Closing Bell - Closing Bell: Navigating Tariff Uncertainty 2/3/25

Episode Date: February 3, 2025

Just how vulnerable – or insulated – is the U.S. economy under various tariff scenarios? We break down the latest in the trade war and what it might mean for your money with Dan Greenhaus from Solus, Sameer Samana of Wells Fargo and Invesco’s Kristina Hooper. Plus, former Dallas Fed President Richard Fisher tells us what the tariffs could mean for the Fed and inflation. And, star technician Jeff DeGraaf says he is watching one key sector in the market right now – because if you lose that sector, you could lose the whole market. He explains which one and why. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner today. This make or break hour begins with stocks tethered to tariff talk with the indexes rallying hard from a sharp early spill as initial fears of immediate tariffs on Canada, Mexico and China imposed by President Trump were eased somewhat by a tentative agreement to delay the Mexico action by 30 days and a plan for talks with Canada this hour. here is the scorecard with 60 minutes left in regulation the S P 500 up more than one percent from the morning lows now down just four tenths of one percent the Dow going green after opening lower by more than 600 points you see it just there above the flat line the Nasdaq has been the laggard all day. It remains so. It's down about three quarters of one percent, pressured by Nvidia, Apple and Tesla. All of them seem perhaps

as net losers if 10 percent tariffs on China take effect. Even there, though, the loss is pretty modest in the composite. That takes us to our talk of the tape. Just how vulnerable or insulated is the U.S. economy under various tariff scenarios? And is it even correct to view trade policy as the major swing factor for stocks? We will discuss that with our panel of investing experts. But first, let's get to Emily Wilkins with some news on the Treasury's debt issuance plan. Emily. Hey, Mike. Yeah, we just heard from the Treasury announcing today their plans for the two upcoming quarters. For this first quarter of 2025, they expect to borrow $815 billion in that first

quarter. That is $9 billion less than what was announced in October of last year. And then moving on to Q2, April through June, they expect to borrow $123 billion. Of course, that's much smaller because Americans and companies will be paying their taxes, hence the need for Treasury to borrow less. Mike? All right, Emily, those are the amounts we're going to work through to see what maturities. That's always been of interest to the street and see if any of that ripples through their bond market. Let's now send it over to Megan Casella for the latest on the tariff front. Megan. Hey, Mike, it's been a busy day and it's a make or break hour now for Canada. Prime Minister Justin Trudeau and President Trump meeting by phone as we speak

for the second time today as they try to work out a deal to delay or to scrap tariffs entirely. So far, we know that after they spoke this morning, President Trump had a number of questions for Canada, including about U.S. banks being able to operate up there. So a major question now on whether the two sides will be able to reach a deal before Trump's tariffs and before Canada's retaliatory tariffs are set to take effect just after midnight tonight. Also on the president's list of calls today is China, who he says he'll talk to probably in the next 24 hours. What I have discussed is we'll have some good meetings with China.

We have meetings planned and we'll see what happens. But that was just an opening salvo. If we can't make a deal with China, then the tariffs will be very, very substantial. So only one third of this trade war seeing any resolution so far today after Trump and the Mexican president announced earlier that they have a deal to delay tariffs for at least 30 days. That happened in exchange for Mexico agreeing to send 10,000 troops to the border to focus specifically on fentanyl and after the U.S. said it would take steps to stop the flow of some weapons into Mexico. So the next step on that front will be for Marco Rubio, Scott Besson and Howard Letnick to lead negotiations with Mexico over the next month to see if a more permanent deal can be worked out. Mike. All right, Megan, nine hours left.

Plenty can happen, as we've seen in that span of time. Megan Casella, thank you. Let's bring in Dan Greenhouse from Solus Alternative Asset Management, Wells Fargo Investment Institute's Samir Samana, and Invesco's Christina Hooper to talk about how all this applies to markets. So, Dan, I guess you have to have some kind of theory of the case here, if you're an investor, about the probabilities of the various tariffs taking effect, how long, what the pass-throughs are. I mean, all of these things feels like this kind of decision chain you have to go down if you choose to. All of which is very easy to do.

