Closing Bell - Closing Bell: Gundlach on the Fed Decision 6/14/23

Episode Date: June 14, 2023

DoubleLine’s Jeffrey Gundlach reacts to Fed Chair Powell’s news conference after the fed left rates unchanged. He gives his forecast for the rest of the year. Plus, NewEdge’s Cameron Dawson and CNBC senior markets correspondent Bob Pisani break down the crucial final moments of post-fed decision trade. 

You're listening to Closing Bell in Progress. Well, that was Fed Chair Jay Powell. As you heard there, after what our own Steve Leisman today described as a very hawkish pause, the Fed now projecting at least two more rate hikes before it's all said and done. Chair Powell saying nearly all policymakers see more hikes as necessary. Also calling July a, quote, live meeting. The stock market's selling off almost immediately. It's been a little bit volatile, and it is somewhat skewed, at least as the Dow is concerned today, by what's been happening with UnitedHealth. But it was down by more than 400 points. S&P, as of a few moments

ago, was in positive territory. So the market's still trying to parse out what the Fed chair said and what it thinks the Fed is going to do in the months ahead. Good afternoon. I'm Scott Wapner. Of course, you're watching Closing Bell right here from Post 9 at the New York Stock Exchange. Double Line's Jeffrey Gundlach is joining me in just a moment for his first word on all of this. Cameron Dawson of New Edge is here now as well. We'll turn to her first. So what's the story? Well, the statement was hawkish. The dots were hawkish. The SEP was hawkish. But then there was that little window in the press conference where Powell wasn't necessarily the most hawkish he's ever been. He didn't play

the hawkish greatest hits. Instead, he talked about how, yes, July is a live meeting, but certainly wasn't committing to it. And you certainly saw the market sort of take that with the interest rates kind of coming off of their highs for the day, stocks rebounding. But I think the reality here is that the Fed still sees a lot more work to be done and that their job fighting inflation simply is not done yet. You're keying off what some have been talking about, that he went out of his way, some are suggesting, to say July isn't predetermined. And at that moment, maybe the stock market took some comfort in that, but it may be short-lived. We'll just have to watch and see. It certainly seems that way. It's interesting to have so much unanimity about the need for more hikes and yet say that July wasn't necessarily going to be an absolute. Now, they

always talk about wanting to remain very data dependent. So that's very par for the course. But the fact is they're still guiding for effectively two more hikes this year to get to that 5.6 percent median rate. Yeah. Let's bring in Jeffrey Gundlach right now. He's the CEO, CIO and co-founder of Double Line Capital with us as always on this Fed Day. Jeffrey, it's good to see you. Steve Leisman, as I said at the outset here, described this as very hawkish. Rick Santelli said hawkish times 10.

What was your take? It was definitely hawkish in the rhetoric, but obviously wasn't hawkish in the action. It's the pause. I feel like the Fed is getting kind of Mr. Magoo-like again, where the last meeting, it was a hike, but it was called a dovish hike. And now we've got a hawkish pause. I wonder what the mix will be in the July meeting, because it seems like the unanimity of opinion that we need more rate hikes has been made clear. But the path of rate hikes is all over the place. I like to remind people that the Fed has had a bad record

of forecasting where the Fed funds rate is going to be. And Jay Powell, to his credit, pointed that out at the end of his press conference. It's interesting to notice that two years ago, the forecast for the Fed funds rate at the end of 2023 was 50 to 75 basis points was the median dot plot. So they missed by 450 basis points and even more if they continue to hike, which I don't think they're going to do. So we seem to have some Fed people thinking that rates are going to stay

above five for years and some other Fed people think it's going down to two and a half. So as of a couple of meetings ago, Jay seemed to have the ducks all in a row. Everybody was in agreement. And now it's like he's trying to herd cats again. And he's doing the best he can. But I don't understand all of this talk about this strong economy. There are so many indicators that are deeply in recessionary territory. And people talk about the strength of the labor market.

