Closing Bell - Closing Bell Overtime: Stock Sell Off Extends Into Second Day; Zillow Co-Founder On Housing Market

Episode Date: April 2, 2024

Stocks extended their slide into a second day, although finished off worst levels. Canaccord’s Tony Dwyer breaks down the market action while T. Rowe Price’s Sebastien Page on how to position. Earnings from Cal-Maine and Dave & Buster’s. Intel details its latest financial framework, including that operating losses in its foundry business are expected to peak in 2024. Zillow co-founder Spencer Rascoff on the housing market. Plus, getting you set for the Disney boardroom battle between CEO Bob Iger and investor Nelson Peltz. 

Rates rise and stocks sink, but close off the lows as the major averages fall for a second straight day. The Russell particularly bad, down almost 2%. That's the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Yeah, the Dow plunging nearly 400 points, although roughly half of that is attributable to UnitedHealth. Energy is the real bright spot today, getting a boost from oil, which hit its highest level since October. Thank geopolitics for that. Coming up, though, T. Rowe prices Sebastian Page on whether this week's pullback is a buying opportunity and where he sees value right now.

Plus, we're going to have an instant analysis of earnings from CalMain Foods and Dave & Buster's and what those results mean for food prices and discretionary spending. But now let's get straight to today's action with our first guest, Canaccord Genuity Chief Market Strategist, Tony Dwyer. Tony, good afternoon. So your take overall, what's happening in these markets? And you say to add on a pullback, suggests maybe don't add now yeah we we have been in that case for a little while now this john this is kind of an interesting time it's very

rarefied overbought territory so we use a weekly stochastic for the sp500 which is a technical oscillator for only the seventh time in history it's above an extreme overbought of 90 i know i'm talking technical here and i'm a macro guy, but it's only the seventh time it's been over 90 for 18 consecutive weeks. It looks like, you know, unless there's a major hit this week, it'll be 19. It's only done that twice before. So it's just an extreme overbought. It doesn't stay there forever.

But I also can't find any data that says we should really plunge. Just kind of a pullback to get rid of some of the excesses and to really generate that next leg higher. Okay. And you also say to expect some further broadening of the market once we work through some of these overbought extremes and progress through the second half. But, you know, when we pull back these days, just the Russell often is getting killed. Like it's down almost 2% today. Does that mean once we do get some real further pullbacks, though, you would emphasize mid caps and small caps? I do. It's much more of a generational call or a long term call for us, John, than a trading call. So over the last couple of years, I've done a pretty good job of

renting stocks when they get oversold enough and then feeding into it as they rallied because higher interest rates and weaker earnings distribution has really negatively impacted the average stock or the small cap stock. So what makes for a rental versus an ownership on weakness? And it comes down to two things. You have to have interest rates go in your favor. I still believe when the Fed says they're going to cut, I believe they will. If you have a weak employment number, remember the negative revision we had in the last payroll employment report wiped away a lot of that feeling that, wow, they may not even cut at all. So you need lower interest rates, and you also need a broader distribution.

I think people would be surprised that last year, if you take out the MAG-7, according to my earnings wizard at lse gi best tj dylan earnings would have been negative outside of the if you take out the mag seven growth out of earnings for calendar year 2023 and in this quarter it's the same thing you get a broader distribution of earnings as we go into the fourth quarter of this year and into next year so that's why lower interest rates and a broader distribution of earnings growth and participation is really what drives wanting to own stocks on weakness versus renting stocks on weakness. But what if the Fed doesn't cut or doesn't cut as much as the dot plot currently suggests? And I asked that on

a day where Roger Ferguson, former Fed official, came on CNBC earlier and floated the possibility that that could in fact happen. Maybe it's still a minority view. Maybe it's still not a strong likelihood. But he is also seen to be somewhat of a Fed whisperer in his own right, too. So what happens then for the market? What's positioned for that possibility here? Morgan, I really think we got to, you know, they say they're data dependent. The problem is it's very incomplete data. And I've gone through a couple of times how the survey rate when you get the payroll data is so flawed because it's very incomplete. But ultimately, remember that the Fed only expected in 2022, in the beginning of 2022, there was only going to be three rate hikes for the cycle. So the Fed can change, you know, they're just as good as me at being wrong. And they will change with the data. And I think that data, listen, we've had a manufacturing

recession for the last 18 months. So having an ISM on an inventory replenishment, that may soften the blow if you have a services slowdown with employment weakness that really, it hasn't happened. I thought it would have happened by now. But if you look at the NFIB hiring plans index at a cycle worst, the ISM employment is bumping along at cycle worst. The conference board leading employment index is right around its cycle worst. So where I'll be wrong is if it is a no landing, I don't know how you can do that without gas. But if you do have a no landing and rates don't go down. OK, so if earnings XMAG7 have not been particularly great, I mean, you can argue that the rally we've seen in stocks has been largely attributable to a valuation expansion here.

