Closing Bell - Closing Bell: Stocks in Sell-Off Mode Post-Powell 3/7/23

Episode Date: March 7, 2023

The major averages dropping in the final hour of trade as a direct result of what Fed Chair Jay Powell told Congress today… that the central bank may go faster, higher and stay longer than originally thought. Our all-star panel of Virtus’ Joe Terranova, Lauren Goodwin of New York Life Investments, senior economics correspondent Steve Liesman and senior market commentator Mike Santoli break down the final moments of trade. Plus, Lo Toney of Plexo Capital drills down on the tech trade and the latest headlines on Meta. And, Fundstrat’s Mark Newton has explains the key levels every investor needs to watch amid this uncertainty.

Welcome, everybody, to the Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. And this make-or-break hour begins with stocks in major sell-off mode, a direct result of what Fed Chair Jay Powell told Congress today, that the central bank might go faster, higher, and stay longer than originally thought if the economy remains too hot and inflation remains too sticky. Take a look at your scorecard with 60 minutes to go now in regulation. The Dow is really sliding here here down just about 600 points. The S&P has been around that key 4000 level for much of the session.

It's had a little bit more of a sell off of late, so it's got some work to do to close back above there. Bond yields are the story of the moment. The two year five percent above it. First time since June of 07. Keep your eye there because as the two year was rising, the stock market was falling. And that leads us to our talk of the tape. Just how long can stocks remain resilient as they have of late, given all that lies ahead for your money? And we have all hands on deck this hour to discuss that very question.

Joe Terranova of Virtus Investment Partners and a CNBC contributor joins me here at Post 9 along with Lauren Goodwin of New York Life, our senior economics reporter Steve Leisman, senior markets commentator Mike Santoli. So everybody is here and for good reason, Joe. The market did not like what Powell had to say today. And we talked about what happened with bonds and stocks are still reacting. Well, I guess it is the pace of rate hikes that traders have to be concerned with, not the duration, which is inconsistent to the message that the chairman delivers to us in the prior months. It's clear that the markets are pricing in a potential for 50 basis point hike on March 22nd. It's being reflected, I think, in the 1.25% move in the U.S. dollar.

It's a very strong move higher. The inversion for a 2 to a 30 at 111 basis points. That's a record. 2 to a 10, 104 basis points. That's the widest since 1981. And I think the fact it was fascinating, the sell-off yesterday and the Russell late in the day, it really telegraphed and it messaged exactly the type of market that we have here today, you're seeing a little bit of slight outperformance from growth. And I think what that's signaling is the belief that they're not going to bend it, but they're going to break it. And if they're going to break it, it's going to be growth where you might find the highest degree of resiliency. Real quick last

point on that. No one's positioned for that. I'm not positioned for that. Financials, health care sectors where the overwhelming consensus was going into 2023. They're all down, underperforming. Consensus is getting hurt. Lauren, this all about that move in rates, right? The two year that jump today is really disconcerting to the stock market. Yep, that's what it's all about. And frankly, I think that Chair Powell has been speaking truth to the market today. This data that we're going to get on Friday with the jobs report and on Tuesday of next week with inflation, that's the big test for the narrative that the market's been putting forward for a soft landing. And with inflation being sticky, the Fed just doesn't have the luxury to wait and see what already incredibly fast and incredibly strong interest rate heights will do to the economy.

They have to keep inflation expectations under control. Yeah. Steve, let's refresh our memories here. Let's listen to what Powell said today that seems to have so unnerved this market. We listen to it in real time. Here's Powell's message. The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we'd be prepared to increase the pace of rate hikes. Steve, you talked about this in recent days as to whether the Fed chair himself was going to endorse this higher, this faster and stay longer than people thought narrative.

And he did it explicitly, Scott, today. Both of those things, there's really three elements to it, the duration, the length and the level. Sorry, the pace and the level. And so the duration is restrictive, sufficiently restrictive for some time. The level is higher than we thought for sure in the December summary of economic projections from the Fed. And the pace now, this is perhaps the big reversal here, Scott, is that remember the Fed stepped down from 75 to 50 to 25, and the idea was that they were going to go by 25s. Well, what he said today was, hey, this change in January in the data, which had two parts to it, we'll go back to that, was so profound that we need to perhaps think about going back to that faster pace, which is a 50. And if you take a look at what's happened to the probabilities of a 50

in March, we started the day at 23%, Scott. We're now at 60%. And just to get to the two elements that were the big change, obviously, we know about the faster economic growth that we got. We also got bigger inflation or higher inflation data than expected. The big change, though, was the revisions that kind of wiped out the dovish case. I got to think the dovish Fed trade now, those who are doing that are kind of suffocating for air right now, Scott. Yeah, maybe so.

And Mike Santoli, you know, on this idea of what lies ahead now from the Fed as a result of that data that's come in recently, I want to read you something that Jeffrey Gundlach told me just a few moments ago. He said the two-year Treasury yield is up 90 basis points since February the 2nd, the day after the Fed's last meeting. That was only 21 trading days ago. So the yield is rising at a pace of 4.3 basis points per trading day. Never forget that the Fed follows the two-year, so the odds of only a 25 basis point hike later this month are between slim and none, said Gundlach to me. Should the employment report this Friday meet or exceed expectations slim is leaving town?

I want your reaction to that, this idea that we need to and do we need to get our arms around the idea of 50s coming? I think you have to absolutely leave that as a very open possibility. And by the way, that move in the two-year yield happened really since the employment report. Yes, it happened that the Fed meeting was two days before that, but it has been because of the data. It has been because the economy has proven stronger. And clearly, the market today, there was this possibility. I don't think this was anything radically different than what was anticipated. But what it was is it got us off that mode of thinking, as I've been saying, you know, all through the first part of this year. OK, the Fed's going in 25. That means you're six

to seven weeks between every quarter point raise. No big deal. We're slowing down. We're coasting to the end. And so this interrupts that idea a little bit. And it actually causes you to revise the probabilities that the Fed, therefore, could be moving faster, going higher and therefore overdoing it. And that's what you see when regional bank stocks are cracking, when you're seeing a lot of that inversion of the yield curve get more dramatic. That's implicit in that trade is saying, like, the more they have to do now, the higher the risk to ultimately a harder type landing down the road. All that being said, the S&P backing off today clearly was was wrong footed for this testimony. But it's back

in the testing zone we were in last week. You know, we're still above last week's lows trying to figure out if that's going to matter. It's a little quick for another test of all that confluence of of support levels and everything we were talking about for a few days. But that's essentially what this has brought on. Steve, your reaction to what Gunlock has just told me? You know, I disagree with Jeffrey on the idea that the Fed follows the two-year. I think the two-year as much follows the Fed as the Fed follows the two-year. But that's a long-running debate I have with Jeffrey.