And there's been many strength of the labor market, and there's been many months of beats on that. But the most recent labor market report, which was touted as being very strong, was not strong. There was a growth in jobs, but there was a significant decrease in average hours worked. And if you take the product of those two, number of jobs times average hours worked, you kind of get economic aggregate output. And yes, jobs went up, but the hours worked fell enough that if hours worked had stayed the same, the product of jobs times hours worked, to get to the product that we're at, you would have actually had a loss of jobs. If hours worked had stayed stable, to get this amount of output, you would have had more than 100,000 jobs lost.

So that's not really that strong. And I don't really understand why the Fed is kind of making the same, I think, mistake that they made a year and a half ago, but in reverse. They're not looking at the high frequency data. There was a lot of quick commentary after the statement, which was a hawkish statement. And I think Steve Leisman did a nice graphic where he acted like he was driving a car but looking backwards. I think that's a riff on my Mr. Magoo theme, and I agree that that's what's happening here.

If you look at real economic indicators that are more high frequency, they're really bad. I mean, M2 is negative at a level year over year that hasn't been seen in decades. Leading indicators are negative 8% over the last six months annualized in the last year. The yield curve has been inverted for a long time and is inverted by 100 basis points further to 10s over the past year. ISM, new orders, are in deeply recessionary territory. ISM manufacturing, PMI, is massively recessionary. And even services has given up the ghost going down to 50.3 on the services ISM PMI. I'm really hard-pressed to find an indicator that's really strong. And

you can tell me it's employment. But the thing that i just referenced about the aggregate product but also the unemployment rate has peaked its head above its twelve month moving average not by a lot but it's above its full month moving average now it's not a anywhere close to its thirty six month moving average which is an absolute lead lead pipe since you've across is that in a recession that's still up at about five percent but we think of the three month three thirty six month moving, that's still up at about 5%. But when you think of the 36-month moving

average, that's three years. So three years ago, we're talking about the depths of the pandemic, and unemployment just fell off, spiked tremendously, and now it's come back down. So that's going to be falling precipitously. So I don't think the Fed's going to hike again. I think we've got a trend in place here, Scott. It went 25, then 50, then 75 for a while, then 50, then 25, then zero. I don't know. Maybe I'm just a mathematician or something, but I see a trend here. And I don't think the Fed's going to be raising interest rates again. I tweeted that out right after the last meeting.

One thing about this, and then I'll stop and you can probe further. One thing about this, this is one of the most easy to predict Fed meetings of all time. I almost feel like we're back four years ago when every meeting you knew they weren't going to raise rates. the complication of having financial stress with conditions tightening and three bank failures while inflation is still somewhat sticky. That may be fair, but I don't know if many were expecting the idea of two more rate hikes before they're all said and done. Steve Leisman's made his way, Jeffrey, out of the room. Let me bring him in, if I can, quickly. And Steve, you seemed genuinely surprised when this statement came out and they laid their case out as to why they see two more rate hikes. And you said, quote, the Fed's not going to stop until they break something. Yeah, I guess I have a difference with Jeffrey on this score.

I went in there with one question in mind, will they or won't they? Do they mean this or do they not mean this? And I kind of came out of the room thinking they mean it, that they're probably going to do one, maybe two more. And what I think happened in the intermeeting period, and the reason I asked the question I asked is, I wanted know, did did Powell change from the way he sounded in a more dovish way at the end of May? And I think he did. I think he went in there to herd cats and ended up becoming one of the hawks, if I could mix a couple of metaphors there. But I think that's what happened. He maybe wanted to bring them over to the to the dovish side. I think they brought him over more to the hawkish side. And if you listen to what he said about inflation, maybe we should give it a listen, Skyler, what he said about inflation here. I still think and my my colleagues

agree that that the risks to inflation are to the upside still. So we don't we don't think we're there with inflation yet because we're just looking at the data. And if you look at the at the full range of inflation data, particularly the core data, you just aren't seeing a lot of progress over the last year. Headline, of course, inflation has come down materially. But as you know, we look at core as a better indicator of where inflation overall is going. And just getting on a theme that Jeff was talking about, the idea of the old meetings, the old way we used to do picking out how the Fed was going to go is we'd follow the balance of risk. And if the balance of risk is towards more inflation, then you would say the balance of risk is towards more rate hikes. Maybe the data comes out weak

the way Jeff is expecting it. But I kind of had the feeling they mean it there. And I guess I may be proved wrong. Jeffrey, I'd love your reaction. I mean, the message here is maybe it's maybe it's time to believe the hype, so to speak. Again, I think they're making the reverse mistake that they made about a year and a half ago, a year and a quarter ago, where they were too slow to raise rates because they're looking at lagging data. Employment is lagging data. We already see some signs of weakness developing in the employment market. Let's look at the inflation. Jeff, can I just stipulate? I'm not saying they are not making a mistake. I'm just saying that I think they mean to do it. You might be 100 percent right that it's a mistake.

