Closing Bell - Closing Bell: Stocks Sell Off on Hotter-Than-Expected Inflation Report 2/13/24

Episode Date: February 13, 2024

Stock sunk in today’s session following some key inflation data. DoubleLine’s Jeffrey Gundlach reacts to that big move and breaks down what he’s forecasting for the months ahead. Plus, Sofi’s Liz Young and New York Life Investments’ Lauren Goodwin explain how they’re navigating the uncertainty. And, we dig into the big moves in financials, utilities and energy amid the broad sell off.

Hi, welcome to Closing Bell. I'm Scott Wapner, live from CNBC Global Headquarters. Today, this Make or Break Hour begins with the bull case for stocks. How big of a blow has it suffered today with that hotter than expected inflation report? We'll ask our experts over this final stretch, including DoubleLine's Jeffrey Gundlach. He joins us for a Closing Bell exclusive interview in just a moment. It's a big deal. Can't wait to talk to him today. We'll also get reaction from one of this country's top ranked financial advisors high towers rich saperstein in the meantime your scorecard with 60 minutes to go and regulation looks like that it's been ugly and it's

been ugly all day long after the release of that cpi report the dow is down more than 700 points 721. we'll see what it does over the final stretch. The Russell 2000, absolutely hammered today. Small caps are super sensitive to major moves in interest rates. They are paying a price today because yields are jumping to the highest levels since December. NASDAQ, as you might imagine, not much better. Most mega cap stocks are lower today. I want you to take a look at an intraday chart of NVIDIA as well. Okay, it's red now. It doesn't tell the whole story because it was red.

Then it was green. Now it's turned negative by less than one percent. Interesting day for the poster stock of this momentum market. It all leads to our talk of the tape. What does today's CPI surprise mean for the rally going forward? Let's ask Liz Young, SoFi's head of investment strategy, joining us today live from the New York Stock Exchange. Liz, nice to see you. Nice to see you, too. How much of a blow have the bulls suffered today? I mean, it's a tough day, and we have to pay attention to that, right?

One of the things that we always talk about is you can't fight the tape. The tape is always telling the truth about what sentiment is, but we're coming off such a strong rally and such strong sentiment that it's still yet to be seen whether or not dip buyers will come in here. I mean, 700 points on the Dow is certainly a big drawdown. I think the message that it's sending is that if you were investing in buying stocks based on rate cuts coming soon and coming in a big way, you have to rethink that thesis as we continue to push rate cuts out further and further. Now, that doesn't necessarily mean that the market has to have a 20 percent drawdown. Right. I mean, the longer we wait between hikes and the first cut, the market

actually tends to do OK. But certainly today, we need to reprice some of the expectation that the Fed was going to come in and support valuations at this level very soon. Well, the fear is the great risk that was out there that they're not going to be able and support valuations at this level very soon. Well, the fear is the great risk that was out there that they're not going to be able to cut anytime soon. And in a worst case scenario, they may actually have to hike again. Now, that's not on the table today, but it makes the PPI later this week even more important. It makes the PCE in a couple of weeks mission critical. Right. Well, and I would actually argue it is on the table today. It's not necessarily priced into the expectations for rate moves, but the idea and the

moves that we've seen in yields today. So the two in the tenure, these 15 basis point moves. Now, we've seen bigger intraday moves before, but these moves are telling me that the market is actually putting back on the table the risk of overheating and the risk that the Fed not only can't exit the hiking scenario, but might have to stay more hawkish as the year goes on. One of the things that I think is really important for people to look at and track as we go forward is what the Fed calls the super core, the CPI super core. That's been stuck at about 4% for the last seven months. Pre-pandemic, that was about 2% or 3%. So 4% is uncomfortably high.

A big portion of that is transportation services, which is up 9.5%. Now, we thought that we knew what all the big problems were in inflation. It was used cars for a while. It was housing for a while. Now we take that out, and it's, again, this whack-a-mole scenario where you've got transportation services which is actually driven a lot by motor vehicle insurance that is a new problem and keeping the services component sticky. Services is always more sticky than goods so we are certainly not out of the woods here. But there are some who make the argument that a strong economy at this point in the cycle

is more important than rate cuts anyway. That that's what you should hang your hat on. I mean, that's what Professor Jeremy Siegel of the Wharton School told me just the other day. I want you to listen to what he said as he remains bullish and not on not reliant on rate cuts. At this particular point, I don't see the need for the Fed to lower. I mean, take a look at all the real indicators. They haven't slowed down. Even the advance indicators have not slowed down. When they begin to slow down,

that and if inflation is under control, which I do think it is, we're going to have those lowering of rates. But I'm not saying that this bull market at all depends on the rates being lowered in March or really even in May. You agree or disagree with the professor? So I agree that a strong economy is obviously a bullish thing for stocks. The issue here is that a strong economy also keeps inflation higher and it prevents inflation and disinflation from broadening out into all the areas that we need to see disinflation. So what it's doing is it's lengthening and elongating this waiting period of when we're going to see the Fed

actually be able to come off of their hiking path. And I think that the Fed is going to have a lot more ability to wait than the market is. And a lot of this market move has been predicated on the idea that CPI has come down. I think a lot of people expected it to keep moving in a linear fashion, and that was proven incorrect today, or at least that now it's sort of plateaued at a level that's still uncomfortable. So I think the market is going to have to get to a place where it makes more sense to be trading at certain valuations in the face of a strong economy, yes, but also

in the face of inflation that stays higher than we want it to be. We were ripe for a pullback anyway, though, right? Absolutely. Let's be honest, right? Yeah. The way that stocks have gone up since November 1st, especially the mega caps. I mean, it's been kind of crazy. I mean, just year to date, for example. I know we mentioned NVIDIA every day, but for good reason, the stocks up almost 50 percent year to date. And even for much of today, in such great upset for the market, Nvidia stays green for much of the day. This market just needed something to give it the excuse to sell off. Yeah. And we were definitely ripe for something. Right. And that's why I say it's one day does not make a trend. So we were looking down the barrel of these huge gains, some triple-digit

