Closing Bell - Closing Bell: Stock losses accelerate, Optimism from Pepsico in Davos, Microsoft cuts 10,000 jobs 1/18/23

Episode Date: January 18, 2023

Stocks pulled back sharply in Wednesday trading as investors digested a batch of economic data and the latest signals from the Fed’s Beige Book. Bespoke’s Paul Hickey weighs in on the “soft landing” debate and what he sees in the market right now. Barbara Doran from BD8 Capital Partners breaks down where she sees opportunities. Sara sits down with the CEOs of Pepsico and ServiceNow at the World Economic Forum in Davos, where they struck an optimistic tone about the business environment. Plus the latest on Microsoft’s job cuts, retail sales, and Moderna’s RSV vaccine.

Stocks pulling back sharply today with indexes not far from their session lows. The NASDAQ on track to snap a seven day winning streak. This is the make or break hour for your money. Welcome to Closing Bell. I'm Mike Santoli. Sarah Eisen is at the World Economic Forum in Davos, Switzerland. Take a look at where the market's staying right now. One percent losses just about on the S&P 500.

Little more than that as well as on the Dow Jones industrial average Nasdaq still slightly outperforming we got yields down you see that 10-year treasury note they're really making new lows below 3.4 percent on some weaker economic data Russell 2000 in line with the S&P at the moment check out the S&P sector heat map at this hour pretty much everything well absolutely everything is red right now. Although, interestingly, consumer discretionary is not really the locus of the weakness. It's actually outperforming slightly, even though Rika Retail Sales was one of the reasons we are down today. But communication services and basic materials, materials have

been a strong group, giving some back today. Coming up on the show, signs of optimism from Davos. Sarah Eisen brings us interviews with a pair of CEOs who have a comparatively rosy outlook. First, though, a rare sit. First will be a rare sit down with PepsiCo chief Ramon LaGuarta on the one economic indicator that's giving him hope. And later, ServiceNow CEO Bill McDermott on the outlook for cloud services and why he says he's very optimistic about 2023. all right let's take a look at the S&P 500 where today's pullback places it it's essentially unwound a few days worth of upside remember we were up four percent in the first two trading weeks of this year uh actually on a little bit of a run since right before uh

Christmas let's say this is that area we spent a lot of time at 3800 uh throughout the first half of uh december so far that seems safe but take a look at those early december highs 4100 that shows you we're in a little bit of a of a kind of a no man's land between these support levels and what would be the levels that would mean some kind of escape velocity above that downtrend not there yet take. Take a look at the U.S. dollar index, too. This is one of those kind of macro gauges that really has been trending the other way. A pretty big peak a few months ago. This is a two-year chart, and it takes you back to the springtime, basically. You know, huge run as the Fed started hiking rates.

The U.S. seemed like the beacon of growth in the world. And now we see a big unwind there as you had a series of cooler macro data coming out. In fact, investors keeping a close eye on a number of economic releases today for clues about the Fed's next move, among other things. Steve Leisman has a look at what we've learned so far today. Steve. Yeah, I haven't learned good stuff here, Mike. An ugly series of economic reports suggesting an economy that is potentially contracting and a Beige Book that acknowledges growth is flat across the 12 Federal Reserve District. The Beige Book said economic activity was unchanged since the last report.

Five of the 12 districts said there were slight increases. Six said there was no change. And one had a significant decline. That one was the District of New York. The base book also said little growth was expected in the months ahead. Consumer spending was up slightly. Some retailers said high inflation reduced consumer spending, though the pace of price increases does appear to be slowing.

On that ugly economic data, retail sales falling 1.1%, a tenth worth than expected. Gas station sales fell sharply because of lower gas prices, but you also had declines in autos, food and drink establishments. Department store sales fell sharply too. Better inflation number, the PPI, the wholesale price index, falling more than expected, down a half the year-over-year rate, declining to 6.2. Takeout food energy and trade, a core indicator that people look at. It was up 0.1 for a year-on-year of 4.6. And industrial production, maybe the ugliest of all, down 7 tenths with a massive decline in manufacturing output. Fed officials noted progress on inflation but continued to call for rates to rise above 5%. What happened here? The gap between

the pricing of the market for year-end 2023 and the average Fed forecast, it widened. It's now 79 basis points, equal to the highest gap we've had since the Fed hiked rates in December. Markets continue to expect rate cuts this year. The Fed insists it's going to hold rates at a high level. The data today lending support to those thinking a recession could be in the offing. But Fed officials continue to say, Michael, that is not in their forecast. Yeah, Steve. And to be fair, it's not necessarily quite yet the consensus among economists, but maybe it is inching in that direction. And boy, the bond market response to this was pretty profound. As you've been tracking for a while, Fed's still holding to this idea that they're going to target above 5% on the Fed funds rate. Well, the 10-year yield is like a full percentage point below the current Fed funds rate, sending a pretty clear message.