Steve, I think you and I agree more than you realize on the kind of the messaging here. The Fed, I agree with you completely that the pause, obviously, is more dovish than if they had hiked, obviously. And I agree with you that there were people in the room, I mean, there's somebody on, there's one of those dots that's up above 5% for years to come. So one way that you heard the cats is you actually do a dovish thing. You do the most gentle non-hike, I mean, the most gentle actual action, right, that you didn't hike rates. But at the same time, you put some talk on there about 50 more basis points. Talk is cheap. You know, the Fed thought that the Fed funds rate would be at 50 to 75 basis points at the end of this year as of two years ago today. So talk is cheap.

So let's look at the inflation data. The BCOM, the Commodity Index, has been below its 200-day moving average for a long time and is barely off its low of the year. Let's look at the PPI that came out. It's 1% year over year. The core PPI is 2.8% year over year. The CPI is at 4, but the number that's rolling off from a year ago come the next report is 1.2. And we expect maybe it's going to be around 0.2, like it's been registering lately. That means the headline inflation rate is going to be in the low threes in a month. So they're looking at the core rate, but the core rate is always lagging the high frequency indicators. And so lastly, import prices and export prices, which are my favorite high frequency inflation indicators. I mean, they were up at 15, 18 percent a year or more ago, and they're now negative five and six percent year over year.

And those are my favorite numbers because they're real numbers. They're not they're not adjusted. They don't take in all these substitutions. They're not seasonally adjusted. So I just think that we're looking at an environment where we're talking about an inflation rate, and I'm talking headline CPI here, that's going to be in the low threes, and it's probably not going to hit four again this year on a year-over-year basis. We think it's going to end the year around 3.5% to 3.75%. So the Fed funds rate, if they actually do those two hikes, is going to be incredibly restrictive. It's going to be a negative 200 basis point type of,

it's going to be a 200 basis point real rate, you know, 575 or so on the Fed and 375 on the inflation rate. So I don't believe the Fed's going to rates again i think jay powell has a really difficult job right now because as steve is correctly pointing out i think he realizes that were turning point potentially on the inflation situation and on the economy

and yet there are people that are dedicated to these these lagging indicators like unemployment, employment, labor market, and certainly looking at core CPI, well, it lags, it just does. So I think the used car thing, which is part of the CPI problem, stickiness we have, I think that's going to ease and shelters there. So that's that's going to be the I think the last man standing on inflation. But I think the Fed is overstating the inflation risk at this time when you look at all of the more high frequency indicators. I'm sorry to go on so long, but I think it's a very important point. No, it is a good one. And Steve, before I let you go, it's kind of why Rick Santelli as well

suggested that this is kind of bluster more than substance. and i don't think he believes that they'll necessarily do what they suggest they they might either uh how how would you respond to that you know i don't have a big argument with what jeff is saying because i think fundamentally you count on the federal reserve to at least follow the data in front of them and by by the time July rolls around, we talked about this this morning, this idea that the big June number, that 1.2 percent inflation from June 2022 rolls off and plunges the headline rate down towards 3 percent, that could hold them in July, especially if they get some cooperation on the core. So, yes, if the data does turn, then in fact, maybe they'll pause again. But I just need to, I don't know enough right now to gauge the strength of the

commitment of members of the committee. If you look at it, there were nine members at two hikes or more, and I believe the total is 12 who are at two hikes or more. That's two thirds of the committee. And that's where they are right now. Maybe they're playing a game here. I don't know. But I guess my my initial inclination is to take them at the word that they mean to hike. And I will watch the data if Jeffrey's right. And the data erodes in front of them. It takes their case away for hiking. Then they won't do it. Yep. Steve, I appreciate it. Great stuff as always. That's Steve Leisman, our senior economics reporter. As I move back to you, Jeffrey, the scenario you paint is certainly not one in which that