gains in names that it just didn't make sense for them to have moved that fast. What I think the big question that we need to find out the answer to is, will dip buyers come in more broadly than just in NVIDIA? Will they come in and buy a dip in the indexes? And that's what's going to tell us whether or not some of this inflation data actually did shift sentiment. Will money come out of the equity market? I don't know that that's the case yet. And obviously, we need a lot more days to show us what investors are really feeling about it. I mean, I'm doing a double take. As I look at the Russell 2000, it's obviously been the benefactor of the narrative. And today, oh, my gosh, it's down some 4%. Speaking of the narrative, I want to hear from Jeffrey Gundlach, DoubleLine, of course,

who joins us exclusively now on Closing Bell from the ETF Exchange Conference in Miami with our very own Bob Pisani. And, Bob, what a day to have Jeffrey Gundlach with us today. Take it away. And, Scotty, it is a big day, of course. Jeff joins us here speaking, of course, at the ETF Exchange Conference. Jeff, you just addressed a thousand people in the audience. Your basic message today, interest rates have bottomed. I want to talk about CPI, but get to that message right now. Interest rates have bottomed. What's the implications for that for investors? Well, interest rates have very long cycles historically. For whatever reason, they tend

to move in a broad trend for about 40 years. And we all know that interest rates kind of rolled over at very high levels a little over 40 years ago. And now interest rates are up over the last couple of years. So it's almost exactly 40 years. And I just think that interest rates were absurdly low, particularly real interest rates. And now real interest rates are reasonable. But I think that we have a problem with the amount of money we need to borrow. And that will cause a strange movement that we're all used to thinking that the economy gets soft and interest rates are taken way down by the Fed and Long-term interest rates also go down by a couple hundred basis points at least

But I got a feeling that when the economy weakens enough so that the Fed really does cut in earnest I think we're going to be having a real big problem with people understanding how much debt expense we have. And they might start thinking that longer-term interest rates need to be at, well, they were 10 percent real yields in 1984. So it's not at all implausible that interest rates could go up into the high single digits. And it's part of this long-term trend. Now, one thing, I think that the economy is more vulnerable under a rising interest rate regime than it is under a falling interest rate

regime. Under a falling interest rate regime, companies that are in trouble and maybe marginal credits, even though they might have to pay more on a spread basis, they're paying lower interest rates so they can refinance and take money out and reduce their interest expense. That prevents defaults. That supports all of the risk assets. They're reliant upon financing of marginal companies. But when interest rates are rising, maybe they'll have to default. So maybe it adds volatility to the economic cycle.

And certainly that was the case when interest rates were rising in the 70s and 80s. There was tremendous economic volatility. So I think interest rate volatility and higher interest rates as a theme create more vulnerable markets. You know, Scott was mentioning it's a big day to have you on. January CPI was hotter than expected on almost every level. How does this play into the expectation for interest rate cuts? The market was expecting six. Where are you at?

And how does this data today change those expectations? You need, I think the market has had tremendously overpriced the amount of cuts this year. It was down to almost a certainty of six. And it seemed that the Fed, since they weren't going to move in March, per the words of the chairman, that that means they're getting started in May. And then there's this thing called the election that I don't know, they probably aren't primarily focused on that. But to have six rate cuts between May and the end of the year

always seemed like a lot to me, absent some very substantial improvement in inflationary data, which did not happen today. Does the Fed care about elections? Jay Powell, if he was sitting here, would say, we don't make decisions based upon elections. Is that real? Or is the Fed actually influenced by elections? I think they don't want to be blamed for anything. So weirdly, it doesn't matter if they intend to be political, even if on a secondary variable, which is where I would place it, they just care about the optics of things. And they would prefer all things being equal to be a little bit less aggressive, I think, in an economy like this. Now, the CPI today, it's funny how the inflation discussion has changed over the past year and a half or so. We went from it was going to be this super core PCE was going to be the inflation metric. And that was rolled out of Jackson Hole, I think it was, in 2022.

And they don't talk about that at all anymore. But instead, back in November, when it seemed like they had a radical change in tone on November 1st, it seemed like all of a sudden we were talking about picking and choosing different inflation indicators and not focusing exclusively on year over year, but doing things like six-month annualized, three-month annualized. And today's report came back to bite them on this because the three-month annualized core CPI is going up now. It's 4%. It's 4%.

The 12-month number is 3.9. So it's no longer, well, we can look at the three-month annualized and take comfort because that's what really the trend is and maybe it'll stick because it's not sticking anymore. It's going up. So what really matters, though, is not the CPI, although it's important. It's the PCE. That comes out on the 29th. And we have PPI coming out, I think, on Friday, if I'm right. And that will give us a pretty good idea of what PCE is. PCE cannot go up and have the Fed talking about cutting interest rates.

And we've all been trying to figure out what's the leading indicator to look for here. And you had a fascinating discussion here at this conference about the two-year Treasury as the leading indicator. We tend to think the Fed leads the two-year and moves things around. And your position was that's actually not true. It's the two-year that leads the Fed around. So what is the two- year telling us right now? The two years sort of telling you that you're going to get about 100 basis points of cuts on average over that two year period. So it means that you're going to see that the Fed should cut interest rates if they're going to

do it this year should probably be about 50 basis points. Let me ask about the stock market. 20 times forward earnings on the S&P. Are you concerned about the valuations? There's a whole discussion here about the Magnificent Seven. The investment advisors are very worried about concentration risk. They're worried their clients are telling them, buy NVIDIA and it's too risky to have too much concentration. Are you worried about that concentration?

Does it bother you that it's such an important part of the S&P 500 now? It does. I think these concentrated technology, you know, this is going to be the future, it's going to take over the world type of talk has happened repeatedly. And the forward earnings thing kind of bothers me. They're looking for 11 or 12 percent earnings growth. Last year, they were looking for 11 percent. It came out at 1%. So with the Fed rate cuts being pared back in terms of expectations, thanks to the CPI data, and the earnings being suspect, what's predicted, in my opinion, I have a hard time. I have a hard time with basic, passive, market-weighted investment. I really prefer equal-weighted at this point.