Exactly. So the point is, do you try? Do you try to be precise about it? Or how do you think the market is just digesting all the probabilities? I don't think there's any reason to try to be precise about this because we don't know what we're being precise about. We don't know on what goods, for how long, when they go into place. And as we saw today with the Mexico announcement or the assumed Mexico announcement, we don't know what we're being precise about. We don't know on what goods, for how long, when they go into place. And as we saw today with the Mexico announcement or the assumed Mexico announcement, we don't even know that they will go into place. So I think it's part of the reason you're seeing stocks go, I was going to say go out, but we're at 304 here, stocks sitting basically at their highs here

because you're seeing some semblance of the reality that maybe these aren't going to actually happen. Now, to be clear, I thought they would happen and will happen. But the delay for a month is exactly what the market's hoping for. Some semblance of negotiation results, if you will. I guess, Christina, the big question is, do we have a template for this? Can we figure out what has happened before? Of course, we were in a similar situation in the initial Trump administration. Do you want to listen to what Paul Trudeau Jones had to say about whether that experience applies today? This is a completely, totally different landscape than Trump 1.0. So if I go back to January of 2017 and I look at where we were in the three

big asset classes and where we are today, wow, it's a much, much shakier ground that we're treading on. So he's speaking there, Christina, obviously about the markets, the initial condition, maybe where rates are, where they were then. Still, how would you think about today and how we should be internalizing all this relative to the last time? Well, Mike, I think the best approach is to look at the playbook from the first Trump administration. And what we saw was that the tariff wars resulted in significant volatility. There were periods of sell-offs when there was a deterioration in trade talks, more tariffs were applied. But ultimately, once there was a resolution of the phase one war, so to speak, what we saw was stocks recover

quite quickly. And in fact, if we were to look at calendar returns, 2018, the S&P 500 was down almost 5 percent. Chinese stocks were down more. MSCI China was down 30 percent. But 2019 was a strong year, 36 percent up for MSCI China A. And for the S&P 500, it was up very significantly as well. So I think that that is our best playbook, is that there's going to be volatility. We don't know with any precision the number of tariffs, the number of countries involved. We don't know the scale, the length. But we do know that there's probably going to be a lot of volatility as relations go up and down. And that at the end of the day, once they're off, once this is done, stocks can move on, that this is really going to be a temporary headwind. Well, I guess, yes. So we can hope, of course, that stocks can move on and maybe it isn't necessarily something that creates, you know, an economic inflection point for the, you know,

for the negative, right? Well, it didn't happen last time. And that was pretty significant, right? We went from January of 2018 to October of 2019. And you can see the Federal Reserve Beige Book was peppered with comments about how it was causing a postponement in investment, hiring, all kinds of negative impacts. But they didn't seem to be long lasting, that once we got past it, there was no real damage to the U.S. economy. Samir, I guess if nothing else, whether you have a strong opinion or not about whether tariffs would be inflationary if they took effect, whether they'd be risk to growth. If nothing else, it's kind of sand in the gears of trade relations. And it's sort of dust in the eyes of investors and business people in terms of figuring out what to do next.

So how do you best either take advantage of that uncertainty or navigate around it? Yeah, so I guess maybe a couple of north stars for investors to focus on. I guess one would be the macro, right, is the economic data is really good, including this morning's PMIs and ISMs. I think, two, inflation continues to come down. Three, the other thing that's different between now and 2018 is in 2018, the Fed was hiking interest rates. They've recently just stopped cutting interest rates. Another north star would be corporate earnings, right? They're scheduled to grow about 10% this year. And then kind of the last thing that I'll throw out there is, look, at the end of the day, President Trump does view the equity market as a report card for himself.

So if you kind of take all those things as your anchor points, then I think you kind of look through the trade noise, so to speak. And I think you come away with a pretty good outlook. And if you do happen to get pullbacks like you got this morning, I think you step in. I think you take advantage. We like U.S. large cap equities. We like energy. We like comm services. We like industrials. We like financials. Those all play well in an environment where the president is trying to get the U.S. economy going at the expense of the rest of the world. We're unfavorable on emerging markets. We're unfavorable utilities and we're unfavorable staples because, again, we think higher interest rates and those higher input costs will keep those sectors kind of

contained. You know, Samir made a point that lots of people make, and I'm only going to pick on Samir because he's here on the show with me, that the president views the S&P 500 as a scorecard. Undoubtedly, that's true. More likely it's the Dow, but yeah. I don't even know where the Dow is. You said it was down 600 before. I have no idea what that means. But you know what the president also uses as a scorecard? The number of people crossing the border illegally. The number of Americans that die from Fandol overdoses. And is one more important than the other? I'm not sure. I think if you ask most market participants, as Samir said, they would probably assume that the S&P 500 is the barometer. And if it goes up or down, it's viewed as a vote

