Closing Bell - Closing Bell Overtime: Stocks Take A Hit After A Hot Inflation Read 4/10/24

Episode Date: April 10, 2024

CPI came in above expectations and stocks fell while yields rose. Yardeni Research’s Ed Yardeni and BD8 Capital’s Barbara Doran on how to play the market action while Renaissance Macro’s Neil Dutta on what today means for the Fed.  Zelman & Associates’ Alan Ratner on housing stocks slide. Ibrahim AlHusseini on Tesla’s slide.

And that is the scorecard on Wall Street, but the action just getting started. Welcome to Closing Bell Overtime, everybody. I am Brian Sullivan. John is off. Morgan will join us for some cool space stuff shortly. Stocks down. You saw that. A lot of red on the screen as inflation goes back up.

A lot of red. Red hot inflation data bringing in the sellers. Though I will say we are going to end well off the lows of the day. That is a bright spot. But the big question, the trillion-dollar question, does that hot inflation print mean some or all of the expected Fed rate cuts are now off the table? We're going to ask Renaissance Macros' Neil Dunham ahead. But we begin with the markets and your money. Joining us now to kick it off, Ed Yardeni from Yardeni Research and Barbara Duran from BD8 Capital Partners. Big day, Ed and Barbara. Thanks for joining us. Barbara,

your take on the inflation print, the Fed and the markets. Well, the inflation print, I think, surprised everybody and disappointed us. I mean, we were hoping January, February had some seasonal or anomalous explanation. This just says, hmm, the inflation, we've had a great decline from 8 percent in 22 to through this 3.5 percent print in the headline CPI. And it looks like it's stalled out for now. I think, you know, all day long, you're looking at the numbers and saying you can argue that inflation is still coming down. Other things are up. You've got to worry about oil prices. But basically, I don't think what it changes is the expectation of the timing and number of rate cuts, which had been in the beginning of the year, probably six to seven cuts. And then through the first quarter came down to

two or three and the market still went up. So I think the market right now is really focusing on earnings. And we've had a little bit of a downtime here because the earnings season for first quarter doesn't start until this Friday with the big banks. And I think that's going to be very important. I think the estimates on the street range about 9 to 10 percent in S&P 500 earnings for the year. And I think company guidance on both their sales and their margins is going to be very important to really sort of counter the uncertainty, which is going to be there for a while. Now people are going to be waiting for the PCE number, which the Fed looks at. So it's a time of added uncertainty. But I

think there are buying opportunities that have happened today. Yeah, that's the thing, Ed. I heard Josh Brown in the previous hour. He said it's a risk on, you know, risk off, rate cut on, rate cut off market. What if that PCE, right, if it comes in a little cooler, does that then change the inflation narrative? Or as that narrative the last couple of months, has that narrative been reset? I'm glad you asked, because that's kind of where I was about to go, thinking that the personal consumption expenditure deflator, which is the sumer price inflation rate that gets more weight in terms of monetary policymaking, may very well be more like 0.3 rather than 0.4. I know we're talking about minute little changes here.

But as Barbara said, we did have a disappointment in March following disappointments in January and February. The PCED inflation rate gives a little less weight to hospital inflation, which got somewhat hot in March. The other thing that's really weird in the CPI is the health insurance component, and it rose very sharply after declining very sharply. It's a very volatile series, and it has no relationship whatsoever to the health insurance number in the CPI. The other thing I would point out is that there's really a lot of this inflation problem in the so-called super core services cpi area is in fact auto related we're seeing that auto insurance is continuing to go up very quickly and that's

because repairs repairing cars has gone up a lot uh this has been going on for a while i think at some point here they're gonna cool off as we see auto prices cool off. Yeah, the health insurance stuff, by the way, probably a lot of very personal stories about that. Some, yeah, that the costs are just out of control in many cases. That aside, Barbara, moving back to sort of the markets, is it possible or what camp are you in? I mean, I tweeted out last night, nobody cares.

I don't think we'll get one rate cut this year. What do you think? In terms of rate cuts, I wouldn't be surprised if we did not have any. I mean, I think the market's still expecting that we'll start with one 25-bip cut in July. Then we have the election September. People are thinking even though the Fed is clearly apolitical, they don't want to appear political. So there could be another one after that. I mean, with economy as strong as it is, and you see that with wages and savings still above pre-pandemic and the job openings and even the expansion in the job force, it's hard to see, you know, why the Fed would need to cut. So, I mean, we obviously have the federal debt, we have housing, we have the CRE and this commercial real estate. I mean, everybody's

been watching that very carefully, but about a quarter of their total outstanding loans, which is a trillion, come due this year. And they're going to have to refinance it at much higher levels. So those are the downsides of the interest rates. But the economy is strong. And there's very few signs that we are anywhere near close to a recession or things dropping off a cliff. Yeah, let's take a bright spot, right? Spring is in the air. It's kind of warm out here. There was an eclipse, I'm told. And what about earnings? OK, a lot of talk about inflation prints. I get it. The Fed rate cuts, whatever. But is there maybe earnings, actual corporate earnings will come in strong because of what Barbara just said and reverse the thinking? I think that's true. I think there's two things that can reverse the thinking.

