Closing Bell - Closing Bell Overtime: Stocks Sell Off, Terminal Rate Prediction & Railroad Safety Hearing 3/9/23

Episode Date: March 9, 2023

Stocks sinking as financial stocks plunge and investors brace for Friday's key jobs report. Evercore ISI's Mark Mahaney on whether the recent sell off is a buying opportunity for tech stocks. Former Fed Vice Chairman Alan Blinder says he is betting against the Fed raising interest rates to 6%. And Senator Ed Markey, who participated in Norfolk Southern's safety hearing on Capitol Hill, explains why he doesn't think the railroad operator is doing enough to ensure more derailments are avoided. 

That is a scorecard for an ugly day on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I am John Fort. Morgan Brennan is in Washington covering the Norfolk Southern testimony. She's going to be with us in just a bit. Now, we have got a busy afternoon of earnings coming your way, including numbers from Oracle, Gap, DocuSign, and more. And we're going to talk to former Fed Vice Chair Alan Blinder

about why he doesn't think the Fed's going to go as high with rate heights as some people think. But now let's get straight to this late-day sell-off with our market panel. Joining us now are Adam Crisofulli from Vital Knowledge and Megan Hsu from Wilmington Trust. Guys, welcome. Adam, to start, to me, the bank's the biggest story of the day, maybe raising the stakes for tomorrow's jobs number. And I wonder, my interpretation is that depositors are finally catching on, that higher rates should mean bigger payouts, and banks might be getting squeezed here. I mean, oversimplifying. But is this a yellow flag, perhaps, on this lag effect of higher rates

that it is having an effect? No, 100 percent. Banks were by far the dominant story. Banks are the most important sector in the entire market from a signaling perspective. So on a day when the BKX plummets like it did, it's hard for the market to ignore it. You know, I think that if we hadn't heard from bank executives at a bunch of conferences in the last couple of weeks, including at the RBC conference this week, we heard from several bank execs and all of them were suggesting that the environment is kind of tracking to their original guidance. So there certainly are deposit beta pressures and deposit pricing is going up. That's going to pressure net interest margins, net interest income. I think what you're seeing in Silvergate and then with Silicon Valley is somewhat company specific.

But to your point, you know, deposit pricing is going up. It's creating a lot of stress for certain banks. But like I said, I'm a little comforted that we heard from so many banks speak at these conferences. And for the most part, all of them are suggesting that, you know, the environment is tracking to how they were anticipating. Yeah. Megan, I worry sometimes we can miss the forest for the trees here. And sure, you know, these more stable banks, they're not Silicon Valley Bank. You know, they're not this bank or that bank. But what's going on with rates is affecting so many different companies. I even take a look at a lot of growth tech down dramatically today, perhaps having to do with rate concerns as well. How do you read what's happened to a lot of growth tech stocks today? Yeah, well, what we've seen is basically a resurgence of rate fears. And that came on the back of

Powell's testimony, where he essentially made an event of what's typically a non-event type of speaking arrangement. And certainly the higher rates, the inversion of the yield curve is putting pressure on financials, but also those higher duration, longer duration parts of the growth market. I think if you're willing to look at some of the parts of technology, though, that are higher quality, I think you can do okay here, especially as we're going to get a little bit more information about cloud-based businesses, where we see a little bit of optimism as we look across the landscape. Yeah, we're going to get something on enterprise spending, certainly from Oracle and the stability

of that. But for now, let's get more on the banks with CNBC senior markets commentator Mike Santoli. Mike? Yeah, John, you can sort of pan out a little bit and look at the banks relative to the overall market over the last few years. Now, historically, absolutely a bellwether group, although less so over this particular phase. You kind of just don't want them to be rushing lower in a hurry for the overall market to hold up. So here on a three year basis, you see it really has given away. But look at where the high for the banks were really dramatic coming into last year. So they've been on a relative basis really performing poorly right now. Clearly right now, also, though, they're at the epicenter.

They collect a lot of the prevailing fears that investors have about the macro environment. So obviously, the impact of higher rates, whether that really does cause credit stress throughout the entire economy, as well as just their ability to sort of navigate this process of depositors maybe leaving and having a higher funding cost. And it has been an accumulation of concern around this area. And because banks are inherently just kind of opaque, they're the area that people have a little more worry about, even when they don't specifically necessarily know what's going on. However, it's not been a uniform story across all financials. Take a look at the subsectors of the financials here over the last couple of years or less one year, actually. Regional banks, clearly the clearly the worst now the broader big cap banks

complexes perform pretty similarly to regional banks just not quite as badly but then you have the capital markets area it's exchanges brokerages asset managers things like that have held their own and then insurance been a real strong spot uh lately pricing power and a couple of other things going on just in terms of the overall business dynamic. So you see right here, it's not just been a broad brush in terms of financials. One interesting thing, John, too, is that banks on the way up, when people were getting excited about the economy and the prospect of the Fed hiking rates into a strong economy, is that they didn't really get the benefit of that either.

