Closing Bell - Closing Bell Overtime: Stocks Power Higher As Oil Drops, Strait of Hormuz Opens 4/17/26

Episode Date: April 17, 2026

Markets stage a rapid recovery alongside a massive move in oil. Keith Lerner of Truist explains the market’s lightning fast rebound and what it says about momentum and positioning. Charles Bobrinskoy of Ariel Investments adds a note of caution, arguing stocks are getting more fully valued even as opportunities remain beneath the surface. Jason Gableman of TD Cowen analyzes oil and energy stocks and where the trade goes next. Priya Misra of JPMorgan Asset Management breaks down moves in yields and what they signal for investors. Will Power of Baird discusses what drove Microsoft’s best week in 10 years. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The bell's bringing an end to the trading day at the NYSC, PANAC, PANAC, West Capital, and at the Nazak, Alamar Biosciences. Welcome to closing bell overtime. We're live from Studio B at the Nazak market site. I'm Melissa Lee along with Mike Santoli. Stock soaring today, again, continuing one of the best stretches for the markets in recent years. As Iran says, the Strait of Hormuz can reopen. Today, the Dow is up 900 points. The SB 500 up more than a percent.

The NASAC extending its winning streak to 13 sessions. The Russell 2000, the best of the bunch, up 2%. This wraps up the third straight winning week for the averages. The NASDA gaining more than 6%. Question we'll be asking our guests this hour. Can this run continue? And I think it's pretty safe to say it will not continue at this particular angle in this uninterrupted way. Straight up.

Straight up without a pause. Obviously, it's actually a positive. When we break out to New High, 7,000, the S&P was a ceiling for this market for months. You have had confirmation from oil down. yields down, volatility down. Now, over the course of the day, oil, it's like four bucks off its lows to the upside, WTI. It's still down a lot. You did also see some of the stocks that led us in this rally back away a little bit. And even the S&P just came off the boil just a touch. So I think you could say, you know, the bull market has been kind of reasserted here. But it's not clear that we've kind of wiped away all the concerns. And you almost never do. But it sort of felt a little more all clear. than maybe we're comfortable saying it is. Especially when there's so many uncertainties still. In today's action, we saw a lot of reflexive trades.

Rates down, home builders up, oil down, airlines up, you know, that kind of action today. But for the week, we've seen some pretty extraordinary moves for sure. There's no doubt about it. I mean, even coming into today, things like core weave up 50% month to date, that whole food chain. And then today it was just the stuff that hadn't participated, gets an extra little bit of a bid here. Let's get more on today's big market mover. Sima Modi tracking the action force. Seema. Hey, Micah, strong rally in the NASDAQ, as you guys were just discussing,

the breakout in tech was widespread, but some of the big winners like Oracle's stalling today, still up about 25% for the week. Software stocks that did drive the IGV ETF higher today, App Lovin, Datadog, and Palantir. As investors get ready for tech earnings, we did see noteworthy gains for Tesla, which just broke an eight-week losing streak. And Microsoft, which just saw its best week since 2015. Now, cruise lines and airlines also rebounding thanks to a sizable drop in oil prices today, thanks to cooling geopolitical tensions. We also saw names outside of tech get a lift.

Stocks like Sherwin Williams, Caterpillar and Home Depot, Netflix still unable to shake off its lackluster earnings performance last night with guidance coming in short of expectations that stock nearly down 10% on the day. Guys? All right. Seema, thanks. Sim Modi, a huge move lower today in oil prices. Iran says the straight of Hormuz is open. Let's get to Pippa Stevens for the latest and what the reality is. Pippa.

Well, Melissa, the reality is that there are conflicting reports from President Trump and Iran around what exactly is happening in the street. But the next 24 to 48 hours will be key to see if there is a meaningful uptick in traffic through Hormuz because for the time being, ship owners are cautious. One industry official telling me just now that shipping companies are still scrambling for information and assessing the risks, means, meantime, BINCO's chief safety and security officers saying the status of mine threats in the strait is unclear and that they believe shipping companies should consider avoiding the area because it is not declared safe for transit at this point.

They also spoke to insurance broker Marsh, who told me they've seen a spike in inquiries following the announcement for those operating in the area and that once there is an increase in successful transits, they anticipate underwriters' confidence, strengthening. But that comes back to the issue of who will send their ships through first and by what route. WTI down 10.5% today, with Brent shedding 8% to about 91. Dated Brent, which is oil for delivery in the next roughly 10 to 30 days, also dropping to 9926. That's according to S&P Global Energy. That was the first move under 100 since March 11th. Guys? According to data, do we know if any ships have actually transited the straight at this point?

