Closing Bell - Closing Bell Overtime: What To Make Of The Fed’s Hawkish Pause; What To Make Of CAVA’s IPO 6/14/23

Episode Date: June 14, 2023

Stocks rebounded during Fed Chair Jay Powell’s press conference after falling on the news of the Fed’s “hawkish pause.” Jefferies’ David Zervos breaks down the market action. Former CEA Chair Jason Furman and Former Fed Governor Frederic Mishkin discuss the Fed’s path forward and if a “soft landing” is still possible. Evercore’s Mark Mahaney talks new EU tech regulation and what the Fed’s latest moves mean for tech stocks. GTIS Partners’ Tom Shaprio reacts to Lennar earnings and why the homebuilder sector is still strong. Our Leslie Picker on CAVA’s pricing ahead of tomorrow’s IPO. Eventbrite CEO Julia Hartz talks the state of spending on experiences going into the summer. UBS Global Wealth Management’s Jason Draho on where big money is positioned.

A hawkish pause by the Fed, sending the S&P on a roller coaster round-trip ride back to the flat line. Looks like we're closing just above the flat line. That's the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan at CNBC headquarters. And I'm John Fort in San Francisco. Coming up this hour, first reaction to the Fed. We're going to hear from former federal governor Frederick Mishkin and former Council of Economic Advisers Chair Jason Furman on their reads, on Chair Powell's comments, and if they think there are indeed more hikes in the cards. Plus, we are awaiting breaking earnings from homebuilder Lenar this hour, and we're also on watch for Caba's IPO pricing ahead of tomorrow's public market debut.

But first, market reaction to the Fed's hawkish pause, which sent the averages lower initially also on watch for Caba's IPO pricing ahead of tomorrow's public market debut. But first, market reaction to the Fed's hawkish pause, which sent the averages lower initially before a rebound during Chair Powell's press conference. Joining us now is Jeffries' chief market strategist, David Zervos. David, always great to have you on a day like today. I mean, the fact that the S&P ended at 43.72, basically flat with where we started the day, even as we did see Treasury yields jump higher in the midst of all of the commentary from Powell. Your takeaway? Yeah, Morgan, we got a power flattener. The front end was definitely under pressure. And then it seemed to come back to just a moderate flattener. So I think that's the story in rates. And of all lower, equity is unchanged. Jay really delivering, I think that's the story in rates. And we're all lower. Equity is unchanged.

Jay really delivering, I think, the message that most people thought he was going to deliver. I think some people might have held out hope for a little bit more dovishness, a little bit more kind of, hey, we got this inflation under control. But that's not what he said. He basically did a little self-deprecating, to be honest with you. He said, look, we don't we're not really good at forecasting inflation. We messed it up before. And that's why we're a little worried. That's why we think we've got to have some insurance out there that we go again. And I think that kept a little cap on the market. Yeah. Even though the pause is nice. Yeah. And I think that sort of it came up quite a bit, actually, in the press conference, this idea of why pause if so hawkish and so concerned about the stickiness of inflation. Yeah, I think that's right. I think the folks that were questioning him were like, well, look,

you know, you've done a good job. Why not kind of declare victory? And I think he's just he's scared of what's happened in the last year or year and a half with inflation. And rightfully so. We've had a spike to 9.1 percent. We're down all the way, 510 basis points to 4 percent in CPI now. It's good news. But, you know, Morgan, I think one of the more interesting nuances of all of this was Jay talking more about how difficult it might be to get inflation, core inflation, down to where they want it to by the end of the year. And I think that keeps these rate hikes a lot more alive than people think. I mean, we've got to go from four and a half core PCE to three point nine. And we've been trending the other way for a couple of months. So and and upgraded the strength of the economy.

Right. So the markets, it's kind of hard to say you want to you want to sort of call this the permapause. I think that's a really hard one to get. Yeah, I mean, to go off of that, David, it's tempting often to think that the reaction in the two hours, you know, after we get the decision is the reaction. But sometimes it takes longer to play out. And I can't help but notice the KRE regional banks index closed near the lows, down almost 3%. Does that perhaps indicate that there are some like you who think, yeah, hikes will continue and the pressure is still on? Well, I don't look at I don't claim to be any better at forecasting inflation than anybody else.

