Closing Bell - Closing Bell: Powell presser pumps up market, Gary Cohn reacts, Big earnings movers 2/1/23

Episode Date: February 1, 2023

Stocks rallied during Fed chair Jerome Powell’s news conference after the Fed announced its decision to raise rates by 25 basis points, with investors keying in on Powell’s comments around taming inflation. Former NEC Director Gary Cohn joins for an extensive breakdown of the decision and Powell’s words. David Zervos from Jefferies discusses the impact on the market and for investors. Plus why AMD and Peloton surged on earnings, and what to watch from Meta’s results.

You're listening to Closing Bell in Progress. Stocks are at session highs as the Fed chair wraps up his news conference. Big rally on those remarks. The Federal Reserve raises interest rates as expected by a quarter of a percentage point. That's a step down from what we saw last time. The Fed chair talked a lot about the progress he is seeing on inflation. He used the word disinflation a number of times, potentially why the market is taking this as such a dovish read from the Federal Reserve chair. Look, he also said that

they continue to see need for ongoing interest rate increases, that there's still more work to do when it comes to fighting inflation, that he needs to see more substantial progress, that inflation is coming down. But the stock market is really keying into the other message that potentially they're closer to the end on hiking interest rates. Joining us now with reaction is former National Economic Council Director Gary Cohn. He is also the vice chairman of IBM and the former president of Goldman Sachs, regular on the Fed day. I guess the takeaway, Gary, is that this could have been a lot more hawkish. Oh, absolutely, Sarah. I mean, Chairman came right out of the blocks and said the full effects of our actions have yet to be felt.

And that was literally in first or second sentence. And I think from there, he did go back and forth, giving you both sides of the argument. But I think the fact that he gave us the side of the argument that things have gotten better, he pointed out in his opening statement that he sees improvement. He sees inflation coming down. The only thing he kept hanging his hat on was the labor market. So at this point, it feels like we are just labor dependent. The data that they're watching more than anything. You can't do anything about the supply of workers. I know we can't. Don't we need immigration? We don't need Fed hikes. I know we can't do anything about it, but we are labor dependent. He went as far as quoting this morning's Jolt Report.

Right. He quoted this morning's Jolt Report. He talked about, you know, one point nine job openings per unemployed American. That was this morning's data in the middle of his meeting. He was looking at Jolt's data. So we are labor dependent right now. Let's bring in Mike Santoli, because this has been quite a stunning intraday move. Mike, look at the Nasdaq and the jump from the lows to now the highs of the session. Similar chart, you know, with the dollar going the other way, treasuries getting bought. What do you make of this market reaction? Well, Sarah, I think the key was during

the press conference, Jay Powell refused multiple opportunities to more directly get hawkish and essentially call the market out for being too optimistic about a soft landing. He was asked about financial conditions a couple of times. He said, well, you know, they've tightened a fair bit in the last year. That's actually not that true. They've loosened up again. But he was not willing to say, yes, the markets have it wrong here. He also just in general was allowing the economy to prove that a soft landing is possible. He was not strident about getting unemployment to a certain level. He was not suggesting that, in fact, even the language about ongoing future increases in rates is really even fully baked.

When he was asked about the December outlook among the committee about, you know, Fed funds getting up to five and a quarter percent or something like that. He didn't really endorse that. He said, well, we'll figure it out. We'll have a new outlook in March. So all those things taken together, combined with, I believe, a market expectation that there was at least a chance that he would be more aggressive, as he was last August, in trying to keep the markets from getting too excited. All that together kind of unleashed the market, allowed investors to relax a little bit in the very short term. As we know about these things, we can completely unwind this by tonight.