of confidence in whatever policy is doing. However, I think it's important for investors to have to take something of a political view here and look at it through the prism of the administration's people who say, I mean, listen, let's step in the administration for a second. Jamie Dimon was on with Andrew Sorkin from Davos and said, a little inflation is worth national security. Something to that effect is what he said. That is a prism into how the administration thinks about this. And so the president isn't making this view, but he's implicitly making this statement. hey, guys, how much inflation is worth saving 10,000 American lives, 50,000 American lives? And I think that's a consideration

that investors, not that Samir was not, but that investors have to consider. Well, what does it mean to consider that, though? I mean, I think a lot of investors start from a position of that tariffs at all at this stage, especially if you want to just impose them first and then negotiate, are this kind of chosen war. I mean, it's not like there's an immediate, imminent thing that investors say, take care of it with tariffs. And so, therefore, you have to have the premise either the economy is going to be fine either way or you have to deal with how either inflation or growth expectations change. I think it's fair, but I think the administration would say there is something imminent.

People cross the border every day. Of course they're going to say that. People die every day. Yes. I'm saying from an investor's point of view. I agree. Fair. Look, Christina, here's the thing.

It might not seem like it, but the indexes right now have been in like a three-month trading range. So it hasn't just been about tariffs. It hasn't just been even about policy. Last week it was AI. And so clearly the market got to a level of expectations and valuations somewhere around November where it's going to take a fair bit to live up to those. Oh, absolutely. I think Paul Tudor Jones was right. There's more vulnerability today than there was, say, in 2017, 2018. But we have to recognize there are also some positives. We're likely to have a very supportive monetary policy environment globally. And if these tariffs were to be short lived, it wouldn't have that significant an impact. So I think this is really about what is, trying to define what is the Trump administration's

goals. And I think they're actually trying to take a page from the Ronald Reagan playbook. That was a time where being hard-nosed in terms of negotiations ultimately yielded what we'll call voluntary export production agreements with both Japan and Germany and resulted ultimately in the creation of a number of factories in the US auto factories that employ workers to this day so I think they're looking for a bigger win like this which means we could be going in longer or harder in terms of some of these negotiations and the kinds of tariffs that are applied so we have to

recognize that there could be some downside. Clearly, markets are nervous and they've really been nervous probably since we started to see inflation expectations go up in terms of markets. The five year break even inflation, for example, I think there's just a lot of apprehension that we're not going to get some easing from the Fed and now we could have this. Sure. You know, Samir, we've been we spent months and months talking about how this was a market, if you measure it by the S&P 500, that was skewed in the direction of companies and business types that are really not that levered to the macro in terms of trade of goods and things like that. Right. The magnificence of it, obviously, of Apple and Nvidia, big implications right? The magnificence of it, obviously,

of Apple and Nvidia, big implications there potentially. But in general, we have kind of a growth in quality and technology and AI-focused index right now. Does that insulate us from issues such as the trade noise? Or is it another form of vulnerability

to other things? I would actually characterize it as resilience. I think there's so many different areas that are, I think, benefiting from tailwinds. You mentioned tech and growth, but I would throw out there financials. I mean, we had very strong earnings from the banks. Again, I go back to the PMIs and I assumption this morning, I do believe manufacturing rebounds this year. So industrials will do very well. And then I think energy, which is our most favorable sector, will also have a pretty good year. So again, I kind of come back to, I don't think the political goals are at odds with kind of what's going on with the macro. We think this is a very good investing environment.

And again, I come back to, I think the headlines are probably right now an investor's worst enemy. I think if you can navigate through the headlines, I think there's just a lot to choose from. Look, if there's news and it hits during the day and it seems relevant, the market's going to trade it. We can kind of agree on that. But Dan, just quickly, your point about how you have to acknowledge that there might be other priorities and the tariffs are likely to take effect and maybe they're going to have impact. What does that bring you back to in terms of how investors should be thinking about things? Or does it mean take lower risk?

Or what do you think is the upshot? Yeah, listen, we've had a really good run in markets in general. And as you mentioned, we've been trading sideways for some time. I wouldn't be surprised if we trade sideways-ish for some time more as we digest not just the tariff headlines, but also how the Fed potentially is going to respond to them. We know they're on hold, at least for now. So I think there's a, to Christina's point, there's a bit more uncertainty, certainly compared to the last time we went through this, but compared to several months ago. But in general, from an investor standpoint,

a lot of this has to be ignored. And I think there is a seriousness with which we treat forecasts. If we implement tariffs for six months, it's going to raise price. We have no idea. You don't know how much importers are going to eat. You don't know how much consumer behavior is going to shift. We don't know about the currency, which could fluctuate. And again, to Christine's point, referencing 2017, 2018, 2019, there was no spike in inflation. I think the highest CPI got- Yeah, right. You were looking to reflate. Yes, that's right.

