Closing Bell - Closing Bell Overtime: Fed's Inflation Battle 2/16/24

Episode Date: February 16, 2024

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business. 

Well, a second hotter-than-expected inflation report sending tremors through the market today. Risk was especially off, but S&P holds on to 5,000. That's the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Well, the major averages snapping five-week win streaks as tech and communication services weigh on stocks. They were the worst-performing sectors this week. Coming up, former Boston Fed President Eric Rosengren on whether he thinks the market is overreacting to today's PPI report. Plus, a top energy trader on whether the big sell-off in natural gas this year is creating a buying

opportunity. But first, let's get to today's action with our first guest. Joining us now is RBC Capital Markets head of U.S. equity strategy, Lori Calvicina. Lori, so what's the strategy here? We're still about 5,000 after two hot inflation reads. In a way, that could be good news. I mean, if you're looking, if you were guessing, I guess, what was going to happen with CPI and PPI and how the market would react off of these highs, you might not have guessed this, but your bull case is quite a bit higher. Yeah. So look, we've got 51.50 as our year-end price target on the S&P. One of our models is

pointing to 5,500 as a potential bull case. And that's really based on our valuation work, which takes into account things like moderating inflation, a little bit of relief on interest rates, and a recovery in GDP in the back half of the year. So that's not our base case, the 5500, but it is something that could potentially be reasonable if we end up being too conservative. You know, you asked, John, kind of what the strategy is here. I think it was a really, really weird day. We saw both small caps and REITs getting hit very hard alongside big cap tech and communication services. And you usually don't see both of those sets of sectors or indexes at the bottom of the pile. I think I would really caution people in here to stay focused on the big picture. We do think inflation is moderating. Our rates team has been telling us

it would be a bumpy ride down for quite some time. So we're not overly alarmed here. But I would keep an eye on the big picture and where we're headed, not the bumps along the way. OK, you're also saying that investing is in the process of a post-COVID normalization. What's the new normal going to look like? Well, it's a great question. And I'll tell you, as I think back to my meetings really over the last six months, you know, back in the fall, the winter and even the last few weeks, this is something a lot of investors are interested in talking about. I've really been pushing forward the idea that similar to the post-tech environment in 0203, similar to post-GFC in 2010, 2011, 2022 through early 2024 have really been that era of post-COVID normalization where we're figuring out what all the new rules of the road are. I do think we have to get used to higher inflation than what we saw before, higher interest rates. I also suspect that GDP growth is going to be more robust

than what we saw in the post-GFC period. And I think that's why we keep having these constant upside surprises that the street's not ready for. I think that you have to play for all of those things. And I think you really have to look at, you know, multiple cycles, not just a post-GFC period to figure out things like where your valuation multiple should be. It's a really interesting take that you have, especially in a week where we've had so many debates on our air and so many strategists notes circulating about the Rorschach test. That is, is this 95 for the markets or 99 for the markets? And you're basically saying, yeah, I'm looking at it. I'm looking at different periods altogether. The fact that we did see, yeah, we saw the major averages finish the week

lower. But in terms of what outperformed for the week, the Russell 2000 still finished the week up 1.3 percent. And if you look at the sectors that performed well, it was some of these more cyclical sectors. It was things like materials and energy and financials. You even saw utilities and health care catch a bid here in this market. Can we say that the rally is broadening out here, or do you need to have more evidence? I think that we're seeing hints that people are ready for the rotation and ready for the broadening. If you even look at the conversation about the MAG-7, you know, a couple of those have been kicked off in Darwinistic fashion, right? So now people are talking about their top five favorites, their top four favorites, even their top three. I think that gives you a hint right there that people are really ready to do something else. And if I think about those sectors that did well today,

really, yes, it's cyclicals, but it's also things that have lagged. And that's really capturing a little bit of the excitement, you know, that we saw back in the fall. I think that if you think about what people have been angsty about over the last week or so, I'll tell you my conversations last week, I was overseas. The question I kept getting was, oh, my gosh, is the U.S. economy so hot that the Fed can't possibly cut? Well, think about that premise here. The U.S. economy is so hot. That really is something, I think, a feature of this new normal, again, that we have to get used to more resilient consumers, better than expected GDP than what we saw in the post-GFC era. And I think you're starting to see, you know, we're kind of working through the wrangling out of this Fed angst that developed. We've got a little bit

