Closing Bell - Closing Bell Overtime: 4-Day Win Streak 3/6/23

Episode Date: March 6, 2023

A mixed day on Wall Street as the Dow closes higher for a fourth straight day ahead of a big week for economic news and Fed speak. Payne Capital Management's Courtney Garcia explains why she thinks the market should keep moving higher despite concerns about inflation. The Justic Department taking aim at Jetblue's merger with Spirit Airlines. Evercore Founder Roger Altman discusses how the regulatory environment could impact M&A on Wall Street. Box CEO Aaron Levie discusses the opportunities his company has in the AI space. Baker Hughes CEO Lorenzo Simonelli discusses the outlook for oil and natural gas prices. And Compass CEO Robert Reffkin explains why he thinks the housing market is still strong despite mortgage rates hitting 7%. 

Thanks Scott. It is a day of faded gains here to kick off what is going to be a very busy week for the markets. That's the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Port. Coming up on today's show, Evercore founder Roger Altman will join us with his outlook for deals as another merger reportedly comes under the microscope of the DOJ. Plus, we're going to talk to the CEO of Baker Hughes in a first on CNBC interview from Sarah Week in Houston as natural gas prices leak lower. Let's get straight to our market panel, shall we? Joining us now are Paul Hickey from Bespoke Investment and Courtney Garcia from Payne Capital Management. Good afternoon to you both. Courtney, I'll start with you. The fact that we

did start higher for the major averages and then we closed basically near the flat line, the S&P at 40, 48. Your take on the action we've been seeing, especially as technicals have become a bigger part of the discussion in recent days. Yeah, I don't think it's surprising. We're going to get some choppiness here, especially this week. Markets are really going to want to be seeing what more Fed speak is coming out, because that's been easily the biggest driver of the stock markets is how much is the Fed going to continue to raise interest rates and what is that going to do to the economy? So we're going to get some more information on that tomorrow. And we're also getting some more data on jobs reports on Friday. So I think until we get that, you're going to see some of this excitement that

came is going to come back down until you're getting that out. And I think you're going to see some of these ups and downs until then. I'm not super worried about it, but I do think you're going to continue to see that throughout this week. Paul, so I'm looking at the data. Orders for manufactured goods, if you take transportation and Boeing out, we're actually up 1.2 percent. I'm looking at Fastenal's February daily net sales actually up 9.6 percent. Eighty three percent of their top national accounts are growing. A third of Fastenal's sales literally nuts and bolts, sockets and rivets, stuff you need to build things.

So is that a good thing or a bad thing? And when we got the Fed trying to put some brakes on the economy. Do those numbers indicate that there's that much more work to do or just that there's still healthy growth? You know, John, I think there's some healthy growth. And when you put those numbers in perspective, you have to take inflation into account. And plus the fact that, sure, sales are up 9.6 percent this year, this month or in the month of February. But they were up over 20% last February. So the rate of growth is slowing down to a more reasonable level. And the customers showing growth, I think what you said was 83% last month. A year ago

it was 89%. So we're seeing those levels of growth come in a little bit. Fastenal is going to benefit longer term from this whole onshoring trend that we're seeing because 85% of its sales are in the U.S. So in the manufacturing sector, it's stable. It's maybe not as crushing as the ISM manufacturing report, which is more soft data and a survey seems to suggest. Okay. Now, let's hold on for a moment. Let's get to CNBC senior markets commentator

Mike Santoli at the New York Stock Exchange. Mike. Hey, John, you know, free cash flow has become a new fixation of CEOs and investors in recent times when profit margins are squeezed and essentially, you know, earnings are pressured in certain parts of the economy. You have people prioritize their ability to generate cash over and above expenses and capex. That's what free cash flow stocks do. The Cash Cows ETF that we just showed you here, it's been a great performer over the last two years, basically held its value over the entire downturn from the broad S&P 500. These are the highest free cash flow yield companies in the market. They average 8, 9, 10 percent free cash flow yields. A lot of times slow growing businesses, but ones that don't need a lot of investment to keep growing. So

let's take a look at Apple, because for many years, it's been one of the key bullish points behind the Apple call to say it's a steady and huge free cash flow generator. It still is, but now it's valued in such a way that makes it trade at a premium to the overall market. So when free cash flow yield as high as it was for Apple like 8, 10 years ago, it shows you that essentially there's a big cash cushion underneath that stock. And you see right now it's declined pretty dramatically below the cash flow yield of the S&P 500. So it's probably going to struggle to really expand its valuation from here unless you've got some other kind of storylines generated

