Closing Bell - Closing Bell Overtime: Whipsaw Ride in Stocks 2/7/23

Episode Date: February 7, 2023

The Fed chair spoke today – and his comments have investors wondering what could be in store for the future of the rally. Virtus’ Joe Terranova gives his market forecast. Plus, star VC Lo Toney of Plexo Capital gives his take on Microsoft’s big bet on artificial intelligence. And, Vanguard CEO Tim Buckley – who oversees more than $7T in assets – weighs in on the market and the fed. 

All right, Sarah, thank you very much. Welcome to Overtime. I'm Scott Wapner. You just heard the bells. We're just getting started from right here at Post 9 at the New York Stock Exchange. And we're about to get Chipotle earnings, really a good read on what's happening in the economy on the ground and also where food prices are heading. So we'll get that in a matter of moments, give you all the details. Of course, you'll see the stock move. I'm also going to speak today with star VC Lo Tony on whether all of this AI talk is just another sign of another great big bubble in the market. We'll get the low down with low coming up a little bit later. We begin, though, with our talk of the tape.

The whipsaw ride in stocks, the Fed chair speaking today, what his comments mean for the future of the rally. You saw how we finished the day here, closing pretty much on the highs. Let's ask Joe Terranova of Virtus Investment Partners. He is a CNBC contributor as well. I want your reaction to Powell because he had another chance to take a swing at the market and he didn't do it. He sure had a chance to do it. April 5th of last year, I sat here on the desk. I told the viewers that we had an adversarial Federal Reserve. Scott, we have a Federal Reserve that no longer wants to be adversarial. And one could argue that they are not adversarial anymore because they've had

two opportunities in the last week to be that way. They didn't do it. He also said financial conditions have tightened since the labor report. Chairman Powell, what are you looking at? He talked about conditions, right? And this was one of the issues that sent stocks surging last week on Fed Decision Day in the news conference, right? He had a chance there to talk about conditions softening too much, didn't do it. So this was, you know, part two in the same old story. I thought Rich Clarida was really interesting with Sarah within the last hour. He said, quote, markets have more or less priced in a couple more hikes is the baseline. And I think that's where the Fed thinks they're going.

The implication of that is the Fed and the market aren't really that offsides anymore. Peak Fed funds was at 515. You know, Leisman was talking about that today on the halftime report. So we've solved that issue a bit, too. Correct. I think the only way there is a dislocation is if we continue to get very strong labor reports. And Chairman Powell answered at the end of his remarks what the response would be to that. You'd obviously see more rate hikes. But listen, Scott, I'm a triple-digit golf player, and last year once, I shot in the low 90s. So we had a great labor report in January. That does not make a trend. I think that would be the only thing that would motivate the Federal

Reserve to extend the rate hiking cycle beyond what the market is pricing in right now. Forget about, you know, more hikes. I mean, right. A couple more hikes. OK, I thought and Sarah, she nailed this on when she was talking to Clarida. If inflation data continues to improve, I think towards the end of the year, they could be open to considering a cut. That's the former Fed vice chair saying that, saying the quiet part out loud, right? Well, I'm not necessarily sure. First of all, I don't think he's been in the room and he has a great view of sort of how policy is set. I mean, the idea of a cut, the market had been looking for a cut later in the year. It was deemed to be no way. Fed's not going to do it. He said, all right. All right. Well, if inflation goes down a lot,

they might. Well, you also you you would have to see beyond inflation going down. I think you'd have to see some tremors in the labor market itself. Without question, we've got a peak commodity story that's playing out. You look at the price of lumber year on year, it's down 68 percent. If you look at the price of crude oil year on year, it's down 40 percent. If you look at the price of wheat year on year, it's down 40 percent. Used vehicles are down. There are other areas. The one area of the market that we need to see services, but it's housing, too. It's really housing. And that's such a significant contributor to the inflation reading. We'll find out next Tuesday, Valentine's Day. Maybe it doesn't. I mean, you get CPI, right?

CPI, 8.30 a.m. next Tuesday. We'll get that. If housing begins to contract significantly, that disinflation story is only going to gather momentum. So did the Fed chair today, in essence, give the rally, the market, you know, a chance to get really up to cruising altitude at this point, at least until the next meeting? See, the way that I would answer that is I don't view the Federal Reserve right now as the adversary of the market. I think the adversary of Federal Reserve right now as the adversary of the market. I think the adversary of the market right now is the lag effect of the rate hikes, and what does that do to earnings?