That's right. So I think as an investor, obviously, if you have any names, Dollar Tree, that imports a lot of goods, fine. Obviously, you have to incorporate that. You're pretty good about kind of administering the winners and losers on that. But on balance, I think, I don't want to say it's background noise, but I think you have to look through a lot of this. All right. Try to do so. Dan, Christina, Samir, thanks so much. Appreciate it.

Let's now send it over to Christina Partsenevelos for a look at the biggest names moving into the close. Christina. Let's start with PVH hovering near its 52-week low down right now after a Wells Fargo report points out that Tommy Hilfiger and Calvin Klein brands just are really struggling right now, especially in international markets. Both of those brands down about double digits according to the report year over year. Even though Wells Fargo said the stock could hit $105, it's trading at $83 right now, down about 7%.

They're still worried about everything from a European market slowdown to inventory issues. A high protein diet is all the rage these days, and Tyson Foods is benefiting. That's according to the company's CEO. Shares of America's largest meat supplier are 2% higher after earnings beat. Also, cheap chicken feed, helping operating income from its chicken business. So that's helping push shares higher. Mike? Yeah, that's good news because, you know, diet fads never change.

So we're good there. All right, Christina, thank you very much. You would know, right? We are just getting started up next. Former Dallas Fed President Richard Fisher, also a former deputy U.S. trade representative, is standing by with what he thinks tariffs could mean for the Fed. That's after this break. We are live in the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back. We are all over the tariff impact on your money. Leslie Picker here with

how the tariffs could impact bank lending. Steve Leisman standing by with his flash Fed survey estimates from Wall Street forecasters about the impact of the new tariffs on GDP, inflation and jobs. Leslie, we'll start with you. Hey, Mike. The U.S. banking system is already experiencing some of the slowest growths and shortly after the financial crisis tariffs. Yeah, the U.S. banking system is already experiencing some of the slowest growths since shortly after the financial crisis. Tariffs, well, they could make it worse. We have some relatively recent empirical research to lean on here. The New York Fed recently looked at the 2018-2019 trade war to study its effect on credit extension, and the researchers found that the increased uncertainty around trade policy caused banks to pull back on lending and tighten their terms, particularly for the borrowers most exposed to tariffs.

The researchers went pretty granular here, constructing a model based on borrinion Survey, known as the SLUs, in April 2019, which specifically asked how banks were acting to mitigate trade risks, and more than 40 percent of respondents said they were, quote, tightening credit standards to exposed firms. The researchers concluded that banks are, quote, a conduit for amplifying the effects of trade uncertainty in a way that's economically meaningful. Bank stocks well off the lows of the session, trading in sympathy with the multitude of headlines today. Mike. Yeah, Leslie, and I guess if that's the finding of this research about how banks respond to the uncertainty, I guess even if just the possibility of tariffs are out there, if we're sort of operating in this zone of the unknown about

whether or when we are going to get these tariffs, then that it would seem like you might start to see it in some of the bank lending intentions. Yeah, I mean, you would see it certainly by the way that they are reserving. Now, banks overall are pretty well reserved for any type of shock. But, you know, if there is additional uncertainty, particularly for the global banks that do tend to have more exposure to these types of sectors and these types of risks, you could start to see them reserve a bit more if they're worried about some losses related to some of this uncertainty. And then they'll pull back overall. And for those that they do decide to lend to, they'll charge more for it. So it's certainly something that at least in 2018, 2019, we saw a real tangible impact from the trade war that may play a role this time around as well. All right. Yeah, yet another factor to watch. Leslie, thanks so much.

