Closing Bell - Closing Bell: Risk-Reward Improving for Stocks? 5/9/23

Episode Date: May 9, 2023

…or is it getting worse? And what – if anything – can get us out of this stubborn trading range? Courtney Garcia of Payne Capital gives her take. Plus, Mark Okada of Sycamore Tree Capital is forecasting a recession – he explains the big catalyst behind that call. And, Mike Santoli weighs in on what the debt ceiling duel could mean for the markets. 

Welcome to Closing Bell. I'm Scott Wapner live from Post 9 right here at the New York Stock Exchange. This make or break hour begins with the debt ceiling duel. The president, the speaker, and other congressional leaders meeting at the White House in less than an hour. No resolution yet is in sight. Stocks so far taking the whole mess largely in stride. Here's your scorecard with 60 minutes to go in regulation. We seem to be waiting on tomorrow morning's CPI release before making the next move. There's your picture. Dow has been down five of the past six days.

Investors weighing a series of developments around the Fed, regional banks, of course, and earnings. S&P 500 up a couple of days in a row, back negative at this hour, as is Nasdaq. Interest rates, let's take a look at that complex, moving a touch higher as well. It leads us to our talk of the tape. Is the risk-reward improving for stocks or getting worse? And what, if anything, can get us out of this stubborn trading range? Let's ask Courtney Garcia of Payne Capital and a CNBC contributor. She is here with me at Post 9.

Good to see you again. I mean, are we ever going to get out of this range? That's what we're hoping for, right? I mean, clearly, I think what's happening right now with the debt ceiling is not an issue. The markets are really barely reacting to that. I think everybody's expecting there's not going to be any sort of, they're not even calling this a negotiation, which I think is probably a sign that nothing is going to get done right now. We can't even get to the point of where we're having a negotiation. Exactly. That pretty much says it all about where we are. Yeah, unfortunately. So I think this is going to be a problem for later this month. It's going to go down to the wire.

I think right now what's more important is CPI, which comes out tomorrow. And that's really been the big story all year is inflation coming down, which it does seem to be coming down, which is great. The Fed is likely to be pausing with interest rates as we move forward. We're still a really strong labor market. I mean, all of these things I think are actually leading to really positives if you look forward. But yes, we do need that catalyst moving forward. I think you're going to need some more data points and inflation is coming down and labor is still on good footing for people to start to get over these recession worries. You know how the market, generally speaking, has tunnel vision, they say, right? It's like right in front of it. That's the

only thing it pays any attention to. But do you think there's some level of complacency around the debt ceiling fight? I mean, the VIX is at 17 and a half and the market's been so resilient. It's not in any way reacting except for a very small part of the yield curve. Well, keep in mind, I mean, I think a lot of people are looking back to 2011 where we did have a pretty severe reaction to stock markets. They were down about 17 percent when we got close to that debt ceiling limit at that point in time. But realistically, there's been about 45 increases in the debt ceiling in the last 40 years. So this happens very often, and it almost always gets done. I think that's what a lot of people are realizing. But it is an election year.

This is going to be thrown around like a political football. I don't think anybody expects this to be done today, and so I think that's why you're seeing that in the markets. So how do you assess where we are after a pretty big week last week where, you know, the Fed hiked again. They didn't explicitly say they're done, but the market assumes they are. Not only that, the market still assumes that there are going to be cuts this year. Yeah, which I'm not necessarily the mindset that there's going to be cuts this year. I do think we're probably going to stay at this higher for a longer level. But the idea that there's going to be cuts this year. I do think we're probably going to stay at this higher for a longer level. But the idea that there are going to be cuts later

this year, I think, is also pricing in the idea that people are expecting inflation is going to continue to come down this year, which is ultimately going to be a good thing. And I think realistically, we've gotten to this place where even the Fed is surprised at how they've raised interest rates by 5% over the last year. And we're still at a 3.5% inflation rate. I mean, I'm sorry, unemployment rate. So things are actually in a really good position. And now they're in a position that even if we go into a weakened economy, they're at a higher rates where they can bring rates back down to boost things if they need to. And realistically, what you're seeing with companies earnings is they are prepping for the recession that hasn't even happened yet,

which is why I think it's even if a recession happens, it's probably going to be a lot more muted. You think people are just by and large too negative in the market, right? For one reason you said, right? Employment has remained pretty strong. Correct. The economy has been reasonably resilient, as has the stock market itself. Correct. And I mean, people have been calling for a recession for almost a year now. And now you're all seeing people pushing that, OK, maybe it's going to be in 2024 at this point. And yes, if you call for a recession long enough, you're going to be right. It's a normal part of the cycle of the economy. I am not of the mindset that it's impending right now. But I do think you've continued to see people reach this year into your big tech companies, into your risk assets. We are still in this high rate environment. I don't necessarily know if