and maybe a little bit of an acceleration in actual earnings growth, which we don't actually anticipate for this fiscal year. Yeah, it kind of goes back to something we've talked about many times over the years, Mike, and that is this idea that Apple is defensive when you're talking about tech and you're talking about mega cap tech in general. It was a strong session, even though the Nasdaq ended the day slightly lower. It was a pretty strong session for the biggest tech names. It absolutely was. You did have a little bit of migration. I think that Apple call in part was from Goldman Sachs was driving some of that where you had this migration toward the big, somewhat reliable growth names in the market. Now, again, it was a kind of mean

reversion thing because, you know, small caps have been outperforming. They backed off hard today. So you got a little bit of the laggards catching up. But I do think it's still a good debate as to what you're paying for each dollar of even steady and predictable cash flow that you get out of out of Apple right here. All right. Mike, thanks. We'll check back in with you in just a moment. Let's get back to Courtney and Paul. Courtney, I believe you said a new bull market was born in October.

Now we got three trading days before the February jobs report. What's the chance that that report kills your bull by coming in hot again? I mean, it is going to be leaning on all of the economic data we're seeing. But really, we have had solid data coming since October that inflation is coming down, even though the economy is still on good footing. It was last month that we had this anomaly. And we got a few data points that were showing that the economy is stronger than people want to see. It is leading to the idea that the Fed may continue to raise interest rates. But I don't think you should be surprised.

We're not going to have these really even inflation just going straight down from here. You're going to have some choppy data. And we see last month as more of an anomaly than anything else. So we definitely need to see how that Friday jobs report comes out, because last month it really blew expectations out of the water. It's expected to be a lot more tempered this month. And I think that's really going to lead to what the Fed is going to be doing in the future. So we are still optimistic here that the lows in October were still the lows. You do want to be cognizant of where you're adding in the economy, however. Like January, for example, it was at risk on rally. It was all your big tech firms, things like cryptocurrency. People were really putting money in your riskiest assets. That I

don't necessarily see as continuing, but there's plenty of pockets of the economy that we do think are going to continue to do well. Actually, like your small caps versus your large caps, I think energy is still a great place to be. But we are optimistic on the overall economy. Yeah. And, of course, energy, speaking of free cash flow and the conversation we were just having with Mike Santoli. Paul, I want to get your thoughts on this, especially when you see the Russell 2000's up, what, 7.8 percent year to date after underperformance last year. It's outperforming the S&P and the Dow so far to start the year. Is that something that can continue to be resilient,

that outperformance? So, I mean, I think if you look at the Russell 2000, you know, it sort of led us on the way down. It peaked way ahead of the broader market. So seeing strength on the way up and small caps leading, I think is something encouraging. And, you know, just adding on to what Courtney was saying just earlier, you look at inflation, the January numbers were driven primarily in the CPI was driven primarily by gas prices. They were up 9 percent. Gas prices in February fell about a little over 4 percent. The second weakest February going back to 2005 in gas prices. So that's going to have downward pressure on CPI coming out next week, I believe. And then when you look at, as far as like a bull market, are we in a

bull market, you just had last month one of the most, you know, abrupt tightening of financial conditions, very extreme. And an average, when you see that kind of tightening in the Goldman Sachs Financial Conditions Index, you see the S&P decline an average of 5% in those months. We were down 2%, a little over 2% in February. So there was some really strong underlying resiliency in the market in the face of what was really rapid tightening of financial conditions as everyone started to freak out that it was going to go higher for longer. They may, but the market has been very resilient. And just as we,

in coming into the year, were so worried that the economy was falling off a cliff, suddenly it's inflation's never going away. So I think this market is sort of like a drive-through mentality where, you know, it looks at whatever the indicator of the day is and extrapolates that out forever. So when you hit a good data point, you know, market- at whatever the indicator of the day is and extrapolates that out forever. So when you get a good data point, you know, market friendly data point, everyone's going to be happy. Yeah. Drive through market. I like that, Courtney. I mean, it's such a key point, right? We saw this incredible move in the bond market last month. And yes, we saw stocks come off a little bit. But after such a strong start to the year and really, let's be honest, a strong rally for equities since last October,

is the full extent of what we've seen, the repricing in the bond market, priced into stocks at this level? Question is what the Fed is going to continue to do, right? Because at this point, we actually see bond prices have come up quite a bit, which means the markets went from thinking we were going into a recession earlier this year to suddenly thinking, OK, no, the Fed's going to continue to raise interest rates for longer than we expected. And so now bond prices are pricing that in. I think the hope is that the Fed will eventually probably late spring, early summer start to at least level off with their rate hikes. And I do think we got some data or I'm sorry, some speak coming out, not really data where they are indicating they're going to likely raise a quarter point increments, which means that they will be raising it a more steady increase,