Yeah, true, Mike. But I totally agree. And Gary, he had so many, this is a Fed chair that knows how to be hawkish. He's scared the markets before. He's talked about inflicting pain. He's talked about financial conditions. He had a number of chances to do that. And when he did not push back against looser financial conditions, that was a very dovish sign. Absolutely. I mean, Sarah, he had many opportunities. I mean, at one point he said, I'm neither optimistic nor pessimistic when he talked about next month's dot plots, because a lot of people ask him about pause. How should we interpret pause? And he said, look, we did we ask him about pause. How should we interpret pause? And he said, look, we did we did plots last meeting. We'll do plots next meeting. He initially

said they could be higher than he injected and they could also be lower. Right. So he left the door open, as was said, for any potential outcome here. And as I said, he recognized the effects that we're having. And he did say and he did acknowledge the short term data on inflation. Even if you look at PCE, the month over month or the last three months, and he did acknowledge the last three months, we're showing very little inflation in the system. The year over year number he quoted, but the three month and a month over month numbers are very low. You mentioned the jolts, which came out, showed more job openings,

which the Fed had previously put a lot of emphasis on. I do think he also sort of poured some water on that, too, and he said, well, wages are coming down. He did. We've seen that in the average hourly earnings. We've seen that in the employment cost index. And so, again, another chance for him to be hawkish that he did not take. Yeah, but he also interjected, look, I've got two more unemployment reports before my next meeting. We've got one this Friday and one the beginning

of next month before they have the March meeting. So remember, we have a March meeting and then we have a month off. So, you know, I still believe what I said last time. I still believe another 25 next meeting. They've got a month off and then we'll see what happens from there. They could be done. So you think 25 in March? Yes. And then pause. I think 25 in March. That's where the market is. The market expects peak funds at, what, 5% or so? That's one more 25 basis point hike. We would be four and three quarters, five. And they could basically say they've gotten the market to 5% at that point. So that only works if inflation keeps coming down. Yes. And that's still a question, isn't it? He said it was very gratifying to see the disinflation now take effect.

But he was asked by a number of reporters, including our Steve Leisman, about the impact on labor and how much that's going to drive inflation. It's hard to tell. It is hard to tell. It is hard to tell. Look, we do have a tight labor market. But as you and I both know, and we've talked about this before, the Fed cannot

create workers. The reality of it is, if you look at prime working age adults, the participation rate is back to pre-pandemic levels. We're missing people in the older population that have left the workforce and are not coming back to the workforce. People have early retired. We've talked about that. We've also talked about, unfortunately, COVID took people out of the workforce, unfortunately. So we really just can't create these workers and they're not coming back. And companies are afraid in many respects to get rid of workers. Also, look at what's going on here. And the chair did mention this. We've got the president of the United States on a tour right now talking about the infrastructure bill that was passed, giving out money right

now to implement that plan. We're building a tunnel here in New York between New York and New Jersey, the Gateway Tunnel. He was in Baltimore yesterday talking about the Baltimore Tunnel. He was in Kentucky a week ago talking about the rebuilding of the bridge. That infrastructure plan has a million and a half jobs in it. So there is going to be more demand for jobs. So yes, the technology industry is shedding some jobs. They were the huge creator of jobs in the last two years. It's expanded beyond tech at this point. Yeah, it's spreading, but we're also creating new jobs. So the whole infrastructure rebuild, we're starting to create jobs. And you can see, as the chair said, there is a lot going on underneath the surface as well. That has nothing to do with higher interest rates.

I guess the question is on wages. Gary, stay with us because we do have our senior economics reporter, Steve Leisman, who is in the room, did ask about labor and how that factors into Chair Powell's thinking. Steve, what was your takeaway? You know, I think there's just a little bit of wiggle room here. Not a lot. I think if the December press press conference was uh marked by the idea that he did not want to entertain any possibility that they would go to five percent

uh and stay there for a long time i think he created the possibility that they could maybe stop a little shorter than five maybe not quite uh be high for so long if the data comes in and he acknowledged the differences between the market. And very interesting the way he acknowledged them, Sarah. He acknowledged them as differences in the outlook, not a difference between, do you believe I'm going to do this if the data says this? That's not where it is. It's a difference in the outlook of inflation. He said, if that happens, we'll take that into our forecast. Here's what he said about the inflation dynamic. We see goods inflation coming down for the reasons we thought. And we understand why housing inflation will come down. And I think a story will emerge on the non-housing services

sector soon enough. But I think there's ongoing disinflation and we don't yet see weakening in the labor market. So we'll have to see. So, Sarah, you heard he didn't embrace nor did he dismiss what his vice chair said, which is the possibility that maybe inflation comes down in that non-housing service sector without a big decline, essentially, in the labor market. He said it's possible in some sectors, maybe not in others. I think the truth, Sarah, is going to out here when it comes to the data. If you have great inflation data between now and March, they'll bring down that SEP perhaps. If not, it's going to stay right where it is.