The Fed thinks inflation was last year's problem, and now it's a matter of risk to growth. So where do we see the argument going from here? What's the market expecting just in two weeks from the Fed? Well, it's interesting. The market, it's like saying, you're going to do what? When? If you look at that 10-year, I was just looking at it today, Mike. When Fed Chair Jay Powell gave his big speech in Jackson Hole. You were about 3%, 305 on the 10-year. He was able to ratchet up rates to 470. Guys, I don't know if you can go back that far, but the rates were, yeah, you do. You got it there.

It's great. 470. Only about, you know, 20 or 30 basis points of that jawboning from Powell, along with the higher rates, is left in the market here. So the market and the Fed continue to go their separate ways. And I think it comes down to a difference in the outlook for inflation. I think the market understands the Fed's reaction function. And only one of two things can happen, Mike, which is either the Fed eats a little crow,

reduces its forecast, comes to see the world the way the market sees it, or the market adjusts to the Fed. And that latter alternative, that latter outcome is going to be, I think, painful here. If you think that you see the two-year has to rise up near 5%, if that's the case, I think stocks have another leg down. Yeah. And of course, you know, the Fed keeps pointing to the other part of their mandate, employment. That hasn't budged just yet. So if they're kind of benchmarking, you know, the risk to the economy on the labor market, they're not going to find a lot of room for an immediate dovish turn. It's the only thing that hasn't turned yet, Mike. And that's why guys like Mike England today from Action Economics, he says

everything else is in place now for the NBER to meet and call a recession, but the jobs decline. And he expects that to begin to happen this year. Interesting moment, Steve. Thank you very much. Well, the weak economic data out this morning could be a sign that a soft landing remains possible. And according to Goldman Sachs CEO David Solomon, those chances seem to be increasing. I think the sentiment is softening a little bit and the view that the chance of a softer landing both in the U.S. and Europe is actually increasing. Our economists, you know, our economics team has been pretty soft landing over the last six months. I was more in a position because I was talking to CEOs who have been more cautious that I was more uncertain.

But I see CEOs softening a little bit. Let's bring in Paul Hickey from Bespoke Investment Group. Hey, Paul, obviously, you know, defining a soft landing and, you know, it's in the eye of the beholder on some level. I think one of the bigger questions might be, what is the market currently seemingly positioned for? In other words, does it have a hopeful uh implicit message here about earnings being able to hold up or are we are we leaning toward the idea that it'll be a harder landing so far well the market is definitely taking a more cautious approach which you know goes back to bullard's comments this morning that uh you know he was saying that inflation is not going to fall as fast as the markets expect i mean mean, you want to ask, well, what makes him so sure rather than the market?

We always defer to the market rather than any individual view. And the market is telling us that rates, what you and Steve were talking about, the 10-year, more than 100 basis points below Fed funds rate in the three-month yield, it's only been this inverted. You know, it hasn't been more than this inverted only on less than 2% of all trading days throughout history on back to 62. It was only during 73 and 74 and 79 to 81 that we saw more inverted yield curves than we have right now. So that's certainly a concern. The weaker-than-expected ISM services report that kicked off this rally about a week and a half ago, that was thought of as a good thing, weak economic data, maybe taking the Fed. But now we're seeing too much of a quote-unquote

good thing, as we've seen, just as Steve said, ugly data this morning. So this is the concern. The more positive aspect of things is there's two things that are different here. You touched on it earlier. Employment has been holding up. When we've seen these weak ISM ratings in the past, employment has always in the past already turned negative. And we're still at plus 200 monthly prints for the last two years. So that's an optimistic. And then overall, consumers have more money in their bank accounts right now.