the Fed's going to hike one or two more times, but one in which they would cut because you think the economy is much weaker than they want to believe and that inflation is coming down much faster than they're willing to admit. Well, I think that if the I think the Fed will cut rates if the unemployment rate goes up to what they forecast. I mean, it's really fascinating that the Fed is forecasting a recession in their dot plot. People are acting like they've they've upgraded things, but they're still talking about an unemployment rate that's basically about 75 to 100 basis points higher than what the trough was. And historically, when you get an unemployment rate that goes up by 50 basis points off of its trough, you have never failed to have a recession. And usually it ends up going up by 200 basis

points or more. And I think that's what's in prospect here. So, yeah, I think they're clinging on to the core inflation data, which is, I think, kind of misleading. It's pretty random when you think about it. All the slicing and dicing of inflation data where you take the headline number and then you strip out food, and you strip out energy, and you strip out shelter. I mean, you end up talking about really contrived aspects of prices. I'm going to say one more time, because it's really important. Look at commodity prices. Commodity prices are just dead in the water. We keep getting OPEC cuts, or at least stated. Who knows if they're really cutting? But rhetorically, maybe they're like the Fed. They say they're going to cut, or at least stated. Who knows if they're really cutting? But rhetorically, maybe they're like the Fed. They say they're going to cut, or in this case, they say they're going to cut

production, not raise rates, but they maybe don't cut production. But oil prices just don't really go up. We see persistent weakness. And so that's just a telltale of coming lower inflation. So I really believe, as we talked about nine months ago, Judge, that I think treasury yields peaked last year, not on the short end, of course, but even there down substantially. On the two-year treasury, it was above five. Sure, it's up at about four and three quarters, but it's below where it was before, six months ago or so, or last meeting anyway. And the 10-year Treasury hasn't seen four in a long time.

It's range-bound, but it's not going anywhere. I think that if the Fed follows the path that they're talking about, I think Steve Leisman is right. Maybe their intention is to break something. But if they do that, they are going to break something. And we already see lending conditions going, getting much tighter in these surveys of lending officers at major institutions. They've been tightening credit conditions for a long time. And that leads to a credit starvation for the engine of this economy, particularly for small businesses.

So I just think that, again, just to repeat, the Fed was way too slow in raising interest rates. Back when they started, I somewhat facetiously, but I really did mean it in my bones, I said they should raise rates 200 basis points right now. And they didn't. And because of that, long rates went up a lot because they were anticipating the inflation that the Fed didn't see. And that led to this banking crisis at the regional banking level with three banking failures. So they were kind of responsible for that, and now if they over-tighten, which I think they've already done that a little bit, but if they go another 50, what about this regional banking system and the disintermediation?

Who's going to keep deposits at banks that are paying almost no interest rates at all when you could get under that scenario five and three quarters rolling T-bills? But what would you say to the pushback to the idea that they've over-tightened to the fact that we're talking about a stock market that is in the midst of a pretty strong rally. Some would suggest it's in a new bull market. So, and yields have not, you know, yields have not exploded higher either. So couldn't you see how they could look at all of that and say, we haven't done nearly enough.

I know that labor is a lagging indicator, but nonetheless, it's still strong enough at this point and certainly stronger than they expect it to be at this point that they would say, there's the evidence, all you need, all those three metrics that we haven't done enough. Well, if you want to talk about the stock market, I think you've got to divide it into sectors. You've got the S&P 7, which is the mania craze regarding anything.

