the unemployment rate stays at 3.7 on the national house establishment survey, but over 85% of states report that unemployment is rising over the past six months. It almost doesn't seem possible. Now, the states that are not reporting rising unemployment are Wyoming, North Dakota, yes, Texas, I think Pennsylvania, but not California, not Illinois, not Florida, not New York. So I don't know, is unemployment really as low as we think?

With continuing claims arising, that's a leading indicator. Temporary employment is falling, that's a leading indicator. And the quits rate is now in every sector about the same as it was pre-pandemic. So this narrative of there's nobody quitting is just false. It's all the way back to where we were pre-pandemic. So I just think higher for longer is going to weaken the economy. And that's what you hear when March is, we have to see a big data change, which one should not expect. There's two data reports before March, but our inflation model doesn't, isn't looking for further relaxation in some of the key inflation measures. I just want to say one more thing about inflation.

And that is one reason to be optimistic past the next few months on inflation is that the PPI remains negative year over year. That's a leading indicator. And imported export prices, which are my favorite inflation measures because they're not adjusted in any way, those have been negative for a while now and remain negative year over year. So I think cuts are coming, but we're on a delay now. And I think that puts the market in a less euphoric position. I mean, if you look at the most important metrics on inflation, certainly to what we believe the Fed thinks is most important, employment cost index is falling. Expectations are falling. PCE is going well in in the right direction. So why not cut as soon as March?

The worst thing that they can do is now take too long to cut like they took too long to hike, isn't it? I completely agree with you, Judge. I think that's the issue that the market's having in the last half hour or so is there's risk that has been inserted into the marketplace relative to the Fed, because we were looking for six rate cuts based upon the pricing in the Treasury market using the WORP function, six rate cuts here in 2024. And you better get started pretty soon if you're going to have six. And now it looks like we're talking probably, I don't know, I'll just take a guess that the baseline right now is June on cutting rates.

And do you really want to get aggressively cutting in the five months or four months leading up to the election, the presidential election? I don't know. I'm skeptical that the Fed is as political as many people assume that they are. A lot of people have been talking about that. The Fed's always political. I think it's somewhere in the mix, but I believe Jay Powell is not terribly political, and he's been doing a really good job over the past, I don't know, year now of communicating. You know, it's the dual mandate, and now he's saying it's in balance and so forth, but he was crystal clear that the inflation rate has to stay at a level that resembles 2% or get near 2% and not go higher. And if that happens, there could be some real disappointments. The good news is I don't think it's going to go terribly much higher.

And another reason I feel that way is the Bloomberg Commodity Index just remains in a protracted downtrend. The 200-day moving average just keeps dropping, and it's below its 200-day moving average. So that would not be a catalyst for inflation. The last thing I want to say about commodity prices is with all of these tensions going on and saber-rattling now with Iran and retaliation and already wars in Ukraine and Israel, it's interesting that the price of oil doesn't really go up. That would be indicative of a weak-ish global economy. We know that Europe is acting like it's in recession. We know that China hasn't been doing well lately. So it looks like the demand for commodities and oil is waning, and it's overwhelming even some very significant geopolitical

tensions. Are you still calling for a recession? Because I thought it was notable where Powell, you know, a few moments ago, rather matter of factly said this is a good economy. And yesterday we had Ken Griffin on this network as well. He talked about Goldilocks, the potential of a softer either no landing and said the economy is, quote, pretty damn good right now. Are you calling for a recession still like you have been? Yes, I am in 2024. Yes, I am. And I want to talk about experience in markets. And I've got a lot of it being at this for over 40 years. And when I hear the word Goldilocks, I get nervous because when you hear people saying Goldilocks and everybody in the room nods their head in a north-south direction and everyone says, yeah, it's Gold year 1999, there was somebody that I worked with that was very aggressive in NASDAQ type of stocks. And he called the environment at the turn of 1999

into 2000, nirvana, investment nirvana. And I got a chill went down my spine. I said to myself, if this is nirvana, it means it can only get worse. It's like a triple A rated bond. They can only go in one direction. If you have nothing but triple A rated bonds and they're not guaranteed in any way, well, they can only get downgraded. They can't get upgraded. I feel that we're sort of priced for perfection when I hear Goldilocks language being bandied about. And today, Jay Powell took Goldilocks away, I think. You said a little bit ago that risk assets are pretty extended and you didn't limit that to equities. You mentioned parts of credit. So what would you do?