They kind of don't really have a lot of leverage on the upside of the economy, given how capital heavy they are right now and people's unwillingness to give them credit for navigating the cycle. All right, Mike, good luck there. I do want to mention Ulta Beauty results are out. We are going through those and we'll bring them right to you. And we've got to read Oracle out as well. I'm hearing and we will bring those to you as well, just as soon as we have a clear read on what those numbers are saying. Adam, I want to come back to you on the banks

and ahead of a big jobs number tomorrow. How much do you think, given the moves that we saw in financials today, is that jobs number going to either give people a little bit of relief over what they fear is coming with rates or even intensify what we saw today if the concern is maybe they have to go a little higher than people thought and stay there for longer than the market hoped? Yeah, I mean, absolutely. Tomorrow's jobs report is going to be critical. I mean,

that's what Powell basically said this week during his testimony. He was waiting for the jobs report, the CPI, and the PPI. You know, and ironically today, this was the first day in a very long time we actually got rates moving in the right direction from the perspective of stocks, thanks to the weekly claims numbers, which normally it's not, you know, market, it's not really a great idea to hone in on any one claims number. But they did rise notably this week, suggesting that the underlying employment economy may not be as strong as data has been suggesting.

So tomorrow is going to be crucial. You know, I think if you go back to last week, Fed Governor Waller made a speech and he kind of outlined that if the employment pace were to drop down to where it was in about Q4, which corresponds to about 275,000 ads. You know, that would be enough to kind of keep them on the current trajectory, which would mean 25 basis points for March and then the 2023 dot not going up any more than, you know, 25 to 50 basis points. So I think 300,000 is kind of your demarcation point. Above that, you're going to create a whole new set of complications for the market. It's going to force the Fed to act, you know,

on a day like today where it's probably not going to be thrilled to move forward more aggressively. I think if it's kind of under 275, 290, it will probably be a relief in that it will keep the Fed on the current trajectory for tightening. Megan, do you with that? Kind of 275, 300 as being safe territory, but any hotter than that? And you got to be concerned? Yeah, I think the number's probably a little bit lower in my view to really give optimism and a turn to the story that we've seen. The good news is that we have gotten some negative pricing for this week ahead of this print so maybe- you know it'll be easier to. See the market kind of move positive I think what's really hard right

now- is that the quality. Of that data is just not very good whether it's jolts or payrolls the response rate is incredibly low so it's almost like operating through a data fog- but I do think even more important than the job growth

number will be. What's happening with wages that's really where the Fed is watching. And I think it's possible to sort of strike that happy medium where we continue to see job gains, but continued softening of wage growth, I think, does have a possibility of turning the narrative around for the market. Megan, how closely are you watching Oracle? The guide is going to be important. We get a lot of that info on the call, so we don't want to react too much to just what's in this release. But as we look at the company level and at enterprise software spending, we've gotten sort of mixed messages from different size companies and different growth stage companies about how healthy the flow of business is.

Yeah, I think there's been some bright spots in the cloud enterprise business as well as in software. I sort of think about cloud as being the best house in a bad neighborhood right now where tech's just had a really hard time of it. But we're seeing still solid growth in the cloud space. So, you know, the potential for Oracle to have delivered on that. I think companies don't have too much of a choice in continuing to invest in technology, but certainly there's a timing component. And so I don't know if it's going to be a pullback in spending from what we've been seeing, but maybe more of a pause and reassessing of what they've already

invested. And if that's the case, then I think maybe some of that negative news is already adequately priced into those stocks. All right, let's get to those numbers. Oracle earnings are out. Frank Holland has them. Frank. There's an Oracle down more than 5% right now. It was a miss on the top line, a slight miss, a beat on EPS when it came to the profit two cents above estimates. Looking a little bit deeper into the report, they had a beat when it came to their cloud business, but there was a miss on their on-premise business. Revenues of $1.2 billion, lower than the estimate of $1.39 billion. There was some thought that on-premise may have had a tailwind from a slowdown in general cloud spending and the transition to cloud.