If you say AI, your stock goes up 20%. And then you've got the S&P 493, which have gotten a little bit of tailwind lately. But as of a few weeks ago, we're basically unchanged year to date. So the stock market, frankly, is exhibiting signs of a mania, where you have a very concentrated part of the market that is driving the entire train. And it leads to an evaluation, which is pretty scary with an inverted yield curve and the Fed raising interest rates or saying they're going to raise them further. The S&P 500 is a P.E. of 19 on a forward earnings basis. And if the economy weakens or goes into recession, those forward earnings are greatly exaggerated. And so the S&P 500 is really overvalued because,

you know, you've got NVIDIA is up over 400% year to date. I'm going to say that's a lot. And so there's stocks like that that are leading the train. This is feeling a lot like the lead up into January 4th of 2022 in terms of the action of the S&P 500. So I think that there's been a lot of, you know, there were a lot of shorts. There was a lot of pessimism. We've had the type of retracement the ones would expect. To call this a new bull market, I think, is really pushing it with the S&P 500 at 19 times forward earnings. I mean, I'm just going off of what, you know, technically they suggest 20 percent off of the low is a bull market. We've been having debates almost every day on this network as to

whether it is really a bull market or not. So you're telling me, so you're telling me pack West Sox in a bull market. Your point is well made. So in this environment, then you obviously don't like risk assets. If you think that the stock market is, at least part of it, is in what you're describing to be, I don't want to use, you know, you didn't use the word bubble, but it sounds like you're describing something like that in a certain part of the market. What do you like here and now? Again, I haven't really changed my game plan for about a year and a half, maybe even coming out a year and three quarters.

And that is systematic upgrading in fixed income portfolios game plan for about a year and a half, maybe even coming out a year and three quarters, and that is systematic upgrading in fixed income portfolios. This is the perfect time to do that because we've had, with the stock market going up, a pretty nice rebound and a bid that was completely absent a few months ago, even in triple C assets, which are doing well in the junk bond market. But I think this is the time you want to have a barbell portfolio with some risk assets primarily in bonds in the past we spoke scott of a thirty sixty ten type of portfolio stocks thirty bonds sixty and something like gold maybe ten percent that's just a proxy for some

sort of real asset take your pick your real asset of choice. But now I think you should be 20% stocks, 60% bonds, and 20% in that real asset. The fixed income market is very cheap compared to the stock market. I've talked about this. You can get 5% in a very high-grade bond portfolio with no default risk. You can get 8%, 9%, 10% in a well-positioned, actively managed fixed-income portfolio that is taking middle part of the capital structure. At this juncture, triple C, I don't like at all.

Even single B, I think, is starting to be something you might want to upgrade in away from higher up. You can get all these yields, and you have all this upside. What people don't understand is thanks to the fact that rates went up a lot and the fact that spreads on risk assets and bonds are somewhat elevated. They're down from where they were, but they're at about 450 basis points. I mean, you're talking about prices that have went from 100 on these credit bonds down to 80, 70, 60, 50, because of those rate increases and some of the fears. When you buy risky credit or moderately risky credit and fixed income at a price of a hundred, you've got a really bad proposition because they can't go up

very much. If the prices go up, they'll just refinance them because the price is going up means that they can do new issue bonds at lower yields. And so they'll refinance them and they'll take your coupon away. But when, and you have all that downside, if you're at, start out at a hundred, you can go to 80, 70, 60, 50, which is what happened. But if you start out with a portfolio of bonds at 60 or 65 cents on the dollar, you've got 50% upside to par. You have stock market-like upside. I would argue even greater upside than the stock market from these valuations. And the downside can't be any worse. Stocks can easily drop 50%. We've seen it so many times in my career. And the bonds aren't going down to 32.5% unless there's a massive default problem. If there's a massive default problem,

stocks are going down more than 50% because they're junior in the capital structure. So fixed income right now, it has four times the payout of the stock market if you do this kind of barbell I'm talking about, and you can hedge it with treasuries because long bonds are not at 1% or 2%. 10-year treasuries up near 4%, and it could very easily fall to 2% in the wrong type

of economic environment for stocks or risky assets. That's a 20% gain plus coupon. The long bond could give you a 40% gain plus coupon. That can offset your risk. This is an exciting time for the fixed income risk parity, if you want to call it that trade, because we're back where we were in 2012 or so, where you can get yields and you can risk manage very, very precisely. And you still like the longer end of the treasury curve rather than the shorter end where you've got yields at 5% in some cases? You do a mix there. I don't think you want nothing but long bonds. So you can take short-term, medium-grade sort of credit and asset-backed securities that amortize very quickly. So you don't have to really worry about it because they're paying you back very quickly. The job