that's going to last, but I do still see the general economy continuing to do well. What about looming credit issues and issues that surround the banks? How concerned are you about either of those two things? I really don't see everything going on with the regional banks as being an issue for the overall banking sector. I mean, especially when you look at your large caps, like take your JP Morgans, for example, they're actually going to be big beneficiaries of this. So I do want to make sure that when you're investing in the banking space, yes, there's probably some really great buying opportunities here, but I don't know if the volatility is over. So trying to pick and choose individual names can be a little bit of a dangerous game here. When you own the overall

index here, I think it's going to be something that you want to be invested in. I mean, obviously, and there are those who would say, you know, the biggest banks, the strongest banks are only going to get stronger as a result of, you know, deposit flight and what have you. So your point is well taken. But a credit crunch and a contraction hurts everybody. So what do you think of the space in general? Would you put new money to work, for example, in the banks, in the financial sector now? I would. I would. We've actually, we've been adding to value really all year. Your banks are one of the largest sectors there. And they have been continuing to really underperform this year. So yes, there's definitely nervousness there. And I do think when you look at credit issues or the

worries about that in the future, it is going to be a concern. But I really don't think it's as large of a concern as is being priced in currently. Okay. Let's bring in John Mowry now of NFJ Investment Group with us. Been very bullish throughout our many conversations over the last few months. Are you still today? Good to see you, Scott. Yes, we remain positive on the market. So I'll make a couple of color comments. The long bond has been signaling that inflation should come down for close to six months now.

And what's really fascinating is now the shorter end of the curve is also telling the Fed that they've gone too long. In fact, if you look at the spread between the two-year bond and the Fed funds rate, that's the widest it's been in close to 15 years. So the bond market is telling the Fed that they've gone too far. And you'll probably ask me, John, are you going to say there's going to be cuts this year? My response to that is I don't know, but I also don't know when I'm going to go to the doctor next. The Fed never wants to cut rates. They're always forced to cut rates. They were forced to cut rates in 07. They were forced to cut rates in 18.

And they may get forced to cut rates again. So I think that when you look at the opportunity set, there is a real interesting group, particularly brewing, Scott, in the small and mid-cap group of the market. In fact, if you look at mid-caps, for example, mid-cap value in particular, that group is trading at just 12 times earnings and has a 2.2% dividend yield. The Russell 2000 value is just 10 times earnings, Scott, 10 times earnings. And you've got a P on the S&P of close to 17. So you get a seven turn discount stepping into the 2000 value today. So I think relatively to large caps, I'm more bullish on small and mid at this stage of the cycle.

Aren't you asking a lot of people to buy what would be considered more economically sensitive areas of the market for the very obvious reasons that I don't need to tell you about? 100%. And the reason for that is you're getting that valuation discount. So at 10 times, I mean, if it's for a reason, it's not a good enough reason. Well, I think that when you look at the underlying fundamentals of many of the companies, many of these have been beating, Scott. And the reality is the banking system, even though it's been more fragile of late, this is more of a liability crisis today than an asset crisis. You still have a lot of strong balance sheets in the banking sector. And it's hard for me to see a stock market that's healthy that recovers without the banking sector participating.

So I do think that you should be moving into these areas. And I completely agree with many of Courtney's comments. Inflation is coming down. And I think some of the more value oriented areas of the market. I mean, look, Scott, homebuilders were really scary when the 30 year mortgage hit 7 percent last summer. That was a great time to step in because you got those at five tenths a book. Today, you're getting financials back at the steepest discount since COVID. I mean, there is this idea that we've already discussed, at least Courtney and I have, and we'll expand it to you on the notion of whether the Fed has done or not. Now, my colleague, Sarah Eisen, was at the New York Economic Club today talking to New York Fed President John Williams, who wasn't ready to concede that at least explicitly they've admitted anything.

Let's listen to that. We haven't said we're done raising rates. We made a decision in our May meeting to raise the federal funds target range, as I said. And we didn't make a decision of what we're going to do in our future meetings. But it's definitely or what's you know, how the economy is going to evolve will obviously affect our decisions. I do think that we've made incredible progress over the past year or so, bringing interest rates from close to zero to a little over five percent. I think that brings real interest rates or inflation adjusted rates to a stance that should help bring inflation down. So, John, is the market ahead of itself? Is it

hoping for something that may be still out of reach? I don't think so. I think the market's patiently waiting for the Fed to realize that its push rates very quickly and to a very high level. Inflation has come down every single month since June when it peaked at 9%. Now, we may get a sticky number here and there, but the trajectory is down. And again, I would argue that when you see that widespread between the two-year bond yield and the Fed's fund rate, the short end of the curve, Scott, is telling the Fed they've gone too far and they're going to need to back off the gas a little bit. So I empathize with their position. They want to keep the hawkish tone because they want inflation to come down. And I think they're probably keeping their fingers