One is we just discussed the personal consumption expenditure deflator later this month is not likely to be as hot as the CPI. And right ahead of us is earnings seasons. I don't think the banks are going to be writing off as much for possible loan losses, so-called loan loss provisions. And if that's the case, then the bank earnings should start off the season with a bang, and the banks could be relatively strong. And we're talking about the large banks, of course, reporting this week.

Beyond that, it was a strong first quarter. As a result of that, earnings should be very good across the board to a large extent. Could be a bright spot. Even if the Fed doesn't cut rates, maybe earnings can make up some of that gap. Great discussion. An important day. Ed Yardeni, Barbara Duran, thank you both very much. Thank you.

All right, time now to bring in senior markets commentator Michael Santoli with a look at the momentum trade, because we did have a little bit, by the way, at the end of the day, the last couple of hours. Yeah, market did actually catch a little bit of a bit, Brian, last, let's say, half hour especially. The momentum trade has been actually a conspicuous feature of this rally since late last year, meaning the highest momentum stocks, those that are in something like this S&P momentum ETF, just completely took flight relative to the S&P 500 itself right around the turn of the year. So that's when the AI trade got another kind of jolt

higher. You also had earnings revisions in the best companies in each sector really were rewarded with a lot of stock price momentum as well. So what's happened here since this little spurt higher, I find interesting. That was on March 7th. What happened on March 7th? Fed Chair Powell in the Senate said we're not far from the point where inflation is going to let us cut rates. The next day, March 8th, very reassuring Goldilocks jobs report. That was the maximum moment of, hey, we got everything we want in place. And the momentum trade sort of peaked. Now, here's the momentum trade plus the S&P since that moment. And you've had some giveback. That's probably a healthy thing. It had the makings of an unstable situation. The highest momentum stocks like the NVIDIAs and

the Super Micros, even things like Costco and Eli Lilly were just way over their skis. That has sort of come back into line. And what's interesting is today, that was the part of the market that managed to hang in there, NVIDIA especially, as well as Lilly, because they've already somewhat come off the boil, Brian. Is it all about the Fed or is there anything else happening under the market hood? Mostly about the Fed as catalysts, really bond yields as catalysts. And then I think you add this kind of technical spy versus spy stuff where the market was trying to hold a very particular line of support all day. S&P 5150, it did in the end pretty much hold it, but it's a close call. You actually have another 1 percent down from there. It's a 50 day average.

So at this point, I do think you have a lot of clustered exposures in this particular area that we're fighting it out all day. And I think there's very much a wait and see as to whether a 2% decline off record highs is enough to kind of account for a lot of the sort of cloudier outlook that we have on policy at this point. You said the number's 51-50? Yeah, 51-50 on the S&P is the one that was hanging in there all day. Sounds like investors want the best of both worlds. Yeah, there you go. Michael Santoli, thank you very much.

See what I did there, folks? All right, coming up, navigating the inflation situation. What does today's print mean for the Fed's next move? We'll discuss Renaissance macros. Neil Dunham, right after the break. All right, welcome back. Let's get a health check on NVIDIA, probably the most important or at least one of stocks in the world. It was a bright spot today, an otherwise downed tape, maybe the stock being seen as a haven.

You also had some positive analyst chatter surrounding the chipmaker today. Bank of America saying kind of ignore the noise about competing AI chips from Google on Morgan Stanley, raising their price target on NVIDIA to 1,000. NVIDIA ending the day up just under 2%. All right, let's talk about today's action. It was all about inflation, right? It was all about the Fed. Inflation running hot again.

And now some, or maybe all, of the expected rate cuts may be delayed or even off the table. Let's talk about it all with Neil Dutta of Renaissance Macro Research. Neil, good to have you on. Zero, one, two, three, four. What's your take on rate cuts this year? I still think the Fed's cutting rates this year. I think they probably start in July as opposed to June. So in that respect, I think all today's unfortunate inflation report

does is push the Fed off by a month. You know, ultimately, we had three really bad months of underlying inflation to start the year. We're going to need that many to kind of undo the damage, right? So I think that means the earliest the Fed can go is July. And I think, you know, two is probably a reasonable baseline, you know, for the year. Well, to quote the poet philosopher Forrest Gump, I'm not a smart man. But here's my thing, Neil, which is, why are we even talking about rate cuts when inflation is reaccelerating? Inflation is going up, not down in the medium term. Yes, it's down from 21 and 22. Why are we even talking about rate cuts?

