Closing Bell - Closing Bell: Stocks in for a Bigger Retreat? 2/24/23

Episode Date: February 24, 2023

Is a bigger retreat in the cards or have stocks come too far to turn back now? Virtus’ Joe Terranova gives his forecast. Plus, Greg Branch of Veritas Financial doubles down on his bear case for stocks and explains what the Fed might have to do to turn things around. And, Bank of America’s Jill Carey Hall is flagging a key shift in her investment strategy amid the market turbulence. 

All right, guys, thank you very much. Welcome to The Closing Bell. I'm Scott Wapner. This make or break hour begins with stocks sliding and rates rising. Here is your scorecard with 60 minutes to go in regulation. As you know, the Dow is now pacing for its worst week since September. Another hot inflation read upsetting investors today. There's how we look right now. Yields moving higher. 394 is the 10-year note. Drag today coming from tech. Apple and Microsoft, Amazon among the names leading the decline on the Nasdaq, which is down the most of the big three. And that takes us to our talk of the tape today. Is a bigger retreat in the cards or have stocks simply come too far

now to turn back? Let's ask CNBC contributor Joe Terranova, Virtus Investment Partners chief market strategist. He is here with me at Post 9, along with our senior markets commentator, Mike Santoli. It's good to have both you guys here. PCE, you know, disappointed. At least it was hotter. Rates moved up. Stocks moved down. It's pretty simple. Well, we never expected that the downtrend for inflation would be linear in its nature. And to answer your question, I think it resides in tell me what the two year is going to do. Tell me what the 10 year is going to do. Tell me what the U.S. dollar is going to do, because those were the comforting indicators that allowed the market and really global risk assets to recover over the last several months. Right now, they're being challenged by the premise that the terminal rate for the Federal Reserve is ultimately going to be

higher than we expected. But I do think you have to call into the question, OK, if monetary policy that's being administered is running out of its ability to bring down inflation, are they really right now trying to continue to raise rates? And this is more about supply challenges with inflation. We talked about that last year out of their control at a certain point. They say, OK, we got to stop. We just can't bring down inflation. We need fiscal policy. We need better supply initiatives. The worry, Mike, is that rates continue to go up. Financial conditions tighten. We follow Michael Hartnett over at Bank of America pretty closely in their flow show.

He says three eight by three eight. You get to thirty eight hundred by March 8th. Why? Because rates continue to go up. They become restrictive. Financial conditions tighten on this whole idea that the economy is good. But that means the Fed's going to do a lot more. Exactly. It's the equation that we're trying to wrestle with. Look, that's a 4 percent move down from here, 4 or 5 percent down in two weeks. Of course that could happen. And of course, he made that call when the market was a bit higher. So it was a little more bold when he did do so. I'm trying to sort out whether we've gotten exactly the decline you might expect, not just today, but this month, from the highs in the S&P, given what else has gone on, right? Ten-year from 340 to 395, two-year from 408 to 480, 4% gain in the U.S. dollar index.

All these things that helped, as Joe said, the market get where it was reversed. And we're down five plus percent in the S&P. Does that just all fit together perfectly? Is that the kind of choreography you would expect? I would say probably so. The S&P multiple has gone from a high of 18 and a half down below 17.7 or something like that. I feel like we're just kind of tacking in that range. And it makes sense that we are, because I don't think we know that the Fed has to do a lot more than is already priced, or even as much as is already priced. I think that's what we can take some comfort in. What about this idea that we pose at the very top of our show today? Have we come too far to turn back now? We've discussed this on multiple occasions, right? We're, what are we, 15 percent,

more or less, off of the low for the S&P? Are we really going to go back? Well, that remarkable recovery correlates with the September 28th peak for the U.S. dollar. And it's really been a U.S. dollar story, not just domestically, but also globally. You're seeing a little bit of a lift in the U.S. dollar, but I don't think you would ever really come close to touching those peak valuations for the U.S. dollar, but I don't think you would ever really come close to touching those peak valuations for the U.S. dollar once again. So I'd be very surprised to see the market return to the October lows. I think universally people would come onto the network and say that's a

tremendous opportunity. I don't know, maybe the market needs capitulation at a certain point. But what Mike's defining seems to be this state of purgatory, right? And the market is going to remain in that state for the better part of the next three or four weeks because you're void of any earnings. The Federal Reserve meeting is March 21st and 22nd. Yes, later. So, okay, what are we going to rely on? Are we going to trade off of what the jobs report is and the inflation reading in the early part of March? Why wouldn't we and what interest rates do?

