Closing Bell - Closing Bell: Powell sends market on rollercoaster ride, Clarida reacts, Chegg CEO on share plunge 2/7/23

Episode Date: February 7, 2023

: The major averages took a rollercoaster ride mid-session as Wall Street reacted to comments from Fed Chair Powell at the Economic Club of Washington. Former Fed Vice Chairman Richard Clarida joins to break down the messaging and to share his expectations for rate policy for the rest of the year. Shares of Chegg were in detention after the ed-tech company gave light revenue guidance. CEO Dan Rosensweig discusses what analysts might be missing in the outlook. Citi’s Jim Suva talks about Apple’s prospects in the growing A.I. race, as Microsoft unveils how it will integrate ChatGPT into search. Plus the latest on a pop for Zoom, and a potential healthcare deal in the works.

The disinflationary process, the process of getting inflation down, has begun. And it's begun in the goods sector, which is about a quarter of our economy. But it has a long way to go. These are the very early stages of disinflation. Comments from Fed Chair Powell helped boost the market mid-session, lifting the Dow back from a triple-digit loss. But then stocks pulled back again after he said this. The reality is we're going to react to the data. So if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise hikes more than it's priced in. But we rallied back off the lows and the

major averages are all in positive territory as we head toward the close. We'll help you make sense of the roller coaster session. This is the make or break hour for your money. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. There's the Dow up 207 points. High of the day was up 278. But again, low of the day was down almost 260.

S&P 500 with a nice 1% gain. Technology is in the lead. That's the sector that's most whipsawed by Fed comments. You do have some weakness today in the defensive groups like consumer staples and utilities and real estate. They're all lower, so is consumer discretionary. The banks are rallying more than 1%. The NASDAQ is up 1.4%,

and you are seeing a lot of the big tech names leading the way for this NASDAQ rally right now. Check out shares of Microsoft getting a lift today as the company outlines the ways it will integrate ChatGPT into its products. We're going to talk much more about Big Tech's AI race in just a bit. Also ahead this hour, we'll break down Chair Powell's message

and the market reaction with former Fed Vice Chair Richard Clarida. And then later, we're going to talk about the big post-earnings plunge for edtech company Chegg with the CEO, Dan Rosenzweig. That stock getting hammered today. First, though, let's head over to the market dashboard. Senior markets commentator Mike Santoli. What are you watching, Mike?

You know, Sarah, just really not that much give in this market. Yet about two days of pullback or at least some hesitation in the market Friday and yesterday. Bomb market got twitchy after the very hot jobs report Friday, but yet today you track Powell's comments and the market reaction. Market's less than 1% from its high of the year for last Thursday. And, you know, you've had some of the froth come out. One of the big questions coming into this week is, can some of the speculative stuff that really got overexcited coming into the week

calm down, deflate a little bit while the overall tape stays intact? So far, there's hints that that's possible. I've been basically saying you're looking at like 4,100. If there were a pullback to that level, 4,000 really, closer to 4,000. And you're still just in the normal pullback zone. Looks like this little mini breakout is intact. One area that we've obviously been focused on when it comes to monetary policy is goods inflation and commodities. Really, if you go further up the chain, here's a two year of the commodity index ETF and obviously well down from the mid 2022 highs, but kind of sticky around this level, which was really right around the Russian creation of Ukraine right there last February. So clearly some of the pressure has come off, but, you know, oil's up off the lows. Copper has pulled back after a good run. Ag commodities are lower,

but not really breaking down. So we'll see how this plays due to the inflation numbers. So far, a tailwind month to month. But you've got to keep an eye on it. I just wanted to mention some of those cross currents today because oil prices are surging. They're up 4 percent today. WTI at 77. The dollar was super interesting today. Hit a hit a sort of short term high earlier and is now weaker, which bodes well for stocks. And Treasury yields are a little firmer. So is it all about the Fed? It's largely about the Fed. And I think the yields in the dollar have been friendly enough and they've come far enough in kind of the stock market's direction that we're not going to get too worried about these little counter trend moves. But, yeah, that's the delicate balance right here is have we used up a lot of the tailwinds from the dollar and the Fed moves?