I think we're all awful at it. But what I think Jay did tell you is that the likely the most likely path is that it's going to be a little trickier to get this inflation down. And even if we go 60 basis points lower in core inflation, they're still hiking twice. So we might have to go 120 basis points lower in core inflation by the end of the year for them to pause. I don't I'm not John, I'm not sure the market really appreciated what he was saying. We need to see low threes on core just for them to pause. I think that's an interesting, slightly more hawkish take on what is necessary here. That said, it's a positive upgrade to the economy. They're talking about

a softer land. And I think the market's going to weigh off both of us. David, stay with us. Let's bring in CNBC senior economics reporter Steve Leisman, who is in the room for Chair Powell's remarks. Steve? Hey, John. Yeah, I think it all comes down to one simple question. Do you believe the Fed forecast for two more rate hikes or don't you? That is, are you feeling lucky? Fed Chair Jay Powell made clear the rate-sending open market committee is serious about bringing down inflation and so may well be serious about raising interest rates. From the SEP, the committee is completely unified in the need to get inflation down to 2%

and will do whatever it takes to get it down to 2% over time. That is our plan. And, you know, we understand that allowing inflation to get entrenched in the U.S. economy is the thing that we cannot allow to happen. In response to my question, Powell said inflation risks are still to the upside. Here's the forecast causing all the excitement. By the way, Jeff Gundlach in the last hour said he thought the Fed was done because the inflation data will decline sharply. Here's what happened. They raised by two quarter point rate hikes, the 2023 forecast, still looking at cuts in 2024, but it's a little bit higher

where they think they're going to be in the next year and in the long run, still two and a half percent. And the thing is the support, the widespread support for these rate hikes. Four members said they want one more rate hike. Nine or half the committee supports two more hikes. Three members support three. So put it all together and two-thirds of the committee is at two or more. The market giving the Fed a split decision on those. They're embracing the July hike with a 60% probability.

That's where they were this morning. But no contract right now, guys, is currently trading with that second hike priced in. Steve, it's hard for the market, it would seem, to believe we're getting two hikes, like the Fed says, when until recently, didn't the market sort of believe we were getting two cuts? Maybe this year? So Powell was successful in convincing the market that those cuts weren't coming. That was a big development. But I think there's something that maybe some folks are missing out there,

which is that Powell made a distinction between speed and level of rate cuts. He said, what I want to do essentially is slow down the speed, sorry, rate hikes, is slow down the speed, but that doesn't say anything about the level. So he sees the idea of a pause and a hike as just a slower form of rate hikes. And he was very clear when he said that there's a difference between the speed and the level, so they could well go higher, and that explains the pause today, and maybe do it every other meeting the way it was done in 2019. Yeah, David, I mean, it makes me think of the long, long said catchphrase, don't fight the Fed. The fact that you don't have a second hike yet priced into this market. I mean, is this the market fighting the Fed?

You know, Morgan, the market has been fighting the Fed all year, right? We've had, as John was saying, we had two great cuts priced in and Jay tried to talk them out of it. And they didn't really, you know, they didn't really want to listen. And ultimately, you know, Jay turned out to be right and the market still went up. So, you know, I'm kind of OK with the market being a little bit more optimistic on how fast inflation will fall. They've been there pretty much this whole time. And the reality is on the core numbers, they haven't been right. The market hasn't been right.

And the Fed's been right to be a little bit more concerned. But the market shrugged that off. And I think they've shrugged that off because labor markets have stayed strong. The economy, the economic data has been pretty good. And we've got 500 basis points of tightening and this economy is taking it like a champ. And I think we really have to step back, actually, and ask ourselves, how is it that that 500 basis points really didn't transmit itself the way many people would have thought? And, you know, we spent a lot of time in one writing about that at Jeffries and some of the technicalities of the size of balance sheets and the losses on central bank balance sheets being a cushion, a stimulatory cushion

for the market. But I think there's a lot more work to do there. Steve, Steve, it seems to me like a year plus ago, a lot of people in the market were very happy to say the Fed was behind the curve. The Fed got it wrong. Can't believe the Fed. And then it seems like there was a point where things, at least the facts, shifted. And the Fed is pretty close, it seems, to engineering what could be a soft landing. Is this a case where the market could be as wrong now as the Fed was when it was behind the curve? Yeah, I think that's possible. And by the way, kudos to David on that research they did, because the Fed came around, by the way, today in its forecast to realizing it's not getting as

much juice out of the rate hikes that it thought it was. They lowered their unemployment forecast and they raised their inflation forecast as they raised their um uh inflation forecast as well as their uh growth forecast but yeah john just getting back to your question there um the the fed is is gonna essentially stay this course and i think at this point follow the data and i i think they're a little less concerned with where the market is right now. I think a big rally could potentially concern Powell. But right now, I think they're not as concerned with where the market is now. And they don't seem, by the way, very concerned about the banks either, which is pretty interesting. So we'll see where it goes.