What parts of the market are most likely to see earnings, I guess, recover or begin to grow in a more meaningful way in the second half of this year? How do you position yourself sector wise then? Yeah, I think it would be all of them, the rest of it. And it would have been negative earnings, Morgan, had you not had the growth rate of the mag seven. So duh on me. How do you know if the mag seven are dominating and dictating 100 percent of the growth? That's where the focus went for the market. I should have caught that. I didn't.

Now, going forward, as that distribution of earnings gets more even. So the Russell 2000 actually had negative earnings last year. So as you go forward and you get into this recovery for the average stock or everything else, Maybe that broader distribution of earnings lifts all those boats. So our call is an equal weighted look at some of the early cycle themes, consumer discretionary, financials, infotech, and even health care. Again, once you hit this speed bump that we're in now as the market works off this overbought condition. OK.

Tony Dwyer, great to kick off the hour with you. Thanks for joining us. Great to be with you. Thanks, Morgan. Thanks. With the S&P finishing down about seven-tenths of 1%, 52.05, worth noting, as Bob Pisani pointed out earlier today, we're only down about 1% since the all-time high for the S&P last Thursday. All right. Well, it's time to bring in senior markets commentator Mike Santoli to map the recent market action. Mike, what you got for us? Yeah, a lot of little sub themes in this little back off in the market that we had today, including the weight on health care, UNH and other health care service providers really struggling. Got some of that Medicare

reimbursement news out there. But I wanted to point out that really all the subcomponents of health care have been weak. Now, IHE, that's pharma, market cap weighted pharma. XPH, that's equal weighted pharma. And that means that the massive ramp in Eli Lilly shares is not as much of an effect. So what you see is pharma, health care services, medical devices have all traded very heavy relative to the market. And I felt like it was a consensus, sort of contrarian-ish call to go into healthcare that had not participated last year. It's been a bit of a struggle. Also, people talk about for whatever reason, well, we know some of the reasons.

In election years, sometimes healthcare has been challenged. Now, take a look at the volatility index. It's been a fairly interesting pattern here where it's trying to bump up against that 15-ish level. But every time in the last couple of months, we've gotten around 15 of that. That line is at 60. So 15 and change. It seems like there's an automated bid in the market today. Intraday, we did get up 15 and a half or so. And that's around where the lows of the day in stocks took hold. So for now, this is working. But you

could also make the argument that it's a very slow moving uptrend developing, too. We'll see if that sort of develops into the spring, which sometimes happen as you get out of the first quarter. Now, take a look at one bank stock that just doesn't act like a bank stock. It's the biggest one. It's JP Morgan. And you see here relative to overall banks, that's KBE and even Bank of America, which is the really closest business to J.P. Morgan that we have is trading right in line with the other banks. J.P. Morgan is by far the momentum quality choice that essentially was even working today as the bond market was having a struggle, even when other banks were suffering, Morgan. OK, so whether it's J.P.

Morgan when it comes to the financials, whether it's Eli Lilly when it comes to health care, I think both of these raise the question about is is what's considered safe haven within the market actually changing? Are investors thinking about what defensive means in this market different now than it was even just a couple of years ago? To a degree, yes. And I think that what within sectors, safety means quality, dominant market position and some kind of stock price momentum. All those things that were for now people migrate, I would say, in a really broad and maybe somewhat more scary pullback in the market. Jury's out as to whether that's going to hold, because it seems a little bit like the kind of rotations that happen when people don't really want to get out of the market. They just want to kind of move want to get out of the market. They just want to kind of move around to different parts of the tape.