So I look at the market right now. I do think there's upside potential for sure in the market. How do you strategically want to be an allocated? We'll talk about that in a little bit. But I think the market has a runway now leading into the next earnings report. I don't think you have the all clear, though. Earnings report. That's, you know, a lot longer than I was I was thinking. No, I think I think for this quarter, you're going to be OK. And I think that builds upon the thesis that the first half of the year is going to be better than the second half

of the year. I'll tell you what, what Lori Calvisina just said at the end of closing bell to quote, in general, the bears have overstayed their welcome. Is that what what's happened? I don't see how you go back to the October lows. I can't see how we make a return back to thirty four ninety one, which is where the S&P was in the middle of October without a significant, significant exogenous event. Does that mean that we are going to immediately trade up to the highs from last January at 4,800? I don't think so. It doesn't appear to be. That's not how I'm allocated right now, but I think the low is in place from October.

So in terms of how to be allocated, so you're using that word. Yes. This is potentially tricky, right? For you and others who have thought that the high beta trade was kind of done. Right. That last year was a significant shift in how we should be positioned this year. Value is going to be it. Not high beta. Not tech. Are we thinking that maybe we jumped a gun on that? I am. I am not a believer that high beta is going to continue to lead the market. If high beta leads the market, I will underperform and I'm fine with that because I don't think the outperformance of high beta is built upon pure fundamentals.

I think what it's built upon is the absence of positioning. I think it's built upon the significant tax loss selling that we saw last year. Right now, you've got a 10-year Treasury that looks like it's beginning to move back towards the uncomfortable levels that it began the year at 3.90. You've got a two-year Treasury, once again, approaching 4.5. So the high for the two-year Treasury in November was 4.79. You're not seeing Treasury yields move lower anymore. I know, but look what led today, right? I'm staring straight at a NASDAQ that was up 2%. That accelerated on the backside of the Fed share. Yes, but that was mega caps. It was the significant surge that we saw in Microsoft and other names. Isn't that going to

continue if this is the new environment we're in? It could continue for a little bit further, yes. But I want to see fundamentals prove itself as we move through the course of this year to warrant moving that direction. I'm not willing to take that risk right now. And if I have to underperform in the interim, I'll do so. Where are you placing then more of your bets today? More of a lower beta strategy. I'll go back to the semis. I'll go back to identifying names in the semis that have valuations in the mid-teens, that have a P somewhere around one to one and a quarter. Texas Instruments, Microchip. Microchip's up 11% in the last five days. Because a lot of the semis

have ripped. A lot of the semis have ripped. A lot of the high beta semis have ripped. I'm in the low beta semis. I'll take my 22 percent and microchip year to date on semi up another six percent again today. You think there's going to be that kind of dispersion between the group? Aren't all I mean, if the semis start going up, all the semis are going to go up. No, I think you're going to see bifurcation built upon where valuations are right now, given the rally. I think a lot of the high beta, high evaluation names that don't have the fundamentals to support that at the levels that we're seeing right now, I think that appreciation begins to moderate.

And I think you're better served staying in the lower beta semiconductor names. I think I'm about 90 seconds or so away from Chipotle's results, which you just sold out of the JOTI in your most recent rebalance. All because of declining momentum. Chipotle has never been a weak fundamental story. We'll find out now. It's up 24% year to date. That doesn't sound like declining momentum.

Well, you study momentum, Scott, over a longer period of time than five weeks. But Chipotle has never been about a negative fundamental story. We'll see in this report they've increased prices at the end of the summer. Is the consumer continuing to go in and pay that price? What does store traffic look like? Operating margins, you want that to come in somewhere around 14 percent to remain strong. And you want to hear, again, strong confidence from the C-suite that they're able to maintain the current pricing environment. Yeah, and they've been able to raise prices more than most as well. So we'll hear from Brian Nickel during that earnings call, obviously, later on in the evening. But there's the stock as we wait for those results. Let's broaden the

conversation, add two more voices to this conversation. Joining us now, Wealth Enhancement Group's Nicole Webb, Exxonic Director of Research, Peter Cicchini. It's great to have both of you with us. Nicole, you first. I mean, what was your takeaway from the Fed chair today? Did he just give the rally that we've seen since the beginning of the year, the wink and the nod to keep going? You know, to be honest, between Kashkari's comments this morning, Powell this afternoon, what we're really driving to is this demand destruction, getting to that 2% target. Kashkari really spelled it out for us in a way that I don't think the market responded to last week from Powell's press conference,

which was we are taking the 2% target and managing the data to that target. And what I mean by that is this is where we start to get a bit more. There's less wind in the sails of the soft landing bulls on a look forward basis as we start to move towards more negative earnings across the board. And that's starting to shift our thinking as we position for the coming quarters. You know, speaking of earnings, Chipotle is out. Looks to me to be a miss. Pippa Stevens, what do you have for us? That's right, Scott. Chipotle missing both top and bottom line estimates for the first time since 2017. Q4 EPS coming in at $8.29, excluding items, while analysts were looking for $8.90.