But I think I might be a buyer of that first rate hike that's priced in in July. So I don't know if the market's ignoring it at its peril, but certainly the futures market has it priced in. Okay. Steve Leisman, David Zervos, thank you. Now let's turn to CNBC Senior Markets Commentator Mike Santoli, not at the New York Stock Exchange, but he is on the news line. Mike, between what we heard from the Fed and the market action, what caught your attention? Well, John, yes, certainly watching and

listening to the market's implicit message, which I do think registered the slight surprise that the Fed members are seeing the potential for more hikes down the road. Look at the cyclical parts of the market. They did back off today. But there's also, I think, an acknowledgment by Powell and by the rest of the Fed that they're in the zone of where they think they need to end up. And they don't have a tremendous amount of confidence that 25 basis point moves are going to be the difference. And so they have the ability to wait and see. Given the fact that inflation has come down a bit, I think it's worth remembering that where rates are right now at 5%, in a technical way, it becomes more restrictive as inflation goes down. Real rates are restraining

the economy. And the stock market, I think, can be OK with it. My take on the interplay between the stock market and what the Fed was up to this year is that the stock market can live with a Fed that's slowing down and at most is raising rates by a quarter percent every six or seven weeks. It's taking a breath right now. Even if we get the two rate hikes, even in the next two meetings, that's July and September at this point, right? So you're talking about not 75 basis points a meeting that we were talking about last year at this time. We're talking about 50 basis points over a couple of months. And so that's why you can make your peace with it along the way, as well as the fact that it's only going to happen that way

if the Fed feels like the economy is in decent shape and it's tracking according to their more bright forecast. So I think we have to live with this idea that the Fed doesn't know where it's going. So if you say the markets are fighting the Fed, it suggests that the Fed actually has a campaign it's waging right now that it's very convinced about, whereas it's also waiting and seeing and truly data dependent. Yeah. And I think that kind of raises the question, the debate around how much is the dot plot a signal, right, and trying to keep the markets in check and not see financial conditions

ease so much versus an actual deliberate intention to raise rates later this year. And going back to your point about data dependency, Mike, I want to get your thoughts on what Scott Wapner and Bob Pisani were debating and discussing in the last hour. And it's the idea that the S&P is trading at, what, 19 times forward earnings right now. And if you look at where it ended the day, it held up despite some of the hawkish rhetoric we did see coming out of the dot plots and coming out of Powell as well. And what you specifically make of that, especially as tech led the way again. Yeah, there's definitely been, first of all, there's a good momentum in this market. There's an eagerness to participate. That's what got us here. It was also, again, the NASDAQ, the non-cyclical parts of the market that did keep the market flat on the day. There's no

getting around the fact that the market does not screen the market flat on the day. There's no getting around the fact that the market does not screen out as being inexpensive and arguably is relatively overpriced, although earnings should start to grow again by the forecast before very long. I don't think it plays in that directly to what the Fed is up to here. If we think about it, we're still 10 percent below in the S&P, below the all-time highs of a year and a half ago. So to the Fed, the market's not exactly been racing to new heights in a hurry that they have to really chase after it. Now, is the NASDAQ overheated? Absolutely. Are we set up to pull back and maybe take some of the gains back in a relatively short period of time?

I think that would probably make sense almost regardless of what happened with the Fed today. But on the whole, I think it's handling it OK because nothing that happened today made a soft landing less possible. But it keeps us on that treadmill of waiting to see if the economy is going to fall away, and it hasn't yet. Watching and waiting. Love that you're on the road, Mike, but you're still joining us on such a crucial day for market action. Mike Santoli. Always glad to. Thanks, Morgan. After the break, much more reaction to the Fed decision when we're joined by former Fed Governor Frederick Mishkin, who had called for a hike at today's meeting, and former CEA Chair Jason Furman.

Plus is the IPO window reopening. We're going to get a read on investor appetite when COVID prices its offering this afternoon. Overtime is back in two. I don't think the Fed's going to hike again. I think we've got a trend in place here, Scott. It went 25, then 50, then 75 for a while, then 50, then 25, then zero.

I don't know. Maybe I'm just a mathematician or something, but I see a trend here. And I don't think the Fed's going to be raising interest rates again. That was Double Line Capital's Jeffrey Gundlach on Closing Bell last hour, weighing in after Chair Powell's presser. Joining us now is Jason Furman, former White House Council of Economic Advisors chair, along with former Federal Reserve Board Governor Frederick Mishkin. Guys, welcome. Rick, you think the Fed should have hiked today, unlike gun lock, it sounds like, but CPI was cool, PPI was cooler, commercial real estate issues perhaps loom. Why do you think the Fed should have hiked?