Well, you know, ultimately, I think it's taking the totality of the data, Brian. You know, the Fed doesn't want to overstay its welcome with rate weights either. And so I think that's important to keep in the back of your mind. You know, at the end of the day, the unemployment rate is up a little bit from where it was last year. And core inflation has declined. You know, that's you put that into a standard kind of policy rule type of equation. And it would suggest that the rates should come down. Not a lot, not right away,

but they should come down. And I think that's just important to keep in mind. But is there, Neil, OK, I hear your points. And again, we'll get this PC number. Maybe it'll be cool. Then suddenly we talk about, once again, how many rate cuts there's going to be. If there going to be a day where I don't talk about the Federal Reserve, I might just retire. It'd be the best day of my life. That said, if we get your rate cuts, let's say it happens. Could that then reaccelerate the economy and add to the inflationary forces? Well, that's always a possibility.

But again, I mean, the Fed believe I mean mean, ultimately, Brian, it all comes down to the trajectory of inflation. If inflation continues to come in bad like it did today, then the Fed won't be cutting at all this year. But at that point, you probably have to worry about what inflation is doing to consumption and what that in turn will do for corporate earnings. I mean, that's a separate discussion. But ultimately, the inflation dynamics are going to dictate the timing of the Fed's moves. And so, you know, I think if inflation improves between now and the summer, then the Fed will cut, as they should. If it doesn't, then they won't. So I do think that that's just important to keep in mind. I mean, there's, you know, the Fed's not cutting right

now. And, you know, as you mentioned, the inflation data are bad. But no, I don't think the I don't think rate cuts in July are going to reaccelerate inflation right away. I mean, there's still a pipeline of disinflation across a number of key areas, you know, in the in the CPI and PC data that are still in front of us. So I don't think the relationship is as linear as you're making it out to be. OK, fair enough. That's why that's why you're here to correct me when I when I say that's why I'm sitting on this side of the desk, Neil. But let me ask you outside of inflation on a serious tone. We know there's been a lot of talk about Iran and Israel, potential retaliation, Middle East reheating up. Obviously, some of that Russia, Ukraine goes into the inflation story.

But there's there's got to be a Neil Dutta's mind, this this geopolitical risk premia somewhere, does there not outside of U.S. inflation and U.S. used car prices? Well, absolutely. I mean, Brian, I think the biggest risk to the economy always are when there's some kind of, you kind of supply shock that drives up prices and simultaneously you have a hawked up Fed. This is why the biggest recession fear period in recent memory was in the middle of 2022, right? I mean, because you had the Russian invasion of Ukraine driving up food and energy costs, and you also had the Fed going 75 basis points a meeting at that time.

So yeah, it's certainly something that people need to be cognizant of. If you continue to see rising oil prices, that's going to translate into weaker disposable income and it may push up household inflation expectations, which would then in turn keep the Fed from easing policy, which the markets continue to expect. All else equal, that would represent a tightening of financial market conditions and weigh ultimately on economic growth. Yeah. Do you think the Fed is looking at that? I mean, they've got to have in the back of their mind.

They're all smart people. I know they're watching it personally. But do you think these are things and we can read the minutes and find out, I guess. But do you think these are things that they've just got to keep kind of plugged in in the back of their mind? Well, I don't think the Fed's forecasting these things, but I know they've got to have it like if this, then that. You have to react to events as they're unfolding. I mean, that is absolutely true. So, you know, these geopolitical concerns, I mean, you have to kind of take these things as they come to you. And, you know, in my mind, I think it kind of, you know, you have to weigh the risk of higher inflation expectations,

but also you have to weigh that against the fact that it would pinch disposable income. So in some respects, the higher oil price may push up prices for oil, but it could push down prices for a whole host of other areas because people would be cutting back their spending in those areas. Neil Dutta, Renaissance Macro. Great, smart discussion as always, Neil. Thank you very much. Thank you, Brian. All right, you're welcome. We got a news alert right now out of the pharmaceutical space. Contessa Brewer is here with that. It's good to see you there, Brian.

So it's official. Alpine Immune Sciences is being acquired at $65 a share for a total of $4.9 billion by Vertex Pharmaceuticals. The trading on Alpine has been halted now, but it ended the day higher by 20% because it had been floated that it might be the target for acquisition here. And, yeah, it's official now. Vertex is buying it. They want it for the potential to benefit patients who have autoimmune diseases of the kidney. And they say it fits very well with the portfolio.

So right now you've got Vertex Pharma down in the after hours trading. But, again, Alpine ended the day higher by 20 bucks. And they think that this deal will close later this quarter at $65 a share. All right. Watching both those names, particularly Alpine. Contessa, we'll see in a few minutes, by the way, back on shows such as this one. Contessa, thank you. OK.