All right, Mike. Thanks. See you again in just a bit. Meantime, Dave and Buster's and CalMain Food earnings are out. Steve Kovach has the numbers. Steve. Hey there, John. Let's start with Dave and Buster's falling about 5% here after missing on the top and bottom lines. EPS was a miss at $0.88 versus the $1.10 Street was looking for. And revenues, a slight miss here, $599 million versus the $602.6 million. The Street was looking for, you see shares down. It was down as much as 7%, now down about 3.5%. Let's move over to CalMaine, the famous egg maker here. We cannot compare these results to estimates, but shares are up a healthy 9% here. EPS was $3 even, and revenues $703 million.

And we see shares up about 8%, John. Huge quarter for eggs. Yes, big eggs. All right, thank you. Didn't even include Easter either. Right, yeah, it's the beginning of the month, so I want to spotlight, meanwhile, some data from Intuit's QuickBooks Small Business Index, which tracks employment at the smallest U.S. businesses with fewer than 10 employees. It was a mixed bag for the month of March, with overall employment about flat year over year and down about a tenth of a percent from February. Losses regionally came in the far west. California, Alaska, Hawaii, Nevada, Oregon, Washington.

Three quarters of those losses by population, as you might imagine, just over 11,000 jobs were in California. Perhaps no surprise then that overall sector-wise, information saw the biggest losses, followed by logistics and manufacturing. On the flip side, New England, I mean literally on the flip side of the country, have the strongest growth, the strongest overall sectors nationwide. Meanwhile, we're wholesale trade and construction. Interesting numbers from Intuit, Morgan. The Joltz data that we got was from February. Intuit's data is from the month that just ended a couple days ago because, hey, it's digital. It's flowing straight through.

These are the very smallest businesses, but it's always interesting, I think, to keep tabs on those. About 13 million jobs they're keeping track of in the country overall. It's a high frequency data. And it comes, of course, in a week where, of course, where the investors are focused on a jobs report. I am curious, though, especially you see something like construction additions in New England and on the East Coast, whether this is seasonally adjusted or not. Yeah, I don't know the answer to that. And again, these are very small firms. These aren't like the big companies that in and of themselves are doing the biggest projects. But, you know, it's a year over year number and you sort of get a sense of what's happening in that given month. All right. Well, great stuff. T. Rowe Price's Sebastian Page has called himself a reluctant

bear. Up next, find out if he thinks there is more downside to this market or if this week's pullback is a buying opportunity. And later, Zillow co-founder Spencer Raskoff and whether he sees any signs of cracks in the housing market as interest rates spike. Overtime is back in two. Welcome back. We've got breaking news on Intel. Christina Partsenevelis has details. Christina. Well, Intel releasing their AK, and within that AK, they, my microphone just fell off. Let's give me one second.

I'm back. That's how breaking news happens. What we did get from this AK report is that they are updating their operating. Sorry, they're just they're updating the foundry business. So it's going to operate as a separate business. We knew this within the news. The biggest thing is their operating losses for that specific foundry business is expected to peak in 2024. And then they're promising that it's going to break even at any point between 2024 and 2030. So again, operating losses for this foundry business, which a lot of people were anticipating

was going to be operating at a loss for quite some time. They're promising it's going to break even in the next six years. They're also naming the CFO of the foundry business. That would be Lorenzo Flores. Lorenzo Flores used to be the CFO of Xilinx. Xilinx was bought by AMD. So you can see how they're keeping it within the semiconductor world. And I'm just getting another note now, too, with their total operating segment revenue, but I haven't been able to compare it just yet, so they're just providing some numbers. But I think the biggest thing from this takeaway is just the losses are peaking this year and are going to break even soon.

All right. Christina, thank you. Morgan, this is interesting and anticipated because Intel, Pat Gelsinger, the CEO there, has really been trying to separate out the design portion of the business, the chips that Intel itself puts its name on, and then the foundry portion where they're going to be making chips for others. And they hope across the semiconductor spectrum, including NVIDIA, even AMD, even Apple, perhaps. And they've been building out that capability around the world, but particularly in the U.S. They got that money from the CHIPS Act. We were out there just a couple weeks ago covering that.