which does give them the ability to stop when they need to and let the rate hikes that have already gone in make its way through the economy without overheating things and necessarily forcing us into recession. I think that's actually part of the reason the markets are pricing higher right now, which is a really great sign. So what they do in the future, that's easily going to by far be what we're going to continue to talk about over the next few months here, because if they overheat things and do forces into recession, that obviously will get further price into stocks, and it's not currently. But I'm actually optimistic here that we will eventually see things level off and the economy be able to get through this. Okay. Courtney, are you adding to fixed income? And if so, how much and what kind?

We always have fixed income for, you know, a majority of our investors have a portion of fixed income because it is going to be a good diversifier of the markets. The biggest thing with fixed income is right now you're able to capture higher yields. So that's a great thing that's happened right now as you're finally getting some income on those. The biggest thing with our fixed income is we buy individual bonds because what's going to happen is if interest rates do go up, this is what happened to last year, your bond prices will go down. We want to make sure we're owning intermediate bonds. On average, they mature about five years out. And that means all of our clients can, worst case, just wait till they mature, just keep collecting the interest that they're getting, which is now better than they have in the last few years. And just hopefully just continue to reinvest those as we go forward. Okay. Thanks

for kicking off the hour with us, Courtney Garcia and Paul Hickey. Thanks for having us. Now, shares of JetBlue and Spirit making moves today on reports of an antitrust crackdown surrounding the merger of the two airlines. And we're going to bring you the details. We're going to talk with Evercore founder Roger Altman about the broader landscape right now for deals. That's coming up in two minutes when Overtime's back.

Welcome back. A new report says there may be some turbulence developing in the merger between JetBlue and Spirit. Phil LeBeau has the story for us. Hi, Phil. Hey, Morgan. It has been widely expected for some time that the DOJ may fight in some fashion the proposed merger between JetBlue and Spirit. And today, that's the reason you saw shares of Spirit tank lower. Middle of the day, there was a report from Bloomberg saying that the DOJ is preparing to file a lawsuit. So there are three options that are most likely here. One, they could approve the merger. And again, few people in the industry expect that to happen. Few in Washington expect that to happen. It could be approved with conditions, which we can talk

about in a little bit. Or the DOJ could flat out say, no, we don't want this to happen and we're going to sue to stop the acquisition. JetBlue CEO Robin Hayes gave an interview today to the Wall Street Journal, and he said he expects the DOJ to fight the deal. Now, we should point out that JetBlue and Robin Hayes have said, look, we are going to make offers of concessions in order to get this deal done. We will divest the spirit slots in Boston and in New York. We'll also make concessions down in Fort Lauderdale, so we don't have too much of that market. They believe that their proposal, not just with the divestitures that they're throwing out there, but also they believe that on paper, this deal makes sense, that it's good for the consumer, that it will bring prices down. But as you guys know, as you take a look at shares of JetBlue,

Spirit, and we're also showing you Frontier because remember, Spirit and Frontier were together before JetBlue came in or proposed to be together. As you guys know, the Biden administration has made it very clear when it comes to mergers and acquisitions, they are not big fans of it. And most people believe that in this case, sometime this week, we'll hear from the DOJ and that they will fight this deal. Yeah, you got to wonder sometimes which the administration hates more, buyouts or buybacks. Not sure. I'll have to see, Phil. Thank you. Joining us now for more on the broader deal landscape, Roger Altman, Evercore founder and former deputy treasury secretary. Roger, great to have you back again.

So Adobe Figma, Microsoft, Activision getting challenged, but Amazon One Medical looks like it's going through. How much of this do you think is regulators hoping their bark is enough to scare off big M&A without them having to bite? Well, look, there's been a sea change in the regulatory environment over the past two and a half years since the Biden administration took office. And we've moved from a relatively loose environment in terms of competition policy or antitrust, at least in the United States, to the most challenging one or tightest one that I can remember seeing.

