Closing Bell - Closing Bell Overtime: Fed Holds Rates Steady; Intel CEO On Chips Act Grants

Episode Date: March 20, 2024

The Fed held rates steady but markets hit record highs after Chair Powell signaled a steady outlook. Jefferies Chief Market Strategist David Zervos and former Boston Fed President Eric Rosengren on the key takeaways from Powell and the Fed. Earnings from Micron, Chewy, Five Below and KB Home. CFRA’s Angelo Zino breaks down Micron’s numbers while Zelman & Associates’ Alan Ratner talks KB Home. Plus, Jon sits down with Intel CEO Pat Gelsinger on the CHIPS Act grants and the geopolitical importance of tech supply chains.

A triple record close as the Dow, S&P 500 and Nasdaq composite all in the session in uncharted territory. That is the scorecard on Wall Street on this Fed Day, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan. Stocks rallying after the Fed reaffirmed plans to lower interest rates three times this year. Coming up, former Boston Fed President Eric Rosengren on when he thinks that first rate cut could happen. And we are also just moments away from the reprise or from the pricing of Reddit's highly anticipated IPO. We're going to bring you all those details as soon as they are announced. Plus, we will have

instant analysis of earnings from Micron, KB Home, Five Below and Chewy. It's going to be a busy hour. Plus, John Ford is in Arizona where he spoke with Intel CEO Pat Gelsinger earlier today. John. Hey, Borden. Yeah, the president just wrapped up speaking here about 20 minutes ago. Intel securing up to eight and a half billion billion in direct funding and grants from the Biden administration, part of the CHIPS Act's goal of increasing chip manufacturing here in the U.S. The company could also be in line to receive up to $11 billion in loans. Early, I spoke with CEO Pat Gelsinger, and coming up, you're going to hear what he had to say about why onshoring more semiconductor manufacturing back here to the U.S.

is such a critical geopolitical issue and why he's separating Intel design from Intel foundry in order to succeed. All right. We are looking forward to that, John. It's going to be, as I mentioned, a big hour. We're going to get back to John with some of that intel in just a few moments. But first, let's get to today's action with our first guest, Jeffries Chief Market Strategist David Zervos. David, it's always great to have you on a Fed day as we do digest the headlines from Chair Powell. S&P 500 traded above 5,200 for the first time.

We actually closed at 5,224. You can make the argument based on what we heard and didn't hear from Powell and that reiteration of the dot plot that the short end really loved this. Stocks and other risk assets really love this. The long end, not so much. Break it down for me. Morgan, I think actually the story, and Josh Brown alluded to this right after the meeting when you guys turned to him, and I think he's right on the money. The big story to me was the balance sheet.

I thought that fairly soon a tapering of the balance sheet, which, you know, Powell had a little bit of a smile on his face as he said that over and over again. I think that was a little surprise to the market. We're going to be taking this balance sheet down at a much slower pace. And that could happen as early as the next meeting with the words fairly soon. And we've seen that balance sheet, the balance sheet story has been an important part of the equation. A lot of people missed it last year about how big the balance sheet was and how it stayed large and how it cushioned the blow of rate rises. But even more important, Morgan, I kind of take you to the Bank of Japan meeting that just happened as well. I'm over here in Asia,

so I'm a little focused on it. But, you know, they decided to keep QE going even as they raised rates. And the decision to keep QE going at the same pace, which is balance sheet expansion, really cushioned the blow of the rate hike. And in fact, we saw a weaker yen and a much higher Nikkei again heading into the record territory. So I think as we digest everything that the Fed did, it's the markets happy that they're not saying anything super negative about the last two inflation prints. That's certainly the case. But I think that balance sheet news was the real fulcrum for why we had the reaction that we had, a very positive reaction from risk assets. Yeah. Others may not have been focused on the balance sheet, but I know you have been and you've been talking about it on this show for quite a while. Stay with us because we have micron earnings out. Christina Parts Nevelis is

going to bring us those numbers. Hi, Christina. Hi. So we are seeing revenues of $5.82 billion. That is a little bit higher than what the street was anticipating. For the loss per share, that's coming in at 42 cents adjusted, so a little bit worse than expected. But you're seeing the stock skyrocket 14 percent. So let me reiterate that, 42 cents adjusted, not a loss. We're not going to compare that. So 42 cents adjusted, the street was anticipating a loss for Q3 guidance revenue coming in at $6.06 billion, also a little bit higher than what the street was anticipating in this report. And Micron, they're just one line saying that their gross margins and eps were well above the high end of their guidance range a testament to our team's excellent execution so i'll continue to go through it just to break it down but it seems uh strong so far okay and as