That's just the second miss in the last five years. Revenue was $2.18 billion, short of the expected $2.23 billion. Now, same-store sales also missed estimates, rising 5.6 percent, while analysts had been looking for 6.9 percent. Restaurant margins rose to 24 percent, but once again, short of the expected 25.1 percent. Now, in terms of guidance, the company said January comp sales rose at a low double-digit rate. Remember, that is against Omicron numbers, with Q1 comp sales overall expected in the high single-digit range. Now, CEO Brian Nicol noting the company opened the most new restaurants in six years during 2022, despite what he calls a challenging and fluid macro

environment. That stock down almost 6 percent. Scott. All right. Good stuff, Pips. Thank you. That's Pippa Stevens. You want to comment here, Joe, on what you see? Operating margin 13.6. That's below the 14.7 estimate. It's very surprising to see Chipotle miss. Very surprising. Well, I mean, look, at some point, you can't just keep raising prices. There has to be price sensitivity.

I mean, don't you think we're at that point now? They've raised prices how many times? At least three that I can recall, right? They have. They have, and significantly, very significantly in August. All right. So let's bring our panel back in as we continue to discuss the market. Nicole, you know, I was listening to you and you mentioned Kaskari. And I just wonder if the moral of the story today is that the Fed chair's voice is the only one that matters.

At the end of the day, right, whoever the Fed speaker of the moment is can say whatever they want. The Fed chair's voice is the one that rings the loudest. Absolutely. And the market continues to signal that direction. So when we look at long duration assets, their performance year to date, coming back to the trades, you were just kind of leading the program with, you know, when we look at those heavily influenced sectors, it's it's calling towards this end of year, the likelihood of an ease to stimulate growth on the backside of where it is that that the Fed takes us over the next nine months. So, Peter, what what what do we do from here, do you think? Well, the Fed and Chairman Powell, as you mentioned, is the one who matters. He's not speaking markets.

You know, I think he feels that he's sending an appropriately hawkish message, but he's not. And I think that's what the market has reacted to. And the Treasury market and the equity market have reacted in opposite directions since the Fed meeting. You know, the two years up about 37 basis points since the afternoon of the Fed meeting. You know, the Fed funds futures markets is back up at that 5.1 percent terminal rate. And equities are really not hearing that message. Sometimes equity market equity market positioning is more important. Than just about anything else and I think that's it equity markets have heard what they want to hear- and

it really doesn't fortunately change my view very much- what Joe said earlier resonated with me which is it is the lagged. Effects. Of Fed policy policy the most aggressive hiking cycle since the 1970s, that have me worried the most. And those lagged effects are starting to show up. And I think it's setting up for a massive whipsaw for equities. So we're still quite conservatively positioned relative to risk with the idea that margin pressures will continue, earnings will continue to flag, and economic data will start to weaken more on the hard side. We've seen soft data weaken in ISM and PMI,

and we expect that to bleed through into the hard data as the first half of the year proceeds. So don't buy into the rally, right? You're willing to forego what might be a significantly good move in the market over the first six months of the year. Yeah. You know, I don't know how much higher it can go. It can be irrational for quite some time, irrational in my humble opinion. But we're all about risk reward asymmetry. And the risk versus the reward the risk adjusted returns that you can get from equities when treasuries are yielding. Four and a half

percent very short duration. Simply do not make sense versus earnings yield and so. Therefore- you know it makes a lot more sense to go short duration treasuries- and in other asset classes like structured credit. Where you

can get much better downside protection relative to the risks we see ahead. Joe you want to take that on. Yeah I in other asset classes like structured credit, where you can get much better downside protection relative to the risks we see ahead. Joe, you want to take that on? Yeah, I just don't know if there's a perfect economic scenario. And I think what Peter and Nicole are describing really speaks towards what the Federal Reserve is trying to navigate right here. I heard your conversation at halftime with Steve Leisman. I think Steve's right. He might be looking at a riddle, at a puzzle that is just impossible to solve. And the labor market is so significantly distorted right now coming out of the pandemic. He's never going to be able to see the overall universal numbers that he's looking