really is to keep invested because you're getting so much payback. Those are up at around 6%, 6.5%. And then you can marry them up. and you can do that in other areas of the bond market too, but we're talking about short-term assets, you're getting the benefit of the pricing, the base pricing off the inverted yield curve, but the long-term bonds, they can go up in price. Sure, the yields are only around 4%, but whatever. You're not really talking about yield here,

you're talking about a risk management vehicle. So you end up having a portfolio that can yield in a low risk sense. You can have a yield of around 6% in a high risk sense. It can be, gosh, it can be double digits, but you're going to have to deal with volatility there if you want to take that kind of income stream. So that's where I am, Scott. I've been here for a while. I'm just getting more vehement about it. Yeah. What about emerging markets? Are you still there, too? Well, emerging markets have been very volatile,

and emerging market currencies have really not gotten into the gear on the upside the way, say, the euro has. But I think emerging market stocks over the past six months or so, since November anyway, they're up 20% on the EEM ETF, and that's actually more than the S&P 500. They've been challenged more recently with the commodity price problems and the dollar having rebounded a little bit. But as a long-term play, I really think you should own emerging markets on a kind of a dollar-cost averaging basis from this point. Not China, but Southeast Asia, Central America, South America, excluding a couple of basket case countries that seem to always default.

And then India, of course. India has a very, very bright future, I think, over the next two decades, call it. And so that's sort of a core holding. You're obviously quite critical today of the Fed in some respects. But I want, before I let you go, to sort of look at all this in total, because we've done 10 straight rate hikes before today. We've done 500 basis points in a little more than a year. We have a stock market that, as of today, has hung in there pretty well. An economy, yes, it might be weakening, and the LEIs that you suggest are weaker are obviously such. But nonetheless, we have not had the recession that so many have

called for or thought would be here by this time at minimum. Can you assess J-PAL's job and that of the Fed in saying that they've done actually a good job to this point to be where we are with what they've done and have those things that I just told you we do? I think that they started out a year and a quarter ago doing a terrible job. And we talked about that all through 2022 until about, I don't know, maybe it was November meeting or it was a December meeting where I said, I really feel like he's found his footing. Jay Powell has got himself in the right place. And I think they're still okay. I think where they are right now is okay. But if he follows that rhetoric, that hawkish rhetoric, I think he's going to make a mistake. And so I think he's

walking on eggshells here. He's got a lot of cats to herd. He's done a good job. If he stops, if he doesn't hike rates and starts looking at high-frequency data, I think he can go back to kind of that spot where he was, where I was. Complimentary of him, Scott, you'll remember that. I'm not always critical of the Fed. I'm not a big fan of the Fed as a mechanism. But I think Jay Powell started out badly a year and a half ago and got himself to a good place. But, you know, the hardest thing to do in the investment business, and I'm sure for the Fed,

is after you've gotten yourself to a good place, if you see storm clouds coming around the actions that got you that good place, you've got to make changes. And one of the hardest things to do in the investment business is to make changes after you've done well. Because it's just such a good friend of yours. You know, it's gone well. I've got this in the portfolio. I feel economically I've benefited, psychically I've benefited. But the hardest thing to do is to change. And so when I bought European stocks about a year and a half ago, it felt really, really weird. I was losing my old friend of being totally out of the European stock market, but it's been a good place to be over that time period. So it's hard to do, but I hope Jay has

the courage to do it. Jeffrey, I appreciate it as always. And we look forward to visiting with you every Fed Day. And I know our viewers do as well. Thank you so much. Tell your viewers to look up Buffalo AKG Art Museum and go to the images and try not to say, wow, we just opened it this week. I don't have to tell them because you just did. Jeffrey, thank you. Thanks a lot, Judge. That's Jeffrey Gundlach joining us from Double Line once again. We're now in the closing bell market zone.

New Edge Wealth's Cameron Dawson back with us again. She joined CNBC senior markets correspondent Bob Pisani to break down the crucial moments of the trading day. Diana Olick's looking at Lennar earnings. They're out in overtime today. It's great to have everybody here. Bob, you first. It's been an interesting market reaction. What's your takeaway here?