Yeah, so we've seen a few. We saw that cruise ship actually getting through earlier today. Then I'm looking at the map right now, and there are some cargo ships that look like they have approached the straight, but not going through just yet. So so far we're not really seeing, and the map you're looking at there, I should say, is tankers. The one I have right here showing that approach. It also includes cargo carriers. But it seems that, Melissa, we're not seeing a meaningful uptick just yet. And the ones that have gone through in recent days have tended to hug the Iranian coast and once again speak to perhaps going through that toll route or being with a lot. Iranian in water. So clearly a lot of, you know, misinformation about what exactly this means

and what it will take to get traffic resuming. Yeah, it feels like we have the trust part. We've got to verify that it's going to hold here. Pippa, thank you very much. It was a lightning fast recovery for markets with the S&P 500 gaining 13% at today's high in just 13 trading days. The only other time this has happened was the peak of the bubble in March of 2000. Only one instance, maybe not statistically. significant, but should you trust such a swift breakout? Joining us now as Truist Wells Chief Investment Officer, Keith Lerner. Keith, good to see you.

Yeah, great to be with you. Nice to see you. You were thinking about this setback as an opportunity to kind of reload and sort of stay exposed to some of the leading groups that you like here. Have we used up whatever we got in terms of evaluation and sentiment reset? Yeah, well, I mean, we certainly have used up some of the fuel, no pun, intended on this move up. But I would say, Mike, and you know this too, is when you see a strong move off the lows like we've seen, I know you talked about the one example, but more broadly, when we look at this, it tends to bold well looking out 12 months. And we still think this

bull market deserves the benefit of the doubt. You know, on evaluation side, I mean, we got down to about a 19 multiple on the S&P. I think we could go a bit higher. You know, what's more interesting to me is on the technology sector, you know, this contraction that we saw was about 37% in the valuation. That is the most extreme PE contraction we've seen even more than the COVID side. So I think that actually has more to go as well. But are we going to back and fill a little bit? Do we have a little bit of a kind of a consolidation period? Probably. But I would still say that primary trend is still higher. And technology do you think is the thing that's going to be the engine for a bit? You know, I think it's been very fascinating to see how we went from everybody kind of

celebrating a broader market that was everything but the mega cap tech group working in the early part of this year, then we get the correction. And it's tech that leads us out. And the tape actually usually has a little more of a firmer and reliable tone when you do have that sponsorship. Yeah, I do think that, you know, AI is coming back into the forefront. We have to remember, it peaked in October of last year after a really strong outperformance cycle. We've talked about this in the past. every, every bull market has a dominant theme. I think the dominant theme is still AI and tech, which got pushed to the background. Now it's coming up.

And the earning trends are still the strongest. We're only at about a 23 multiple. I mean, we were at 32 at the highs in October. It doesn't mean we should go back there, but I think there's still more upside. But that said, Mike, I don't think it's just tech. Like today, as an example, small caps made a relative high to the S&P. So I just think this will be broader. But I think tech will play a larger part than earlier in the year where it was

underperforming. Yeah, and the Russell's up 12% this year. It's the best performing index, actually. Keith, in terms of the tech trade, it's interesting because if AI is the narrative here driving this tech trade off of the bottom, off of the V bottom, you know, software shouldn't do well in theory. In the past, as AI wins to the detriment of software. And here we have the IGV actually making a go of it in terms of the games and some stunning gains we've seen for the likes of Oracle as well as Microsoft. Yeah, I mean, on one side, though, I would say that the software names as they became, you know, the front and center of what everyone was talking about as far as the dislocations, they just got to an extreme oversold. And what you saw there is really an oversold market to have a balance. I still think the leadership is with the compute, with the semiconductors, semiconductors made a new high today. But I think with software, at least now you've seen some of that bad news priced in. I don't think their leadership, but I think they can participate in this move up. And I think also the market is starting to sniff now, that not every software. company is going to be displaced as well. So I think that's just going to be more a disparate group

as opposed to this all kind of selling trade. And I think if they just stabilize, that's a positive for the tech trade overall. I mean, the market, especially with some of the groups that were working today, is implicitly saying that the underlying economy, the consumer is going to be able to absorb whatever has come along with the higher oil prices, even a little bit of a lift in treasury yields. Maybe we get fed rate cuts deferred. Does that make sense? I think it does. And I think part of the reason why the market is given this bull market the benefit of the doubt is it's earned it. If we go back the past five years, we've had a series of shocks, you know, from COVID, supply side disruptions, you know, really fast rate hike cycle, highest inflation since the 70s, a terrorist shock from last year.