And, you know, look, the Fed destination is somewhere in sight. If you step down to 25 basis point moves, you got six or seven weeks between quarter point moves. The market can live with that for now in a data dependent mode. Let's talk more about it, Mike. Thank you very much. Mike Santoli, dive into Chair Powell's comments, bring in Richard Clarida, former Federal Reserve Vice Chair, currently Managing Director at PIMCO. It's good to see you again. As always, Sarah. What was your big takeaway today? Well, I think the chair did what he needed to do, which was not too much after payroll Friday. I think that realigned at least rate expectations pretty close to where they wanted them to be. And so I think the markets

have more or less priced in a couple more hikes as the baseline. And I think that's where the Fed thinks they're going. The suspense into today was whether he would walk back his dovish, what was interpreted to be dovish comments during the news conference that sort of swat down the market which he's done before and I think the surprise is that he didn't do that yeah I think he didn't need to do as much as he would have if we hadn't got that blockbuster payroll number you know with both the press conference and today there was a little bit of something for everyone progress on inflation that's good on the other hand we may need to do more. So

I think he was sitting both sides of the ledger, but he really wasn't trying to move rate pricing today. No, but do you think that this is a change? Because it did feel for a good period during this hiking cycle that the Fed cared about the market reaction. Yeah. And it doesn't feel like we're there anymore. He had so many opportunities to talk about looser conditions, and he didn't. He talked about tighter conditions. Yeah. Well, you know, when I did your show in the fall, we talked about that. And that's really where the Fed was.

They were pushing back against easing in financial conditions. I think now they understand part of it, at least, is that they are getting some better news on inflation. So they don't want to seem to not acknowledge that there is some improvement there. But you're right. It's more of a balanced approach to communication than we saw, for example, this summer and in the fall. Should he have swatted down the market a little bit, given the run-up that we've seen in the past few months? I'll focus more on the bond market, given my expertise.

I think the bond market, at least at the front end, is about where they want the Fed to be. Where the Fed wants it to be right now. Yeah. In other words, signaling just a few more hikes. Most of the heavy lifting has been done last year. A couple more hikes is what they think they're going to need to do. So how do we read that strong jobs report? Fed said it means he could go higher than the than the peak rate that the market's priced in. Yes, I think I think the seasonals everyone has discussed are probably tricky in January. We may get a better sense in February of how strong the job market is. But look, it's a very strong job market. Openings are up.

Unemployment at a 60-year low. So you can't deny it. Maybe January, a bit of an exaggeration. Do you guys at PIMCO think and do you think, that the inflation is on a one-way ticket lower? We do think we've seen peak inflation. We think that we will have lower inflation this year. It may not be a straight line. We're getting some good luck now, but a lot's going to depend upon services inflation, goods inflation is down,

maybe housing inflation starts to fall. But there's a ways to go, I think, before either we or the Fed would say mission accomplished. So you expect a rate hike in March? And then another one in May. Another one in May because you just don't think inflation is going to fall fast enough? I think that they think through their communication in the statement where they said, you know, rate hikes, not rate hike. And then today the chair echoed that. I think they think they're going to hike twice more. And so that'd be my bet right now. What about toward the end

of the year? Then what? Pause or cut? Well, I think they've indicated and I believe them that they want the pause to be a substantial length of time. That being said- In restrictive territory. Yeah, in restrictive territory. That said, Sarah, if the inflation data continues to improve, I think towards the end of the year, they could be open to considering a cut. And the chair more or less said the same thing. They're data dependent, I think, as we move out further in the year.

What would cause them to cut? Well, if inflation progress is better than they expect and they see that it's durable in terms of maybe the labor market's not quite as hot, I think if you add those together, they could be in a situation to consider an ease at the end of this year. The economy would, though, really have to weaken

for that to happen, wouldn't it? That might be part of it. I could see a scenario, sort of a softish landing, where all the bad luck in inflation in the last two years is better luck and inflation numbers are in the twos and the economy's slowing. And they could, remember, they think ultimately rates are restrictive now. They want to get rates down ultimately to somewhere in two and a half to three. So even under their scenario, they would be cutting next year.

The other interesting thing that I thought, it didn't get as much attention or play today, but when he talked about the labor market and some of the dynamics, he seemed to imply that they're structural, that he thought some of the issues with labor force participation and some of the supply issues around jobs,

which has some interesting market and Fed policy implications, doesn't it? It really does. And I think part of the reality that we began to grapple with in my last year as vice chair and that they're still dealing with is the post-pandemic labor market is a lot different than the pre-pandemic labor market. I'll give you one example. In January of 2020, unemployment was three and a half percent and inflation was two. Now it's three and a half percent and inflation's for something. So it's a different labor market. Meaning what? We need immigration. We need more skills. I think all of

the above. Some of the folks who took early retirement two years ago have not come back. Obviously, labor force participation is lagging. So I think all of the above. So do you think this labor market is going to soften here in the coming months? I do, because I think all of the above. So do you think this labor market is going to soften here in the coming months? I do, because I think the tightening in place last year and the tightening in financial conditions is going to slow the economy this year. And I think we will see hopefully a modest pickup in unemployment, but that would be my base case. Yeah. Hopefully it's modest. Yeah. So people don't lose their jobs. So how should we listen to the Fed speak that's going to come in the coming weeks? What sort of messages or indications will you be looking for?