And I should also preface that by saying that I got a text a few moments ago from somebody who's on my investment committee saying buy bonds plain and simple. So what's your read on what the portfolio needs to look like, given what Powell has just done, seemingly taking March off the table, though even noncommittal? No one knows, truly. It's two meetings, two months from now. I think if you want to buy bonds, you should buy Treasury bonds and you should buy Treasury bonds like two years, three years, five years, maybe out to 10 years. But I do think bonds remain very attractive with the inflation rate maybe stalling out in terms of its improvement, but likely to stay lower. We have a high real interest rate. But during the months of November and December and

the first part of January, we had one of the best credit bond markets ever in terms of prices going up. Even the downtrodden started to rally in December. I'm talking about commercial mortgage-backed securities, which people would break out into hives if you talked about buying commercial mortgage-backed securities back last summer. Even those started to rally a lot. And really, I think in many parts of the credit market, things are overvalued because we've had this Goldilocks mentality. Spreads on investment-grade corporate bonds were in the top percentile of where they had been, which means they're the least attractive in the bottom decile of attractiveness. Junk bonds, on average, are in

12th percentile. So they've been cheaper than this 88% of the time. And the Fed is not really going to bail out risk assets in the near term, per Jay Powell's own words. So the real interest rates on treasuries appear attractive to me, particularly if the Fed is staying higher for longer and may, by that process, engineer a lower inflation rate than 2% by the end of this year, which would make bonds, treasury bonds, very attractive and lead to the Fed cutting interest rates. But unfortunately, that may be in the context of weaker economic growth and rising unemployment. So I like cash a lot now. I like defensive bonds. I like cash because I'm quite, I feel like there's, just as investment corporate bonds are bottom decile of spread, I feel like risk is really in

the top decile now in terms of valuation and problems. So I like cash because I think you're going to get better buying opportunities. You know, I've been talking about emerging market securities, stocks and bonds, but we remain underweight because we want to wait for the recession to come. And those areas have not been doing very well of late, thanks to China and thanks to slowing global economy. So I think you want cash to be able to get into that emerging market trade once the economy slows and perhaps goes into recession.

I think globally there are certainly many pockets of recession at present. But if we go into United States recession, I think we're going to see a buying opportunity and you want cash for that. And you can buy the two-year Treasury. That's sort of a cash surrogate. You don't have to roll it every three months. But on the shorter end, you're still getting five and a quarter on a six-month bill, and that's probably fairly attractive.

But I would want to have a little bit longer maturity just in case the rates start to fall and you have to reinvest at a lower level. But this is, for me, I'm in a defensive mode. When we talked in the November Fed meeting, I think it was November 1st, I talked about how I was pretty enthusiastic about things. But that has totally repriced since then. And so I'm sort of the pendulum's on the other side for me at this moment. It's been a different market.

Bear with me, if you would, Jeffrey, for a moment. Let me just update our viewers as well. We are almost at the lows of the session, just slightly off. Dow's down about 280. The S&P 500 is trading at 4853. Remember, it was just a day ago where we got the first ever close above 4900 as we headed into those mega cap earnings. We've given that up, obviously, with this move lower. S&P's down about 72 points.

Back to Jeffrey Gundlach in just a second. Steve Leisman's come out of the room where the chair was giving his news conference. Steve, you know, this is so interesting because the March commentary from the Fed chair clearly upset the market. You know, it almost feels like a Fed chair who's nine tenths of the way there of wanting to cut rates. He just needs one more jolt of inflation confidence to truly get there. And maybe March is just simply too soon. Yeah, I mean, Scott, very dramatic moves around stocks, around bonds, around Fed fund futures. I'll just show you one example of how things have been moving. You've been following the stock market. Look at the outlook of the probability for a March rate cut. It's come down 36 percent. We had been, I don't know, between the between the meetings as high as 80 percent. So hopes dashed around the world for that early Fed rate cut. But Scott, I have to tell you,