So this is an important step in financially separating out those two businesses, going back to 2021 and showing what they would have looked like as separate businesses, sort of setting the baseline so that investors can understand how they should go from here. So the stock is down more than 2% right now. Maybe as people are digesting, boy, if you separate out the design portion, for example, of the data center and AI business, the operating segment revenue went from $20.8 billion in 2021 down to $12.6 billion in 2023. And then, of course, these are fiscal numbers. You've got the numbers since then. But, you know, that might be sobering

for some people. But this is them setting that baseline so as they make the announcements throughout this year, hopefully for them and for people who are along Intel, of new Foundry customers and of new designs that they have coming up for chips that they hope will compete more with AMD and NVIDIA. Investors know how to make those financial projections. Yeah, it seems like a natural next step in terms of the process of developing transparency, adding increased disclosures as they build out this business. They sort of stand it up as its own operating entity.

To your point, it was such a key part of the conversation you had with Gelsinger in Arizona a couple of weeks ago. How are you going to basically build trust with some of these other companies that are also technically competitors to a certain extent to come and do this foundry business with you? So here we go, starts that process of disclosures and putting it all out there for investors and, to your point, to potential customers as well. I am curious, though, especially when you start to look at some of the guidance into 2030, whether the money from the federal government factors into that or not. I don't know the degree to which they factored in what they've already got,

if they know how much they might want to tap into the loans that are available to them. But this is like that stage in the relationship, you know, with investors where it's getting kind of serious. So you start talking about your past, right? Like, okay, well, if we're going to get together, here's what you sort of need to know about where, you know, and they're showing those numbers from three years back. So, you know, you got the stock down a bit as people realize, boy, okay, maybe this isn't, maybe this isn't, you know, I didn't know about that one, how that really affected your data center and AI business back in 2021. So we can get that all out there and see how everybody feels about it. All right. Well, let's turn back to the broader

markets after today's sell off across the board. Averages did finish off their worst levels of the trading session. But joining us now is T. Rowe Price, head of global multi-assets, Sebastian Page. Sebastian, it's good to have you on. I'm looking at these notes from you, and one of the things you point to is the fact that the most important chart in capital markets, from your perspective, is the one-year break-evens and the big move that we've seen in just a couple of months on that. On a day where you have markets grappling with the stickiness of inflation amid what I'll call resilient economic data and what's been easing financial conditions as of late. How does that call into question the timeline of

the Fed's rate cuts and how important is that to, I guess, the investing thesis and how you're positioned this year? Yeah, I think it could jeopardize the timeline for the Fed cuts. Look, markets are near an all-time high. Financial conditions, when you look at a broad index, they're looser than they were back when rates were at zero. So financial conditions are incredibly loose. And unemployment is below 4%. So to me, it's a strange time for the Fed to cut. And this inflation number is critical. These are break-evens. So it's kind of what the market is pricing in. You take a normal nominal bond and you subtract the yield on an inflation-protected bond. That number went from 2%

a few months ago to 4% now. And Morgan, wages are growing at 5% still. So I don't know how that's consistent with 2% inflation. I'm not saying we're going back to 9%, like 22%, but I think the risk is to the upside. Okay. So what does that mean in terms of how you position in this market if the risk is to the upside? What do you buy here?

What do you stay away from? There's several ways to hedge against the upside risk in inflation. Let me give you a few. First, in the fixed income portion of our portfolios, we're short duration. Now, I don't expect a hard landing. So we're actually long credit and we're long cash. It's a barbell, but short duration overall. In stocks, we've been adding to value stocks, which they respond much better to upside surprises and inflation. And then we have a dedicated allocation to real asset equities. This is diversified portfolio of real estate securities, of metals, mining and energy companies. So we've been long energy from a broad asset allocation perspective

for a little while now. So these are all ways to protect against it. And stocks versus bonds, you mentioned earlier, I call myself a reluctant bear. I haven't called myself a reluctant bear in quite a while. We're actually aggressively, convincingly, Morgan, neutral between stocks and bonds, and we're comfortable there. Okay, Sebastian, I hear what you said about value there, but then at the same time, you say AI should continue to deliver efficiency gains because it's real, and you say the market is due for a broadening. But thus far, in recent quarters, those two ideas almost seem to be at odds because when people get excited about AI, they're buying

mega caps and small caps are lagging. How are both of those things going to be real at the same time? Look, I think the AI is real, but the large cap tech companies have run really hard. I think you should own them. It's not a large overweight to value. It's not completely going out of the growth part of the markets. But if you look at the valuation case, John, it's really interesting right now. Value stocks are in the bottom 20% of their valuation range historically last 30 years relative to growth stocks. And when they're in that bottom 20 percent historically, they tend to outperform growth stocks by about 7 percent in the following 12 months. That's the long run historical average.