All right. Up next, an EV sales surge. Sort of. Well, some car companies are struggling with EVs. It looks like there's at least one traditional automaker who's bucking that trend. The name and what it might say about the broader space, next. Bank of America, Jefferies, Piper Sandler, all cutting their price targets today on Tesla. This follows a number of other firms slashing their targets after the electric vehicle maker missed first quarter delivery expectations earlier this month.

But a company known as Bavarian Motovux, BMW, posting a jump in EVs in the first quarter, up 28% from a year ago. The not as good news, the percent of battery electrics BMW's selling actually declined from 18% of sales to 14%. But still, more people are buying them. Let's talk about it all. Joining us now is Full Cycle managing partner and early Tesla investor Ibrahim Al-Husseini. Full Cycle invests in climate-critical infrastructure technology. Ibrahim, good to have you on. Topic close to my heart.

We talk about it a lot. What's your takeaway on BMW? What's your takeaway on Tesla? And maybe what's your takeaway on the industry at large? Nice to be here, Ryan, and thank you for having me. So first of all, we've all heard Tesla's core business declined. And, you know, we can look at all their revenue streams. One thing I want to point to that is

important that BMW doesn't have, which is regulatory environmental credits. Tesla generated almost two billion dollars in these credits last year and from 2009 to today generated about nine billion dollars worth of these credits. Here's why this is critically important to consider. Because as you look at investments ahead, environmental credits are going to be huge as we try to grapple with the multi-trillion dollar industry of climate change. And even though BMW increased sales, their mix of electric and gas-powered cars does not allow them to issue environmental credits. They actually buy carbon credits to offset their scope one and two emissions,

which I commend them for and many corporations are following suit. But Tesla credits eventually will diminish as the tilt of other auto manufacturers, the mix of cars tilts more in favor of electric. And that's not going to happen for a while. So that's good news for Tesla. And it's a high margin part of their business as they obviously discount their cars and have a hard time moving past the early adopter industry, which I think also has to do with the fact that a lot of cars are struggling to reach the price threshold that the Inflation Reduction Act credits give

them. Because as you know, the federal government issued $7,500 credits for new cars, $4,000 for the credits for used cars. But the cars have to be under $55,000 for a regular car and $80,000 for an SUV. And electric vehicles are just, most of them are too expensive to even benefit from that. So that's why the industry is slowing down a bit. Yeah, that moat on the credits is a powerful one to your point. And your point on cost, by the way, is also well taken. And given all of what you just said, how does the environment, the EV environment look a year, five years from now? It's a great question. So something

interesting that happened, I don't know if you drive a Tesla, I drive a Tesla. Mercedes claims that their self-driving software is the best. I can't verify it. I haven't tried it. But all of us Tesla owners got the over-the-air download of Tesla's self-driving features last week. I downloaded it. I use it daily. Plenty of room for development, for improvement. It drives like my 97-year-old grandpa. But you want it to be safe, secure, conservative. Now, the $200 a month subscription is what interests me. Because how many people are going to adopt the $200 a month subscription is what interests me, because how many people are going to adopt the $200 a month add-on for this service? I'm not yet convinced that it's worth it. But if enough people adopt it and these over-the-air add-ons become part of the offering

for all auto manufacturers, EVs, not EVs, it might change the economics for the entire auto industry. I mean, Stellantis, Ford, GM, they're going to generate $20 billion annually from software services by 2023. FSD, full self-driving, FSD, it's like a cult. I mean, there's people proselytizing and saying it's the future of driving. You're saying it's good, but we got to get a little further. I mean, some people say that last mile is still not there. A lot of very vocal critics of it. If it works perfectly and nothing's perfect, if it works well enough for everybody that tries it to just love it, what

does that mean then for Tesla? Because I've often argued, I'm a car guy. OK, I've owned an EV, not a Tesla. I'm a car guy. And I would say and I've said this, people don't want EVs. They want Teslas. They are very different things. So this is this is how I see it. And I'm you know, I'm a net buyer of Tesla shares at a certain price. It hasn't fallen to that level yet. And the reason why is because they're so ahead in training their AI engine using all of us who drive Teslas. Because all of that data goes into their back-end AI engine. And if they continue to advance and have such a large moat and are so far ahead of all their competitors, who knows? Maybe they provide self-driving back-end software to all auto manufacturers, just like their charger is now the industry standard.

And that's a whole other revenue beyond this idea of self-driving taxis, turn your car into a robotic taxi. I'm not a, I don't see that being, you know, coming to fruition anytime soon, even though I was behind a Waymo the other day that had no driver in it, and that was kind of fun. Yeah, big deal. I'd love to give it a shot. By the way, happy to pop in anybody's car if they would let, like, a random tall TV news anchor jump in with them. Ibrahim Al-Husseini, a full cycle.