But I think he's right in the sense that the idea of a 25 is leaving town, but it is data dependent, right? We're going to see the jobs number on Friday. And the key there is going to be wage growth, which Powell has keyed as the as the most important element of the job number. And then the inflation report next next week. I think where we've been, Scott, is this situation of think about a wrestler. You got a guy pinned one, two, and then it gets up again. And that's really what inflation is. It gets up to the point where we can't count.

The Fed's metric here is to be confident that inflation is heading back towards its 2% target. And we just can't seem to string together those three months or so of good inflation data to give the Fed that confidence. And that's why I think we're heading higher here. Well, the Fed's problem to continue your wrestling analogy is inflation is not following the script. Depends what kind of wrestling we're talking about, Steve. It's not WWE. I don't want to laugh too much about it, but you're right. It's not it's not scripted.

This is a real wrestling match here. Yeah. And, you know, Joe, I thought Steve made an interesting point, too, this idea that the bullish narrative is sucking wind big time right now. Is it dead? I think it's certainly teetering. I think right now the positioning is very important to understand. And Mike brings up a good point.

The market was on the wrong foot for this, and no one really is positioned for it. How is the market on the wrong foot for what Powell said today? How? What did we expect? Because the market wanted quality. The market wanted a degree of defensiveness. The market wanted cyclicals. It wanted industrials, health care.

It wanted financials. Joe, what do you base that on? Joe, what is the basis for that belief? I can't come on more and say Powell may bless a 50. He may best bless a higher rate. You had Waller. You had Bostick. You had Daley, for God's sakes, the dove of the Fed telling us all

that stuff. How do you go out and take that position? I don't mean you, obviously. I meant one go out and take that position. I think Steve raised a good question. How could the market possibly be surprised with what Powell said today? Steve, that's been the consistent, Scott, that's been the consistent positioning for the better part of the last six months. And that positioning is reflecting the narrative. What happened to the soft landing? The soft landing is now out the window. So we're no longer positioning the books, expecting that cyclicals might work in that environment. That just is what it is.

That's the narrative. That's been what everyone has suggested the right way to be allocating in 2023 is not towards beta, not towards growth, not towards long duration assets. How are long duration assets actually outperforming in the last week in an environment where now the Federal Reserve potentially is talking about the terminal rate approaching 5.5%. So you have to look at the positioning to answer your initial question, where is the market right now, and understand that the market is teetering in this consolidation zone because no one is correctly positioned for it. The degree of frustration really comes for those that are positioned this way. Back to the Federal Reserve if they continue to raise rates and inflation doesn't come down. What do they do in that instance? Do they finally

turn towards fiscal policymakers and say, we need some help here? But do they just keep raising rates if inflation doesn't come down? When do they stop? Lauren, your point coming in today was the whole soft landing narrative to what we've just been discussing is dead. It is, or it should be. The data has evolved, actually, in a really typical way for the late economic cycle, which is that you have your interest rate sensitive indicators topple first. Then you start to see leading economic and manufacturing indicators topple. And only then will you get profit margins, which we have seen in this earnings season start to topple.

And only then will the labor market fall. And the fact of the matter is, in every other soft or soft-ish landing in the last 100 years, unemployment's been higher and wage growth has been lower. The Fed is fighting an uphill battle. They know it. I'd actually put forward that recession is and has been the policy. They can't forecast it, but they know that we need a hard landing in order to cut inflation off at the knees. And Mike, you know, I'm looking at, you know, Joe is mentioning, you know, cyclical things in the market. I'm looking at industrials, OK?

In the green for the year, some of those stocks have been either at 52-week highs or hitting new highs. People were offsides for the move in comm services and also technology. Maybe the way that this year has started out is actually the right way, because if you're going to have a recession or get close to it, do you really want to be in industrial stocks? Do you want to be in more cyclical areas of the economy or not? Well, I mean, I think to me the market's message was, regardless of where we're headed, if in fact the Fed has to engineer a recession, what they're seeing right now is reason to think that we were in an acceleration phase in the global economy.

That could be proved wrong, but I do think that the industrial outperformance was actually hinging on something. And it wasn't just a bet that the Fed was going to engineer the perfect soft landing. You know, I realize I did say that the market was wrong footed this morning. I think I only meant that in the very shortest of terms, because I think there was a line of thinking that said, look, the stock market had this two-day rally off of support, and we've tolerated an increase in the implied terminal rate up toward 5.5%. Maybe we already got priced for what Powell was going to say, even if it included being open to a half point. So all that being said, we're still above last Wednesday's lows. So if we're wrong right now

at this level, we were wronger then or vice versa, Right. So I don't think you want to make too much of why were people thinking at 930 this morning that things were going to be great. And now they're terrible as opposed to we're all just figuring out where in the in the in the gray we're going to come out. I'm just wondering in part, Steve, as we've asked the question almost daily, you know, is the stock market not listening? Is the stock market delusional? Does the stock market not listening? Is the stock market delusional? Does the stock market not believe what the Fed chair is saying? Well, maybe it just boils down to the fact that the stock market doesn't think that the Fed is going to be able to do what Powell says, regardless of what he says and where he says it. And they're going to have to cut rates at some point. And the market's keeping its arms around that idea.