you mentioned shares are up 12 right now uh let's bring in mike santoli as well christina thank you mike want to get your thoughts on micron on a day in a week where we have continued to be focused on AI and AI impacts. Micron obviously does not compete with the NVIDIAs and AMDs of the world, but it is still poised to be a beneficiary to what we're seeing in this new AI era. Yeah. And the question is, to what degree and how soon- you know micro wasn't expected to kind of revert back to- positive earnings until next quarter really the current quarter. So obviously if that number. Does reflect the real operating performance last quarter way ahead of schedule. A half billion dollar upside on versus revenue estimate so. Seems like things were pulled forward markets embracing it. Obviously it's still a company that has high highs and low lows when it comes to supply demand issues and pricing. But for now, it looks like they've been able to assert that they're participating in the demand flow. All right. We also have five below earnings out. Courtney Reagan has those numbers for us.

Hi, Court. Hi, Morgan. Yeah, so this is the fourth quarter. This is the holiday quarter, sort of the tail end of the retailers, five below missing earnings estimates, putting up 365 a share. The stream was expecting 378, so a decent miss there. Revenue is also lighter than expected at 1.34 billion compared to 1.35 billion expected. Light first quarter and full year revenue and earnings guidance. And CEO Joel Anderson points out that they had the benefit of strong sales performance, but the profitability was offset by higher than

expected shrink headwinds. And they're talking about putting in new measures based on what they learned in 2023, but that they don't yet exactly know how that's going to play out. So that is not embedded in the guidance. You can see shares are falling sharply here, more than 12 percent lower for five below. Back over to you. All right. Courtney Reagan, thank you. Shrink. We're back to talking about that with retail earnings in a bigger way. David, I want to go back to you because what we heard, one of the things we did hear from Powell and what we did see from the forecasts was slightly stronger than previously forecast economic growth for this year, stronger or I guess I should say lower unemployment and slightly higher inflation.

When you do start to see some of these earnings reports coming out, whether it is from the secular revolution that is generative AI or whether it is companies on the retail side or consumer-facing side that have generally been, maybe not with Five Below, with Shrink here today, but have generally been stronger and talked about a more resilient consumer that's hanging in there. How does it speak to how the Fed is approaching this economy and its monetary policy this year and beyond. Morgan, I think the story has been pretty consistent and the Fed has been pleasantly surprised. And I think market participants and forecasters have actually been disappointed that they got this very wrong. But we've had six consecutive quarters of above 2 percent growth. We're probably going to have a seventh coming up in Q1 of this year. And all while the Fed has been engaged in one of the fastest rate

rise cycles that we've seen in our careers. We had 475 basis point rate hikes in a row starting in the middle of 2022. So it's been a remarkable move. Jay continues to say that at every turn, and he's very much in the pleasantly surprised camp. And the Fed was certainly the most optimistic out there in terms of the ability to generate what people thought was a soft landing or a no landing. And we continue to see that story, I think, develop with the types of earnings results that you're getting here. This is, importantly, Morgan, not been a deflationary period where the Fed is tightening into a weakening economy to fight off any risks. This has been a high inflation period. They've been fighting the inflation. But that inflation is positive for earnings. It's

positive for valuations. It's positive for profits. It's a much bigger economy, much higher nominal growth. And in a way, that's been the really the silver lining in this inflation fight is all of that nominal push to the equity side. And in fact, in the Fed's forecast in the SEP, they nudged up nominal growth quite a lot. They nudged up inflation and they nudged up real growth. So that should be, I think, the positive, an underpinning for earnings and an underpinning for stock valuation as nominal growth continues to rise. And we don't have to worry about any of those pernicious disinflation or deflation risks that really do get in the way of stock valuations going higher. OK, well, we're going to find out now

with more earnings. We've got Chewy results out.ations going higher. Okay. Well, we're going to find out now with more earnings. We've got Chewy results out. Courtney Reagan has those numbers. Hi, Morgan. Yeah, so Chewy revenues for its fourth quarter beat estimates. They're coming in at $2.83 billion for revenues. The street was looking for $2.77 billion. They're giving us an adjusted diluted earnings per share.

I think we've got $0 eight cents adjusted here for EPS. Unclear right now if that is comparable. CEO Sumit Singh is talking about a strong fourth quarter and a strong year, gaining market share and expanding margins, gross margin of 28.2 percent. Excuse me. That's up 10 basis points year over year for Chewy. A very short release. We'll get more details hopefully on the call at 5 o'clock. But the initial reaction is strong from the street, up 12 percent, the exact opposite of what we just told you about 5 below. Back over to you. All right.