Brian Mountwinehan brought that up on the conference call last week. That's pushing it in the blow. But if the Fed waits till we get to see negative prints in employment, then the hopes for a soft landing will be, you know, pretty much extinguished. In that context, Paul, we did see actually a big push into risk assets. Markets performed very well. Broad rally first couple of weeks of this year. Are earnings in the short term achievable, do you think? Can that kind of support the market while we wait to see if the landing is soft or not? Well, so far, what we've seen is the results we've seen just since the banks kicked off earnings. It's a very small sample size, but less than half of companies have exceeded EPS forecasts

and barely more than half have exceeded revenue forecasts. That's a really low number. So the positive side to that aspect is the fact that we've seen the markets hold up. Up until today, we've seen relatively good performance, even from the company's reporting. So that lends credence to the idea that the buy side was ahead of the sell side and maybe had lower expectations. Overall, analyst sentiment heading into this earnings season, again, like the last two earnings seasons, was very weak. we've only seen a handful of other quarters which saw weaker sentiment and when you have that low bar set you tend to see strong performance during earnings season and so your point what go ahead sorry no i was just going to say we got it wrong but it seems

like the market has kind of been a little bit ahead of the consensus and maybe even, you know, where this whole economic debate might be right now. It's going to it's going to lead at some point. We'll see if that point is now, Paul. Listen, appreciate the time. We'll talk again soon. Great. Thanks. Talk to you later. All right. After the break, a rare interview with the CEO of one of the world's biggest consumer companies. We'll hear from PepsiCo boss Ramon LaGuarta about why he is more optimistic about the consumer after his conversations at Davos than he was when he arrived. You're watching Closing Bell on CNBC. We have some breaking news on the Fed.

Steve Leisman is back with the details, Steve. Hey, Mike, Philly Fed President Patrick Harker saying it is appropriate to raise rates, Federal Reserve interest rates, a few more times. He says 25 basis points is appropriate going forward, says the days of 75 basis point hikes are done. He expects to hold the policy rate there at some point during the year while the Fed continues to shrink its balance sheet. The goal, he said, of the Federal Reserve is to slow the economy modestly, bringing demand back in line with supply.

He's seeing unmistakable signs of a slowdown in interest rate-sensitive sectors. For example, housing. The economy, he says, remains relatively healthy. He expects modest growth, and he is not, a lot like other Fed officials, he is not forecasting a recession. He expects a slight uptick, I don't know if he'd call it slight, but he calls it slight, uptick in unemployment to four and a half percent. The current rate's around three and a half percent. He says although inflation is biting, he sees Americans continuing to spend, starting to see inflation come down and supply chains healing, a fact that was noted in the base book we just talked about. Sees inflation at 3.5% this year, going to get down to 2%,

but it's going to take to 2025 to get to the Fed's goal. The labor market remains in excellent shape, Harker says, and he's concerned about commercial real estate, specifically office space. One note in here, Mike, he says that it's an underrated advantage of the Fed that they're fighting inflation with the labor market in such a healthy state. So that's the way the Fed looks at things right here. All right. It's hard to deny. Pretty consistent message there, it seems, from what we've been hearing. Thank you, Steve. The consumer in focus today as November and December retail sales both missed estimates. Sarah Eisen sat down at the World Economic Forum in Davos

today with PepsiCo CEO Ramon Laguarta, and she started by asking him for his read on the global consumer. It's interesting. There's one macro debate and there's one micro debate. That's what I'm seeing here in Davos. The macro debate seems to be a bit more negative than the micro debate. So when I talk to a lot of my colleagues, they're all surprised by they're doing better than they thought. And actually this is the case for many of the people in developing markets, developed markets. So, there is going to be a difficult 23, a lot of unexpected things. That's something that we've learned in the last few years. It's something we need to expect for the unexpected.

But I'm seeing more optimism that I had before coming here to Davos. So, the consumer is, you know, there's little unemployment. When you look around the world, there's low unemployment. That to me is a very positive. What I'm seeing, we're having good harvests across the world. That would also have a positive impact in the economy. We're seeing China opening. To me, that's a positive as well. So I think we will see. We'll start the year with some kind of degrees of gray, but I'm seeing optimism in a lot of the people I'm talking to. Any big distinction in terms of the health of the consumer between U.S. and Europe, your two big markets? Probably the European consumer is feeling

more the cost of living adjustment than the US consumer. The good news in Europe, though, is that energy prices have gone down as well. So we're seeing some consumer optimism around energy prices going down. There is obviously the big impact of the war, that they're closer to the war in Europe than we are in the US. But I would say the unemployment levels is the KPI. I'm looking at every single country. And in the US, it's at all-time lows.