Look, I don't think a bullish outlook is totally irrational. If you have a better idea for how inflation is going to turn out, and you have a more dovish view on that, that inflation is going to work itself out in the next several months and that either by hook or by crook, and by that I mean either because inflation is going to fall or the economy is going to fall so precipitously, then you can have a more dovish outlook on the Fed. What happened today, I think, Scott, was Powell came forward and he said very clearly, if we're going to have higher inflation, here is rather precisely how I'm going to act. Remember, it is still data dependent. So if you have a bullish outlook on inflation, you can have a bullish outlook on stocks. You just

can't have a bullish outlook on the Fed not reacting to high inflation because they are going to react and you're going to be wrong footed you're going to bang your head against the wall again if you keep thinking the fed is not going to react to high inflation well i don't mean to call him out personally i i don't bring his name up to do that but you were on halftime earlier today with jim labenthal who made the point that he doesn't think that the Fed is going to be able to do what it says because of increasing political pressure, that you really think that Powell's going to push the economy off a cliff and risk the loss of a couple million more jobs?

Is that really a tenable position to be in? How would you address that? I think it is. I think it is. I think the problem for the Fed politically gets to when they get to three. I still believe, by the way, gets to when they get to three. I still believe, by the way, there's a political consensus around reducing inflation. I think if they can get to five to three and then they have to keep pushing and keep rates high from three to

two, that's when the pressure happens, I believe. And then, by the way, you'll get some more splintering in the Fed. But I still believe the Fed is going to try to achieve that 2 percent inflation target because the downside for the Fed as an institution and probably the downside for the economy of an upward shift permanently in the target inflation rate is one that probably warrants getting it back down to two. Lauren, you know what you get when you get a two year at five oh one and a half where it is now and a 10 year where it is. You get people like you saying, you know what, that's why I like bonds better than stocks. Yeah. Because that's where the opportunity is and that's where, you know, you don't have to take as much risk. Well, it's certainly where an opportunity is, right?

We have a completely different market environment than we had a year ago. And not only market pricing, but also I expect a change in the correlation environment this year, gives us as investors an incredible opportunity to rebalance. And a big part of that rebalancing opportunity is from stocks into bonds. We get so focused, especially in the last decade, on bond and stock prices moving higher as the way to add value in a portfolio, but building income so important. And, you know, looking even past short-term treasuries and cash opportunities, credit environment in many fixed income asset classes is looking really sharp. And so while

we talk about a hard landing, it's what I expect from the economy. So many good investing opportunities. We can't lose sight of that. Yeah. Joe, I mean, that's been one of the biggest issues for stocks X, all of the other issues that are out there. An environment for a minimum of the past decade has been there is no alternative, has brought many alternatives, many more deemed to be safer alternatives where you can make more on your money with less risk than you can by putting it in the stock market in a current environment where inflation is running at a 40-year high and the Fed is embarking on this regime of rate hikes, the likes of which we haven't seen arguably forever. Yeah, but that also requires

you to a certain extent to believe that you could effectively manage the market like David Tepper again. I don't think this is 1973 to 1981 where inflation ran at an annualized 9%. The stock market only gave you 4%. In that environment, yeah, the attractiveness of cash, that's present. I think in this environment where it's pandemic-induced, the inflationary environment, Steve might disagree. I think the Federal Reserve needs a little help from fiscal policy here in resolving the inflation issue. I agree. What kind of help from fiscal policy? Well, I think the chairman did not.

Yeah, go ahead. I agree with Joe. Everything I've ever read in an economic textbook says both the fiscal and monetary authorities have a role in bringing down inflation. I think Powell should have gone after Congress and the administration on spending. And you actually think that they would do something? They would listen to the Fed chair at this point? Well, I mean, look, you want to go to Powell and say, do the best you can, bring down inflation, that's your mandate. And you're counteracting what they're trying to do.

I mean, you could you could reduce the inflationary impulse in the economy if you reduce your fiscal spending. Powell's going to be America's biggest punching bag, too, as you approach the next election cycle, which isn't that far away. That's part of what you saw today with some of the questioning, Steve, from, you know, the likes of Elizabeth Warren, for example. Well, let's be clear, Scott. That was kind of the moment, you know, you're waiting for. Yeah, let's be clear. One of the reasons we have the Fed is so that it can be a political punching ball. That's one of the explicit purposes that it serves, is the idea that

it's there to be blamed by Congress, whether it deserves it or not. In this case, perhaps it does, in that it was late to the game in raising rates. But the fiscal side has done its share. You know, people don't have all this spending money because it appeared from thin air. It appeared because the government gave it to them. We can argue as to whether or not it was warranted at the time, but certainly there's a argument for fiscal rectitude at this point in time to help the Fed with inflation. Yeah, I mean, once you open the spigot to the degree that they open the spigot and all the water rushes out, you don't put it back in. And it takes a while to clean that up, even if you turn it off. It has its residual effects. Mike Santoli, looking at a

note from Jonathan Krinsky today, talking about the psychological 4,000 level on the S&P. One of the biggest stories in the market in the last 10 days clearly was the bounce back above the 200-day moving average. It's what got you feeling better to begin with. You know, and here we are teetering on this 4,000 level. How important do you think that is? It is important, I think, mostly because it has the look of a failed breakout if you do go below that decisively. I don't think it's really a make or break, despite the hour we're speaking in. I think it's much below there. You know, 39-ish matters a little bit more. That was the level, like, going into last week when we were backing off.

That's where people said, we really want to see that zone hold. So it probably is the same, but it doesn't help. By the way, what we did today is we sort of added a potential quarter point at some point along the way in the next several months to what the Fed's going to do. So if that's the straw that's going to break the camel's back, we'll have to see. I just want to remind everybody, we did four and three quarter percent, you know, in like nine months last year. So you have to keep it in perspective. And that's why the market, I think, has been able or at least trying to to say maybe we can absorb this

if it's for the reasons that the economy has not quite buckled yet. You know, Leisman, I'm looking at some comments that Ken Griffin of Citadel has made in an interview in the last few moments in which he says the variance of the Fed's message has been, quote, counterproductive and, quote, we have the setup for recession unfolding. Take the first one first for me. Has it been counterproductive? Have they been reacting to data? Have they been inconsistent? And is that part of the problem? Well, they're certainly changing regimes back to the old regime. And I'll tell you the tale of the tape here. They were in this attempt to catch up and then try to front load. That's what the 75s were about. And then they went to a reactive regime of 25s as the data came in the idea that now they're

switching again I think that came from the idea of what I talked about the top of the show here Scott the idea that not only was January data and February data stronger than expected but it was the revisions to the December data and even the November data that really wiped out some of the progress they thought they had made on inflation. So all of that, the facts changed, Scott, and it made the feds move to a reactive regime premature. So that's why they're considering going back to it to try again to get in front of what they see to be a persistent problem. I think the issue here, Scott, is that the facts change, and so they're going to go back to the old regime that was more suited to the data as it came in, that stronger data. Lauren, I'm going to give you the last word as we've got a little more than 30 minutes here.