Courtney Reagan, thank you. Mike, I want to get your response to Chewy and some of these other results we've gotten, especially given what David just had to say about this not being a deflationary environment and what that means for stocks and for earnings. When you look at Chewy and you see an expansion of gross margins, it does perhaps speak to the fact that companies are hanging on to pricing power and consumers are buying their products even as their own internal costs are falling more quickly. Yeah, in general, I think that is the case.

Chewy, I still think the jury's out on, frankly, on the longer term profitability of this story in terms of getting attractive returns. This was a $50 stock, you know, a bit over a year ago. It's been it's been tough for them to get in that direction. I look at the other similar kind of pandemic winners, Airbnb, DoorDash, they're much farther along in terms of showing that they have, you know, the kind of profitability cycle working for them. But in general, yeah, I'm on board with that idea. We're about to get at some point in coming months likely a rate cut from a Fed that has

told you it doesn't need to really restrain the economy to get the job done on inflation into a stock market at all time highs. It's a pretty rare combination. It feels very 1995-ish, which was kind of that great soft landing. Obviously, there are many differences in terms of the underlying economics here and the macro stuff and labor slack and fiscal deficits and all the rest of it. But just knowing that bit, you can understand why the market was pretty cheered, at least in the immediate reflex off of the Fed meeting today. OK, David, you've been pretty positive on stocks for a while. It sounds like you're still there.

I wonder, especially if balance sheet runoff, the pace of that may be slowing, quote unquote, fairly soon. If that's something that materializes what you think of the bond market investing there right now. So I think at the end of the day, Morgan, it's a little bit tricky. If they go with a tapering of QT earlier, it might change people's expectations about how fast they're moving the rate side. And that could be slightly detrimental. But I don't think in the grand scheme of things, it's a big story to worry about. And they do have this kind of higher equilibrium rate that they put into the system that they haven't really done for quite some time. It's been five years since they moved that higher, at least. So I think there's, you know, a little bit of cautiousness. Let's see where they go in the next meeting. I think it

really is a chance that they're tapering QT as early as the next meeting, or certainly telegraphing that they're tapering and cutting it in half or something like that by summer. And it's just a big tailwind, Morgan. It's that powerful force of the balance sheet that's been with us for all of the QE, for all of the periods of time that we needed it to be a surrogate for rates when we got to the zero bound. We're learning more about the balance sheet as we go through time. A lot of models are not really well suited to understanding the power of it. But I think what we're learning is it is very powerful.

And I do think the market's keying off that. And it is quite good that Jay is not interested in going to the point on balance sheet contraction that he breaks something. He was very clear that they want to sort of glide themselves into an ample reserves environment and not try to overshoot that like they did the last time and then have to reset it later. I think this is all really, really good news for risk assets. We've been very positive to start the year on the equity side. We were much more focused on the high yield credit markets last year, but really see the Fed as a backstop to markets, the inflation story working very much for them in the right way, even with the last two pieces of data that were disappointing in the context of the last six months, great inflation data. And I think we're going to get to see a continuation of this rally. I think this is

this is going to be a great a great storyline as we move through the summer of this balance sheet story. OK, David Zervos, great to get your thoughts on a day where the Dow finished up more than one percent. The S&P at an all time high up nine tenths of one percent. The Nasdaq up one and a quarter percent and the Russell 2000 finishing up almost two percent mike we're gonna see you again in just a little bit as well thank you to you both for kicking off the hour with me kb home earnings are out diana olick has those numbers hi diana hey morgan yeah a nice beat for kb homes the eps came in at a dollar 76 a share versus estimates of a dollar 57 revenues of 1.47 billion Ever so slightly better than estimates, but up 6% year over year. CEO Jeff Metzger said in the release that the year is off to, quote, a strong start.