I feel like the question here, as we're all sort of psychoanalyzing Fed Chair Powell, and as the market is taking it, look, he wasn't as hawkish as he could have been or he has been in recent past. The question is, what happens to inflation? Is it going to come down fast enough for them to take a pause in the next few meetings? You know, Sarah, I have one observation, if you don't mind. It's maybe a personal one. Looking at Powell, I felt like he was comfortable with the position that he's taken here. And I don't know if Gary wants to comment on that or whatever.

I didn't see a guy ill at ease or discomfited, if you will, with where he is relative to policy and his outlook. He seemed like, hey, here's the reality. We have an inflation problem. We're going to hike rates and we're going to continue hiking rates until it's apparent we don't have it yet. And he didn't seem uncomfortable with that. He seemed pretty solidly as if he both had his committee and he had his own personal conviction behind the stance that they've taken here. You agree, Gary? Yeah, no, Steve, I would agree. I think Paul is in a comfortable position. He got aggressive. They raised rates pretty aggressively. He's now, he pointed out that we've stepped down the last three meetings, 75-50-25, and he's got himself to a comfort zone. And he gave himself wiggle room. Like,

I'm not sure what's next, but I'm not going to let this get out of control. And he did make the point. He did make the point. Look, if I'm going to err, I will err on raising rates because that's easier to correct. Markets heard that before, though. Yeah, markets heard it before. But he did get it into the conference. So I agree with Steve.

He felt very at ease today. Steve Leisman, Steve, thank you very much. He also, you know, I thought gave a pretty stern warning to Congress on the debt ceiling. He was asked about it, took the opportunity to say, this is very risky business. If you don't raise it, don't count on the Fed to come in and rescue the market. But what if that happens? Does the Fed come in and rescue the market? Look, I think his warning was totally appropriate. He does not want to be put in a position, whether it's legal or illegal, to decide what should be paid or what shouldn't be paid as an agent for the Treasury. That's an untenable position for him to be put in. And I think we all believe that the full faith and credit of the United States is the most important thing and that Congress ultimately has to increase the debt ceiling.

But is there a consideration of what happens if it doesn't? What happens to the economy? What happens to the market? Nothing good. You know, we all know there's nothing good by the United States not being able to pay their bills and testing this. We know that everyone will get paid eventually, but that's not the right answer. That's not the right attitude. We're the United States. We owe people money. We clearly cannot cut off Social Security. We cannot cut off Medicare. We cannot cut off Medicaid. We should be paying our troops. We should be paying all of our bills. People depend on the U.S. government to be there. We are, you know, we are

the flight to quality of the world. We need to be flight to quality of the world. We need to be the reserve currency of the world. There's a lot of intended and unintended consequences with this happening. It's really not open for debate, in my opinion. We have to figure out how to extend the debt ceiling. So speaking of full faith and credit, I mean, our bonds are getting bid right now in a big way. The 10-year Treasury note yield down to 3.4% on the interpretation that the Federal Reserve chair was pretty dovish. The other question is, of course,

what plays out in the economy. You know, we've been getting some data on manufacturing lately, including today, that shows that part of the economy is in recession. We're below 50 readings on the S&P, on the PMI, global manufacturer, U.S. manufacturing data. So the question is, what happens to the consumer and how far does that spread? Well, look, we have seen the consumer start to slow down a bit. You know, look, we know that the stimulus savings that the consumer had, which was extraordinary, is now whittling away

slowly. We see consumer debt coming up to sort of record highs. We're starting to see more and more defaults. So we know that the consumer is having additional problems at this point. They're not in a horrible position, but their disposable income is eroding. And we're seeing wages. We're seeing the pressure on wages. There's a little bit of wage pressure going on. Look, to me, this is interesting in some effect because it's probably going to force more people back to the labor market that didn't think they were going to reenter the labor market. We could be in this funny conundrum that people want to come back to the labor market at the exact same time the labor market is contracting. So the Fed might ultimately get their wish that the unemployment rate goes up. And they may be trying to solve

that side of the equation. Remember, it's a double mandate. It's full employment and growth. And with inflation at 2 percent, right now they're lucky that we have the full employment side of the equation. If we start seeing disposable income continue to evaporate and people's savings go away and people need to reenter the labor force and there's no jobs, we see a spike in unemployment. Again, the Fed's going to have to deal with that. Is that your expectation, that the economy worsens like that? I think the economy is going to worsen to some extent. You know, I'm not worried about a horrible outcome here, but I do see some softness around the edges here. He said, I mean, the Fed chair started out by saying that the full effects of tightening, as you noted, have not been felt.