too excited there. And they're trying to start focusing on that idea of an economy that's actually pretty healthy and invest accordingly. So we're in this weird transition period. We've got to work through this Fed angst, but we've also got to come to grips with the idea that consumers are in pretty good shape and the economy is in pretty good shape. I mean, the other piece of this is earnings. What is the read through from earnings in terms of the state of the economy, the state of the consumer, and the state of these companies that, in many cases across many industries, at least until now, have had a lot of pricing power? So I think it's a great question, Morgan. And we read through a lot of earnings call transcripts on my team. I will tell you the pricing conversation has really dwindled. People are getting very quiet about it in the C-suite. We are still seeing a lot of

conversations about high costs. But if you look back at some of the comments on pricing that have been made, corporations are coming to grips with the idea that they cannot keep pushing these prices through their customers or consumers' throats. And so I think that in and of itself is a good signal for inflation going forward. But I do think it has some impact on things like revenue growth. We found CPI and revenues in the S&P 500 are very, very positively correlated. So you lose the pricing power, you're going to dampen the revenue growth a little bit. I've got that reflected in my earnings number, which is 234 for this year,

a little bit below the consensus projections. The consensus is anticipating big, big margin expansion. I don't think you're going to get it. I think you've got to work through that process. It doesn't keep me up at night in terms of my market call, because I think that what inflation does in terms of damaging the revenue growth in the S&P, I think it ends up helping you out on the multiple. So the market can still be higher. But again, this is just a messy issue that we've got to work through. Yeah, it also speaks to the ever increasing shift that we're seeing to cost cutting among companies. Lori Calvisina, great to kick off the hour with you. Thanks for joining us.

Thanks for having me. All the major averages today finishing lower. We have a news alert on JetBlue. Phil LeBeau has the details. Phil. Morgan, take a look at shares of JetBlue. The Wall Street Journal reporting that Carl Icahn is close to securing two board seats on the JetBlue board of directors.

Remember, he announced his position on Monday and at that time said that he had had discussions and continues to have discussions with JetBlue about board representation. And again, the Wall Street Journal is reporting that he is close to getting two board seats. Carl Icahn now owns 9.91% of JetBlue. And if you look at what his game plan might be, you know that it's going to probably match up with new CEO Joanna Geraghty's in terms of what he expects them to do. Cut costs, be more judicious about their spending,

and also get back to the basics in terms of making the airline more profitable with the current operations and not rely on the previous game plan, which was alliances and a proposed merger with Spirit Airlines. So again, according to the Wall Street Journal, Carl Icahn close to securing two seats on the JetBlue board. John, back to you. Okay. The LeBeau, a huge down week for Herbalife. Carl Icahn has found a new target. It's shaping up to be a fiery proxy season, one to watch. Yeah, indeed.

Meanwhile, a big down day for Supermicro, capping a rollercoaster week. And as we look ahead to NVIDIA earnings Wednesday afternoon, this is a related name we're keeping an eye on. Supermicro makes high-performance data center hardware with chips from NVIDIA and others. These are custom muscle cars that carry AI engines. The action in Supermicro is so wild, it's down 20% today, but still up 8.5% for the week. You might recall seeing Supermicro founder and CEO Charles Liang on CNBC for the first time back in June when I first laid out on Overtime how it's a smaller AI play alongside NVIDIA. Back then, it was around $230 a share. In September, when it was about $240 a share,

I sat down with Liang at Supermicro's headquarters in San Jose, and he talked about his friendship with NVIDIA's Jensen Huang. Both NVIDIA and Supermicro founded in 1993. So almost from day one, we know each other. And then we grow together. So Jason Yates shared the reality when he introduced the first AI machine. Indeed, Supermicro was the first company to make his chip ready for the market.