Even countries like where I come from, Spain, historically very high unemployment levels. And it's very low levels today, right? So to me, and especially for our categories, which are mainstream categories that are bought by everybody around the world, unemployment is a critical factor. And so far, unemployment is very low. People have jobs. People have actually multiple jobs. And they're strategizing around their budget. So they're

making choices where to buy, what to buy. Those are realities that we're seeing in our categories, but they continue to be resilient. We're seeing growth in our categories. We're seeing consumers stay engaged with our brands. That's all positive. Well, you're also pretty defensive. Even in times of downturn, people need to eat and drink. How do you characterize your portfolio in that way as we head into what could be a more difficult period?

Yeah, historically, our categories have been resilient throughout positive economic times, negative economic times. There are different reasons why that happens. Consumers make adjustments, they socialize more at home. We're normally preferring that occasion. So people look for affordable treats, so we're part of that. So we're seeing positives in that change.

We feel good about how our categories will behave. We have a lot of knowledge how to make our brands affordable in difficult times, so give consumers entry points and ways of continuing to be engaged with our brands in spite of their tighter budgets. Affordable maybe, but definitely less affordable than they've been. You have been seeing double-digit price increases. Is that still happening?

It will not happen, obviously. I mean, the way we... It will come down. The way we approach the inflation was very clear. We wanted to put consumers at the center of any decision that we're making. We wanted to lean with efficiency and cost control. So that was our first go-to. I think our productivity was very strong this year. It will continue to be very strong. And then obviously we had to price. The way we priced it was always having consumers at the center, giving them affordable ways to stay with our brands.

On the pricing story, we're all trying to figure out what's happening with inflation. And food inflation has been stubbornly high in particular. So what is the outlook there? I've been talking to some of the big agro companies in the market. There are good news in the sense that crops are much better than they were last year. So I think we will see better performance of the pricing. So commodity input costs come down. Commodity input costs should go down.

Oil prices are kind of stabilizing at the levels. So we should see a decrease in commodity costs. Now, the labor market is still hot, right? The labor market, and that's what I was referring to earlier, that gives me optimism because wages keep going up and employment is very high. So probably labor is going to be the biggest source of inflation versus commodities probably going down. We still see bottlenecks on transportation. Some key elements of the full supply chain still might have some inflationary

trends. But especially commodities, which were a big part of the inflation in the past, are calming, are going down, which is good news for the consumer in general. It's good news for our companies. So if costs come down, if pricing can come down, the story becomes about margin preservation here on Wall Street. And there have been reports that you have done some layoffs, certainly in corporate. What is the story there when it comes to cost cutting and belt tightening and how much you're doing and expecting? Yeah. So it's what I was saying earlier.

If you put the consumer at the center, we have to minimize pricing and we have to maximize the things that we can control. Obviously, efficiency is one lever we can control. But I would put that in the context of we're trying to make PepsiCo more agile, more flexible, more empowered throughout the company. And some of the changes that we're seeing and some of the layoffs that became public, which were very small compared to the 300,000 employees that we have in the company we're more in the context of continuing to transform the company to be more agile more digital more efficient than in the context of massive fixed cost transformation that that in our case is is more of a ongoing process rather than a so we could see more of that we're every year Not on a wide scale? No, every year we do adjustments of our cost structure linked to adoption of new technologies or, you know, thinking the company again with the principle of becoming a very agile, flexible company that is very strong at the local level where you see we have to continue to be looking at the external market. The external market is changing every day.

So our companies need to become much faster, much more fluid in the way we reallocate resources all the time. It's just the reality of the external world. And more sustainable, which I know is front and center for you. We've talked about pet positive, the idea that you're going to put it in everything you do, from the farming to the packaging where where do you stand on progress at this point listen we talked about a year and a half ago right when we launched it i i think it's one of the uh it's clearly at the center of our strategy it is it is how we think that we can create value and continue to be a high performing company uh in the last year and a half i'm super happy the way the company has embraced and adopted this i've been traveling in Asia a lot of time in I was in Saudi Arabia a few

weeks ago and our employees have adopted this as their way of thinking about how they're they're going to create value for the company now I'll give you examples of how we're progressing for example if you take lace in the US for example one of our biggest brands in one of our biggest markets we now have 100% of our potatoes are sourced sustainably now we have our Modesto plant that is reduced gas emissions by 90% in the last two years a massive change there we have plants in the system that can produce potatoes with zero fresh water consumption now for 150 days. So they've been running the factories 150 days with no water. We've been testing biodegradable packaging.