Oracle also raising its dividend. Again, a miss on the top line, a beat on profit. Shares now down about 5.5%. John, back over to you. Frank, thank you. Adam, if I recall, we get that guide from Oracle on the call. You know, Safra Katz had been CFO there for quite a while before she was CEO and tends to give quite a detailed enterprise read. What's important here to pull out? I mean, the top line number being a little light would be in line with what we've seen from some companies, but it's really been the guide that's been the concern.

No, absolutely. And I think, you know, for Oracle specifically, you know, they've really been making the case, and I think, you know, and I think they've made an adequate case that over the last several quarters, Oracle Cloud Infrastructure, which is their cloud platform, their Azure or AWS competitor,

that that is becoming the third or fourth cloud platform, that it's one that really should be taken seriously as an alternative to Azure, to AWS. And I think that's been the real focus for the last several quarters. And I'm sure that's going to be the focus on this call. You know, their commentary around that business, at least on the last call, was very, very bullish. And I think if they kind of reiterate a lot of those numbers around growth and margins, you know, investors will kind of look through whatever is underwhelming with other parts of the business. So the OCI, which is Oracle Cloud Infrastructure, that's going to be the real highlight on the call.

Well, let's see if these numbers are any prettier. Ulta Beauty earnings are out. Seema Modi has those numbers. John, Ulta earnings per share, a dollar better than expected. That's 18% ahead of consensus. Revenue also a beat for the quarter, but take a look at comp sales, 15.6%, which is nearly double the analyst estimate of 8.4%. Gross margins are in line, a solid operating margin beat, even though the stock is moving

lower by 2.8% in overtime. Guidance ahead of consensus and CEO Dave Kimball saying that as we look into fiscal 2023, he remains optimistic about the strength and resiliency of the beauty business. And I would point out, John, beauty has been a bright spot across the retail earnings season. You take a look at Macy's, which talked about it being beauty among the best performing categories. Target, Costco, Dillard's also seeing strength in beauty. Shares down 2.5%. Back to you, John. Yeah, it's a stock that started the year around $4.65, I believe, up above $500 a share. Now, Megan Hsu, what's your take on the beauty category, which has been doing well as people get out of the house again, right, and move around? Are valuations there just a bit peaked? Is that why we're seeing perhaps this

kind of reaction? Yeah, I mean, I think that this is a tough day to be releasing earnings. You're probably getting swept up in the market pessimism. But I would say that when we look at beauty, it's almost a similar story to what we see in travel and leisure in terms of some of that pent-up demand and really being a continuation of the reopening story. And, I mean, every indication we get is that the consumer is still healthy. We've had real wages moving positive to start the year. Our CEO's annual shareholder letter was discussing the amount of savings that consumers still have on their balance sheets. And I think that could actually end up being a problem for the Fed if that savings does get spent.

But for beauty, for luxury retail and some of those other parts of the retail space, I think it could really continue to be a tailwind. Adam, is the consumer healthy or is the consumer's spending just healthy? I mean, is the consumer hanging in there? When we talk about that savings coming down, we talk about the amount of credit card debt that the consumer is racking up. And we see rates, you know, causing a reckoning with some banks right now. There's a consumer on the other end of that, right? No, absolutely. And I think this has kind of been a big debate now for a while, where you are seeing consumer spending hold up. It's being funded more by debt. You are seeing the savings rate kind of tick down and the excess savings that have been accumulated are moving lower. A lot of the wallets having to go to essentials because of inflation, so food and other consumer staples.

And then you've seen a big shift from hard goods to services. So there's been a big kind of adjustment in how consumers are spending. I think the overall amount of money that gets spent in terms of credit card swipes, that's still holding up pretty decently. That's been a message we've heard from a lot of the banks and a lot of the credit card companies lately. You know, I think as we go through the course of this year, some further slowing is likely.

But I think for the most part, the consumer is still holding in pretty well. All right. Adam Christofouoli, Megan Chu, thank you. Now, is any stock going to move higher after hours? Not yet. DocuSign earnings are out. Frank Holland, again, has those numbers. Frank? Hey there, John. Shares of DocuSign down about 2.5%. When the report first came out, shares actually moved to the positive. A couple announcements here.