Supermicro started 2024 at around 285 bucks a share and has hit the nitro button since then. The question is, with the hype so strong, is there still a case to buy it here? Let's bring in Christina Parts-Nevelis, our very own, on a day when the market's digesting new Sora video news out of OpenAI, also looking ahead to Intel's Foundry Day next week. Christina, every time somebody comes up with a new AI application that theoretically fuels demand for these high-end chips and for the hardware that carries them. That's true. And every time a company also has some type of association with NVIDIA, you also see this massive uptake. It's important that the relationship that you highlighted between these two companies, because Nvidia contributes 68%,

this according to a new note from Wells Fargo, 68% of Q2 2024 total purchases. So that is a lot of relying on Nvidia, but it also shows the strength of Nvidia is doing well, if Supermicro is doing well, this bodes well for Nvidia next week and its data centers. Um, to your point though, about whether, you know, this is a buy right now, I think what's controversial about this stock is not necessarily its capabilities. You know, I liked your, your custom muscle car analogy,

but I think more of the momentum that we've seen in just a little while, which really showcases the investors in the marker right now looking are so hungry for any type of AI related investment that they're putting their money into almost every facet of the semiconductor world, which obviously bodes well for reporters like me. But it begs the question, is this momentum warranted? And does it reflect the true sustainability of these companies when we're talking about the revenue growth over the next little while? Can they provide that $1 trillion data center market that Jensen Wong is calling now will hit $2 trillion in just a few years? Is that actually going to happen? And then you'll see these companies benefit.

Yeah. It also, and I know you follow this so closely, and I think about Applied Materials, which had a big rally today on the heels of earnings after the bell here on Overtime yesterday, where you had commentary about the demand for future advanced chips around all of these AI capabilities. It's not all chips created equal when we're talking about this. And I guess just lay out what that means in terms of winners and losers, even as we come out of this earnings season. So for Applied Materials,

that is within the semi-cap equipment world. And so they've been suffering for the past two years weakness. There's been cuts in IT spending. But just over the last little while, there's been a resurgence. There's been more building in various countries, right? Because you're getting all this government funding here. It's the CHIPS Act,

which we're still waiting to hear more about, but we will in the coming months. And Because you're getting all this government funding. Here it's the CHIPS Act, which we're still waiting to hear more about, but we will in the coming months. And then you're also seeing this rebound in the memory market. And so customer inventory levels are improving. And so that's further helping the semi-cap market. But Morgan, you talked about the guidance and you said the future guidance.

And I think that's an underlying theme with a lot of maybe across earnings in general, but across the CHIPS sector as a whole, that it's all about driving that future growth. And that's all investors really need to hear. Who cares about the beat in the current quarter? Who cares if maybe guidance for the following quarter is going to be a little bit higher?

Investors want to know that that sustainability is there so that they are more convinced with this AI trade. And I think that's, again, hinging on what NVIDIA is going to need next Wednesday. You know, they're going to need to remind the audience that, yes, this is not just a blip in the whatever that saying is. This is actually going to continue. And so for applied materials, you're seeing that guidance and him talking about strength in inventory levels and strength in memory and that they're going to benefit. All right. Christina Parts and Avalos, thanks.

Thank you. Russell 2000 was hit the hardest today, but it is still the week's winner. CNBC Senior Markets Commentator Mike Santoli joins us now with a look at the volatility percolating in the small caps. Mike. Yeah, Morgan, really a lot of life in here. Maybe it's a little bit of erratic action. You guys just talking about Supermicro. I've been pointing out in the last couple of days, it now happens to be by far the largest weight in the Russell 2000 index. It's like 1.8 percent of the of the index, even though there's 1950 plus other stocks in there. This is the measure of anticipated volatility in the

Russell 2000 and the S&P 500. So the VIX is the familiar one. And you see it's kind of been bumping along above its lows. It's in the 14 range. So even though the S&P 500 has made a new high each of the last like four weeks, new record high, it hasn't really been able to go down. But contrast that with the Russell 2000 VIX, which has also been very strong over the last couple of months, the index has. And yet you see this pretty sharp uptrend in anticipated volatility based on the Russell 2000 index options. And it takes you back to really last fall. So this is a stocks up volatility up dynamic. It isn't always the case. A lot of times when those stocks are down, people are panicking and hedging. And it shows you that there's just a lot more springy action in these

stocks. And and, you know, part of it is some speculative activities. Part of it is some of these stocks like Supermicro and MicroStrategy getting juiced inside the index. But it's something to keep an eye on because it can, you know, maybe suggest some instability down the road. Yeah. And traders like volatility, right? Because, yes, you can lose a lot of money when we start seeing things swing around. But you can also make a lot of money in the process. At what point? And we're talking about small cap volatility, but I'll just I'll just zoom it out and we'll talk about this. The VIX, which started to tick up this week, but not we didn't get close to 20.