In fact, we just launched an ETF that does equal-weighted. We didn't do that on a lark. We did it because we thought that that was a superior mousetrap for this moment in time. And you have six or seven ETFs you talked about here. I want to bring in Scott Wapner, my colleague. He's got a couple of questions. Scott. Hey, Jeffrey.

I appreciate you so very much being with us today, especially given what's happening in the markets. Do you think that the Fed's own calculus changes as a result of one CPI report? No, no, I don't. It's disappointing to them, I'm sure, because there was tremendous hope that this gentle decline was going to continue. but this one cannot. The shelter numbers look weird. The OER number looks weird. It's 6% year over year, and from all I can see, rents aren't growing at that level.

Home prices aren't growing at that level. And the indices like apartment rent and the Zillow indices, they lead the OER very, very convincingly by about a year to 18 months. And they've fallen tremendously, those indices. So this shelter number is really an outlier relative to kind of the trend and what we expect from these relationships. So certainly not one number with this odd type of shelter reading is going to make that big of a difference. But the PCE number is going to be super important. And I think then the next month numbers, people will be sort of on pins and needles. But the market has priced out pretty much a May rate hike at this point.

So now the idea that you're going to get, you know, more than two or three rate hikes as a base case is kind of hard to pencil out. They haven't fully priced it out, of course. I mean, the probabilities of May have come down. Do you think May is the starting gate? It doesn't look like it to me. It could be. I mean, there's enough data coming out between now and then. But it's probably going to be june if it happens at all but our

inflation model um is such that absent a spike in oil which has had every reason to spike right every excuse with ukraine and the red sea and all that and it hasn't but if so if it stays where it is then we think inflation on the cI will relax, and this will be something of a blip, particularly on the headline number, and it'll go down to about 2.5%. One thing that I'm using as a leading indicator, and I have been, are commodity prices. Broadly, the Bloomberg Commodity Price Index has been below its 200-day moving average for a long time now, and it can't seem to get above it and it just keeps falling. And that's that's further corroboration of relaxing inflation, but also of weak global growth and weak global demand

for these commodities. You know, there's another pretty big debate, I think, in the market. Liz Young alluded to it in the lead up to welcoming you onto the program. It's whether the economy can remain this strong and have inflation go down towards 2 percent at the same time, or if one causes too much demand that keeps inflation elevated. How would you address that? Because it appears as though the initial calculus of that by the Fed itself has changed in that you can still have a strong economy with solid growth and still have inflation come down because it was caused by things around the pandemic more so than excess demand. Well, you know, I suppose that's possible. I am skeptical of, you see, the last man standing in the economy is always the last man standing,

and it's the unemployment rate and some of the employment data. And I know that the last report was very strong. There are some weird seasonals, but that doesn't account for the strength. And I just think that there's other employment data that leads much more than the U3 employment rate, which is really a coincident indicator. And that's things like hours, the work week, which is collapsing. It's sort of like temporary jobs, which are shrinking. A lot of these leading indicators don't share that type of strength. And I talked about this last time I was on with you, Scott, 88% of states and the states report employment data as well. 88 percent of the states say unemployment is rising over the last six months. And those states that don't have rising unemployment include Wyoming.

There's about five or six of them. Wyoming, North Dakota. Okay, they might be adding jobs, but that's not a very big population base to carry the other 88%. And the states that have rising unemployment include California, Florida, Illinois, New York, New Jersey. I think you can see what I'm driving at here. It seems very weird mathematically, just arithmetically, that these two unemployment source sets could have such disparate readings and implications. So I don't know. I hear this type of talk now with soft landing that used to be... years ago we called it Goldilocks. In 1999 they called it Nirvana. And whenever I go

anywhere now people are asking about this Nirvana situation. And that puts my radar up because that becomes sort of a, you know, everyone sort of agrees on something that maybe they need to think through a little more carefully. You know, at this conference, Bob pointed out when we were on stage that there are, these types of conferences historically would always have sections on international investing, international equities, and weirdly this one doesn't have a single one. To my eye, that says something is happening in the zeitgeist that needs to be faded, that you need to think, maybe I don't just want to nod in the north-south direction just because everybody else is doing it. So that's kind of

where I am. I think this is a tell that international investing needs a closer look. And as you know, Scott, I've always recommended India and I'm more bullish than ever. They're the strongest economy in the world with the best demographics. So that's that that's a pretty good one to punch the you. I was surprised at your comment on your recommendation on allocation because the investment advisors here want to know what are you recommending right now. I was surprised how conservative you are. 40 percent bonds, 25 percent cash, 10 percent real assets. I guess the rest stocks. That's a that's a pretty conservative. I think. Yeah. If you ask me, you know, I'll give you slightly different answers on the hour of the day that you asked me these things because the markets move. But I could see having 30% in stocks, frankly. And I would have 10 in Japan, 10 in India, and 10 in an equal-weighted U.S.

10 in an equal-weight U.S., not a market cap. Not market cap. I don't want market cap. Literally 10% of the asset allocation is just in the U.S. on an equal weighting. That's it. Because U.S. is too overvalued. Why so? Well, I want normally I might say 35 percent U.S., but I got 25 of it in cash because I want to buy stuff cheaper. And I think you're going to get cheaper at some point along the line of 2024.

So I want to be ready for that. All right. Jeff Gundlach, always a pleasure chatting with you. We didn't even get into a long discussion on deficits. And Social Security has ideas on solving Social Security to Scott. We've got to get him back and get his ideas on how to solve that next big problem. Yeah, we will. Thanks very much. Always a pleasure. Thanks, Bob. Thanks, Judge. Talk to you. What is it? We have March coming up. Yeah, we certainly do. We have another meeting come up coming up, which means we have another conversation in the wings to Jeffrey. Thank you, Bob. Of course. Thanks to you as well. Bob Pizzani down at the ETF conference down in Miami. So far as Liz Young back with us,

also joining us now, Samir Samana from Wells Fargo Investment Institute. Samir, thanks for being here, too. I hope you had a chance to hear Jeffrey, like your reaction to what you heard. I can't hear him. Liz Young, you want to react to Jeffrey Gundlach? Well, yeah, sure. I'll start at the end with the 10 percent in U.S. equities. I think one of the things that we haven't quite covered yet, too, is the movement in the dollar. If you look at what happened in the dollar from October through the end of the year as we were pricing Fed cuts in, this huge weakening in the dollar, which is usually a tailwind for international,

particularly emerging markets. And there are some indications that maybe even places of China are bottoming. So I do think that it's worth a look. That's a difficult argument to make to investors today because they look at the charts and say, well, international hasn't outperformed the U.S. in 15 years. So why would I do it now? And there is no such thing as something being due to outperform. But if we do get cuts in 2024, and I think we will, I actually think we'll get some cuts that are more than 25 basis points the longer they wait. You will see that weakening in the dollar again, and it should act as a tailwind for international investing. So I thought that was interesting for him to bring up as well. What about the idea of what Jeffrey said about rate cuts? This doesn't necessarily change the narrative at all for the Fed.