Before we close it out, what's been a tumultuous day, certainly for stocks, given what the Fed chair said. Leave us with a thought, something you'll be watching over this final stretch and in the days ahead. I'm going to be looking the most closely at rates volatility. We're, of course, going to get, as Steve pointed out, a very important wage number on Friday, inflation next week. But what is going to matter most for across asset classes is not just what the market thinks, but how much it's changing around. I expect we're in for a wild ride. All right, guys, thank you. And I mean, thanks to everybody, too, for being here. Lauren and Joe, Steve and Mike, we'll talk to you soon. Let's get to our Twitter question of the day. Will the Fed hike by 50 basis points at one of

the next two meetings? Head to at CNBC closing bell on Twitter. Please vote yes or no. We share those results later on in the hour. We do have a news alert on JetBlue, though, right now. Phil LeBeau, those details, Phil. Scott, I just got off the phone with Robin Hayes, CEO of JetBlue. He says JetBlue and Spirit are undeterred despite the DOJ filing a lawsuit today to block their proposed merger. During our conversation, he said that they are disappointed, but that he always felt that the most likely outcome was litigation, which is where they are. So what changes in their strategy at all, Scott? He says they will be emphasizing a greater emphasis, he says, on what

he believes is underappreciated by the DOJ or not appreciated at all. The fact that they can bring down airfares, a combined JetBlue and Spirit. Scott, we will probably see this play out in court later this year, probably in the fall. Scott, back to you. All right. Good stuff. Phil LeBeau, thank you very much for that. Let's get a check on some top stocks to watch as we head into this close. Christina Partsenevelos is here with that. Christina. Well, Scott, Phil just mentioned the JetBlue and Spirit moves, but a number of other airlines are also moving. Evercore upgraded Delta to outperform after lagging peers. They say recent pilot contracts should help lower cost uncertainty. That's why

you're seeing Delta shares actually higher, 2% higher. United, 3.5. American Airlines, 1.6% higher. Those are up in sympathy. Let's talk about chip names, semiconductors. They're trading on the NASDAQ, and all of them are in the red with the exception of AMD, which is up eight tenths of a percent right now. A new report from analysts from IDC is even more pessimistic about personal computer sales. They lowered their 2023 shipment forecast by 26 million. This revision pretty much shows that end market conditions have only deteriorated further in early 2023 when everybody was talking about maybe an improvement for chips. So that's a negative outlook and why you're seeing a lot of names with exposure like Micron,

Marvell, and the list continues down today. All right, Christina, thank you. We'll talk to you in just a little bit. Christina Parts in Novelos. Shares of Meta, meantime, well off the highs of the day after earlier climbing. On reports that more layoffs are on the way, the job cuts will reportedly affect thousands of employees, adding to the 13 percent cut Meta made back in November as part of that major cost cutting plan. Joining me now to discuss Low Tony of Plexo Capital. Welcome back. It's good to see you. Thanks for having me. Zuckerberg wasn't kidding, I guess, when he said this was going to be the year of efficiency. What do you make of this latest report? Well, it is clear that he is serious about it.

And, you know, I think, look, there always is a somewhat of a settling in period after there are significant layoffs. And I think now new information has surfaced. And I think in particular, we see this move towards flattening, right? I mean, I think that's always been a hallmark of the most successful tech companies from inception, even to growth beyond the IPO. And look, a lot of these companies got a little bit ahead of themselves in terms of the hiring from the pandemic tailwinds. When that level of activity was not sustained, we now see, along with the macro changes, a need to reduce the workforce. And I think in the case of Meta, you know, look, getting back to that fundamental Silicon Valley philosophy of, you know, keeping things fairly flat. You know, I'm glad you got a little historical on me

because I spoke with Brad Gerstner earlier today. He, of course, famous for that letter, that public letter that he released urging Facebook meta Mark Zuckerberg to become more fit. He gave me a comment that I wanted to read to all of you, and especially I want your reaction to it, Lo. He says, quote, Meta's decision to get fit is not just a cost story.

This is a refounding moment for Zuckerberg, akin to jobs coming back to Apple and realizing the complex management blob had undermined talent, velocity, and invention. Just as Apple's cuts, simplification preceded the iPod and iPhone, Meta is on a mission to get simpler and faster because it will unlock the mojo needed to win in the age of AI. He's talking about a more minimalist organization, if you will, going forward. What's your reaction to what Brad Gerstner told me? Yeah, look, I think this is consistent again with that philosophy within Silicon Valley of maintaining a fairly flat organization.

When I had my experience working in big tech, one of the things that was most exciting was that the nexus of power is typically going to be within the product or engineering organizations. And when you look at the leadership of most of these companies, they're led by product or technology folks, and they want that connectivity with the lower level because often some of the best ideas will emerge from the lower areas of the ranks within the organization. And as an organization increases the level of layers and hierarchy, those interactions get lost and a lot of the most important areas to be able to really understand where to drive innovation and growth is coming from those frontline developers and product

managers within the organization so by flattening the organization that's how we often see some of the most innovative things happen can can you see how this would be viewed by some as Zuckerberg's, you know, quote unquote, Jobsian moment and the ability that he now has to really transform his company into, you know, again, as we said, not just about cutting costs, but about growing profits. Right. And, you know, I think what's really interesting is that the dynamics obviously are a lot different, right, because Zuckerberg never exited and returned. But I think this return to the roots is really important. Zuck is making an enormous bet on the metaverse. I mean, they are spending upwards of a billion dollars per month. If it is going to