Well, the jobs report is not for two weeks. Yeah, right. So we have a little space to operate. Now, look, you're also going to find out that stocks look a little bit oversold in the short term. Bond yields look a little bit stretched. So it could just be a lot of back and forth. And I think even Hartnett is saying at $3,800, maybe you nibble again because you might have some of the help from the bond market if we're starting to get another scale. But to answer your question directly, nothing says you can't go down 15%.

I mean, we actually made more upside progress from June into August than we have this time on a percentage basis. What's helped is the passage of time, right? Everyone says, oh, we broke above the downtrend line. Right, because time helped you out because you went further along the x-axis and you didn't have to get to as high a level to break the downtrend. But time is one of those two critical metrics that you talk about to get out of a bear market. It's price and time. That's right.

So maybe we've done both and we'll see. But I want to call your attention, everybody, to a couple of stocks that are on the move right now. We've been wondering about where are the deals and when are the deals going to come back? Well, there is a report in the oil patch, in the natural gas space, that Pioneer is weighing a bid for range resources. Take a look at both of those stocks. They were halted a short time ago. They've now reopened. Range is up, as you might expect on a report like that, 12%.

And Pioneer is falling by some 5%. I bring it up now, Joe, because it's so fortuitous for us to have you here. You know both of these well, and you've owned both and maybe still do. I own Pioneer still. First of all, let's understand Scott Sheffield is a brilliant manager of energy assets. He's also a serial acquirer, Parsley Energy, Double Point. He's seeking consolidation and shale. And I think what's going to happen is, Mike, you've had this performance, which looks like an ocean right now, between natural gas and crude oil. So you're going to have these cash-rich oil companies. They're going to say, OK, I'm going to take advantage of a depressed price in gas and seek opportunities. Specific to this deal, what does it do? So right now, Pioneer

already has a presence in the Permian. So they have gas, but the gas, it's a byproduct of their oil well. It's not a pure gas play. This deal, and if it were to happen, what this would do would give them exposure in the Marcellus Basin, that lower Appalachia, Pennsylvania. That's a pure gas play. But I think this is going to be a story not only for this year, but for the coming years. You're going to see the shale consolidation. Cash-rich oil companies are going to go after gas companies. Like NatGas is so striking at $2.50, literally, as we're having this conversation. I don't think anybody, anybody saw that coming.

But, Mike, I would go to you, not on this necessarily specifically, but more the opportunity factor that you do have in certain areas of the market. And some are looking to take advantage of that. Sure. And it's the time of a cycle when you did the dislocation in natural gas prices and the related stocks where, OK, good balance sheets go out and buy less good balance sheets. So I do think we should see a little more of that. You've seen an uptick in activism. You know, there are people trying to make things happen beyond just what the market is giving you. Again, financing conditions are not terrible, but they're not as friendly as they were not that long ago. So it's going to be selective.

And I think it's going to be, you know, where balance sheet is an advantage for a company. All right. So keep your eyes on RRC, PXD. We certainly will over the next 50 or so minutes as we head towards the end. Mike, you're going to be back near the end, of course, for Market Zone. We look forward to having you back then. Let's welcome Courtney Gibson of TIAA into our conversation as well. Court, it is so good to see your face and have you back on our network. Welcome back. What is your market view? Scott, it's so great to see you. And Joe, as always, it's a pleasure to see you too. So, you know, it's really interesting at TIAA, we have a long term view. And so whether it's my personal portfolio, as both of you know, I've always been a buy and hold. It was rare that I was

kind of playing in and out of the markets anyway, because at the end of the day, what I'm using the markets for is to help secure the future. And you can't kind of go back and forth. Joe, I love what you said about kind of us being in purgatory right now around the markets. You know, the VIX has really sat kind of in a one to two point range, really since the beginning of the year. It has not flurried a whole ton. And when you think about why that is, I mean, this is going to be the year of bombs, if has not flurried a whole ton and when you think

about why that is i mean this is going to be the year of bonds if we're being honest with each other right so stock market we're going to be focused on high quality dividend playing stocks you're going to be kind of seeing that flight to quality continue you're going to see a stock pickers market this is not the time for passive managers to really kind of shine it's the time for those active stock pickers to be in the market. And when you think about a diversified portfolio, really thinking about what does that allocation

to bonds look like? Are you conservative? Are you risky? You know, Scott, seven months ago when we were talking, everything was going up. When you think about where we were in the market cycle, anything you kind of threw a dart at a wall, you could win.

