Closing Bell - Closing Bell: Former Fed Vice Chair Richard Clarida on Fed Rate Outlook 4/23/24

Episode Date: April 23, 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.

And welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the snapback for stocks, whether last week's pullback was the worst of it, and why the next three days might mean everything to your money. We're going to ask our experts over this final stretch what is really at stake. In the meantime, your scorecard with 60 minutes to go, and regulation looks like that. It is green across the board. The S&P 500 now trying to end its three-week losing streak well on its way to doing just that. There's the trade here. One and a quarter percent. Just about every sector is in the green today, led by ComServices and tech, which also continues to rebound.

NVIDIA, well, back above 800 bucks. We're going to show you some of these mega cap names. There it is, pushing 825. Meta, Microsoft, Alphabet, they're green as well. And they, of course, report their earnings over the next couple of days. That is going to be big. Tesla reporting tonight. It, too, is higher today after struggling. I don't need to tell you mightily this year. And the Russell 2000. Yep, it's up nice again to yields have stabilized.

And by the way, on that note, coming up, we'll ask former Fed vice chair Richard Clarida when the Fed will start cutting rates, if at all this year. He's coming up in just a little bit. It does take us to our talk of the tape, how best to position in this fast-moving market. Let's ask Lizanne Saunders, Chief Investment Strategist for Charles Schwab. Welcome back. It's good to see you again. Good to see you too, Scott. So we have this nice move over the last couple of days. Do you believe in it? Do you think last week was the worst of it? How are you feeling about this market? Well, you know, broadly, the market had gotten a bit oversold, especially in areas that had really taken a drubbing.

You know, the technology sector had dropped intraday to only 10% of stocks, trading above 50-day moving averages. And I think that enticed some buyers, not to mention earnings from some of the mega cap names this week, maybe elevating some interest on the buy side. I think it also didn't eliminate a lot of the froth, but maybe ease some of the froth that in and of itself had been a concern. So, you know, I don't I think we probably revert back to the kind of leadership we were seeing before. But you're going to get these moves on a day today basis where some of the laggards get a bit. Wait, so you're suggesting that mega cap is going to once again take the lead and stay there? This idea of rotating or broadening is not believable?

No, no, no. I'm saying this year's winners until recently will probably go back into the leadership position, meaning energy and materials and financials to some degree. I think we get these relief rallies in areas that were last year's darlings. But I believe more in the persistence on the traditional cyclicals, barring more significant weakness that shows up in the economy. Oh, so you're on the same train then as Jamie Dimon, who was speaking today at the Economic Club not that far from here, where he said the economic boom, quote, is unbelievable. Even if we go into a recession, the consumer is still in good shape. So you're playing for the strong and continuing to be strong economy. Yeah. So I actually think that we may start to see a little bit of pressure

on the consumption side of the economy. But I think the more traditional cyclical areas represented by given what's going on in commodities, materials, again, financials, I think that there was a value trade that that kicked in there, and energy, maybe for obvious reasons. So those are, Scott, I think, as you know, we relaunched Schwab sector views earlier this year after a two-year hiatus during which we were focused more on factors. Now we focus on both. But fortunately, the three outperform ratings since we relaunched have been on financials, energy, and materials, and that has not changed. And we think at least near term, that's likely to continue to be where you see performance leadership. How much do you think this bull market since the October bottom was based on the idea of rate cuts? And how much do

you think it was based on the fact that the economy is just strong and that matters more than anything else at the end of the day? I think it's more the latter than the former. But I also think the rally was driven by what happened with Treasury yields more so than the parlor game of expectations around when will the Fed cut and by how much. The move from 5 percent on the 10-year yield at the end of October down to 3.8 percent was just a powerful tailwind for the overall market. And that's why you saw a significant move by small caps during that downturn in yields. I think the recent turn back up in yields initially was to the detriment down the cap spectrum, the zombie type companies, and then more recently started to hit some of the larger

cap companies. But I think the resilience in the market has to do with the resilience in the economy. That said, as you know, there's a lot of churn under the surface. The average NASDAQ member has had a 32 percent drawdown this year. So you don't really get a full picture of what's going on in the market if you only look at index level changes. The real story has been under the surface. Sure. But if we if we get no cuts this year or maybe even one, but it's pushed way off until toward towards the end of the year, you still comfortable with this market as long as the economy remains resilient? If the economy remains resilient

and we don't get a significant turn back up in inflation, I think the market is probably okay. A significant turn up in inflation or deterioration in the geopolitical environment and $100 oil that starts to have feeder effects into other inflation. And the Fed is stymied in a slowing economic environment by not being able to cut to combat the slowing economy because of inflation. That would not be a great scenario. So it would be the why behind what the Fed does.