The company has its CFO leaving. It's currently searching for a new one, perhaps what's leading some of the stock movement we're seeing right now. Top and bottom line beats, however, when it came to the quarter. Also, solid guidance for the current quarter and for the full year. There was a beat on when it came to billing, $739 million versus the estimate of $718 million. That gives you some sense of the demand for the company. It also had a beat when it came to free cash flow. The company's talked a lot about transitioning from just being an e-signature company to also managing agreement workflows. We're going to

probably hear more about that on the call. So again, after top and bottom line beats and solid guidance, shares are down just about 2% for DocuSign, John. Back with you. Yeah, guiding to higher margins, which is not a bad thing. Frank, thank you. Don't miss an exclusive interview with DocuSign's CEO tomorrow, 10 a.m. on Squawk on the Street. All right, now the NASDAQ underperforming in this sell-off, falling around 2%. Take a look at some of the biggest decliners in the NASDAQ 100, including JD.com, CrowdStrike, which just had earnings not long ago, and Marvell, which also just had earnings. Let's bring in Evercore's Mark Mahaney,

who covers the tech and internet sector. Mark, good to see you. So how much of this action we saw today, you think interest rate related? The vast majority. So look, interest rate spikes last year, unprecedented interest rate spikes last year just demolished the tech sector, NASDAQ interest rates, the sector, anybody with long duration assets, future profitability, always very sensitive to interest rate changes. Now, is there another shoe to drop in this economy, perhaps, for these companies that you cover? Is there a kind of a banks type moment that we had today? Now, granted, you know, this wasn't too big, too bad for the banks compared to what internet has been through. But these economic headwinds, has internet largely taken its lumps already, do you think? Well, they've certainly taken lumps. From a stock

picker's perspective, look, what we focus on is that multiples have been de-risked. We're close to trough multiples. Actually, we are at trough multiples for most of the internet names. Estimates have been de-risked. We just finished the December quarter. The prints finally rolled through in the last couple of weeks. That's the first time in a year and a half we've actually had, as a whole, upwards estimates revisions rather than pretty substantial downwards estimates revisions. There's no question that you could still, the estimates can always still further come down. But the one thing that helps a lot of these companies is all the cost actions, all the rifts. Those are always unfortunate. They're always painful when they occur. But in some of these companies, they were clearly necessary and they kind of

protect that earnings. And so I think that the downside to earnings risk is much less at this point than it's been at any point the last 12 months. Speaking of reductions in force, layoffs, and discipline, Meta has moved from your number three net large cap pick to number one. Why? Well, in part because it looks like we're going to have more cost actions taking place. You know, Zuckerberg called this the year of efficiency. I think he largely was tracking that way last year. And then we had this blip around the September quarter earnings when he decided that he wasn't going to slow down expenses. And then two weeks later, changed his mind and said he was. But I think most of the signals have been this company is

going to operate more leanly and there's plenty of opportunity for them to do that. But in addition to that, I think this REELS rollout that's just been in place for well over 12 months, I think it's actually starting to really come in positively for the company. It's driving higher users, higher engagement levels, and they're starting to close the monetization gap. So it's another reason you're going to have revenue growth acceleration in this name in the back half of the year. And then finally, you know, the ad targeting, the ad attribution model at Facebook, at Meta was severely challenged by the Apple privacy changes. But we're now well beyond a year, 18 months into that, and we're seeing the company, based on our channel checks, get better and better with the ad attribution models,

which means the return on ad spend is rising, which means there's another reason why advertisers are going to start coming back and spending more of their dollars with Facebook, with Instagram. So there's just a couple of things that are working, bringing down costs. And I think you're going to get this acceleration of revenue growth. It's trading at 14 times earnings. I think there's 50 percent upside in the stock between now and the end of the year. Wow. OK. Even without the metaverse. Mark Mahaney, thank you. Hopefully without the metaverse. Yes. Gap earnings are out. We are going through and we'll bring them to you just as soon as we can. New details, meanwhile, emerging surrounding former J.P. Morgan banker Jess Staley and his relationship with Jeffrey Epstein.

And now J.P. Morgan is suing Staley over those ties. Our Eamon Javis has the latest on this developing story. Eamon. John, the lawsuit against Jess Staley was dramatic enough, but we also have new developments this afternoon. Lawyers for the U.S. Virgin Islands want to obtain information about J.P. Morgan CEO Jamie Dimon personally in its lawsuit over J.P. Morgan to produce the Jamie Dimon documents. The lawyers say Dimon is the key player who likely knows why even after J.P. Morgan kicked Epstein out of the bank in 2013, they continued to have a business development relationship with Epstein that lasted some years after that. They say Dimon was involved with and had decision-making authority over the Epstein accounts and was, quote, in discussions involving Epstein's referrals of prominent and high-wealth

potential clients. Now, all that comes a day after J.P. Morgan sued its own former high-level executive, Jess Staley, for damages related to these accusations. J.P. Morgan doesn't acknowledge that it did anything wrong and doesn't say it owes anyone any money, but if a court finds they do have liability here, JPMorgan argues it's Staley personally who should be on the hook. In the suit, JPMorgan says, Staley persisted for years, from at least 2006 until his departure from JPMC in 2013 in protecting Epstein in face of attempts by JPMC to end the company's relationship with Epstein. But the most damning and so far unproven allegation relayed in the suit is that Staley allegedly used aggressive force in his sexual assault of an