But right now, you've got to have some skills to be picking stocks. And so if that's not your game, focusing on a diversified portfolio, high quality stocks right now is where I'm focused. Having an allocation to bonds, having an allocation to bond proxies like the infrastructures, as well as some alternatives exposures, including annuities. So give yourself a well-rounded portfolio. And that's how I'm focused right now. Are you then leaning on it's more if you're an equity investor, that it's more time to take profits than take on more risk? If you said in your words, this is going to be the year of bonds? You know, so I am not telling you to sell your stocks. I'm not selling mine personally,

especially not if they're at a loss. There might be some points in the market or in your portfolio, depending on how long you've been in them, that you've got some nice gains. And this may be a time to take a little off the table. But I'm not selling, quote unquote, my losers. I'm not going to be selling Goldman Sachs today, for example. I'm not going to be selling Walmart. I'm not going to be selling some of those names that are kind of in my portfolio for the long term because this isn't the time to do that. I'm not scared of the markets like you just talked about, time and price, right? So if you believe in the fundamentals of the equity holdings that you have, you stick with them until you hit a point where you believe that it's time to sell. And there might be some points where you are reallocating. Again, if you're a young person in believe that it's time to sell. And there might be some points where you

are reallocating. Again, if you're a young person in the market right now and you have a longer time horizon and you have the income to sustain without selling, maybe you're dabbling in some of those high quality names right now that you might be under allocated in your equity portfolio because of the dips that we've seen over the last almost two years at this point. So I want you to weigh in. I mean, that's a it's an interesting comment and maybe, you know, controversial in some respects. It's going to be the year bonds, right? I mean, there's this whole conversation about 60-40. 60-40 got off to one of the best starts it has had in decades this year. Are we fooling ourselves into thinking where equities might be able to go? Well, first of all, I have to say it's great to see Courtney back on the network.

Courtney, I look forward to many more times and appearances with you. But it's been this year about the value restoration in the taxable fixed income market. And the fixed income market has been leading overall markets to wherever the journey is going to take them. I agree wholeheartedly with what Courtney's saying, where she's identifying opportunities that go beyond concentrating towards the big five, concentrating towards the hyper growth stocks, concentrating towards the U.S. or large cap or the areas of the market where you were rewarded the last several years. Now it's about considering full diversification. And yes, the bond market is giving you tremendous value that's being

restored again. The last point on that is think to yourself for a second. You have an unprofitable company, an equity company that's challenged by the terminal rate, the cost of capital moving higher and higher. What are they going to do? They're going to be incentivized to improve the strength of their balance sheet. Therefore, do I want to be an equity holder or do I want to be an equity holder? Or do I want to be a debt holder? I want to be a debt holder because I'm going to get paid on the process of improving the balance sheet. Exactly what happened in the wake of the great financial crisis with financial institutions. Do I want to be an equity holder, Port, but maybe outside the United States where some suggest the real value is and the opportunity truly knocks? So, again, I got to make sure that the viewers are taking

my comments. For me personally, I am invested, for example, in emerging markets. I do see the growth in China coming back. Do I know if it's happening this year, next year, or three years from now? No. But just given what we know, the power of the

consumer in China is going to bring to markets what we know as it relates to the shift in the middle class there. We know that China is going to bring to markets. What we know as it relates to the shift in the middle class there, we know that companies are going to do well there and I want to be invested there. So there are some opportunities for those who, again, don't need the capital tomorrow and have a longer term view to think about some of those opportunities in emerging markets in both equities and debt. So like Joe just said, I mean, let's look at the balance sheets, the strength at the balance sheets, the strength of the balance sheets.

And if you want to kind of mitigate some of that risk, then you maybe become the bond holder versus the equity holder and you get paid out first, right? So let's think about how you can play with different allocations in your portfolio to garner exposure globally. We're not going back to a US centric market.

It's just, I firmly believe that's not going to happen. So where are you back to a U.S.-centric market. It's just I firmly believe that's not going to happen. So where are you going to find value across the globe? And what is your time horizon for actually monetizing the investments in which you're making? Speaking of bonds, I mean, you say it's time to take some profits, perhaps an investment grade. I'm wondering what your view is here when you hear that, you know, according to Bank of America, which we've already cited, their flow show investment grade inflows longest nine week inflow streak since October of 2021. So that you follow the money, right? That's where the money's going. It is. But so, again, you know, you have to decide, am I going to take some money off the table or am I going to continue to follow? What you're seeing is fear in the market. So although the VIX has kind of been vacillating right here, let's think about

those that have really lost. I mean, I think someone said earlier today, we are back at the point where we were almost exactly two years ago. So that means you invested money two years ago. You haven't seen anything in the market so far. And let's say you are 60 or 65 years old and you're getting ready to retire. You're kind of nervous. Preservation of capital is a thing. And depending on what your risk tolerance is, having the ability to garner, you know, 5% returns on your capital plus the potential to get that principal back at the end of the day looks really good for a lot of people right now. And so that you're seeing this flight to quality, this flight to safety.