for where he needs to step back. Well, I mean, that just raises the issue of going too far more than anything. And it certainly doesn't lag effect. It certainly doesn't breed any confidence that the Fed is going to get it right. I mean, I thought Steve's comments, honestly, were were kind of stunning to me that here is, you know, our chief economics correspondent who covers the Federal Reserve closer than anybody in the building and in some cases anywhere, suggesting that maybe they don't know what they're doing. Those are my words, not his. But he left you with that impression that maybe they're't know what they're doing. Those are my words, not his. But he left you with that impression that maybe they're fixated on the wrong thing and they don't get it. Steve is basically saying what's in my mind and what's in the mind of a lot of investors

on Wall Street. The Federal Reserve, they're very thoughtful. They are serving the public. You have to respect them for that. But you're looking at them and you're basically saying, are they seeing the right thing? Scott, technology is in a recession. OK, we're seeing significant job losses. Technology is in a recession. You've got Microsoft just announcing today they're going to spend a fortune on AI. Well, tell that to the people that are losing their jobs right now in the technology industry. Tell it to whoever you want to.

But I hear you on that. The juxtaposition of that is this big spend. Allow me to finish my thought on that, please, though. Okay. The technology sector is losing jobs. Okay. It is in a recession right now. The technology sector is the economy. That's what the United States economy is right now. It's all about algorithms, artificial intelligence, software program. It's an intangible asset economy. So the most important industry to the U.S. economy is losing jobs. Maybe he should look at that and be happy that other areas of the economy are not losing jobs. Nicole, what about the move in tech where we've had some debate about, right? A lot of people aren't positioned for tech to resume any sort of

leadership role over an extended period of time? Absolutely. And I do want to just take one comment back to and just say there are obstacles that the Fed, so to the same, on the notion of the economy is technology, there's the flip side of it, which is the stickiness of services inflation and the lack of participants for that labor market. And I think that should be called into question if Fed policy can fix that problem and the trickle-through effect to the markets as we're talking about. And that goes down to the demand destruction component of where rates may be headed. So in positioning for technology, the cap weighting of the indice as a whole puts a lot of people participating in these duration assets at this moment. But where we see potential misses is kind of this notion of only the bears

are thinking about quality right now. And to Joe's earlier comment, I'm willing to miss on performance versus being overweight there. You know, I would put us in that same camp where it's just it's a focus right now on quality, on balance sheet, on being somewhat agnostic to a slowdown versus a rebound, because we don't believe a tide of liquidity is going to come in and save the markets this year. I don't know, Peter, I'll give you the last word, but you've got to make it quick. The idea that Clarida put forth, the former vice chair of the Fed saying that, yeah, he could see a cut by the end of the year if inflation goes down faster than they thought. Well, I could see a cut, too, but it won't be for good reasons. It'll be because we're in a deep recession.

We're seeing lending standards tighten. Our yield curve is still deeply inverted. And I think a big and important thing that the equity market is missing. Is that the yield curve actually normalizes first before bull markets can actually have a sustained run.

Our folks will leave it there I appreciate everybody's time. And commentary today Nicole we'll see you soon along with Peter and Joe we'll see in a little bit. As well we're just getting started here in overtime today up next text new arms race. Nicole, we'll see you soon, along with Peter and Joe. We'll see you in a little bit as well. We're just getting started here in overtime today. Up next, tech's new arms race. Microsoft, as we just said, making a big push into artificial intelligence today. Is there real growth opportunity there or is this just another bubble in the making? We're going to ask

Star VC Lo Tony. We're live from the New York Stock Exchange. We'll be right back. Welcome back. Microsoft announcing a big push into artificial intelligence today. The question is, is AI a legitimate growth opportunity for that company and others who are pursuing similar strategies? Or is it simply a sign of a new bubble forming in the market? Let's ask CNBC contributor Lo Tony of Plexo Capital. Welcome back. So Nadella is obviously leaning in very hard to something that John Fort just called in the last hour a, quote, full on assault on Google's core business. What's your reaction to that? Well, without question, I think the thing that I really took away from Microsoft CEO's comments was the fact that, you know, this is potentially that once in a lifetime opportunity to be able to actually go up against the dominant incumbent in

Google and actually compete for market share. And I think what we're seeing is, you know, the ability for Microsoft to capture the moment by partnering with ChatGPT, which has really captured the imagination of the consumer where they can actually see and comprehend with their own thumbs what this new paradigm shift means. Is that what you think it is? A once-in-a-lifetime opportunity? A legitimate growth engine and revenue generator for Microsoft? Look, I think when we look at the opportunity for someone to effectively compete against Google, I think this is the opportunity. This is potentially the opening of the window or the door. Now, the thing that I would not do is I would not count Google out.