And data as well, because now it seems like they're more data dependent. I think they become more data dependent, certainly, as we go through the year. Well, the flip answer would be listen to the chair. We had him today. We'll get a lot more Fed speak. We heard some comments from Mary Daly on Friday that also reinforced this message of a couple more hikes. And yeah, the Fed speak and the data will be coming in. But I think the chair, it was important for the chair to get out there today as he did, because, you know, let's face it, he's certainly first among people on that committee. No kidding. But we get a CPI report, I think, on the 14th.

Yeah. So next week. Yeah. And then I think one more after that. Do you think we could see that number go up? I know you said it's going to be bumpy and not in a straight line. It could. The economy has picked up a little momentum here, it feels like.

Yes, it could. I think we would probably tend to look more at the core than the headline. And I think we have seen peak inflation, so inflation will be lower this year. The question is how fast. No. Got it. Richard Claridise, great to have you, especially on a Fed News Day like this. Thank you. Interpret the Fed speak. Former vice chair of the Fed, currently at PIMCO. Shares of education technology. Take a look. Company Chegg.

They're in detention today after the company gave soft revenue guidance for the first quarter and the year. Down 18.3%. We'll talk to the CEO, Dan Rosenzweig, about what is weighing on this outlook right after the break. We've got the Dow rallying 127 points. Bigger rally, of course, for the Nasdaq in the lead today. It's up 1.23% right now, and the S&P 500 up a little less than 1%. Be right back. Check out shares of Chegg getting pummeled today. Investors focusing on the 2023 guidance, which at the midpoint shows a 2% decline in revenues. KeyBank downgrading the stock to

market performance, saying the guidance came in much worse than feared. And shares may remain in the penalty box for an extended period of time. Coming from an analyst who had upgraded the stock three weeks ago. Joining us now in a first on CNBC interview, Chegg CEO Dan Rosenzweig. Dan, welcome to the show. Good to have you back. Thanks, Sarah. Fun opening. Look, respect for coming on in good times and bad to come talk us through it. So what happened here? So I think there's a miscommunication on our part to folks. The business is actually doing very well right now.

And what I mean by that is, unfortunately, when we had our COVID peak and it started to come down and students started to go back to school and a million and a half students didn't show up for school. We had to take our guidance down at the first part of last year. And that probably cost us close to three quarters of a million subscribers. And so we have been digging out from that hole over the course of the year. And we've seen an improvement in new account growth, increase in retention, and it will take us some time to pull out of that hole. And that's what this year is about. And so organically, we've been growing at about 2% or 3% last year. We also acquired a company, and that's what took us to 10% last year. We broke those numbers out. So we have got to execute this year. We feel that our momentum on new accounts, which is where all the future of subscription businesses from is really strong and um and by the end of this year if we hit our guidance we will exit the year on very positive run rate for growth and uh expect to go back assuming that we achieve our guidance

um to a double-digit grower in 24. so we have to get through this year and execute but the core business is seeing a significant improvement over where it was a year ago when COVID really hit us hard. So that's what I wanted to clarify, Dan, because it feels really stop-start here. This is, I think, the third time in the last 15 months where if the macro fell apart and was a big headwind and then things were fine the next quarter. So then so that so I think analysts and investors are feeling like it's inconsistent in terms of where the recovery is going, if that's happening. Yeah, I think I think some of that's fair, which is we had 19 straight quarters of beaten raise. Then we had a quarter of dramatic miss. Then we had a quarter of big

beat. And then we had a quarter of miss. And then we had three consecutive quarters of really great performance. And we actually never gave guidance for 2023. So this is the first time we've given out guidance. So we didn't whipsaw anything. Analysts, unfortunately, got ahead of us. And that may be our fault in having not communicated that in a way that we could have before that. But as a business, we are seeing new subscriber growth growing quite nicely now. We are seeing the take rate of our more expensive package now reaching 40%. We dramatically improved our free cash flow. We're the only tech company that is profitable, that is GAAP profitable, and as free cash flow, this significance.

So the core business needs to catch up for the loss that we came out of COVID with. We peaked, then we saw a dramatic decline, and now we're building our way out of that. And if we do build our way out of that, then we should be in much better shape and continue to grow our revenues, grow our EBITDA margins, and grow our free cash flow.

