Closing Bell - Closing Bell: Stocks Drop on Bank Contagion Fears, SNB Says It Will Provide Credit Suisse with Liquidity If Necessary, Professor Siegel’s Recession Call 3/15/23

Episode Date: March 15, 2023

Scott Wapner delivers the breaking news of the hour as the Swiss Financial Market Supervisory Authority and the Swiss National Bank says that Credit Suisse quote, “meets the capital and liquidity requirements imposed on systemically important banks” and that the central bank will step in if the situation changes.  Shares of Credit Suisse fell more than 20% it had previously delayed its annual report and said it found quote “material weakness” in its financial reporting in prior years. Plus, Wharton School Professor, Jeremy Siegel, weighing in on market moves and the big question of what the fed will do next.  Professor Siegel also giving his predictions for if a recession is on the horizon.  As financials continue to plunge, Crossmark’s Victoria Fernandez on why she’s adding to her position in one major bank. 

All right, guys, thank you very much. Welcome to Closing Bell. I'm Scott Wapner, live post nine New York Stock Exchange. This make or break hour begins with a major sell off today in stocks. The banks, the pressure point again on both sides of the Atlantic today. All of it only adding to fears about what it means for the economy, the markets and most especially your money. Here's your scorecard. Sixty minutes to go now in regulation. The Dow plunging, coming back a little bit now, but nonetheless, it's been a big slide today. S&P going negative on the year. The real pain point today, though, the Russell. That index is full of regional banks, which may be small in size, outsized, though, in the concerns they have brought to this market. And that brings us to our talk of the tape.

What is the Fed watching now and what are they thinking about now as they decide whether to raise interest rates again one week from today? Is the SVB earthquake and the aftershocks enough for it to pause? What would it mean for stocks if it does or if it doesn't? We're going to ask famed finance professor Jeremy Siegel of the Wharton School that very question in just a moment. First, though, we do have our own Mike Santoli here on these new developments that have moved the market off of the lows of the session out of Switzerland. So the report is that Switzerland holding talks on the options to stabilize Credit Suisse.

Those include a statement of support or a backstop could include a Swiss spinoff or a UBS tie up. We've watched the CDS. The spreads explode on the concerns all around this story. The stock move in Credit Suisse speaks for itself today. What do you make of it? Well, the first signal that the authorities always want to send is we hear what the market has been saying. What the market has been saying is that. Other players in the market other banks investors have had doubts about. Credit suites and whether it was a worthy. Counter party and whether we want to do business with it or whether the outflows are going to be too heavy. I was going to need to raise more capital all those things. So sometimes just the words are enough. And everybody says fine we you know we assume there's going to be some kind of a backstop. So it makes sense. It does also at least hint that regulators, central bankers are a little quicker to react, both here with SVB and in Europe, in this instance, having recalled that you just don't want these things to take on a life of their own. You know, S&P and Nasdaq, by the way, have moved to session highs on these reports.

You said some interesting things there, the words and actions, the actions of counterparties. We talked all day long about, OK, you know, wealthy clients of Credit Suisse's wealth management business picking up their money and moving elsewhere. Very easy to do when it goes to the counterparty level, which there was a report from Bloomberg earlier that BNP had reduced their counterparty exposure to Credit Suisse. I had heard of another place that was doing the same sort of thing. That takes it to a whole nother level, does it not? It can, yeah. I mean, basically what it means is that people feel like there's more risk than reward in doing business with them.

And we don't know how pervasive that's going to be. But for a big institution, for a wholesale banking institution, that does matter a lot. Now, there are times when you get these false alarms. I think back to the post kind of euro sovereign crisis when MF Global was in the crosshairs. And then Jeffries was at risk. And they had to go out and give days and days where they were perceived to be at risk. And they gave days of assurances. And the market finally got some comfort around that.

So I'm not saying it's sort of a one-way ticket if, in fact, some of this is going on. But it's what the authorities are sensitive to, which is that your customers and your peers can essentially really undermine your viability. In this particular case, you know, I spoke a little bit earlier with a very senior level executive of a bank who made a good point, I thought. In Credit Suisse's case, you're already going through a massive restructuring of right sizing of that business, which is hard enough in normal times.

Put it in these times and then pack this on top of that. That's when all of the concerns and the fears become even more acute. Right. I do think that that all makes sense. This has been an impaired bank for a while just in terms of what it was going through in serial restructurings and capital raises and things like that. On the other hand, does that also mean it's a lot less potentially systemic? Because we're not talking as we were back in the crisis days of, oh, no, there's this complete shadow supply of toxic securities that we didn't know about before. We thought they were good and they're bad. It's not really what's going on here. It's much more about do I want to continue to leave my funds with you? If you're a hedge fund, you use them as a prime broker, whatever the

relationship is. Bond trading operations, not wanting to trade with you anymore. Right. But that doesn't mean necessarily that it sort of unplugs, you know, other machines from the network besides that. Right. So you'll you'll stick around. We'll hear more from Mike in a moment. But these headlines are nonetheless really significant. In fact, as we said, the S&P and the Nasdaq had moved to session highs on what has otherwise been a dismal day, really, from the start. On that note, let's bring in Professor Jeremy Siegel, as I mentioned, who is going to be with us today. He, of course, the famed finance professor of the Wharton School. Professor, it's good to have you on. Just give me your thoughts on what is top of mind for you. You just heard our report about what's coming

out of Switzerland, the impact that it's had on the market all day long. Well, Scott, I hope that this knocks some reality into the Fed and Chairman Powell. You know, we've been talking about the big inversion, biggest in 40 years of the term structure. Certainly, SVB went down on that inversion. Now, yeah, bankers are not supposed to borrow short and lend long. We know all about that. But there's a reason that every recession the last 50 years has followed an inversion. Something blows up. Something goes wrong. I think this ultimately could be good because if you look at the futures market right now, they're saying one and done.