And each time, markets have bounced back. Profit margins have moved to new all-time highs. And earnings have moved to all-time high. So I think that's why we're seeing this, you know, market give the benefit of the doubt. I want to be clear. I don't think it's going to be a straight move. up. We are in a midterm election year. We'll have other curveballs that come out that we're going to have to deal with. But all in all, I still think this overall economy and market have

proven that they deserve the benefit of the doubt. Keith, great to speak with you on what has been an extraordinary week. Keith Lerner, Truist. With stocks having had such a fast move higher, are there areas that you can go hunting that are still cheap. Joining us now, Charlie Barinscoi, he is vice chairman at Ariel Investment. Charlie, great to have you with us. I'm Lisa. We are just talking about small caps. And you also agree that small caps is an area that appear cheap. Make the case.

Really, small cap value. You've got to add that value. The small cap value index is trading right now at about 13 times forward earnings. That is below historical average while the S&P is it right after today's move at about 21 times. That's a big gap. And the market, you can't just talk about the market. You have to talk about individual stocks, individual sectors. And over the last 12 months, small cap values, small cap.

value has benefited a lot from, in particular, a much better tariff situation. A year ago, we were staring at nobody knew how high the tariffs were going to be. The smaller companies have a tougher time moving their supply chains around. And so those stocks got hit hard. They got very cheap, and they have done spectacularly over the last 12 months, returns of 45% plus for the index over that time. So there are still pockets there that are reasonable, large cap, and the S&P, I'm going to make an argument that it's at least modestly overpriced. 21 times the S&P is not attractive. So would you advocate trimming, some large-cap exposure, or at least hedging, what you have now? So I tend to not want to time markets, but clearly if you have incremental money to put into this market,

you should put in where there's a better opportunity. And there's definitely better opportunity in small-cap value. I mean, I do still think that there's a lot of risk about AI. We just, it's very hard to predict who's going to be a winner. It's like people always point to the railroads in the 1860s and 70s. It clearly changed the country, but a lot of companies went bankrupt, trying to put that technology to work. Same thing in the Internet bubble. The technology changed the world, but a lot of companies didn't make it. And I think that's what we're going to see in AI very hard at this point to pick the winners.

Charlie, he was interested to see that you've found some interest in some of the companies that were sort of dislocated by the idea of the AI threat like Pfizer, like FACSAT. They're not pure software, they're kind of data services, but they did get taken down on some of these fears about Claude Code and things like that. So what are you seeing there? Lots of opportunity. I absolutely pounding the table on FACSED. People are acting like it's a software company and it's going to be replaced by AI. there's no way a firm like mine is going to turn over data analysis to AI bots that often hallucinate. It's just not going to happen.

That's not what FACCET is providing. When we put together models, we are drawing individual cells in that model from FACCET feeds. FACSET is just a very competitive company with competitive pricing, and it got taken down as if the world was coming to an end. So we love that name there. FISER had about 20 straight years of double-digit earning. per share growth. And they stumbled. They had some things they shouldn't have done. But that company now is trading below 10 times earnings and very attractive. Mohock is another one that you like, Charlie. And I'm wondering, you know, how much does Mohawk need a healthy or decent housing market?

And what sort of headwinds might they face because of higher input costs due to the war? Yeah, they haven't had a decent housing market for a while. But what they have had is prices have gone up. And so people have equity built up in their house and so they can afford to do repair and remodeling. So we are expecting people to remodel more of their existing homes. And then frankly, we're just not building enough homes in this country. Everybody knows it. We're building at about the rate we built in the 1960s when the population was 50 percent lower. So we need more houses. Mohawk has managed to keep earnings reasonable through this very tough time. And the stock got crush because people were very worried about input costs for carpet of oil and oil particularly.

Now we've got some price relief. And Mohawk, we think earnings estimates are going to go higher. Charlie, I know you're always, you know, a little uncomfortable with sticky high inflation. And I wonder if you think that, you know, we can kind of sidestep of reacceleration and inflation if this, you know, energy price surge is going to be able to kind of wash its way through without causing too much of a trend change. There's just too many forces that are pushing the other way, We've got incredible deficits that are getting to the trillion-dollar level. We have the Fed that is now re-easing, increasing the money supply. We've got not as many people coming into the country, which is pushing wages higher.

And frankly, we've got a consumer that's in pretty good shape and is going to be pushing consumer prices higher. So I really do think inflation is the big risk over the next three to five years. Both parties now have given up trying to care about deficits. They're just way too many forces pushing inflation higher, and that could mean higher interest rates, which we all know is going to cause trouble. Charles, great to speak with you. Have a great weekend. Thank you. Well, today's rally brought to you in part by a big drop in oil as markets are heartened by Iran saying the straight of hormones is open. A lot of that damage, though, has been done.