We have now new vehicles that will have very low emissions or zero emissions as we transport the product. These moves and changes you're making, ultimately, are they inflationary? Well, they will be inflationary in the short term, but within the full P&L of the company, we can make adjustments. Long term, and we just had a meeting with a partner in the area of recyclable plastic. So if you think about how I see our beverage for the future,

there will be non-sugar, hopefully 100% of the business is non-sugar, and it will be 100% recycled plastic. Even drinks? Yeah. No sugar. Non-sugar. Yeah, that's what we want to do. 100% non-sugar long-term and 100% recycled plastic. So zero sugar Pepsi replaces Pepsi. Ideally, long-term. Long-term, that's the vision. But I was referring to the plastic cost. So non-sugar is less cost. So that's positive for us. Now recycled plastic is more expensive than virgin plastic. But if we can lightweight our bottles, the net of this is zero.

So we can have more expensive ARPET, but less plastic per bottle. So the cost per bottle remains. So those are how we're thinking about the future of our categories. Our vision is we can have a positive portfolio with very similar costs or maybe incremental costs that can be very well absorbed within our full cost structure. So this is how we're thinking about it. In other words, it doesn't have to be permanently inflationary for consumers. It doesn't need to be. And there will be, like if you think about, for example, electric vehicles, there is a cost. So what we're doing with Tesla, there is a cost for PepsiCo in being time mover in that technology. Now, I think we're willing to take

that cost because eventually we'll help reduce the cost of those vehicles and it will be good for society and good for PepsiCo. We'll have new ways of transporting our products with zero emissions at affordable cost for the company. That's how we're thinking about being prime movers, leaders. You were asking me about what your role is. We want to be leaders in some of these transformations. I think it's our responsibility being such a large company that operates globally and I think it's good for our consumers, it's certainly good for our people. It's good for our communities. And it will be good for our stock price. PepsiCo stock price is up roughly 58 percent since Ramon Laguardia took over in 2018,

comfortably outperforming the S&P as well as Coca-Cola over that time. We'll have more from Sarah in Davos coming up later in the show, interviewing ServiceNow CEO Bill McDermott. Let's get a quick check on the markets. The Dow is down 1.4 percent, bumping around the lows for the day. S&P 500 down 1.2 percent, also near the earlier lows. Microsoft says it's laying off 10,000 employees as tech cuts accelerate. We'll talk to an analyst about the latest round of layoffs and how Microsoft's AI investments could be involved in the decision. Closing bell. We'll be right back. Cloud software stocks underperforming the tech sector today and are down by nearly 40 percent

over the last year. Up next, ServiceNow CEO Bill McDermott on the outlook for the industry and whether he thinks a wave of M&A could be on the horizon. We'll be right back. Indexes slipping to their lows for the day. You see the Dow down more than 500 right now. The S&P down about one and a third percent. Takes it back to about where it was trading a week ago today. The Nasdaq also been under pressure in jeopardy of breaking a seven day win streak, though tech is actually one of the better performing sectors on the day. Sarah Eisen sat down with Bill McDermott, the CEO of cloud software company ServiceNow earlier today at the World Economic Forum in Davos. She started by asking him about the state of IT spending. If you think about digital transformation, which is the business we're

in at ServiceNow, it will grow eight times faster than the economy. So this is one of those very special marketplaces, and we're very optimistic about 2023. So no recession for IT spending? Not a chance. What about in general for the consumer? You're not seeing companies pull back? The consumer is obviously under a lot of stress. If you go down in the value chain, especially if you look at retail as an industry, everything is value for money. From the person that's driving an Uber all the way up to the CEO that's running a bank. It's value for money. And everybody has to optimize the real solution and the real impact to the consumer. But I do believe that I am slightly more optimistic than most people. Some of the tech executives have been,

which surprises me because that's the area where we've seen belt tightening, layoffs. One of your competitors, Salesforce, recently announcing layoffs. Is that something that you're doing? We're hiring. And we're hiring, Sarah, because if you think about ServiceNow, it's uniquely differentiated. We have become the platform for end-to-end digital transformation. So it's not just about running IT well. It's about the employee experience, how you service your customer,