crossed behind their back that we don't have much more of a banking fallout in the meantime. But the reality is that inflation has come down significantly and you should still see that come down lower. And I think that's a floor for equities and has been a floor for equities. Courtney, you agree with this premise. I mean, Gundlach has always made the argument that the Fed follows the two-year. Bond market is obviously saying something that the Fed isn't. You heard what John Williams had to say. How do you assess it? Yeah, I think that the Fed is going to continue with their narrative that they're not sure what they're going to do.

They may be raising interest rates, but ultimately they are going to follow the data. And so we need to see more of that coming out. CPI is tomorrow. PPI we get later this week. But if we do continue to see that trend come down, they're going to have to follow that. The only thing which they have been saying is they also want the labor market to soften in order for them to start to pause on interest rates increases, which hasn't happened yet, but you're actually starting to see them change their tone on that, which I think is pretty interesting. I think they're finally realizing how resilient unemployment is, despite the fact that inflation is coming down.

And seeing them change their tune, I think, is actually a really good sign. The other things that Williams had to say, John, that I think we need to discuss, quote, I do not see in my baseline forecast any reason to cut interest rates this year. Now, we're having this discussion that, well, the bond market doesn't want to hear that. We need to keep a restrictive stance on policy and in place for quite some time to make sure we really bring inflation down. Do you believe that the market is truly understanding of the risks of that higher for longer? That, you know, OK, so they may be done, but that doesn't mean that they're going to cut. And they're intent on making sure that they're not going to have to come back and do this job all over again.

Powell has made that clear. And he has frequently mentioned the period of the 70s when policymakers were forced to do just that. Well, it's a very fair point, Scott. I mean, what I would say is that there are definitely weaker companies that are very much being impacted by the higher rates for longer. There's no question about that. If you look at some of the smaller office REITs, if you look at some of the REITs that did poor bridge financing when rates were at zero, now they have to roll that debt, they're in big trouble. And I do think that you can see some of the smaller players get washed out. And when that equity goes to zero, some of the larger players will be there to gobble it up.

So I think this is going to be a market that's going to be more Darwinian than the last environment. And I think that's good, Scott. That's healthy. You need a higher rate environment to shuffle out many of the inefficiencies of the economy. Recessions or even a looming recession or the possibility of one also can help shuffle out those weaker hands. So this is ultimately a favorable environment for companies that have better balance sheets, better income statements, better cash flow statements. So I would argue it definitely is a market that you want to be involved in. I think that active management stands to benefit because not all the companies are going to do well that have done well

in the past. So I'm bullish on the equity markets. I think that you should definitely be choosing your spots. I don't think you should be adding the equities broadly because there are some pockets that are either too risky or alternatively, Scott, have gotten too expensive. I hear you. Let me ask you this. When you bring up things like survival of the fittest, right, Darwinian and what have you, I'm like, OK, if I have a select amount of money that I'm willing to put at risk at the current time, thinking risk reward may not be all that great. But Murray says, well, I'm not good. I shouldn't go broad.

So I should really focus on the companies that are survival of the fittest. I'm like, why would I put money in those cyclical areas you said? And why wouldn't I just keep riding the gravy train of the mega cap tech stocks? Those are the fittest. Those are the fittest. Those are the fittest. There's great. I know I would push back a little bit. If you look at the mid cap space in particular, this is an area that's actually grown faster than the large cap space and has done so with lower variability of return than the small cap space. The mid cap space, I think, is the answer

to your riddle. That's the sweet spot for equity markets. It's an area that typically gets overlooked. Investors focus on the small, the large. They don't look at the mid-cap space. In fact, Scott, if you look at the mid-cap space, which is the bottom 800, okay, of the top 1,000 stocks, that's 800 companies, but they make up just 25% of the total market capitalization, and they tend to grow faster than those top 200. So I would argue the mid-cap space is a really interesting place to look. Many healthy companies sitting there and all the large cap names you know today were once part of that mid-cap arena. You know, we're going to get

back to this conversation in just a moment. I do want to get to our Kelly Evans, who has some breaking news. A verdict has been reached now in the case of E. Jean Carroll versus former President Trump. Kelly. Hi, Scott. Hi, everybody. The U.S. jury has reached a verdict in the rape and defamation trial by E. Jean Carroll against Trump. And here are their findings that Donald Trump did not rape E. Jean Carroll. That's according to the jury. They did find that Trump sexually abused Carroll. And there are some financial awards here. The jury awards Carroll two million dollars in compensatory damages for the battery claims against Trump. They also award her $20,000 in punitive damages for