How much time and money will be needed to fix it? That's coming up next on closing bell over time, live from the Nazak market site. Oil prices may have tumbled 11% today, but the impact of the war on energy infrastructure still lingers. According to Rysad Energy, restoration, reparation costs for energy-linked infrastructure as a result of the war could be anywhere from $34 billion to $58 billion. But it's not just the cost, it's also the timeline. While Wall Street isn't definitive on how long it could take to restore full oil output, most agree it won't be weeks. Here's what the CEO of the Kuwait Petroleum Corporation said late last month, quote, the full production will come within three or four months.

And the International Energy Agency chief telling Bloomberg yesterday that it could take up to two years to restore a meaningful share of energy production lost in the Iran war. So how is today's move, a knee-jerk reaction? Joining us now is TD Cowen, managing director, Jason Gableman. Jason, great to have you with us. Thanks for having me. What did you make of this reaction, the 11% pullback? I know you cover the stocks. We saw a sharp drawdown in the stocks as well.

Was this premature? Certainly seems the market is shooting first and asking questions later. It's still unclear if the street is more open today that it has been the past few weeks. You have Iran continuing to say you need to approve ships with the IRGC before passing through the street and go along the Iranian. which is the similar kind of route that's being taken by these ships the past few weeks. So it's unclear if today's news is going to result in additional ships transiting through the state of Hormuz. We'll have to see how things play out over the weekend.

I like what you did with your note, Jason, in terms of sort of gaming it out. It's like a choose-your-own adventure of what you think could happen in the war when it comes to opening the strayed and oil production. Permanent piece is scenario one, tenuous. ceasefire scenario two, scenario three, as conflict continues. In your view, what is the most likely and who are the winners? Certainly, it's very difficult to predict what the most likely outcome is. In the near term, it seems like you could have a tenuous ceasefire. And once again, it's unclear to what extent the strait will be incrementally open from where it's open right now. Over the

medium term, all parties have an interest to reopening the street. It is the global economy cannot absorb the straight being closed for an extended period of time, much longer than it's already been closed. So we do ultimately think the straight reopens with some downside to equities in the near term, but then perhaps some upside in the medium term. Even if you do have the straight reopened, you'll have commodities stay elevated, particularly global gas prices and diesel prices, which benefits some of the midstream players, some of the integrated oils and the U.S. refiners as well. Jason, I mean, it's intuitive that the forward curve, if you go out several months, it's not going to have as dramatic a move on a day like today.

But yet December WTI down 4 to 5 percent. It's still above 72 at this level. Is that feel like approximately the level that is incorporated into a lot of the stock valuations at this point? What are equity investors assuming there? Yeah, I think we've seen, especially after today, maybe the stocks have a bit of an overreaction to the downside. And you have to remember, even prior to this conflict, we were going to move from an environment that was oversupplied to an environment that was more balanced to even undersupplied with U.S. shale production plateauing and non-OPEC production slowing down. So the environment was always going to get better over the next year. You add to that a higher geopolitical

risk premium as a result of the conflict. And, you know, that being sustained in the oil price, even coming out of the conflict. And we do think medium-term oil price expectations should be reset higher. And that's what we've seen speaking to investors, assuming WTI around $60 prior to the conflict, now stocks likely pricing in something closer to $70, which we think is the right number to price in. So let's price that in for the rest of the year, Jason. What are your picks based on that forecast? Yeah, so within the IOCs, we like Total Energy's a lot. That is a French international oil company. It's had the best return on capital employed the past couple of years and looking forward the highest production growth

and free cash flow growth and a power business as well. So we think that one continues to gain amongst the refiners. We like Marathon Petroleum, took our MPC. That one has exposure to West Coast cracks, which have been extremely strong this year due to the tightness in the Pacific Basin. As a result, of the Middle East conflict. And then Schneer, we like as well, given its exposure to global gas dynamics, and an expectation that global gas prices stay elevated in the near future, even if Hormuz reopens,

because it will take some time for those flows to resume out of the Middle East. Jason Gableman, appreciate it. Thank you. Thanks. All right, we've got a news alert on Blue Owl. Leslie Pickup. Has that. Hi, Leslie.

Hey, Mike and Melissa. So those shares were about 2% higher today, in part due to this Wall Street Journal story saying that the co-CEOs of the firm have revised terms of their personal loans. Essentially, there was some concern there that the collateral being about 260 million shares worth of Blue Owl, because the stock had fallen so much this year, there was concern out there that that could trigger some margin calls and create more pressure on the stock. Well, the Wall Street Journal reporting this afternoon that they have revised those terms, and they cite people familiar with the matter there. It's unclear how much they took out in loans against the stock, but they had 130 million shares each. This is Doug Ostrover and Mark Lippschultz, the two co-CEOES of Blue Owl. So this news getting out there potentially led to a bit of a boost in the stock price today. The firm, though, declining to comment, although we could see, according to the journal's reporting, of filing as soon as today, guys.