He said it could be, in his words, just a blip based on some other factors. Is that how we should view this more broadly? I don't think it changes the narrative because the Fed has been pretty clear that they're going to wait until they're comfortable that inflation is moving on a sustainable path towards 2%. This is another indication that they're not comfortable with it yet. So I don't know that they even really need to change that tune. I do think that a March cut was going to be premature. Now it looks like a May cut would also be premature. So depending on how the rest of the data comes in, that's going to be important.

Jeffrey's right that PCE is their preferred metric. So that is the one to watch. And unfortunately, we have to wait a couple of weeks to find out what happens with it. But that is the one to watch. But I think that this is actually consistent with what Jerome Powell has said, that we're not confident yet. And this reading is going to show them that this is why they're not confident yet. Doesn't mean that it's wrong. Doesn't mean that it's broken. Doesn't mean that something is going terribly awry.

But they were right to say that they're not confident yet that the path is in place. Yeah. I mean, you're likely now to get some bleed through to the PCE as a result of what happened today. Our senior economics correspondent, Steve Leisman, is with us now. So you heard Jeffrey. Steve, I almost feel like, you know, OK, so if the train is still heading towards a destination for the Fed, maybe today and we'll see what happens later this month adds an extra stop, so to speak, before it gets to the destination that we're all looking for. Yeah, but the thing is that the market saw this thing as a train track and the Fed saw it more perhaps as a cross-country path in terms of ups and downs and downs and outs and around.

I don't, there's an interesting question that was asked to Jeff, which was, does this change the Fed's outlook outlook and I think the answer is no What I think it changes the markets outlook for the Fed and Jeff talked about one Explanation which you call the blip explanation or maybe that's the best case scenario The blip is that you had a lot of one-off thing in January You had that rent thing that's going to eventually come around and help us out. But there's another scenario, which is that you got at this, Scott, this notion that growth may be too strong to achieve that last mile of going from 3% to 2%. And that would require the Fed to remain higher for longer to wring that last one percentage point of inflation out of the

system, especially the services part of the system. Steve, you know so much better than me in terms of when the Fed gets access to certain pieces of information, certainly they gather data points all along the way. They're talking to people within the system, so to speak, all along. You think they're surprised by the read today? Was J-PAL, you think, shocked by what was delivered today? No, I think he put his feet up on the table, went like this and said, I told you so, right?

I mean, we went back, Scott, me and my producer, Betsy Spring, and look at the number of Fed officials who used the word bumpy last week in regards to the course of inflation. And I think it was like, I don't know, three or four, but that was just last week. Before that, almost every single Fed official has warned us of this. Scott, it's why as soon as the December euphoria took over, I personally tried to push back against it because of the idea that inflation is not going to move in this straight line. I do have a lot of economists that are saying, hey, don't give up the ghost on this.

The trend of inflation is still downward. But what you need to do today, Scott, is to build in some small probability that perhaps the soft landing may need to turn into a harder landing. It's not the odds-on bet, but I was in May, and now I've got to rethink. Maybe that May cut is not a sure thing. Maybe it's more of a June thing to think about. You used the word just now, euphoria, Steve. You could use that. Other people have used exuberance. To what degree do you think Chair Powell has been unnerved by what he's been

watching in the stock market things like nvidia going up almost every day arm holdings for example up 30 40 percent in a single day just the magnitude of the move that we've seen overall yeah so the other metaphor for what jay powell has i think tried to do it's interesting as to whether he was too dovish at that december meeting to do. It's interesting as to whether he was too dovish at that December meeting, but I think he's been trying to hold back the reins on financial conditions, leaning it back against this racehorse that's been trying to run, which is the market and to some extent also the economy. I think that what he wants to have happen is he'd like that financial conditions be a little tougher. I think maybe he's getting a bit of that today. And so he's probably not unhappy about that. To see inflation

come down, he'd love to be cutting interest rates. To the question about politics, I would say he's not going to be deterred by it. He would love to have the flexibility to dance around it in the sense of getting some cuts in maybe a little bit earlier, maybe going a little bit later. So the cuts don't happen around the election if he can help it. But I think what he really wants to have happen here is to see financial conditions remain a little bit tighter and so that they can have this last bit of inflation come out of the system. But now it looks like it's going to take a little more time. He may not get his wish, though, in terms of in the political prism. I mean, the longer they wait, as you allude to, the closer potentially they get to the

election. Not only that, but the closer you get to the election, you may have to do bigger rate cuts and that'll have its own political consequences, at least in terms of, you know, the rhetoric that that the chair and others at the Fed will have to face potentially. Yeah, but but here's the deal, Scott, you get paid to be in that position, right? The Federal Reserve, in some respects, Scott, exists to take that kind of political flag. It just comes with the territory. Would the Fed prefer not to take it? Yeah.

Has Powell tried to put the Fed in a position where it takes less of that flak by spending a lot of time talking with lawmakers on the Hill from both sides? But can it be avoided? No. It's going to be the source of either the Democrats saying they're not cutting fast enough

or the Republicans saying that they're playing fast and loose. I personally believe the Fed will do the right thing at the right time, irrespective of politics. Yeah, Steve, I appreciate it so much. Thank you, Steve Leisman, with some really important context on not only what today's CPI means, but reacting to what Jeffrey Gundlach had to say, too. I think we figured out Samir Samad's audio. Can you hear me? Yes, Scott, I can hear you. Great. So just give me your view here.