We didn't get start to get to levels where where things really the action really starts to, I guess, propel itself. What would it take for us to see that again? I mean, I think you probably have to see just a radical reevaluation of either the Fed path or rates surging again or something happening in the world of credit. That's as an instant shock. It would probably take something like that. Now, clearly, if we go into an equity correction, you know, the S&P 500 gives up a couple of hundred points. This is going to get elevated. But to your point, I mean, we kind of popped up to 17 for a few seconds, really. It came right back down. And those spikes on the chart are basically when traders anticipate something scary and then it doesn't come true. And you go back to sort of the normal heartbeat. All right. Mike Santoli, thank you. We'll see you a little later in the show. Up next, former Boston Fed President Eric Rosengren

on when he thinks the Fed could begin cutting rates following the hotter-than-expected PPI report. And later, natural gas investor Bill Perkins on where he sees the commodity heading next after a big sell-off recently, overtime's back in two. Welcome back to Overtime. Today's producer price index for January came in hotter than expected.

This on the heels of Tuesday's elevated CPI report that caused markets to fall sharply. So how does this latest inflation data impact the Fed's rate cut timeline? Well, joining us now to discuss is Eric Rosengren, former president of the Boston Fed. It's great to have you on a day like today. And that's exactly where we start, because whether it was CPI on Tuesday, PPI today, it's really services where we saw this uptick or this resiliency in terms of the inflation picture. We know that tends to be tied to wages. What's the read through here, especially at a time where we've had so many Fed officials talking about how sticky this last mile to 2 percent actually can be? So you're exactly right. Both the PPI and CPI have shown very similar patterns. They've both been a little bit above expectations

for both the core and the total. And while goods have been relatively modest in terms of their price increases, services have been more robust. And as you noted, services are much more tied to wages. The good news is that the employment cost index, which is probably the best way that our data measures private wages and salaries, has been coming down. It's still a little elevated at 4.3%. We'd expect at a 2% inflation rate that that number would be more like three and a half. But it's true that we've had now two reports that are a little higher than expected. I would say that I'm still expecting PCE and core PCE to continue to trend down. The downtrend in both the wages and salaries and the fact that rents have been coming down on the spot price,

we've been waiting for that to be reflected a little more in the way the government calculates those statistics. But I'm expecting by the time that we get to the May meeting that the data is going to indicate further progress on inflation. So May is still very much in play, it sounds like, according to you. I mean, May versus June, how much difference does that actually make if you see cuts happening a little bit later than the market is currently pricing in or had been pricing in at least earlier this week? Well, for the economy, May versus June makes almost no difference at all. But obviously, for somebody who has a loan or somebody who wants to get a mortgage, the timing can actually be pretty important. I think that overall, my expectation is still that we'll be seeing the

first cut in May. I think March already was pretty much taken off the table. And the data that we've gotten on both the CPI and the PPI have highlighted the wisdom of the Fed waiting a little bit longer before they do their first cut and make sure that the progress they want to see on inflation is actually happening. I'd say while I think it's going to be in May, it wouldn't surprise me if it gets pushed back to June. A lot depends on what kind of data we get between now and May. My own forecast would be for weaker economic statistics than what we were getting in the fourth quarter, and that we would see the PCE continuing down and having maybe the total end core right around 2.5% or a little bit lower. So that would be an environment where I think I would be probably comfortable with a rate cut, but we'll see if

the committee agrees. So based on that, Eric, and based on the number of rate cuts many in the markets seemed to expect leading up to this point and where the market multiple is, are equity investors, you think, too optimistic? I think they're a little optimistic. I'm not as convinced as some people that November 7th, when they have the November meeting, is going to be a meeting where there would be a rate cut. And even in December, I'm a little skeptical. So I would expect once they get started, they'll do 25 basis cuts and then pause after September and see what's happening with the economy. It'll probably be a volatile period given that we have a presidential election at that time. And they'll

want to see if they continue to get the progress to 2% inflation. So I think they're hopeful that they might actually hit the 2% inflation by the end of the year. That's probably a little bit optimistic. I think they can take their time given that the economy up till now has been reasonably strong so based on history what do you think of the implications for bonds fixed income so maybe uh in the near term i think people that were anticipating um that bond rates would continue to come down. We're probably going to be a little disappointed.