Yeah, I guess together that would be almost 10% of the shares outstanding. On a one-week basis, of course, Leslie, stock up's almost 20%. So clearly there was a lot of relief running through the alternative asset managers. Thank you, Leslie Picker. We are in week three of this big market rally, and momentum continues to be hot. Here are some of the week's biggest movers in the M-TUM-E-T-F. AI infrastructure names such as Oaklo, and Bloom, but also App Lovin and Expedia up 16%.

Up next, the closer look at what people are buying as the record rally rolls on. Welcome back to overtime. The Risk on Trade returning to the markets recently. Bitcoin catching a bid as a result up 6% this week and 13% so far this month. But those gains pale in comparison to what we were seeing out of some of the crypto-related names. Robin Hood gaining more than 30% this week. Similar gains for Coinbase and strategy.

So related to this, let's turn with the charts, because you're taking it look at some of the smaller names that are really playing catchup here with the S&P. Yeah, sort of the non-Bellweather is also maybe the junior varsity of the overall stock market. The VXF is called the Vanguard Extended Market ETF. It's everything aside from the S&P 500. So as a rule, they're going to be smaller stocks, less profitable, lower quality, more volatile. And you can see it's maintained its lead for this entire year and then accelerated higher in this latest burst that we've had in this rally. It's also consistent with what's gone on in the NASDAQ.

100, of course, the biggest 100 names in the NASDAQ. And then the QQQJ is the next 100. So again, it's the 101st, the 200th. And that, even though it's been closer, it is now overtaken the QQQ in this last little burst. And then finally, a little more of a kind of one versus two in a segment is semiconductors where you have Nvidia and Broadcom. And Broadcom really has sort of captured the fancy of investors in terms of leverage to the best moving parts of AI. even with the great move we just had in the last week or two with NVIDIA. I mean, aside for Broadcom, you can also add in their intel as well as AMA, which I've had torrid runs compared to Nvidia. This all sort of goes to the theme, though, of playing sort of the catch-up names, not quite the stalwarts, but the dogs out there. Things that are going to move the fastest, without a doubt. I mean, I've been surprised how you've had this sort of,

the speculative juices had a damn break this week because it felt like retail was waiting and waiting, and they definitely sold near the lows. in general, the retail traders. And how do you get back more quickly if you're late to it is you grab things like this? Time now for a CNBC News Update with Contessa Brewer. Contessa. Well, Melissa, the man accused of killing conservative activist Charlie Kirk was back in a Utah courtroom today. Tyler Robinson and his lawyers want the judge to ban cameras. They say that live broadcasts violate his right to a fair trial. They also ask that hearings could be postponed to review more evidence. Prosecutors say they intend to seek the death.

penalty if Robinson is convicted. He hasn't even entered a plea yet. New Jersey transit announced today that round-trip World Cup train tickets from Penn Station to the New Jersey, New York stadium where the soccer game will be played, which is near MetLife, will cost $150. Eight games are scheduled at the stadium, and New Jersey Governor Mikey Cheryl vowed New Jersey commuters won't get stuck with that FIFA bill for public transportation, but $150 is a lot of money. New York City dormant and building owners have reached a potential contract agreement. It's still tentative, but it would end the threat of a citywide strike, according to the union. The current contract is set to expire Monday night. That union represents 34,000 dormant porters and

maintenance workers across the city. People who don't live in New York might not understand how important they are, but can you imagine what would happen with packages if the dormon was? Right. Trash. Helping you with the stroller down the state. Yeah. Yeah. Contessa, thank you. That's good news. Coming up, a look at the bond market moves. The stocks rally to new record highs.

Plus, Microsoft having its best week in 10 years, but following its worst quarter since 2008, is it just a bounce of the bottom or the start of something bigger? Breaking news on an upcoming IPO. Sima Modi's got the details. Hey, Sima. Hey, Melissa, Cerebris has filed to go public releasing its S-1. The company will go public on the NASDAG. This is the AI chipmaker that has been making inroads in inferencing.