And then a decline. As you know, I've been saying that they've been way too tight for the last six to nine months, actually. I'd have to have to look at the liquidity, the inversion. And I think that those realities are finally seeping in. I hope they're seeping in to the Fed. What should the Fed do next week? Well, assuming that no further crisis in the next seven days, I think what's going to happen is they are going to do 25, but the message is going to be a likely pause. They won't commit to a pause, but they're going to say, look at the producer price index that we got. Very good news this

morning. They're going to say we're beginning to see good progress on that inflation front. We know the bulk of monetary tightening is yet to be felt. And given the financial climate and the risks, we could afford to pause in our tightening. They won't commit it. But I think the language is going to be totally different from the language we had after the last meeting. But you just said that's what you think they'll do. I want to know what you think they should do. Well, I thought I don't think they should raise and I didn you think they should do. Well, I don't think they should raise it. I didn't think they should have increased last time because the bulk of the monetary tightening, the fastest increase in Fed funds rates and real rates in at least 40 years was showing progress uh... you know we talked about the distortion in in the actual

particularly consumer price data on and housing i talked about the fact that i thought that the war against wages was uh... inappropriate out we do we need to raise wages to bring labor into the labor force and by the way i thought it was a a very promising labor report. We had two tenths of a percent increase in the U2, the U6 unemployment, a little bit of a loosening. He's going to use that language. We see a little bit of a loosening of the labor market.

Of course, tomorrow morning, we'll get initial jobless claims. It certainly did jump up on one week, but that's a volatile series. We're going to see what's going to happen tomorrow on that. But he could change his story looking at the, so to speak, slowdown side rather than only looking at the troublesome inflation areas. And I think he should have been looking at that slowdown side for very many more months. So what he should do is not increase at all. But I think he's going to increase 25 with a very big change in language. What's going to be interesting, Scott, is the dot plot, because normally the bank presidents and the FOMC fills it out, you know, one or two weeks beforehand.

I think it's totally different after SVB than before. I hope they get them all a chance to revise it because it was going up to six. And now if you take a look at the futures market, it's barely going to five. Yeah. So, you know, Apollo said today, when the facts change, my view changes. This is from somebody at Apollo, Torsten Slocke. A financial accident has happened. We're not going, we're going from no landing to a hard landing.

The Fed will not raise rates next week. And we have likely seen the peak in both short and long rates. Isn't he right? I mean, we just had an accident. That's actually a quote from john may not point the canes who said uh... uh... when the facts that change i change my opinion what do you do sir he once responded uh... and and i i read tourist in the

as lacks that comment on that yeah i mean again i think they shouldn't. But my feeling was, I'll tell you why I think they're going to go 25. If they suddenly go zero, it could worry the market. Oh, my goodness. I mean, they're giving up on that.

Are they so worried about the economy that everything they voiced and all the opinions they've had over the last six months are down? Throwing aside, I think a more measured way of doing is 25 with a pause. We are seeing progress. I think that's going to be the result. You mentioned facts change. You change your opinion or thoughts on stuff, right? So have you changed your own view about where you think stocks can go this year? Because remember, you said you thought we'd get 10 to 15 percent gain this year. Well, the facts have changed, haven't they? So has your view changed? Yeah, they have. I mean, obviously, I mean, what's happened, I mean, there's the good and the bad. I mean, you know, again, we always talk about the battle of the numerator and the denominator, numerator being earnings

and the denominator being interest rates. Denominator is going down. That's good. But really, the chill in the air as a result of what's going on in the banking system. I mean, lending standards, I mean, the tightening that's happened from SVB is in itself like two or three rate hikes in terms of how much loans are going to actually occur. Would that mean that I am scaling down what I think might happen this year? Perhaps a bit. But let me tell you, I'm more optimistic for 2024 because, you know, what I was worried about is that they were going to ignore everything, go up to six and beyond, and all that cumulative tightening was going to cause the recession in 2024. Now I think there's going to probably be more softening in the second half of 2023,

earnings not being as good as I once thought. But I think that not raising it as much as they wanted to makes 2024 look an awful lot better to me. Professor, bear with me just one second. I want to get to some more news, which is crossing regarding Credit Suisse as we throw up another look at that stock at the moment. A Swiss member of parliament, this is according to Reuters, says, quote, there's no discussion of state aid for Credit Suisse at the moment. So these are fast moving developments, obviously. And I just wanted to bring the very latest to our viewers so they can follow along, because this seems to be wagging the market around today, which had moved off the lows. The Nasdaq, as we started the show, had even gone into positive territory, albeit briefly.

But we'll keep watching on that. So, Professor, I come back to you. So you maybe are scaling down some of your assumptions about the market. You know, again, maybe from 10 to 15, 5 to 10, because we're just about unchanged on the S&P. Remember, Scott, we all say the error on a nine, if you want a year end, that's a nine month rejection is pretty high on the stock market. But as I say, if they're seeing the effects now and are not going to go

as high, I would raise my 2024 estimates. And remember... Are you also... I'm sorry to interrupt you. Are you also raising your assumptions about a recession? I would say that they have ticked up a bit. You know, the worst thing is slow growth. You know, the Fed only predicted a half of what's interesting, Scott. The Fed only predicted a half a percent growth for this entire year. Well, actually, in the first quarter, we're two to two and a half percent growth. So, you know, it's and we we had very slow growth last year, too. So will we have two consecutive quarters? You know, we're going to have to see a much bigger rise in unemployment

for the National Bureau who calls recessions to actually call it. Has my probability gone up? Yeah, somewhat. I would probably go from 30 to 40, maybe 45 percent, but I think a mild recession, not a deep recession. The other thing, Professor, that some are suggesting as a result of the events of the past weekend, be it Ed Yardeni or Wolf Research for that matter, is the Fed put is back. Do you share those thoughts? Well, because they rescued. I mean, I predicted on Friday I was asked, are they going to insure the deposits? And I said, yeah, they've got to in today's electronic age age, with everyone tweeting to move it, they just got to blanket do that.