As we watch the Dow down better than 700 for much of the day, Jeffrey Gundlach talking a few moments ago about what all this means for the Fed and where interest rates may go from here. Yeah, I mean, look, I think the real opportunity is in areas like industrials, materials, energy and health care. Those are all areas that still have quite a bit of pricing power. They trade at much cheaper valuations. So the rate, you know, elevation doesn't harm them as much from a multiple standpoint.

And I think that's really where the opportunity lies. They've been left behind by this, you know, go-go market, which is focused mainly on, you know, growth and tech. But I think there's a lot of opportunities for those areas to catch up, especially if the economy remains resilient and we don't get those rate cuts. Have we crossed the Rubicon, you think, Samir, into some euphoric period, too much exuberance that's on the verge of becoming irrational when you look at some of the moves in growth stocks or not? We think so. And again, you know, it's not so much that there aren't some good stories there. I think the tricky part is valuation does matter over the longer run. And I think that's where they've just gotten well ahead of themselves. We saw this last June and July. They had a great

reset in the fall. I think you're due for a reset. I'm wondering also, Liz Young, about this broadening story, whether that now is roadkill again, because there was this belief that finally, finally we had some real broadening to believe in. And we posed that question at the top of several programs this week as to whether this was broadening in the market that you could actually believe in for the first time in a while that was going to last a little more than a couple of days. How would you address that now? I would say you have to watch small caps and small caps only in order to confirm whether or not the broadening is occurring. And they have not confirmed that. They got close. I'm watching them today. That's why I bring it up.

You know, yesterday, OK, the Russell was up a lot. And here we are down near 5% on the Russell 2000. It was nicely over 2000, and now it's 1950. Right. And if you take a long-term chart of the Russell 2000, you'll see that there's this line of resistance that it can't quite get over. We got over it for a sniff of a second and then fell right back down. Small caps need to confirm an upward move because that is what would show us that the economy can still expand. Also remember, and this goes to one of Jeffrey's points, small caps employ

50 to 60 percent of Americans. So we need small caps not just for market confirmation, but we need small caps for employment strength. We need small caps for economic activity. And the fact that small caps can't quite get off the mat to the place that we need them to be is still concerning to me. There have been parts of the market that broadened out. Industrials is one of those that is sort of confirming the broadening. But we're back to what I would still consider late cycle behavior, which is large caps leading, some excessive risk-taking in certain names, in certain pockets of the market. And we

still have an inflation problem and the chance of overheating. This is all very characteristic of late cycle, not mid or early cycle. Is that how you see it, Samir, or differently? We do see it that way. But I will say, I think if you can pick your spots in small caps, especially closer to eighteen hundred, I think over the coming years, I think there's a place for them in the portfolio. All right. We're going to leave it there. Samir, I appreciate it very much. Thanks for your patience today as we tried to work on your audio there, but I'm glad we were able to hear from you. Again, Dow's down just a shy, well, right at 700 points. We are getting some news as well on Walmart and TV maker Vizio, and it is impacting, apparently, Julia, shares of Roku, right?

Yes, we see Roku shares moving lower on this headline from the Wall Street Journal that Walmart is in talks to buy smart TV maker Vizio. And we've reached out to Walmart and also to Vizio for comment. But the stock we just want to point out here is Roku. Shares are down about 10% right now. Of course, Roku, of course, has its technology not only in the devices, but also integrated into TVs. And we see Roku shares trading lower. But Vizio shares were halted briefly. They resumed trading and up by about 35%. Now we see they're up about 25%. So we'll come back to if we have more comment on this, but certainly a lot of interest in this connected TV, smart TV space and what it means for the future of streaming. Yeah. Julia, thanks so much for that. We'll keep our eyes there any day.

One more thing, Scott. We do have this. We do have the CEO of Roku coming up. That's going to be an interview coming up on Thursday after that company reports earnings. All right. Great timing there with Anthony Wood. Thanks for letting us know that, Julia Borsten. Anything more? Please come back on and tell us. That's Julia Borsten for us there. All right. Let's send it over to Christina Partsenevelos now for a look at the biggest names moving

into this ugly close. It looks like we're going to have Christina. Yeah. And I'm going to start with a name getting hurt. Shopify, the e-commerce giant, are seeing shares down. I saw it was 12 percent, worse now, on pace for its worst day since February of last year. Despite posting an earnings beat, investors had high hopes. They pushed this stock up about 10% just last week alone, but the outlook for free cash flow and

earnings came in light, and rising costs are a concern. That's why shares are down 13%. Meanwhile, shares of JetBlue, let's see if that's maintaining. Yes, the 20 percent uptick today after famed activist investor Carl Icahn reported a roughly 10 percent stake in the air carrier. In a regulatory filing today, Icahn wrote that JetBlue was undervalued and represented an attractive investment opportunity. And that's his voice of concern, I should say confidence, helping shares of JetBlue. Big day there. All right, Christina, thank you. Christina Partsenevelos. We're off the lows. Dow seeing its biggest drop in nearly a year.

It's still around 700, 665 or so. All of it coming after that hotter than expected CPI print. With me now, Rich Saperstein of Treasury Partners. He's one of this country's highest rated financial advisors. Your phone's ringing off the hook today, I bet. Not really, but it does. We have outbound calls we're pretty active on. Yeah. So what's your read here? What does this mean for the rally?