I think the bond interest rates are a little bit high now. They'll probably come down a bit more, but I don't think it's going to be dramatic. All right. Eric Rosengren, thank you for joining us. Thank you for having me. NatGas powering higher today, but it has plunged more than 30 percent since the start of the year. Up next, a top energy trader on whether he thinks a comeback could be in the pipeline. Plus, we'll discuss whether NVIDIA's huge rally this year is sustainable ahead of a

big earnings report next week. Overtime. Nat gas may have ended higher today, but it is down 13% this week, hitting lows not seen since June of 2020. So there's more weakness coming down the pipeline. Well, joining us now is Bill Perkins from Schuyler Capital Management. Bill, it's great to have you back on the show. Great to be back. All right.

So we've had really warm weather this winter. And just in terms of the seasonality here, you have a March-April spread that gets traded. It's known as the Widowmaker trade. Walk me through what we're seeing right now, how unusual it is and how it sets us up for the rest of the year. Yeah, it's pretty unusual. It's been 73 years since we've had this type of warmth. And so naturally, the market has fallen in order to induce demand so that we can burn a little bit more gas and try and make a dent on the overhang. But it's been so warm, you know, we have to even go lower and we're facing the prospect of shut-ins. So March, April is negative, significantly negative, and the curve is very, very contango, very steep, playing into people's fears of congestion even early in this

season. So what would it actually take for us to see shut-ins? And I ask that knowing that in some cases, nat gas is a byproduct of pulling crude oil out of the ground. And you have that price at 80 bucks and those production levels at record highs here. Yeah. So it depends on what region. In the northeast, it's between right around 75 cents around the hub in Texas. You know, dollar 10, dollar 25. It really depends on transport and what's going on in storage. But producers are definitely slowing their roll. You know, they're dropping some rigs. They're delaying completions. They need to get past the injection season. They need to get to the winter in 2025 where things start to look much more bullish. We have a lot more demand coming on

from exports and power demand growth. So, Bill, how are you trading this then? Are you just staying away from that gas? I try and stay away, but I can't. I have two conflicting opinions. One is that there is significant risk for needing shut-ins and the price going much lower. But we've gone so far down that we have enough gas burns that the actual amount of gas on a daily basis going into storage is a lot less. And so spreads seem wide. And I'm trying to reconcile those two views. So I'm looking at playing playing it via options and spreads.

OK. And what about the rest of the energy trade, given that the U.S. economy is holding up so well? I mean, the total energy picture looks good on a multi-year basis. Next year, the following year, particularly for natural gas, because we have about 10 gigawatts of coal retiring a year or more. We have 1.6 percent electricity load growth from data centers and just the reindustrialization of America. That's heavily falling on natural gas and a little bit on renewables. And so gas demand looks robust domestically and it also looks robust internationally as people look to get off coal and move to natural gas. And so, you know, the out years look great. It's just

the intermediate period looks pretty bad and scary. And of course, policy will play a big role in this, too, when you have a have an administration that's been freezing some approvals of LNG exports and then a House that's fighting their members of Congress that are looking to counter that. In the meantime, though, in the meantime, though, I completely forgot what I was going to say. OK. I mean, the power situation, the power situation is very interesting with the administration right now and natural gas. You know, you have all these incentives for infrastructure where it be tax and battery, et cetera. But on the other hand, the administration makes it almost impossible to permit anything in any reasonable amount of time. And so I think that the regional grid is in trouble in the next two years, not natural gas, but power. And I think

that certain states are going to look like third world nations with their power prices, given the fact that the infrastructure is not coming in time to match the growth and the demand. All right, Bill. Always good to see you. Happy Friday. Thank you. Have a great weekend. You too. Up next, Mike Santoli is going to dig deeper into commodities to look at how an eventual Fed interest rate cut could impact the sector when overtime returns. Welcome back to Overtime. It's time now for a CNBC News update with Pippa Stevens. Hi, Pippa.