Let's get over to Steve Leisman for more on his flash Fed survey. Steve. Hey, Mike, you know, it's hard to get economists to agree on anything. They are nearly united in believing that the tariffs on China, Mexico and Canada would reduce U.S. growth and boost inflation. Of course, they disagree on how much. All but one of the forecasters in our flash CNBC Fed survey predicting lower GDP in 2025. The average is minus 0.6. The range is all the way up to minus 2 percent. All but one forecast higher inflation with prices expected to rise by an average of 0.4 percent above what they otherwise would be. Economist Joel Nareff writes in with the survey, if the tariffs are in place for an extended period of time, firms looking to maintain earnings might start raising prices. John Donaldson

from Haverford Trust says, to my knowledge, there has never been a happy outcome from a trade war. Nobody's happy about this in the survey anyway. Keys to the impact, though, how long the tariffs last, with most thinking they'll be short term. In fact, 70 percent say six months or less, with the plurality being less than three months. That's 44 percent. And just a chunk say that would be one to two years or longer, with a good contingent 15 percent saying they don't know. Now, CNBC asked the White House if there had been an economic analysis of the tariff impacts. They responded that the focus was fentanyl. They said this is a drug war and there's no price to put on that. At the same time, their press release said, quote, tariffs strengthen the American economy, raise wages and create jobs. So, Mike, it seems like the White House is seeing them as positive for U.S. growth.

Right. Absolutely. One of the rationales, at least for sure. Steve, thank you. Let's bring in former Dallas Fed President Richard Fisher. He is a CNBC contributor, and we should note he was also a deputy U.S. trade representative from 1997 to 2001. Richard, you've got it covered here on multiple fronts. You know, you heard that the way Steve characterized the consensus out there among economists of what might be the impacts. Less growth, more inflation at the margin. Does that fit with the way you're thinking about this? And how would a central banker respond? Well, first, think of how a woman or a man that runs a business reacts. They're getting a tax, raising the price of their inputs, and they have to protect their margins. So it's common sense that they'll try to pass on those new pressures to their customers.

And the question is, do they do it all at once? Do they do it in a gradual way? How much do they do? How much can they get away with? So common sense, which the president likes to quote, tells you that it would be inflationary. But keep it in perspective, the average applied tariff presently before these announcements is 2.7%. But you're looking at the largest exporter, which is Mexico. Second largest is China. The third is Canada. Together, they represent about

41% of what we import from overseas or across our borders. So clearly, if you maintain this 25% for both Canada and Mexico, another 10% for China, it's going to have an inflationary impact. The question is, do businesses respond by slowing down? And as far as the growth is concerned, most economists feel it is dampening to growth. My own experience as Deputy USTR, because whether they're Republican or Democrat, every administration always, of course, provides protection for steel, for example. And we knew in the Clinton administration, as was true for George H.W. Bush and others, that what it cost us to protect a worker was greater in terms of its impact on the taxpayer and on the economy. So we know they're inflationary. Now, as to whether or not this is a good negotiating strategy, that's another story.

Steve just said they're focused on fentanyl. Kind of ironic, by the way. There would not be a tariff on the imports of fentanyl that the syndicates or the bad guys in Mexico perpetuate. And I grew up in Mexico. I was a trade negotiator with Mexico. Spanish is my first language because I grew up in Mexico. I know the economy well. Putting 10,000 troops on the border, my guess is they will be infiltrated by the syndicates. There certainly will be a lot of effort on behalf of the drug gangs to make friends with the pedagogues who are going to be charged to 10,000 of them with ferreting out fentanyl.

So you have to keep these things in perspective. And maybe that's why the president gave him one month, just to see if it would actually work. We'll see. Yeah, and unclear, too, just how much that changes the overall numbers at the border and all the rest of it. But, Richard, I guess the question is, this all comes at a moment when the Federal Reserve is, in a sense, comfortably on hold, obviously wanting to wait and see. They've paused in their rate cuts. They've paused in their rate cuts. They want to see some of the data and the policies work their way through. And so it feels as if, at least based on how Jay Powell characterized things last week,

they're at a spot where they don't really see huge risks to doing nothing. Is that fair? Yeah. And I was fascinated this morning or yesterday where President Trump said he agreed with their decision. Yeah, that's news. I'll tell you that he rarely agrees with Powell and the FOMC. Look, the real issue, Mike, isn't the real issue here is what does the Fed control? And I'm going to give you a quick numerical breakdown. The federal government last year, fiscal year just ended in October, took in $4.96 trillion in revenue. That's taxes and fees. They paid out almost a trillion dollars in interest. So imagine a business that 19 or 20 percent of their intake goes to paying interest.