What amazes me is, again, this parlor game of when will they start, how many cuts. There's very little that I hear behind that analysis. I think the Fed's going to start, you know, fill in the blank, July, September. And the reason why is here's what I anticipate in terms of the monthly readings on core PCE or core PCE services, ex-housing. Here's how the base effects work. So this gets you to something close to the Fed's target. And here's what I expect on the economy. And that gives the green light for the Fed's to start cutting. It's more just like throwing a dart at the at the month start point. It depends on on the data. And I think that gets lost in this parlor game. But a higher for longer

idea does eventually have an impact, does it not? I mean, it affects certainly multiples and it may it may ultimately impact the economy. We're trying to figure out what exactly higher for longer means in an environment where rates have already backed up. What happens if they remain here? I think you're right. It does affect multiples. In fact, the recent five percent pullback was all multiple contraction. You didn't have it in the denominator. Earnings have remained in positive territory. So I think that was a contributor to multiple contraction. You have maybe started to see some hits on the housing side of things after what was a hope that we were starting to see some recovery

when we were in the downtrend in yield. So, yeah, that impact is not just something perspective. I think it's something that we've already seen. But we have to remember that a lot of the mega cap companies are earning more interest on their cash and they're paying interest on debt. We know that the impact on the mortgage market has been somewhat muted by the fact that a lot of mortgage owners termed out their debt and the average mortgage rate is lower. A lot of corporations termed out their debt. So I'm not sure I'm in the camp that believes higher for longer is all good for the economy, but there have been some unique characteristics of this cycle, especially on the corporate side of things and on the sort of household side of things that has clearly muted the impact, at least for

now, of higher interest rates. How are you feeling about earnings? I mean, the next couple of days are going to be pivotal, obviously, with Meta, Microsoft and Alphabet. And maybe we're reminded about why we piled into those stocks in the first place, or we are given the reason now why you think, for example, that it's the others that are going to continue to do well. So it is a pivotal week because you've got the, you know, a hefty dose of the magnificent seven. And that can make or break the near term perspective that we have on earnings, because that's clearly where the majority of strength has been in earnings. But I think it's the outlooks that are important, too. I think one of the concerns about some of these stocks is that there was a lot of extrapolating of these huge beats, both on top line and bottom line. And the real key,

given the forward-looking nature that is the stock market, whether that can be maintained. But I would equally focus on earnings outside of those areas, in areas like the aforementioned sectors of, you know, financials and energy, because we have some of those cyclical sectors that as we now are in a reporting season, estimates have actually been trending a little bit higher relative to where they were before reporting season. And that's what I would focus on. You can't say that for all 11 sectors is what is that trend from pre reporting season to where we are now, not just for the current quarter, but the next couple of quarters. I feel like one of the biggest battlegrounds is small caps. You know, certainly hear the suggestions that they can't do anything in a higher a higher rate environment. And maybe that's being borne out by the fact that, you know, when rates had backed up, they had a tough go of it.

So the Russell 2000 is back above 2000 now. Right. Rates have stabilized. They've even come in a little bit. So we're not surprisingly, I guess, looking at a Russell that's outperforming today by by almost double. Right. It's up two percent. Would you touch small caps here? Well, small caps. That's that's that's a big universe. You know, the Russell 2000 has, I don't know, 1,850 stocks in it. So I think in an environment of lower realized correlations and more dispersion, you do not want to apply analysis with a monolithic lens. And even among, say, the zombie companies, which are much more dominant in an index like that, it's not just about whether you're a zombie, meaning you don't have sufficient cash flow to pay interest on the debt, is what is your actual revenue and earnings profile? You can be a zombie company, but if

you've got decent nominal growth, you can grow those revenues and can be an offset. It's the zombie companies that are in the non-profitable category that I represent, the true low-quality companies, and that's what I would stay away from. But I think you've got to you've got to have the fine tooth comb with this, with the kind of market backdrop that we have right now and not generalize as it relates to a category as large as small caps. Let's bring in a couple of other voices now. Liz Young of SoFi and Malcolm Etheridge of CIC Wealth. Malcolm, a CNBC contributor. It's great to have you both. All right. Liz Young, you heard Lizanne. What do you think? Hi, Liz. Hi. How are you? So what I think is happening right now with this rally is that there's a little bit of a game of put the money back where it came from. And a lot of this has been macro driven. And Lizanne mentioned that it was multiple