I think it's true the CPI has come down a lot, but the core inflation and sticky price inflation has been slower to come down. And the bottom line is the Fed's still a long way away from this 2% target that they've announced. And it's very important that they have credibility to keep inflation at that target. And also the economy is still much stronger than people expected. So on all these levels, my view is that the Fed is going to need to raise rates. And my view is better to do it at this meeting. Why? Because the Fed actually got behind the curve. And when you get behind the curve and inflation goes to very high levels, you really want

to convince people that you're serious about keeping inflation under control that actually affects inflation expectations leads to better performance of the economy so i think it's not unreasonable that the fed decide to pause to wait for some data and i wonder they say the banking sector is all in great shape but but i think there may be some concerns there that just cause it to do pause so you know i tend to think that uh that that um think that it's a judgment call, but I would have judged a little differently. And Jason, it sounds like you also think there's a risk here of the Fed getting behind the curve by not hiking. Is the market, not only not believing that the Fed should have hiked today, but not believing that

the Fed plans to hike a couple more times this year, therefore completely misreading the situation in your view? Yeah, I mean, the market's optimism over and over and over again is just amazing to me. It's just the same mistake over and over and over again. I agree with everything Rick said. I would have made a different judgment today, but I don't think it was terrible what they did. But they very clearly said we're data dependent. They raised their inflation forecast. They lowered their unemployment rate forecast. So what does that mean if you're data dependent? That means you have a higher terminal Fed funds rate. And they did that too by 50 basis points. So I think they couldn't be clearer. Occasionally they miss a beat, but they catch up a month later. And, you know, anyone who thinks otherwise is just going to be unpleasantly surprised.

Rick, I mean, you've been in the room before. You're a former Fed governor. When it comes to the decision-making process, when you see this big upward revision in the dot plots and the fact that there's now so many different officials that everybody seems to think another hike is on the table. But how many hikes? There's a big divergence now. Just want to get your thoughts on that and how to understand it as an investor in terms of messaging and signaling versus how likely it is that we could actually see multiple hikes come to fruition. Dependent, too. And as Jason has pointed out, you know, the numbers are not looking like the Fed doesn't have to raise rates more. I actually thought that the Fed had to raise them to five and a half percent a while ago. And yet, if anything, the economy's been stronger than I expected. So, you know,

I think it's, you know, you'd like to be optimistic and hope that the Fed doesn't have to raise rates. But on the other hand, the data is not actually convincing me that I should have changed my mind. If anything, it's moved me a little bit in the direction of saying that the rate rates have to be even a little higher than I thought previously. Yeah. Jason, I mean, a lot of talk about the labor market as well in the conference. What is it going to take to see actual core inflation, quote unquote, using Powell's word, decisively move down? What is it going to take for us to see that labor market actually loosen up enough to have an impact and do that? Look, I don't know the exact answer to that question.

I think the further down you drive inflation, the harder it gets. We've done the really easy disinflation already. You know, if you've gotten the unemployment rate rose to four and a half percent, which is what the Fed has penciled in, I think that would help get inflation down. I think that'd be very unlikely to get inflation down to 2.0 percent, which the chair said was his goal. Although I'm not positive on that ultimately should be the goal. I think ending up a little bit higher than that might be might be just fine. Rick, there's a lot of action to look forward to where the Fed is concerned, therefore, in the second half of the year. But we're also expecting student loan repayment now to happen. And here on overtime, we had Max Levchin from a

firm say that he's concerned about what that's going to do to consumers' ability to pay for things, including pay back their outstanding debt. What are some, do you agree with that level of concern? And are there other things that you're watching out for in the second half that will kind of flesh out what the challenges might be for the economy and the market? I know that this is a hard one to call, but it's not clear to me that that's going to have a big effect. I do worry much more about the problems that could be in terms of lending and the banking sector. The Fed knows a lot more about that than i do because they actually have examiners were inside the bank seeing exactly what they do and they get the numbers

uh... but that's to be actually the the more of the wild card uh... that i'm that i worry about it you know i discussion about the student loans i don't know to me it might be there but it's not something to convince these convinced me in the important way uh way. Okay. Jason, I do want to get your thoughts on something we haven't talked about very much, but that is what's going on at Treasury as well, and the issuance of debt coming off of this debt

ceiling deal. What kind of role is that going to play in terms of the liquidity piece of the puzzle and in terms of overall tightening? Because there's been a lot of analysis about this, but we haven't actually seen any of it come to fruition and does fit back into this tighter financial conditions picture. Look, the Fed is, the Treasury, I mean, is certainly borrowing at a very rapid pace to, you know, get their cash flow back to where it was. I'm a little bit less concerned about liquidity and a little bit more that partly this reflects, contrary to what you said on student loans, the deficit this year is actually up from what it was last year. Tax collections

have been surprisingly low. And so I'm a little bit more focused on the macroeconomics that this is reflecting than what it means for the market absorbing this debt. It's a large liquid market. I think they'll be able to absorb it. Okay. Gentlemen, thanks for joining us. Our pleasure. The Nasdaq 100 is up double digits in the past month as tech's gains accelerated leading into the Fed decision. Actually closed higher again today, up seven-tenths of one percent. Up next, Evercore's Mark Mahaney on whether or not the sector can keep rallying.