You wouldn't invest. None of our viewers would invest in that business. Now that cost is going up because the 7- and 10-year treasuries that were financed at 2% are now going to be issued under Secretary Besset at 4.5% or 4-plus percent. My point is the cost of carry is going up. The Fed does not control that. The Fed does not have any control over the yield curve, I believe, beyond, say, six months or one year max. And if you look at what happened since they cut rates in September, the rates in that part of the yield curve, one year out, two years out, have all risen significantly. Why?

Because the supply-demand factor with the Treasury. And I'm very much looking forward to see what the new Secretary of the Treasury and the President does to bend that curve. But so far, we haven't heard any discussion of it whatsoever. Yeah, for sure. No, market yields on the longer end up quite a bit from that first raise cut and even December, but definitely off their highs. So we'll see next move. Richard, appreciate the time today. Thanks so much. Appreciate you, Mike. Thank you. Thank you. All right. Up next, technician Jeff DeGraff says he's watching one key sector in the market right now, because if you lose that sector, you could lose the whole market. He'll explain after this break. Closing bell. Be right back. Markets rallying off session lows as President Trump delays

tariffs on Mexico by a month. But with the S&P 500 trying to hold above 6000 and sitting just below its record high, let's bring in Renaissance Macro Research Chairman Jeff DeGraff for maybe some handicapping of the next move. Jeff, great to see you. Good to see you, Mike. Thanks for having me. All right. So, you know, pretty good January point to point, although I guess there's a lot of nuance to how it got there. We sort of teased that you see a kind of a linchpin sector in here in terms of determining whether this market stays supportive. What's that? Well, it's consumer discretionary, right? Which is a pretty heterogeneous sector. It's, you know, there's a lot of stuff going on there. I'd point to

home builders and say, boy, those look like tops. And that certainly looks more vulnerable. But, you know, look at the restaurants, look at the hotels, look at the cruise lines, look at some of the apparel retail names. I mean, those are still in pretty good, a pretty good place. And they turned positive for us on a relative basis last week. Now, we do this on an equal weight basis. If you didn't, you'd have Amazon, which would dominate. But when we do it on an equal weight basis, it still limped into this bullish condition. It certainly wasn't emphatic. It wasn't resounding. But it was good enough. And I think that's going to be really important as we

go forward. Because when we're in this part of the cycle, it's really important for discretionary to hold up. If it tails off, if it starts to underperform relatively, that becomes more of a problem for the broader market and implies usually a policy mistake or something along those lines. Yeah, I mean, Amazon and Tesla for the market cap weighted sector is like almost 40 percent of it. So, yes, equal weight tells you the real message there. I guess more broadly, Jeff, you know, how do you feel like the market is acquitting itself in this period? It's had to kind of deal with a little bit of that gut check on the AI theme. And now, of course, we have tariff noise that at least seems to have a tactical impact. Yeah, look, I mean, we know that February is a tough month, right? We started January,

which usually is a good month. We started that oversold, which was good news. We actually got to an overbought condition as we ended last week. So now we're starting February, which is historically seasonally weak from an overbought condition, right? We know that historically over the last roughly 100 years, you've got about a 53% probability of positive returns for the month of February. That compares to something that's usually in the low 60% for most other months with the exception of September. So February is the second worst month historically behind only September. I think we're just going to have some choppiness. We haven't liked semiconductors for six months now. I mean, they broke on a relative basis. NVIDIA has really kind

of been the lead horse there, the pull horse. I'd say that, Navago or Broadcom, those are the two names that look a little bit better. Actually, we like Broadcom better than NVIDIA. But the rest of the industry group just doesn't look that good. Software looks okay. Some of the media names look pretty decent. But I think semiconductors are still under pressure. I think there's more to shake out from that as we go, mostly because expectations are just so high. And I think the shot across the bow with DeepSeek was more really about maybe resetting expectations that, hey, this isn't just a one-way street and that there, you know, there probably is other opportunities. And, you know, frankly, what productivity does is find creative ways to, you know, get people resources and products at a lower cost price. And I think that's exactly what that's going to do.

In terms of Bitcoin, I found it interesting over the weekend as we were getting the firmer news on tariff intentions. It traded down pretty hard. I guess it's probably because it trades all the time. It's a global asset. If you want to take down risk, you could do it on Sunday morning in Bitcoin. But it's firmed up here now, and it's been just really sideways for a bit. I wonder how you read it at this point. Well, so, look, the trends are still strong.