contraction. She's absolutely right, because earnings have held in there, if not gotten better as far as expectations go. So this was macro driven by rates. This was macro driven by geopolitical risks rising and by people worrying that it was going to threaten the cyclical recovery or cyclical expansion that we had traded into for the beginning of the year. So a lot of that was given back. And now you're seeing this rally over the last couple of days in semis, you're seeing it in banks, you're seeing it in durables, and you're seeing it in small caps. Again, I think that's because rates sort of stopped out. They stopped rising. And because we have this relief that, OK, the geopolitical

tensions didn't escalate into something larger and spread across the globe. What I'm worried about at this point is that I think the market is so short-term oriented that we are hanging on every bit of data. We are hanging on every word of the Fed because we don't know what's going to happen with cuts. And I'm not sure that it matters whether it's September, November, December or 2025. I almost feel like we've come to peace with the idea that the Fed's not going to cut rates anytime soon. As long as rates right now are stable and don't continue to back up, I would almost take the other side of that and suggest that we've gotten OK. We're tired of the Fed speak.

Let's just carry on with a good economy like Jamie Dimon was talking about today. And Lizanne agreed with that sentiment on the economy. And that's fine as long as earnings stay well and the economy is good. That's the key. That last part. We are fine with them continuing to push cuts back as long as the data stays how it is. And as soon as the data turns, if it does turn, the longer they keep rates high, it will slow things down. It just hasn't materially yet. If and when

the data does turn and cool off, that's when I think markets will start to grapple with, what, is it too cool? Are we now turning in the opposite direction? And if they come in with cuts, the timing of that is going to matter, because if inflation isn't solved, then it reignites everything too soon so i think you're absolutely right we're we're over the fed speak and i think that's a good thing but we're over it as long as things everything else is held constant sure well i mean the economy is not going to all of a sudden fall out of bed tomorrow right i mean earnings expectations have come down but they're still expected to be positive. Now the bar is so low, it doesn't seem that difficult to leap over it.

In earnings or in the economy? The earnings bar. Well, the earnings bar for Q1 never really was all that high. And I don't think Q1 is very much about what actually happened in Q1. I think it's more about looking forward for the rest of the year and can we justify these valuations based on what CEOs are saying is going to happen for the rest of the year and can we justify these valuations based on what CEOs are saying is going to happen for the rest of the year?

And I think companies will get overly punished if guidance isn't raised like it's been raised for the last 12 months or so. So I think Q1, the hurdle is low, but it always was low. I don't think it's about the actual results as much as the guidance for 2024. Malcolm, Goldman says we're still vulnerable. Barclay says to fade any bounce to position for higher yields. Heard what the two ladies have to say. What's your view? I'm not so sure we're going to see cuts at all. And that's basically where I've gotten to, because I want to consider

what else is on the table besides just the inflation conversation. There's an election that's going to happen later this year. Right. And what we have to keep in mind is that the Biden administration has a conflicting goal at mind right now with Jerome Powell. Jerome Powell cares only about inflation. The Biden administration is focused on jobs as well. And as long as jobs stay strong, inflation is going to stay a problem. But if you're a sitting president who's looking to get reelected, you have to be focused on keeping that jobs number in the employment rate up more than you care about getting inflation from three to two, because consumers aren't really going to notice the difference between two and three percent. You're going to notice whether you have a job or not. And I think that's the

part that's really going to come in and make a significant difference about whether Powell actually gets to cut or not, because if we don't get any cuts by maybe July, how can you start to initiate them then without it looking political, which. Because if we don't get any cuts by maybe July, how can you start to initiate them then without it looking political, which we know that we don't need cuts? What if we don't need to worry about cuts until later in the fall? I mean, let's just let's take the Fed chair at his word when he suggests over and over that, you know, they're not going to be political and politics are not going to have anything to do with it. Let's just assume we believe him. Yes. For the for the argument's sake, even if you don't. I don't, but I'll take the setup you just gave me. And I'll say that-

You feel like we need rate cuts? We need it in certain parts of the economy, right? You mentioned earlier small caps, and we mentioned earlier that mega cap tech is kind of the rotation back, as Lid said, put the money back where it came from. For everybody else, that's not a mega cap name. I think interest rates are actually going to matter. Goldman put out a piece earlier this week talking about how within the Russell 2000, I think it's 20 percent or so are at floating rate within the S&P. It's only six. And so if you just consider how much is at risk, the longer we go higher for longer, you have to start to wonder when does the reckoning start to come? And I think that does happen later in this year.