Stay with us. Welcome back to Overtime. We're still awaiting two breaking news items this hour. Homebuilder Lenar, it's due to report results any moment. We're going to bring you those numbers as soon as they cross. And we are on the lookout for Kava's pricing. It's a big test for the IPO market as the restaurant chain gears up to go public tomorrow. And meantime, the Nasdaq 100 finishing in the green today

as the broader Nasdaq composite fared better than the Dow and the S&P 500. Tech stocks on the whole have seen a big rally so far this year with meta more than doubling. Amazon, Netflix, and Google all seen double-digit returns. Joining us now is Evercore's head of internet research, Mark Mahaney. Mark, it's far from where a bunch of market strategists were at the beginning of the year, and they said stay away from tech. I think your price target on Alphabet for a while was 130. You have

buy, but we're awfully close to 130 now. Meta, you think, still has farther to run. Why is that? What are the underlying things that you think people should still be considering with those stocks? Well, look, the setup on tech stocks generally, but in those names specifically, was that they got so whacked down last year in terms of their multiples, in terms of estimates. And then you had RIFs, just a reduction in force, which just meant that the multiples were de-risked, the estimates were de-risked. It just made it a lot more. The outlook was much more constructive going into this year. And I think, frankly, it still is for some of these names. I think Meta is actually still your best play. I know it frankly, it still is for some of these names. I think

Meta is actually still your best play. I know it's had a huge rally year to date, John. I know that. But it's trading at 15 times gap earnings. It's the cheapest, highest quality, cheapest high quality large cap tech stock out there. That's my argument. I'm sticking with it. They've also got nice product cycles that will cause this acceleration in revenue growth through the balance of the year. And I think, I hope, that they really cost religion. If that's true, you'll have margins go up too. So I just think there's a lot of upside in that stock. But you're right. Some of these have really come close to our price targets and are smaller buys for us. Netflix, smaller buy. Google, smaller buy. Just to dig a little bit more into the regulatory piece of

this puzzle, Mark. I mean, if you are going to position yourself to make money as the EU and others do crack down on Google and some of the other big tech names, what would they be? Well, I think, Morgan, the point is I think Google is now the it stock, unfortunately, in terms of regulators. I mean, you know, 12 months ago or 18 months ago, it was meta and that helped cause that stock to underperform. And it's just another one of the overhangs on Google. I think this will take a long time to play out. My recall is that the original EU Google shopping case took six and a half years to play out before they finally worked out some remedies. And this is one huge remedy that the EU is potentially going to recommend, or it looks like they're going to recommend the actual forced divestiture of Google's ad tech business.

That's going to be a hard thing, I think, legally to bring across the wire. And I think it will take a long time. But it is going to kind of depress or modestly clip, I think, the Google multiple. It's kind of another reason why I have a preference for meta. You'd have less regulatory overhang. It's cheaper, easier comps, and just more cost discipline at meta than Google. Mark, there have been two waves of investment, investor excitement about AI. There was the initial Microsoft alphabet. Is Microsoft going to steal search share wave? And then there's this NVIDIA driven wave wave but from where you sit

looking at the fundamentals of these intimate internet companies does ai matter in the near term and i mean the next year or two in a way that's going to cause any one of them to significantly outperform uh well i've got a nuanced answer for you, John. I think so. I think it's already mattered. I think AI processes and machine learning processes have been behind way i step back and think about it you've just mentioned the two stocks that the market has declared absolutely the winners of ai microsoft and nvidia and my reaction to that is are you sure you sure that amazon doesn't have some partly a derivative off this you're sure that meta isn't the derivative off this i'm not i'm not sure they are but i'm pretty certain that they're positive derivatives i just know that they're not they're not trading like they are. So that's that's one of the reasons why both Meta and Amazon are in my top three picks.

Mark Mahaney, great to get some names from you. Thanks for joining us. Thanks, Morgan. It's time now for a CNBC News update with Contessa Brewer. Hi, Contessa. Hi, Morgan. Russian forces are stepping up aerial strikes in their nearly 16-month war with Ukraine as Kyiv continues its counteroffensive. Today, they fired cruise missiles at the southern Ukrainian city of Odessa and shelled another part of the country, killing at least six people. Ukraine's armed forces have reported limited gains in the early stages of this counteroffensive.