Latest financials show that revenue growth from 2022 to 2024 represents a more than 10-fold increase over three years. Underwriters include Morgan Stanley, Citigroup, Barclays, and UBS. The S-1 also revealing a multi-year deal with Open AI valued at more than $20 billion, which we did report earlier today, and that Open AI and Cerebrus have agreed to co-design models for future hardware, guys. I'll send it back to you. Seema, is there a easy direct comp among public semi-companies that we might look at? You know, that's a great question. As we were preparing for this S-1, I was thinking it would likely have to do with revenue growth,

given that the path to profitability for a company like this, you know, we really don't have a good recipe book because it's been a while since we've had a semiconductor company go public, Mike. So revenue goes will likely be the one to watch. Yeah. All right. Seema, thanks. Well, big gains today continuing. what has already been a record rally. The Dow up 868 points. The S&P 500 and NASDAQ both hitting

record highs. The Russell up more than 2% on the day. All those averages up for the third straight week. Intel, another big gainer this week and now up 55% this month. And today's intraday high above $70 was the first time the stock crossed 70 since the year, 226 years ago. Let's now turn to the bond market. Rick Santelli is in Chicago to wrap up the week for us. Rick. Yeah, I'll tell you what, we had a lot of action in the Treasury complex, but really doesn't keep up with the type of volatility we're seeing in under sectors. Look at a week to date of tens. So right off the bat, we know that for the week, we're down eight basis points.

For the day, we're down seven. So roughly the same, 431 settlement last Friday, 432 settlement. So you can see it's very close. But maybe the year-to-date chart's best. Because on the year-to-date chart, look at the far left, look at the right. You see how close they are, up seven basis points on the year. The most common question I get and the most common discussions I have with my sources is, what's going on with the Treasury market?

Is it sending negative signals? Up seven basis points on here doesn't sound like a negative signal to me. Let's take it a step farther. What about the credit spreads? Well, credit spreads can all be looked at via the H-YG ETF. This is a year-to-day chart of the high-yield ETF. And you could clearly see that as the news from the Middle East became, better, at least the interpretation became more optimistic. We could see that

H-YG started to rally. As a matter of fact, like the dollar index yesterday, H-YG today, well, it's the highest close since, guess what? The day before the conflict, the 27th of February, I find all that very important. And also keep an eye on the 30 versus 10 spread. It's widening out. There might be some premium expansion going on. In between maturities, we want to watch that very closely. Mike, back to you. All right, Rick, thank you. Well, sticking with those moves in yields, the bond market seems to be pricing in the end of the Iran conflict.

So what does that mean for the future of yields? And what do lower yields mean for the Fed? Joining us now to discuss is Priya Mishra. She is J.P. Morgan, portfolio manager, focused on fixed income. Good to see you. Thanks for having me. I guess point to point, the bond market has been pretty subdued, right? It's not overreacted, even though we had this volatility burst.

Does that make sense to you in terms of what might come in terms of the inflationary threat? how it changes Fed policy? So it does because now, you know, we've had this pretty big shock in terms of energy prices. But I think there's an underlying assumption here that this is short-lived, that we can look through it. If you look at core inflation, look at wage inflation, look at core services or shelter, anything beyond core goods or energy, that's all extremely stable. If you look at inflation expectations, that's stable. So the reason interest rates didn't rise a whole lot more is the second-order effect, the demand side of inflation. That's still remaining low. Now, there's a risk. If oil prices stay high for a long period of time

that can start to then filter through. But if this conflict is over, it's a big if, but if this trade is open and we start to see shipping resume, I think the market can go back to saying this was a short-lived shock and we go back to fundamentals. The fundamentals is low hire, low fire, K-shaped economy, the company fundamentals are resilient. But that means that the Fed can potentially actually cut rates later this year, and that had been priced out. So, I think the bond market actually has it right. I think interest rates was the one thing that was holding off. And today, I think the Treasury market said, okay, we can start to price in the end of the war.

So how many cuts are you pricing in at this point? So I think we're in the one to two cuts this year, maybe one more next year. I think if it is later this year, because the Fed is not going to want to signal that they're about to cut. I think we're going to hear from Kevin Warsh potentially next week. I think they're going to say, look, we have no urgency to do anything. But to talk about the easing bias. if interest rates currently are a little restrictive, then as inflation comes down, they can cut rates. You know, President Williams has brought that up. Governor Waller brought it up today.

But they can cut if inflation comes down. There's a big contingency. I'm thinking one or two, maybe one more next year. So not a big rate-cutting cycle. If we stay in a soft landing, I think that's consistent with a couple more cuts. Does all that mean that there is value in the bond market? I mean, or various segments of it because we do have relative stability underneath it? Absolutely. I think the value in the bond market, you know, right now comes from coupon, comes from income.