be realized and the potential is going to translate into profits, there is going to need to be a lot of innovation that's going to happen up and down the organization. And I think Zuck recognizes that he needs to have that level of connectivity. So in that sense, yes, I do see this as his Jobsian moment. Interesting. What are your thoughts, too? Now I read Salesforce is getting into the AI game. Obviously, everybody under the sun is. How much substance is it relative to hype? There's always going to be a level of hype whenever we see a paradigm shift. So we need to make sure that we maintain some level of focus. In the case of Salesforce, I do believe that this represents where the near-term

opportunities exist in incorporating AI. Look, there are white-collar opportunities that I think make the most sense for AI. And in particular, when we think about the more rote activities that white collar professionals perform, the mundane tasks that really need to be done, but they're not really the things that drive the value. So when we look at Salesforce, they're talking about doing things like generating draft emails,

being able to get customer information, being able to pull in and summarize conversation threads that have been had with customer service agents. Those are all things that need to be done, but those can be automated through AI so that the white collar professional can go on to focus their time on the higher value add task. So, yes, I think to a degree this could have been done behind the scenes without much fanfare. But given the level of attention that and the fascination that everyone has with AI and chat GPT in particular, I think it makes sense. But again, your point is spot on. Separate hype. Yeah, I mean, it's obviously not going to be a winner take all thing. Is it going to be a few taketake-most or just everybody takes a little? And, you know, this is some of the things that we have been looking at.

You know, at Plexo Capital, we focus on early-stage companies, and we historically look at AI, which has been around, you know, for over a decade now. The early winners were the incumbents, right? There really were not a lot of breakout success opportunities for startups. I think this time it'll be a little different. Obviously, I think the massive gains will accrue to the incumbents. Why? Because they already have the customer base, they have the distribution, they have the existing technologies that are already being used, and then layering in AI makes business sense. But I also think there will be some more vertical or specialized opportunities as well, where we could see some breakouts from startups to be able to

gain share and to create massive value in the public market. Lo, we'll talk to you soon. I so much appreciate your time today. That's Lowell Tony, Plexo Capital, joining us once again, closing bell. You bet. Higher, faster, longer. That was the message on rate hikes from Fed Chair Jerome Powell today

during his semi-annual address to Congress. Those words, obviously, having an impact on the market. Stocks lower, rates higher. A trend our next guest believes is only getting started. Let's bring in CNBC contributor. Greg branch of Veritas financials good to see again. Getting started for both these guys stocks going down

rates going up what do you mean. Of course and as your previous panel said Scott. None of this should have been a surprise. What we've chosen to do and by us I mean the vast majority of us and why there's a disconnect between the market. And what the Fed intends to do. Is Joe hit this right on majority of us and why there's a disconnect between the market

and what the fed intends to do is joe hit this right on the head we can't separate what we want from what the data actually tells us and so when we saw that 500 000 jobs number for january and we saw that pce come in hot this should have been largely predictable why the fed futures continue to discount this i do not know but what i do know is we can continue to look at this from a very myopic perspective and have a negative surprise every two months. Or we can take a longer term view of this. As you know, I have, Scott, and I've been at a six, six and a half percent terminal rate for the last three months. And if what we want to do is every two months raise it by 25 basis points until we all get there, then I guess that's what we'll do.

But it will be a painful ride. You really think we're going to get that high? I mean, I know it's nice to throw out a hyperbolic number like six or six and a half. But, I mean, that honestly sounds a little bit extreme, doesn't it? Does it sound extreme? At the end of the day, we've seen we see Fed funds rates in the double digits. I mean, is it extreme compared to free money? Of course. Does it sound extreme? At the end of the day, we've seen we see Fed funds rates in the double digits. I mean, is it extreme compared to free money? Of course.

And this is part of our problem, Scott, is that we're all we're thinking about this from a prisoner of the moment complex. Is four and a half percent unemployment really disastrous? I know the politicians will will take that red meat to their base. But at the end of the day, the average for the U.S. from 1948 to 2023 is north of 5 percent. And so we've got to stop focusing on six and a half or seven or whatever it's going to be being this disastrous number when when in reality, it's just not. I mean, easy for us to say when when when when millions of people are potentially losing their jobs as a result, easy, Easy for us to sit back and suggest that it's not that big of an issue. Edgar Denny is joining us from the conversation now. Yeah, go ahead. Do you know what the bigger issue is? The bigger issue is, is that we're going into a period

in a few short months where we'll have had single digit inflation year on top of year on top of year starting mid 2021. So something that cost a dollar in 2021 is now going to cost a dollar twenty five. And while that doesn't hurt at the upper socioeconomic spectrum, at the bottom, that is life changing. And we have heard that from the retailers this week as they told us that their shoppers are moving away from discretionary big ticket items. So I think that that's a little bit more important that an average family of four is feeling that type of crunch. I mean, there's no doubt. There's no doubt that's why the Fed chair himself

is so passionate about the scourge of inflation and having to deal with it. I hear you on that. Ed Yardeni, president of Yardeni Research, joins the conversation. Ed, I think the takeaway from today, in large part from those who've been on our panel thus far, is the soft landing and bullish narrative are dead. How do you respond? That's interesting because at the beginning of the year, as you know, the soft landing story was also supposed to be

dead because we were going to have a hard landing. Now, because of the strong January data that came out in February, everybody's talking about an inflationary no landing, which is just a long way to get to a hard landing. Everybody's concerned now that the Fed's going to have to raise interest rates a lot higher. And ultimately, that creates a hard landing. So the bears have sort of flipped around from an immediate hard landing to a no landing followed by a hard landing. I hope I'm not doing too many landings here.

But look, my bottom line on all this is the economy is doing pretty well. I think that the Fed still has the notion of getting up to a restrictive level and just leaving it there while it does its job. I mean, they understand that you can't just keep going raising rates every single meeting and not appreciate that there are long lags in the impact of monetary policy on the economy. Meanwhile, it may very well be that we're all getting a little too excited about warm weather in January, because even Powell indicated that he thought some of the strength of the economic indicators and possibly even the inflation indicators might have been related to warm weather.