I don't know how long we see it. I don't know if it's a trend that's happening kind of across kind of large institutional investors all the way through individuals or not. But what I can tell you is that the individual level, people are not as, shall we say, comfortable with seeing their money disappearing the way it has as of late in the equity markets. Yeah. I don't think anybody's ever comfortable with that prospect. Joe, last word.

Some of us have seen cycles. Some folks hadn't. Yeah. The U.K. and Germany both outperformed the S&P last year. So far, year to date, Spain, Germany, France, the U.K., you're getting NASDAQ like returns. Give the consideration to what's going on in Europe. It's a cyclically constructed economy, doesn't have the dominance of technology. It's being rewarded for that formula so far in 2020. All right. So, Joe, we'll see a little bit later. Court, I know we'll see you soon. I certainly hope so.

That's Courtney Gibson, TIAA, again, joining us back here on Closing Bell. Let's get to our Twitter question of the day. We want to know, have we already seen the highs for the year in stocks? You can head to at CNBC Closing Bell on Twitter. Please vote. We'll share the results later on in the hour. Let's get a check also on some top stocks to watch as we head into the close. Seema Modi is here once again with that.

Seema. Hey, Scott, on a down day for stocks, especially consumer names, we want to get a check on two retail outperformers. There's Dillard's rebounding after a rough few sessions following its disappointing earnings report earlier in the week. The stock is now tracking for its worst week since July, but again, up about 4% at this hour. And then Best Buy hanging on to gains after UBS raised its price target on the stock to $87, a share from $80, and reiterated a neutral rating. That company is set to report earnings next Thursday up about 1.5 percent. Scott? Okay, Seema, appreciate that, Seema Modi. We're just getting started here on Closing Bell. Ahead, up in the clouds, the software space is surging, but can

that rally really last? and what might it mean for the broader market we do discuss we're live from the new york stock exchange closing bell on cnbc back right after this we continue to see rallies being led by lower quality stocks that was certainly the case in january similar to October, similar to August, similar to last March. And so we get these these sort of relief rallies. People cover shorts, chase momentum and and then things sort of sort themselves out. That was famed short seller Jim Chanos when he joined us earlier this week to discuss the market's recent run. Let's bring in Frank Holland now. He's taking a closer look at the cloud space.

Names that could put this rally to the test next week. Frank, what are you looking at today for us? Well, first and foremost, Scott, looking at the WCLD ETF, the Cloud Computing Enterprise Software ETF, it's outperformed the market and even the NASDAQ 100 year to date, even with rates rising, which usually hurts the sector due to hiring borrowing costs. Many stocks are down today. The ETF is down today as well as the 10-year yield approaches 4%.

But let's take a look at the holdings in this ETF and their year to date performance. Monday.com, for example, up more than 25% year to date. Applovin up more than 35% year to date. Fastly, look at this chart, up a whopping 70-something percent year-to-date. All very different businesses and different business models, but they have one big thing in common, double-digit short interest. Cowan analyst Derek Wood agrees with Chanos that a lot of these gains are likely short covering. The other big gainers

in the ETF, C3AI, doubling year-to-date and Sumo Logic, both now considered artificial intelligence stocks. They actually spiked from that buzz from Microsoft's multi-billion dollar OpenAI investment. Cowen believes the next test of this rally is Snowflake earnings next week. This is a high valuation consumption model cloud company. Guidance is for an almost 50% increase in product revenue, products pretty much all their revenues. Also, when it comes to Snowflake, short interest is just about 5%,

really more in line for a typical S&P stock, Scott. The bottom line is seems to, you know, that those that you're talking to make the case, it's not sustainable in any way that this move that we've had, as you suggested, a lot of highly short names, speculative names, et cetera. Right. I mean, with the question whether it's sustainable or not, time's going to tell. But there's one thing that's for sure. Yeah, it's a lot of short covering. You're seeing double digit short interest on some of the names I showed you. There's a bunch of

other names in that ETF that have double digit short interest. And there's a bunch of names that have high single digit short interest. I think the real question is, is there also demand to kind of support this rally? I talked to Dan Ives earlier today on Worldwide Exchange. He believes that there really is a lot of demand out there. He actually raised his price target from Microsoft today on deal flow demand. He believes that the case for cloud stocks is only growing. About 50% of workloads are in the cloud now. According to Wedbush estimates, that's going to jump up to about 70, 75% in the next two two years so he believes there's a lot of runway for these stocks but right now clearly short covering is a big factor yeah well especially when you see you know revenue growth in that space slowing as you know frank holland thank you very much i appreciate