They did that to prevent a panic in the banking system. I wasn't thinking I don't think they did that to prevent, you know, just the fall in the stock market. They're interested in stability of banking, of the payments process. That's what they're responsible for. Yes, of course, that will calm the market. Had they not done that, we would have seen a 2,000-point drop on Monday. So, yeah, in a way, but they did it with the intention of making our banking system functional because without that confidence there, we would have had an absolutely massive crisis on Monday.

Yeah. Last question before I let you go. When do we get the first rate cut from the Fed? When does that happen? I think if we get one rate hike next week and a pause, I would say I wouldn't be surprised if by the June meeting we get a rate cut. The Fed funds market is predicting, you know, two or three rate cuts by the end of the year in early 2024. I actually think it might be more rapid than that as they see the slowdown in the economy and the fall of inflation using realistic numbers. I think they're going to be very encouraged on that front. That'll give them latitude to drop that rate. Professor, I'm so glad we had you today. Thanks much that's professor jeremy siegel we'll see you soon for certainty um thank you there's more headlines more headlines coming out of switzerland according to reuters uh that same uh person uh that i quoted earlier

says the swiss central bank would provide liquidity against collateral to help credit suisse i wouldn't be surprised he says if if the Swiss National Bank makes an announcement on Credit Suisse by Monday morning. Whether the market is going to give them the latitude to wait that long remains to be seen. And we'll have to follow that and discuss that in the moments ahead too. Steve Leisman joins us now,

our senior economics reporter is on the phone. So Steve, first give me your reaction to Credit Suisse and what the Swiss are saying. This idea of the counterparties taking their business elsewhere, maybe being the thing that lights the fire to the point where they have no choice but to do something. Yeah, I think that's right. I will say, Scott, I did see that the market took a little bit of risk off with those headlines. I'm not precisely sure that's warranted. I don't know that the original headlines that gave the market some optimism really included a government or taxpayer money out of Switzerland.

I thought it was always sort of an infusion of liquidity from the Swiss central bank. So I'm not sure the story has changed as much as the market seems to think it might have. And I do think they will resolve Credit Suisse one way or another. I'm also a little encouraged today, Scott, that in terms of other names that have come up, there's not much else that we've heard today. Usually, you have a headline overnight like this, for example, out of Europe, and there are other names that are mentioned. Nothing else seems to have come to the fore, and it doesn't seem to, at least at the moment, and I know this is perhaps yet early,

heard about much knock-on effect into the U.S. system from anything going on at Credit Suisse at the moment. I'll just say that right now, advisedly. Perhaps we're missing something. Perhaps there's stuff out there we're not hearing. But a lot of times you get other names, and that's really what causes the concern. So that's good news, I think, at the moment, Scott. So assuming that the waters remain reasonably calm between now and a week from now, Steve, what does that mean then for the Fed and its decision next Wednesday? Well, I'm sorry, Scott, if you mistook my words. I don't think the waters are calm. It's just not another tidal wave, if you don't mind a little gallows humor there. But here's the thing. You still have the banks are down, right? You look at some of those

banks that we've been watching. They're still down substantially. I think that will matter a lot for the Federal Reserve. I think the Fed's going to be looking at a couple of things. It's going to look, and we'll all get a look, by the way, tomorrow, Scott, at 4.30 at the Fed's balance sheet. They'll put out their weekly statement and we'll see how much lending there was at the discount window. We'll see how much takedown there was of the Fed's new program. That'll give us an idea of how much concern there is out there. What is the need for liquidity out there? I think the Fed's going to be watching and listening and talking to bankers about how much flight of capital there may have been. And we don't know if there's been a lot, but there may have been from some of the regional community banks into

the bigger banks, as there are liquidity issues at the banks, at least to which those will have been solved by the new program. In general, first of all, I completely agree with Jeremy Siegel. I think the Fed probably should pause, although, again, there are several days yet for them to figure that out. And it may want to keep going. The trouble for the Fed here, Scott, is two things. Jeremy was absolutely right. Professor Siegel, absolutely right. The Fed doesn't want to send a signal things are worse than they are.

The other thing, theoretically, he didn't mention is the Fed wants to separate financial stability from monetary policy. It thinks it can do that. It's a question as to whether or not, Scott, it wants to run that experiment. But in general, it would like to be able to conduct monetary policy with one set of tools, and it would like to conduct financial stability policy with another set of tools. We'll see if it wants to run that experiment. I don't know. Good luck with that. Some respects they already have. And maybe you have some smoke coming out, too much smoke coming out of the beaker at this point. We'll see. I also have totally. Yeah, go ahead, Steve.

I was going to say, I don't know if you want to look at the charts of where we're at. We are directly 50 50 on that March probability of a rate hike. So and it's been as high as 60 percent for no change. And then if you want to take a look at where we are for the rest of the year, there's a lot of cuts built in. We see the market sees going up to 483. So it's sort of thinking maybe that quarter point still comes in. But after that, the pricing right now is for a dramatic about face for the rest of the year. I mentioned I have Santoli sitting with me, Steve. Let's not forget, too, the the rest of the year. I mentioned I have Santoli sitting with me. Steve, let's not forget, too, the tool of the balance sheet could come into play here as well.

And maybe we should expect in some way it does. Yeah, I'm sure they're also going to be reluctant to be very reactive in this meeting, in this statement with regard to the balance sheet, even though there's a little bit of dissonance in terms of providing liquidity through this new facility as they let things mature and roll off the balance sheet, even though there's a little bit of dissonance in terms of providing liquidity through this new facility as they let things mature and roll off the balance sheet. I tend to think it's not ideal if we were to go into the meeting at a 50-50 market implied proposition. I mean, that's not usually the way they want it to work. But I also don't know that 25 basis points on or off in a week is make or break economically, whether it is about the message to the markets and, you know, do they feel our pain or not kind of a question.