I was somewhat amused because I didn't think Powell was going to answer that question as detailed or as specifically as he did, because the story is this. I thought, like he said, he didn't say this, but I thought he could have said, if you haven't listened to everything we've said between the meetings, if you didn't listen to what we said in the statement, and if you didn't listen to what else has been going on, we're not cutting in March. Let's hear the sound from what Powell said dashing hopes for that March rate cut. Based on the meeting today, I would tell you that I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that. But that's to be seen. So I wouldn't call, you know, when you say when you

ask me about in the near term, I'm hearing that as March, I would say I don't think that's probably not the most likely case or what we would call the base case. Yeah. And Scott, I'll just leave it there, except for I'm sorry, but that is consistent with things that the Fed chair has been saying and the market has been listening to some extent, but not nearly as much as perhaps it should have been. He was, though, as you said, you know, more explicit. Let's say that he was more explicit than perhaps some expected him to be today. And that's one of the reasons why you've got a Dow down by more than 300. Steve, thanks as always.

Let me just add, Scott, I think that one of the things he said in response to the Nutri-Wake question was the idea that he does expect weakening in the economy. He says the strength we've had so far is supply and demand coming back in a better balance. He expects weakening, and that is the weakening, I think, Scott, that's going to precipitate the rate cuts. Yeah, that's a good point, as many that you've made. Steve, thank you. That's our senior economics reporter, Steve Leisman. I'll go back to Jeffrey Gundlach.

You know, Jeff, I thought it was also somewhat profound today and kind of underscored the shift in psyche, if you will, of where Powell and the Fed seem to be, because it appeared to, I think, everybody throughout the beginning to middle stages of, let's say, this hiking regime that they've been on, that they needed to crack the labor market to get demand down and then ultimately to bring inflation down, to where now Powell underscored a number of times today, we want to keep the labor market strong. That is a change of focus, clearly, for the Fed. Now they don't think that they need to unravel the labor market clearly to get inflation to target. Because I read you where the ECI is going, the cost index, of course, and where the PCE and expectations seem to be heading.

He also said, Scott, that the labor market is largely healed back to where it was pre-pandemic. Not all the way there, but largely there. And I think he's right about that on a lot of the data. And so it would be nice if the labor market didn't weaken and inflation would stay down at 2%. But like I said, 85 plus percent of states say unemployment is up over the past six months. I just wonder about all of this. Are these numbers real?

I don't know. But, you know, the JOLTS numbers used to get a lot of attention, the jobs openings. And people are starting to realize that that survey doesn't mean anything anymore because the response rate to the JOLTS survey used to be 75 percent and now it's something like 35 percent. to the JOLT survey used to be 75%, and now it's something like 35%. So is it really comparable to where it was a while ago? Are people dropping out of the survey for, I don't know, reasons, what reasons would they be?

I don't know, but it's not incomparable. So today we got the ADP number, and I think this is what got the bond rally going today, and what hurt the stock market initially, was the ADP number. And I think this is what got the bond rally going today. And what hurt the stock market initially was the ADP data was not great. Now, ADP data is notoriously non-correlated with the establishment survey that's coming out later this week. But it did seem to move the market because it was a noticeably weaker number. So we'll have to watch what happens there. I expect the unemployment rate is going to happens there. I expect the unemployment rate is going to go up. I think the unemployment rate is going to end this year higher than the Fed's

dot plot as of December. That's what I think is going to happen. And that's going to necessitate lower interest rates. And since we don't have those lower interest rates, even though the two-year Treasury was down at 4% with the Fed funds rate at 5 and 3 eighths. That's a pretty negative yield curve there from the Fed funds of the two year. It's not meaningless. This is going to have an impact. And the Fed staying higher for longer, I've talked about this for several months now, staying higher for longer is going to be bad for the banking system. And I noticed that we did have a little banking problem today, although I think it's isolated. I do want to talk about that, and I'm glad you brought it up because it's exactly where I wanted to go.