If you get six and a half percent high quality or if you can go into the high yield market, 7 percent, that's the income. I think people are under allocated to fixed income. I think the ghost of 2022 or the PTSD that we have from 2020 is sort of still with investors. People are under allocated. There's another aspect of the bond market, which is if things go south, if the economy slows down, if you get, at some sort of event, we do think that that's when you get those double-digit returns. But I would say in our base case of the soft landing continuing, of the expansion continuing, it's an income play. It's a carry trade, as we call it, in the bombs space. If we do see very few ships go through the Strait of Hormuz and sort of that outlook changes even just a touch, how much do you have to change your forecast if things stay higher for longer?

Not necessarily the worst-case scenario, it seems like we've passed that. But if we do see oil prices remain elevated, we see continued production disruptions because of various plants offline in the Middle East, et cetera, we could see a lot of flow through. Sure. And I think there's an inflation aspect, but there's also a growth aspect. The bond market, the treasury market, really focused on that inflation side. But I think at some point this is going to impact demand. We're already seeing it in Asia. I think Europe is next.

The U.S. is not entirely insulated from that. So I think you'll start to see the impact on consumer spending. Maybe the lower part of the K gets even weaker. That's the time when we're actually moving up in quality. So if that risk starts to increase in the probability of outcomes, we'll actually think that the growth side. The Fed actually then might cut more. They'll be worried about inflation,

but they'll start to get concerned about the growth aspects as well. Job market. Exactly. I guess that's when the safety bid would get into bonds, which did not happen in this episode. Yeah, Priya. Thank you very much. Thank you.

See you. All right. Microsoft having its best week in more than a decade, but it's still the worst performing max seven stock this year. Up next, we'll discuss whether this rally is just the beginning of a longer-term breakout. And take a look at chairs of CalMain falling in after hours trading. According to reports, the Justice Department is close to filing an antitrust case over egg prices. The suit would target CalMaine and a private company called Versova, among others, claiming they coordinated prices in 2024 and 2025 when prices spiked due to a shortage

caused by apian flu. Closing Bell Overtime, be right back. Welcome back to Closing Bell Overtime. Microsoft, a strong performer this week. The stock posting its best week in 10 years, finishing up nearly 14%. Microsoft remains the worst performing MagS7 stock for the year and is coming off

its worst quarter since 2008, you know, led the software sector in this massive bounce. But this is an interesting setup going into earnings because before you would have thought, okay, maybe it's derisked enough. Yes. Sentiment had turned. But here we are.

15%. Yeah, and it's without really any news flow around it, right? So it was just a matter of, okay, the mean reversion impulse really hit. Its valuation is kind of back up toward an average type level. It wasn't looking super cheap. You look at free cash flow. Of course, they're foregoing a ton of free cash flow. It's back below 3%. That means, you know, over 33 times free cash flow. So you wonder if that's going to matter. Or also, the entire OpenAI connected complex got a bit of a reprieve. That's partly of Microsoft. trade. So, you know, you have to wonder if that's, if that's sort of a fleeting bit of relief or if it's something else.

The concerns about SaaS companies in general come back and spending, et cetera. Joining us now is Baird Senior Research Analyst Willpower. He just published a note this week saying Microsoft is still a buy, although he did lowers price target. Well, great to have you with us. Good afternoon, Melissa. Thanks for having me. How are you feeling about this really aggressive bounce here for Microsoft in just this past week As we head into earnings, I mean, the concerns around co-pilot, the concerns about disruption to SaaS companies, the concerns about spending like a hyperscale. I mean, they are all still there in the story.

Well, Melissa, yeah, good questions. And look, it's not without some risks still ahead. But as I think both you and Mike have pointed out on the program, there's been a lot of carnage and software. And I think now that we're back in a bit of a more of a risk-on environment, investors are sifting through where the opportunities might be. And I think as you look at the broader software landscape, while again, there are risks to the application sector generally. We think Microsoft remains well positioned. Azure, of course, is a key strategic asset that's growing close to 40 percent, call it almost a

third of the business. And we think, you know, is still poised for more gains ahead to follow up on the gains we had this week. What are you anticipating for copilot? I mean, you know, last quarter, or 15 million seats was just nowhere near what people wanted to hear in terms of, you know, the progress it is making and monetizing AI. What are you expecting? Look, a couple of eyes going to be a key focus. I mean, I think that in Azure are the two areas of primary focus for investors as we look forward. And look, they're still early, right? There are 15 million paid seats. That's a small fraction of close to, you know, half a billion M365, you know, users globally. Look, every three million see if they add, adds almost a billion dollars of revenue and can start to add, you know,