and how you build new applications on a modern low-code platform to innovate and change the world. So what is happening then in the broader cloud industry? Is it just a give back from over-earning and over-capacity during the COVID boom? You have to run a great company. And I think a lot of companies just were staffing up on the prospect that growth would continue and that would be a new paradigm that went on endlessly. We took a little bit more of an intentional approach because we're growing through organic innovation, meaning we prefer engineers that actually build the software on our platform and we prefer our own go-to-market professionals that team up with our partners to grow a great platform. And we prefer our own go-to-market professionals that team up

with our partners to grow a great business. And we were intentional then and we're intentional now, but we are hiring. In fact, we added about 12,000 people to the payroll through COVID and every one of them is gainfully employed. So you're hiring all those people that are being laid off at other tech firms? No, actually we we continue to hire the best. And, you know, we don't source from other companies. We don't have to. You know, we're actually bidding 1%, 1% of the actual people we interview. That's not counting all the resumes that we get and the people that are interested in being in service now. So the best people want to work for the best companies

that have the best competitive differentiation and a culture that was born to win. The stock is down more than 20% or so over the last year. It's underperformed the broader market. What is Wall Street missing? Well, there isn't a tech company that I'm aware of that has outpaced the S&P 500 in this particular downturn because there's been a move away from growth. So growth stocks had their multiples compressed.

We're no exception to that. But our multiples are still the highest in the industry because our growth is the fastest. You know, Sarah, we're actually growing near the rule of 60. And I'm unaware of another enterprise company in the software business doing that. So you've seen a number of cycles, especially as a leader of SAP. What does this one remind you of? Oh, this one is nothing like 2008, and they're saying, what are the platforms that matter? Because we're not going to invest in something that is not a platform that matters.

So when things are going great, people would have two, three, or four of similar things. Now they're saying, I want the one winner in a category. And everything else is going to lose. And that's what's happening. The great reprioritization. What about you and your own investing? How are you feeling about acquisitions? Because valuations have really come down in the cloud sector.

They have, Sarah. But our strategy has been clear from the beginning. We're growing organically. And if we do something, it's been of a tuck-in nature. We recode it immediately to the now platform because we never will pass tech debt onto our customer. So our strategy is different. We like to think that we're playing chess and other people are playing checkers. So what does that mean for deals? You're holding? We're not interested in deals, you know, because we don't need them. I mean, that's the big thing. We'll have much more from Davos tomorrow. Sarah will discuss the outlook for M&A

when she speaks with Mollis & Company Chairman and CEO Ken Mollis. Here's where we stand in the market. Still sitting near the lows for the day. 39.33 on the S&P 500, down 1.4%. The Dow, also the underperformer today, down 1.25%. Weaker than expected. Holiday sales weighing on retail stocks today. Coming up, an asset manager tells us which retailer she thinks is a bargain right now.

S&P down about a percent and a half. The Dow down one and three quarters percent as the market continues to slip in the final half hour of trading. We're going to have much more on this late day sell off when we take you inside the market zone next. We are now in the closing bell market zone. BD8 Capital CEO Barbara Duran is here to break down these crucial moments of the trading day. Plus Meg Terrell on Moderna and Oppenheimer's Tim Horan on Microsoft. Welcome to you all. We have this kind of late day slide, Barb. We're hitting, I guess, three or four day lows. We're giving back some of that 4% jump we got in the S&P at the first couple of weeks of the year. Do you feel like that was just a quick snapback? Was the market correctly sniffing out a benign economic outcome to this whole soft landing debate?

Where do you come down on all that? Well, I think there's a couple of things going on. I think, first off, everybody does still have PTSD from last year. How many false starts did we have? But I think there's a difference this time because we have more inflation data that's come in. For instance, you saw the PPI number this morning. It was slightly better. Inflation coming down.