that enjoy the weekend up next racing for a big downturn our next guest doubling down on the bear case for stocks is going to explain why what he thinks the Fed needs to do to turn it all around. During February, we are celebrating Black Heritage through the stories of some of our CNBC teammates, contributors, and leaders in business. Here is Odyssey Capital Advisors Principal and CNBC contributor Jason Snyde. By definition, being a minority is fewer than, but not necessarily less than. As a young professional, I thought I needed to assimilate into the rooms and teams and boardrooms that I participated in, but realized early on that diversity is a superpower and is additive. So I encourage you to show up as your authentic self.

There's so much value in that. Major averages less than an hour away from closing out their worst week of the year on the heels of that hotter than expected inflation data. According to our next guest, investors should be preparing for even more downside. Let's bring in CNBC contributor Greg Branch of Veritas Financial. So welcome back. Now, we asked our Twitter question, are the highs of the year in? How would you vote? I would vote absolutely yes, Scott. There are two

reasons I'd vote that way. Number one, the analysts in the street are still way off in terms of their estimates. Think about this for a second, Scott. We went into the fourth quarter, maybe a month before, mid-single-digit earnings growth, 3% earnings growth at the beginning of the quarter. By December 31st, we were down to negative 3% earnings growth, seeing one of the largest in-quarter revisions that we've seen in quite some time. And we still weren't close to correct. We're still going to end the quarter with around a 5% contraction for the fourth quarter. And so the estimates are wildly off. They've come to probably a more realistic scenario for the first and second quarter. But looking at high single digits for the back end, probably, well, not probably,

again, way magnitudes off. And that's driven because the macro view is off. The street has settled into a view that 5% is the terminal rate. You know, I've been saying for some time that it's likely 6% to 6.5% because we have 450 basis points behind us. Unemployment hasn't been affected in the way that the Fed would like to see in order to have some confidence. But that's Fed aggressive. But I'm sorry to interrupt you, Greg, but that's like Fed aggressiveness on steroids. I mean, they're talking about, you know, even the most hawkish of Fed speakers like a Bullard. And I know he doesn't vote, but nonetheless, he speaks and he speaks loud five three seven five i mean you're talking about a hundred basis points over

that i am and i've generally been doing that for about a year i think scott but look it's no insult to them quite frankly what what does that mean though You know, you were negative and rightly so. And then you started to get a little more positive on the market. Now we've come 15 percent off the lows. So I think that that's what the Fed is, quite frankly, doing itself. You know, we started this cycle with them thinking 4%. And then when they had enough data to realize that that wasn't enough, you know, I couldn't say 6% six months ago, but we have more data in now. We're further into the cycle. We're 450 basis points in already, and we're sitting at a lower unemployment than when we started the cycle. So if we're at 3.4% now, 450 basis points in, do we think that this

next 50 basis points is going to be the panacea? Probably not. And so we should, I think, I don't think we have any choice but to conclude that the Fed's going to have to be more aggressive. Now, a lag is an easy way to kind of rationalize that maybe they don't, but I don't think we're seeing a lag. I think we're seeing something of a permanence. And so when you look at construction, for example, yes, we know how the housing market itself has met its demise, but we haven't seen the significant job loss

that we would expect there. The Beige Book points that out. And so the Fed might have to get more aggressive than they originally thought, given that the consequences haven't necessarily been there. I mean, both Bullard, and I think it was even Mester today, than they originally thought, given that the consequences haven't necessarily been there. I mean, both Bullard and I think it was even Mester today are out suggesting that because the economy is as strong as it is, that you can get inflation down to where they need it to go without destroying the labor market and causing a massive jump in unemployment.

So you just don't believe that. Well, I think someone would have to spell that out for me. What does that mean without destroying the labor market? I don't know if I'd see 4 percent unemployment as destroying the labor market per se. We've certainly seen levels that were higher. But I also don't think that a historic low at 3.4 percent unemployment is our status quo either. So I don't think I'm advocating for destroying the labor market. But the fact of the matter is that we're going to have wage growth as long as we have, you know, we just added 500,000 jobs in the last jobs report. As long as

the economy continues to add jobs like it has been, we're going to have continued wage growth. And if you believe, and the statistics point out, that there's a connection between continued wage growth and if you believe and the statistics point out that there's a connection between that wage growth and service inflation so long as they care about service inflation i think the path is clear i'm not sure they have a choice quite frankly but why can't they just accomplish what they want to accomplish by let's just for argument's sake because it feels like the market has moved to the idea that you get three more 25 hikes, right? March and May and maybe June. And then you keep it there for a while. And they use the tools that we already know that they have. It's the balance sheet and the QT. And they let rates sit there. Why in the world do you think they would go above 6 percent? And I can't even imagine what the risks would be on the overall economy if they did that, not to mention what the stock market would do.