So how far are we from a, say, normal education environment, education economy? Yeah, I don't think anybody knows this, right? This is part of the challenge of all of us. What I would say is, and what we said in the middle of last year, we began to see a return to normalcy around summer school. We saw a very strong summer school, began to see normalcy. We saw it again in the first quarter, in the first semester of this year, which is September. We are seeing it now. We're having a good start to this year. And so right now there's this version

of normalcy, which means students are going to school, they're taking hybrid classes, more students are coming back. But we still have to make up for that million and a half hole that didn't come back. And so that takes a combination of continued improvement and renewals that we've done, continued uptake of the more expensive package, which is happening, and an acceleration of new growth, which is happening. So we have to dig out of this hole, and it's going to take us the better part of this year. But if we do it, we'll exit the year at a much higher growth rate and be back to a company that's close to a rule of 50. And, you know, investors are worried about the threat from chat GPT. You got a question on the call last night about it. You downplayed it.

How do you know that that's not taking business for you? We've heard so many anecdotes already of students using it as homework. Yeah, we didn't downplay it. What we said was we don't see any impact in our business at the moment. We expect it to be really exciting. I love Sam. I love what he's doing. It's going to come with a whole host of questions and regulatory issues and new experiences, and it's going to create new things. And people like Chegg, are leaders in their vertical get excited about new technologies because with the proprietary content, data, user experience we have, and then the ability to leverage AI as a user experience, we think will advantage leaders in their category, especially like Chegg. We've been using AI for

years to lower our costs, lower costs of content, increase the accuracy of our matches of solutions. So we're big fans of this technology. Nobody really knows what the full impact of these are going to be, but we look at it enthusiastically about how we can utilize it as part of our user experience, much like you saw Microsoft announce today inside of Bing. So they're not saying chat's going to replace Bing. They're saying they can enhance Bing. We're saying AI can absolutely enhance vertical leaders like us. We have the proprietary data over 100 million solutions. It's the magic of putting the two of them together inside of Chegg, which will be very exciting. So we know this new technology is going to make a major impact on so many industries, including ours. We think that

we can make it a very positive one, and we're looking forward to engaging with them and continuing to use it inside our services and really get the user experiences up. That's what's going to be exciting about it. So how has the competitive landscape changed, whether it's from competition from places like ChatGPT or new upstarts that are getting some fresh funding? Yeah, there's going to be a lot of people. Remember that the history of the Internet so far has been these new technologies get created, platform shifts happen, some companies come out bigger winners, some companies lose. The companies that continue to invest, that leverage this technology to their advantage

and the advantage to their consumers, which is what it's built for it's built to be technology built into technologies not necessarily just standalone so we're enthusiastic about it and are already working on ways that we can leverage it um to make chegg actually more comprehensive and better the single most important thing students care about is accuracy i think everybody would agree at this moment in time, and it will get better, that it doesn't have the accuracy. I mean, we put our top 200 questions through it. 96% of the questions they couldn't answer at all. 4% they answered with half of them being wrong. We know that's going to get better. But we want to use it inside of CHEG. We don't expect them to become a vertical site for education. We expect them to be a generalist technology. Finally, Dan, the president is giving the State of the Union address tonight. Not sure we expect anything on student loans, but he has had the student loan forgiveness

plan. And I was just curious about your perspective on it, what more we could see if you had to see something from the White House and whether the cost of education is keeping kids from going to school and is a big headwind for you. Yeah, look, Sarah, you and I, because I know you're interested in this and I know how much you care about students and debt. The difficulty here is we've never capped the cost of education. We've not improved the relevancy of the curriculum. We've not used technology like we're just talking about with AI to the advantage of the student. And so if you look at all these state budgets and the national budgets, so much of it goes into the administration. Almost none of it goes into learning

and the classroom. So we've got this problem. It has to be fixed. We encourage people to reduce debt, to reduce the interest rate. And we think the president can help people because we're creating a permanent debtor class. But to be clear, the loan forgiveness that they're trying to offer helps people that have it now, but doesn't fundamentally change the problem of education is too high, too irrelevant. We're charging too much interest and we're giving too much money to people who can never pay it back. Forty percent of the people even before COVID weren't paying back student debt. The system doesn't work. Loan forgiveness will be helpful to a subset of people, but it isn't going to fix the problem. Dan Rosenzweig, thank you very much for

weighing in on that. And of course, coming through and talking through the quarter, clarifying some of that guidance. Appreciate it. Absolutely. Thank you. CEO of Chegg, Dan Rosenzweig. Take a look at where we are into the close 1% gain on the S&P 500. It's led by information technology and communication services. Those are the best performing sectors that you've got a nice rally in the banks. Some of the cyclical sectors that are tied to the economy are doing well today, like materials, like I mentioned, financials, industrials just popped into the red pretty much unchanged. And then the defensive groups like real estate and staples, they're lagging today.

NASDAQ's up one and a half percent. Talk about healthy returns. Look at shares of Oaktree Health surging today on rumors of a buyout deal from a household name. We'll bring you the story next. And as we head to break, check out some of today's top search tickers on CNBC.com. Tenure yield gets the most love as always. And yields are a little bit higher today, even though we've got a weaker dollar and stronger stocks. Tesla is there.