The city of Davenport, Iowa, hired two firms to investigate the partial collapse of a six-story apartment building that killed three people last month. Crews started demolishing the building this week. This report is really working to uncover answers about why residents did not evacuate their apartments despite multiple warnings over many months about the integrity of that building. And the Federal Aviation Administration announced today all new commercial aircraft made after mid-2025 will be required to have a secondary barrier to the cockpit. That rule is meant to prevent passengers from breaking in when the main doors open. The barriers cost about $35,000 to buy and install. Morgan? Contessa Brewer, thank you. After the break, we're going to talk to a top real estate investor about the impact of the Fed decision on the housing market as we do await those earnings results from Lenar. Yeah, now check out the top performers in the S&P 500 today.

Nike, Intel, Nvidia, Oracle, Boston Scientific all up by more than 4%. We'll be right back. We have a news alert on AutoZone. The company just announcing an additional $2 billion stock buyback. Shares have been lagging this year, trading just below the flat line, but the stock getting a little bit of a pop on the headline, up just over 1%, Morgan. Okay, well, earnings from homebuilder Lennar are out. Diana Olick has the numbers for us.

Hi, Diana. Hi, Morgan. Yeah, a strong beat for Lennar in its fiscal Q2. EPS came in at $3.01 a share versus estimates of $2.32 a share. Revenue of $8.05 billion versus estimates of $7.19 billion. Now, Lennar chairman Stuart Miller said,

as consumers have come to accept a new normal range for interest rates, demand has accelerated, leaving the market to reconcile the chronic supply shortage derived from over a decade of production deficits. Lennar's average sale price per home delivered was $449,000 in Q2. That's down from the peak of $500,000 last year, but deliveries were up 3% and new orders were up 1% year over year. Gross margins, which were squeezed in the previous quarter, came back to 22.5%. Miller said that reflects cost reductions at the company. As for guidance, the company's home delivery forecast for Q3 is above estimates and its target for the full year was raised as well.

Back to you. All right. Diana Olick, thank you. And shares are up 4% right now as you break down those numbers for us. Let's talk a little bit more about housing in light of those results. And as investors watch the impact of the Fed's pause on the real estate market. Joining us now, real estate investor Tom Shapiro of GTIS Partners. Tom, great to have you on the show. Homebuilders have been kind of leading the charge recently in terms of trying to fill the void with single family home inventory. When you hear numbers like that from Lenar, I wonder what you think about the state of housing, given the fact that we have had the Fed, yes, pausing today, but we've had this huge tightening cycle up until today. Yeah, it is somewhat of a surprise, but let me take you through first

what our numbers look like and then why we're seeing this phenomenon. Because intuitively, you'd think given interest rates are at 7% for a 30-year mortgage, you'd assume that housing would be selling off at this point. But if I look back pre-COVID, per community per month, we were selling about four houses. During COVID, it spiked up to six as people needed shelter and were looking for homes. And then it dropped precipitously to about three last year. So that's where we're sort of in the doldrums. Today, it's 6.75 houses per community per month. So we are seeing a huge surge as well. And why is that? I think there are two main reasons why that's happening. One, there's just no supply. And that is because if you finance your home with a two and a half or 3% mortgage, you are now trapped

in that home. You're not selling that home and swapping it for a 7% mortgage. The other part, I think, is really that homebuilders are buying home mortgages down to 6% and below. And I think that's sort of a magic number for the consumers, getting down to 6%. So one thing you have to factor in when we talk about home prices is what are the concessions that the homebuilders are giving to buy down mortgages to 6% and below. One statistic I think is really interesting is that historically, about 13% of overall sales are new homes. Today, it's 30%. And again, that's got a lot to do with the fact that there's just no supply in these markets. There's nothing available. And as Stuart mentioned, that we've been undersupplied for a long, long period of

time now. Okay. So what does that mean for you in terms of real estate investing in the housing market? I mean, you know, rentals have been red hot. The homebuilders, the publicly traded homebuilders, they're all up double digit percentages this year. Where would you be putting money to work? Yeah. So we like the homebuilding sector a lot, and we've been heavily investing in it. A lot of what we've been doing is more on the credit side. But we also been investing equity in home building communities we're seeing. And what's really shocking is our

entry level home building- we've a venture with a group called Casa Fresca they've been doing incredibly well when you'd assume that that the entry level home builder. Would be the my most price sensitive- but they've been extremely strong

we've had very very strong sales so we've been continuing to invest across our home building portfolio. Outside of housing, we really like the industrial sector as we continue to see a lot of demand as there's more and more onshoring that's happening. You can't just have just in time delivery of inventory anymore as you need to make sure you have enough stuff in the warehouse in order to supply things. I hear you, Tom, but it seems to me like we're in a unique situation, especially when it comes to new homes. Employment is uncommonly high.