And the new regulatory team, Lena Kahn at the FTC, Jonathan Cantor at the Justice Department, and to some extent, until recently recently Tim Wu in the White House already have succeeded in dissuading a series of business combinations which would have gone ahead in a different environment. So they've already been successful that way. Those which have been shelved because of this new environment aren't visible. No one can see them or count them up. But I can assure you that there are a lot of them. So, Roger, how are companies thinking about mashups and partnerships and collaborations now in light of that? Maybe they're not going to outright, especially if they're a bigger company,

and they're not going to outright make an acquisition, but I imagine they're going to get creative in terms of some of the ways they're going to partner with others for inorganic growth. Well, first of all, this doesn't affect a majority of mergers because a majority of mergers don't raise any trust issues. This affects a slice of them. I'm not sure what percentage that might be, maybe 20 percent, maybe less. So first of all, the vast majority can go ahead without this risk. And that's important to state. In terms of those that are in the danger zone, they have to make a variety of decisions.

They have to decide whether they want to try it. And if they try it, they have to decide should the government oppose it, whether they want to litigate. And litigation can often be successful, but it's very time consuming and it's expensive. And they have to decide or they have to decide whether they want to preemptively try a series of remedies. You know, we're going to buy X, but we're going to immediately divest these pieces of X to reduce the, you know, the antitrust questions that the combination might raise. So it just depends on what category you're in. But again, most business combinations are not affected by this. It's just a slice of

them. But as you say, whether it's Microsoft Activision, whether it's the VMware deal or others, there are some very big ones that are on the table here. Roger, I want to take this back to interest rates, the broader economy. Back in mid-December here on CNBC, you told us one thing the Fed can't afford to do is ease off too early and that you expected early this year, one or two 25 basis point hikes, maybe three. But are we now at the point where it's definitely three and the Fed's already eased off too early with language that, I mean, at least investors interpreted as dovish? Well, those are two separate questions. I don't think the Fed has eased off just because it was

hiking at a 50 basis point rate or 50 basis point increments and now is doing it or apparently about doing it in 25s, that doesn't mean they've eased off because they can get to the same terminal rate on the funds rate in 25 basis points increments as they could get in 50 basis point increments. It just will take a little bit longer. I don't think that's easing off. Investors, your other question, have had so many different views on this,

you can't count them. They've been of many, many minds about the environment. They've changed their minds an awful lot. And that is testimony to how complex and unusual this environment is, because it's the first inflation surge we've had in 40 years. And investors aren't used to it. And many people that are making investment decisions were not around during the last inflation scare and don't know how to really put it into perspective. So I guess what would you tell them? And just as importantly, as we look to two days of testimony, the semiannual testimony from Chair Powell on the Hill starting tomorrow, what are the key things you're going to be watching for from those hearings?

Well, I expect Chairman Powell to walk the usual fine line, Morgan, between a steady-as-she-goes message and finish-the-job message, but also trying not to signal either an unexpectedly hawkish tone or an unexpectedly dovish tone. So I expect it to be a very even message on we have a lot of work to do. It's going to take us a while. Inflation is proving to be stubborn, stubbornly high. And we're not going to stop until we've solved this, which, of course, is their 2 percent long-term goal on the inflation rate. That's what I expect him to say. I would be surprised if he deviated from that. You always never are never sure in the Q&A because sometimes you get strange questions. But right. I don't expect his testimony to be market moving, but that depends on the commas and apostrophes and how investors feel.

Roger, let me slip one more in here. Do investors love, I keep on asking about it, fixed income bonds, bond funds enough? Or has it been so long since there was much of a yield conversation to have that they're just reflexively watching equities and not enough thought going into what you can do with fixed income? Well, that really depends on the investor and the investor's own investment guidelines and goals. I don't think the answer to that, I don't think so, though. Investors, by and large, professional investors are very nimble and they can turn on a dime. Right.

I think they're well aware of the change in the structure of yields and the whole idea, for example, of a 4 percent 10 year. And I think those that want to capitalize on it are doing it. It may take a while for some of these investors in terms of, you know, reconstituting their portfolios to be able to act on that desire in a big way. But I think in terms of their mindset, they're on it. The pros, sure. I'm thinking about the folks at home.