Look, stocks are selling at 20, 21 times earnings. And in the last 25 years, it's only occurred two other times during post-COVID and dot com. So right now, the market is prized for a tapestry of perfection, meaning declining inflation, accommodative Fed actually making cuts, low unemployment and continued fiscal stimulus, as well as achieving 245 in S&P earnings this year. So there's a lot of good things that have to happen to keep the market where it is. You get a day like today where you have one data point that disappoints and you have a market sell-off. Yeah, but you're ripe for a sell-off. Why do you need so many good things to keep things going? I would actually argue it's exactly the opposite. Well, any one

of those can go wrong and the market's going to take it as an unhospitable act. So the market will sell off. I know, but we've been up a ton. So, yes, it's going to sell off. But does it change how the bulls should think about what this rally has done and what it might do from here? No, I think that we have to look at the market over longer periods of time. So the S&P over the last two years is only up five and a half percent. The mags are up 17 and the non mags up two and a half

percent. If you extend your your outlook over 10 years, the earnings are up 100 percent. The stocks are up 125 percent. So you have a long-term view and you get a pullback, that's the time to add names that are attractive to you. So what are you currently doing? Well, we like the large technology names. If you take, let's say, Google and Microsoft and look at their cash flow in 2019, they generated $55 billion in operating cash flow. Last year, it was $104 billion. So their cash flow has increased by 90% over the last four years.

Now, Microsoft's up 150%, and Goog's is up, what, 115%. So the multiple of the cash flows have gone up a little bit more than we'd like. But at some point, those stocks will come back. And it's important to follow the cash flows. The cash flows are growing tremendously year in, year out in these higher technology names. Wait, so you don't think that the mega caps are overextended? I mean, you're an Apple, you're an Alphabet, you're in Microsoft and you're in Amazon. They're overextended relative to the cash flows. I don't want to make an argument that they're cheap.

But if we look at the price to growth ratio meaning these stocks are expected to grow at 20 percent next year this year and the P. E. S. are 30. So it's a one and a half times PE to growth ratio, or a PEG. If you look at the non-MAGs, they're selling at roughly three times the price to growth ratio. Their expected growth is six, and they're selling at 16, 18 times earnings. So relative to the non-MAGs, the growth and multiple of the MAGs still put them in an attractive area, especially for a long-term investor that has an opportunity to add them after they've pulled back to more reasonable levels. Should I keep riding the mega cap stocks or go broad? Well, you're talking to somebody that's owned them starting in 2011 and has them in teens. So I'm a long term holder

of large cap tech that generates copious amounts of cash flows. Keep in mind that these companies have moved from cyclical to structural, meaning they used to be, I want this technology. Now it's a must-have technology across all industry groups. So there's less volatility in the demand for these services that they're providing. They're also buying back stock. There's an AI push that will occur over time. So there's tremendous, you know, long term reasons to own the large cap tech stocks that are generating cash flows. But then you can't make one cannot make the argument that you just made then and in the

same breath say, well, the market's too narrow. You just told me all the reasons why it should be narrow, correct? Yeah, I don't have a problem with the fact that 30% of the market is in large cap cash flow generating equities. Now, that doesn't mean we own any of the smaller cap technology stocks. If you look at the last two years, compare the Q's versus ARKK, you have the ARKK over the last two years is down 30%, but the Q's are up 25%. So when we talk about technology, you have to separate between the large cap cash flow generating names versus the smaller cap, sometimes cash bleeding names. What's the most actionable thing on your screen? I mean, you like munis. What's the thing that jumps out to you, whether we're having a day like this or not? Well, I like the fact that rates are higher

because for our clients, where the return of capital is more important than the return on capital, and we have a shot at buying long-term munis at four and a half tax-free, that's a great opportunity for us because we want to own long-term munis for many of our clients,

especially because in the long run, we see the economy slowing and that will lead to lower rates and that would drive bond prices higher. Now, on the equity side, we're still overweight oil. Granted, you know, we thought global tensions would lead to a spike in oil prices. So it's surprising it hasn't happened. But here's an industry group that represents 4.3 percent of the S&P, yet it's generating nearly 9 percent of S&P earnings. So there are names there that are attractive. And on a technology side, you mentioned the names, whether it's, you know, Google, Microsoft, Alphabet, I'm sorry, Apple, you know, these or Amazon. In the long run, investors who don't own these names should own them, because if you if you've got a long term holding period, let's say three, five, 10 years, they're going to continuously grow their cash flows and they represent foundations in portfolios. I appreciate the time, Rich. Thank you. We'll see you soon. Rich

Saperstein, Hightower Treasury Partners, as you see there. Let's send it over to Leslie Picker now for a look at how financials are faring amid the sell off. Obviously, red like everything else, Leslie. Yeah, red like everything else, especially in the regional space today, Scott. Once again, that area under fire, thanks to that CPI report bolstering the case for higher for longer and potentially delaying the first rate cut. Take a look at the SPDR regional banking ETF, ticker KRE. That is down 4.7% as we head into the close today. Rates are important for regionals right now for two reasons. Number one, lower rates would help margins because they would decrease funding costs, i.e. what banks pay out to depositors.

And number two, there are renewed fears surrounding credit quality. That's amid fourth quarter earnings snapshots that we've seen over the last few weeks. And lower rates would relieve some of the pressure there. So leading the way to the downside today are some of the smaller banks' more exposure to commercial real estate. Think of names like Valley National, New York Community Bank Corp, of course that's been in the news lately, and First Foundation. Smaller banks have more exposure to commercial real estate than their larger peers, and smaller banks have lower reserves. So if commercial real estate truly becomes more of an issue, smaller banks have higher earnings risks. That's according to KBW analyst Christopher McGrady, who told me earlier today about that discrepancy. And you can

see that in the price action today with the KRE falling a little bit more than the big bank-weighted KBE. Scott. Yeah,ented, of course, through the Russell 2000 as well. Made up a lot of those by a lot of those regional smaller regional banks. Leslie, thank you. Good check in on the smaller banks by Leslie Picker. Stocks continuing to sell off after that hotter than expected inflation report. Let's get straight to New York Life Investments economist and chief market strategist Laurenwin, for how she's playing it. Welcome. It's good to see you. What are you doing with this market today?

I think that we will look back on the last couple of months, Scott, and know for certain that this Fed pivot rally we've been enjoying was just a step towards what's increasingly becoming in the data a much clearer binary outcome for the markets. Either the impact of Fed hiking so far is going to catch up with us sooner and we'll see economic growth slow to a mild recession sooner rather than later, or we'll see some firming, overheating. And that's what the data points a little closer to today.