Yeah. But you got you got another problem, though. It's like, OK, let's say for argument's sake, I give you that. I give you that. It was a blip. Right. The economy is still strong. The problem is, as Powell also said today, Ed, is that services inflation is way too sticky. And the goods disinflation is too slow. And we've learned that today from used car prices as well, which have turned around. So you've got a problem in that regard, because that only emboldens them to say higher and faster and for longer. Yeah, I think all those points you're making are relevant today. It's what the market's reacting to. But in my humble opinion here, I think that what we're seeing is that inflation is coming down, and it's come down most rapidly in goods. You know, it was just February 1st that Powell mentioned the word disinflation 11 times in his press conference following the last FOMC meeting.

Now the word disinflation appeared once, and it wasn't in a good light. He basically said exactly what you just said. We still have a problem in the core rate. I think he's obsessively concerned about that area of inflation. I think what we're going to find is that rent inflation comes down. He acknowledges that. And I think we will find that some of these core inflation rates are going to start coming down. He acknowledges that. And I think we will find that some of these core inflation rates are going to start coming down. I think companies, I think consumers are already resisting some of these price increases. I think companies are sensing that. And I think the companies are

starting to resist some of these wage increases and trying to figure out how do you make do in a world where there's a shortage of labor? I think that you've got to use technology and productivity. It's an optimistic outlook, but I think it's realistic. OK, Greg Branch, why isn't it realistic? Realistic to wait and have inflation fix itself? What's the question, Scott? Sorry. Well, I mean, you just heard I'm assuming you were listening to what Ed was saying, Greg. I mean, he obviously laid out the bull case of why he thinks that you may have no landing. Maybe at worst, you get a soft landing, that inflation is coming down faster than maybe the Fed chair is acknowledging publicly or that people like you want to believe. And it's not going to be nearly as dire as as you suggest.

How do you respond to that? Right. And so first, let me just differentiate. There is no want in what I believe. I only follow the data. And what we have is two years of data of single-digit inflation. And so, yes, has the easy, has the low-lying fruit been consumed? Of course. And I think what we're seeing now is that the services inflation component,

as you rightly said, Scott, that's proving to be a lot stickier we know that there's a high correlation between wage inflation and services inflation and i guess it's hopeful thinking to say that companies are resisting wage increases i'm not sure how that actually works but the supply and the demand is what drives wage increases and when you create 500 000 jobs and you already have two outstanding openings for every uh for every available worker a supply and demand will do what it does and so the data is not saying that we're going to see a degradation in wage inflation and if we're not going to see a degradation in wage inflation we know we're not going to see a degradation in services inflation that that is just a scientific fact ed i mean you don't think that the greatest risk is, I mean, forget the landings, right?

That the greatest risk is that if the Fed does what Powell suggests it's willing to do, that the economy is going into recession. There's not going to be any way to avoid it. How would you respond to that? Well, it's always been the risk. You know, I have been in the soft landing camp. I was in a soft landing camp at the beginning of the year when everybody was talking hard landing or a lot of people were talking hard landing. And then all of a sudden I'm dealing with the no landers. So that's fine.

I understand where they're coming from. But look, much will depend, I think, not just on the next batch of economic indicators, but on the next summary of economic projections that will come out following the march, the soon meeting that they're going to have. Because I think they're going to once again show that they're aiming to get inflation down to 2% by 2025. They're being realistic. I don't think they have this notion that they've got to keep raising until they get it down to 2% by the end of this year. They're shooting for 2025.

And I think they're going to do it. I think they can get the Fed funds rate somewhere between 5% and 6%, maybe 5.5%. Leave it there, and I think it'll do its job. Ed, you heard what Greg said. Six to six and a half is where he thinks the terminal rate's going. That's what makes markets right. I mean, I have a different opinion. Greg, I'll give you the last word, then I got to bounce. Sounds good. So, look, a world where we get to 2 percent in 2025 is certainly one that is palatable for some, but I don't think it's palatable for all.

Like I said, I think that the bottom socioeconomic groups are already struggling with the call it 25 percent price increases that they're having to deal with from 2021. And so I do think that the Fed intends to get lower, not necessarily to 2 percent. I feel like as that data comes in that shows them that they need to do more, they will. I think that that's what Jerome articulated today, because the market simply is a discount. Expect more this week. I appreciate it, as always, Ed, of course, you as well. And I know we'll talk to both of you soon, which is a good thing for all of us. All right. We've got about 15 minutes to go until the closing bell. There is your market picture. Dow Jones Industrial Average off the lows. It's still down 527. S&P is trying to work its way back towards 4,000, 39.92. And the Nasdaq is down a little more than

1%. That's a loss of 131. Christina Partsenevelos joins us once again for a look at the key stocks to watch. Christina. Well, despite the market sell-off, let's talk about a positive name. Dick's Sporting Goods, still over 10% higher after reporting a quarterly earnings per share and same-store sales beat. The retailer also more than doubled its quarterly dividend, and that's why shares are higher. Though Rivian shares going in the opposite direction, sinking about 12% after announcing plans to raise $1.3 billion in green convertible notes, and that, they say, is to help fund upcoming vehicles.

But recent earnings reports from Rivian and fellow EV maker Lucid revealed concerns around demand for electric vehicles. Both names right now are some of the worst performers on the Nasdaq 100, and Rivian in particular, which is now down 14%, is at its lowest level since going public in 2021. And lastly, Affirm is deep in the red on expectations for further Fed rate hikes. A recent report from the Consumer Financial Protection Bureau found buy now, pay later users have less money and lower credit scores than the overall

population. So that could be stoking some concerns about users' ability to pay contributing to the sell-off we're seeing right now. Scott. All right, Christina, thank you so much. Christina Partinevalos. Let's get the results now of our Twitter question. We asked, will the Fed hike by 50 basis points at one of the next two meetings? The majority of you saying yes. A big majority, too. 70% of you think 50 basis points are coming at one of the next two meetings. We're now in the closing bell market zone. CNBC Senior Markets Commentator, Mike Santoli, back with us. Mark Newton from Fundstrat on the technicals

and Annandale Capitals. George C. is on the tech trade. Joe Terranova still sitting with us as well. All right, Mike, you get the first word. I'm still looking at a two-year at 501, right about 5%. You know, stock markets, S&P is trying to work its way back a little bit towards 4000. Yeah. And, you know, I mean, the market effectively agrees with the results of that Twitter poll.