I wouldn't count Google out. You know, Google has been incorporating AI into their products. Google became an AI first company self-proclaimed in 2017. But, you know, the difference here, again, I just think that by releasing a product in chat GPT that consumers can touch and play with, it's captured the imagination. Now, the thing that we always look to at Plexo Capital because we invest into startups, private companies, you know, how much of this value creation

will be captured in this go around by the incumbents versus the startups? You know, in the first wave, we really saw a lot of the value accrue to the incumbents. But this time, I think we're seeing something a little bit different. I think the technology has improved. And by the way, you know, Google has actually created some of the technology that's ironically now being used for by Microsoft and chat GPT to go after them. But, you know, I think this time what we're going to see is we're going to see a different model play out. I think there's going to be some multibillion dollar startups created in this next generation of companies. And you wouldn't hesitate investing in those types of companies, even with the large footprint that's waiting to squash anybody in its path. Yeah, well, I think when you look at what Microsoft, Google, Apple, all of these companies

bring to the table is they, without question, they have data, both public and private data. And that private data is really interesting as we look to vertical applications, because with the private data, one can create a moat, right? We have to have the talent available. We have to have the compute power available. But I think what we'll see is there will be startups that will be able to go after these opportunities that may not necessarily be the largest markets, but nonetheless can still produce nice outcomes. I mean, I might be crazy. I don't know. I find this whole thing so ironic, Lo, that we are having this conversation at a time where most of our conversations about big tech of late have been about layoffs and the right sizing of these

businesses and getting religion on spending, et cetera, et cetera. And here we are a couple of weeks after these layoffs start rolling out. We are talking about significant investments in the next great growth area. How how do we make sense of that? We make sense of it because innovation doesn't know what's happening within the geopolitical, the market, the economy. Innovation is going to continue to happen. And as a manager, one has to be able to allocate resources towards those opportunities while at the same time maintaining a bottom line that makes sense to public market investors. And I think, you know, what we've seen with tech is that the growth was just so phenomenal for so long, but now we're starting to see the growth slow down and it

presents some of the challenges that become apparent when looking at the financials, when looking at activists starting to come in and put tech in the crosshairs. We hadn't seen that. Right. But these companies are now becoming more mature. And so now they have to balance just as all the other companies historically have had to do. They have to balance both the growth opportunities and managing to a bottom line. The other thing you hear today from people like Josh Brown, who's obviously a contributor to this network, is, quote, the AI bubble of 2023 is now in progress. That's what he sent out today on one of his social media platforms. How do you respond to that? Again,

it just plays into this overall story of, you know, it's Microsoft today and it's Google and it's Baidu and tomorrow it's going to be somebody else and next week, three others. Without question, AI is the new buzzword. So we are seeing both venture capital funds that are coming to us, looking for us to invest into having an entire strategy solely around AI. We also see a lot of companies now, and I'm sure they're just doing a search and replace to find the buzzword placeholder and insert AI. No question that's happening. But I think what that really speaks to is it speaks to the recognition that this is going to offer us a paradigm shift. And again, an opportunity for both incumbents to be able to take advantage and also not miss out. And then also for startups to be able to create new companies to take some of that

value as well. So without question, there is going to be a lot of speculation and there will be companies that will be funded that probably should not have been funded. But at the same time, I think that this is real and it's just going to be a matter of playing out and just seeing who able who is going to be able to actually produce the right products that generate the value and then be able to have that value recognized in the public markets and the private markets. I got to run. But lastly, on that note, do you see this as a nearer term reward cycle than, let's say, you know, the metaverse has the potential to be, which I think most people view it as so far off in the future, we can't really comprehend it well. Without question, without question. You know, I'm not bullish at the moment on the metaverse. The technology advances with AI are moving so incredibly rapidly.

And we're seeing companies take measured bets like Microsoft. And I think we'll see Google not too far behind based on their announcement yesterday and many more to come, including Apple. So I am very bullish near term on the benefits for this technology and AI versus metaverse. Perfect guest for this conversation. Lo, thank you so much. We'll talk to you soon. That's Lo, from Plexo Capital again, a CNBC contributor. Let's get to our Twitter question of the day.

We want to know, is artificial intelligence the next big bubble in the market? You can head to at CNBC Overtime, vote yes or no. We'll share the results later on in the hour. It's time for a CNBC News Update now with Seema Modi. Hey, Seema. Scott, here's what's happening at this hour. The Navy has released pictures of the downed Chinese balloon. The photos show big pieces of it being hauled aboard a Navy vessel.