I don't want to overstate that point, but I think the market is making that risk much more clear in price action. So you're betting on an overheat. Now, what does that mean for your calculus on what the Fed does? Our base case is actually that we're going to see an economic growth slowdown sooner rather than later. But that base case points to the Fed doing essentially exactly what it said it's going to do, which is wait until June to, at least June rather, to start cutting interest rates. We're looking at a price environment where price pressures are re-broadening. It's just one report. We'll have plenty between now and May and June to clarify the picture.

But because we're seeing prices paid pickup in the services sector, in the manufacturing sector, and we're seeing small businesses in the NFIB report today say that they're still looking to pass on higher prices. That's painting a sticky picture for the Fed. But if I told you we're going to get a June cut, let's just say that's the ribbon gets cut. They start cutting interest rates at the June meeting. Why shouldn't I be optimistic still about the stock market? In a word, because we've already seen and enjoyed a lot of the valuation uptick that comes from a gradual cutting cycle from the Fed. If we know for certain that the Fed is cutting in June, then really what investors should be thinking about is the oversized cash allocation that we've

seen investors take on over the last year, 18 months, how do they lock in higher rates now? Do they move into short-term municipal bonds, short duration, high yield, or other elements of credit in order to lock in what would then, in that case, be declining treasury values on the front end of the curve? See, you've been talking about credit opportunities almost every time that we've been speaking, including the most recent. You just mentioned it there. You still favor credit plays relative to equities? I think investors have to be balanced. As I mentioned, this is a binary market. We're not likely to see a clear signal from equity until, frankly, economic data turn to the downside. Even

if we get upside data from here, I don't think we're seeing the equity market do anything particularly directional. So that's an environment where you have to own mega cap tech because that's where there's growth and strong earnings, free cash flow. You also might own some of the potential beneficiaries of those trends, the digital infrastructure, et cetera. But that's a relatively narrow opportunity set for adding incremental exposure at this time. When it comes to adding

incremental exposure, we're looking at shaving off of that gravy and, yes, operationalizing it in credit where we see yield as a better return for the risk. But you're also making the case, just like Richard Saperstein was who was just with me, that narrow is okay and narrow is the play and that maybe the 23 playbook is the 2024 playbook for all the reasons that you suggested. I think that very well could be the case. It's not clear to me that narrow is the play, but narrow is what's happening. Narrow is a late cycle economic environment where a large cap and profitability and free cash flow are more likely to benefit over time. There are going to be moments in the next couple of months, I'm certain of it, where we see enthusiasm and a broadening out in market performance.

But with inflation looking sticky as it is now, with the same type of risk playbook that we've seen in 2023. I think that 2024's playbook may look similar again until we see a decisive break in the economic. So you think that the broadening idea suffered a pretty big blow today, like a lasting blow? I think that that could very well be the case. Look, again, I don't want to overstate the inflation data today. The disinflationary process is wavy. And we've seen several months of much better than expected inflation data. We get one month that looks a little worse than expected. It's not the end of the world.

I completely agree with what Liz was saying earlier on the program to this end. But what it does do is cause that incremental doubt that we can see the extent of cuts that the market was expecting just a few weeks ago. And that's an environment where stickier inflation, stickier rates for longer, more of the market, more investors are likely to acknowledge that that's actually a riskier environment for the economy in the medium term than if we were seeing a clear slowdown now. Good day to have you, Lauren. Thank you so much, Lauren Goodwin, New York Life. I forgot to officially thank Liz Young, too, for being with us. Liz, thank you, too, for your conversation at the top of the show. We do have less than 10 minutes to go before the closing bell. Let's get back to Christina Parts of Nevelos now, sorry,

for a look at the key stocks you're watching. You've got a lot of people in this show today. Let's talk about the maker of cornflakes and Fruit Loops. Seeing its shares actually climb higher despite the sell-off after posting the sales that beat analysts' expectations. This would be WK Kellogg, which was spun off from Kellogg last year. And even though the company did beat, they did post a drop in Q4 sales. So what's happening is customers are just pushing back on recent price hikes and they're looking for bargains instead. And that's a trend we're seeing with General Mills and Montalese also.

You can see shares up 7.5%. Shares of hotel chain Marriott falling despite beating analysts' estimates. Its full-year guidance was weaker, partially due to a higher tax rate. This is according to management. But the Marriott CFO did say on the earnings call that she expects, quote, slower but still growing leisure revenues this year. Shares are down almost 6 percent. Scott. All right. Christina Parts Novelos. Thank you very much. I will see you soon. Utilities. Well, they're getting slammed today to energy.

A relative outperformer, Pippa Stevens, here with a breakdown of both. So, yeah, everything's red. I mean, I can understand, you know, yields are going up. So, you know, I could see why utilities would be going down. Talk to us. Yeah, that's exactly right, Scott. Scott. So starting here with utilities, the group, as you noted, is very sensitive to rates. And so the CPI report signaling that the Fed may have to stay higher for longer is weighing on the sector. Utilities typically have quite a bit of debt given how capital intensive the industry is. And so when rates go up, their costs rise. Plus, higher yields on treasuries make utility dividends less attractive. AES and NextEra are the biggest underperformers now.

Both have quite sizable renewables portfolios. On the flip side, AEP and NRG, both in the green. Now, in this sell-off, energy stocks are a relative outperformer with a modest 1.3 percent decline. That comes as oil actually trades higher, although nat gas is at a more than a three-year low. And so that is weighing on gas producers like EQT and Cotera. The refiners, though, looking a bit better with Marathon Petroleum and Phillips 66, both in the green here. Gasoline futures are up more than 10 percent in the last month, which does help those margins for refiners. Scott?

Pip, I appreciate that. Thank you, Pipa Stevens. We're now in the closing bell market zone. CBC Senior Markets commentator Mike Santoli is breaking down the crucial moments of the trading day. Deirdre Bosa joining us today on what Instacart, Airbnb, and Lyft's earnings might tell us about the state of the gig economy. And Kate Rooney looking ahead to Robin Hood's report out in overtime today. Mike, I guess one thing we can start on is the broadening story definitely seems to have gotten a body blow today. Russell's getting absolutely creamed. For sure, Scott. And it tells you a few things. One is that maybe it was a little bit forced and maybe we have a lot of weak hands who thought we really wanted to try to make it happen with a potential breakout in the Russell 2000.