It's consolidating, really. Once it broke through 100,000, it struggled to get above there. One of the things that we look at is what the positioning is in the futures market with Bitcoin futures. And I think one of the interesting tells for us is that when we look at commercial hedgers, so these are players that have an underlying position. They're just using the futures market to hedge that risk, they're actually net short. And when we look at the T-stats and we do some of the quantitative work around this, we find that there's a pretty good relationship between their position and the forward returns. And in this case, you want to follow what they're doing. So they're at a pretty

excessive short position right now. And we just say, look, that's probably going to be an impediment if you look at the history of what these guys do and what the forward returns are. It's still a good trend. So I think a sharp break that probably brings them back into covering those shorts to us looks viable. But I still think there's some vulnerability there. So we want to be careful. Yeah, I mean, obviously not a ton of history with Bitcoin futures, but the pattern obviously seems to be pretty clear there, Jeff. Hey, thanks again for the time. Appreciate it. Talk to you soon, Mike. All right. Up next, we'll get you set up for Palantir earnings in overtime.

What to watch from that report coming up. Closing bell. We'll be right back. That's 17 minutes till the closing bell. Let's send it over to Seema Modi for a look at what to watch when Palantir reports in overtime. Based on the stock performance, Seema, it seems like some high hopes in play. Very much so. And the stock up about 1% at this hour, Mike. The rebound in Palantir, to your point, has been swift, hitting an intraday high on Friday after a brief sell-off to start the year. Optimism seems to be growing around future orders. Analysts at Wedbush Security citing what they call unprecedented demand, while B of A raised its price target on the stock to $90 from $75,

telling clients that the recent deep-seek news highlights the AI software names like Palantir that cannot be commoditized. That's their view. One question on the street. Does Palantir CEO Alex Karp plan to increase spending on scooping up some of the smaller competitors? A report indicates a potential investment in Shield AI. That's a drone startup that counts the U.S. and Ukrainian government as customers. Currently across the street, three buys, 14 holds and six sells on the stock in the options market right now, indicating about a 10 percent move in either direction after earnings hit, Mike.

Yeah, it's a divisive stock loved by retail. The street's a little bit wary of that valuation. We'll see how it breaks after the close. Thank you, Seema. Still ahead, we'll break down the big impact tariff talk is having on the auto sector. Closing bell, we'll be right back. Up next, what to watch when N nxp semi reports at the top of the hour plus 314's warren pies helps us navigate the critical final moments of the trading day with

the s&p 500 now down about two-thirds of one percent that and much more when we take you inside the market zone we are now in the closing bell market zone phil lubeau brings us the latest on how tariffs might hit the automakers. And Christina Parts-Neviles looks ahead to NXP earnings out in overtime today. Plus, 314 Research's Warren Pies downgrading equities. He will explain why in just a moment. But first, Phil, auto is pretty much right in the crosshairs here. They are.

And we're not going to talk about Mexico because that's at least delayed for a month. Let's talk about Canada while we wait to see whether or not the tariffs actually go into effect after midnight. Canada is where the United States, if you look at all the vehicles sold in this country last year, more than 1.1 million of them came from assembly plants in Canada. That's roughly 7.1% of the vehicles sold in this country last year. And don't forget about the parts and components. More than 12% of the parts that go into vehicles built in the U.S. were actually manufactured in Canada. So if there are tariffs that are put in place, those parts and components would face those tariffs. Not surprisingly,

the auto stocks under pressure for most of the day. They did get a little bit of relief after the Mexico news came out, but they're all down anywhere between 1 and 4 percent, talking about GM, Toyota, and Stellantis. And as we take a look at shares of Ford, also under pressure today, remember, Mike, that we get Ford's Q4 results after the bell on Wednesday. And no doubt, the talk on the conference call will be about these tariffs and how Ford is trying to deal with them if they're put in place in Canada. Yeah, pretty tough logistical thing to try and deal with something like that, given the networks. All right, Phil, thanks so much. Christina, NXP,

a name that's struggled a bit in recent months. Yeah, no doubt. And it's heading into earnings today with automotive chips in focus, a segment that really just drives half their business. Wall Street's preparing, to your point, for a softer Q1 guide, potentially down about 7% to 8% sequentially. We don't expect any comments on tariffs, given how new it is. Notably, NXP has avoided the dramatic inventory corrections that hit competitors. The revenue drop from peak has been relatively modest at mid-teens percentage, and they've dodged the pricing pressures from the long-term supply agreements that hurt other companies like OnSemi. So analysts, though, are remaining pretty optimistic from the few reports that I read.