He said everything, their reports were at or above guidance. Market conditions, he said, have improved since the end of the 2023 fiscal year. Interesting on the average home price, $480,100 in fiscal Q1. That's versus $494,500. So you're seeing that they're dropping prices a little bit. There have been a lot of mortgage rate buy downs by the builders as well, which squeezes margins. Margins were 21.5% even year over year, but new orders up 55 percent. And that's what we had expected is we saw homebuilders sentiment improving. We've seen housing starts improve pretty dramatically in February. So going forward, we expected better new orders. This was a tough quarter because we

did see mortgage rates come off their highs. They came down in December. Then they came back up again in January and February. So, again, though, a nice beat for KB Home top and bottom lines. Morgan? All right, Diana Olick, thank you. Shares trading basically flat right now. Well, up next, Intel CEO Pat Gelsinger on why being awarded $8.5 billion in CHIPS Act grants is so important for the future of his company and the technology supply chain. Plus, a top analyst reacts to that interview and tells us what he wants to hear from Mike Rahn executives when that earnings call kicks off in just a few moments. And don't forget, we're also awaiting the pricing of Reddit's IPO ahead of trading tomorrow. Overtime. I'm here in Arizona where Intel really landed $8.5 billion in direct investment through grants for the CHIPS Act.

President Biden was here just a few minutes ago. And I spoke with Intel CEO Pat Gelsinger about the significance of this moment for America's global competitiveness in chip manufacturing and for Intel's turnaround. I would say geopolitics has been defined by where the oil reserves have been for the last 50 years, where the technology supply chains is more important for the next 50 years. Let's build them. Let's control them. Let's define them to meet our economic and national security objectives for the future. That's why this is so important.

That's why the president is here. That's why the CHIPS program office was set up. That's why Congress voted this way. And that's why today is so critically important and proud a moment. Three years ago, some people were saying saying why is Intel bothering with this manufacturing stuff really ought to just focus on design. It seems to me that had you done that boy investors would be really freaking out right now because the design game particularly in, there's lots of competition there.

But where there doesn't seem to be any question is that we need more manufacturing capacity for all of this. So, feeling a little vindicated, at least on the outlines of the strategy? Well, when we laid out our strategy, you know, clearly we were taking investors on a journey. This is an expensive path. You know, building manufacturing, rebuilding the technology for it. And if investors are measuring us on a 90-day period or a one-year period, I laid out a five-plus year strategy. And for them to, you know, question that if they're measuring things on a short-term basis, not surprised. But you have to be clear-minded about executing that strategy. And manufacturing, there's only maybe two or three companies that can do manufacturing at scale,

the R&D, the capital requirements, and being able to simply operationalize manufacturing. These facilities, John, they're some of the largest construction projects ever done on Earth, building the smallest things ever been built. These are truly marvels of manufacturing, R&D, research, and technology. And every one of those AI era, Morgan. It's so fascinating. Of course, I keyed in on the commentary about, you know, this advanced tech sort of becoming the new oil in terms of the geopolitical landscape. But also, and I think this kind of gets overlooked a lot, and it's highlighted here in your sit-down today, and that's the fact that, yeah, okay,

AMD and NVIDIA have surpassed Intel in terms of market cap, NVIDIA in terms of, and AMD in terms of revenue versus Intel as well, but they don't make their own chips. They don't have those foundries. They have to outsource that. And perhaps investors are not fully appreciating just how big an investment, but also business that could be by the end of this decade for Intel, too. That's so different. Now we've got to see Pat Gelsinger, the diplomat, particularly over the next several quarters,

because the very companies that Intel had its foot on the neck of a decade or two ago, Intel, AMD, AMD looked like it might not survive, are now the potential customers of this foundry business, of course, along with Qualcomm and others. So can Pat separate these businesses in a way that satisfies them, that their secrets are going to be kept secret from Intel's design business? That's what Pat's going to be kept secret from Intel's design business. That's what Pat's going to talk about when we bring him back in just a few minutes. Looking forward to it. I'm looking forward to hearing more of your insights, too, along the way, John.

Well, let's get back to Micron in the meantime. Those shares are jumping in overtime after posting on the back of a strong Q2 report. Joining us now is Angelo Zeno from CFRA. Angelo, it's great to have you on. Now, it seems like they've posted profit adjusted, EPS, positive EPS, which the street was not expecting, gross margins in terms of the forecast above expectations. And it also looks like the guidance is above expectations. Walk me through it. Yes, you're absolutely right. So, you know, I'd say in terms of profitability, they got there a quarter sooner than everyone anticipated. And, you know, I think

really on the gross margin side of things, that's where we kind of get most excited about hosting a gross margin of 20 percent for this quarter relative to our expectation, about 14 percent. And when you kind of look at the May quarter, about 26.5% or something. And we were looking for closer to 22%. And I think a lot of it has to do with strength on the pricing side of things. And specifically on the pricing side of things, there is, we think, a favorable mix going on in terms of kind of more DRAM on the data center side of things. Specifically high bandwidth memory, which is what everyone I think is interested about. But when you kind of look at some of the commentary

that they provided, at least in terms of the initial things I saw, was that they are largely, or they are sold out for their high bandwidth memory capacity for the rest of 2024 and largely allocated in 2025. So we think that's a big deal out there.