Right. We've basically lifted the likely cumulative hikes from here by about a quarter point, a quarter percent. There's a sense out there that things have been piping hot and the labor market absolutely has been. And spending is held up and you see Dick's Sporting Goods up 10 percent and Ulta Beauty is up today. And, you know, tractor supply was up earlier. So you see all these consumer plays suggesting the economy has a good head of steam up. And it's a matter of how much rates are going to do to all that. My take is still that the stock market has done a lot to absorb this outlook. The inflation numbers have been coming in a little stickier than we'd like, but it's nothing like what we saw last year when they were coming in way high of the forecast. So I still don't think the aggregate story has changed that much,

but it raises the stakes for every day to release, obviously, jobs and CPI coming up. That's what I'm thinking about now is is leaning into Friday and the jobs report and how much more pressure, if you want to put it that way, is is now on the bulls. Yeah, a tremendous amount. And again, it's also about, you know, you have to actually see the inflation come down. So it's not just like, oh, it's a softer than expected jobs number. Maybe that offsets some of the the sticker shock from the half a million jobs that were added in January. But if it doesn't come with some suggestion that you're seeing prices moderate, wage growth moderate, then, yeah, it absolutely raises the stakes here.

I still think, though, it's basically the equation we've had all year. And, you know, as Joe was mentioning a little while ago, defensive sectors have not provided defense today because they're directly kind of rate victims and they're just not the place to be in a kind of high-pressure economy that we're in. All right, let's bring in Mark Newton now, Fundstrat star technician. He joins us with the quote that he told our producers

and I want you to expand on this. I don't see today's sell-off as all that concerning. Okay, why? Well, Scott, look, the S&P has risen 150 points from low to high just in the last three sessions ahead of today. So, yes, we're giving back about 50 percent of that. But in general, this has been a very strong rally, not only from last October's lows, but from, you know, late December and most of January. You know, we look at leading sectors like semiconductors, transports, homebuilders. They're all up between 12 and 18 percent for the year. We've just had industrials breaking out in relative terms to the S&P.

Now we're seeing a little bit of a slowing down in the move up in yields, which is important. So everybody now is, you know, uber hawkish on Powell saying he's a hawkish he's ever been. Rates are not going higher. You look at the 10-year and the 30-year, they're actually down about 10 basis points from recent highs. So, you know, my work shows that rates are close to peaking out along with the dollar, and they should both start to turn down pretty sharply over the next couple months. The two-year at 5% doesn't mean anything significant to you? Yeah, certainly. I'm not an economist. I know there are a lot of armchair economists out there now.

My feeling is that it's best to concentrate on price action. And the movement in the 10-year and the 30-year are really going to be key from how I look at the market. But let's also look at seasonality for March. Pre-election years, they do tend to be down, if not flat, for the first half of March. They bottom right near the 10th trading day of the month, which is actually next week. So I think any further drawdown is actually not going to last more than three to four days, and we're going to bottom out and turn higher. So that could coincide with next week's economic reports. I expect to see inflation start to roll off. I think that in general, stocks are still in excellent shape.

Momentum is good. We have nearly 60% of all stocks above their 200-day moving average. I mean, that's impressive. This isn't something that we run to the hills because of one down day. S&P was up and went from 39.25 to, what, 40.80 in three days, and we didn't really talk about that. But we're down one day and everybody thinks they have the Fed figured out. So, you know, I think we have to be patient a little bit. Well, I mean, I think I think, excuse me, the market's just reacting to what the chair

himself said. Right. This idea of higher, faster and for longer, it seemed like Fed funds had been moving in that direction and the bond market had been moving in that direction since the last jobs report. It's the very stock market you speak of as showing so much resiliency that some suggest was delusional or not paying attention. Well, trends are still very much intact. So if anybody's delusional, it's those that are calling this real bearish and that we have to have this big sell-off. I mean, you know, if anything, the trends back what I'm saying with regards to breadth. Sentiment, look at AAII, reached the highest bearish levels this year so far, 44% bears. People are certainly paying attention and they're concerned for a lot of the right reasons. That doesn't necessarily mean the economy has to go into a recession right away with such a strong labor market.

I mean, my own real estate cycle, you look at the 18 and a half year cycle for real estate, it shows a bottom near 2028, 2029. Not that we have to go down right away. If rates start to really start to sell off and pull back pretty dramatically, you know, I think we're going to weather this, honestly. And I'm the economist myself, but I'm very much in the no landing camp for this year. I think we push it off a couple of years. You know, the market resilience has never been a time when, you know, the first five days in January is up one and a half percent. Following a down year, the average return is about 22 percent. And so, look, in general, momentum and breadth support the idea, sort of seasonality, that March and April should be actually quite bullish.

So I'm a buyer on pullbacks. I don't think we get under last year's or last week's lows, which is 39-28. So that's really my line in the sand. Mike Santoli, I'm going to paraphrase Mark Newton, and I know he'll forgive me for doing so. This is much ado about nothing today. Well, yeah, I wouldn't say nothing, but it's definitely just within the realm of kind of the normal sloshing around. And by the way, when you talk about how resilient the stock market was in February as yields repriced higher and people claiming that stocks were ignoring reality, well, the S&P did go down 5 or 6 percent.

The most aggressive parts of the market corrected more. You did have a lot of that kind of overheated speculative stuff way come off the boil during February. So it wasn't as if it just stood still. There was things happening and there was an acknowledgement of what was going on on the yield side. It just didn't unwind all of it. You know, when Marco Kalanovic of J.P. Morgan said, I don't understand it. The two year note went up so much that the Nasdaq should be down 5% to 10% on this. Well, it went down 7%, peaked a trough in February as the yields went up. So I don't think there's necessarily as much dissonance as might be suggested in terms of how the markets held together.

All right. Mark Newton, thank you. We'll see you soon. Mike, thank you. We'll see you at 6 p.m. We're going to have a CNBC special tonight, Taking Stock. So you want to tune into that. There you go right there.

George C. has made his way, Annandale Capital. He's sitting here at Post. Nice to see you in person. Thanks, Scott. What do you make of what we're witnessing? Is this we're making too much of one day? Your area of the market's been tech. You came over here with a smile on today because your sector has been doing well this year so far.