that battery claim. They also find that Trump defamed Carol in October 2022 when he called her allegations a con job. And for that, they award Carol $2.7 million in compensatory damages for the defamation. So again, the U.S. jury in this case finding Donald Trump did not rape E. Jean Carroll, but that he did sexually abuse her, $2 million in compensatory damages for that, $20,000 in punitive damages for that, and then find that he did defame Carroll, $2.7 million. So about $5 million altogether, Scott. Huge significance, of course, as we start to gear up for the next political cycle. Back to you. All right, Kelly, appreciate that. That's Kelly Evans with the update there.

Back to our conversation where we were on the market. This idea, Court, that, you know, you also said you like some cyclical areas. But if I want to invest right now in the best balance sheets, let's say I have to be in I'm running money. I have to be invested in the market. Why wouldn't I go towards the best balance sheets in the market, which are, I don't know even if there's an argument, mega cap tech. But on the flip side, I mean, actually some of the really good balance sheets are, for example, your energy companies, right? Which, yeah, have been underperforming recently, but I would say they probably have just as strong a cash flow when you look moving forward, and that supply-demand issue is still going to be there. So I actually think there are some areas that have just as good of balance sheets,

but the valuations are significantly cheaper because that's the problem with your mega cap tax right now. Especially the top eight are significantly at a premium compared to the markets. And when you strip those out, the rest of the markets, the rest of your large caps are still over-concentrated. And actually, to his point here earlier, your small caps are about 40 percent cheaper than your large caps, specifically those top eight right now, which are extremely overvalued. And in a higher rate environment, which you're saying people aren't necessarily pricing in right now. And I agree with that. That I don't think can be justified. And I think that's what you have to look at. But you still, John, have to be focused on the amount of risk you're willing to take. Yes,

they are cheaper by any metric you want to to say I completely get that point of view. But as I said before, they might be cheap for a reason. And you have to wait a little bit longer as well to get the reward for the risk you're willing to take. Well, that's true. But I think if you look for dislocations and valuations, but try to avoid the dislocation of fundamentals, then you get paid for that risk. So for example, you know, Scott, I know one name that I've mentioned before on your program, Alexander Realty. It's an office REIT, so everyone loves to hate office REITs, but this is one that has tenants such as life science, pharmaceutical companies that can't move quickly. They've raised their FFO guidance. They've had no dislocation in their fundamentals,

and they're the steepest discount since COVID, and even in some cases back to 08 when you look at the peer group. So you've got a tremendous value there in an office REIT, which is an area that no one wants to even touch or look at. And I totally agree with Courtney. You're getting substantial dislocations in these companies that have a lot of upside. And I mean, Scott, let's not forget, it wasn't that long ago that nobody wanted Facebook, nobody wanted Amazon, nobody wanted the big cap tech names. In fact, when I think about the laundry list of places people wanted to avoid, at first it was energy, then it was tech, then it was China, and now it's banks, and now it's cyclical. So there's a long list, and I think that you do get paid to step into

these areas. But to your point, Scott, they're not all created equal. And investors should be concerned about a dislocation in the fundamentals. And as an active manager, when those occur, you know, we need to be proactive. We can't just sit on our hands. You want to mess with REITs right now? What do you think? Yeah, REITs, I think, are definitely going to still have some issues moving forward here, especially as you start to see some of the some of those mortgages that are getting reset right now, which really hasn't happened yet. That's going to be the lagging effect of rising interest rates. We do have exposure to REITs. We're not consistently adding to them right now because I do think, yes, most of this is probably already priced in.

But I think you're probably still going to see some pressure moving forward here. Guys, good stuff. John Mowry, thank you very much. Courtney Garcia, appreciate you being here with me at Post 9. Let's get to our Twitter question of the day. We asked, is the market too complacent around the debt ceiling duel? Yes or no? Head to at CNBC closing bell on Twitter. We got the results coming up a little later on in the hour. We're just getting started, though, of next hedge fund investor. Stanley Druckenmiller is speaking at the Sohn Conference as we speak. We're going to bring you the highlights after this break, plus rising recession worries, why Marco Cata of Sycamore Tree Capital is forecasting a rough road ahead for stocks. They'll make the case and explain it all next. You're watching Closing Bell

on CNBC. 35 minutes left in the trading day. Let's get a check on some of the top stocks to watch as we head into the close. Christina Partsenevalos is here with that. Christina. Hi, Scott. Let's talk about Novavax shares. They're surging higher after the company unveiled promising new vaccine data. The Maryland-based company said its combination vaccine that targets both COVID and the flu produced a strong immune response against the viruses and was well tolerated in a phase two trial. Novavax also unveiling a broad cost cutting push that includes reducing 25 percent of its workforce. That's probably what's driving the stock 27 percent higher. And Under Armour shares are slipping despite beating revenue

and earnings expectations. The retailer missed expectations on gross margin as it kind of leaned in more to promotions to drive sales and warned that demand issues could persist. Obviously, gross margins at risk, stock down almost 5.5%. Scott? All right, Christine, appreciate that. Christine of Parts and Nevelos. Hedge fund investor Stanley Druckenmiller speaking at the Sohn Conference. Our Leslie Picker is here with some of the highlights.