Yes. What does that mean? How long does it take for the full effects of tightening to play out? We're seeing it in the housing market. Well, historically, it's six to 12 months. And remember, the first tightening was 11. Well, the first one was 11 months ago. We aren't even a year into this.

It was March 17th, I think, of last year. So we're not even 11 months into this. So the full effects of the first increase are probably starting to hit into us. But the effects of the last five or six are not really hitting us. They're still working their way through the system. I want to just explain, people, what's happening in the markets right now, because we're seeing a big rally. I mentioned the intraday turnaround on the Fed shares remarks. The S&P 500 up now 1.2 percent almost. Technology stocks are in the lead.

Consumer discretionary right behind them. The only sector lower right now are energy prices. The Nasdaq composite up now more than 2 percent. I mentioned Treasury yields getting bought. Treasury's getting bought yields a little bit lower. The dollar is weaker. Bitcoin is at the high of the session. It's everything you would expect to rally. The 3.4%. So you think we've seen the highs on treasuries? Because a lot of people think, look, higher for longer means rates are going back up.

I don't know on treasuries. We, the treasury curve right now, you know, it depends really what part of the treasury curve you talk about, right? Because we've got such an inversion going on between the front end, you know, you've got. And it's inverting further. It's probably inverting further. I would assume it's inverting further. So have we seen the highs? I don't know if we've seen the highs in the front end because, you know, if the Fed keeps raising rates in the front end, I only think they're going another 25 basis points. So don't you think that's been priced in?

I think it has been priced in. I think it's been priced in. So, you know, if you ask me, you know, to tell you where I think we've seen the highs in the Treasury market, the 10 year, you know, the 10 year is driving its own view of where the economy is. But the key thing you talked about with the dollar, you know, I think Iyear is driving its own view of where the economy is. But the key thing you talked about was the dollar. You know, I think I saw on the screen that dollars had a pretty— It's sinking. Sinking, which is—look, which is great. You know, at the end of the day, that's helping out U.S. corporations. It's allowing us to export more.

It's allowing repatriated earnings are more valuable to multinational corporations. So the dollar move is very valuable. But all of that goes against what the Fed is trying to do, which is constrain the economy and tighten financial conditions. And he even said, look, we'd like financial conditions to match up with what the policy we're trying to take, but they're not right now. It was an interesting answer on the financial conditions answer. And it was an early question. You know, he talked about we don't look at short-term moves in financial conditions answer. And it was an early question. You know, he talked about we don't look at short term moves in financial conditions. We look at long term moves in financial conditions.

But the bottom line is the market is fighting the Fed, which wants ongoing rate increases and higher for longer rates. He said this isn't time to pause. And he doesn't see rate cuts this year. I mean, the market sees something different. The market does. Who's right? Look, I said it last time and I'll say it again. I think the market is right. That they're going to cut rates this year? I think the market is right. What is going to drive them to cut rates this year? Well, look, I think that employment is going to stay strong. I don't think the Fed is going to break the back of the employment market for a variety of reasons. He keeps talking about the service sector being so strong.

The service sector is employment. At the end of the day, services are bodies. Yes, it's got some input costs in the restaurants, but if you go to a service, if you go to a dry cleaner, you go to get your hair cut, those are service industries. Those are people providing services. So when he talks about the service industry being high, it's labor.