Recovery efforts continue for the rest of the balloon and its payload, which are now spread across seven miles of ocean floor off the coast of South Carolina. Convicted serial rapist and former British police officer David Carrick has been given 36 life sentences. He will serve at least 30 years in prison for raping and sexually assaulting 12 women over a 17-year period. Carrick's case was one of the series that undermined public trust in London's police force.

Britain's top government official in charge of policing says Carrick's crimes were a, quote, scar on our police. Variety is reporting Michael Jackson's estate is close to selling half of its stake in the singer's catalog for between $800 to $900 million. The reported buyers are Sony and a possible financial partner. The deal would dwarf the estimated $500 million Sony paid for Bruce Springsteen's entire catalog. Scott, back to you. All right, Seema, thank you. That's Seema Modi. Up next, results from Yum China just hitting the tape. It's a name that Joe Terranova owns in his ETF. So he's coming back with his first reactions on what they said, what the stock is doing. And during February, we are celebrating Black

heritage through the stories of some of our CNBC teammates, contributors and leaders in business. Here is CNBC senior field producer, Bria Cousins. I'm the product of a black mom who was born in the South and raised in the Midwest. And an Afro-Latino dad who immigrated to this country from Panama with big dreams and an even bigger determination to fulfill them. I'm the living example of the rich and diverse landscape that is black heritage and culture in this country. We share a common bond of our lived experiences in the United States and especially our commitment to making sure that the generations that come after us have more opportunities than we did. All right, got some food-related earnings we need to discuss again. Chipotle's

the first one I want to show you here. The stock is rebounding off of the bottom here. It was a miss on the top and the bottom line. Stock was down about 5%, 6%. It's now down about 3%, a little more than that. As you see, there is additional news that I was just speaking to Joe Terranova about a buyback. Yeah. That you're starting to hear more about from a lot of different. Absolutely. Well, Brian Nickel and the management team, they're doing the right thing here. The board authorizes an additional 200 million in buybacks. That's exactly what you want. A company with a very strong balance sheet that delivers a little bit of a miss here for sure. That's the response you want. All right. So Yum China, right? You have that now in the JOTI? That is in the JOTI right now. Sold out of it in July of 2021.

OK. Declined precipitously back in it. The expectations, very strong fundamental company. Look, the results here are basically in line. The expectation, Scott, was for Q4 to be weak, right? You had the COVID flare up. The weakness is in Pizza Hut, not so much in KFC. There's 9,000 KFC stores in China. There's 2,800 Pizza Hut stores in China. So this is kind of in line. I'm OK with this report. You're coming out. You're reopening. You'll see growth very strong once again in 2023 and 2024. Let me ask you this. Is Yum, is regular Yum in the Jyoti? Regular Yum is not in the Jyoti. So why is Yum not in the Jyoti, but Yum China is?

Because it doesn't exhibit the type of sales growth that young China does over a three year basis. The three year sales growth comes in at around six percent on average for young China. So it's a China. It's a it's a China China play. Your China plays got strong momentum behind it and it's looking forward and it's seeing the potential for there to be a return of sales growth that we saw prior to COVID. And you're not worried about any other, you know, either COVID flare ups or shutdowns or changing consumer behavior. I mean, that's what I'm saying. You know, the the variables that that's why I asked you about the difference between the two stocks, why you own one and you don't own the other. It seems like there's a lot more risk in the Yum China one that you have. It's a very soft touch investment into China.

There really is not very much in terms of the ETF being allocated there. So you're right to identify things you could be worried about. You're always worrying when you're investing. You're almost like that squirrel running around in the schoolyard. All right, Joey, I appreciate it. Thanks for having me. It's Joe Terranova sticking around. We'll see you tomorrow.

All right, that's Joe Terranova. Up next, the CNBC exclusive Vanguard CEO Tim Buckley. He oversees more than seven trillion dollars in assets. We'll get his take on the market, Fed and of course, much more. Don't go anywhere. Overtime is coming right back. We're back in overtime, $7 trillion. That is how much our next guest oversees in global assets. Let's take you live to the Exchange ETF Conference in Miami Beach, where Bob Pisani is sitting down today exclusively with Vanguard's CEO, Tim Buckley. Hey, Bob, take it away.