Last week, we had the CPI for a six-month in a row showing inflation rolling over. And we've had a whole set of new economic indicators adding to the increasing weakness we're seeing. Yesterday, it was the Empire State Index, which was down dramatically. And that's a precursor, a lot of feeling to the ISM number due to be reported in early February. And that's a precursor, a lot feel for the ISM number due to be reported in early February. And you saw manufacturing down this morning, retail. So clearly there are signs, continued signs that the economy is weakening. So that, of course, raises hopes as inflation comes down that the Fed will not be as aggressive in their policy, despite what several Fed governors said today or Fed presidents. So I think that is the market is

really cautiously that there's more data. And I think inflation could be tamer and you still have full employment. Wages are softening, but not contracting. So it's I think it's a good start, but you don't chase it here again. You just have to be patient and watch. Yes, definitely kind of a wait and watch type scenario here. Let's get to Moderna. The race for an RSV vaccine is on. Moderna is saying its experimental vaccine proved effective among older adults in a clinical trial and that it would apply for U.S. regulatory approval in coming months. And Pfizer developing its own RSV vaccine, which is currently under priority review with the FDA.

Both Moderna and Pfizer CEOs sat down with CNBC at Davos earlier. One of the amazing things about this technology is we started the phase one for the RZ vaccine in January 2021, just after the COVID-19 vaccine was approved. And here we are just 24 months after we are announcing phase three positive date. For us, we submitted. So we are going to get it in whenever FDA will provide us approval. We have priority review because we had very strong data set and the disease doesn't have a vaccine right now. Meg Terrell joins us. I guess to put some context around this, Meg, just exactly how big an opportunity is this? How big do we think these products are going to be in terms of uptake and how close are we? Yeah, we're getting really close, Mike. And

it's amazing because RSV actually contributed to the terrible winter of respiratory viruses we've had. RSV, COVID and flu all kind of at the same time. You know, Morgan Stanley estimates this could be as much as a $10 billion market in adults alone in the United States by 2030. Of course, there's a big market in children with this disease as well. And these companies are all working toward getting to younger age groups. Pfizer is looking at this in pregnant women to try to protect newborn babies. Very important indications. So this could potentially, the first ones from Pfizer and GSK get on the market later this year. Moderna close on their heels, potentially 2024.

That's, it's definitely impressive the speed that this is all happening at. And Barb, now you, you were involved in Moderna. I mean, what's the thesis you have around that one? Yeah, it's interesting, Mike. You know, I did not buy Moderna during the whole vaccine race initially for COVID. It was one of these things where it seemed to be a one-time effect. The stock was already expensive and kept getting more expensive. But I'll tell you, then they had the news in mid-December about the joint effort with Merck's Keytruda. And it was, granted, it's a phase 2B trial, so there's still a long way to go but the fact that it showed a reduction in death and recurrence and melanoma of 44 percent showed you the potential of their mRNA platform for many many more products so that to me is the real potential i think the longer run this could be a huge stock even though it's already had a big run

and technically is expensive but i think it's one of those things you don't look at the P.E. today because this could be a monster stock over time. Yeah, market certainly likes it. Only 9 percent off its high and up 70 percent from the low Moderna. Meg, thank you very much for that. Microsoft, meantime, is the latest tech company undergoing layoffs, confirming plans to eliminate 10,000 positions in response to a weaker economic backdrop. Microsoft joins Amazon and Meta, among others, tightening costs in anticipation of a slowdown. Tim Horan of Oppenheimer joins us now. He has a buy rating at a $265 price target on Microsoft. And Tim, to some degree, a lot of these companies seem to be doing some kind of deferred cost maintenance here. They bulked up a lot during the pandemic. What does it mean for Microsoft in terms of the future for the

financial performance? Well, we think it's just cyclical. Longer term, they have a massive secular growth story. They are huge investors in AI with OpenAI and ChatGPT3. We think could be just as transformative as the iPhone was 15 years ago, or even the internet 20, 25 years ago. And they really are in a position to dominate that. And they are continuing to invest longer term. They're investing aggressively in CapEx and data centers. And you've got to remember, they've kind of tripled their headcount in the last seven, eight years since not Satya took over the company. We're only looking at a 5% reduction, which I'm sure there's a lot of excess in the company,

so this makes a lot of sense. Sure, and certainly the stock became pretty stoutly valued up near the highs at a big premium. Where are we going to see the AI efforts in terms of Microsoft's business? Is it going to be about internal productivity at Microsoft, or are there going to be more public-facing products that are going to catch on, do you think? We think they're going to create a platform and open this up on Azure for anyone to use.