Yeah, read the room, right? Look, if you go another couple of days and there's no other institution that's suddenly in the crosshairs and in distress, then maybe we can start to again think that it was, you know, we cauterized the wound, you know, with SVB. And I don't know how it's going to play. It's a long time between now and then. I think it's a measure of how much the Fed's jawboning kind of collectively brainwashed us into thinking 5% plus on the Fed funds was an absolute necessity given everything that's going on, given that they already went from zero to four and a half in a year before anyone thought we would get anywhere close to that a year ago, right?

So I do think there's a little bit of we have to kind of make our peace with the current conditions and what they mean for monetary policy, even though they're in the fine-tuning phase no matter what. Steve, the other idea is that once a Federal, once a Federal Reserve, a central bank, loses its own credibility, it essentially has nothing left. And there are obviously a number of people who question the Fed's cred based on the mistake, which I think we can suggest that it was by keeping rates too low for too long and then having to catch up as briskly as they obviously have had to do so. Some say that's one reason why, and you brought it up, why they

should go 25 or they risk their credibility even further. You really think if they paused next week after this earthquake that we all sort of lived through and are still wondering about more aftershocks, that credibility would be further at risk? It depends on what happens with inflation, Scott, because I think it's worth pointing out that the reason they would actually pause is because of a belief in the changing situation that's out there. The idea, Professor Siegel mentioned this, I've been talking about this for several days now, the idea that a credit contraction of the economy will create really a contraction in the economy, or at least less growth and bring down inflation by itself. If you think about it, Scott, there's two ways to make

the basket here. One is you can raise interest rates, and that should make credit expensive for people to borrow and reduce economic activity. You can also have a credit contraction brought on by tighter lending standards and a banking crisis that would ultimately reduce lending and reduce economic activity. So they both have the same effect, and one may be more severe than others, and one may be more severe than the Fed planned on. But if you are looking at a credit contraction, that should change your macro outlook. And if your macro outlook changes, your monetary policy outlook should change your macro outlook and your macro outlook changes your monetary policy outlook should change it's a little silly the way the market is priced i think there's something slightly wrong here i'm not sure what what the the hitch is but right it's

a little weird they're still they're still going back and forth on march and then making in these big cuts on the back that doesn't make much sense to me but ultimately if there's a contraction in the economy uh from lending attraction of lending in the economy, there will be lower inflation. Hey, Steve, we've gotten what feels to me to be the big announcement that many were either hoping for or expecting would eventually come. The Swiss Financial Markets Supervisory Authority, FINMA as it's known, and the Swiss National Bank basically saying, if necessary, the S&B is going to provide CS Credit Suisse with liquidity. That's sort of the announcement that you would be waiting for and alluded to at the very beginning of our conversation, right? That would be what I would expect. and it's not all that i would expect but i

just wasn't didn't go into this scott thinking that there was going to be a taxpayer bailout of credit swiss i i i could think there would be other things that happened with credit swiss for example um things that have been thought about you know would be some form of recapitalization additional capital put into the company but um i don't know if this is more or less than the market expects here i'm trying to read these headlines as they come through here uh and all i see is the if necessary which is interesting that they don't think it's necessary right now although you know and that's what we discussed earlier they say you know um well by mond Monday, there could be a broader decision.

We're going to see whether you know how the markets work, Steve, as does Mike, who's still sitting here. And Mike, we'll see if them how much runway the markets give regulators and authorities over in Switzerland. Right. The other thing you'll see is whether, you know, if in fact we get assurance that there's going to be some kind of backstop or it's not going to be some kind of disorderly situation that sticks around for too long at credit. We'll get a test of whether that's actually what's been bothering the market. Right. I mean, we think it is. It's today's fixation. It's not necessarily the whole story. I mean, the entire bond curve is just so twisted up right now in terms of whipping all over the place. You know, Steve talking about the probabilities in the Fed moving all over the way they don't normally.

Well, people are trapped and there's a lot of illiquidity and a lot of kind of twitching around to react to a complete 180 in the things we were afraid of. From overheating and higher for longer to, you know, ice age for the economy and credit crunch. I mean, that's just not the normal way. So I don't think we're getting a clean read on what's truly the likeliest outcome here. So we'll see. I mean, look, I was saying yesterday that we might be able to look at the whole situation and say, if this is what it took to get us a Fed pause earlier than we expected with the economy still OK, then maybe that's not so onerous a cost.

But we still don't know. We just don't know what the cost is. Final point on credibility, the inverted yield curve was telling you the Fed had credibility on inflation because longer term yields were not blowing out. So the credibility, as Steve said, is all about the path of inflation, not whether they do a thing next week that they implied they would do before the blackout window that they couldn't. Well, some are suggesting that's where their credibility metric or measure lies.

Being dogmatic does not mean you earn credibility. Hey, Steve, you'll be back a little bit later, right? Oh, no, you won't. I'm going to say goodbye now. I'm going to try to get on a plane, Scott, which is why I'm not in front of a camera. You do that. You do that. I misread something that was in front of me. My bad. That's Steve Leisman. You, Mike, don't go anywhere.

I'm not flying. You're coming back. We'll see you in the market zone. Let's get a check on some top stocks to watch as we head into the close. Christina Partsinello is joining us with that. Christina. Yes, I'm here. But airline names, no, they're not holding up today. Financial instability obviously comes into play. But it's one particular warning on Monday that is spooking investors. United Airlines is forecasting a first quarter loss from, of course, new pilot contracts, but they also said weaker than expected demand is going to happen early this year, which already tends to be a slow period for travel. So you got a weak period of travel about to get even weaker.