Hello, Scotty. 2,000 advisors and ETF providers all trying to figure out the state of the economy and the markets. Let's ask Tim Buckley, the CEO of Vanguard. I've never seen so much confusion in the investor community. They don't know about whether the soft landing is going to happen. They don't know where equities are going this year. And they don't know if the bond portfolios that they didn't want a year and a half ago are back again. What are you telling investors? What's Vanguard's telling investors? Well, Bob, I think

the backdrop we have here is you've got a lot of volatility of people moving in and out of the market. And they're ruled by this FOMO, this fear of missing out. Everyone wants to figure out when is the Fed, when are they going to pause, when are they going to cut rates? And no one wants to miss out on that equity rise that will happen as a result. And so, Bob, what do we tell people? Don't guess. Just stay invested. Stay invested in the markets. It's really tough to time it and you're going to end up missing the uptick. Last year, 60-40 bond, stock bond portfolio, dead. Nobody wanted it. Now, it's back again. Mass confusion on where bonds should be. What's Vanguard telling people? Well, we hear 60-40 is dead after every bear market. I've been around long enough to hear that.

I got a two-word answer for them. Wellington Fund. Balance Fund started 1929, 65-35 diversification. Bob, it has seen, gosh, it's seen bear markets, bull markets. It's seen a depression, a world war. It's seen inflation that makes today's inflation look like child's play. It's seen rising rates, declining rates. And you look at rolling 10-year periods, it outperforms most professional managers. And 60-40, it's a time-tested strategy. It's an amazing, legendary fund. I watch your assets under management advance every year. $7.2 trillion. You're getting close to BlackRock.

I know you don't like to talk about that, but every single year, up markets, money into Vanguard. Down markets, money into Vanguard. What's the secret? Why do people keep putting money into Vanguard year after year, regardless of whether the market's up or down? Well, being client-owned makes a difference. Clients know that, hey, we put their interest first in everything we do. So they can count on us letting them keep more of their return. And we keep them focused on that long term. Avoid this short-term noise. Stay invested. Keep your diversification.

And so one thing you see at Vanguard is we don't see people leave. People come and they don't leave. Other firms have a lot of turnover where clients will be leaving. That's just not the case at Vanguard. When you see people rushing into thematic products, I know, of course, Jack Bogle, founder of Vanguard, associated with indexing. People love cybersecurity ETFs, social media ETFs. What do you tell people, you have niche products to a certain extent out there, but what do you tell people

who want to invest in the latest fad? What's the advice Vanguard has? Yeah, fads don't belong in investing. I mean, our niche would be healthcare, 16% of the economy, I mean, it's hardly, so when you think about a sector, we will have something like that. But don't try to play a fad.

You're really in there. You got to you have to think long term. When we come out of a market environment like a recession, the strategy that worked the last time is not going to be the strategy that works this time. So if you think, hey, I'm going to be in cyclicals or actually when rates go down, I want to be in those mega growth caps, right? They're not going to be the ones to win out because that game, people will know it already. Proxy investing is a bit of a hot button issue right now. Vanguard last week announced the launch of a proxy voting choice

for investors in three of Vanguard's fund. This is a pilot, I know, but are you seeing, hearing investors want to become more involved in proxy voting? Bob, we want to understand what is their, what voice do they want to have? And so this voting? Bob, we want to understand what is their, what voice do they want to have? And so this pilot's all about understanding that voice. Now, we're only really a week into it, so maybe we'll come back and tell you, here are the results that we heard from clients.

It's not just how engaged will they be, but how do they want their voice expressed? Well, the kids of Jack Bogle, and you're one of them, I'm sure would be proud. Vanguard is now getting close to BlackRock. And I know you don't like to talk about it. We like to talk about fun performance. Well, we pay attention to it.

And believe me, it's impressive to watch. Thank you very much. Tim Buckley, the CEO of Vanguard. Pleasure to chat with you. Scotty, back to you. All right, Bob. Thank you very much for that, Bob Pisani. All right.

Coming up, we're tracking some big stock moves in overtime. Steve Kovach standing by with that for us tonight. Steve. Hey there, Scott. Yeah, another big earnings day. And we got three names reporting that are making big moves in overtime. One cybersecurity company soaring, a broadband name moving the opposite way, and an apparel maker giving some investors fresh cost cuts to mull over. All that when Closing Bell Overtime returns after this. We're tracking the biggest movers in the OT.