The other piece of it is, you know, every time we've talked about this interplay between stock and bond markets and, you know, treasury yields of leaking higher. Why isn't it really bothering the stock market? And every time I say, well, it's still within the range. We're not above four and a quarter on the 10-year. The yield sensitivity is in small caps and is in breath. Well, that's what we're seeing as well today. You have a really good rinse in this market. It's 95% downside volume in the New York Stock Exchange. That's pretty rare.

It's more like 80-20 on the NASDAQ. So you definitely have a pretty comprehensive unwind here because you got the 10-year above 4.25 to 4.3. And there's a big rethink going on, obviously, about the path of inflation, everything else. But all of that boiled together in the context of a market that was kind of at a pretty high perch. And we're not even down 3% from a high. We haven't had a 3% pullback since October. So I don't know if it's one and done. It probably isn't. The volatility index up at 17 tells you people are braced for something more. But all of that seemed to touch off, you know, together with that CPI reaction. Well, one thing it does, it undoubtedly increases the heart rate for PPI and PCE. And we're not going to get PCE for a couple of weeks. So now we're going to be

a little bit on edge. We will. And everyone's going to try and extrapolate the relevant pieces of CPI into PCE, which is probably going to be a little bit more tame. I do think, though, that the economic growth numbers matter quite a bit here, because to me, if you have to wait longer for the first rate cut or if you're not going to get as many, that in itself in a vacuum isn't somehow a body blow to the overall stock market. And you can make your peace with that if the economy is holding together. If it means there's a greater chance the Fed's going to make a mistake, it's going to end up being too tight. To me, that's potentially the bigger issue if we were to get there. Let's see what the dip buyers, too, Mike. Let's see what the dip buyers do as well. Right. I mean, look, NVIDIA was an interesting story today. We highlighted it several times.

I'm pulling up here. All the mega caps are red now. Let's see how long they remain red, because there's been an appetite to buy on almost any dip in this space. And that's going to be key to watch, too, I think. Yeah, for sure. And the big stuff is down, you know, Microsoft down like two percent. It's really not cutting into muscle at this point in terms of the rallies those stocks have had. And for the S&P in general, you know, I mean, the 20 day, just 20 day moving average for the S&P is like 4906. Really, really strong rallies. We'll find support at the 20 day. We'll see if that happens if we get there, because that would really be just a blip. I'm not sure if that's going to be enough to unwind some of what's built up to this point, but we'll see.

Almost doesn't feel like there's anything else going on. But this big sell off. Dear Jabosa, though, you have big earnings to watch in overtime. Lyft, Airbnb, Instacart. You got a lot on your plate here. The gig companies. That's right. So let me separate them.

Take Lyft and Instacart first. For them, it's about profitability. let me separate them. Take Lyft and Instacart first. For them, it's about profitability. They still don't get sustainable net income. And over the last year, Uber has really widened the gap between its stock and these others by focusing on efficiency, sustainable net income, all three of these names. They're growing high margin ad businesses to offset the more costly real world inputs like drivers and shoppers. So investors are going to want to see some progress here. Airbnb, meanwhile, it has been profitable for a while. And for Chesky and team, it'll be more about growth and pricing power. Airbnb guidance last quarter fell short of

expectations, but the stock is up nearly 30% over the last three months. And Scott, since everyone is looking at inflation CPI today, we may get some clues tonight from these companies. Airbnb, what's the average daily rate? Is that still rising? And Instacart basket prices for an indication of how groceries are doing. You got Robinhood. Thank you, Deirdre. I appreciate that very much, Deirdre Bosa. Kate Rooney, to you on Robinhood, those earnings as well. Yeah, Scott. So for Robinhood, investors are really searching for any signs of a rebound in Robinhood's once very active retail traders. Last earnings season saw Robinhood with a drop in monthly users and revenue per user,

so analysts are hoping for a turnaround there. It recently launched in the U.K., so that could help user growth as well. Robinhood's been looking to woo customers from Schwab and some of the other incumbents with this bonus for people transferring money, and we'll see how that plays out. Robinhood changed the way it also charges for options, so that could help some of its operating leverage. It's among the companies that have gotten a lot more disciplined on costs. The street is looking for a loss of a penny per share. If you look at a year ago, it was losing 19 cents per share. Rates are also key.

Higher interest income has helped offset some of the trading slowdown. And finally, Scott, crypto volume is expected to come in strong as those markets rebounded in Q4. Kate, I appreciate that. Thank you. That's our Kate Rooney. Take a look at the Dow here. We're down more than 700 points at the worst levels of this session. We've paired that a little bit. We're down 555 right now, but it's still it's a rough day across the street. The Russell 2000 is really where the pain point is. Mike Santoli, I'll send

it to you to take us into the close. You tell us what you'll be watching here. Yeah, for sure. And the NASDAQ 100 actually did find a little bit of a bit in there. It's down about 1.6 percent. Still, the biggest downside contributors to the overall S&P 500 are the biggest recent winners. That would be Microsoft, Amazon and Apple. I pointed out the very, very weak breadth before and it remains the case that has not turned around. Ninety three percent of all volume in the New York Stock Exchange is in declining stocks. That is a pretty good across the board sell off. Also, the volatility index is pretty significant. You're up at highs that we last saw right at the very beginning of November. and that was when the VIX was coming down. So you're above 17.

We were in the 12 zone just about a week ago. That seems like a big move, considering we're only 2%, 2.5% off of record highs in the S&P 500. So maybe there's a little bit of jumpiness. Maybe it turns into just a really quick spike from there. The Russell 2000 you've been talking about, Scott, 4% on a one day decline. That's a pretty good shakeout. It did have a little bit of a time above 2000. So we're going to have to reassess as to whether we are going to be able to celebrate a relatively strong economy, even in the face of higher Treasury yields. And those Treasury yields did get the

attention responding to that CPI number today. We went out about 432 on the 10-year. And it looks like the S&P 500 is going to finish up down just about 1.4%, almost equivalent percentage decline in the Dow, 38272. That does it for Closing Bell. We'll send it into overtime.