If there is potentially a shift or change in perception of Micron here in terms of maybe being more of a commodity type company towards one of having this secular growth opportunity out there, it's going to be on that high bandwidth memory side of things, given the attachment to AI there. OK, something to watch here, certainly with the call getting underway. I'm going to ask you about Intel, too, because we know Intel is making $100 billion worth of investments across four different sites in the U.S. How much does this CHIPS Act funding and the loan contingencies attach to it as well? How much does this matter for Intel? Is it meaningful for investors to get, I guess, even more behind the stock now? So it matters in the sense that, hey, it's going to help meet or fund future capital spending needs.

You pointed to the $8.5 billion. And they spent north of $20 billion in each of the last two years. We expect them to spend north of $20 billion this year as well as in each of the next two years out there. Does it matter out there for investors? Not necessarily. I mean, our view was that we're going to get about $8 to $10 billion here. So that $8.5 billion kind of is in line with our expectation. But as you kind of look ahead, I mean, this is still kind of a long-term timeframe out there before the stock really starts to work because of the capital intensive needs for this company. So as a result, the opportunity cost holding this name right now relative to other semiconductor names just doesn't make sense to us,

which is why we continue to have a hold recommendation on Intel in favor of the other names out there like an NVIDIA, AMD, Micron, for instance. Okay. Angelo Zeno, thanks for joining us. All right. Thanks for having me. Shares of Micron are up double digits right now. Let's get back to Courtney Reagan with more details on Chewy. Court. Hi, Morgan.

We have further clarification on that earnings per share number. Chewy did indeed beat estimates on earnings per share, putting up a surprise profit of seven cents. The street was looking for a loss of $0.05. This is on a gap comparison. Chewy revenues, as we said, did, remember, beat expectations at $2.83 billion compared to estimates of $2.77 billion. And so that is also part of the reason why we see the shares here still holding on to those higher moves, albeit perhaps not as high as they were when we initially saw these numbers cross.

Morgan? All right. Love the context. Courtney Reagan, thanks for bringing it to us. Shares of KB Home moving slightly lower in overtime, despite beating on the top and bottom lines, with that earnings report just moments ago. Joining me now to discuss, Alan Ratner of Zellman & Associates, who just last week downgraded the stock to a neutral rating ahead of earnings. How are you feeling about that call now that we did get this report? Well, it was a good quarter, in fact, a little bit better than we were expecting. But I think the downgrade last week was less around meaningful

downside risk and more just the fact that the stock has had a really strong run year to date, and we felt like it was pricing in some pretty good news, which we saw in this release. Yeah. Prices coming down slightly year over year. It looks like margins even, largely even year over year, but new orders jumping 55 percent. What does that tell us about the company's activity and also the state of the broader housing market? Yeah. So the order growth was stronger than expected, up over 50% year over year. Now, that was off of a pretty challenging, a pretty easy comp from a year ago. I think what I'm looking forward to hearing on the call is what their pricing strategy was to achieve those orders, because the gross margin guidance for the remainder of the year does imply a little bit

of modest compression from first quarter levels. So the question is, do they have to increase incentives to achieve these orders? Are they seeing their costs going up? I think that's the main topic I'm looking forward to on the call. So if you're neutral on KB Home, what would you be buying right now, especially since more broadly, we've seen the home builder stocks just rip in recent months? Yeah. Yeah, the group has had a great run. I think there are some some tactical opportunities. Meritage Homes is another mid-cap builder that has underperformed year to date. They came under some pressure following their fourth quarter earnings. We think that represented a buying opportunity. It's a well-run company that's taken a lot of market share, and we think longer term they're going to continue to take share. So Meritage is one of our outperforms. We also like Lenar and Toll Brothers

among some of the other larger cap names. So on a day where we had comments from Fed Chair Powell, which really sort of suggests that maybe the Fed believes we're on track, at least as of right now, for a soft landing scenario to materialize here. And when you have commentary from KB Home about market conditions having improved, how does it speak to the resilience of the consumer and the resilience of this market in the face of what have been higher rates and seem to be higher rates for longer here? Yeah, I mean, I think it's really just a function of how strong the economy has been. We've got strong job growth. We've got