It is lagging behind some of these other big cap tech names today, but up a little bit. Bed Bath & Beyond down almost 50%. More on that. Amazon, which is lagging as well. And Apple, which is up 1.5%. The tech rally is being driven right now by Microsoft, Apple, NVIDIA, and Alphabet. Closing that, we'll be right back. CVS Health is near a deal to buy Oak Street Health.

That's according to a report in the Wall Street Journal. Oak Street shares surging on the news. Look at the move today at 30%. Oak Street is a primary care center operator focused on patients that are enrolled in Medicare. According to that report, companies are considering a price of around $39 a share, about $10.5 billion. Stiefel notes that the deal makes a lot of sense for both companies, proves Oak Street's model. The move would further CVS's long-term strategy beyond the retail pharmacy, add doctors who can manage patients' care. Last

year, remember, CVS announced an $8 billion deal to acquire at-home healthcare company Signify Health. CVS reports earnings tomorrow morning, and the CEO, Karen Lynch, will be joining us exclusively right here on this show, 3 p.m. tomorrow on Closing Bell. We'll have a lot to talk about. Microsoft, Alphabet, and Baidu are all in on the AI race. Up next, the top tech analysts on what investors should expect from Apple's big AI summit for next week. Closing Bough, back in a moment with the Dow now taking another leg up, 213. The AI race is heating up on Wall Street. Microsoft, take a look, trading higher after holding its artificial intelligence event.

CEO Satya Nadella calling it a new day for search and rolling out a Bing search engine powered by AI. We also heard from Baidu that stock at 11-month high after the company announced its own AI chatbot called Ernie, an alphabet revealing its version called BARD. We heard BARD yesterday from, we heard from yesterday, C3 AI CEO Thomas Siebel. He emphasized how early in this cycle he sees the innovation around artificial intelligence. Listen. The innovation that we're going to see in the next five years in generative AI, face it, it's the first half of the first inning and the first person's at bat. And we're going to see billions invested by Microsoft, Google, IBM,

and others to advance these technologies. Not to miss out on all the fun, Apple will hold an employee-only AI summit next week at the Steve Jobs Theater. That's according to a report. Those shares higher today as well. Let's bring in Citigroup Senior Tech Analyst Jim Suva for more. Jim, it's good to see you in person. It's great to be here, Sarah. It's been a while. Yes, welcome. First time back on set since COVID. So I know you want to talk about Apple and why you like it, but first on this AI story, is it feeling frothy to you as someone who's covered these internet names for a while? Remember when everyone had to have a metaverse strategy? Is it like that or is it different? Well, that's a great question. And the reason why it's great is we think about Apple continuing to disrupt the market, continuing education, continuing innovation. Specifically, hey Siri, what's the weather in

New York today? Those type of things are going to get smarter and smarter. We don't think it's frothy. We think we're at the beginning of a new frontier for AI. So is this part of your thesis on Apple? Well, it's a new part of our thesis. Our five reasons to buy the stock doesn't include this. That would be more of a bonus. So what are the core, what are the main reasons? Well, one of the main reasons is we believe Apple's going to gain a lot of share

and grow sales in the future, specifically in developing countries. India, less than 2% of their sales come from India, less than 2% of the market they have in India. When we made this call over a decade ago about China, China is now 20% of Apple sales. The development of India is very exciting to us. We think that's a big positive ahead. Is China still part of the bull story? Because it's been a little bumpy lately. It has been a little bumpy, but you know, the production has been there a little bumpy, the COVID shutdown, the zero COVID policy has been bumpy. That specifically said, we still see Apple gaining share in China, and it's very important to them. You also have to, if you like this stock right now, see continued growth in iPhone sales. Where does that growth come from beyond just the

developing world? Well, first of it, you can see that the younger generation are getting phones at an earlier age than when you and I did. Second of all, developing countries. What's the average age now? The average age now is around 11 years old. When did you get your first? 16 when I started driving and it was not an iPhone. There you go. And the installed base, there was the candy bar phone. And when we think about this year, there's 1.2 iPhones sold users right now. When we think about going forward, iPhone 14, going to iPhone 15, and we simply think in 2024, we're going to have a foldable iPhone. That's going to be great. People can watch you on CNBC on the top of their screen and be texting their friends on the bottom.

That's going to be exciting to us, a foldable iPhone in 2024. Where does that come from? The foldable phone? Yeah. Why do you think that's going to be a big thing for Apple? They haven't officially teased anything like that. No. Again, not for 2023, but for 2024, a foldable phone would be a new form factor.