anonymous woman who is now suing the bank. Staley was once considered heir apparent to CEO Jamie Dimon, but decided to leave J.P. Morgan in 2013. He has said that while he was friendly with Epstein, he never knew about Epstein's crimes. J.P. Morgan declined to comment on today's developments. Back over to you, John. Wow. Eamon Jabbers, thank you. Back to earnings. Gap earnings are out. Stock moving lower. Christina Partsenevelis, a lot of executive shuffles besides the numbers. Yeah, there's a lot of movement.

We'll just go through the numbers really quickly. They posted a loss, 75 cents per share. That is worse than what the street was anticipating on revenue of $4.24 billion. Also light. Same-store sales for the quarter, Q4, down 5 percent. They're attributing a lot of this weakness to clearing excess inventory, especially at Old Navy. But the two major leadership changes that you're talking about, the first one is the president and CEO of Athleta, that would be Mary Lawton, is exiting immediately. They say, quote, we believe Athleta has incredible potential, but it has suffered from product acceptance challenges over the past several quarters.

The third point they said is they are taking action. Sorry, they are looking for a president for the gap. The CEO, sorry for the gap. I should correct myself. The board is getting close to choosing the next CEO of the gap. So you have Atleta, President's CEO stepping down, and they're still looking for their CEO of their gap, but they're getting close to it and missed on the top and bottom line. So shares are down almost 6% right now.

Indeed. Yeah, talking about a big restructuring as well. The chief growth officer and chief people officer heading out the door. Christina, thank you. Thank you. Still ahead, is the market overestimating how high the Fed will go with rates? We're going to ask former Vice Chair Alan Blinder why he says a 6% terminal rate might not be in the cards. But first, Norfolk Southern's CEO testifying to the Senate today about his company's derailment in Ohio. I want to begin today by expressing how deeply sorry I am for the impact this derailment

has had on the residents of East Palestine and the surrounding communities. We're going to talk to Senator Ed Markey, who was part of today's hearing, as yet another of the company's trains derails today in Alabama. We'll be right back. Welcome back. HashiCorp earnings are out, ticker HCP, and we found it. The stock that's positive after earnings at least for the moment up slightly a couple of percent. It looks like a beat on the top line. Revenue, $135.8 million.

That's up 41% year over year. Net dollar retention rate, 131%, both for the fourth quarter and for the year. And the guide looks pretty good so far. We will hear from the CEO tomorrow here on Overtime. Now time for a CNBC News update with Bertha Coombs. Bertha. Hey, John, here's what's happening at this hour. The Mexican cartel blamed for kidnapping four Americans and killing two of them has apologized and condemned the violence. In the letter obtained by the Associated Press, the cartel says the gang members who were responsible, who were acting on

their own, according to the cartel, have been turned into authorities because they broke the rules against hurting innocent people. A senior law enforcement official tells NBC News U.S. authorities believe the letter is legitimate. Roger Eng's lawyer tells CNBC this afternoon he remains committed to establishing his client's innocence and will be appealing the former Goldman Sachs banker's conviction. Eng was sentenced to 10 years in prison today for participating in a conspiracy to steal four and a half billion dollars from a Malaysian development fund. And Senate Minority Leader Mitch McConnell is being treated for a concussion after falling

at a Washington hotel last night. A spokesman says the 81-year-old Kentucky senator will remain hospitalized for a few days of observation and treatment. John, back over to you. Bertha, thank you. Norfolk Southern's CEO on the hot seat today testifying before a Senate committee over the railroad's safety as it deals with another train derailment. Morgan Brennan is on Capitol Hill with the latest details. Hey, Morgan. Hey, John.

Well, this is the first time Norfolk Southern CEO Alan Shaw has faced lawmakers since that East Palestine train derailment last month that resulted in the release of all those toxic chemicals. So over the course of three hours, this hearing of the Senate Environment and Public Works Committee, Shaw, who I should note only became CEO less than a year ago, responding to a question about whether he would, quote, lead in the industry in doing away with precision-scheduled railroading. In December of last year, I charted a new course in the industry. I said we're going to move away from a near-term focus solely on profits and that we're going to take a longer-term view that's founded on our engagement with our craft employees who are so critical to our success.