Hey, Morgan. A New York judge ruled today ordering former President Trump, his sons and others to pay over $355 million in damages for conspiring to manipulate his net worth to dupe banks and others. He was also barred from running a business in the state for three years, but the judge removed an order to dissolve his companies. The former president has vowed to appeal. President Biden said there is no nuclear threat to the U.S. or anyone else, as he responded today to reports of a national security threat from Russia's potential development of a space-based nuclear weapon to target satellites. The president also said there is no evidence to suggest the Russians have made a decision to go forward with the program. And organizers for the Hugo Awards, a literary award for science fiction,

kept several authors from award shortlists for fear of offending China where the ceremony was taking place. That's according to leaked emails first reported by sci-fi news site File 770. The organizers say they're now taking steps to ensure transparency and address the loss of trust. Morgan and John, back to you. Well, I think there'll be a sci-fi short story written about that. Pippa Stevens, thank you. Mike Santoli is back with a look at commodity prices. Mike?

Yeah, John. I mean, we talk all day about the stickiness in services inflation, and maybe that's preventing overall inflation measures from coming down as far as we might like. But take a look at commodities, because this has not been at all a source of upside inflation for a while. This goes back to the end of 2021. So, of course, you had the surge with the Russia invasion of Ukraine, And now all of that upside has leaked out. Also, of course, the weakness in natural gas, agricultural commodities playing along with this. Now, there's maybe the hints that it's trying to bump along this level right here and find its footing. Also, there's a lot of work that suggests when the Fed actually starts cutting rates, not when it's anticipated,

but when the Fed actually starts cutting rates, typically you do get a bit of relief and an upside move in commodities as an asset class. Now, the market based inflation expectations is a totally separate factor, which is really not causing too many alarms. Yep. It's a little bit up off the low. So this is derived from the pricing of inflation linked securities. It's not necessarily a prescient view of what inflation is going to be over the next 10 years, but it shows you what the market's ready for and priced for and really nothing to report. Right. It's about two point three percent. It's been steady in this range with a couple of upside moves since the pandemic and really not that much higher than the two percentage area of before the pandemic. So so far, market is willing to wait for the inflation numbers to come into line and see how the Fed responds. Mike, does gold and the rest of the precious metals follow

the same storyline here or no? In terms of commodities responding to easing and things like that, yeah, typically. One of the factors, I mean, gold is this kind of mysterious thing as to why it moves the way it does. It's not really about inflation. But real interest rates is seemingly connected to how gold performs. And we do have elevated real rates. In other words, rates a good deal higher than measured inflation. Maybe that's something that would be a factor if we did get relief from the Fed. All right. Small caps and commodities, Mike.

Thanks. Up next, we're going to explain why media investors should be watching content creators on the micro level very closely right now. And later, Apollo Global Management Chief Economist Torsten Slocke on the one part of the economy he thinks could put even more upward pressure on inflation. We're going to talk about that after the break. Welcome back. The media industry is getting shaken up as ad revenue shrinks and the Giants try to rein in streaming costs. Well, today, John takes a time out with a well-known creator who is trying to stay ahead of the game. I can't wait to hear this one. Yeah, Morgan, Kiki Palmer is an actress, TV host, dancer, and singer with more than a million monthly listeners on Spotify.

She's also founder and CEO of Key TV, her attempt to go direct to her audience on Facebook and YouTube with content from a diverse slate of actors and people behind the scenes. So I talked to her about how she stood up for herself in Hollywood and how that's translating into business. My parents always raised me to speak up and that the truth, you know, it's so cliche. We hear the truth will set you free, but it will because when you are held back and you don't speak up for yourself, A, nothing changes.

And that changes you when you don't stand up. And so for me, like one of my biggest, greatest fears is to not be everything I want to be, to not evolve, to not grow. And in order to grow, you have to heal. In order to heal, you've got to be honest about what you're going through, about what you've been through. And we had this conversation late last year. Palmer is now trying to not only pursue her own project. She dropped a new single this month with Aloe Blacc and Toby Gadd, a new album herself, and an Usher video late last year. She's also trying to provide a platform for underrepresented

artists through Key TV. I think one of the biggest things that inspired me to even do Key TV was because of Awesomeness TV, which was started by Brian Robbins. And what I saw that he was able to do for a lot of the content creators out there that weren't really getting access or opportunities to kind of scale their content and be able to create more, because it's expensive to be a creative. And then for me personally, coming from the traditional world of entertainment, I really found my freedom through creating online. And then I was able to get a lot of support and financial freedom through collaborations with advertisers, et cetera.