Roger Altman, always great to get your- That's a little bit of a different question. Yes. Because folks at home, yeah, it's been a long time since they've seen these kinds of yields. That's a different question. Indeed. But professional investors are on it. Roger Altman, thank you. Up next,

Box CEO Aaron Levy is going to join us to talk about the technology he says could lead to a massive wave of innovation and disruption in his industry. And as we head to break, take a look at Merck getting a big pop midday after the company said its cholesterol pill showed positive results, significantly reducing LDL cholesterol. Merck says it's planning to start phase three trials in the second half of the year. Finish the day up by four percent. We'll be right back. Welcome back to Overtime. A couple of big movers in after hours to tell you about. Shales of cloud computing company Nutanix falling after the company says it's delaying filing its 10Q

because of an issue with third-party evaluation software. Nutanix reporting preliminary results, though, with revenues and guidance appearing to top estimates. Meantime, defense contractor AeroVironment also lower, down about one and a half percent after hours, despite topping revenue estimates. It's full year earnings outlook, though, coming in below prior guidance. The company saying, which makes drones, saying that their Puma and Switchblade systems in particular, that they're seeing a strong growing demand for these products, but saying in terms of the reduced EPS guidance that it is based on two non-cash impacts. Nonetheless, shares are lower. Time for a CNBC News update with Bertha

Coombs. Bertha. Hey, Morgan. Thanks very much. Here's what's happening at this hour. Former Trump campaign chairman Paul Manafort agreeing to pay over $3 million to settle a civil case filed by the Justice Department last year. According to court documents, Manafort failed to report his financial interest in foreign bank accounts. Manafort was sentenced to 47 months in prison on fraud and tax charges in March 2019, but was given a full pardon in 2020 by then-President Donald Trump. The Biden administration is contemplating a mass vaccination campaign for poultry amid the largest outbreak of avian influenza in the U.S. history.

Bird flu has already led to the deaths of tens of millions of chickens and driven up egg prices. It also raises concerns about a potential human pandemic, although CDC experts say the risk of that remains low. And the Transportation Department is unveiling a dashboard to clarify which airlines seat children next to an accompanying adult for no extra charge. This is the latest push by the Biden administration to crack down on hidden corporate fees. John, I didn't even know that they would charge you to sit next to your kid. Oh, they will. My ears perked up with that one. That seems so unfair. Well, you know, also screaming kids,

some might argue are unfair, but some of us have them. Bertha, thank you. Microsoft, meanwhile, making moves on the AI front today, saying it is building the AI technology behind ChatGPT into its Power Platform. That's a tool for developers. And from Google to Baidu to Box, companies are racing to include more AI capabilities in their products. Joining us now, Box CEO, Aaron Levy. Aaron, hey, good to see you. Want to talk to you about AI, but first got to touch on your quarter revenue growth. You're guiding between six and seven percent. The street was hoping for

ten but your gross margins are going to look better my question is given all of that uh how much are you seeing the new deals um uh come in uh better than expected potentially versus the upsell potentially coming in better than expected what's the upsell potentially coming in better than expected? What's the balance in that in a year where you're having to come in a little bit based on what you're seeing from demand? Yeah, so we call out in the quarter that there are, you know, meaningful macro pressures that I think all software companies are facing. If you think about any IT department right now, they're trying to get as much just business value out of the technology that they have and drive as much productivity as possible. We believe that our

platform is well aligned to those trends. So we help customers drive productivity across their workforce, simplify their IT stack, as well as drive up security in their enterprise. So I think the majority of our revenue will certainly come in, the majority of our bookings will come from existing customers with expansion, but we do plan to bring on a healthy amount of new logos as well. And so we did bring down guidance a little bit from what the street was expecting. It's about 10% in constant currency, so we have been impacted by some of the FX rate volatility, in particular our business in Japan.

But certainly we're going to offset as much of that as possible through increased bottom-line performance where we guided to record operating margin for our company. So in light of that, Aaron, how much does this feel like, dare I say, a reversion to the mean and sort of a normalization post-pandemic in terms of what companies are spending on products and services such as those that you offer versus a meaningful slowdown in the economy that's on the horizon? Yeah, I mean, it's, it's, that's probably above my pay grade to fully answer. I think we're all sort of at the mercy of what's happening in the macro environment and, you know, interest rates and inflation, but, you know, company,

we have over a hundred thousand, you know, companies on our platform. And so I think in different sectors, there's, there could be a different impact from an economic standpoint and from an economic environment. But what we're hearing from our customers is that digital transformation remains a core focus for them. They're continuing to drive priorities across moving to the cloud, moving off of legacy systems. We know that we can save customers upwards 3 to 5x in terms of their spend on Box versus other platforms that they'd have to be able to go and cobble together. So we have a message for customers around helping them save, get more efficient,

and then ultimately stay protected and secure. Aaron, what's your strategy for making AI something that drives both revenue and margin expansion for Box? Very interesting last week, Duolingo, Louis von Ahn was saying they're planning to use conversational AI to create a new premium tier where people learn language through conversation. What can you do with corporate data and maybe, I don't know whether it's conversation to figure out what's in all of those files or more intelligent search? How do you approach it? Yeah, well, one of the exciting things, I mean, it's actually in the name of the technology, large language model, and where do you see a tremendous amount of language? It's in documents. And so we store tens of billions of files, and in all of that data is a tremendous