We were the first to pivot out of it. Shaw actually appeared on CNBC after that December investor day to outline that strategy shift. The hearing, which also included EPA and other government officials focusing on rail safety, environmental cleanup, and also veered multiple times into the topic of and the criticism of stock buybacks, given the fact that Norfolk Southern did spend upwards of $3 billion last year to repurchase shares in a similar sum the year before. After the hearing, I asked committee chairman Tom Carper how he sees that topic. The idea of companies buying back some of their shares from time to time, I think that's probably appropriate.

There's going to be too much of too much of it and uh... i think uh... the more we need to keep talking about it in reminding companies that you know there's other things that they ought to be doing with their money other than just buying back their own shares uh... now it's worth noting that norfolk southern does spend about a billion dollars a year on its infrastructure it did earlier this week ahead of its testimony uh... announce a new safety plan as well.

But here to discuss not only the hearing today, but what it means for this company and for the industry moving forward, Senator Ed Markey of Massachusetts, who is also a member of the committee. Thank you so much for joining me today. Great to be with you. Thank you. Now, you're also a member of the Commerce Committee, which is actually the committee that regulates the railroads. So what did you learn today and how will that shape how you're thinking about regulation from the Commerce Committee standpoint moving forward? Well, obviously, we heard that Norfolk Southern made more than $3 billion last year, had more than $3 billion worth of stock buybacks. Yet, obviously, they have not invested enough in safety. You don't have a profit until you've invested enough in safety.

So that company is just going to have to reprioritize, make sure they're putting more funding into their infrastructure. And from my perspective, I still did not hear a wholesome, a full-throated commitment to all of the homeowners, to all of the small businesses, to everyone who has been implicated in this crisis with their long-term health concerns, that Norfolk Southern is committed to paying all of those bills in the long term. All he kept saying was, we'll do the right thing. My fear is that when the cameras go away, all it's going to be is Norfolk Southern's accountants in a battle with that community.

And the right thing for them will be to continue to increase their profits, to continue to increase their stock buybacks, and not compensate the poor people in this community. Well, they have, they have, did say, he also said today that he's, they've put more than $20 million towards the community and towards the effort so far. And I think he called that a quote unquote down payment. As a lawmaker, how can you ensure, because we are talking about carcinogenic chemicals that were released into the environment, and we may not know the full impact of that for many years, if not decades. How do you ensure that that actually happens, that that responsibility continues over the long term? Well, obviously chemicals can have a very powerful impact on the endocrine system of

human beings, the computer system of human beings. And long term, it could have an impact on pregnant women, it could have an impact on children that are born in the years ahead because of the change that could occur because of chemicals in the bodies of those who lived in East Palestine. So we're going to have to have an open-ended commitment to taking care of families, to compensating them for the health care impacts of what happened on February 3rd. We did see just another train derailment this morning from Norfolk Southern. We actually saw one from CSX as well, I think in the last 24 hours too. Is this a company specific issue or is this an industry issue? And if so, what does that mean in terms of

regulations and whether you're going to support the recently proposed safety regulations that were put forward last week? Well, there were more than 1,000 derailments in the United States last year alone. So we have to have a major increase in the safety measures that we put in place. Otherwise small communities and large all across the country are going to continue to run the risk that there could be a catastrophic event. So the legislation which Senator Brown and Senator Vance and Fetterman and Casey have introduced, I think it's a good starting point for us to include those safety measures, including a provision which is inside their legislation, which I've been introducing for years, to ensure that they have at least two people on board each one of these trains

to guarantee that safety is given much more attention because some of these trains have 100, 200, 300 or more cars going through communities. I want to shift gears a little bit because President Biden just a short while ago was discussing the White House's proposed fiscal 2024 budget. Your thoughts on it and whether it's, as some folks have suggested, maybe dead on arrival. Well, it's hard for me to get inside the internal workings of the cerebral mechanisms of Republican House members. But I would say at the same time that President Biden is making a good faith effort to put together a package like he did in his first two years in order to solve a problem. And that is to make a proper investment in Medicare, Medicaid, in education, in our society.

At the same time, ensure that those who have benefited most from the incredible boom that our country has been going through over the last two decades, so they pay their fair share to keep our country strong in the years ahead. And I think it's a very good formula that the president has put together, and I think that it's the beginning, perhaps, of a discussion around the debt ceiling. But for the rest of the year, in terms of what the priorities for our country should be in the long term, we're at 3.4 percent unemployment. Inflation is going down. We're seeing dramatic increases in manufacturing. The Biden economic plan has been working for our country. And I think this plan is just aimed at continuing that success story. Yeah, certainly right now and on a day like today,

the market is focused on inflation, especially ahead of that jobs report that we do get tomorrow. Senator Markey, thank you for joining us. We appreciate the time. Thank you. John, I'll send it back up to you in the studio. All right, Morgan, thanks. Important questions and answers there. Meanwhile, GE up big today in a down market as the company hosts its investor day.