So you have a valuation opportunity that you can combine with the macro factors that we're just talking about, upwards pressure in inflation and also upwards pressure on rates, which will ultimately put pressure on longer-term growth companies. So it's a nuanced picture, but on the margin, we end up being long value. Okay, you're also long real asset equities. You mentioned energy, commodities, real estate. Specifically on real estate, how careful do you have to be to protect yourself from any dangerous exposures in office or regionally? It's definitely a risk.

Our analysts have done a really comprehensive risk assessment of the commercial real estate space. And the losses there could be as high as $300 billion over the next five years under different scenarios. So you want to allocate to real estate through active management, not just a passive index exposure. Definitely pick your spots. But if you pick your spots, you get some longer run inflation protection and you get some value out of some companies in there. Now, I'm an asset allocator. I don't pick those stocks myself, but I have confidence that I'm better off investing in an actively managed strategy in the real estate space. But yes, commercial real estate is a risk. And, you know, if with upward pressures on rates, that risk increases as refinancing, you know, as we hit the maturity wall, if you will.

All right. Thank you, Sebastian. Sebastian Page, T. Rowe Price's head of global multi-asset. Now, billionaire investor and New York Mets owner Steve Cohen is going to discuss this week's pull back and where he's finding opportunities in the market tomorrow at 8.15 a.m. on Squawk Box. Been a long time since we've seen him on TV. And if you thought home prices were expensive already, wait until you see the sticker shock of what buying a house will cost you this spring. That's next. Plus, Zillow co-founder Spencer Raskoff

on his outlook for housing and whether he thinks prices will come down anytime soon. Stay with us. Welcome back to Overtime. Tesla, one of the biggest losers in the S&P 500 today after posting disappointing first quarter delivery results. You see it closed down almost 5 percent. Deliveries falling more than 8 percent from a year ago and plunging around 20 percent from the fourth quarter. It was the first year over year decline for Tesla

since the second quarter of 2020. Vehicle production also slipping more than 1 percent from a year ago. Now switching gears to health insurers, shares of Humana, CVS, and UnitedHealth tumbling. The Biden administration announcing lower than expected payments to Medicare Advantage plans for next year, Morgan. All right, big movers today. Homebuilders significantly underperforming as well, though, the broader market today. After Wedbush downgraded Lenard, D.R. Horton, Meritage, Century Communities, and LGI Homes to underperform from market reform, the analyst there says filters raising discounts to combat high mortgage rates is hurting gross margins. Meanwhile, home prices are showing no signs of slowing down despite borrowing costs.

Diana Olick has all the details. Hi, Di. Hi, Morgan. Yeah, home prices in February were 5.5 percent higher than February of last year, according to CoreLogic. And the price gain from January to February was actually nearly twice what it was historically pre-pandemic, suggesting this spring's market started out strong despite another rebound in mortgage rates. The trouble just continues to be lack of supply, still 40 percent below where it usually is. We're still seeing that lock in effect of current homeowners who won't sell because the cost of moving up is just so high. How high? Well, in the 22 years before the Fed started raising rates again, for the average homeowner, moving to a similar house across the street wouldn't change their monthly payment at all. Upgrading to a 25 percent more expensive home would increase their monthly payment of principal and interest by 40%,

or about $400. But fast forward to today, and for homeowners who have rates near record lows, just buying their current home would increase their monthly payment by 60%. And trading up to that 25% more expensive home would result in a 132% increase in that monthly payment or about $1,800 more. Now, this, of course, is an average for the nation, so it will vary market to market and much more pricey in the pricier markets. John? Wow. Diana, thank you. For more on housing now, let's bring in Zillow co-founder and former CEO Spencer Raskoff.

Spencer, great to talk with you about this. If you own a home or two, this is all good, especially if you want to keep them. But most people are not necessarily in that position. So how does this end, you think? Yeah, I mean, Diana's analysis, as usual, is spot on. We are just going to continue to see home price appreciation as long as we have limited supply. We're going to continue to have limited supply as long as municipalities have anti-development housing strategies and as long as there's mortgage rate lock-in. And as Diana points out, most people can't afford their current home, which means that even if they're no longer in the home that's right