And the slate kind of candy bar phone we've had for a while for the iPhone has been that way for a long time. We think the foldable phone for gamers and people who want to view two different screens at one time is going to be a big uptick in 2024. We're talking 2023 here today. So for 2024, that'll be more important. But as we progress and we talk in the months ahead, people will start to hear about the supply chain testing a foldable phone. And we think it's going to be big. What about Apple as a services direct-to-consumer platform? What's it doing on, for instance, the media strategy? Well, they are doing very well with advertising. They had some hiccups or some clampdowns on what information they will track and allow their advertisers to give them. But when we think about to the consumer, going into your house and taking a picture of your kitchen and doing the remodel through AR and VR is going to be quite exciting. The service person who comes to service your heater in the middle of winter will be able with AR and VR to put on goggles or use their iPhone to see, hey, it's an inducer, it's ignition switch, and I have the part in my truck or down the street I can get it for you.

These are the things that are coming to your home that you're going to see it on a daily basis. I guess my question is why put this out now, Jim? It's had a strong run this month. We just showed up 20%. It's outperformed the entire NASDAQ pretty much most of last year. Why double down now? We don't think it's over. Simply put, we have $175 target price, a buy rating.

It's had a great year to date. We don't think it's over. And then as they start to do some of these internal meetings on AI, and then in June, the Apple Worldwide Developer Conference, look out for a lot more news coming out. We're very bullish. $175 target price. I can tell. The man loves Apple. Jim, thank you very much. It's good to see you. Great to see you. And tech is really ramping here into the close. Apple, Microsoft, NVIDIA, Alphabet, all part of the story. Meta's up today. It's really just Amazon sitting it out. Take a look at where we stand overall. That's why you're seeing such a big rally here in the Nasdaq. As we head into the close up, 1.6 percent. So marching a little bit

higher, up 1.1 now percent on the overall S&P 500. It's energy and tech leading the way. Communication services also having a very good day, up 2.2 percent. And that's being driven by some of the video game makers, Take-Two Interactive, Activision Blizzard, Alphabet, Meta, and Disney. Look at Zoom shares. They're higher after becoming the latest tech company to announce layoffs. That happened today. We'll share the details coming up. And a reminder, you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. Closing Bell back in a moment. Check out today's stealth mover, Carrier Global. The stock is really cooling off today. The maker of heating and air conditioning systems reporting earnings and guidance in line with analyst estimates, but organic growth came in lower than expected. And Wall Street is

not a fan about slowing HVAC orders. Despite today's losses, the stock has been hot, rallying 30% since late October. Up next, RBC Capital Markets head of U.S. equity strategy, Lori Calvisina, on whether the market has been getting ahead of itself when it comes to the Federal Reserve's interest rate path. That story plus Microsoft's big AI event and Zoom surges when we take you inside the market zone up to 30 on the Dow. 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, we've got John Ford on Microsoft's AI ambitions and RBC Capital Markets' Lori

Calvacina on today's market volatility. We'll kick it off with the market, Mike. We're having a nice ramp here into the close, especially for tech stocks. Microsoft, NVIDIA, Apple, Alphabet lead the way, but it's pretty broad in the market with the S&P up 1.3% right now, a 3% gain for energy stocks and more than 2.5% gain for technology and communication services with financials not far behind. Is this just the Powell gave another green light to go because he didn't talk down financial conditions or the market's response? I think that's most of it. Yeah, that combined with the fact that, look, if you're a chart worshiper, you like this market coming into this week.

You thought it proved plenty to you that, in fact, it kind of won a little bit of benefit of the doubt to the upside. So therefore, you had a two day pullback. And it's interesting how these Fed events are now what the bears pin their hopes on. Right. That there's going to be something that's going to interrupt the good mood. And that hasn't happened twice in a week. I don't think that means we race higher from here. Clearly, the market has come a long way. But I do think there's a sense out there that if you have the Fed willing to get fortunate about what happens on inflation, willing to allow the market, the economy to prove it can land softly and doesn't have a particular unemployment rate they're trying to jack up to, then the market's okay in the short term.

We've also not been able to go down on bad earnings. And that little bit of the buzz around big tech probably doesn't hurt just to get those things back in recovery mode. I thought it was so notable to hear Rich Clarida, here's someone who was on the Fed as the number two under Powell, and now at PIMCO, of course, one of the biggest bond traders, say he sees the path for the Fed cutting rates this year if inflation comes down really sharply, even with a soft landing.

One or two more tykes, he sees two, March and May. Right. March and May, yes. And then potentially cuts at the end of the year. He spelled it out, even though the Fed is not talking about it yet. Look, that's the historical cadence is there for cuts several months after. And if there is confidence building it, you know, Clarida said inflation with a two handle maybe isn't that far off. Clearly, a lot has to go right for that to be the case. You can't take it for granted.