Sure. But Lizanne, I mean, you made the point that there are a lot of other areas outside of mega cap tech and outside of the small caps in the eighteen hundred and fifty stocks. You said we're in that that index that can still work even in a if you want to call this a high rate environment, fine, four and a half percent on the 10 year would have, you know, whatever. But it sounds like you would take the other side of Malcolm's argument. Well, I think you want to stay up in quality. And that's been a mantra of ours for some time. And that may seem like an obvious statement. Why would anybody ever want to be in low quality companies? But there is a point in the cycle where there is leverage to a big turn up in the economy, a move down in

interest rates, you know, often when you're coming out of a recession, where it does make sense, at least for a short period, to go down the quality spectrum where there is that leverage, go into negative earnings territory. Clearly, I don't think that's the part of the cycle we are in right now. So it's sort of this mix that we have of the sector biases that are more traditionally cyclical, but staying up in quality, looking for strong balance sheets and high interest coverage and strong free cash flow and play it in that combination of both sector analysis as well as factors. Malcolm, you're the one who's heavily invested in the mega cap names.

So you need these stocks to continue to be standouts. You think they will be? I think we have to consider that investor psychology has changed, right? Where we normally would think about safe havens as things like staples and treasuries and maybe utilities. We're now looking within mega cap tech as our safe haven trade. That's

why we're putting the money back where it came from. And I think we have to recognize that investors don't really care about the 10 year yield being at four and a half percent or even five percent for the entire year. If I can get that in every quarter within the S&P and the major S&P constituents that are, to your point, helping my portfolio are those mega cap tech names that we're so focused on this week. And I think that's where the market has shifted, even though we want things to go back to the way they were. I just don't think near term that's the market we're going to get. You continue, Liz Young, to make the argument back towards the short end of the curve, right? You want to be You wanted people to buy the two-year

some six months ago, and the stock market went off to the races, and here we are again, and you like that still. Well, I continue to believe that we are in an elongated late part of the cycle. So what do you want in that part of the cycle? You want large cap, you want dividend paying stocks, you do want treasuries, because at point, if if either the economy hits the skids, people get scared or at some point the Fed normalizes policy. Yields are likely to come down. We also had done some analysis last week on what's the upside risk in yields in the two year from here. And it turns out that the upside risk is lower than the downside move could be, given all the uncertainty that's out there. So I'm willing to stomach a little bit more move up in yields in the two year in order to benefit from it on the other side. I'm confident that sometime in the next two years, the Fed will have to cut rates.

So that's where I sit. I think most people would be in your camp on that. I enjoyed it, everybody. Thanks so much, Lizanne. We'll see you soon. Malcolm and Liz Young back here as well at Post 9. Let's send it to Christina Partsenevelos now for a look at the biggest names moving into the close. Christina. And one of those is Spotify. Shares are up about 14 percent on pace for their best day since October 2019, pre-COVID, after surprising

investors with a profit beat, even though total monthly active users came in below estimates. The music streaming platform attributes the earnings beat to efficiencies, multiple layoffs, price hikes, and other initiatives to boost margins. Shares up almost 14%. Speaking of earnings, Danaher shares popping more than 7% right now after the medical company beat earnings and sales estimates, even though they expect Q2 core revenue to be down year over year. It's all about the turnaround.

Competitor of Vantor, also up in sympathy. Those shares are up over 5% right now. Scott. All right, Christina, see you in just a bit. We are just getting started here at Post 9 Up. Next, Tesla's moment of truth. First quarter earnings are out in OT. Requisite Capitals, Bryn Talkington owns that stock, which is why we get her take next. All right, welcome back. Tesla reporting earnings in overtime tonight, the stock tumbling after the last four earnings releases. So will today be a repeat performance? Joining us now is Tesla shareholder Bryn Talkington, managing partner at Requisite Capital Management and a CNBC contributor. It's good to see you. Give me an idea of what your psyche is like here going into this report, given the history and the most recent declines in shares? Well, I mean, I think this is