amount of critical business proprietary value. So you've got intellectual property, you have contracts, you have financial data. And previously, you only really had two choices as an enterprise to understand what was in your information. You could either have people look at it all, which is where we kind of spend a lot of our time, or you could have very narrowly trained AI models that had to be pre-trained on every single individual document type that your enterprise used. Well, the big breakthrough with LLMs and certainly what OpenAI has been at the kind of, you know, bleeding edge of, is that we have now a general purpose way to be able to extract insights from our data,

be able to ask and probe and interrogate information with questions, be able to synthesize information in new ways or classify it. So frankly, there's a tremendous amount of use cases that we're incredibly excited about. We are in the process of continuing to work through the commercialization and productization of these capabilities. But we do believe this is a fundamental breakthrough in how companies can use and leverage all of their unstructured information. About 80% of the data in an

enterprise is unstructured. That means it's not in the form of inside of a database where you can quickly calculate it or query it. It's all of the text and the images and the multimedia that is traditionally been locked away in storage systems that we can now release and unlock a lot of value around. Yeah, 80%. So what does that mean in terms of how quickly you could start to apply this technology to the services that you are offering to your customers? And just as importantly, what does it mean to the future of productivity? Well, taking the second part of the question first, we think it's a complete breakthrough in productivity because now you have the equivalent as any knowledge worker as having an expert in almost every field available to you on demand for whatever you're working through.

Now, there are still major questions around accuracy and performance and cost to many of these use cases, but it is a huge boon to productivity when applied in the right ways. As for our release and commercialization of it, I'd say stay tuned. And we're not making any announcements right now on this front, but you can rest assured that we've been in this space now well over seven or eight years. And we're really excited about some of the recent breakthroughs that we've seen. All right. We will stay tuned.

Aaron Levy, thanks for joining us. Thank you. We have a market flash on Keycorp. Steve Kovac has the details. Hi, Steve. Hey, Morgan. Yeah, look at Keycorp shares falling here after revising its guidance down

in a new SEC filing. They're predicting now net interest income will grow plus or minus 4 percent year over year. That was up from the prior guidance of 6 to 9 percent. You can see here shares are down about 2 percent. They were down nearly 4 percent just a minute ago, Morgan. All right, Steve, thank you. Up next, Mike Santoli explains why the action in cyclical sectors could give a clue about whether or not the economy is heading for a soft landing. And later, we're going to talk to the CEO of real estate broker Compass as mortgage rates jump to 7 percent.

He's going to tell us the key level he's watching that could rock the balance between buyers and sellers. Be right back. Welcome back to Overtime Senior Markets commentator Mike Santoli is back with a look at cyclicals. Hi, Mike. Hey, Morgan. And in fact, cyclicals outperforming defensive stocks, defensive parts of the market really by as much as they have in a year and a half. Goldman Sachs keeps these separate baskets. And really, if you didn't have any headlines, any Fed commentary, any recession predictions, you would say, well, I guess the global economy has been reaccelerating for months right now. It's been one of the clear messages that's been coming out of this market. We have peak stagflation panic in the middle of last year.

And it's acting as if we had a soft landing of sorts at some point in the second half of last year. It doesn't mean it's going to continue on this path, but it's very interesting coming into some J-PAL Fed commentary, you know, how we're going to characterize the condition of this economy, Morgan. All right. I'll take it, Mike. Thanks. Still ahead, the CEO of Compass recently predicted a housing market rebound. I believe that we will look back at Q4 as the bottom and that Q1 may be the last great time to be a buyer for a while. Well, up next, find out if he still thinks housing has bottomed despite mortgage rates hovering around 7%. Welcome back. Mortgage rates have moved nearly 100 basis points in just the last four weeks.

The 30-year fixed mortgage rate hit 7% last week, and we're just below that level today. Our next guest pointed out what he thought could be a housing bottom when he joined CNBC back in January. Take a listen. I believe that we will look back at Q4 as the bottom, and that Q1 may be the last great time to be a buyer for a while. We just saw that 42% of sellers are giving concessions, which is the greatest amount of concessions that sellers have given in over 10 years. So joining us here on set, Compass CEO Robert Refkin.