Right. Well, the stock market wouldn't take it well. I'm not so sure it would be Armageddon for the economy. We tend to, because money has largely been free for almost 14 years, become prisoner of the moment to that. And the fact of the matter, Scott, is that rates have been much higher before without destroying the economy. And so I don't think that a 6.5 percent Fed funds rate is necessarily going to be sure it'll slow it. It will certainly slow the economy. But will it bring about disaster and fire and brimstone? Absolutely not. That's a kind of prisoner of the moment thinking. But at the end of the day, the employment numbers can be curtailed without necessarily causing a recession.

We don't need to have 3.4 percent unemployment to avoid a recession. I think that employment can be higher than that and we can see a soft landing. Are we going back to the lows? Absolutely. We will ret back to the lows? Absolutely. We will retest those October lows. So we will have a sub-30,000 Dow, we will have a 3,500-ish S&P, and we will have a mid-10,000 NASDAQ.

Absolutely. As soon as the market digests what the Fed has been trying to articulate, probably very gently, in my opinion, over the last two weeks, which is we have more data. Our original impression was wrong. It's not a 4%. It's not a 5%. We probably need to be more aggressive. As you rightly pointed out, the market isn't discounting that right now. The market is discounting another 75 bps. I think that's wrong. I think when the market comes to discount the appropriate actions, that, yeah,

we're going to retest those lows. We will check back in with you on multiple occasions. I know we will. Greg Branch, thanks so much. We'll see you on the other side of the weekend. Up next, we're tracking the biggest movers as we head into the close. Seema Modi standing by with that. Once again, Seema. Hey, Scott, two major companies reporting yesterday, both laying on investor sentiment. We're going to explain why after this short break. 20 minutes to go until the closing bell. And here is where we stand. We are down on the Dow Jones Industrial Average 369. We're pretty much set for the worst week since September. That inflation report hotter than the market liked. Stocks have been down for the most part all day. NASDAQ is the biggest loser, down about 2%. Lots of things are moving.

And on that note, Seema Modi has a look at the key stocks we need to watch between now and the close. Seema? Scott, if you're wondering if Americans are thinking twice about buying a used car, look no further than Carvana, the online platform posting a wider than expected loss for the quarter and a 3% drop in cars sold to consumers in 2022. CEO Ernie Garcia saying the world changed on us very, very quickly. That is reflected in today's shares down about 19%. And take a look at Autodesk. It is the worst performer on the S&P 500 at this hour as the company's outlook missed Wall Street estimates. But Oppenheimer analysts, they still see opportunity on what they say is overly negative investor sentiment.

Stocks still on track for its worst day since 2021, down about 13 percent, Scott. All right. Appreciate that, Seema. Thank you. Last chance to weigh in now on our Twitter question of the day. We want to know, have we already seen the highs for the year in stocks? You can head to at CNBC Closing Bill on Twitter. Vote yes or no. We will be right back. We are now in the Closing Bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Bank of America's Jill Carey-Hall with her market outlook.

And Joe Terranova is also, of course, back with us. Mike, I go to you first. I mean, Twitter voters aren't giving up on the market yet, apparently. They don't think the highs of the year are already in. Well, if we pull that apart, all that says is that you're not going to foreclose on the possibility that in the next 10 months, the market trades 6% higher from where we are right now, because that would be a new high for 2023. So I think it's actually logical to say, no, I'm not going to assume that the highs are in for the year. I think we're in a spot right now, though, where every really nasty, deep sell-off in the market starts looking like a 5% to 6% shakeout,

which is what we have right now. Not every 5% to 6% shakeout leads to the deeper pullback. And that's, I think, nothing that's gone on right now tells you what we're destined for much lower prices. But we are at a testing point. We're sitting on the 200-day average. We're sitting on that where the downtrend and uptrend lines come together. So on a technical basis, I understand why there's some suspense built into what we're doing. But, you know, we often yo-yo around those technical levels before they're settled one way or the other.