United shares are off about 20 percent this week alone. Today down, look at that, over 6%. Delta over 6% lower. American Airlines almost over 5.5% lower. Jet Blue, the strongest of the group, but still over 2.5% lower. Despite, though, today's turmoil, Canadian Pacific shares chugging along at 5.5% higher right now after finally getting approval to merge with Kansas City Southern to create the first single line railway connecting the US, Canada and Mexico. Lastly, I'll end with cybersecurity provider SentinelOne. Shares are jumping right now after posting an earnings beat last night and a 92% sales growth year over year. You can see shares are up just over 8% right now. Although they did put out full-year guidance that came in weaker than expected,

it's the strong growth that's driving this name higher today, Scott. All right. Christina, thanks. We'll see you in just a bit. Christina Partinova. Stocks are lower as we head towards the close today. More pressure on the big banks. Big swings, huge swings in bond yields today. Our next guest says investors should prepare for even more volatility ahead. Let's bring in Nancy Davis, founder and CIO of Quadratic Capital. Couldn't

think of a better person to talk to today than you. Volatility in the rate market, which you watch closer than most, has really picked up. Where from here then? Well, before the Fed did their QE, most mortgage investors would hedge their interest rate volatility. It's sometimes called prepayment risk. And after the Fed having nine years of QE, a lot of market participants stopped that rate hedging. It's sometimes called negative convexity hedging. Now, especially with Silicon Valley blowing up over their mortgage exposure, and it's always short volatility that bites the market. It's the same thing over and over and over again. It's just

different players each time. I think it's even more pressing for financial institutions, banks, investors to be aware, like we talked about about 30 days ago, Scott, on your show about the risks for investors in their bond portfolio being short volatility and how important it is to not just be short fixed income vol and to also have long vol exposure like what we do at Quadratic. Right. So what happens now in your mind? Where do we truly go from here? Well, I think Mike said it really well. The bond market is twisted. The yield curve is still massively inverted. It's steepened a little bit. The all time low was last week on Wednesday, March 8th. We're still negative, though. It's still

not normal. Just to put a little bit of global perspective, since we're talking so much about Credit Suisse, Japan, which is doing yield curve control and QE still and very dovish, they have a positive 50 basis point yield curve, the difference between the two and 10 year interest rate, even with yield curve control, where the U.S. is massively negative. Our 210 swap curve is negative 65, which is not normal. It's all twisted up and it's very unhealthy for banks. And I think this little shakeup, whether it's various Silicon Valley bank or other banks that have had trouble, including Credit Suisse, I think it's a real shakeup for the Fed to pay attention to the yield curve because it breaks the banking system. Banks

borrow short term, lend long term. An inverted yield curve is no good for financial stability. Sure. But you make the case in part two that what the Fed has done so far with all of their rate hikes, we've had eight thus far, near 500 basis points in the calendar last year, that it's failed in their job against inflation. Can't you make exactly the opposite argument? Well, realized inflation is very high. I think I'm making the distinction between the market expectation for future inflation. They've been very successful convincing the market that there will be disinflation. Even though the last CPI

print, it was six, the headline, the break-even curves, which is looking at future implied CPI, it's all around 2%. The, you know, caught two and a half, 2.4, 2.3. So the market expects future inflation to fall dramatically. And as Mike pointed out, the inverted yield curve is very much disinflation being priced into markets. So I think the Fed has inverted the yield curve massively by hiking policy rates. And also, they have jawbone the market to convince them that inflation will fall in the future. But that presents an opportunity for investors because every market you want to, they trade off of expectations. And the market is very complacent that the Fed has got this and that they're going to kill inflation in the future. So it's a good buying opportunity, in my opinion.

Next week, the Fed does what? I think they'll do nothing. I think they're just going to let it sit. I think, you know, it's 50-50 right now whether they hike or not. But I think the balance sheet is really the key. That, I think, will really help to normalize the yield curve, to make it a more, you know, a more stable environment for the banking system. So I really think, you know, using the balance sheet more and taking the pedal off the rate hikes, they've been going all, you know, they keep hitting the same nail with the hammer over and over and over again. We've had, you know, in this one year, this 12 month period, so many hikes. And I think now if they just pause and use other monetary policy tools like the balance sheet, I think it will help. Yeah, Mike and I were discussing that as well.

Nancy, thank you so much. Nancy Davis, Quad Quadratic joining us here on Closing Bell today. Should note for you as well, the Nasdaq still trying to go positive was just briefly a moment ago. It's down just a few points. There's Microsoft, though, a rare bright spot on the tape today. It's one of the few mega cap tech trades that could serve as relative safe havens, at least for investors. As the Silicon Valley bank fallout unfolds, according to our next guest, Ankur Crawford, portfolio manager, Alger joins us once again at Post 9. It's good to see you again. So are we back to thinking of mega cap tech as defensive, quotequote, safe places to be? Yeah, interestingly enough, as we go through this upheaval in the banking markets and we're seeing credit standards get tougher, you're going to want to be investing in companies that generate cash,

are self-sustaining, don't have to tap the debt markets. MegaCap Tech suits exactly that parameter. What's so interesting, and Mike Santoli sitting here too, is that that's exactly the playbook that nobody expected was going to work this year, but has surprised investors that tech has been good, that what worked in 22 has not worked in 23. And here we find ourselves talking about it again. To a degree. And I do think it all is about the sort of cash rich, self-financing, dominant tech franchises, as opposed to, you know, lower quality, not yet profitable tech.