going to be the most, this is the most anticipated earnings call in as long as I can remember. So just this time last year, they did 85 cents for this quarter. The street estimates are at 50 cents. So this is not good. They need to come out or Elon needs to come out, I think, and take a page out of Mark Zuckerberg and stop talking about robo taxis like he was talking about the metaverse. Obviously, they're doing layoffs, which is smart. They got to get fit. But I think that they need to come out with a plan of we need to get EV sales in line, full self-driving subscription. Let's hear about that. Let's hear about Optimus. Let's hear about all the other things they're doing. Let's not talk about robo taxis. I think

if that is part of the narrative, that's part of the narrative today. The stock's going to go lower. I don't think it will be. I think Elon, he didn't go to India. I think he's going to take this seriously. And I think I wouldn't want to be short going into this call just because there's so much bad news already priced in, Scott. Even if he takes it, in your words, seriously, how do you deal with or reconcile continued price cuts when the street thinks they're done? Losing market share in China. You mentioned getting leaner. You know, the whole maybe strategy shift, if you will, this robo taxi idea, which you don't want to hear anything more about, but you might. And I'm curious what happens if you do. And then just a general EV slowdown. So maybe the goalposts have just moved in a way that you and other bullish shareholders didn't expect them to. Sure. I mean, the EV slowdown in the U.S.,

as I've talked about a bunch, are not a big, it's important for like the story, but really it's China. And I still think that's the biggest risk in the name. I mean, as I've told you before, when I originally bought it, I sold calls against it, which I like to do, which is a good thing to do, I think, in these types of names. But to me with China, I mean, the Model 3, first of all, Scott, is the number one selling EV car in the world. And China's growth is still growing. If they can continue to be with BYD, China's a very big market. But they have to have a good plan there. And so to me, that's my concern on the name longer and midterm is what happens in China.

I'm less concerned with the U.S. because it's really not that big of an EV market to begin with. But isn't the writing kind of on the wall, so to speak, in China if they're already losing market share? You know, the price cuts don't seem to be making much of a dent. And do you have confidence that things are really going to improve there? Well, I mean, I'm cautiously optimistic. You can lose market share as long as the as long as the buyer share is growing, right? So, I mean, you can be a smaller piece of a bigger pie. And so, I mean, China's all in on that. I also think it's only 6% of revenues, but year over year, it grew at 50%. Energy storage longer term, it's not going to do anything for the stock today or tomorrow. But that continues to be

a narrative underneath, kind of like Apple in the early days. So, let me just be clear. I think it's dicey. I've said this before, murky over the next few quarters. You know, half my position got called away because I do sell calls. But I think that longer term, I still want to be in this name, unless he goes all in on the robo-taxi. If that's part of the narrative, I'm out.

That's to me like flying cars. It's just not pragmatic. And so, as I said in the beginning, I want him to channel that Mark Zuckerberg. But he did that really good pivot at Facebook or Meta to say we're not going to spend so much. It's easier in an asset like company. But I think it's going to be a must listen to call. That's for sure. Wow. I mean, you sound to borrow an expression from our friend Sebastian Page, like, you know, a reluctant bull almost looking for reasons to get out rather rather than to to stay in. But let me ask you this. Given everything you said and what stuck with me especially is the China story where you talked

about having a smaller piece of a a bigger pie. If that, in fact, is the case, then why does Tesla deserve as much of a premium valuation that it was getting before if the story in one of the biggest growth markets on Earth isn't what it was? Well, no, I mean, if you're a smaller piece of a bigger pie, you can have more of a story. I think that, I mean, I've looked at the Chinese market and looked what he's done there. And to me, like on the bearish side, they've literally copied him. Some of these cars have like the black credit card key exactly. So, I mean, that's a real pragmatic narrative that I have to think through. But I still think that's the growth engine for

Tesla. The cars is in China. And we're just going to have to get to the next two quarters. And like, listen, I'm a pragmatic investor. And that's where if he were to go full robo taxi, that's just not realistic. Right. So it's not realistic. The market wouldn't like that. And so I would reevaluate there. But I just try to come in and be pragmatic, not dogmatic either way, and just take from the market what it gives me. But I am excited to listen to the call. I think everybody else. Thank you. That's Bryn Talkington. All right. Coming up, rolling out the Fed carpet. Former Federal Reserve Vice Chairman Richard Clarida is back with us today where he sees inflation heading from here. Ahead of the PCE report, when he thinks the Fed is going to cut rates this year, if at all. He'll tell us next.