I think that those markets are going to stay where they are. And remember the way inflation works. Inflation, you know, as prices go up, we're inflating. If prices stop at that level, we're no longer inflating, but we still have high prices. So I think we're going to start seeing prices just stabilize at these levels. The prices are going to be high, but I don't think we're going to lose a lot of workers. And the places where we lose workers, we will replace them in other places. Like I'm talking about, like the infrastructure bill. The infrastructure bill is going to bring additional need for labor,

from engineering all the way down to manual labor in the construction of the U.S. infrastructure. So that means the labor market will stay strong enough. So why would he be cutting rates? So the labor market is going to stay strong. I think they're going to give up on this fact that we have to break the labor market to stop raising rates. As I said earlier, it's labor dependent. I don't think it should be labor dependent. I think it should be economic data dependent. If they give up on the labor piece, they would stop raising rates now. Got it. Really quickly, I got to ask you about Lael Brainerd because she was she was her name was invoked many times during this news conference. She's given some important

speeches. She's the number two at the Fed, are reporting and others that she is likely heading over to the White House now to be President Biden's head of the National Economic Council, a job that you once did under President Trump. Isn't she more effective right now as the vice chair of the Fed where there's some real policy action being taken? Well, it's an interesting move for her. You know, if she moves over to the White House in the NEC job, she's got a much broader mandate. She can get involved in many more aspects of the U.S. economy. The NEC job allows you to be involved in technology.

It allows you to be involved in technology. It allows you to be involved in agriculture. It allows you to be involved in all of the major input areas of the economy. You're the chief economic advisor to the president of the United States, and it allows you a huge swath of areas where you can delve in and really influence policy and work with Capitol Hill on driving legislation. As vice chairman of the Fed, look, you've got a very powerful position, but you're dealing with monetary policy. Yes, which I just happen to find a little more exciting. But that's just me. Not for everyone. I thought the NEC job was a really good job.

Well, of course, when you had it, you know, it was like peak elite. Gary Cohn, thank you very much. Appreciate it very much. Here's where we stand right now in the markets. We're rallying across the board. The S&P 500 up 1.4 percent. We're at new highs. The Nasdaq up 2.3 percent. Look at small caps. They're also surging up almost 2 percent. You've got every sector green right now except for energy, tech, consumer and communication services all in the lead. We've got a lot of individual stocks to talk about. Snap is sinking after a revenue miss and a weaker sales

outlook. Coming up, what that could mean for Meta, which reports earnings after the bell today. And don't miss DoubleLine CEO Jeffrey Gundlach, his reaction to the Fed. That's coming up in closing bell overtime. Dow is lagging, but it's up 150 points or so. Be right back. Up almost 200 now on the Dow. Take a look at some individual stocks on the move. First up is FedEx taking a leg higher in midday trading after announcing it is laying off 10% of its officers and directors. High-level jobs. The CEO saying the moves were necessary to better align with customer demand.

Altria also moving higher. The tobacco company topping earnings estimates with a slight miss on revenue. Also announcing a $1 billion buyback program. While its full-year guidance met the street's expectations, the stock rallies a little more than 5%. And moving in the opposite direction is EA, the video game maker.

One of the S&P 500's worst performers today, down almost 10 percent. Bad news there, including missing earnings and net bookings expectations, also disappointing guidance and a delay of its upcoming Star Wars game. Stock down nine point eight percent. Up next, Jeffrey's chief market strategist, David Zervos, on what the Fed's latest interest rate hike and the message from Fed Chair Jay Powell means for your market, for your money and the market. That story, plus a preview of Meta and Peloton pedals higher when we take you inside the market zone. We are now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Julia Boorstin here on Snap and Meta

and Jeffries Chief Market Strategist David Zervos, of course, here on the Fed. We'll kick it off Broad Market. Boy, we're seeing quite a rally. Intraday turnaround on the back of headlines and comments from Fed Chair Jay Powell after they raised interest rates. Mike, market is getting very excited about what they heard from Fed Chair Powell or maybe what they didn't hear. Pushback against tighter or looser financial conditions. Pushback really against maybe not going as high as originally anticipated on the dot plot of raising interest rates. The market is now pricing in 50 basis points of Fed cuts after peaking in June. Is that realistic? It's plausible.

I don't know if it's realistic in the sense of being the most probable outcome, but pretty notably, Chair Powell did not really call the market to task for that. He said, well, they must have a different expectation for where inflation goes. He wasn't trying very hard to jawbone the market. I think that's what accounts for just the general unclenching of the markets since the press conference, where there was a little bit of a worry in there, and for good reason, that we would be going through the August routine, which was a very strong high teens rally. That's what we had then. That's what we have now in the S&P 500 that ran into a Fed chair that really was not happy to see the markets prematurely celebrate.