good wage growth. So while affordability is still challenged from an absolute standpoint, you know, you still do have enough buyers out there to drive some modest growth, at least in the new home market. Now, the resale market, on the other hand, has been under pressure, at least from a transaction standpoint. So we're still sitting at a pretty depressed level of overall volume. And at least on the new home side, those sales are coming with some pretty aggressive rate buy downs and incentives. So it's not all rosy, but it's certainly a much stronger market than I think we and everybody else would have expected when rates did begin to climb higher. OK, Alan Ratner, thanks for joining me. Shares of KB Home up about one percent right now. Well, the Federal Reserve announcing it still

expects to lower interest rates three times this year. Up next, former Boston Fed President Eric Rosengren on when he thinks those cuts could begin. Plus, Reddit's IPO pricing could happen any moment. We will bring you those details as soon as they are announced. And speaking of IPOs, check out shares of Astera Labs, which skyrocketed after going public today as investor enthusiasm for AI-related stocks, particularly semiconductor names, remains very strong. Finished up 72 percent. Talk about liftoff. Stay with us. Stocks closing at record highs today after the Fed held rates steady and maintained the rate cut outlook. Joining us now, former Boston Fed President Eric Rosengren.

It's great to have you back on the show. It's interesting. On the one hand, you have an SEP that showed fewer rate cuts in the coming years, meaning 2025, 2026, even though the dot plot reiterated three this year. On the other, you have balance sheet runoff that's maybe poised to slow, quote unquote, fairly soon, which David Zervos earlier in the hour said was really the biggest news from this meeting today. Your thoughts? Yeah, I would agree with that. I don't think there's much of a surprise in today's news. I think Fed speeches have made it pretty clear that they were looking to keep three rates this year, which is what they had expected at the December meeting, which is the last time they provided a forecast. In terms of their forecast, I think what's notable is they have upgraded their forecast for growth of real GDP for this year

and basically see 2% growth for each of this year and the next two years. So that's an upgrade from where it was. So basically what they have in their forecast is a perfect soft landing with an economy that is strong enough that they don't feel that they need to bring down interest rates particularly quickly. And so, as you said, they have three cuts in each of the next three years. And they also increased what they thought the Fed funds rate would be in the long run by only a tenth of a percent to 2.7. I do expect over time that will drift up. But I'm not surprised that it is quite likely that they will be continuing to discuss what's happening with

the balance sheet. And I would expect that they will be reducing how quickly the balance sheet shrinks over time. Quantitative tightening was sort of seen as this unprecedented experiment. And there were some questions raised, at least within the Wall Street community, about do we really know how this is going to impact the market? Now that it seems to be poised to come to an end or at least slow down, do we know what the impact of that is going to be? So I don't think we know, but the program has been designed not to have much of a market impact. So the goal since implementation of quantitative easing and then quantitative tightening has with the quantitative easing, you're trying to change markets and trying to have an impact on interest rates. With quantitative tightening, you're trying to do it gradually enough that there's no noticeable effect. And I expect that if they're

successful, that there won't be that much impact on markets basically by design. They can reduce the amount that they have run off. And then at some point further into the future, they again can just be growing the balance sheet as fast as the liabilities on the Fed's balance sheet are growing. So I'm going to ask a question that I feel like we've been asking on CNBC for the better part of a year and a half, but it warrants it again. And that is, why is the U.S. continuing to hold up so well with rates so high? Yeah, I think there are a couple aspects to that. Normally, to have a weaker economy with higher interest rates, two places I would be looking.

The first is construction. Construction employment has continued to be quite strong. And I think part of that reason is because fiscal policy has provided quite an incentive for construction, not for things like the typical commercial real estate like towers in downtown cities, but in terms of chip manufacturing. So manufacturing construction has been quite strong. Highways have been quite strong. So a lot of the infrastructure and power has been quite strong. All those have been affected by some of the legislation that we've seen over the last two years. So I think fiscal policy have offset some of the weakness we would normally see in interest-sensitive construction. I think the second is that consumers continue to be more comfortable with taking on debt than many people would have expected.

So the second place I would have looked for weakness in the economy would be something like auto sales. But auto sales have held up quite strongly, despite the fact that auto rates are quite high and that sales prices have continued to be high, though there's a little bit of softening there. So if you have pretty strong auto sector and a pretty strong construction, that's where you would expect to see the interest rates bite. And so, in effect, there have been some offsetting conditions, basically, between fiscal policy and some of the post-pandemic consumer behavior. Great. So we'll continue to keep an eye on those. Eric Rosengren, thanks for joining me. Also perhaps speaks to why you're seeing industrials and materials stocks close at record highs today, too. Well, don't go anywhere because Reddit's IPO pricing could be just moments away and we will have full coverage of those details. Plus,