So you have to make those distinctions. And so they are being bought for the stability. But also at this time, when nobody's afraid as much of rates in the economy running away from you. So therefore, cyclicals, maybe you have a little question about. So and maybe the valuation, maybe not Microsoft aside, perhaps, but the valuations have come down to a point where you don't have to make very heroic assumptions about growth expectations from here the way they were in two years ago. And here you go. I mean, there's Microsoft up one and two thirds percent, Encore, and some of these other ones are as well. Microsoft, one of the stocks you really like out

of this space, right, along with NVIDIA? Absolutely. And in part because the cash generation potential of the business, regardless of the economy and the recurring nature of this business model. I would also highlight that tech had a lot of the earnings cuts already. So we saw a majority of the earnings cuts through the last 12 months. And so I would say we're 80 to 90 percent complete and we have 10 percent to go versus other parts of the markets that we're just starting, like some of the industrials names. What do you think the Fed's going to do next week? I want everybody's opinion on this because it kind of matters more than anything else, I think. Yeah, I agree. I think the Fed

should pause. You know, last Monday, everything changed all at once everywhere. And that's a change in your data. And they should pause. Will they pause? I don't know. And I think I agree with Jeremy in that if they do pause, I think it shocks the market because everyone will say, whoa, what are you seeing in the market today? How would it shock people to say that when we're like, duh, aren't you seeing this? Rather than what are you looking at that has us so scared? It's like we just had this bank shock. Nobody truly knows what might be next lurking under the surface. They really risk that? Historically, they've looked at backward looking data. And we hope that they will look forward as we've had this, you know, this upheaval in the banking market. Look, I don't think it's an easy call. We don't know what the

financial conditions are going to be between here and there. I think they would love for the conditions under which they can go a quarter point. Right. And that way it seems orderly. It seems like we laid this process out. We put a button on the whole thing exactly one year after we started tightening. OK, now we can stop and pause. I mean, you also had Jay Powell on the record for no good reason saying, we prefer not to pause and then resume hikes down the road in response to questions. I know, but he could have also said, well, we prefer not to blow up the banking system, too. My point is there's no reason to kind of lock yourself into one cadence necessarily, except that they like the idea that they're being transparent and they're being kind of

strategic about all this. And I agree they have not wanted to anticipate a turn for the better in the data. So that's why they've been fixated on what was the last three inflation reports right. So that doesn't give them the

ammo to pause but I think the rest of the world has and so we'll see. You're still looking to pick some stocks in this environment? Sure. I think Kramer said this the other day. There's always a bull market somewhere. And so where is it now? You know, there's we think that in health care, there's some really interesting opportunities. There's a there's a small cap company called Natera. And what's interesting about some of these businesses is they're completely idiosyncratic.

They have their own catalyst path that will allow for appreciation in both the earnings and the revenue potential. And given that it's health care, they are, this Natera in particular, is non-economically sensitive. So what they do is they do oncology screening and they just got approval and for their, for their screening test, which allows for revenue and earnings growth. All right. I got to leave it there. Ankur Crawford, thank you so much. Thank you. A lot of moving parts today. Ankur, of course, with Alger joining us here at Post 9. S&P 500 trading below all of its major daily moving averages now in jeopardy of giving back all the gains for the year. At one point, the S&P was negative for the year today. For more on what the charts are telling us might happen next, let's bring in BTIG's Jonathan Krinsky. It's good to see you. What's the answer to that? What are you looking at? Hey, Scott, good to see you.

You know, look, there's a lot of moving parts. Things are moving very quickly, obviously. But big picture, you know, we're kind of targeting the December lows near term, which are on $37.75 in the S&P 500. But ultimately, we continue to expect those October lows to break. And I think one thing to note, last week on Sunday was the five-month anniversary of the October bottom. And so we looked back throughout history and looked at all new bull markets and how they perform five months later. The average return off of the bottom five months later is about 31% back to 1928. We're only up 8%, which if that October low was the final low, would make it the third weakest bull market start in history. So we think while it, you know, while it's possible,

it's more likely that, you know, those do get broken, especially when we look at, you know, all the different cross-asset classes that we continue to monitor and look at a weight of the evidence approach. If you, if people agree with you and think we are going to go back to the October lows, what leads us down?

What sector would you be fading more than any other right now you know it's interesting there's been a massive reversal in the value to growth um trade as the narrative has quickly switched from inflation concerns to economic concerns i think that's pretty typical um you know as you get into uh bear markets you get a reversion as the long end of the yield curve moves down. Anticipating slower economic growth, you get, you know, some underperformance in the value areas and you get some relative outperformance in growth. So, you know, that makes sense. I think here and now, in the near term, I think the rotation and the growth is probably overdone. So we've been highlighting semis. They're still up 17,

18 percent on the year. They seem like a good fade to us here. But then you look structurally and you've had some pretty ugly reversals in areas like materials and industrials, which just a few weeks ago were showing multi-relative highs and they've quickly given that back. So it just goes to show in bear markets, things move fast. You've got to stay on your toes. But we don't think that anything really, you know, survives in absolute terms. It's really just a relative game. Does this breakout in gold have more legs? And if so, how much? Yeah, you know, gold, it's been a frustrating trade. You know, it tends to trade very strongly inversely to the U.S. dollar. But, you know, today, look at strongly in university the u s dollar but uh... you know today look at gold up

with the dollar up as well so it's acting really bigger risk off asset uh... and you do you look at the kind of structural picture for gold we we basically had three years of the same uh... and they have the other thing will change very strongly with it are real rates so real rates are starting to fall that should benefit gold.

We think it gets that 2000 level. If it takes out 2000, you're talking about a pretty nice multi-year breakout. So I do think gold is worth holding here. All right, Jonathan, I'm going to leave it there. Going to continue to watch this market. BTIG's Jonathan Krinsky on the technicals. Just about 15 minutes to go before the closing bell. Christina Partsinovalos has a look again at the key stocks we are watching with 15 to go. Christina. Well, Charles Schwab is higher right now, as analysts at Credit Suisse, yes, Credit Suisse, upgrade the stock to outperform from neutral. They say the sharp price decline through the past week represents a good buying opportunity,

though the firm did lower its price target to 83 bucks a share down from 109. You can see Schwab up 5%. Schwab had actually fallen sharply just in the first few days of the SBB fallout and is still off, though, by 20% just in the last week or so, despite these two straight days of solid gains. And oil prices are continuing their pullback amid concerns over how a potential banking crisis could impact global economic growth. Earlier in the session, crude hit its lowest level since December 2021 at 65.65 a barrel.