And whenever Mr. Druckenmiller talks, there are highlights. There are many highlights, Scott. The challenge is narrowing down which ones. Legendary investor Druckenmiller, as you mentioned, saying he's not one to buy into fads, but he does see a lot of opportunity in AI. I think it's very, very real and could be every bit as impactful as the internet, literally, going forward. And it could be a beautiful opportunity in a hard landing, just like 01, 02 were a beautiful opportunity when the tech bubble burst going forward for companies who would benefit from the internet. AI could be there. Druckenmiller's family office, Duquesne, is participating in AI

by owning Microsoft and NVIDIA. And he says it's not clear to him that if we had a bad recession, that NVIDIA would go down despite the multiple on it. Speaking about the potential for a recession, Druckenmiller said he wouldn't be surprised to find the current second quarter is actually the start of one. He said he's not predicting something worse than 2008, but believes it's naive to not be open-minded to some sort of possibility to that effect. When you have free money, people do stupid things. When you have free money for 11 years, people do really stupid things. So there's stuff under the hood. It's starting to emerge. Obviously, the regional banks, recently we had Bed Bath & Beyond.

But I would assume there's a lot more bodies coming. He said they own some gold and silver right now, although historically they haven't done well in hard landings. He said he may change his mind on those metals in a week or two and urged the audience not to go out and buy gold. He said normally in this type of environment, he'd be buying treasuries. But that asset class is off the table with the 10 year yielding three, five and the Fed funds rate at five. They're not exactly a quote that pitch, Scott. Yeah, it's always interesting to hear from him. I'm thinking of a couple of things as you were telling me, you know, where their positioning is, right? It's Microsoft and NVIDIA is how

they're expressing AI, but not Alphabet, which has really been the topic of conversation among, you know, larger investors as to whether, you know, they're going to be one of those companies at the absolute forefront or if they're going to take a step back. Yeah. It's interesting, Scott, because in terms of his perspective on AI, he's not actually very much exposed to equities at all. He says that equities in general, he doesn't expect them to go higher over the course of the next decade. He said people should not be prepared for, you know, 9% annual returns over the next

decade like we've seen in, you know, the next decade, like we've seen in the prior decade. That said, AI is one area where he does see potential for big productivity gains. The way he's expressing those, as you mentioned, largely through NVIDIA, which he believes could be kind of recession-proof, which is kind of interesting given the backdrop of his other kind of macro concerns that he mentioned during that conversation. I assume we'll be talking a lot more about the other comment he made, a lot more bodies coming, quote unquote, in terms of what still might be under the hood, so to speak. Leslie, thank you as always. Leslie Picker, following the money at its own conference.

Up next, a big recession risk. Sycamore Tree Capital Partners. Marco Cata is raising the red flag on one key catalyst he thinks could send the economy into dangerous territory. He'll explain just after this break. And throughout the month of May, CNBC celebrating Asian-American and Pacific Islander heritage, sharing stories of influential AAPI business leaders. Here's the CEO of Tinder. Connie Chung was the first person on national television who looked like me. And she left the impression that somebody who looked like me could make a difference in the world.

And then now as we are building businesses and services that are meant to serve bigger and bigger populations, we really need to understand and empathize with the unique user needs that people have. And in building a global workforce, we need to have new and diverse voices around the table in order to help us make long-term decisions. Regional banks trying to find their footing today. My next guest says the likelihood of a recession is much stronger across the board because of the banks. Joining me now, Post 9, Mark Okada of Sycamore Tree Capital Partners. Welcome. It's good to see you. And I apologize off camera for mispronouncing your name. And I'll apologize to you as well on. Oh, thank you. It's great to have you. So I looked at the notes and I was like, man, this guy's negative. He's really bearish. The likelihood of a recession is much stronger.