for them, they can't really sell because they couldn't afford the new higher rate. So we're starting to see some thawing a little bit. Inventory is now growing about 1% per week. New listing volume last week was up 18% from a year ago. So it's possible that some homeowners who are in the wrong home are starting to capitulate and just decide to list, even though they're going to have to trade up to a higher mortgage rate. But we're going to continue to see appreciation rates 5.5% year over year this past month in February, as long as we have limited supply. Yeah, but that seems so unsustainable. Let me put it this way. Either we're going to have to rewrite the American dream, right? Or prices are going to have to come way down. I mean, you know, wages have already gone way up. They can't go up too much more, too precipitously. Or, you know, these prices are going to have to come way down for this

affordability issue to get solved. So what's going to happen here? Which? Well, we are starting to rewrite the American dream. I know that sounds kind of sort of depressing and maybe hyperbolic, but I mean, people are pushing out, first-time homebuyers are pushing out the time in which they buy their first home. It used to be in their late 20s. Now it's kind of moving into their mid and late 30s. And people are increasingly house hacking. And a good example of this is co-ownership. And we saw this in the Wall Street Journal today.

Two billionaires, Steve Wynn and Thomas Petterfi, they announced that they're buying a $110 million home in Aspen together. And this is what my company, Picasso, is all about. It's about creating co-ownership. And we're seeing it even at these incredibly high price points of over $100 million where people are saying, hey, maybe it doesn't make sense to own all of a home myself. So house hacking, buying homes with people, co-owning homes, and pushing out the time that I might buy my first home, these are some of the ways that people are adapting to these very low inventory environments and high mortgage rates. Yeah, we saw that article, too. I had a similar back and forth about this within our show team. Of course, it raises the question,

what does this mean for Picasso, which you co-founded, which we know is growing and which we know just a couple of days ago announced a pretty broad expansion into lower priced housing? It's great news for Picasso. I mean, Picasso tries to solve this issue of housing affordability. The only two ways to solve the housing affordability crisis are either, number one, to build more homes, or number two, to better utilize the existing housing stock. And that's what Picasso focuses on, which is better utilizing the existing housing stock. The way we do that is through co-ownership. So we're having our UberX moment right now, where we're dramatically expanding the number of markets we're in.

We just launched 200 more markets, 20,000 more listings, and it's working. Already searches are up 265 percent. Mobile sessions are up 150 percent. Home detail page views are up 50 percent. Homes followed are up 75 percent. And so we're already seeing people start to place deposits on these homes in all of these new destinations that we've launched nationwide as we rolled out hundreds of new markets. OK, I got to shift gears here a little bit with you, Spencer, because we're very focused on this Disney proxy fight, the shareholder vote that's taking place over these next couple of days.

It's not the only company that is seeing a very contentious proxy season either. We know activists, investors have been very, very busy this year, much more active than they've been in recent years. As somebody who has co-founded a number of companies, who's run a number of companies that were publicly traded, who's been on the board of a number of companies, just want to get your thoughts on this landscape that we're in right now from a governance standpoint, from a management standpoint, from an investor standpoint? So it's very case specific. I mean, obviously, there are some companies that are mismanaged and activists serve as a great catalyst to get those companies

to pay attention and get management teams and boards to get their act together. There are other companies where, let's face it, activists are making a stink and front-running their book in order to try to get the price to appreciate, and then they dump and run. I think, you know, for me as a manager, as a former publicly traded CEO, I tend to err on the side or I tend to fall down on the side of management in general, if we're speaking in generalities, as compared with activists. I think a lot of activists are short-term oriented, and they're trying to get the price up in the near term. Management teams are trying to manage the stock price for the long term, which is really what this should be all about, is not short-term stock price impact, but long-term appreciation.

With respect to Disney, it looks like long-term is winning out over short-term. It looks like management is probably going to win this proxy battle. And, you know, the activists will not win, although activists sort of always win in a way. It's a kind of a heads you win, tails they lose kind of situation, because if management ends up winning these types of battles and the stock price appreciates, then activists win in any event. All right. Spencer Raskoff, great to get your thoughts on a variety of topics today. Thanks for joining us. Thank you. Tomorrow, we will get the outlook for commercial real estate as well. And we speak with Kathleen McCarthy. She is global co-head of Blackstone Real Estate. It'll be interesting to hear what she has to say on whether prices have bottomed in real estate too across different sectors.