John has much more from his first on CNBC interview with Intel CEO Pat Gelsinger. Yeah, this is what Rosengruden was talking about, right? Chip manufacturing helping to bolster the economy despite higher rates. We're going to talk about how Intel now hopes to use this facility by serving former rivals as partners when Overtime returns. Welcome back to Overtime. After today's news that Intel's Chips Act money is on the table, what's next? Well, these chip fabs, once they're built, are going to need steady customer demand if they're going to operate at healthy margins. That means Intel CEO Pat Gelsinger is going to have to build trusted partner relationships with companies that felt bullied by Intel a short decade ago. I asked Gelsinger how he's going to do that and how splitting Intel into a design organization and a manufacturing organization fits in. We're creating two businesses inside of one Intel, right, and to establish clean separation

between those, managing all of their secrets, their supply chain, their confidential information, their intellectual property and designs, but also doing that with the industry. And that's why the EDA, the electronic design automation, the cadence, the synopsis, the Siemens have been such an important partner because they're also key to, you know, Lisa Su, Jensen and Cristiano and, you know, Google and Amazon and Apple and so on, because they rely on them heavily as well. So we needed to build that entire ecosystem and we're replatforming all of Intel. You know, the ERP systems, two separate ERP systems for the

company to run, you know, building that legal separation between the two of them so that we are truly auditively protecting their information. But ultimately, I have to build their trust. They have to look at me and say, that's right, Intel is my factory at scale. And we're underway. Our advanced packaging in particular has been this fast on-ramp. And we're engaging with every one of those suppliers to look at our technologies here because we have both capacity and leadership technology.

And that's becoming the on-ramp for them to take advantage of first packaging and eventually wafers as well. What are the steps to that? Because especially when it comes to NVIDIA and AMD, I was covering you guys 20 years ago when intel was an existential threat to their existence they're doing quite well now right but but companies can have long memories so what are the things that you need to do to build that trust

part of it is get some of these early projects and we have to show that we're a great manufacturing partner and i'll tell you tell you, our manufacturing team, my leadership team there, I am manic with them. Exactly how many parts did we say we were gonna get to them for sampling? When were those test chips gonna show up? Because we just have to be superb partners. We cannot miss a bit.

The quality has to be superior to what they get. And the cost, right? The technology. We just have to make them successful. And then we have to keep doing that over and over again, you know, to build trust after decades of distrust. And Morgan, that's what it's going to take for the Angelo Zenos of the world and for investors, too, to see Intel as a relative buy versus some of those rivals, partners, right, that Intel needs to fill this fab when it's finished. Yeah. I mean, that is quite the visual, though, just in terms of that construction behind you towards the future that Intel is working towards.

Great stuff, John. Well, let's get back to Christina Parts-Nevelis, who has been monitoring Micron's conference call. Christina. Well, it's incredible. Micron's return to profitability, delivering positive operating margins, guidance much higher than the street anticipated. It's the speed of this recovery that really comes as a surprise to many and why the stock jumped double digits, now even 14% higher. The CEO is speaking right now and attributes the improved conditions to, of course, strong AI demand, but also healthier demand in most

end markets. He mentioned auto to PCs improving, and he also talked about supply reductions across the industry. The company even warning 2024 industry supply to be below demand for both their memory products in the DRAM, so dynamic memory, and then NAND. He also said inventories for memory and storage have improved significantly and will normalize in the first half of this year. And lastly, since John is talking about Intel, I got to bring up that management is calling out the Department of Commerce, saying their planned Idaho and New York projects require Micron to receive the combination of sufficient chips grants. So that means they're still waiting for that money.

Shares up 14 percent. Morgan? All right. Thank you. Christina, it's amazing how cyclical the semi-market is when it comes to inventory levels. It's hard to believe, too, but some old school industrial stocks have been trading like momentum stocks. Up next, Mike Santoli looks at whether they're starting to get ahead of themselves. And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast

on your favorite podcast app. We will be right back. Welcome back to Overtime. Let's bring back Mike Santoli for his dashboard. Mike. Yeah, Morgan, you know, we're so used to the idea that these semiconductor companies so attached to the AI trend have had monster moves in the market. But look at AM, Broadcom rather, one of those companies compared to GE. A lot of the industrial sector is also looking like these high momentum stocks that maybe have had almost too good a risk versus reward performance in the last year and maybe need to cool off a little bit. Definitely a positive sign about the economy. But in the short term, that's pretty steep angle. Take a look at another one here.