Stocks higher for a second day as earnings season ramps up and investors look ahead to this week's key economic data. My next guest says higher inflation is helping build a, quote, strong case for the Fed to delay rate cuts this year, possibly into December. Let's bring in Richard Clarida. He is PIMCO's global economic advisor, a former Federal Reserve vice chairman. It's good to see you again. Welcome back. Thank you. So I'm just going to ask you straight up. Do you think the Fed's going to cut this year? I do think they're going to cut this year. Everything that's interesting in markets is a probability, but I think the odds are that we do get at least one rate cut this year. Is that your baseline one? And if so, what was it, let's say, a few months ago? Well, you know, I was taking my lead from the projections, which coming into the year indicated three rate cuts. Given the data we had coming into the year, that looked like a pretty sensible path. Of course, since then, the inflation data has been disappointing and the economic data has been

strong. And so I think dialing back the expected number of cuts makes sense. I do think that this Fed is in data dependent mode right now and that the data could either improve or get worse. And that will dictate the path. But I do think we're going to get a cut. Yeah. I mean, Jamie Dimon, you know, I don't know, an hour ago described the U.S. economy as, quote, unbelievable. It doesn't sound like there's any need to cut rates. Well, and and and certainly on the growth dimension, you know, Jamie is is right. Of course, you know, the Fed's looking at the inflation data. The Fed's also judging that policy is restrictive now. So cutting rates a bit is not running an

easier policy. It's just removing some removing some tightening right now. What do you expect the PCE to show this this Friday after, you know, let's be honest, the last few inflation reads, certainly CPI related, were a setback to say the least. Yeah, no, they have been. Our team, which does a great job on this, thinks it could round up to 0.3 percent. It's probably going to be right in that range of 0.25 to 0.3 percent. And, you know, you look at that number in isolation, it doesn't seem very big. But multiply it by 12 and you get 3.6, which is too darn high. So, yeah, the Fed would like something at 0.2 or below for sure.

I'm going to put you back in the room as I like to do, the room where it happens, so to speak. So here we are. We're, you know, we're in April. We have an election this year. So where does the election factor in? And if you were still in the role in which you once sat, how would that go through your own mind as to what the sort of deadline is before it's off limits? It's a good point. I think there are a couple of issues here. First, historically, the Fed does adjust rates in election years, just because the economy calls for it.

We've seen hikes and cuts out of the Fed. You know, when I was there in 2020, we cut rates. It had nothing to do with the election, but the economy collapsed in the pandemic. Look, I think the Fed is an independent institution. It'll make the call for rates based upon what it thinks it needs to do to deliver price stability. You know, I would say that the way the calendar lines up, the November meeting is right after the election. So I think

it would make sense if the committee thinks it is going to cut to get those rate cuts in before November, I would say. But I think the judgment is what do you need to do for the economy? And I think that'll dictate it. How are you thinking about the danger in waiting too long? What's strong today in terms of the economy might not be strong tomorrow. And the last thing I'm presuming that the Fed wants is to have broken something, whereas it's really difficult to fix it once the glass shatters. It is a great question, and I'll be very honest with you. I would come down on probably the more hawkish side of that debate.

I think there is path dependence here. The fact that inflation has been above 2% now for three years would indicate to me that I think getting the price stability and anchored inflation expectations would take priority. Obviously, if you get a lot of flashing signals, you want to factor that into account. But I think in a close call, I would err more on the hawkish side of fewer cuts than more cuts this year. Let's discuss the target of 2% or trying to get to target.

And that maybe the Fed cannot get it down to target because we're just not playing the game the same way that we used to. I'm curious as to whether you heard the comments from the economist Joseph Stiglitz today on CNBC, who said because of the pandemic and the wars and work from home that have led to this inflation in the first place, it's going to take a long time to work off the effects. We're not in a demand-led inflation boom. And even the Fed chair himself has suggested that, and I think maybe, you know, changed his

view on that issue over time. So how does all that factor into trying to get to 2% when maybe you can't get there anymore? Well, the way I've put it, I think also on your show in the past is I've thought all along going back a couple of years that the real plan, the hope a couple of years ago was to get inflation, you know, in the zip code, in the vicinity of 2% from above, it's what I call the two point something destination, I think is a round number, around two and a quarter, two and a half percent per year. At that point, is it really worth, you know, disrupting the economy for that last three or four tenths? I think probably not. And I think in that case, you run on balance a somewhat