Welcome to you. You still feeling confident in that call? I'm still feeling confident in the call. In December, pending listings, listings that had accepted offers were down 40% year over year. And in every week of January and every week in February since, we saw an increase in listings that had accepted offers week over week over week. And in February, prices were actually higher than in January. Interesting. We also did see mortgage rates come off those highs from last fall. And

now we're back at those levels again, though. Yeah. So I would describe January as a frenzy. People were saying that it felt like it could be the pandemic period all over again. Since then, mortgage rates have gone up 100 base points. The frenzy is over, but we still feel we still see multiple offers, more foot traffic and more buyers and sellers. It seems like we've got this tug of war between affordability and inventory, right? Like, yeah, the prices are way higher than people want, but the inventory is so little that you got to do something. Are jobs at the center? If people start to lose their jobs, does the housing market then have to buckle one way or the other?

If people lose their jobs, the wild card will really be what happens to rates. Because if people lose their jobs, then the Fed could bring down rates. And if rates go down and you have mortgage rates back to six and five... But doesn't the Fed want people to lose their jobs? The Fed has a very difficult challenge. They want to bring down prices and they're raising rates to bring down prices. But as they raise rates, mortgage rates go up and more homeowners, 85 percent of homeowners have mortgage rates below 5 percent today. 28 percent of homeowners

have mortgage rates below 3 percent. They consider it a financial asset. So the have mortgage rates below 5% today. 28% of homeowners have mortgage rates below 3%. They consider it a financial asset. So the higher mortgage rates go because of the Fed's action, the less homeowners want to sell because they don't want to lose that financial asset and move it over something with a seven handle on it. And so then there's less inventory. Still, the buyers are there, and that's what's creating more price appreciation. So you don't think that home prices are going to fall much further than we've already seen in certain markets? Is that what you're saying? I don't believe home prices will fall much more. We went from January last year from all-time low mortgage rates to a 20-year high in mortgage rates

in nine months and in December, that trough month, you had prices that were still up 6% year over year, down 4% from the spring 2022 peak. But we have since seen prices moderate up just a little bit. And you have analysts for the first time in nine months saying that prices could actually appreciate this year. So just quickly to bring this around then, what does that mean in terms of your own hiring? Because you are very aggressive in terms of recruiting real estate agents. Have you been not as aggressive as the market looser from that standpoint? Yeah, so we made a decision over the summer to stop giving any equity incentives or sign-on bonuses to agents. We have since hired over 1,000 agents who have come over

because they believe the platform will help them grow their business and have a better quality of life, more income to support their family, more time to be with their family. But we are focused on profitable growth now in every way. Okay. Well, we appreciate you coming in and joining us here on set. Thank you for having me. Yeah, great to have you.

Up next, natural gas prices sinking today on set. Thank you for having me. Yeah, great to have you. Up next, natural gas prices sinking today, adding to big losses for the year. We're going to get the outlook for oil and natural gas in a first on CNBC interview with the CEO of Baker Hughes next. And tonight, I will be hosting a CNBC special, Taking Stock, where top market strategists are going to break down the 60-40 portfolio. Is it still relevant? That's tonight, 6 p.m. Natural gas prices are plummeting today because of a warmer weather forecast, adding to the year's big losses so far. The move comes as the Sierra Week Energy Conference kicks off in Houston.

That's where we find our Brian Sullivan along with the CEO of Baker Hughes. Brian. That's right, John. Thank you very much, Lorenzo Simonelli of Baker Hughes. Lorenzo, good to see you again. It feels like a lot of energy around this conference this year, the energy sort of excitement in certain ways. Are you seeing that from your customer base?

I know you just had a big event in Italy. What are your customers saying about growth? Are they worried or are you worried about a global recession slowing things down look you've always got to be worried about a global recession and clearly with the high interest rates and also some of the challenges from a supply chain perspective but overall right now the energy sector is in a vibrant mood and i think when you look at the backdrop of what's happened over the course of the last few years the under investment thement, the conflict between Russia and Ukraine, it's really brought to the forefront affordability, sustainability, and security. And the energy trilemma, as is being

discussed here, is how do we go forward and make sure that the world has the energy that it needs, but make it affordable, sustainable, and also secure. Can you do all those things? I mean that seems like an impossible needle to thread. Well that's why we're here because we're discussing the ways in which it is possible and really it comes to making hydrocarbons cleaner but realizing that we've got to continue using oil and gas and in particular gas, natural gas, LNG is a positive, and then that the transition will take some time. But we've got to invest now in reducing the emissions. We say at Baker Hughes, it's not the fuel type. It's not the fuel source. It's let's go after