Appreciate it. Good combo. Thank you. Thanks, Brian. All right, let's get a CBC News update. With that, Julia Borsten. Brian, numerous police officers have responded to a shooting incident during a large Ramadan event in West Philadelphia earlier this afternoon. Police officers did not go into further detail. A local mosque was holding the event in celebration for Eid al-Fitr, marking the end of the Muslim holy month of Ramadan. The incident was also located near an elementary school, though classes were not in session. Prosecutors have asked to delay New Jersey Senator Bob Menendez's bribery trial until July or August. The request comes after

lawyers for the senator's wife, Nadine Menendez, notified the court yesterday that she required surgery for a serious medical condition and asked if she could be tried separately at a later date. The judge on the case has scheduled a conference for Thursday. And fresh off the heels of Barbie land, Margot Robbie has her sights on Monopoly. Robbie and her production company Lucky Chap will produce a live action film based on the iconic real estate board game with Lionsgate and Hasbro. The announcement was made today at the CinemaCon conference in Las Vegas. I, for one, will be very curious to see how that movie turns out.

Well, you know the city Monopoly was based on? Atlantic City. A lot of people don't realize that. You go to Atlantic City, you're like, wait know the city Monopoly was based on. Atlantic City. A lot of people don't realize that. You go to Atlantic City, you're like, wait a minute, there's Baltic, there's Mediterranean, and there's a hotel on Park. It's amazing. Park Place, there you go.

Maybe we'll give a little juice to Atlantic City. You could use it. Julia, thank you. All right, on deck. Rates up, and one big group of stocks getting trashed today. That story ahead. But first, we're heading out to Colorado, where Morgan Brennan is at the Space Symposium. And I'm told you've got a special guest, but have you ever had an unspecial guest, just like a completely average regular guest? No.

Especially when you talk about space, right, Brian? Listen, coming up after this break, the billionaire who literally helped America return to the moon. I sat down with him. We're going to dig into what it is to invest in space and the multi-trillion with a T opportunity that he sees in this emerging space economy. Stay with me. All right, welcome back to Overtime, everybody. Let's send it back out to Morgan Brennan at the Space Symposium in Colorado. Because when I think of space, I think of Colorado Springs. I think of the Air Force. Exactly.

You've got the Air Force here. You've got a big Space Force presence here, lots of military and lots of commercial companies. This is one of the biggest space conferences of the year, Brian. I've been speaking with executives from a number of companies all day long, including just a short while ago the billionaire who, as Forbes recently put it, has helped NASA and the U.S. return to the moon. Cam Gaffarian. Now, Gaffarian is the co-founder of a number of space companies, Intuitive Machines, publicly

traded, which recently made history with its lunar lander, Axiom Space, which is now regularly sending private astronauts to the ISS and building its own commercial space station, X-Energy, which makes nuclear reactors, Quantum Space, which is focused on deep space commerce, and his investment firm, IBX, which is really at the epicenter of all of it. I asked him how he sees the space economy materializing. I think the space economy is just growing. The whole ecosystem is growing in a massive way. And I think what's happening also with AI and quantum computing is accelerating it. So not only you know we're making a

difference for everybody on earth with stuff that we're doing in Leo and beyond but also we're pushing the envelope in human exploration of you know other other planets and hopefully other stars. I just wonder if you think, especially as an investor yourself, if more broadly investors, particularly in the public markets, fully appreciate or understand how far we've come in the space economy and how close we are to some of these key milestones that maybe just a couple of years ago were seen as more sci-fi becoming real. I don't think they quite do appreciate it

and but but it's very normal and what i mean by that is think about uh search engines and early days of search engines did investors appreciate uh you know investing no it was very difficult if you think of early days of amazon for years the investors didn't quite appreciate that. Early days of airlines or even Tesla or Apple, right? So when you do things that are new, right, and it's a new ecosystem and something that, you know, is just beginning, it's normal for poor people to not don't quite appreciate it. How much do you think it can grow? Do you have like a number in your head or no? Things that you can do in microgravity, like bioprinting, printing corneas and retinas,

or a revolution in pharmaceuticals, or manufacturing fiber optics, right, that can carry infrared signals that you cannot create on Earth. I mean, that by itself, it's going to be a huge market. When I sort of think about like SpaceX, great company. We are one of their largest customers overall, my portfolio companies. But it's an awesome company and what they've done in terms of revolutionized transportation to space. But Starlink has created this incredible economic growth for the company.