restrictive policy. And you think over time, and I agree with my good friend and Columbia colleague, Joe, a lot of this has been supply driven and it may take more time. And so, yes, I would agree that, you know, keeping rates where they are beginning to adjust down so long as inflation is in that two and a quarter to two and a half percent range, I think makes a lot of sense. Well, I feel like you kind of just said the quiet part out loud. I'm wondering whether the chair himself, you think, believes that as well, that he's not going to come out and publicly say, yeah, we'll accept a target that's higher than 2%, but deep down understands the same issues which Mr. Stiglitz spoke about, which you

just said you agree with. Look, I think the target is two, and I think they believe and I agree that the policy they have in place will, over time, bring inflation to two. But I think the committee can afford to let that occur over time and not to try to get there in the next six months. I think you do have to take into account the nature of the shock. And I would point out, if you look across the world, in the Eurozone, in the UK, in Sweden, in many other countries, Australia, we all got hit with the same pandemic shock. It's all taking time to get inflation. Inflation has come down, but it's still north of target. And I think that is a common global dynamic in this post-pandemic

world. Interesting. Mr. Claret, I appreciate your time so very much. I always enjoy our conversations. We'll see you soon. Thank you. That's Richard Clarida. Up next, we're tracking the biggest movers into the close. Christina Partsinevola standing by once again with that. Christina. We have one airline tumbling on lower revenue outlooks, even though it's been on a cost-cutting spree lately. Can you guess which one? Details on that name and more next. All right, we're 15 from the bell. Back to Christina for a look at the stock she's watching. Christina.

Oh, yeah. Hey, Scott. General Electric's aerospace unit up nearly 8% after the supplier posted beats on both profit as well as revenue. GE raising its full-year profit forecast, citing a continued strong demand for jet engine parts and services, especially as airlines continue to fix andating flat sales and as much of a 10 and a half percent decline in the second quarter revenue even though they've been cutting costs and roots much to the dismay of many travelers scott all right christina thank you still ahead credit check visa shares are higher today still down nearly six percent from record highs last month. We're going to drill down into what's behind the pullback and what's at stake when the company

reports earnings in overtime. We're back right after this. Coming up next, counting down to Visa and Tesla earnings, both companies set to report in overtime. We'll break down the key numbers you need to watch when those results hit the tape in the Market Zone next. We are in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, two key earnings reports in OT. Phil LeBeau on Tesla. Kate Rooney on Visa.

Michael, I'll turn to you. Another nice move towards the end of the day here. Yes, so a bit of follow-through from yesterday. What you'd want to see after the, you know, semi-washout of a few weeks of downside is the market response to these oversold conditions. The rally is broad. It has been very broad, again, for a second day. Not, you know, lights out, but still pretty good. We were down about 300 points, peak to drop from the S&P, gained back about 100 of them. So it's great as

far as it goes. We still haven't gotten to last week's highs. I know some people are looking at this very area in the 50s, 70s as a potential technical hurdle. But, you know, banks are doing very well. So a lot of the clues you'd want to say, you know, a lot of stuff that was in an uptrend got overdone to the downside on the pullback and now is getting bought. I think homebuilders are a great example of that. They're rallying today. They're up 3.5% this week, still 9% off the highs. So right here, you're in a comfortable zone where it feels like a no-brainer after two days up to buy the dips.

We'll see if it does continue. The bond's got to stay out of the way. And that's been happening over the last couple of days. Critical 72 hours now looming. Mega caps and PCE. Exactly. So, again, you want to see if it feeds off of that. You know, it wouldn't be surprising to get a little bit of a back and forth on some of the earnings reactions.

And not everything goes up at once. But, yeah, PCE, if it sort of sets us on the course to say, you know, inflation is not truly reaccelerating. It might be good enough. Interesting today. Diamond, you know, talks about unbelievable. That's a word he used about the economy. Clarida, who we just talked to, says, yeah, they're going to cut this year, just not as fast as we thought. I think, I mean, unbelievable if your premise was that we are going to slow appreciably. And that has been the premise. It has been where a lot of the forward indicators have led you. But I think we're talking two percent is real growth. I think the PMIs today showed you things maybe are kind of soft around the edges in terms of services and manufacturing.