It has been. And thanks for nothing, Chairman Powell. Appreciate the financial kick in the teeth today. It's not fun. It's a bit painful, but we'll see where we go from here. But I would love to see the Fed just get it over with and raise 75 basis points and shut it down and say we're done. But they're not going to do that. Your stocks will be shut down if they did that. For a short time.

I think the market would rally eventually quite considerably once they know the Fed's done. That's what we need. We need an all-clear air raid siren coming from the Fed. We're not going to get any time soon. We're going to get this slow drip of attrition. If you voted in our Twitter poll on the show today and we said, is there going to be a 50 basis point hike sometime in the next couple of meetings, you would have voted yes, part of the 71 percent? Yep, 50 percent. And you think that the stock market would take a hit only momentarily in that? Well, I think it depends on how the Fed does this. And I think they're dripping it out. And the Fed causes a temper tantrum in the markets because of it. And we're getting one today and we'll probably get some more before they're done. What about the areas of the market that you're specifically invested in?

You know, you've got a lot of mega cap growth. I do, yeah. I'm sure you've been somewhat surprised as much as anybody else in the way that those stocks have reacted to start this year. Well, a lot of short covering, Scott, as you know. And we were layering in all the end of last year to have a barbell with some of our commodity plays too because we've got quite a few commodity stocks.

So we kind of got a barbell in the stock market approach. Well, I mean, you've got a Texas flag on your tie. So obviously, I'm sure energy's part of your book, too, George. We're super subtle in Texas. I'm not even enough to think that it's not. We're very subtle people. I'm kidding. You got like 300 Texas flags on your tie. Seriously, though, do you think that it sounds like you're not a believer in your own stocks, at least to start this year, because maybe caught off guard by many have by the move we've seen. I'm a secular bull on energy long term, but I think we're going to have a real

bump in the road this year as the Fed keeps tightening and as the economy slows down. But you look out three to five years, energy is going to clean up. So I am a true believer long term. And I was talking about tech. I'm sure you're a believer in energy. Joe, you're a believer in energy, too. That's where you're positioned. Who's not a secular bull on energy? You've got to be. Okay, you've got to be, but tell that to the energy stocks. I wish they would listen to your message so far year to date.

I'm listening to George speak. I'm thinking about CrowdStrike, which is going to report here after the close. We didn't even touch on that. Let me touch on that for you. It's got an implied volatility somewhere around 9.7%. That's a move around $12 to $13. I'm hoping that CrowdStrike gives me something good. I could transition out of my QQQ position, and I could buy some CrowdStrike.

Right now, the opportunities that I'm looking for in the market reside in George's world. It's in the Twilio's. It's in the CrowdStrike. It's trying to rebuild a little bit of positioning in the growth areas of the market. I thought it was really interesting, George, you know, Joe was not positioned to start the year thinking that growth was going to do well, right? So he buys Twilio in the last few days and he goes long the queues, not suggesting that he thinks he's going to stay there, you know, for a long period of time. But you're also

looking to add to areas that you do have. Alphabet, Amazon. But you think now it's too early? I do. I've got about half the position I want. We're going to layer in as things go lower. And we think they are going to go lower, especially with Chairman Powell rattling the saber just about every month. And so you think rates are going to go demonstrably higher from here? And then that's gonna weigh on on Technology stocks even further. I would love to see them stop about 75 basis points up I think that's the right amount the other just sit and watch for a while But I'm worried they're gonna go higher than that. I think it's a real concern. What about a recession?

Do you think we're gonna have one or not? I'm betting on soft landing right now I'm not betting on no landing or hard landing. I'm betting on soft landing See how do you bet on soft landing if you think that not only, you know, they're going to go far further than people think, but you want them to go 75 right now. You really think the economy can withstand that? I do. I think the economy is too strong and I'd like to do 75 now and get it over with. I think that'll result in a soft landing, but I could be wrong.

We'll see. By what virtue do you think that the economy is strong enough to handle all of that? And for that matter, the stock market? Well, you look at the labor numbers, the unemployment numbers, and how much full employment we've still got, and you look at how resilient all the various indicators have been for the whole last year. Everybody's been calling a recession for about a year and a half now, and it just hadn't happened. So we'll find out here pretty soon. It feels like it's just been maybe the runway has been prolonged a bit. I mean, you do have Brian Moynihan, CEO of Bank of America, suggesting that we'll get a technical recession, Joe, in the third quarter. I mean, that's what we really need to think longer and harder about is just the fact that

things have been pushed off. They haven't necessarily been pushed away. Second half of the year, I guess. Consensus is wrong on everything this year. And what's the impact going to be for earnings? And I've said to you in the last several weeks, I believe earnings really going to dictate where the market's going to go. We don't get the answer on earnings until April, but earnings are really going to be critical to see if we can grow the bounce that we've had since October to something a little bit more.

Until then, the jury's still out, and you have to be suspicious of it. All right, so we just had the two-minute warning. You heard the sound effect. I'm watching the clock count down. We're at $39.93-ish on the S&P 500, so got a little bit of work to do if we think we can get back to closing above 4000 after the kind of day we've had. Dow Jones Industrial Average is off the lows, too, but still down by some 570. And Joe, this all sets up. This was just day one of the most important 12 trading day stretch, arguably of the year. Well, I had to get Powell out of the way. Then you're going to

have the jobs report. You're going to have CPI. You're going to have PPI. You're going to have retail sales. And then you're going to have that Fed decision on March 22nd. But technically, from the perspective of momentum and technically and the non-discretionary funds, tomorrow morning is going to be very critical. Tomorrow morning, if the market makes a run towards unchanged on the month, if the market makes a run towards the lows from last Thursday, we're going to be able to see, is there enough support there to hold it in bounce? If you break through, you're right back into the February downtrend. You know what? And I thought it was pretty stark, too, to hear Mark Newton suggest, look,

the trend is still your friend. It doesn't feel like we're in a positive trend market, but he suggests we are. Don't make too much of a one-day move here. And he pointed, and I know all of you all heard him, all of the reasons why you should take today with a grain of salt. And you have a very strong trend in the area of the market that's leading so far in 2023, the NASDAQ. All right, there we go. Now it's going to close down near 600 points.