Steve Kovach back with that. Steve. Hey there. Yeah, lots of names moving on earnings tonight. Shares of Lumen Technologies falling as much as 11% here in the OT, following disappointing guidance in its fourth quarter earnings. Lumen, which provides broadband and other communication services, reporting a revenue beat of $3.8 billion, about $200 million over estimates. EPS was a beat to $0.43 versus $0.19 estimated,

but guidance for the current quarter sending shares down after falling short of expectations. The company predicting up to $4.8 billion in revenue for this quarter. Analysts were looking for closer to $5 billion. Now over to Fortinet, which is surging over 16% after hours, Scott. The cybersecurity firm beating earnings expectations at $0.44 a share, although revenue came in a couple million short at $1.28 billion. The company's saying the full-year free cash flow was a record high, though. And finally, let's check on VF Corp.

Shares had spiked as much as 7%, but now up about 2% in the overtime on its earnings. EPS was a beat at $1.12, and the apparel maker is also cutting its dividend. Announced today, 41% cut to that dividend to 30 cents. Also, other cost cuts coming, including selling some assets and lowering, oops, sorry about that, and lowering spending. The company also showing progress working through inventory in China, where sales were down just 1%

on a constant currency basis. Scott, I'll send it back to you. All right, Steve Kovach, thank you very much. Still ahead, Santoli's last word. We get his key takeaways from the Fed chair today and today's market reaction to that. We're back right after this. All right. So the results of our Twitter question, we asked, is AI the next big market bubble? The majority of you saying, yep, 67 percent. Mike Santoli is here for his last word. Markets to Powell zero. Yeah. so far in the last week, anyway, I still have some catching up to do from last year,

probably, if we're keeping score. But yeah, I mean, I think what we're dealing with is data dependence by another name. I mean, that's what the Fed is conveying at this point. So nothing to really upend the general sense of, okay, the Fed's cruising toward its destination. It's going to, you know, space toward its destination. It's going to space out the moves. We're going to have the incoming data tell us where it's headed next. And there's no reason to jump in front of it. So all that, I think, is the premise for what's going on. But

you have other things happening here, where if you remember how we kind of cascaded lower, first the really speculative stuff, then the valuation compression in big tech, and then, you know, we had the price and maybe recession risk. A lot of those things, almost independent of one another, have been coming back. So I think that's what tells us why the market is up eight and a half percent year to date in the S&P. See, you know, Kashkari today, he leads you to your point. He leads you to believe that forget data dependence. We're on our path and we're getting there. Yes. It goes to the point of nobody's voice, as I said earlier in this program, no one's voice matters but the Fed chair. Because he, to your point, was data dependent. Data dependent and just willing to be open to

different outcomes. What I think it really was meant to get across, or whether meant or not, it did come across, is that they don't think that there's such an amazingly tight link between each tick higher in unemployment and getting inflation lower. So every decade, I keep pointing this out, there's been one big macro relationship that just stopped working. OK, so in the mid 90s, when we had that soft landing, they used to think you couldn't get unemployment below 5 percent without sparking inflation. Right. You couldn't get inflation up with low unemployment last decade. So I think that you have to have some humility, and Powell is suggesting that he has it, about thinking the job market has to do X in order to get inflation under control. Now, the numbers still have to

cooperate. Earnings have been messy, and yet the market's shirking them off. So I think we are in the mode of people starting to believe the technicals without being clear on the story behind them. And that's always the way it is. A few months off a low, if it's the real one, it's not like everybody agreed that it was the low. You've seen some funny cycles and we just went through a whole bunch of different ones related to speculative things in the market. What do you make of this whole AI binge that apparently we're going through? All of a sudden, it feels like it came out of nowhere. It does really, honestly. There's always something real and big at the core of it, but it's almost never investable in the obvious ways. So I would go back to open source and Linux. There were two stocks in the market

you could buy. It was Red Hat and maybe Sun Microsystems. And they went to the moon. And then after that, they became part of the process. Software gets better and faster all the time. So Microsoft is, OK, fine, we're going to do it through AI. This is what we're calling it now. I think you give Microsoft a $2 trillion market cap. You give Alphabet a $1.4 trillion market cap because you trust that they're going to figure out the next thing. They're patrolling the frontier, and they're going to utilize it however it makes sense, even if it's not a product they can point to that somebody's paying for.

So, yeah, it's getting overhyped in the short term, but it's becoming part of the fabric of the industry. I love Lotoni's line today in our show, something to the effect of, innovation doesn't have a calendar. Exactly. It happens when it happens. It's just interesting that it's happening now as all of the headlines have been dominated by

downsizing from big tech. And here we are talking about the next. They want to send that message. Yeah. All right. Good stuff. Thanks. We'll see Mike Santoli again tomorrow for his last word. It does it for us. Fast money is now.