I think that's OK. And I think what Claret has said about the Fed's stance is correct, which is you can't just say the economy's fine, therefore they won't cut because they're only looking at inflation. And if inflation is where it is right now or slightly better, they're going to look to cut almost as a gesture, almost as a statement that says we know that a quarter point is not the difference between inflation being too hot or too cold. Phil LeBeau, we throw a moment of truth around an awful lot, obviously around big earnings. But this may truly be one for Tesla, right? And the conference call. That's really where the moment of truth will come for Tesla. Look, the numbers, when they come out in a few minutes, they've been coming down steadily in terms of the estimates over the last month. The company is expected to earn 51 cents a share, 23.3 billion in revenue. But that's really not what's going to drive the stock after hours.

It's what happens during the analyst call at 5.30. Three things that people are going to be looking for. What's the near-term roadmap? What's the status of the Model 2? And what specifics can Elon Musk give us when it comes to the robo-taxi? In terms of guidance, as you take a look at shares of Tesla, keep in mind that we often get during this report, Scott, the guidance for full year deliveries. Do they give that? And if it is, where does it come in? The street's expecting 1.89, 1.9 million deliveries this year. We'll find out in a few minutes if we do get that guidance. Mike Santoli sitting here with me. It's how the mighty have fallen, right? Trillion dollar market cap at one point below 500. And the real question is, has that move finally meant a kind of a throwing

into the towel of the longer term story? Now, valuation wise, it hasn't really helped very much because earnings estimates keep going down pretty hard. You know, for next year, from 529 to 362 a share, that's from the beginning of this year to right now. That's down 30% for next year's earnings. So you're still expensive on 2025 and you don't know where you're going to be. I'm really interested in like the, I mean, it's well down from here, but the 100 level on the stock, that's where it went vertical in late 2020. Stock split, entrance into the S&P 500. That seems like an area of like the before times, before we gave Musk the benefit of

the doubt that he was going to, you know, kind of create the future every year. Yeah. OK, Rooney, how about Visa? Let's not forget about that after after the bell. Yeah, Scott. So Visa is going to give us the latest pulse on the consumer. Management has used the word resilient for the past couple of quarters in a row. Watch payment volume. That tends to be a proxy for spending. Wall Street's also watching to see if Visa's solid travel and restaurant spending can hold up amid higher inflation. We did hear the same thing from Amex. They said travel was good.

Cross-border spending, that's a higher margin area for the card companies. Any sort of slowdown there could indicate less travel spending. And then guidance is going to be key for the stock. Visa already said it expects low double-digit revenue growth for the year. Street's looking to see whether management reiterates that guide. And then any sort of commentary on the recent settlement around interchange fees. It's those swipe fees for credit cards. Visa and MasterCard agreed to a $30 billion settlement to limit those fees for merchants. Might come up on the earnings call, so something to watch, Scott. Yeah, you'll be watching this, Mike.

For sure. And, you know, the long-term story and the reason Visa and MasterCard get these generous valuations is it's just so automatic in terms of its payment volumes globally. It's the move away from cash to plastic and electronic. All these things have been in train for 15 years. And so the around-the-edges questions of currency, interchange fees, potential competition from a Discover Capital One merger with their smaller network. You know, all those things matters. But, you know, you've had a reset lower in the valuation just because every big growth stock that had a fat valuation has come in a little bit. So, yeah, you want to see the reaction. It's a good, very global macro read on overall payment activity without necessarily being about, you know, credit risk and delinquencies, because that's not really the game.

Getting out of the credit card business is Goldman Sachs, of course, JP Morgan, Goldman, new highs today. So you said it, right? The financials are staging a nice move. The capital markets side, especially within the big financials, has done very well. It's sort of indicating that there's been a thaw and you're going to have more activity. That's all to the good. I do think you've seen also with Fiserv's mood today, some of the stuff that has, again, longer-term kind of fintech-y type attributes may be getting discovered, although on the downside, it was interesting, one of the biggest losers is MSCI, the index provider today,

and a little bit of a kind of a sloppy guide, I guess. And so S&P Global and MSCI, that's an area where people hide. They'd rather buy the pure banks and the brokers and the asset managers because that's where you have leverage to, you know, a market that seems like it's going to stay pretty active. Great day for Citi, too, which is the best performing of the big banks on the week. That stocks up nearly 6%. So we're going to ring it in just a second.

We're going to go green again. S&P 5067, still settling, of course, but all gears towards Tesla now in overtime. And these, of course, I'll see on the other side in the OT.