We're soon going to have a credit crunch. And I'll save the doozy for after we talk about those two things. But you're pretty negative on the market. Well, it's hard not to be. There's certainly a lot of things going on. But I think if you focus on what the Fed's doing, the way I see the Fed is most of their mandate is a Main Street mandate, where they're talking about full employment, stable prices. Those are Main Street things. And from that standpoint, I think they screwed up on the first one as far as the price

stability. And they're making up for that issue. On the secondary one about employment, I think they're doing pretty well. I mean, honestly, if you're a consumer today, you've got a job, you got a raise, you're making money in the bank, you know, the numbers there are incredible. The Lakers beat the Dubs. It's all good. I feel they're really good. But, I mean, if you think about Wall Street on the other side, we've been in a recession since last year.

22 was an awful year. Yeah, it's been like a rolling recession, right? Oh, yeah, absolutely. And I don't think that where the rubber meets the road really is this whole regional bank crisis that we're facing right now. And they don't have a lot of easy answers. You either have a NIM problem, you have a liquidity problem, you have an equity, you have a problem because you got to pay a lot more for your deposits and you loan it all out in long-term mortgages. So there's no easy fix. Don't invest

in the regional banks. I mean, there are other areas. No, I mean, the policymakers continue to say, and I think John Williams himself with my colleague Sarah Eisen said it again today, that at least in their view, the most acute phase of that issue is done, is passed, similar to what Jamie Dimon had to say a couple weeks ago. Do you disagree with that? No, I think that early on in any cycle, you take out the weak parts of the market. So, I mean, we've seen the players that had mismanaged their books getting taken out pretty rapidly, and the Fed stepping in to make sure

that the transmission mechanism works, right? The banks are the transmission mechanism for monetary policy. And we get back to that Main Street, Wall Street thing, it's kind of where the rubber meets the road between the two, because that's where mom and pops is banking. That's where, and you've got to treat them well. I mean, they're not going to pass up 5% in a money market because they like your tie. I mean, it's not going to

happen. So I think that definitely has to keep working. I think they're going to, the reason why they're saying that, that the banks are sound and I'm tall and handsome. It's like, the reason they're saying that is because they need to. It needs to work. And so they're going to make sure it works, Scott. I think if I were in charge of the Fed, I would give the regional banks a break on FDIC insurance. I just figured out a way to get that higher. So it sounds like you're saying the idea of whether the Fed is done or not is irrelevant. They've already done a lot in a reasonably short period of time and the fastest pace in 40 years that it's just starting to take its toll. So it's like the Druckenmiller thing we just listened to where he is speaking

at Sohn and he said, we're just getting a look under the hood. First, it was the regional banks and then in his words, quote, a lot more bodies coming. Wow. I guess I'm very honored to be mentioned in the same comment with Druckenmiller. But yeah, it is early. It's early in the whole process of a slowing economy. And there's nothing that you can look at that would say that the economy is actually strengthening anywhere except for the labor market. Well, I mean, that's one of the most, if not the most important part. Yeah. Right. We're a consumption based economy, two thirds. So, well, I get that. But but I mean, if we get back to what's what Wall Street has to restructure to. It's higher rates across the board,

a higher cost of capital. Everyone is, I think, impatient about this cycle because they're used to this V bottom that we've seen after Lehman. And that's not the reality anymore. I'm old. I started in the S&L crisis. This is going to take two or three years to work through.

It's going to be like 99. That's the kind of distress cycle we're going into. But then on the other side of that, as Stanley also said, then you find some great opportunities like you did in 2001 after the tech bubble burst. So you're just sitting on a pile of cash? No, we're feasting off the front end of the curve. I mean, there's a lot of high quality credit. We're getting 6, 7, 8, 9 percent. I feel great about it. Recession or not a recession, we're making great money there.

So if I can play defense, make money while I'm waiting, and then when the party gets started and we get the real recession and a lot of work out, then that'll be pretty interesting too. But we're finding ways to make good money while we're waiting. You know, I said I was going to save the doozy of your views for a moment. I'm going to bring it up now. You also said you don't see stocks going anywhere for the next three to five years. Yeah. Is that right? I do. Well, I do. You've got to get through this long workout. At the top, we talked about this Asian American Pacific Islander Heritage Month.

Right. One of the things that I think comes along with the culture is some form of humility. I mean, as I look at the world and I see all the things that we're facing and we don't have a Fed put, it's going to take time. And so how can the riskiest bottom part of the cap structure get out of this until we work through the cap table? We got to we got to reprice all of this risk that's been doing is three trillion dollars of high yield credit out there. It's going to take time and it's just getting started. You think the Fed put is really dead? I do. I actually do. I don't think that that makes sense in this environment. Let it work through. Let it work through.