The Fed's not going to get in front of that. But I do think that the bond market's pricing is not, you know, purely random. It's not a pure head fake. No. And that he thinks the Fed's got to be happy with the bond market pricing right now, especially in the two year. Let's hit Microsoft because it is a big winner today, doubling down on artificial intelligence, announcing a relaunch of its Bing search engine powered by the same technology behind OpenAI's ChatGPT. Microsoft CEO Satya Nadella sat down with CNBC, our John Ford earlier, to discuss the growth potential in search.

I've never, ever felt this liberated in terms of opportunity in the days ahead. So I'm very excited about innovating, meeting the needs, knowing that the search category is the most profitable and large category. That alone should sort of give us the impetus to really go after this. John Ford joins us now. So clearly, John, this is a huge push for them, right?

Flatcha doesn't do a ton of interviews and they made a big deal out of this. What were some of your takeaways? Sarah, this is a full-on assault on Google's core business to the point where Satya Nadella was talking about how much profit there is to be had there. The idea, he doesn't need to eat it all at once, but if he can peel it away through AI, there's a lot of opportunity for Microsoft there. And this isn't just about Bing. It's not just about search. They plan to roll out this AI capability across the portfolio. But it's so interesting, too, because this week marks nine years since Satya Nadella was named CEO of

Microsoft. And he told me, really, this is the most significant initiative born during that time. Now, of course, Nadella was running cloud and it stood up Azure before he became CEO. But think about the significance of that. It's potentially pretty big. No, it's huge, John. How do you think about the AI race now? So is Microsoft in the lead because it made this investment in chat GPT? Is Google ahead of it? Who are the players and who's winning? Well, I think if the market ends up

being framed the way Satya Nadella is arguing that it is, then Microsoft is in the lead. And that being Microsoft has been able, with open AI, to put something out there that developers, that enterprise companies, that others are able to not only try out from a consumer point of view, but build on top of and build into their products right now. I'm getting an increasing number of tech CEOs saying, yes, we are rolling this out now. Formerly TripActions, now Navon today, they're rolling that out for expenses. Tom Siebel at C3AI getting ready to roll that out in the coming days. And they're saying that this adds to the quality and stickiness of their products and their ability to engage and serve customers. So that's potentially revenue

right there in the near term. Now, we're going to see with Bing whether this actually allows Microsoft to capture more attention, more search share, and how quickly Google is able to respond. We'll have to see how quickly others can get real products out into the marketplace versus just, yeah, Google's got AI, but they don't have product that they're exposing because of that and tools that they're allowing others to build on top of in the same way. Really interesting, John. Well, it's going to be exciting to talk about. Everyone's excited about it now. I feel like we're going to have some ethical conversations ahead as well. But for now, John, thank you. Yeah, I've got to have that now too. Appreciate it. Yeah.

Exactly. A great interview with Satya Nadella. Let's hit Zoom shares. They're rallying after the company announced it will lay off about 1,300 employees or roughly 15% of its workers. In a blog post, the video conferencing company's founder and CEO citing global economic uncertainty and the need to adjust to post-pandemic demand. Frank Holland joins us. Frank, clearly investors were encouraged by this news. How big of a mark is it going to make on Zoom? Well, I spoke to a number of analysts about this. The general consensus is, and I'm paraphrasing, this is really a necessary evil for Zoom to make these job cuts.

You've got to remember this stock's trading more than 80% below its all-time high, and that all-time high was hit all the way back in October of 2020. You mentioned the price action today. The stock was even outperforming even before today's rally. But in general, a lot of people think that was basically buying and dumpster diving, if you will, people just buying this beaten-down stock that has a lot of big questions about demand. When you look at the growth of revenue, you go all the way back to Q3 of 2022, it was 35% year-over-year revenue growth. Most recent quarter, that's fallen all the way down to 5% revenue growth. So again, a lot of questions about demand and where that future growth might

come from. But Zoom still does have a lot going for it. First and foremost, it's free cash flow generation, expected to generate more than a billion dollars in free cash flow this fiscal year. Also a really great brand name. If you talk about video conferencing, with respect to their competitors, you're gonna say, I'm Zooming for the most part. And then third, a really low customer acquisition cost.