By the way, the Biden administration had previously said they would start refilling reserves at 70 bucks a barrel. You can see that it closed at 68.36. And the overall move lower today is having a huge impact on the energy sector, which is the worst performing sector on the S&P 500 today. We're seeing some huge declines and names like Marathon Oil, Halliburton, Devin Energy down almost 9 percent right now. Scott. OK, Christina, thank you very much. That's Christina Partsanovelos. Let me give you the answer now of the Twitter question. Take a look. We asked what should the Fed do next week, hike or pause? It was close. Pause, getting 53. The majority of you saying they should wait before doing anything else.

Very interesting there. All right. Now, the market zone. Let's do it. Mike Santoli joining us today. Cross Marks Victoria Fernandez is back on why she is adding to her position in one major bank. Eugene, profit of profit investments here as well. Mike, I begin with you. I'm just looking at Credit Suisse because this

notion of the Swiss Central Bank pumping some liquidity or being willing to into Credit Suisse has brought that stock off of its lows. It's down still down 15 percent. Yeah. But that was significant there. I'm watching the Nasdaq, which went positive for a touch, moving once again lower. What's on your mind? All of it has just allowed the market. You know, I really, again, say that U.S. stocks are a little bit the effect and not the cause of what's going on today. But it's allowed the market to kind of hold in here. We didn't even get to Monday morning's lows in the S&P, which is a little bit surprising,

considering how it seemed like straight down from 5 a.m. So it seems right now that there's a sort of go to your respective corners and try and wait to see if anything breaks and how it plays out. Right now, the U.S. regional bank, community bank area is still kind of on alert, but nothing really has incrementally gotten that much more alarming there in the last couple of days. So it allows us to, I think, to sit here and reassess and figure out if Microsoft and, you know, related stocks can sort of hold things together while we figure out what the broader macro implications are of the whole thing. You know, you've got to forgive people, too, for, you know, the way that their sentiment has swung so much.

There's so much 08 PTSD still among market participants that when you start talking about banks failing and it's more than one, it's only human nature to think right away to the worst, think about who could be next, and if not in a bank, where else? And that's kind of where we've been the last handful of days. A hundred percent has. You know, I was saying this morning, though, that there are always more scares than there are actual attacks from the area you're afraid of. So you do know that as well. And by the way, it was not really one of these complete indiscriminate cell fest today, right? We definitely did not punish everything to a huge degree. It felt like we might. It really is in the context of everything that's gone on in the last several days has been detrimental to projected growth. At the same time, yields have gone down for the wrong reasons. What do we make

of that? Is it an overshoot in either of those regards? And how do you play it really in a news vacuum of no earnings and no Fed speed? You make good points, as usual. You'll be back in just a second. Stay with me. Victoria Fernandez is with us, too. What are you doing in the market today? How do you see things here?

Well, I think you can actually look and find some opportunities in the market. You talked a little bit about us adding to our banks. Bank position, J.P. Morgan is a position that we've been adding to because we think some of what we're seeing here, it's not a systemic issue across the entire financial sector, even though all the names are getting hit. So you want to look at some of these quality names that are out there. Look at their balance sheets. That was the key for Silicon Valley Bank, the issues on their balance sheet.

So we look at JP Morgan. You look at their balance sheets and say, okay, they have stable deposit base. Their margins on deposits are increasing. You look at their cash position. They've increased their cash position to 15% of assets under management. So they are well positioned for liquidity events. And you want to combine that with some diversification of their business model, whether it's community banking, investment banking, wealth management, commercial banking. I mean, they have a broad sector of different types

of clients and businesses, And they have a strong management team, which, again, is something I think we were missing, at least on the oversight for Silicon Valley Bank. So we're adding to some of these names that have been hit significantly. So has this episode reset either your own growth or market or Fed expectations now? Well, you know, we were talking, what, two weeks ago and thinking maybe the Fed goes 50 basis points. I actually think a lot of what's happened over the last five days has done some of the work for the Fed. But I still think they're going to go 25 basis points, Scott. Look, we have got still a strong labor market. I know retail sales were a little bit weak, but core sales,

you look at the last quarter for core retail sales, which is what feeds into GDP, that's running at a 10.5% annual rate. So I think the Fed is going to say, look, we still have work that we need to do, maybe not as much as we did before, but we're not completely done. So I'm thinking they're going to go 25 basis points and then take a step back and change that wording to say they're going to wait for those long and variable lags that we've been waiting for. Maybe the ECB tomorrow gives us a little look into what central banks are going to do globally. But I think they'll probably stay with their 50 basis point move that they have been talking about. The problem is, I mean, you could make an argument that the Fed's been too fixated on the labor market,

thinking that the strength that it sees in front of it is a sign that it should keep the pedal on the floor while minimizing the potential damage that they were doing to the system, to credit markets and the like. And now that they've broken something, that may influence how they should be thinking about things here forward, no? It absolutely could change their focus where they're not so focused on the labor market and they're looking at it more holistically. But I still think you're looking at a consumer. We're seeing layoffs in that tech sector. We haven't seen it broad-based yet, Scott. And I think that means the consumer is still there.

They're still spending. We're still seeing it on credit cards. You know, we're still seeing it within the consumer retail space that I talked about on those core retail sales that are there. You're seeing it in the airlines and the hotels and the travel that's going on. So I think they can look and say, you know, there's a phrase that maybe they're too tight for the banking system, but they're too loose for the economy. And maybe that is where they're looking at how do they balance those two together. I think they can do it with one more 25 basis point hike. And then pausing, knowing that everything that's happened has probably brought the recession closer to now than where we were a couple weeks ago, thinking it was going to be fourth quarter.