But even after a healthy run year to date, when you zoom out, the company's market cap has had a massive fall from grace. Mike Santoli is going to break it down next. Stocks closing in the red, but General Electric hitting recent highs today after reaffirming guidance at its investor day. Mike Santoli, pretty close to five-year highs, if not topping those, right? Yes, absolutely. Santoli, pretty close to five-year highs, if not topping those, right? Yes, absolutely. GE's definitely got some investors warming to it as a more focused story, doing these spinoffs, kind of becoming less of a conglomerate, more focused on aerospace and defense. But this is the very long-term decline in really the economic heft and the market value of GE over the past 23 years. It goes back to March of 2000, actually.

And here you see it, well above $500 billion peak market cap. Some of this decline was divestitures and spinoffs, right? Sold the media business that we are now part of. Obviously sold some of the financial businesses, some energy stuff. And, of course, spun off GE Healthcare just recently. But that doesn't account for most of it. Against its peers, you see now Raytheon and Honeywell are larger in terms of market cap than GE, and 3M, which has had its own struggles, had been basically on parity with it before declining recently. So it's not to say that

going forward it has to continue in shrink mode as a more focused company, but it definitely lost its status as one of sort of the top bellwethers and core holdings among investors. John. All right. My great perspective. Thank you. Up next, former Fed Vice Chair Aaron Blinder, Alan Blinder, explains why he's betting against the Fed raising interest rates all the way up to six percent. We'll be right back. Welcome back. Some investors now expecting interest rates to reach 6% after Fed Chair Powell told Congress the central bank is prepared to increase the pace of rate hikes.

But our next guest says not so fast. Joining us now is former Fed Vice Chair Alan Blinder and Morgan back with us as well. Alan, welcome. Great to have you. So if you're wrong about how high the terminal rate will go, I take it it's going to be because data like tomorrow's jobs report, then the CPI print a couple of days later are going to come in hotter than you expect. So what number do you expect for jobs and CPI? Well, I don't get into that predicting what tomorrow's data are going to be, but I watch it as it comes. And my feeling

is that the markets and unfortunately also the Fed, at least some people on the Fed, may be paying too much attention to one monthly blip. Now, if we see another two CPI reports that look not very good and another one or two gangbusters jobs reports, we had that one last month, I'll start changing my mind. But I'm not convinced of it until I see more data. The trend in the inflation rate is down. That one month is, that statement I just made a second ago is falsified by only one month's data. It's been down. And I'm not convinced that it's not still down until I see more data. So, Alan, you made some news at the beginning of the week when you did say that you were

betting against the Fed raising rates to 6 percent. But then we did get Fed Chair Powell testifying on the Hill for two days and certainly seemed to have a message for the markets, or at least it was taken that way by the markets, that maybe it could go higher, stay there longer, even potentially put a 50 basis point hike back on the table for the next meeting later this month. Were you surprised by that message? I was surprised by the by sort of putting 50 back on the table. I still don't think they'll do it, but I was a little surprised about him putting it back on the table. And look, you're quite right. And markets should listen to Jay Powell a lot more than they listen to me.

And of course, I don't I don't have to tell them that. That's what they do. The Fed is showing its teeth. It's showing that it's going to be tough on getting inflation down. And if it turns out to be a harder job than they thought six months ago, they're going to work harder at it. So don't get me wrong. I have written up my mental guesstimate of where the Fed is going to top out. It just hasn't hit 6%. Go back some months and I was thinking it might top out around 5%. I think that's unlikely now. I think, you know, who knows, something more like 5.5% is much more plausible than something like five. And as I was suggesting a moment ago, if we keep getting adverse data, that's a funny term.

Adverse data is like great job performance. That's not bad news. Six may start looking realistic, but to me, not yet. Yeah, we had Professor Oswalt de Moteran on the show a little bit earlier in the week. And one of the things he talked about was the fact that inflation tends to be, and it's been a while since we've had an inflation cycle like this one, that historically it has tended to be, quote unquote, stubborn. And it sort of speaks to that key question about, okay, maybe inflation is coming down, but how quickly is it coming down? And how quickly can it come down without the unemployment rate increasing?