And so for me, KeyTV is an opportunity to kind of extend that exposure to someone outside of myself so that other creatives, not just, you know, BIPOC creators in front of the camera, but behind the cameras as well and being able to provide them with financial support and also the eyes because there's an audience out there for that. So the timeout takeaway, watch the creators. On the micro level, they're wrestling with the same issues of content creation expense and content discovery that the big studios are. Media investors probably should try to pay attention to artists like Palmer who have connections across industries for a sense of which new models are struggling and which are

working. This reminds me so much of the music industry 15 years ago, just in terms of how the power is shifting to the creators themselves, the artists themselves, the producers themselves, what tech has enabled in terms of new distribution models, allowing them to be more entrepreneurial and realize these visions. And if you can be efficient, it doesn't cost you as much, so maybe you can innovate faster. Well, up next, Apollo Global Management Chief Economist Torsten Slocke on today's hotter than expected PPI report and what he is most worried about

when it comes to the outlook for inflation. Stay with us. We have a news alert on J.P. Morgan from Pippa Stevens. Pippa. Hey, John. Well, according to a filing just now, J.P. Morgan will pay about $350 million in civil penalties for trade reporting lapses. That's for a resolution with two U.S. regulators. And the firm is also expected to enter a resolution with a third regulator as well. And J.P. Morgan also said that it continues to monitor its exposure

to Russia, which was about $350 million as of the end of last year. The stock about flat here. Guys, back to you. All right. Big day for $350 million penalties, Trump and J.P. Morgan. It's the number, I guess. All right. Pippa Stevens, thank you. Housing starts falling sharply in January, down nearly 15 percent from December, marking the biggest drop since April of 2020. Joining us now, Apollo Global Management Chief Economist Torsten Slock. Torsten, it's great to have you back on the show. I'm going to start with a big, broad question for you, and that is, is the path back to 2 percent inflation challenging,

absent more loosening in both the labor and housing markets? That's a really, really important question, Morgan, because the issue is exactly with the housing market that the problem we have is that there are simply not enough homes for sale. In other words, the number of homes that are listed that's available for people to buy is still very, very low. And why is that low? Because remember, out of all homes that are listed that's available for people to buy is still very, very low. And why is that low? Because remember, out of all homes that are sold, seven of homes sold, six are existing homes. One is a new home. And for all existing homes, namely six out of those seven, people are basically sitting and leaning back and saying, I'm not offering my house on the market

because I'm not leaving my 3%, 4% mortgage to go into a 7 plus mortgage. So the problem is the upward pressure on inflation is coming back from the housing market. We have the Case-Shiller Index is beginning to go up now 5% year over year. And given housing has a weight of 40% in the CPI basket, the short answer to your question is that in particular from the housing market, we're at risk of seeing renewed upward pressure on inflation. And also to your other point about the labor market, likewise, wage inflation still remains relatively strong. So that also continues to be an upside risk to inflation. Okay. So I know you've been on this show and you've been on CNBC in the past, and you've talked about the possibility of a no-landing scenario here for the economy.

When you look at the data we got this week, whether it is CPI and PPI or even some of the other reads that we've gotten, including claims which continue to be stubbornly low here, is this January effect playing out in the data, or is this early evidence perhaps that we are in a no-landing scenario? I think you are right. This is early evidence. And why is it early evidence? Because remember, the Fed pivoted at the December FOMC meeting on the 13th of December. They basically began to say green light for issuing more IG. And that's exactly what you saw. Record high issuance of IG in January. The multi-year high issuance of high yield. Also loans coming back. You also saw M&A activity coming back. You also

saw IPO activity coming back. With that backdrop, it's not really surprising that the employment report was strong in January. And likewise, therefore, it's not really surprising that also the CPI and PPI reports, in particular coming from services, have also started to pick up. So I think it's much more fundamental that the Fed is essentially changing their tone as they did at the meeting in December. That's the reason why the data is now showing more signs of improvement. So that's why I do think that we will see more hawkishness from the Fed so that they have to begin to talk more in the direction of saying, well, there is a risk that we might actually have rates higher for a lot longer