Yes. But up next today, Mike Santoli is going to come back and look at what an increase in new hiring last month could mean for both the labor market and the Fed. Over time, we'll be right back. We have a news alert, she said, on Microsoft. Eamon Javers has the story for us. Eamon. Morgan, that's right. The Washington Post has just posted a story about a U.S. government report it calls scathing looking into Microsoft.

This report is looking into lapses in security at Microsoft that allowed for a major Chinese hack last year into U.S. government and other corporate officials' emails and documents that went on for quite a long time. The Washington Post reporting just within the past couple of minutes here that the Cyber Safety Review Board's report takes aim at shoddy cybersecurity practices, lacks corporate culture, and a deliberate lack of transparency over what Microsoft knew about the origins of the breach. The Washington Post says the report is a blistering indictment of a tech titan whose cloud infrastructure is widely used by consumers and governments around the world. We have reached out to Microsoft for comment. They have not immediately responded to us,

but they do say in the story here, recent events have demonstrated a need to adopt a new culture of engineering security in our own networks. That's according to a spokesperson for the firm. So, guys, a scathing report here from the U.S. government that should be made public later this afternoon, looking into what Microsoft did and didn't do in terms of security around this massive Chinese hacking attack on U.S. government officials. Back over to you. Yeah, an evolving story and an evolving threat. Eamon Javers, thanks. You bet. Time now for a CNBC News Update with Bertha Coombs. Hi, Bertha. Hey, Morgan. Ukrainian President Volodymyr Zelenskyy today lowered the minimum age for

military draft eligibility to 25 in an effort to replenish Ukraine's depleted troops as the war with Russia drags on. It follows Russian President Vladimir Putin's decree yesterday calling for a 150,000 call-up of troops for spring conscription. Former President Trump just sued two co-founders of his new public company, Trump Media and Technology Group, claiming they set up the company incorrectly and do not deserve their eight and a half percent stake. The two co-founders already sued the former president in Delaware court over the deal. Shares of the company ended the day up six percent. And as the race to the moon among private companies and nations continues to heat up, NASA has been asked to set a standard time for the lunar surface and other

celestial bodies. According to Reuters, the White House told the space agency to set up a plan for a, quote, coordinated lunar time by the end of 2026. The unified lunar time would ensure communications between Earth, satellites and astronauts would be synchronized. Back to you guys. I guess I didn't realize that there was a difference in the space-time continuance between here and the moon. Always something new. There is. You actually lose a tiny bit of time on the moon versus Earth.

Yes. Gravity is part of the reason. Well, now let's bring back Mike Santoli for his take on the morning's JOLTS report. Mike. Yeah, John, we got those numbers, the job openings, labor turnover survey. We saw very steady numbers in terms of the quit rate. It basically remained stable, voluntary resignations. We also saw a decline, a little more than expected, in job openings.

Here we saw an uptick in the hiring rate. This is expressed as a percentage of total employment. So it's hard to see there, but you did see a little bit of a turn higher. It's comparable to pre-pandemic levels, maybe even a little softer than that. So it's pretty compatible with the idea of a slowly loosening job market, but at healthy levels. We'll see if that follows through when we get the official monthly jobs report on Friday. But the fact that most people have employment or employment prospects probably does support consumers' view of their

household financial outlook. And Morgan Stanley had some survey work showing that, in general, it's very strong. This blue line is, how do you feel about your own financial situation looking out six months? It's been pretty steady. And this is the net percentage of people who say it's positive versus negative. So that's a pretty clear advantage for those who say their own finances look pretty good. But then, of course, ask about the direction of the U.S. economy. And there's been this huge divergence that obviously started right here when the great inflation began. So we have this societal unease, the psychic effect of the inflation, just the general sense of, hey, the country's not going the right direction. It seems like a pretty bipartisan view.

That's infecting a lot of the consumer confidence measures that are very broadly worded or phrased, whereas people say their own situation looks OK for now, John. I wonder what it is about that effect where I'm fine, but the economy is terrible. You hear it in business too, like the stock market is at all time highs, but you know, the environment for business is terrible. Does this tend to happen or is this really unique? It seems like a more recent phenomenon. It's happened cyclically in other times. I think part of it is when it comes to individuals, they kind of take credit if they get a raise or they get a job. And, you know, if you lose your job, you say, oh, the economy must be lousy. But the other piece of it, too, though, is I really do think that the economic flux of the last few years, we go from

forced lockdown to bust to boom to massive stimulus to inflation. It has felt as if things were maybe out of control. That's just my surmise of maybe what's being expressed here. All right. Mike Santoli, thank you. The breakup of General Electric is now complete after the highly anticipated spinoff of GE Vernova. Up next, GE Aerospace CEO Larry Culp and why this move will benefit shareholders. holders. Welcome back to Overtime. Today marks a brand new chapter for General Electric and, dare I say, the end of an era for one of America's oldest blue chip companies. GE now goes by GE Aerospace after completing a spinoff of its power unit, GE Vrnova, that company trading under the ticker GEV. Now, GE first announced its plans to split into three companies in November of 2021. It spun out its health care unit last year.