So I think it's OK orderly today. Maybe, you know, someone's going to argue too orderly based on where the Fed has to go. We've really been sitting at this basic level for most of the day. Joe, you've seen some later day pressing on some of the mega cap tech names. NASDAQ is going to be the biggest loser today, down about two percent. But I've been watching throughout the session. It's the Apple, Microsoft, Amazon, Netflix. As you were pointing out a moment ago. Yeah. Mike and I were talking in the commercial break. Let's remember there's an effect on the weekly and then these crazy zero-dated options. You see a lot of activity

whether it's Tesla puts or overall the QQQ puts themselves. So I think that's where a lot of the selling pressure resides itself from. There's been no bounce today. And I think that's the surprising element of the day is the market opened lower and it's really just kind of sat here. We're in a consolidation range. You know, I think Mike is right. And the range is $3,800 to $4,200. Right.

And if you break $3,800, you're going to really then begin to see within your sights the lows from October. No bounce, for sure, but no great rollover either. And on that note, let's bring in Jill Carey-Hall, Bank of America Securities, joining us now. How would you vote in our Twitter poll? Have we seen the best of the market for the year already? I think we were expecting coming into the year we could see a bit of a bounce given just how negative sentiment had been at the end of last year and sort of the growing consensus view that it would be first half down, second half up.

Now the recession timing has been pushed out. Our year- target on the S&P 500 is 4000. So, you know, obviously not too far from where we are today. We think there is more potential downside risk. A lot of the, you know, signposts we look at in terms of, you know, what could signal a potential bottom in the market, you know, haven't been hit yet. So, you know, we think this is going to be, you know, potentially volatile period for the market and that there's, you know, better opportunities in spots in the market, whether it be small caps, whether it be sectors, whether it be, you know, being an active manager and picking stocks rather than just owning the S&P 500 this year. How would you explain the disparity, though, between your S&P target, which is more or less where we are for argument's sake, let's just call it that,

and the fact that you look for a really big decline, though, in earnings? You're at 200 bucks. That's pretty weak, all things considered. Well, I think, look, it's half the magnitude of the typical recessionary earnings decline. So we are expecting a mild recession to begin in the second half of this year and last into early next year. Usually S&P earnings decline about 20 percent during an average recession. Obviously, they've declined more during some of the more severe ones. So this would be less than half of that. You know, obviously, there's been strength in the data. But when we

look at what happened this earnings season, you know, earnings have generally been, you know, in line to a slight miss. And that was even after earnings were cut substantially. Guidance has been weak. You know, a lot of the measures that we look at of mentions on earnings calls have suggested some weak demand. So, you know, we do think there's more downside risk to earnings forecasts at this point, but we're not looking for, you know, as dramatic as what you usually see during a recession for the earnings decline. So you're looking to play more defense here than offense. And let me just note before you answer the question, too, we are sliding a bit as we head towards the close. Dow is down by more than 400, one and a quarter percent. Mention the Nasdaq is now down a cool two percent as some of those mega cap names drag things lower.

So how would you play things, offense versus defense, and if defense, where? Well, I think, you know, we're not necessarily overweight all of the defensive sectors and areas. I think, you know, when you look at what's priced in already, how positioning is, you get some different results than, you know, maybe the typical recessionary playbook. Also, when you look at kind of the shifting risk profiles of sectors, some of the traditionally safer low beta sectors have actually become higher beta and vice versa. So we're overweight some of the more cyclical sectors right now, energy, materials, financials. And then we're overweight staples as sort of our preferred, you know, high quality defensive sector. But, you know, we think a lot of these areas, you know, energy, materials, sort of your old economy sectors, there was, you know, massive underinvestment for a decade. Companies that were

more in the new economy tech benefited from zero interest rate policy, globalization. So, you know, we think there's some longer term shifts that are going on where we could see a change in leadership. And then, you know, small caps are another area that, you know, have been really the only area pricing in a lot of the macro risks. And, you know, we see is better positioned even amidst the recession risk right now. Why are you underweight consumer discretionary? I mean, the consumer's been strong. That space was leading.

Why you make that call here? It is up 10%. It is the best performing sector of this year to date, up near 11%. Yeah, I mean, usually consumer discretionary is a typical early cycle sector. So at this point, if we're still expecting several more Fed hikes, typically you don't want to own the sector until the Fed is done hiking and you're into more of that early cycle phase. Consumer discretionary is also the most labor intensive sector. If we continue to see wage pressures, it's the area where we see the most downside risk to earnings estimates. It's still generally crowded and expensive by active managers. So that's an area that obviously some of the data,

you know, the consumer has generally held up well, but we do see risk to companies' earnings and, you know, think it's a bit early. Jill, I appreciate it. Jill Carey-Hall joining us from Bank of America Securities. We'll see you soon. Let's turn to you, Joe, because what an interesting week it was for chips. NVIDIA stole the show, so to speak. And then it also has us looking towards next week, Broadcom, one you own. But give me your thoughts based on what we got from NVIDIA this week. Well, I think it was critical to sustain the positive momentum that the chip sector and overall the industry has maintained since the October lows. And there are winners in the chip environment.