points of growth both to the M365 portfolio and total revenue growth. And so I think the commentary and whatever numbers they're able to provide there will be critical. In our senses, you know, the core trends actually remain pretty solid there. And we think that actually could provide a bit more of a relief rally. And Melissa, I think one of the key advantages Microsoft still has that maybe still gets overlooked is just the strength of their enterprise relationships. And within those, those IT departments and the easy integration of co-pilot, even if some of the functionality might still be lagging, you know, Claude and ChatGPT, that easy integration is still a standout for a lot of users. Well, I wonder if co-pilot and people getting fixated on exactly how fast that might be

able to grow as a sort of user, you know, price per seat application has obscured the fact that I think, you know, the story is sort of, you know, Azure. and intensity of cloud usage and how the buildout is just going to essentially, you know, require that much more capacity. So how does that plate filter through? And I guess what's already assumed right now in terms of Azure growth leverage to the AI buildout? Look, I mean, you know, Azure's a business, we think, could grow, you know, 38 percent, call it again, maybe a bit north of that as you look at this coming quarter. And that's already, you know, a hundred billion dollar business. So, you know, that's at scale, which is, you know, a very

impressive number. You know, I think, Mike, as you probably know, the industry remains capacity constrained. But, you know, we see that in our own checks. You know, they still can't keep up with demand. And ultimately, I think that's a good problem. I think, you know, as part of that, I think you'll see the KAPX estimates go higher for Microsoft to try, you know, to help fill the demand that's out there, which, again, I think ultimately is a good, you know, problem, you know, for them to have. And so I think, you know, as they start to, you know, kind of align supply with demand, And you do have the opportunity as you exit this year and head into the beginning of the next year, perhaps for the Azure growth to reaccelerate, even just a little bit.

And part of that's going to hinge on how they allocate their KAPX dollars to internal initiatives versus third-party initiatives, like OpenAI. But we think that's still on very good footing as you look ahead and it can be a driver for the stock. Well, thanks. Good to see. Will Power, Baird. All the big earnings on top for next week and why AI will leave its. mark on many of those earnings releases. Closing bell overtime. Live from the NASAC market site. Be right back. Some CNBC news to share with you after 33 years, our Washington, D.C. Bureau Chief Matt Cutty is retiring today. Matt has overseen coverage across multiple elections, primary presidential debates, the financial crisis, the COVID pandemic, and a million defining moments in our nation's

capital. He is a great journalist, a jack of all trades. But most importantly, he's been a great friend to all of us here at CNBC. So congratulations, Matt. All of us here will miss you. For sure. Well, let's get you set up for next week's trading. It's relatively light on the economic front. Retail sales on Tuesday, jobless claims on Thursday, and consumer sentiment on Friday will be the reports to watch. But the earnings calendar is packed. 3M, United Health, GE Aerospace, United Airlines and RTX are all out on Tuesday. AT&T, Boeing, IBM, Tesla, and Texas instruments are Wednesday's highlights. American Express, Honeywell, Intel, American Airlines, and Lockheed Martin report on Thursday, Procter & Gamble, and Norfolk Southern close out the week. So a tremendous

number of sort of non-tech, real economy windows there. But at the same time, in terms of tech land, IBM will be really interesting to hear in terms of AI and as well as Intel and Tesla being a dog. Yeah, for sure. Texans. So we've got a lot to choose from there. Well, one thing that many companies may have in common. The past few earnings seasons is that AI may be playing a larger role in the writing of their earnings releases. Barron's recently scanned market intelligence and search platform Alpha Sense and found certain sentence structures becoming increasingly common starting in 2024. Exports say that a big clue that AI is writing things is the sentence structure. It's not X. It's Y. For instance, in a recent letter to shareholders, Progressive wrote, our purpose is not just a statement. It's a guiding

principle that shapes everything we do. Citizens Financial said in its private bank growth is not just a win for the private bank. It's a win for the entire enterprise. And Synopsis's CEO saying on an earnings call, engineering AI's future is not just a software challenge. It's a physics challenge. Progressive told Barron's in its letter, it was not generated by AI, but they said they are leveraging AI for some content creation. Citizens and Synopsis gave some similar responses. Bairns noting that companies from Coca-Cola to Royal Caribbean to Dollar Tree are all using the same phrasing. I don't know if it's just a trend, a fat, or whatever, or if they're actually going into AI and getting that sort of idea. It's totally fascinating.

I mean, there's obviously a job out there for humanizing AI copy or something like that. But also interesting that the LLMs produce that similar rhythm all the time because it's not as if all writing in history was in that form. And you would think they'd be programmed to not generate that. all the time. That's true. Variety is not the strength right there. It reminds me a separate thing, but investment letters go through these fads all the time. Every single fund manager used Moneyball in like 2006 or the World Series of poker to say that's why they do things a certain way.

We'll look for it. All right. It does it for overtime for the sweet. Fast money begins right after this quick break.