And GE Aerospace CEO Larry Culp told CNBC earlier today why he thought this split was so necessary. Four years ago, five years ago, pre-pandemic, we had a mountain of debt that was holding us back. And we were really in need of an operational turnaround. And I think that's what you see today with the launch of an independent GE Aerospace and a GE Vernova. We're on the other side of $100 billion of debt reduction. There have been so many steps along the way under Culp's leadership, including, by the way, a reverse stock split a couple of years ago, which I forgot to mention on this topic yesterday. Meantime, shares of GE Aerospace and GE Vrnova both ending the day in the red, John, as investors wrap their arms around this new era for these GE businesses.

All right. We'll continue to watch it. Now, Disney shareholders are still voting on the future of the company's board, and the results are going to be revealed tomorrow. Coming up, what it means for the stock, which is a top performer in the Dow this year. An overtime return. Welcome back to Overtime. Disney's boardroom battle is entering the final stretch as shareholders prepare to submit their votes in tomorrow's annual meeting. The pivotal vote will determine if Triumph Partners Nelson Peltz will get a seat on the board.

Joining us now to discuss, Ken Leon, director of equity research at CFRA. Ken, it's good to have you on. It seems to me when you see how much the stock has rallied in recent weeks that maybe it's still a little too close to call in terms of who the winner here is, Disney's board and C-suite or Peltz and Tryon. But investors seem to be winning. It's an interesting situation here because it's been a heated proxy battle, but it actually was therapeutic for Disney management because it brought a lot of light in terms of their strategy.

And with over 100 slides advocating their position that they have the right recipe. It's been great for investors. I think for Nelson Peltz, he'll get his return on his investment. But what we're seeing is more confidence that Disney can do the transformation. And for a business segment, entertainment, which includes broadcast and streaming, it's 45 percent of revenue, but only 8 percent of operating income. So that needs to turn around. We think they can get the job done. They also have a seven and a half billion dollar cost cutting program.

They're looking for eight billion dollars of free cash flow this year. You know, it seems to me, Morgan, this is going to be a better managed company. And I think Nelson Peltz was part of making that process come true. OK, Ken, but you got one hundred thirty nine dollar price target, which implies more than 10 percent upside from here. And there's still all these outstanding questions. So assuming Bob Iger wins here, why isn't this a sell the news event? Disney has formidable assets and when you think of Disney going forward it has moats around its theme parks it has a tremendous franchise which is not legacy which is sports with ESPN, with opportunities for growth and gaming and gambling. And in theatrical, the magic, of course, needs to be there on new film releases that will's going to yield more opportunity in terms of streaming for 2025.

Netflix, it took over 10 years. Disney's doing this in three years. When you look at Disney's other competitors, Warner Brothers, Discovery or Paramount, they just can't do it. So I think Disney's going to be a winner here. OK, so what matters more, though, then? Is it Disney Plus and it is is it that path to greater profitability or is it CEO succession plans after the first the last go of it with Bob Iger did not go so well with JPEG? Two separate issues. And one, of course, our investors are disciplined, so they want to see return on investment,

which includes, of course, good performance, free cash flow, buybacks, and dividends that they have now. And on the succession plan, you know, I think Bob Iger, he'll be done in 2026. We'll be hearing more about who are the candidates to get in perhaps later this year. I like James Gorman as a board member here. He brings a lot of experience and success on the subject of succession. OK. OK. Ken Leon, thanks for joining us. We'll be watching this tomorrow closely as well as, John, we've got services ISM, which will be one to watch, too, because we know that's been a strong, solid part of the economy and ahead of jobs report. It's one more data input for investors who are trying to

digest a resilient economy and higher yields. Yep. All right. That does it for us here at Overtime. Fast Money starts now.