And we had obviously a big scoop lower in the markets, five or six months of retrenching. And at the intraday level we are at right now in the S&P, the last time we saw it was midday, August 26, the day that he sent the market lower on that pain speech. So we have a lot of symmetry going on here. You can't declare victory. He didn't declare victory. But I think relative to expectations and relative to how people were positioned, hoping maybe the Fed were going to give them an excuse to buy a pullback, for the moment, we're not getting that.

I wonder if all the Fed speak to come is going to be trying to walk it back and be a little tougher on inflation, a little more hawkish, just because of this enthusiastic celebration. Let's hit some individual movers. Look at shares of Snap sinking after reporting a slight fourth quarter revenue miss because of a big decline in brand advertising. The social media company also declining to give first quarter guidance, but did note in its investor letter, internal forecasts assume revenue will fall between 2% and 10% from last year. Wall Street was expecting a gain there of more than 1%.

CEO Evan Spiegel discussing the company's advertising challenges during the earnings call last night. It seems like advertising demand hasn't really improved, but it hasn't gotten significantly worse either. I mean, obviously, the brand spend is significantly reduced, like we saw in the quarter. But our direct response business continued to grow in Q4. And in general, it seems like our partners are just managing their spend very cautiously so that they can react quickly to any changes in the environment.

Investors now waiting to find out how the ad environment is going to impact Meta. It reports earnings after the bell. Julia Boorstin joins us. So is this a Snap problem or is it Meta's problem too? Well, interestingly, Snap's problem largely seemed to be about brand advertising and Snap does have more exposure to brand advertising than Meta does. So Evercore's Mark Mahaney, he told us that he believes that Snap's mix of brand and direct response advertising is about 50-50, whereas only about a quarter of Meta's advertising is that brand advertising.

If we're going to look ahead to Pinterest on Monday, when they report Pinterest has an estimated 75% of its ad revenue coming from brand advertising. So I think it's really important to look at the mix here and to look at how Meta may be better insulated from some of those brand advertising challenges. The other thing to watch here, Sarah, is that Meta has all of these businesses, all of this massive area of user engagement where it can really turn on the advertising spigot, sort of flip the switch there. And these two key areas that I'm watching are in particular Reels, which is the TikTok competitor, and also Messenger, which, of course, uses AI to interact with consumers and is a great direct response advertising tool.

So I think those are two key areas to watch for Meta, which obviously are very different than some of the challenges that Snap is dealing with. And also the expense side of the equation has been very important for Meta and for investor psychology around this name. The stock has really rallied after Meta announced the layoffs and announced a little more discipline there on cost. Yes, I think the key thing here is that Meta actually announced its layoffs months before some of the other tech giants announced their layoffs. I think Mark Zuckerberg may be pointing that out on the call that's coming up in about an hour and a half.

And I think it's going to be interesting to see how they talk about their expenses, whether they're going to have more expense constraints pulling down their expense estimates for the year more than they already have. Also, where they're going to be shifting their attention. Mark Zuckerberg made it very clear that he is focused on the bread and butter of Meta's business, which is generating revenue from the family of apps.

But does this mean that now maybe he'll be spending slightly less on the Metaverse business? So that's certainly a key area to watch. But I think expenses will be in the spotlight for Meta as well as some of the other tech giants who we hear from later this week and then next. Julia Borson, Julia, thanks. Meta's quietly rallied about 30 percent so far this year, along with the market, but outperforming the market. It's still down pretty sharply. It was a $336 stock at the end of 2021.

Look at AMD surging today after better than expected fourth quarter numbers. Far cry, of course, from Intel's earnings disaster last week. The company, AMD, reporting a 43% increase in embedded chips and data center sales, which was enough to offset PC weakness. Its first quarter guidance coming in a little bit light, but consistent with the view of a softer first half, followed by a turnaround in the back half of the year. AMD CEO Lisa Su joining Squawk on the street earlier and predicting a rebound even in PC demand. Listen.