As you mentioned, existing home inventory is uncommonly low. We've had this rapid move higher in interest rates that gives home builders this opportunity to provide an incentive and raise their share of the home sale market to 30 percent. When that ticks down, isn't that going to hurt a lot of home builder stocks? For sure. But don't forget about the demographics. You have 1.2 million households being formed every year right now. Now, of course, we're going to a deep recession and that may change, but we still have to, we need shelters for people. And it is, and I'll give one to your side, which is it's a thousand dollars more now to own a home than to rent a home. But I think post COVID and the fact too, that people don't necessarily need to live in the cities because there's a lot of work from home. And the millennials now are getting to their late 30s. That's 86 and a half million people.

There are more and more want to be in homes, whether they rent them or own them. That's a different story. But they're making a lifestyle decision to be in a home. So there's still a massive demand. No matter how you look at it, people need to live somewhere. It's not like office where you don't have to have office space. Tom, thanks. Tom Shapiro from GTIS. And you see Lenar there up about 3% right now after earnings. And now here's some food for thought. Kava could price its IPO. Yes, at any moment.

Find out what Wall Street is expecting when Overtime comes right back. Welcome back to Overtime. We have a news alert on Kava. Leslie Picker has the details. Hi, Leslie. Hey, Morgan. Yes, I've heard from sources that Kava has landed on a price for its IPO. It will be priced at $22 per share, which implies an offering size of $318 million in a market cap of about $2.5 billion for this deal. That is above a range that they boosted earlier this week. I'm told that the deal was approaching 30 times oversubscribed. That meant there was more than 30 times as much interest in this deal as there were shares available. Of course, that interest is non-binding, but still an indication of kind of where the market is right now. Notable for this deal as

well, and this is potentially why there was so much in the way of oversubscription here, is there was significant cornerstone interest as well as three major anchor investors who are buying up about a third of this deal. That's Capital International, Capital Research, and T-Row. They said on the cover of the prospectus they intend to buy about $100 million at the IPO price, which we are told is $22 a share here. The way that this deal was marketed to the street, again, this is according to sources close to this one, is this idea of will Kava be the next Chipotle? This space, this kind of, as Kava describes in its IPO prospectus, kind of chef casual, high quality, but quick meals, kind of

like a Chipotle. Will they be the next one? If so, long only mutual funds want to get in kind of at the ground floor now, as opposed to waiting until it's kind of a must-have to have in their portfolio as Chipotle ultimately became. Profitability will continue to matter. They do still have some losses, but they narrowed quite significantly in the first few months of the year relative to last year. But the news, as we will see trading tomorrow, is that Kava pricing at $22 a share. Shares offered $ 14.4 million, which was the amount they intended to offer, but well above the boosted range, guys.

OK, so it seemed like investors are hungry for this. Going to be key to watch how this trades tomorrow when it debuts at the Stock Exchange. Leslie Picker, thank you. We're going to have much more on that debut as well as the IPO market overall. And we are joined by NYSE President Lynn Martin. That is going to be tomorrow at 4 p.m. Eastern on Overtime. And right now, up next, CEO of Eventbrite on how easing inflation is impacting consumer spending on experiences. When we come back. Welcome back. Non-energy services inflation rose by 6.6 percent year over year in May. That's according to this week's Consumer Price Index. That's high, but less than last month's reading. And this all comes as hotel prices are also climbing more slowly and airline ticket

prices actually fell in May. So is the so-called revenge spending and experiences finally slowing down? Joining us now is Eventbrite co-founder and CEO Julia Hartz. Julia, thanks for coming in. Your summer projections seem to suggest that maybe not. How's the spending going? Thanks for having me, John. It's great to see you. We are seeing a booming experience economy in the mid-market.

In Q1 alone, we saw a billion dollars in gross ticket sales on the platform and 1.5 million events. And that's representing 11 million paid and free buyers who are coming to Eventbrite to look for things to do and to fill their calendar. So I would describe the experience economy as robust and booming. And I just wanted to share a couple of things that we're seeing, some trends that we're seeing in the market. First is that, you know, experienced creators and producers are finding their audiences online through social media and through content, and they're bringing those communities offline. So that is a new, growing, emerging trend that's happening in greater volume and velocity post-pandemic when people were connecting

more online. The second thing is that we're seeing events are multimodal. So not just a food event, not just a music event, but actually bringing these different experiences together because the consumer wants to experience a variety of different experiences in the same event. They're spending their money to get out and be with each other, and they want it to be unique. Got to ask a question. Taylor Swift. Now, I know she's not using Eventbrite, but is there a sort of bifurcation between big and small events? Are people going out to both? Do big events actually drive people to go out to more events in general? Is there like an ecosystem? Yeah, absolutely. I think that the connection between the two is the propensity to want to get out and connect. That is the human universal truth.