The level of concern that you would have today around the regional banking system relative to commercial real estate, a couple of bad loans at New York Community Bank, and that stock is having one of its worst days, if not the worst day it's ever had, down more than 37 percent. This could obviously put pressure on the Fed potentially to move sooner rather than later. How do you see that? It might. There's plenty of anecdotal evidence that particularly the urban office market in commercial real estate is a real debacle. I mean, there have been, there were loans underwritten on post-pandemic assumptions to a valuation on one building of $330 million. And it went into foreclosure and got sold out at $130 million. So that's a big haircut.

And these things take time. In investing, in the economy, everything. That's why I try to mentor the young people. Everything takes longer than you expect. You can see that there's problems in commercial real estate, but it will take time for those things to go from a theoretical loss to a realized loss. And those things are going to be happening. So there's consequences to money printing. There's consequences to higher interest rates. They just happen in slow motion relative to what people have patience for. But that, I think, is going to be the story of 2024. Speaking of money printing, I noticed many posts from you have laid on social media about the deficit.

Do you think markets are too complacent about that today? There was a moment a handful of months ago where it was sort of front and center. You know, rates had been moving higher on these concerns about funding the deficit and whether all of the supply was going to be able to be absorbed. And we sort of moved past that. As we said, we've hit new highs on the S&P heading into today. So what about that issue? Should it be of greater concern today than perhaps it is? Yes, it should be. But like everything, it'll take forever. I don't think that the 2024 election will be about the deficit. I do think the 2028 presidential election will be about nothing but the deficit because the interest expense is going straight up. We've added about 400, 500 billion dollars of interest expense per year already and we

have tons of bonds, like 17 trillion of treasury bonds, rolling off in the next 36 months. And if we're higher for longer, every day we roll these things over, the interest expenses going up, and we're getting to the point where we can't deny it any longer. Medicare admits that it'll be broke in 2030 using CBO assumptions. Social Security admits it'll be broke in 2032 using CBO assumptions. But those assumptions are overly optimistic. They assume no recession ever. They assume real GDP growth that resembles where we are overly optimistic. They assume no recession ever. They assume real GDP growth that resembles where we are right now. It assumes interest rates lower than what Treasury rates are today and assumes a deficit that's smaller than it is already today, even though we aren't in a recession officially. And so if you tweak those assumptions,

it's more likely that Social Security and Medicare go bankrupt in the 2020s than in the 2030s. And the last time I checked, we're midway through nearly 2020s. So this is going to be a really big issue. And higher for longer just brings it forward more quickly. And I think this is going to be the defining issue of the next six years. You know, Powell has had the benefit of having, you know, unanimous votes inside that room. There haven't been any food fights, so to speak, about where policy is going to be. Do you think we start to get dissents? And does it matter at all? It doesn't matter if there's dissents. I mean, it doesn't look good for the chairman, but ultimately it's Jay Powell's decision, I'm certain.

And I think you will get dissents. I think you'll get dissents certainly by the May meeting if rates are where they are at that time and left unchanged. I think we'll start to see dissents. I noticed that there were some letters sent by a bunch of Congress people to the Federal Reserve people saying, you know, you need to cut rates now. I'm not sure what that's all about. Maybe they want to get reelected. I'm not sure.

But I'm not sure what that's all about if everyone's crowing about this Goldilocks economy. And lastly, before I let you go, let me ask you about the dollar, because it's another, you know, asset class, if you will, that you've spoken about with me on numerous occasions. You had what was a weak dollar you had expected to ultimately strengthen, which, of course, it did quite substantially. So how does that play work now relative to what your view is vis-a-vis what the Fed chair said today and what you think they may do? It should sustain a relatively stable or stronger dollar because the market was looking for rate cuts and they're not coming, at least not in a couple of months. So I do think when the recession comes, the dollar is going to be very different than it's been in past recessions. In past recessions, it will always get stronger. This time, I think it's going to get weaker because of the policy response to the recession. One thing I want to say, I've

for a long time recommended India as an equity asset. The Indian economy is the strongest economy in the world. Their services PMI is over 60. Their manufacturing PMI is basically the most robust in the world. I think that investors should be using weakness if recession materializes and starts doubling up on the INDA, the Indian Equity ETF. I don't have a stake in it because I don't like to recommend things that would be in my funds. But I think INDA is a good investment for people looking to get equity exposure on weakness. It's my number one recommendation for 2024. All right. Well, that's a good way and a good place to leave this. Your insights are valuable. We count on them every Fed day. I really appreciate your time. We look forward to the next one, Jeffrey. Thank you. All right, Scott. Good luck. Yep. You as well. That's double lines.