United Rentals against AMD also basically similar trajectory landing at around the same place on a one year basis. So this is the economy we have right now where people are enthusiastic about industrial growth. Consumer cyclicals have been performing relatively well and financial conditions are pretty loose. Take a look at the corporate bank loan ETF. Now, this is the prices of bank loans. So this goes back two years when the Fed first started cutting rates. You did see a gut check. But really, this is the prices of bank loans. So this goes back two years when the Fed first started cutting rates. You did see a gut check. But really, this is now an uptrend. This shows risk appetite for relatively, you know, over leveraged corporate debt is relatively strong.

So this, I think, is why the market took the Fed Powell news today so positively, because we don't have an issue that needs help from the Fed and the Fed yet still might try to become less restrictive in coming months. So far, as long as this lasts, market might be able to stay supported. Yeah, I appreciate that first chart you put up because we talk so much about the secular growth story of AI, but there is an Eric Rosengrin was just talking about this a little while ago. There's this secular growth story that's playing out, beginning to materialize in the industrial part of the economy, too, around infrastructure and CHIPS Act and Inflation Reduction Act and some of these more industrial supply chain

infrastructure related projects. And perhaps that's part of the reason you are seeing that momentum in that sector right now. There's no doubt about it. I think people have definitely gotten on board with that whole thesis. It's real. The money is flowing in that direction. For me, just in terms of reading the market action, you just have to wonder if we're going to overshoot in the short term. That's all. All right. Well, we know you'll be keeping an eye on it for us. Mike, thank you. Service Now making a big new AI announcement. Speaking of, we're going to hear from the company's CEO straight ahead when Overtime returns. Welcome back to Overtime. Continuing on the AI theme, I spoke with ServiceNow CEO Bill McDermott about the company's launch today of yet another

iteration of its AI-driven platform, codenamed Washington, D.C. McDermott about the company's launch today of yet another iteration of its AI-driven platform, codenamed Washington, D.C. McDermott continues to sound bullish on the company's growth trajectory. Getting the first mover advantage in tech is a super important thing. And we've been building LLMs now for over five years. And we have the most ambitious gen ai roadmap in enterprise software and less than six months after we introduced vancouver to the marketplace now comes washington dc so we're seeing our primary strategy which is domain specific llms that run faster they cost less they're far more accurate and secure. And now we're absolutely running away with this marketplace in the enterprise software space. That means think about

faster ROI. Think about a single pane of glass that resides above the legacy systems that can connect people, processes, data, and devices. And look what it does, John. It attacks tech debt. You know, in the United States alone, the United States companies are blowing $2.4 trillion a year on tech debt. The source for that, as you might remember, is the Wall Street Journal. And to put that into context, that's two and a half times more than the United States government pays an annual interest on the national debt. So this is a big problem. And that's why having one platform, that's the Uber platform for digital transformation service now in the enterprise game change. And so we've come full circle, Morgan. Today we had President Biden from Washington, D.C., coming to this plant where the chips are meant to build the future of AI.

And then we've got this software company, ServiceNow, with its Washington, D.C. release. The hope is that this kind of software drives demand for the chips that will eventually be coming out of here. Yeah, and I mean, just to add to the full circle element of this, with a stop in the middle with the Fed, with rates still potentially higher for longer, at least not, but not any more hawkish than had been previously expected, which of course speaks to Bill McDermott's tech debt argument there and the role that AI is going to play in that too.

Yeah, and the story keeps playing out. I'm flying from here to Silicon Valley. CNBC's Technology Executive Council has a gathering tomorrow where I'm going to be. I'm going to have some real luminaries there talking about how they're strategizing to get to the next level here. But it's being built physically here, but it's also being built software-wise out there. So we're continuing to cover the story. Yeah. In the meantime, after the bell in overtime tomorrow, we're going to get three big heavy hitters. We're going to get Nike, Lululemon and FedEx all reporting earnings. What's very much in focus here, John, is going to be the fact that these are reads not just on the U.S. consumer and the U.S. economy, but the global economy, too,

including, by the way, China, which we know has not been as strong as everybody had been hoping it would be post-pandemic reopening. Yeah, and those five below results are a wrinkle as well. The discounters have been overall doing pretty well, just maybe the guide not as strong as expected. But, you know, after TJX and some others to get these five below numbers, I imagine Nike and Lululemon, two competitors on the high end reporting on the same day. We're going to have to watch that closely. We are. Plus, U.S. flash PMIs, weekly jobless claims, a couple other things like existing home sales in the morning. We had record highs for all three of the major averages today. Big post-fed rally.

That's going to do it for us here at Overtime. Fast money begins right now.