Let's reprice credit. Let's reprice risk to a higher interest rate, which is what just is getting started. But you know the minute that the you-know-what hits the fan, the Fed's going to be there. They're not going to let the whole system have a repeat of what we witnessed a decade ago. Which is what we said a little bit earlier. The transmission mechanism has to work, Scott. You can't have a full-blown crisis. And that's why they stepped in and did what they did with Silicon Valley Bank, etc., etc. They

made sure that that liquidity is there. I think at some point they need to do something with the FDIC insurance to make that transmission mechanism much more workable and not have this full-blown sort of crisis. Before we end, and you mentioned AAPI month, which we've been highlighting with vignettes all throughout this early part of the month. You say, enough with the speeches. Show me the reaches. Yeah.

Yeah. Tell me more. A lot of times when you talk about topics like this, people want to get up and make speeches to talk about awareness. They say, oh, you know, you're a certain percentage of the population, but you only get this much of an AUM. I mean, that's fine. Everyone understands that. But show me, put your money where your mouth is. I mean, the research

shows that AAPI managed funds beat the market. They beat their peers. They do better. So it's put your money where your mouth is. I think it's a great opportunity to actually outperform in here. I really appreciate you being here. Thank you. Apparently a great opportunity to actually outperform in here. I really appreciate you being here. Thank you. Apparently a Laker fan hiding out in Dallas. Is that what I gleaned from that? Go Lakers. There you go. Mark Okada. We'll talk to you soon. Thanks. All right. Take care. Up next, we're tracking the biggest movers as we head into the close. And do not miss IBM's CEO, Arvind Krishna on Overtime. That's 4 o'clock Eastern. Closing bell right back.

All right, 15 minutes or so to go before the closing bell. Red across the board. Let's get to Christina Partsenevalos for a look at the key stocks we're watching. Christina. Well, let's talk about shares of Mobileye because they're revving higher after it announced a new collaboration with both BW and Porsche on new automated driving software. They are calling it level four autonomous driving. That means fully autonomous. So recall that Intel spun off its

Mobileye stake, but still owns over 90 percent of the firm. And that's why shares are 2.2 percent higher. Losses are mounting. The CEO is stepping down abruptly and the company could be looking at bankruptcy. Wheels up isn't having a good day today with shares down, look at that, almost 23%. The private jet company once promised to become the Airbnb of private jets with a valuation that was once at $2 billion. Now it's close to $100 million. Quite the fall. Yeah, tough day. Christina, thank you. Christina Partsenevelos. Last chance to weigh in on our Twitter question. We asked, is the market too complacent around the debt ceiling duel? You can head to at CNBC Closing Bell on Twitter.

The results right after this break. Let's get the results of our Twitter question now. We asked, is the market too complacent around the debt ceiling duel? Majority of you saying yes, it is, near 55%. Up next, Wynn Resorts reporting in just a few minutes. We have a rundown of the key metrics you need to watch. Plus, we are just moments away from President Biden's meeting at the White House. The speaker is going to be there. Other congressional leaders as well. We're on the lookout for arrivals to debt ceiling. That's the topic in the market zone.

All right, here we go. We're in the closing bell market zone now. CNBC senior markets commentator Mike Santoli here to break down the crucial moments of the trading day. Plus Veritas Financial's Greg Brandt shares his outlook on the market as the debt ceiling debate takes center stage. Contessa Brewer with what's at stake for investors when wind resorts reports in overtime. I'll begin with you, Mike. This debt ceiling duel. We're waiting for the arrivals. The president and the speaker, other congressional leaders, top of the hour, going to begin this meeting. Our voters in the poll said, yeah, market's too complacent. I like that. The majority says everybody else isn't worried enough.

And I think there's a case to be made that sometimes you get this low-level anxiety that can spill into panic. I think the test will be, are expectations low enough for what really should be a kind of a meeting where not a lot comes out of it? So I think yesterday was interesting. We tested the tape with the senior loan officer survey. It went down for a minute and a half and bowed back up. So this range is stubborn in both directions. So we'll see if there's any reason why we should get released to the downside if we somehow get the nothing out of this meeting that we're all expecting.

And then it's the tape test that comes tomorrow morning with inflation, the CPI. Yeah, which is interesting. It's hard to know if that really packs as much of a punch as it used to. The estimates have been relatively close to where the numbers have come in the last several months. It hasn't been as big a jolt to the markets. And also, arguably, the bar is high for the Fed to be moving again in June with a hike. So maybe one CPI report isn't going to swing. So we'll see if it takes as an opportunity as a catalyst or not. All right, Greg Branch, you're still, from my notes, calling for an October-style demise.