So sometimes it's not the early things that you do, it's sort of tangential stuff that develops as a result of the early things you've done. So speaking of SpaceX, I mean, we know Elon Musk is very focused on ultimately getting to Mars. Jeff Bezos with Blue Origin focused on the moon, focused on low Earth orbit and sort of saving planet Earth from heavy industry and some of these manufacturing processes, etc. For Ghaffarian, he's focused on interstellar exploration and travel. So travel to other stars.

This is a very long lead time and process, but he sort of sees all of these different steps, low Earth orbit and the commercialization we've seen there, the lunar economy that's now developing, all of the infrastructure for deep space exploration and beyond as these stepping stones, these blocks that have to come together into this bigger puzzle to actually realize that vision, which of course we know will probably be several generations out. Interstellar travel. I doubt I'll be here to see it, but I wish I was because the thought would just be so cool. It's just so big. The distance is so great. My mind is blown. Morgan Brennan, thank you. We'll see you again, I'm sure.

Enjoy Colorado. Tell Harriet I said hello. Coming up, housing stocks getting slammed in today's sell-off with real estate leading the leading sector, leading the losses, he said. We're going to discuss how you, the investor, should be navigating this space and the stocks that could be ripe for an opportunity in the months ahead. That's after this break when Overtime returns.

Welcome back to Overtime. Another tough day for your money. Market now down seven of eight sessions, at least for the Dow. It's all about inflation today, which is picking back up again. And that is sending the idea of a few rate cuts this year, potentially down the drain. That also hit the housing stocks. Joining us now is Zellman & Associates Managing Director Alan Ratner. Alan, welcome. Don't want to make too much of one day. I get it. The market knee jerk reaction, you know, rates maybe up, housing stocks down. Is it an overreaction? Hey, Brian, thanks for having me. I don't think it's an overreaction. I think it's a combination of the fact that this group has had

a really strong run through 23 as the market was much stronger than anybody would have expected. So you had these stocks trading in the 90th percentile of where they've historically traded at on a price toto-book basis, right around two times book, combined with a very significant one-day move in rates. I'm not surprised to see a bit of profit taking. We also are a bit concerned about upcoming earnings season. We've seen a little bit of a stall in order momentum here in the spring selling season. So I think that this is a welcome breather in the spring selling season. So I think that this is a welcome breather in the stocks right now. What we hear, and you're right, they have had a heck of a run.

What we hear is that they should be less sensitive because they have more control. They can offer incentives to buyer. They can change financing terms. Whereas somebody buys a home that already exists, they've got to go to a bank and just take out whatever the bank is offering. How much of an interest rate advantage, if any, do these housing companies really have? That's spot on. The builders performed extremely well in 23, even as rates were increasing, because they were able to buy down consumers' mortgage rates down to levels in the fives. And they're still doing that today.

So today's moving rates, while mortgages certainly moved higher, the new home buyer that's out there is still seeing a rate offered in the low sixes, maybe even high fives in certain markets. So it's a real competitive advantage they have over the resale market. Yeah, it really is. And let's go through some of the names that you like. Listen, Toll Brothers and Lenar, they tend to get most of the attention. I know you like them because they tend to be on the higher end. But names that you like. Listen, Toll Brothers and Lenar, they tend to get most of the attention. I know you like them because they tend to be on the higher end. But there's names like Ameritage, Abysser. They're more regional. They're smaller. What sets them apart?

They're also cheaper. You know, on a price to book basis, they're trading at multiple significantly below the large cap companies. Ameritage, as an example, they're a builder that focuses on the entry level segment. They're an all spec builder. So they really compete well with the resale market, which is still tight, even though inventories have been rising. But this is a company that has been taking market share. They build in high growth markets and they got punished, we think somewhat unfairly after their fourth quarter earnings release when guidance was a little bit lighter than perhaps the street was expecting. But we think longer term, this is a company that's going to continue to take market share. And then Beezer is really the only home building stock trading below book value right now, which we think is an unjustified discount. Historically, there were some liquidity concerns, but they've done a good

job of shoring up the balance sheet. So we think that the downside is more protected there. Why? Why has the market given old Beezer any respect? Well, it's a small cap stock, fairly thinly traded. But I think a lot of it is based on some historical events that, you know, they struggled coming out of the Great Recession. They were highly leveraged. So a lot of investors have that kind of still that you still in there. There will be a mirror. But they really have done a good job of turning the balance sheet around here.

So I don't think they've been properly rewarded for the improvement they've made there. Good stuff. Alan Radner, Zellman Associates. Alan, appreciate it. Thank you. All right. Up next, Michael Santoli heading back to the dashboard of the deeper dive on how some consumer cyclical stocks are faring and what groups and what it might say about investor sentiment overall. Going back to Santoli next. All right, we got an overtime mover for you in a big way.