This has been one of the most interesting Fed meetings I've seen in a long time. And I think Jeff had it right. Hawkish in the rhetoric, but not in the action. Put up the S&P 500. Immediate reaction. S&P drops 30 points as soon as they say half of the FOMC supports 50 basis points. That was a surprise. Boom. Rates go up. Then something odd happens. Look, the presser starts and rates start. The S&P starts moving back up. Rates start stabilizing again. This is a reverse of what we've seen in recent Powell meetings. It's tended to go down during the Powell meetings.

So one of two things is happening that explains the market movement here. Number one is the market doesn't believe the Fed's going to raise rates. And that's what Gundlach said. Talk is cheap. He had the two best quotes of the day right here. And I think that that's one explanation. The other explanation is the market believes that after 500 basis points of rate hikes, it can withstand another 50 basis points. And again, here's the argument. S&P 500,

Jeff mentioned this, 19 times forward earnings right now. And it's held up during the day. That is not only not a recessionary multiple, that's an expansionary multiple. And so far the market's been right on that. Well, there's, there's a belief, Cameron, that he was to Bob's point, genuinely, I underscored genuinely data dependent. And if he is in fact really data dependent, the data don't lie and that it's going to continue to work in the favor of the doves rather than the hawks. Well, it's interesting in that context because you're actually seeing economic surprises surge higher, which means that data is coming in better than expected. And I think Jeffrey's comments about data being weak or signs of weakness,

a lot of that is either market-based data or soft data. If you look at the hard data, things like instead of looking at PMIs, looking at industrial production, they remain resilient. So you haven't seen enough weakness in the data to really suggest that the Fed needs to make an about-face. Bob, the other point that the bulls have had to contend with as we've wrestled with this idea, who's really in charge of this market now? Have the bulls gotten it back? You know, Jeff makes the case. Now, obviously, he's the bond king. He's a bond guy. He's going to

make the case, in some respects, for bonds, as he did. But it is a hurdle to get over, that there are other attractive securities to be investing in besides equities still, whether it's cash or fixed income? I think the real question and the issue for the market, if you want to try to get the market higher, if that's what your goal is, is all those people who were buying 4.5%, one-year treasuries in the middle of March

that were flooding the market and pulling money away from the stock market, we are up 500 points on the S&P since the middle of March, and everybody started doing that. 500 points, that's 13%. Are those people who are sitting there saying, I've got 4% one-year CD and we're up 13% since I pulled all that money out, are they going to be dragged into the market right now? Unless they think it's too late, that they missed it, so they're going to stay safe, so to speak.

The FOMO never dies. Even at the top, FOMO never dies. So let me just go one point about Powell. What's really motivating Powell for being so aggressive, for the group to being so aggressive? And he hinted at what they were really afraid about. He says forecasters, including the Fed forecasters, have consistently thought inflation was turning down and have been wrong. He says we have been wrong. It's better to overtighten and lose credibility. That seems to be what his message is today and I think that's what's motivating.

Look, he said, Cameron, the risks to inflation are still to the upside. I think it's pretty obvious too at this point that what they thought was going to be restrictive wasn't restrictive enough. If you look at the fact that the labor market, I get the idea that it's a lagging indicator, it's still hung in there pretty well. The stock market's up 20% since the lows. Well, they seem not to believe their own forecast. They talked about how PCE would go down to 3.9%. He goes, that's a pretty aggressive forecast given where we stand today.

And I think the thing that's interesting is that we're at the same real interest rate that we were prior to the SVV issues, and yet valuations for tech stocks are up 30 percent, which just means that this rally has had nothing to do with the Fed. The Fed's not been the key source or driver of the upside. It's all been positioning FOMO AI optimism. Gundlach says no more hikes. What does Dawson say? I think it's still very potential that we could see more heights. I think that the Fed still has a credibility problem. It's why we thought that they would get to five and a quarter, that they wanted to make sure

that they delivered on what they said they were going to do. So I think that if data continues to be resilient, the big question I have is that if we have a strong jobs data but softer inflation just because of those tough comps year over year, what does the Fed do in July with that combination? I mean, are they going to go overboard, Bob, trying to save their own credibility, as Cameron kind of suggests? Yes. That's what he seemed to imply.