Jeffrey Gundlach joining us exclusively as he does every Fed meeting. Right when the Fed chair finishes that news conference, you see Jeffrey Gundlach and you will continue to do that. Joining me now, Post 9, Ritholtz Wealth Management's Josh Brown. We'll get a quick comment from you before we broaden it out after a break. All right. What do we do? Well, look, I think Jeff came on in November and he was enthusiastic. And the only thing that's really changed from then until now is we had one of the best three-month periods in the history of the stock market. We did plus 19 percent. And quite frankly, we've done that less than 20 times over the last 100 years. The problem for the recession case is that on 16 of those 17 occasions,

not only did you not have stocks lower, but you had no recession. And in fact, the market was up an average of over 30% one year later. So I would have to hear the case for why this time would be different. If you think we had this $5 trillion rally in the stock market over the course of 90 days

over absolutely nothing, that's a really interesting story because that says to me, everyone's wrong and the last people still calling for a recession are right. They might be, but there's very little evidence. Everyone is working. People's bills are being paid.

The market seems fine. The economy seems fine. It certainly could change. And I think if we were going to interest rates of 6% to fight inflation, everyone would be singing a different tune. That's not what we're talking about. We're talking about the first cut moving from March to May. To me, it's a very big no big deal. Yeah, obviously, you know, a bit of a knee-jerk reaction in the market.

You stay with me. I lied. We're not going to take a break. We're going to get right to the market zone. And joining us as well, SoFi's Liz Young and CNBC senior market commentator, Mike Santoli. Liz, I turn to you. I'll ask you the same question that I asked Jeffrey. Does March really matter as long as we know cuts are coming?

Well, it matters today to the market because everybody seemed pretty sure that that's what was coming. To the angry algos maybe. Right, right. Well, I think the other thing about it is that the idea of a cut in March, it was pretty quick and it gave people this sense that we were sort of invincible because now cuts were on the table, they were gonna start, they were gonna backstop it, The put is alive again. And we wouldn't be able to go down because they're going to start cutting. So now we're sort of coming to reality of, all right, I think what he told us today was you haven't been listening.

I think Leisman was the one that pointed that out. You haven't been listening to what I've been saying. You haven't been reading the statements. I think he's been pretty clear from the jump, from the beginning of this hiking cycle, that they would rather stay too high for a little bit too long than cut too early. He has not changed his tune on that. The market continued to try to bully him into a different position. And today he said, I will not be bullied.

We call the shots. We're still going to have this debate, Michael. And I think, you know, Jeffrey alluded to this as well, as to whether whenever that cut does come, that first one, which the chair himself called a highly consequential decision, is it going to come for the right or the wrong reasons? Jeffrey's still looking for a recession in calendar year 24. Inflation continues to come down. What forces their hand, so to speak? Nothing forces their hand. And I think the bold case is that they can be bringing rates down just based on their stated framework.

Their outlook from the last time they delivered it was they thought inflation was not going to be as low as it is right now, and they thought growth was going to be weaker. So that leaves them room. There's a lot of room in here. What I heard from him sounded like a guy who just kind of didn't have the votes in the room. He felt like maybe we got to wait a little longer. Let's prolong this. I think that's fine.

I was saying last week, March to me is not make or break for the stock market, but there are enough people who think March is make or break that you have to clear them out of the market. Let them sell. Clean up the market. We're back to where we were at the beginning of last week in the S&P 500. We're well higher than we were when March was projected as an 80% possibility of a Fed rate cut.