That is Alpine Immune Sciences. The stock was halted. It got bought. The stock is now trading. It is up 36% on the news Contessa brought to you earlier, which is Vertex Pharmaceuticals buying Alpine Immune for $4.9 billion. If you own Alpine Immune, go out to dinner tonight and celebrate. Do not skimp on the appetizers.

Switching gears, Michael Santoli back with his dashboard. Mike, what are you looking at? Yeah, Brian, so this general view of a strong U.S. economy with pricing power and an upswing in earnings hasn't been applied equally to all cyclical sectors, at least not recently. Here's industrials, equal weighted industrials. That's right here. Very strong on a one year basis, outperforming the S&P by a little bit. That's equal weighted consumer discretionary. So you do equal weighted so it doesn't really get swayed too much by Amazon and Tesla. And you see that's really kind of flagged recently. As

recently as January, they were all sort of in parity here. And you've seen really some heavier action in the consumer cycles, indicating that maybe the consumer, at least segments of the consumer, are spent up. You obviously have the pressures from higher rates on borrowing and things like that. So that's at least something to keep an eye on. And this is still a correction and an uptrend, but you want to be aware. Whereas the production side of the economy is just humming. Infrastructure, obviously data center construction, anything related to that seems to be carrying industrials much higher. Now, take a look at regional banks. This is obviously another wounded sector, one that was attempting a comeback.

This is the KRE ETF, along with its 200-day moving average, which was just starting to perk up. You got about 1% or 2% further downside before it gets to that trend line. So we'll see. It's again, it's not something that means game over, but it suggests that the pressure remains on from higher yields and lower bond prices for the regionals. I think we've learned that when we get a move in rates or an expected move in rates, we just talked about housing. They get whacked. The regional banks, they get whacked. And the small caps as a whole, just not just banks or housing, small caps as a whole tend to get whacked. A lot of these groups are very interest rate sensitive, or at least they're perceived to be. Yeah, there are more consumers of capital and there are consumers

of capital at somewhat higher rates. A lot of them are bank borrowers. Remember, you know, if you're if you're borrowing from the bank, it's going to be based on, you know, the prime rate, let's say, which is based on the Fed funds rate. It's not about where, you know, market-based yields are in terms of corporate debt. So that's one of the reasons for it. It just seems like a stingier economy with less to go around if, in fact, yields are higher for inflationary reasons as opposed to pure growth reasons. I'll just make one more point, though. At one point, we thought 3 percent 10-year yields were going to be a problem.

Then we thought 3.5. Then we thought 4. You can make your peace with incrementally higher yields under the right circumstances. Michael Santoli, as always, thank you. All right. In the meantime, some of the most eye-popping inflation numbers may be coming from an area you have not heard much about today. It is not housing. It is not health care. It is coming up after the break. All right, we got an overtime mover for you in a big way. That is Alpine Immune Sciences.

The stock was halted. It got bought. The stock is now trading. It is up 36% on the news Contessa brought to you earlier, which is Vertex Pharmaceuticals buying Alpine Immune for $4.9 billion. If you own Alpine Immune, go out to dinner tonight and celebrate. Do not skimp on the appetizers. Switching gears, Michael Santoli back with his dashboard. Mike, what are you looking at?

Yeah, Brian, so this general view of a strong U.S. economy with pricing power and an upswing in earnings hasn't been applied equally to all cyclical sectors, at least not recently. Here's industrials, equal weighted industrials. That's right here. Very strong on a one year basis, outperforming the S&P by a little bit. That's equal weighted consumer discretionary. So you do equal weighted so it doesn't really get swayed too much by Amazon and Tesla. And you see that's really kind of flagged recently. As recently as January, they were all sort of in parity here. And you've seen really some heavier action in the consumer cycles,

indicating that maybe the consumer, at least segments of the consumer, are spent up. You obviously have the pressures from higher rates on borrowing and things like that. So that's at least something to keep an eye on. And this is still a correction and an uptrend, but you want to be aware. Whereas the production side of the economy is just humming. Infrastructure, obviously data center construction, anything related to that seems to be carrying industrials much higher.

Now take a look at regional banks. This is obviously another wounded sector, one that was attempting a comeback. This is the KRE ETF, along with its 200-day moving average, which was just starting to perk up. You got about 1% or 2% further downside before it gets to that trend line. So we'll see. Again, it's not something that means game over, but it suggests that the pressure remains on from higher yields and lower bond prices for the regionals.