We do believe that the first quarter is the bottom for PCs, and we believe very much in our product portfolio and the strategy that we put together. So that's what we're seeing as we go forward. Mike, market likes what they heard, likes what they saw here. Big contrast to Intel and some of the other semiconductor stocks. What did you take away from AMD? I mean, there's no doubt that AMD management certainly has more credibility.

They have better kind of market share dynamics going into this. So if you can start to pencil in the idea that we're essentially troughing right now in PCs and the inventory issues, you can kind of see the light at the end of the tunnel in the context of a stock that had been cut in half in 14 months in AMD and looks like it's actually a relatively undemanding valuation compared to its own history. You can put it all together and say it makes a lot of sense, especially on a day when investors and traders, as we were saying before, are grabbing for risk. Absolutely. AMD tops the list of information technology sector, which is at the top of the market.

But you've got names like NVIDIA in there also surging 7 percent today and some of the other semiconductors following suit. Want to hit Peloton as well because it's taking off today after a quarterly surprise. The fitness equipment company posting better than expected revenue thanks to growth in its subscription business, a development that management calls a, quote, turning point. Strength there was enough to overshadow a steeper loss than expected. CEO Barry McCarthy talked subscription growth earlier on CNBC. Listen.

The margin on the subscription business is in growth earlier on CNBC. Listen. The margin on the subscription business is in the high 60s, 68 percent, I think. And so now we've got this structural shift and there are lots of economies of scale that come as a result of the growth in the subscription business, which we also saw at Netflix and which we also saw at Spotify, which we'll also have the benefit of here. Mike, enough to hang your hat on for Peloton as far as the turnaround? Well, you can certainly say things are improving. The processes are in place. They've taken a lot of the pain already.

It's still a big question as to what ultimately is the scale of the business and how big it can get. And I mean, it's trading at about 10 percent of its peak share price that we saw back in the pandemic peak. So so clearly just a shadow of what people thought it was going to become. But, yeah, I think that the subscription trends are enough to have people shop among some of the damaged goods in speculative tech? Yeah, as Simeon Siegel, who covered it and called the big decline of Peloton, always says, a BMO, they maybe never should have gotten to a $16 billion, $17 billion stock. That just was, maybe that was the problem here. And they had to reset and resize to a more normal valuation for Peloton, which is surging.

Look at that, up 30 percent. Let's get back to the market. The Dow has actually just gone positive, down 15. S&P is still rallying about a percent. Excuse me, Dow has just gone negative, I should say. The S&P is still up 1 percent, and the Nasdaq is soaring more than that. Joining us now is Jeffries Chief Market Strategist David Zervos to help us digest what we heard from Fed Chair Powell. David, do you agree with the market's early interpretation that it could have been a lot worse and they gleaned a pretty dovish message here?

No, I really think Mike kind of hit it on the head in the early comments when we had the panel start. Jay didn't really pick a fight with this concept that the market's pricing in a couple of cuts after we peak out at five or five and a quarter. And I think that's the market expected to have a fight with the Fed. I think that's what Jay's doing in most of these press conferences, kind of saying, you guys are crazy. I don't know what you're talking about. We're going to keep on keeping on and invoking Paul Volcker statements. And he just seemed really docile and he seemed in a good place. He seemed calm. And I think, you know, maybe it was just that he's feeling pretty good about, you know, not having the Larry Summers and the Muhammad Al-Aryans on his back about having messed it up so much. He's got inflation kind of doing what he wants it to do.

So I think he's feeling good about that. He didn't want to pick a fight. He sort of sounded kind of very Switzerland-like to me today. I don't know. But he also sort of blessed the market conditions, which have loosened and the market rally. He gave a green light to keep on keeping on when it comes to buying stocks and bonds? I think the market did not expect that. I did not expect that. We've seen Jay really kind of push back on this. We need to be vigilant. We need to be strong. It kind of an acceptance that he said it another way, Sarah. He said, you know, in all the survey data we're seeing now, people are starting to feel comfortable that inflation is coming down. The expectations in the surveys, the expectations are something