emissions and make sure that emissions come down. Jay Powell, Federal Reserve Chair, speaking tomorrow, testifying. Obviously, rates have gone up. Is there a connection between interest rates and the oil and gas and energy industries? Are they correlated at all? I think the economics of the world are correlated to interest rates. That being said, energy demand is continuing to increase and there's a desire, especially in the developing world, to have more access to energy. So we're not going to see a reduction in the energy demand. And right now we're constrained because of the underinvestment

and the supply of energy. So I think from a sector standpoint, we're probably a little bit more subdued relative to a recession, given the demand that's out there. And then this LNG boom to Europe that we've talked about, we've been over there covering it. I think you sold two and a half billion in LNG related deals and contracts and equipment last year. Is this a multi-year, maybe multi-decade cycle for LNG between US and Europe and Baker Hughes? We see it as a multi-year cycle and what we've said is you know last year over the course of the next two years we see a hundred to a hundred and fifty million tons of LNG FIDs. Also

as you look out to 2030 there's going to need to be a capacity of installed LNG of over 800 million tons so we're looking at a point in time where natural gas and LNG is going through an upswing. It's available. It's resource abundant. And also for the U.S., it's a great opportunity to assist in Europe. It is. We called it the Marshall Plan in a way for energy when we were over there. And Baker Hughes is a big part of that. Lorenzo Simonelli, really appreciate your time. And first day of the conference, I'm already wiped out. I don't know about you. It's great to see you, Brian. Lorenzo, thank you very much.

Thank you very much. John and Morgan, I'll send it back to you. And by the way, tomorrow we've got another packed lineup. We've got John Hess, ExxonMobil CEO, ConocoPhillips CEO, and a cast of thousands. All right. Brian, thank you. Excited about that, but also excited about the day after that when don't miss the premiere of Last Call with Brian Sullivan kicking off Wednesday, 7 p.m. Eastern, right here on CNBC.

Must watch TV. Well, up next, we will break down how China's move to ramp up military spending could impact defense stocks. Welcome back to Overtime. China's National People's Congress unfolding this week. And it's not just the country's GDP target that's in focus. Beijing also unveiling plans to boost defense spending at the fastest pace in four years amid, quote, escalating tensions with the U.S. over Taiwan. China's saying defense spending will grow to 7.2 percent this year, once again exceeding economic growth, with the budget poised to now total the equivalent of about $225 billion.

That's still just a fraction of the $858 billion that the U.S. is spending all in this year. But many analysts add that the actual amount far exceeds the official sum, in part because China doesn't include R&D. Now, here's the working report statement to note, quote, We in government at all levels should give strong support to the development of national defense and the armed forces and conduct and conduct extensive activities to promote mutual support between civilian sectors and the military, speaking perhaps to this military-civil fusion dynamic that is fueling U.S. concern about investing in Chinese tech and the need for export controls on semis, et cetera. On Thursday, we get the Biden administration's fiscal 2024 budget blueprint as well. And the expectation is that defense spending here is poised to grow another four to five percent above what's already being spent this year. All of this as the ITA defense and aerospace ETF trades at a fresh multi-year high back to February of 2020. You can see it ended slightly lower on the day,

John, but it does speak to the fact that defense stocks are once again seeing a little bit of a rebound here as the geopolitical landscape continues to get more tense. Yeah. Interesting. Part of what I think of when I hear about you hear you talking about the military and cooperation is AI. Right. Because that's been a concern. Bingo. That that, you know, U.S. firms might be contributing to that piece. But then more broadly on China, I thought it was interesting. There's been a lot of talk economically about the housing sector in China, and they just had their first year over year upturn reported days ago in their data, which I guess we can trust somewhat since they have been reporting a big sweep down over there. But, you know,

to focus on the military part, have to wait and see what that means. We have to wait and see what that means. We do know AI is part of the puzzle space as well. Some of these other emerging technologies that we talk about so much quantum computing and the like. I think the storyline has shifted a bit, though. There was the assumption because China's got all this data and all this surveillance, they're going to be better at AI. But this chat GPT twist, the idea that maybe U.S. tech companies are getting smarter on this. Interesting. Yeah, it's going to be a busy week because, as I mentioned, you're going to be I'm actually going to be down in D.C.

later this week. We're going to be taking a look at what the Biden administration is proposing in terms of future defense spending. And then, of course, the reaction from the Hill to those numbers, too. But this does seem to be an area that at the very least is remaining pretty resilient, given the geopolitical landscape. Every week's an interesting week on overtime. It is. That is going to do it for overtime on this Monday. Fast Money begins right now.