Well, that last proviso you added made it a very, very hard question, because we normally think of the Federal Reserve as bringing inflation down by causing slack in the economy, and that does raise unemployment. So far, that's not true. The big exception to that rule, if you want to call it a rule, is supply shock inflation. When adverse things are happening on the supply side of the economy and they dissipate or disappear quickly, inflation can fall quickly. So and that has been happening. One of the drivers of inflation a year ago was rising oil prices.

That's reversed a major driver of inflation a year ago, which hasn't reversed, but is mostly mostly disappeared by these supply bottlenecks caused by the adjustments post-pandemic. As a result of that, the inflation in the second half of last year was quite a bit lower than in the first half, a very large drop, even though there was no unemployment costs paid. Alan, did you expect we'd have felt more effects of last year's 75 basis point hikes by now? And related to that, did you have any reaction to the dynamic we're seeing now with banks and how much they might have to pay out to hold on to depositors?

You mean reaction in the job market or something? I think that's what you're referring to John right well the overall pace of inflation the job market just overall economy reacting to those hikes did you think that they would have put more brakes on the economy by now all the data that you're watching so not in for not at all surprised by inflation as Morgan was just pointing out inflation is stubborn it moves down slowly there are long legs and monetary policy I'm not a bit surprised in fact inflation. As Morgan was just pointing out, inflation is stubborn. It moves down slowly. There are long lags in monetary policy. I'm not a bit surprised.

In fact, if I have a surprise at all, it's that inflation fell faster than I imagined. On the real side, a little bit of a surprise. Not much, but a little bit of surprise. I would have thought that the monetary tightening we've had already would take at least a little bit of steam out of the economy. Not a great deal because of these vaunted lags in the effect of policy, but at least a little bit. And surprisingly, it is surprising to me, we're now looking at a lower unemployment rate, a little bit lower than when the Fed first started tightening in march of last year that's a surprise if you would ask me in march of last year do i think the unemployment

rate would be lower in february of the following year the last observation i would have said no i don't think that's likely but it happened okay We'll see how much steam comes off that number in the morning. Alan, thank you. Morgan, I'll see you back here tomorrow. I'll see you back there tomorrow, John. Looking forward to it. Looking forward to that. Up next, we're going to round up the after hours earnings movers that should be on your radar. And tonight on Last Call, do not miss Brian Sullivan's interview with ARK Invest CEO Kathy Wood. 7 p.m. Eastern. We'll be right back. Will the consumer shift from goods to services push retail stocks into the red? Let's take a look at what we can learn from Etsy, today's story stock.

Etsy is a marketplace known as a home for sellers who craft unique merchandise and buyers who are looking for something special, like a boutique shop to Amazon's big box store. The bad news, Jeffries doubled downgraded the stock today, sending it down about 5%, you know, saying that buyers are leaving faster and spending less, giving it a $85 price target. But there's good news, too. Etsy's 10K showed that while some pandemic buyers are leaving, a lot are sticking around with 44 percent of sales retained from buyers who joined during the pandemic. Fifty two percent of 52 percent of firms have buy ratings with just 3 percent at a sell.

So here's the question. Which retail stocks are going to accelerate out of this rough period and which are going to get left behind? Bank of America's data shows a February slowdown in credit and debit card spending on goods. But we also see exceptions. Walmart's doing better than some others thanks to affordable food. American Eagle recently beat estimates on steady demand for clothing. And TJX cited treasure hunting shoppers looking for bargains as a reason for its top line beat. We heard from the CEO of Sonos just this week about why he's confident in releasing higher priced speakers. But, Mike, we also got those gap earnings today.

Those were not pretty. No, not at all. Those were not pretty. No, not at all. It's very selective within retail. I mean, Etsy, for as well as it's done recently in terms of consumer penetration, it's hard to be more discretionary than the stuff Etsy tends to sell. And I think the market has been migrating to a few other type of retail chains, such as Ulta, which I know just reported after the close, Tractor Supply, Dick's Sporting Goods, in addition to TJX. They've all seemed like they're kind of category killers. They're mid-cap stocks.

They're not so huge that they still don't have expansion, store expansion ahead of them. So it feels as if there's sort of lifestyle necessities is what they sell. And so far, those are the more favored areas of retail. Maybe there's something to that. And yet, Mike, within Etsy, you do get like party favors and things like that. So as people go out and are gathering again, Etsy does have those subcategories. So it's a question of does it get some of that, you know, Sonos premium buyer that's playing the music for the party in the house and also buying Etsy decorations?

You never know. I'm sure there's plenty of that. It's also 40 times earning stock. So it's a little bit rich for that sort of thing. Indeed. Well, nothing wrong with being a little bit rich. That does it for overtime. Fast money begins right now.