Those are your words. I am. I am. And we're going to get that one of two ways, Scott. I believe that this debt ceiling, whatever we want to call it, will be resolved in one of two extraordinary ways. It's far too little and far too late at this point. We're about three weeks away from the X date or the binding date. And typically, the market

actually doesn't react until that time, by the way. And so I agree with Mike that we'll probably see nothing either way tomorrow, because in 2011, which is likely our best case scenario, we saw 20% market loss in the two and a half weeks preceding the X date. We're not quite there yet. But I do believe that this will resolve in one of two extraordinary ways. Either we will default. And I know that we're all saying that we won't because we never have,

which is not necessarily a solid base to build an argument on. But if we don't default, I think the president will have to oversee or supersede Congress. Either one is bad. Either one likely results in a debt downgrade, which then triggers likely or at least exacerbates a boiling problem in CRE at the regional bank level. I think we'll see more SFBs. I think we'll see more First Republics. I think we'll see the credit markets likely freeze. And therefore, the recession will be inevitable as unemployment shoots to around five percent and growth comes to a halt that's a bit dire no i mean even if it goes over the cliff so to speak you paint a picture in which it would stay over that cliff

for an extended period of time for all of those cascading effects to take place. That sounds a little overly negative to me. It could be. And I didn't address duration, actually. And you're exactly right. How deep and long a recession could be would depend on the duration in which we're in default. If we quickly resolve this shortly thereafter, I think we're still subject to a downgrade, which does increase borrowing costs across the board, Scott. And so at the end

of the day, the Fed will wait because they want to see how much of their work is going to be done for them. Right now, the labor market's fighting the Fed and the consumer's fighting the Fed. And thus, we've seen not only a strong first quarter, but we've seen the rate of disinflation slow pretty considerably. So something needs to be done in terms of getting inflation where the Fed wants it. The Fed just doesn't know yet if it has to do it or if Congress will do it. I mean, do you think the Fed's done? Are they done raising rates? Yes or no? They are not if we reach a debt deal. They may be if we do not and we default.

Maybe they already know that there are credit issues to deal with. That's an interesting perspective. I appreciate that, Greg. Thank you. We'll talk to you again soon. Contessa Brewer watching Wynn. What are you watching for? Well, look, all the eyes are on Macau.

And we have kind of a preview because we have Las Vegas Sands already reporting an MGM. We know what the destination gaming revenue numbers are. But the street is anticipating that Wynn still won't turn a profit. Consensus is a penny loss per share. Las Vegas and Boston, their properties there, have been outperforming and subsidizing Macau in the pandemic. So let's see if the company can best that and turn a profit. And I expect on the call questions about Wynn's new project in the United Arab Emirates. It's the first new project to be conceived without founder Steve Wynn at the helm. And Craig Billings told me, Scott, that he thinks this could be an important new driver of growth for the company.

Is there any worry at all that the great reopening of China that some companies have suggested may not be as robust as they thought has an impact into Macau as well? I haven't heard that. And what we've already seen is that the pent up demand, the kind of pent up demand we saw in Las Vegas, we saw it in Singapore, is coming back exponentially in Macau. It is just blowing through all expectations. And remember, a lot of times the visitors that you get going into Macau, they're the upper echelon, right? Even the mass, even VIP mass, even if you're not going in as a high roller VIP player, it's attracting a better heeled crowd. Okay, we'll see. And we'll look to you for those results, Contessa Brewer. Thank you so much. Mike Santoli, the sound effects went off. The two-minute warning has passed. Greg Branch, pretty negative on these cascading effects that are going to happen as a result of this duel, which may end badly.

You can never foreclose on the possibility that it does touch off something relatively ugly and disorderly. Obviously, it could be the case. It could be why we're just churning here on low volume and very noncommittal. It seems like there's a lot of ways things can break. On the other hand, we've been in this zone for a while right now. And to me, what's interesting is, of course, it's all coming as we're kind of bracing for a little more of a real economy impact of the credit crunch, of a lot of the things we've been seeing.

It's not really being reflected in the first quarter numbers or the corporate guidance. racing for a little more of a real economy impact of the credit crunch of a lot of the things we've been seeing. It's not really being reflected in the first quarter numbers or the corporate guidance. So it kind of has us pinned in that zone, even on the recession watch side. It's almost everything that concerns people is on the rate of change side, not on the level of activity. And that applies to senior loan officer survey. It applies to the ISF, the PMIs, the M2 numbers that everyone talks about. It's all about the rate of change in M2. The absolute level of the monetary base is really high. So I think that's why it's a little bit of a sticky and puzzling moment.

And, you know, people are probably justifiably cautious, but it's good when people are cautious as opposed to when they're overconfident and looking for things to bet on. And by the way, the equal way to Russell 1000 does not look good. It's kind of a tired, sloppy looking chart. So I'm not saying that the market is really shrugging off the challenges. We'll see what comes out of the White House, if anything. There's the bell. We've got some earnings coming up that we need to pay attention to in overtime.