Their credibility is more important at this point than doing what's right? Yes. And remember, square this circle, Cameron. They've raised their estimates for GDP. They lower their estimates for unemployment. And they act like something imminent, dangerous is coming. They want to slow down the economy, try to raise 50 basis points. It seems a little tough to square, necessarily. Which is to your point, though, that the market probably doesn't believe it,

which is why the S&P went positive momentarily and is only down not even three and a half points. Yeah. Because the market still doesn't believe what Powell says. Or they can withstand the 50 basis points if it does actually happen. And I happen to think Jeff is right. I think they're not going to do it. I think they just need to keep that credibility. And if they over-tighten, so be it. Better than lose credibility.

Powell said we've been wrong on our inflation forecast. They can't have that happen. Well, their credibility is on the line. Maybe at least one part of the economy is bottomed or seen the worst. That would be housing. Housing stocks have been one of the bright spots of the year out of the discretionary space. Diane Olick leads me to you. Lenar Earnings and OT. Yeah, Scott, this is going to be interesting given the dynamics in housing during the spring quarter. Builders said in their May sentiment survey that they were benefiting from the lack of existing home supply.

But mortgage rates were a little nuts this quarter with the 30-year fix starting March above 7%, then falling really sharply in April close to 6%, then back up over 7%. So we'll look for commentary on builders' costs for materials and wages and, of course, gross margins, which fell in the previous quarter, and then home prices as a result. Now, Lenore's stock, as he said, it's been on a tear, nearly hitting an all-time high yesterday, but it's really going to be about the demand going forward. We'll be listening for that, Scott. All right, Diane, I know you will. And we'll we'll be watching for certain. Let's go back to our pedals. We watch the market here. Dow's down 275. But again, price weighted. United Health has been a massive drag all day. At one point today,

it was accounting for all of the losses of the Dow. Right, Bob? So it's skewed in the way you look at it today and suggest that is not all Fed. No. This is why the Dow is a flawed index, in my opinion. It's a $500 stock. When your average stock in the Dow is close to $125, you move 40 points in that stock in a day. That's 280 Dow points on a day when the market's moving in a completely different direction. And yes, of course, medical loss, the medical ratio, loss ratio they were talking about was an issue, obviously. But 400 points, excuse me, almost 300 points in the Dow. There were four stocks down today in the Dow, 26 up at 1030 when I made a comment about this.

And we were down almost 200 points in the Dow. I mean, that's a problem. There's a reason market cap weighted indexes like the S&P 500 have won the day because it's the community voting on real shares and real involvement in the market. I want to see, too, in the days ahead, if today ends up being, for lack of a better description, a whole lot of nothing.

You would pay too much attention to what the chair said. The bottom line is they did 10 rates, hikes in a row, and now they've paused. And maybe once they've paused, it's harder to start again, regardless of what they suggest. The CPI was good, the PPI was good, the economy's still hanging in there, and the stock market is too. Yeah, well Canada and Australia restarted their hikes,

so there is precedent by other major central banks that they could do that. But looking at the market action today, under the surface there is some defensiveness. The only sectors that are up are utilities, staples, and tech, everybody's new favorite defensive. So it'll be interesting to see if that continues in the coming days, if we see more of a risk-off tone under the surface. Yeah. What do you all make, too, of Gundlach's suggestion? He didn't use the word bubble, obviously, in tech, but some others have in suggesting there's been this mania, Bob,

around the Magnificent Seven or seven to ten names and sort of everything else until recently was kind of ho-hum. There has been a mania around it. But is the mania insane? I don't I don't think so. I think the AI potentials are enormous. I think, you know, Siegel has been arguing for a while that using old school valuations from 20 years ago, like, for example, the S&P at 20 would be unusual, should be revised. And I think he has a point. Maybe 16 or 17 times forward or 25 times forward for tech is not an old, should be looked at a little bit differently. Well, you're going to hear the bell in a moment. The Dow is going to be negative. But again, it's a United Health story. NASDAQ near 50 points to the upside. S&P trying to turn green into the close.

Maybe a bit of a surprise today from the Fed, but we shall see. I'll see you tomorrow. OT with Morgan and John is now.