We're down below 40. So to me, yep, it's one less thing, I think, that gives you a little bit of a cushion psychologically. And, yeah, the longer you wait, the more likely perhaps that you end up making a mistake and you end up kind of twiddling your thumbs while the economy does buckle a bit. So we're going to know more. I don't think he was going to front run six or seven weeks of growth and inflation numbers and say one way or the other whether it was happening. It was a surprise. He seemed to close the door on it a little more because probably that was the tone of the committee of the meeting he just got out of. Let's be clear, too, Josh. We lost the mega

cap cushion today going into Powell by virtue of this sell off that we had already seen throughout the day in most of the mega cap names. Now, nothing was all that substantial except for Alphabet, which was down about 6% or so. But we just didn't have that going into the meeting anyway. So an already fragile market takes a bit of a tumble on the idea that we're going to have to wait a little longer than March. Yeah. I also think that plugged into the servers that are in this room that we're in or other servers, they're in WeHawken, and they are programmed to make sales of high beta technology stocks if and when Jerome Powell says certain buzzwords. I know it sounds hilarious, but that's actually the truth. I wasn't joking when I said the angry algos. No doubt. So we all have seen this now many, many times

where tomorrow could be an absolute reversal of today. I can't promise that it will be, but envision, if you will, a scenario where we get the January jobs number, and we will, and that number underperforms expectations, which would be the first time we've seen that in a while. And then all of a sudden it's like, well, you know, maybe Powell was sandbagging a little bit and he just wanted to

look at January, February NFP before committing. And we're up 200 points on the Dow and the NASDAQ has a plus one and a half percent day. You're telling me that would be completely out of the realm of possibility? By which I mean to say, don't make today the last and final word on anything, and don't make too much of the reaction that we saw in the last 90 minutes as though that's going to set the course of the rest of the spring. Big picture, too, Liz. Let's not lose sight of the fact that, as Ken Griffin said on the network yesterday, economy pretty damn good right now.

Powell, he underscored it today. This is a good economy, he said. Just plain and frank said that. The employment cost index is coming down. The PCE, Fed's favorite measure, going in the right direction. Inflation expectations, which, you know, get you a ham sandwich and a bag of chips, are still going in the right direction. Big picture, this is working towards where you want it to work. That's absolutely true. I just think that Powell's bar for satisfaction is higher than most people's bar for satisfaction. And if you heard, I heard the word sustainable path towards 2 percent over and over and over again today.

Their own projections for PCE by the end of this year is still 2.4 percent. So I also think that his threshold for pain is higher. And if the economy does start to show weakness, I think the market will react to that and say, that's it, we're going to get cuts, we're going to get more cuts than we thought, and maybe rally initially on that. I don't know that that's actually the case. I think that they're quite comfortable with seeing some weakness, almost welcome it in order to get everything back into balance. You want to take a shot at what Gundlach said, too, about sort of risk assets, whether even in credit, you know, high yield and things like that

have looked pretty extended coming into today. So they were ripe to get picked off. Absolutely, on some level. I mean, I thought that coming into the year, I was saying that the happiness threshold is higher. You know, you need more good news to feed stocks at 20 times earnings. And after this big run we've had, there hasn't been a 3% pullback in three months. OK, one of those could happen for no reason whatsoever.

It doesn't take the Fed saying one thing or another. And we're only 2% off the high. So this could just be a process you have to go through that doesn't change the story. If earnings in aggregate are moving in the right direction and the next Fed move is a cut, and the 10-year Treasury yield, by the way, is back to 4%, and you're going to get a little bit of relief on market rates like mortgages, I don't know. It doesn't seem like the wolf's at the door necessarily based on all those things, even if, of course, you can chop around after you go up 20% in three months. 10-year was at 420 or thereabouts, knocking on the door again two weeks ago.

And here we are back under 4, 379, about to hit 378. But you get the point. You could see the initial spike. If we can take that back to the shot we just were looking at, that initial spike right as the statement, there it is, right as the statement comes out. You see it 2 o'clock in the afternoon just shortly after that. And then you have that drop down and then that rise back up when seemingly the Fed chair says, about as explicit as he's been to date of no march. Isn't it bullish that the Fed doesn't feel

that they have to ride to the rescue with 25 basis points in six weeks? Like, isn't that another way to, all right, maybe stocks got ahead of themselves hoping for seven cuts. Is it bearish that the Fed only has to cut three times? I don't see it that way. No, I wouldn't see it that way either.