Maybe we see it now this summer. Lastly, before I let you go, you mentioned tech. What do you make of the move in that space? The prospects for it now, whether they've changed over the last five days or so? Yeah, well, you hear Zuckerberg talk about the year of efficiency. We've seen that across the tech sector. We see the layoffs. We see them trying to shore up some of their balance sheets in different ways when it comes to cost and expenses. I mean, they'll do better, I think, over the long run, but I still

think short term, it's going to be a little dicey. There's long duration assets and with volatility going on, I think you still have to be cautious there. I think they still have a lot of work to do. So I would focus more on something like HMOs. We like that space. We like some of the names like a General Mills, the Staples, or even a Lowe's. And like I said earlier, we're adding to our J.P. Morgan. Yeah, Victoria, thank you, Victoria Fernandez. Eugene, perfect.

Time to be defensive here. To what degree, you say? Scott, I think the best thing to do now is barbell your portfolio, right, to have, for us, it's industrials on one side and health care on the other side. And the reason I say that is that I don't think it matters whether the Fed next week raises 25 basis points or not. I think the statement is going to be the important factor. They have to certainly recognize that damage is being done and that because we operate in the lag effect and no one knows exactly how much damage has been done and rules show up in the lag effect, that they should be more prudent now. So I think investors are better safe now than not. I'm not making a call to go to cash by any means, but if you look at today and before

the banking situation last week, if we had to produce a price number that we had this morning without the other information, essentially the stock market would rally because the thought would have been that maybe the Fed would slow down. Now the focus is more on the fact that the economic damage might be more intense and more sudden than was previously thought in most investors' portfolio. So, there's a little bit of adjustment going on. If that's the case, why do you favor industrials as one of the two groups you like along with health care? Because if you look actually over the last five days, of course,

industrials got hit very hard. Look at Caterpillar and United Rentals, right? United Rentals has been up 60% over the past six months before we got to the banking sector. You still have a big focus on governmental action coming in, infrastructure spending going on. So I think that you might not be right. The economy might not completely. And

on the other side of that, you're able to actually pick up a company like United Rentals that have gone up quite a bit, but sold off 18 percent over the last five days, still very reasonably priced. And essentially, that's what you mean by barbell in the portfolio. You kind of position yourself to benefit regardless of which we the economy hike or pause what happens a week from today before i let you run i think they i think they pause and i think it'd be based on the in a statement on they made it when i basis points i know

a lot of folks are talking about their credibility i don't think it's really bad base points makes a difference one way or another they're going to be be very strong in the statements. And we recognize the damage being done to the economy. We recognize that maybe the slowdown is occurring. Inflation is resolving. And whether or not they raise 25 basis points, I think the statement is going to suggest that they're going to be pausing soon thereafter. All right.

Eugene, thank you very much for joining us today. That's Eugene Crawford. We're going to wrap it up with Santoli, who's going to give us an extended last word, because I think we need your insight today on all that you've seen over the past few days. Now, these credit suites developments and the impact that that's going to have to where we trade in the hours ahead. Credit has not gotten better in the last week. Going into this week week you were able to say the credit markets were unbothered by anything going on obviously the markets become more volatile in itself and there's been a lot of deterioration uh in the breadth of the market

and we've migrated to the lower end of the range so a lot of the things that you were pinning this idea that we actually were in a new uptrend on have fallen away to a fair degree. If there's a slight upside, we're seeing more of it be kind of a messy rotation than an all out exit. You see things like domestic oriented stocks working today, things like the retailers and restaurants as well as utilities. So it's not pure safety, but it's sort of out of the way of global turmoil is what's happening. And, you know, I still think that we're going to be in this mode ahead of a big quarterly expiration and then the Fed meeting where you just shouldn't be surprised by having a widening out of the band of trading right here. Do I take comfort that we've so far, you know, kind of found some support in the lower end of the trading range? Maybe for now. Also, sentiment was not overexcited coming into this phase. And so

I think we're not we weren't exactly positioned for great things. But that's only a kind of a small long term negative. We might have to get the market a little more oversold before you finally get any kind of decisive move where there's real money deciding the values that surface. I know how loathe you are to look at percentage moves and yields as any sort of great indicator. Right. But it is worth noting, and it was eye popping to see the two year note yield up 10 percent better than that at one point today. It's only up seven and two thirds now. However, don't forget that we were over five a week ago or so. And here we are as I look at it today, 388. Right. My question then to you would be if we see this level of extreme volatility in interest rates, what's the ultimate implication on how stocks trade? Because it can't be good. No, they will trade without conviction.

There's going to be all these pops and fades and air pockets because that's what happens when you have a tightly wound market like this. But no, fixed income volatility has been the thing that has destabilized stocks over the last year, year and a half, only more so in the last little while. So I don't even think you need the percentage moves. You just tell me to your note, it's down 110 basis points in a week. And it is way off the charts in terms of, you know, the norms of how, you know, short dated U.S. government paper tends to trade. I knew I was walking into something when I brought it up, but that's why I gave you the disclaimer. Exactly. You warned ahead of time.

I did. I'm looking at the NASDAQ, too. I really find it interesting to discuss what's going on with tech so far this year. Caught a lot of people off guard. People said, no, it's going to revert back. This growth outperforming value to start the year cannot last. And here we go thinking that, OK, maybe in this particular new environment of the last few days, it's got some legs. There's some, well, you can absolutely understand why it's happening. It's not the first time. You often have seen this impulse where we're just going to

migrate to, you know, kind of the new, you know, kind of impervious staple type companies, which in large part are digital right now. I do think it's getting a little stretched. If you look at Microsoft relative to the overall market, if you look at Apple relative to the small cash, they've really done a lot of the work already. And overall, you don't necessarily want to wish for the kind of market where those are the only stocks working,

even though they do buffer the indexes from worst pan. We'll see you tomorrow. I mean, if you're just tuning in, you're like, oh, it's a down day on Wall Street. But we're down 700 at one point today on the Dow. We're going to close well, well off of that. On that note, I'll see you tomorrow. I'll send it into OT, Morgan and John.