I've said that. They were first in. They're first out. We're going to hear from Broadcom next week. And, Scott, Broadcom is a much different type of chip company than some of the others. It's not a company that's reliant on the cost of capital, right? It's a company that has a great balance sheet. It's a company that has 80% of its revenue overseas. If you think about it, and it's owned within the Equality Momentum Joe

T portfolio, it is one of 23 technology holdings. Its dividend yield is only second to Corning. Very rare to get a chip company where you've got a dividend yield of 3.2%. In addition to that, Hoctan has done a phenomenal job maintaining margins, sustaining earnings growth. The average earnings over the last three years, 14%. Last four quarters, 24%. And what's he doing with that? He's taking that capital and he's deploying it.

Free cash flow generation is 49% of earnings. So this is just a quality, strong balance sheet chip company. And we'll find out next week how the most recent quarter was. What's the update with VMware? When does that deal close? Is it going to be in the fall? And with Apple 2025 lessening the exposure to broadcast. You're also a low beta chip guy, right?

I think you have to be. Well, you don't have to be because, I mean, you could be in an NVIDIA, which you used to be in. You can win on both sides, but you choose to play it that way. So I'm thinking of like Texas Instruments also. I just don't want to incur the volatility. Look, NVIDIA arguably is on the other side of this, and I heard you say this yesterday, is going to potentially maybe replace some of the mega caps in terms of the critical importance, the dominance because of AI. I just asked if it was the stock now that you have to own in the NASDAQ outside of what used to be a very singular conversation of, well, you just got to own the mega caps, of course.

I think the answer to that is yes, I do. I really believe it is. But I think it's a idiosyncratic story in the chip sector. And that's why I still believe, you know, this is the environment where you want to have the low beta exposure. It's important. It's critical. Yeah.

What's your takeaway, Michael, from what we saw this week with NVIDIA and, you know, as we look towards next week? I would take it in a market-wide view as a signal of how the semis are performing and what it means. And I think it's one of the more bullish things you're going to look for. It's not a clinching argument for why this market is now in an uptrend but I do think it's one of the areas that you'd say. You know you'd want to check off that box. To say I believe in this rally more when semis are

outperforming they have been- they've obviously had a lot of risk swept out of them on the valuation side of things. And on the inventory side. Doesn't mean we go back. To those highs I think Nvidia super overheated it's a little bit

excitable how that stock trades. But outside of that, things seem like they're more grounded. You know exactly what the narrative would have been to had NVIDIA laid an egg. It would have been like, you see, we told you that these stocks like this that were up 60 percent or so year to date are ridiculous. And then this is the start of a potential reversal. And in fact, I mean, you just didn't get it. You didn't get it. But what you did get, though, is a reminder that it's not it's not going to be monolithic. Keep saying that NVIDIA performed. They have the right story. They're going to draw the dollars. It's not like you're buying every single stock that that went to the moon like NVIDIA did back in 2021.

So consumer discretionary, as I mentioned to you, is still leading for the year. It's up now better than 11 percent. And it just leads me, Mike, into what's going to happen next week. You get a whole heck of a lot of retail earnings. How do you view that, given what the space itself has done? View it as, first of all, we're sensitive to anything that now says the consumer is in free spending mode again. I think you have to expect some kind of give back. You're not going to stay at January's pace overall. I don't think the retail stocks are going to be the

ones that matter the most. Yep, Target's a great tell on what's going on. Costco, excellent operator. So I feel like, you know, they're not necessarily the things that are going to be the engines for the market. But you want to see that they're being smart on pricing. And maybe if their margins are squeezed, it's actually helping out the overall inflation picture, because I think that's part of the story here. It does get us over the last great earnings hurdle, if you will, that last slew of companies from a real key sector. Yeah, and you're two months into the year,

and earnings estimates in aggregate are down a fair bit, but they're just not falling off the cliff just yet. So we still wait for that moment when a lot of people said that they're shooting down to 200 for the S&P. Well, obviously, you're hearing the bell. Dow is going to have its worst week since September. But that will lead us into next week. Have a great weekend, everybody.

Let's send it into overtime right now with Morgan Brennan and John Ford.