So really the question is, where's the next leg of growth come from? We saw last year, they announced video conferencing with Tesla for cars cars i mean maybe that's a big maybe that could be useful in the future with autonomous driving on the layoffs that we've seen broadly in tech will also hit them especially their enterprise business just fewer people sitting in seats so a lot of questions about where that growth is going to come from but still a company that generates a lot of free cash flow yep look at that one year chart little

pop today but boy has it been hit. It's up 10%. Thank you, Frank Holland. Let's get another check here on the markets as we head into the close. It's a strong session on Wall Street. Lori Calvacina joins us, head of U.S. equity strategy at RBC Capital Markets. Lori, you were looking at the market internals when Powell was speaking today in Washington. What did you notice about what popped? So, you know, what I was watching, Sarah, and I'll say whenever that we have Fed speak events, I always like to watch the sectors in the S&P. And what I saw today, what I was really focusing on was how tech, communication services and consumer discretionary were acting. And that's

because if you look back historically into the mid-1990s, those are the three sectors that have tended to perform the best in the six-month period following final Fed rate hikes. So we really wanted to see how those sectors were acting. And as markets were rallying, we really saw those sectors take off like a rocket. So it told me that what markets were initially hearing from Powell was really the idea that we're closer to the end of this cycle. And then, of course, we saw the market take a hit. Those sectors took a hit. But then they've all done well towards the end of the day. So I think the market got a little confused and had to digest some of those later comments about the later labor market, but ultimately came to the conclusion that we're

still closer to the end of this hiking cycle. And really taking off now, we're at the highs of the day. The Dow's up 300 points, the S&P 500 up 1.4 percent. More sectors turning green, including consumer discretionary, have been lagging because of Amazon. So, Lori, is that the right take? Are you a buyer? We've already had quite a nice rally here, 19 percent off the lows for the S&P. You know, Sarah, we're a little bit above my target of 4,100. But we did say coming into this year that if there was a risk to our view and we ended up being wrong, that we thought the risk was to the upside. And we put a piece out yesterday walking through some math on valuation

saying we could see potential upside to 4,500. Now, my base case is still 4,100. I think that, you know, it's interesting, right, that we haven't had the final hike yet. Markets are already pulling back forward. So I feel like the markets have gotten a little bit ahead of themselves in here it might be time just to exhale and take a little bit of a breather but in general sarah i find myself really pushing back against the bears in the strategy world i think that it is quite possible that we saw the lows in october i think we're going through that final leg of earnings downgrades right now and markets typically bottom three to six months before you get the final earnings downgrades in. So I think we're probably preparing for a little bit of chopping here, maybe a little bit of digestion.

But in general, I think the bears have overstayed their welcome. Well, that was the bear case. All of the strategists were saying this is the year of the economic slowdown and the earnings downgrades and revisions lower. And we haven't felt that impact of recession or a slowdown yet because of all the Fed tightening. Is that still coming or is it being priced out? I think that what you are starting to see are some hints of slowing demand, some softening in certain, you know, certain industries. We're starting to see some companies talk about that. And frankly, that's good news for market, Sarah, because we want to get whatever this is, whether it's recession with a capital or a little higher growth scale or something similar, we want to get it out of the way. Because if you look at that pricing on October,

on the October lows, we were down about 25% from peak. And that is pretty close to a median recession. A median recession drawdown is about 27%. So if the economic pain, if we're in the midst of it now, we get it out of the way relatively soon. Again, that October low can hold from a timing perspective. Laurie Calvisina, thank you very much for talking through the strategy into the close. Appreciate it. We've got less than two minutes to go. Very strong rally now on our hands. Mike, what do you see in the internals? Yeah, so they're strong, although really not decidedly so, considering the magnitude of the index move. That's because the NASDAQ 100 mega cap basket is up 2 percent. But you do see a bit more than 60 percent of the volume is in advancing stocks today. Take a look at the ride intraday on the two year Treasury yield as Jay

Powell spoke, as he gave different seeming answers to different questions. So you saw that jump higher and then really that plunge when he seemed to be crediting the disinflationary move, and then he says, well, if the data change, we're going to have to potentially add more hikes. However, it leaves the two-year note pretty much near the highs of the year to date, but still, 4.7 is the highest all time in this cycle.

So I think we're still below that level. The VIX has come in again. We're under 19. There was a little bit of premium in there waiting for what Powell had to say. Now relaxing off of that, Sarah. Well, we just saw the highs moments ago of the day. We're going to close on a high note of 256 or so on the Dow. Microsoft is having the biggest impact on the Dow, S&P and Nasdaq in a positive way. A few new highs, Hologic, Fordiv, and On Semiconductors. A lot of strength today in technology, energy, communication services. The bank's having a good day.

Financials, I said, materials, healthcare, industrials, and consumer discretionary. That's all working. The NASDAQ goes out with a gain of almost 2%. NASDAQ 100 up 2.2%, driven by strength in Microsoft, Apple, NVIDIA, Alphabet, and Meta. That's it for me. I'm closing bell. See you tomorrow. Now into overtime with Scott Wapner.