And if they do that, they can kind of really get the virtuous cycle going. The more users you get on it, the more applications it improves because it almost is self-learning in a lot of ways. But clearly, they're going to try to make Teams the digital assistant for the business market, which could be an incredible game changer. But at a minimum, what we're seeing out of ChatGPT3 is that it's improving programmer productivity by at least 50 percent, maybe in some cases 100 percent. And this is going to be a game changer for running programs. And they're going to use it to improve their products across the board and integrate the products a lot more. So it's a combination of everything, really. Got it. And, you know, just in terms of how the stock is situated, I mentioned it was pretty expensive.

It's still, you know, 24-ish times forward earnings. It's not supposed to be a fast growth fiscal year for them this year. Do you still think that, you know, longer term this is going to be a decent level at which to own it? We think if you got the 24 calendar year, it's getting close to 20 times, 20 to 22. So, yeah, obviously, we'd always love to buy it more like 18 to 20 times. But we do think they grow earnings over the next decade in the 10 to 15 percent range. But you've got to remember, you have the optionality value here of a company that can dominate artificial intelligence, which is going to be the main economic growth driver over the next decade. We think globally, this is a real, real game changer and a massive productivity

improver, and they can dominate it. Yeah, certainly a new leg to the story for Microsoft fundamentally. We'll see how that goes. Tim, thanks very much. Appreciate the time today. Stocks are hovering near their session lows. The S&P 500 down a percent and a half. Barb, you said it's not a place to chase it. Does that mean that you're still going to be looking to add exposure here and there as we go along this year? I guess the question is, in what parts of the market do you think opportunities are popping up? Yeah, Mike, that's exactly the question, because I still think you have to be selective. There are sectors that need exploration, like the sudden pivot in China and opening up, and their recent comments at Davos, the vice premier, really could be a game changer. I think

people are deeply skeptical about the Chinese political situation that they can turn on a dime, but I think there's a lot there worth investigating, whether it's materials, industrials, companies that will benefit. But for now, in the U.S., one of the things I'm going to talk about is Walmart. And I think you look at the names like Walmart or Costco or UNH, things that are going to do well in a possible recessionary environment. Even though consensus right now is mild recession, the outcomes are so wide. We don't know the lagged effect of higher interest rates, et cetera. So I'm looking, I have been adding to names like Walmart because Walmart is a classic defensive play. I mean, it has done well in throughout many recessions and weak economies. And the company is even stronger today. They have a superb management.

They are the largest company in the world by revenues. And they are the largest by far in grocery in the U.S. And they have not rest on their laurels. They continue to develop their omni-channels. E-commerce is growing at 16 percent. The company is very well run. And you saw that in the last quarter numbers where same-store sales were up 8.2 percent. So even though the stock is not cheap, it's not expensive, it's in line historically, I think maybe near-term 15 percent upside. But longer term, this will continue to be a winner. Yeah, I mean, there's no doubt you always kind of have to pay up to play defense in environments like this. Does that apply to other areas outside of Walmart for you? Well, I'm not chasing the consumer staples. I think

there's been a big run there, even though I still think if you own them, they're a good, safe place to be for now, particularly if they are dividend providers, which is also Walmart. Walmart, by the way, has about a one and a half percent dividend. Names like Coca-Cola, which are seeing great growth. I think there's still a lot of names to be in, but I would not be initiating new positions. So I think the beaten down growth, you've seen what's happened any time. And this was true last year. We had a whiff that inflation was cooling. The Fed might pause or do something positive. The growth stocks took off. And obviously, that's part of the interest rate situation, but also because they've been so beaten down. So I would continue to look in there. And I've been adding, you know, Meta, Amazon, these kinds of names. All right, Barb, appreciate the time today. Talk to you again soon,

Barbara Duran. All right. Thanks. All right. S&P 500 down one point six percent. So pretty much at the lows for the day. We're going back to early last week levels right here. Look at the breath. It's been negative now. Strong breath to start the year. But today there's some give back there. You've got four to five to one declining to advancing volume. Massive rally in the bond market today after that soft economic data. The 10-year Treasury yield down to 3.37 and also massively inverted as well. Gold has had a good run. It hasn't spent a lot of time above $1,900 per ounce ever uh just a few months about a year ago and

then again in 2020 uh it's backing off from a recent rally there uh and the volatility index has perked up it's above 20 but keep in mind the s&p 500 has remained in a decent range we're about around 3 800 for much of december still above 3 900 right now that's going to do it for closing now for overtime with scott wott