Brian. I think we've learned that when we get a move in rates or an expected move in rates, we just talked about housing, they get whacked. The regional banks, they get whacked. And the small caps as a whole, just not just banks or housing, small caps as a whole tend to get whacked. A lot of these groups are very interest rate sensitive, or at least they're perceived to be. Yeah, there are more consumers of capital and there are consumers of capital at somewhat higher rates. A lot of them are bank borrowers. Remember, you know, if you're if you're borrowing from the bank, it's going to be based on, you know, the prime rate, let's say, which is based on the Fed funds rate. It's not about where, you know, market based yields are in terms of corporate debt. So that's one of the reasons for it. It just seems like a stingier economy with

less to go around if, in fact, yields are higher for inflationary reasons as opposed to pure growth reasons. I'll just make one more point, though. At one point, we thought 3 percent 10-year yields were going to be a problem. Then we thought 3.5. Then we thought 4. You can make your peace with incrementally higher yields under the right circumstances. Michael Santoli, as always, thank you. All right. In the meantime, some of the most eye-popping inflation numbers may be coming from an area you have not heard much about today. It is not housing. It is not health care.

It is coming up after the break. All right. Some of the most brutal inflation numbers in this morning's report coming from insurance, home and auto insurance spiking for millions of Americans. And many of you are probably asking why. Contessa Brewer follows the insurance industry and joins us now. It's a big story. You have questions. I have answers. I cover insurance. So I hear it all the time, the shock and the awe when people open the bill for their insurance premiums. They're getting sticker shock, and CPI bears it out. It does not break out home or renter's insurance, but auto insurance up 22.2% over March of last year. And since February alone, prices jumped two point seven percent. So almost seven times higher than the broader inflation reading. Insurers are paying out more on claims, though. Motor vehicle repair. Look at this one. It jumped three point one percent

over the previous month. Car and truck rentals up five point seven percent in a month. But you know who likes higher insurance prices? Investors. While the rest of the market slumped today, look at shares of Progressive. Up, OK, still less than 1%, up a little more than half a percent, but still in the green. Allstate up 0.8%. Travelers up a quarter of a percent. And more broadly, Arch Capital, Hartford, W All, Berkeley all ended the day in the green.

Property insurers, of course, are facing many of the same issues, though higher prices for repair and replacement, a significant challenge with the amount of lawsuits filed and the costs of settlements and verdicts. And then there's the regulators in every state, some of whom have been very slow to approve rate hikes that match what the insurers are paying in loss costs. So the head of the trade group that represents property and casualty insurers told Squawk Box this morning there is a long way to go before there is some kind of parity between what gets spent on claims and what's being brought in on in premium. It's a weird thing because, OK, a lot of people on Twitter X, whatever, they'll say, well, the insurance companies, the stocks are soaring, they're printing money.

And some are mostly in the car side, progressive. Their stocks are up. But at the same time, State Farm and a bunch of other home insurers are getting their credit ratings cut. The insurance industry as a whole has seen their credit ratings downgraded. And part of that is because climate risk is volatile and unpredictable. A hundred billion dollars in insured losses last year. It's the fourth year in a row that that's happened. And half of that was from thunderstorms in the United States. That is just very difficult even to model that kind of

insured losses based on thunderstorms and hail and things like that. They're all covered perils. And they didn't reach a level any single event where reinsurance would have kicked in. So that's, for one thing, climate change. For the second thing, the regulatory risk and the litigation. Those are real expenses. But the other thing is, for years, they have not been bringing in the premiums that matched what they've been paying.

And so this is lagging. They've been losing money. And what we're going to see, yes, but while they've been making money, Chubb had a record year last year. State Farm losing billions. Allstate, which is publicly traded, has had a really tough year because of what they've been paying out. But the trend is that the rates are going higher and a lot of the insurers, I'm going to use Chubb as an example, it has managed its risk differently. So it's not so exposed. It has invested differently and it's

making a lot of money on its investments. And that's why those insurance stocks are still going up. Plus, and the investors think we're in an upward trajectory with rates. This is going high. Well, and it's an important thing for people to understand. They just assume that Chubb is making all this money because they're, you know, I was going to. Anyway, you get what I was about ready to say. You know, fleecing, kind of trying to find a family friendly word. But what they're doing is that they're getting out of riskier areas.

Right. I grew up in Southern California. OK, and there's a hill behind me that used to burn every three years. It caught on fire every three years. Just catch on fire. Now there's homes. The whole hill is houses. And some of them very expensive houses. Yes. It's California. Million plus. I'm like every three years that hill used to catch on fire. And now what happens is you either have to go to the state insurer of last resort and pay a lot of money for not enough coverage,

or you go to an excess and surplus line, which Chubb still offers, but you're going to pay through the nose for it. Pay through the nose. And car repairs are out of control. There's a lot more to talk about, but we're out of time. On last call, what's your favorite show on this network? Last Call, clearly. That's it.

I get, there's consequences if you don't answer in the right way. Somebody clip that. We've got a big show. Tom Lee, ask about rate cuts, ask about small caps. I'll see you. We're on overtime. That's it. I'm going to see you in two hours.

I'll see you here tomorrow. Not a Melissa and her unruly crew on Fast Money.