they watch really closely. And I think he's feeling pretty good about that. And that showed his confidence today. And I think that's why he didn't pick a fight with the market. He said, look, maybe they're right. Maybe it's going to come down faster than I think. And then they can have their rate forecast where I want. He doesn't believe it. He doesn't think he's going to be able to do it. But if he's pleasant, he kind of blessed that if he's pleasantly surprised, he could he could come to the market's expectations more quickly. And I really didn't think I thought it was very early for him to do that. Now, he may have he may have misspoke and been a little wassail and we'll get some some pushback on that at forty three hundred in the S&P. He might sound a little nastier like

he did before Jackson Hole. But, you know, I was surprised by that. That was really, I think, why. He's going to speak at the Economic Club of D.C. in the coming weeks. So it'll be interesting to see whether that message changes at all in light of market conditions or if this market continues to rally. But, David, the question is, should he be comfortable with the whole disinflation, which he used that phrase and that word. He said it was gratifying to see we're in the disinflationary which he used that phrase and that word. He said it was gratifying to see we're in the disinflationary phase, even if it's early stages. Like, is that the right approach for him to take? Do you agree that inflation should continue to come down from

here? I think it's a dangerous game. The declaring victory early story is really where all of his all of the people who are nervous about him doing something like the mistake of the 70s. That's where they're all pointing that he's going to declare victory. Then inflation comes down, but then surges back up as the Fed either cuts or goes on a protracted period of stability. So I personally think he's going to be much more vigilant. I think he's happy to have the inflation come down. But when push comes to shove, three, six, even nine months later, I think he's going to be pretty slow to give you a real victory lap where he's actually turning rates around or stopping QT. I think it's going to be much harder than the market is projecting on that. So what do you do here if you're an equity

investor? Do you put money to work? Because the mantra has always been don't fight the Fed, don't fight the Fed, don't fight the Fed. Should you fight the Fed now? Because it sounds like even he's coming around. I mean, I think it's pretty good for our trade, Sarah, that you and I've talked about a bit and I've been talking with some of the other hosts about. I think it's pretty good for our trade, Sarah, that you and I've talked about a bit. And I've been talking with some of the other hosts about it. I think it's pretty good for the high yield credit markets. You've got a lot of carry. You've got loans and bonds that are yielding 8%, 9%, 10% in some cases in the junkier areas, single Bs and double Bs. That's a much safer part of the capital structure.

If Jay kind of turns on you, you've got a big coupon that you're collecting. Had a great start to the year and that stuff. And I think for me, it's really hard to tell the 20 percent up trade in the Dow or the S&P or even the Russell. I think you've got a Fed that's going to be pretty restrictive for a while and is not going to sound as nice as Jay sounded today. Now, maybe inflation crashes to zero quick and you can go, you know what, I got this thing and I can help you out. But I just, I don't see it. And if that does happen, I think I'm going to make quite a lot of money on my junk bond trade too. I think it's a safer way to play this year. The bond markets have been beat

up. The stock market was not beat up as bad. And I think you can probably have a safer risk reward trade in 2023 in that part of the world. David, thank you. I always love getting your first take and trade off of the Fed statement and commentary. David Zervos of Jefferies with a 1% move lower now in the dollar and two minutes to go here in the trading day. Mike, what are you seeing in the stock market internals? Yeah, they're strong, Sarah. We're very mixed before the press conference. Now they're more like two to one advancing versus declining volume. Also been highlighting new highs, new 52 week highs,

really outrunning new lows. It's been the case for weeks, even on weaker days. NASDAQ pretty stark today as we get well beyond those NASDAQ peaks of late 2021. The volatility index has come in, as you would expect, down one and a quarter points. It's just above 18. This was one of the big catalysts where we were sort of still bracing for some potential volatility. Now we're basically at the lows that we saw last year at any point. As we head into the close, looks like the celebration mostly continues off of Fed Chair Jay Powell's news conference. You've got a big rally in the S&P and the Nasdaq. Not so much the Dow.

It's lagged all day. Microsoft, Salesforce, Home Depot are pulling the Dow higher. But you've got losers like Amgen, Travelers, Caterpillar, and UnitedHealth. The S&P 500 goes out with a gain of 1%, 2% for the Nasdaq as tech takes center stage. A rally for gold, a sell-off for the dollar, and a rally for bonds. Dubbish reaction to Fed Chair Powell. That's it for me. I'm closing now. I'll see you tomorrow, everyone. Now into overtime with Scott.