NXP's strong position in automotive and industrial markets, plus their regional supply chains, could actually help them navigate through some of this slowness that we've seen. Most of the auto weakness appears priced in, according to Goldman Sachs, with potential upside from expanding growth in EVs in China specifically, a theory or a theme we saw with Texas Instruments just last week. Oh, for sure. And we'll get those numbers in just a few minutes. Christina, thank you. Warren, it seems like you came into 2025 feeling like, you know, the bull market is still intact, but maybe expectations were high, be a tougher to please market. And I know you've reduced your recommended equity allocation just today. So what's driving that move? Yeah, thank you for having me. I mean, number one, once we saw that

the tariff on Mexico had been delayed for a month and the market started rallying, we thought, you know, this is a good place to take our equity exposure down. And just to be clear, we're taking it from an overweight to benchmark weight. So we just wanted to remove our excess long positioning. That gets us in line with some of our main models. And the real reason is I just think that this tariff news is going to be around the market for a bit. There's no way to predict it. And I'm not so worried about the impact of tariffs on the economy. I'm more worried about how tariffs impact the Fed's reaction function. So to me, that's the one durable thing that we can see here is that the Fed is going to take this and be a little slower

to act. I think we saw that in the rates market. you know so far implied rates came up while long-term rates came down and uh and i think that's a tough mix for the market you know we've talked about it a few times our view is that late q1 early q2 this this uh there's likely to be a growth scare uh in the the fed's gonna need to be kind of reactive to to the market from severe stress. And so I think this takes us farther away from that. So bottom line is I think there's a lot of complacency around the Fed put. It's probably lower than the market expects, and this pushes it lower. And even the Trump put, everyone says Trump doesn't want to see a sell-off this early in his term.

I think that he would actually be willing to take some equity stress to accomplish some policy goals. So, yeah, I guess it's notable. I mean, even the president has said, you know, you have to anticipate some pain if, in fact, these tariffs get rolling. But just to drill into the idea that the Fed is going to be more reluctant perhaps to act, but you think that's going to be an issue because conditions will start to demand that they resume easing? Yeah, absolutely. So I think this is the perfect mix for a policy mistake, to be quite honest. You know, I think if you take the tariff and Trump factor off the table, CPI is disinflating. We have a strong reason to believe

that's going to continue and that shelter is really the last big piece of that puzzle. And our work, which we've gone deep into, suggests that's going to snap into place in the next few months. So I think CPI and inflation is going to be good. I think that the labor market is weaker than the Fed is suggesting, and they're a little bit behind on that. I still think that the rates, especially like 7% plus mortgage rates are laying on the housing market. And we see that as a leading segment of the economy. So one thing that's been crossing my mind today is how sometimes these external factors can enter into monetary policy and cause a policy mistake. And I don't want to

be an alarmist and bring up 2008. I don't think we're anywhere near 2008. But this reminds me a little bit of when you go back to 2008, the Fed was cutting rates gradually early in the year. Then we got a spike in the price of oil and it scared them. And they were afraid and they stopped. They paused their rate cutting cycle. And it was, I think, ultimately a policy mistake. And so I can see you can see something sort of similar here. Yeah, I guess even without going so severe, 2018, you had trade tensions and then the Fed was maybe a little tighter than it thought it was, at least in the market's perception. And that caused a pretty good correction, too. And just quickly, Warren, I mean, in terms of how you would then try to navigate around these possible, you know, air pockets out there, Is defense the old growth stocks,

or is it true traditional defensive areas, or how else might you play it? You know, I kind of like some of the new school defense, you know, mega cap exposure. I also think that rates are going to be, kind of bounce around here, but I don't have, there's a lot of really severely bearish calls on the bond market. I just can't I don't see how that happens here in this environment.

And so I think you can take on some interest rate exposure in your portfolio. So, yeah, I think a mix of the names that have gotten beaten up a little bit here on the deep seek news and then the tariff news and then some interest rate exposure and sensitivity, that's not a bad way to play it. And just wait till this shakes out. I think that's there's a lot of uncertainty. And the one thing I know is I don't trust the Fed to be hyperreactive and there's no love lost between the Fed and the Trump administration. Yeah, there's no doubt about that. Hey, Warren, really appreciate you laying that out for us. We get about 20 seconds to the close.

S&P 500 is going to go out with a loss of about three-quarters of 1%. That is about 1% higher than the morning lows, but definitely still on the defensive as we wait to see whether these tariffs might take effect to Dow off 120. That does it for Closing Bell.