than what the market currently is expecting. So, Torsten, back to your first point. What do you think happens when the job market eventually weakens significantly if rates haven't come way down by then? Yeah, that's a really important question because at the moment, think about it, we're having problems in the banking sector in a strong economy. We also have problems with the language rates going up on credit cards and other loans for some groups of consumers. We also have problems in credit that highly levered companies are seeing default rates going up, both in loans and also in high yield as a result of the Fed having high rates. And all these things and all these signs of weakness are seen in a strong economy. John, if we begin to see that the labor market finally, finally begins to soften, as the Fed now has been trying to achieve literally for 18 months, that will end up ultimately exactly creating a lot more problems because we already have segments of consumers, segments of firms, namely those that have too much debt and have too low savings and too low cash flows, that they are the ones who

will be most vulnerable. All right. We'll sleep with one eye open. Torsten Slok, thank you. Thank you. Well, NVIDIA shares soaring roughly 50% so far this year. It's only February. Up next, the top analysts on what to expect from next week's key earnings report. We'll be right back. the options market. That's the biggest expected move over the last three years. Well, joining us now to break down what's ahead is Mellius, head of technology research. Ben writes us, he's got a buy rating and a 920 price target on NVIDIA. Good to see you, Ben. So isn't NVIDIA approaching a moment like Apple did five years ago where it stopped reporting iPhone units and told the street, convinced the street eventually to focus more on services than they had in the past. Isn't NVIDIA going to have to do that about chips versus AI and software and platforms overall?

Well, they have this burgeoning software business that we are really positive on. We think that it's small now. It's about a billion run rate, but it could triple over the next year and then go up from there. And we think that's a really important thing. The real key, John, is we are seeing a surge in supply for their chips and lead times are going to come down. But if they're able to bless that 2025 is a growth year with their new product cycle, we should be OK. And obviously, they're the leader in the greatest trend that we've seen since the Internet. So I am very optimistic from here and see upside to numbers. Do you think this supply surge that you're seeing is going to be enough for them to top these already lofty expectations? It should be based on what we're seeing is going to be enough for them to top these already lofty expectations? It should be, based on what we're seeing. There's new packaging capacity coming on and surging in

the second and third quarters. And we think that's going to allow them to see some sequential growth throughout the year. And then also, they have this major new product cycle, which is kind of staging some of the demand all the way into 2025. So that's the key. They're going to need to bless that. In the semis market, when the lead times go down, sometimes that's not a great sign. So they're going to have to thread a little bit of a needle that they've got sustainable demand to grow into 2025, despite this surge in supply. And I think they can do it. In terms of how the stock trades on a day-to-day basis on the call, it's a hard call,

but this is the leader in the greatest little trend that we've seen in a while. Yeah. I mean, you're laying out the fundamental case on why NVIDIA will keep on going and keep on being an earnings powerhouse here amid this AI boom. But given the run-up that we have seen into this earnings report, the lofty expectations, the move in the stock. Do you wait until it's actually posted earnings and you get perhaps a knee-jerk drop, a sell the news move in the stock to actually buy, or does it matter? It shouldn't matter if we're in a multi-year trend. I think on a day-to-day basis, who knows? They do have to assuage a lot of concerns as well as bullish concerns. So we'll see. But this sequential growth throughout the year should

continue based on what we're seeing with supply and demand. And I would scoop it up on some weakness. I see over $30 in earnings power over the next few quarters being realized. So 30 times that is over $900. And that's why we have a 920 target. Yeah, very quickly here. I mean, we've been talking about Supermicro even before this huge move higher. In terms of other names that are in the NVIDIA ecosystem could see a halo effect. Are there ones that you're tracking? Well, certainly what's really neat about NVIDIA is their full stack approach

is allowing them to be the primary beneficiary right now. We would keep an eye on Dell. Supermicro is obviously Surge. Dell is probably around 10 times the real earnings power. And they are getting more and more into AI servers. It's not a clean play like Supermicro. But later in the year, they should see a pretty good uptick. And that's one of the names we're tracking. So maybe it's a little bit like that. Ben Reitzes, thank you. You got it. Great to see you. Thanks, John. Well, let's slip this in real quick.

QR code, latest installment of the On the Other Hand newsletter is about NVIDIA and whether it can continue to run. Morgan, we're going to see you next week. I will see you next week. We get some of the retailer earnings. We get Fed Minutes on Wednesday. That's going to do it for us here at Overtime, though. Fast Money starts now.