But beyond that, Eventbrite is powering an economy of micro, unique, local events that are filling people's calendars. So they're more consistent rather than the once a year or the twice a year event that you see on other platforms. And that's giving rise to an economy that's helping more and more entrepreneurs and small businesses make money by bringing people together. And so we see this being a much more resilient, much more consistent business that's growing up and to the right. And we can expect to see that growth continue. Need that resilience, especially among small businesses. Julia, thank you. Julia Hartz. Oh, it sounds like John Fort might be a swifty. Okay, up next, a top strategist on how

investors should position their portfolio following the Fed's pause. Stay with us. Welcome back to Overtime. The major average is all over the map following the Fed decision, falling hard on the headline, but climbing back during Chair Powell's testimony. The S&P basically ending the day flat. So what should you expect tomorrow as Wall Street digests the Fed's message? Let's bring in Jason Drejo from UBS Global Wealth Management. Jason, what should or how should investors be positioning themselves now that we had this hawkish pause, but the S&P bouncing back and at least initially being largely resilient despite that? Look, the Fed outcome after a little bit of gyration at the start kind of came out largely as expected.

They didn't hike. They indicated they want to continue hiking, but they weren't adamant about it. And so I think the net result, as you can see, the markets ultimately kind of were unchanged. If you look at what the market was pricing for future Fed rate hikes, kind of also unchanged. So I think the story ultimately is a little bit of a non-event. What we're left with is the market's really going to be driven by two things. How do the economic fundamentals kind of play out from here? And recently, investors have become more confident or at least getting more bullish on the possibility of a south landing. So does Zeta kind of support that or is it contradicted? And if it's the former, then you have the risk of, at least in the near term, a market sort of chasing the rally or trying to feel like they have to get pulled in,

which could at least in the near term keep the momentum going overall. But at big picture level, stocks are kind of priced for pretty good outcome already. But Jason, didn't the market run up on the sort of expectation, hope that the Fed would be cutting a couple times year end? Now, I guess people don't expect that to happen. The Fed always indicated that wasn't going to happen. Now the market doesn't believe the Fed that it's actually going to a couple more times. But Jason Furman and Rick Mishkin said they really think that it's going to happen. So isn't that dangerous for investors here?

So the risk all along is that the Fed ultimately has to do more than the market's pricing. And they ultimately kind of have to focus on tightening financial conditions in a way to slow the growth and slow the economy to bring inflation down. Because the markets right now have been pretty confident that inflation is coming down. The Fed's not going to do more than what's already priced in. If that's the case, equities can go higher. If that environment doesn't play out, then yes, the risk is certainly to the downside for equities to pull back if that sort of really benign, immaculate disinflation environment that investors or the markets are assuming doesn't materialize. So, Jason, how do investors position themselves here? I mean, we saw tech rally. We saw the Nasdaq

finish the day higher again. I mean, is that still the place to be? Is that still is big is big cap tech still defensive? Or do you put money to work in some of the more cyclical areas or more value oriented areas of the market? So that's something we're looking at and considering because the market this year has really been two markets. It's been the big tech that's up 30, 40, 50 percent in many cases, and the rest of the market, which an aggregate is up low single digits. But that means the valuations there are much more reasonable. There's opportunities. And what we've seen over the past couple of weeks is as the market gets maybe a little more comfortable about a softish type of landing or very mild recession, those things are a

little bit like a cold spring. There's a lot of potential for that to kind of bounce back. So where we see kind of more opportunities to look at is in those parts of the markets, more so than the large cap tech. They're certainly part of the portfolio, but I think that the margins of the opportunities are going to be looking kind of elsewhere at this point in time. Okay. Jason Draho, thanks for joining us as we do look to tomorrow.

John, don't forget, we've got retail sales tomorrow. We've got earnings. Oh, well, first let me say we've got Ed Hyman on the show tomorrow, Evercore ISI chairman. Not going to want to miss that. Definitely not. I'm still thinking about the KRE, right? Mentioned at the beginning of the show, regional banks were down about 3% today. How does that play out tomorrow, given that the broader indices kind of shrugged off what the Fed had to say?

Yeah, that's right. And of course, we get an ECB decision tomorrow as well. We get more earnings, Kroger and Adobe. Want to say happy birthday to Zev August from our team. That's going to do it for us here for Overtime.