And the way I would characterize it is they're saying that the risks are balanced. They're balanced between further high inflation and weak growth. But the risks are low on both those scores. So they're balanced, but they're not high. And so that's a decent place to start. Again, I do think the longer you wait,

if you have a bearish view on the economy, if you think private sector job growth is petering out towards zero, and some people actually will show you the chart that say it might be the case, then you might say they're going to end up being a little late or they're kind of oblivious to some of the downside risks. Maybe that's the case. I don't think it's wound that tight that it has to be that precise and they better get there by March and 25 basis points is going to make the difference one way or the other. But that's the market psychology from this point. We're dripping a little less than four minutes to go here as we head towards the close. I want to set the table for tomorrow. Now, we're going to digest the Fed throughout the rest of this evening and obviously throughout the trading day tomorrow.

But then we're going to get Amazon, we're going to get Apple, and we're going to get these money stocks that still need to perform, especially on the back of what we got from Microsoft and Alphabet. How should we think about all this in the next 24, little 25, 26 hours? Because that's when it's all going to go down. Yeah. I was looking at some of the activity today, and I said, all right, if we're red on these don't wait for March comments, well, what's working? I happen to have noticed health care catch a bit. I thought that was kind of interesting. They have secular growth, but they're also still considered somewhat defensive.

I was looking at some other areas. And I think what's going to happen here with Amazon and the rest of these names, if you're bullish, you say, no matter what they report, if they sell off, the money will come out of those names and go to other places in the stock market. That is a thing that's actually happened before. It happened at the end of 2022, actually, during that October, November period. However, if you get great reports

from the rest of the MAG7 names, but more importantly, you get the right guidance. I think that's enough to keep this levitation act in play. I don't think we have to have the Q1 correction that everyone is now penciled in as sort of a lock. But these names are important, and we shouldn't minimize that. Maybe the order is going to come back to haunt us, too, in the way that these companies are reporting. Biggest question mark, I think, is going to come back to haunt us, too, in the way that these companies are reporting. Biggest question mark, I think, is fair to say coming into the Megacat reports is Apple. You know, given what the revenue growth trajectory has been and the stock was flat

coming into today, lots of questions about iPhone shipments, you know, casting doubt on that in the last 24 hours by an influential analyst. Two minutes to go, by the way, an influential analyst over in Asia. We need these stocks now to do well, don't we? We need their earnings to do well because so much of the market is looking at their earnings to carry the rest of earnings growth. And we all know these numbers, right? You take the Meg 7 and their earnings contribution versus the other 493, 494 stocks. The other ones look pretty paltry by comparison. So we need their earnings in order to stay afloat. But there would have to be some kind of negative catalyst to really take them down. I

think money rotates within sectors for a while until and unless there is a negative catalyst to take it out of the equity market. Mike, your point that you made a moment ago is so perfectly done in that we just haven't had this upsetting of a day in a while. So the S&P is down 1.5%. It's the worst day for the S&P since late September. Well, it's been a minute. Right, which means that you're probably due, if not today and tomorrow, at some point down the road for a more genuine shakeout and gut check.

Look, it has my attention that the Russell 2000 is down 2.3 percent with yields down a lot and the NASDAQ 100 down a lot. So we're not getting that rotational market to Josh's point. You often get a rethink on the morning after Fed Day. So we'll see how it goes. But, yeah, I think you were you were kind of due for some some pruning and a little bit of a let's get a reality check on everybody's perfect macro scenario. But I don't think, again, it has to be anything that consequential. We talked on February 2nd last year. It was a nasty correction.

In retrospect, it doesn't look like a lot. All right. So we'll keep our eye on this digestive process, if you want to call it that, until we see you again tomorrow, see what this trade does. So we're going to go red, decidedly so. Fed chair Jay Powell seemingly takes March off the table. I'll send it in overtime now with Morgan and John.