Closing Bell - Closing Bell: Stocks snap 3-day losing streak, Airlines take off, and Fed Governor Waller on fighting inflation 4/13/22

Episode Date: April 13, 2022

Stocks rallying on Wall Street as the S&P and Nasdaq snapped 3-day losing streaks. Investors looking past a record gain in producer prices just a day after the hottest reading on consumer prices since 1981. Fed Governor Christopher Waller explains why he thinks inflation is peaking and how many more rate hikes it will take to get inflation under control. Mastercard Economics Institute Chief U.S. Economist Michelle Meyer discusses whether rising prices will force consumers to cut back on spending. And airline stocks soaring after Delta’s strong outlook. Jefferies’ Sheila Kahyaoglu unveils her top pick in the airline space.

Stocks are at session highs here after yesterday's downward reversal with the Nasdaq jumping nearly 2%. The most important hour of trading starts now. Welcome everyone to Closing Bell. I'm Sarah Eisen. Here's where we stand right now in the market up 280 or so on the Dow. Nice reversal from yesterday breaking a three-day losing streak. The S&P is up a firm 1% at the moment. What's working? Most of the sectors are higher. Consumer discretionary and technology lead, those have been the biggest losing sectors. Energy is up today. Materials as well. The only two sectors in the red, financials, will hit on those earnings. And utilities. And take a look at consumer discretionary. Just want to highlight this into the close. By far the top performing sector today. Travel stocks are helping the group a lot. Marriott, Norwegian, Caesars, Hilton,

all sharply higher, got positive comments and earnings out of Delta. That's certainly helped fueling a lot of optimism in that sector. We've got a big interview coming up that you will not want to miss. Fed Governor Christopher Waller will join us exclusively in just a few minutes to talk about inflation, Fed policy, the economy, and much more on the back of two back-to-back very hot inflation reports. Let's get to our top story today, though. That is bank earnings. J.P. Morgan reporting a profit decline in its first quarter earnings this morning.

The decline was driven by increased costs for bad loans and impact from the war in Ukraine. The stock is down 3.4 percent. The bank sector also taking a hit on the back of those earnings results. And tomorrow, we'll get more earnings from Citi, Goldman Sachs, Morgan Stanley and Wells Fargo. Joining us now, David Ellison from Hennessy Funds, Gerard Cassidy from RBC Capital Markets. Gerard, after speaking to clients all day today and seeing the reaction in JPM shares deteriorate, what are you hearing? What were some of the biggest concerns? Sarah, I think the number one issue here with JPMorgan Chase is their capital levels. As you saw, their CET1 ratio, which is the common equity tier one ratio, which is a

regulatory capital ratio, fell to about 11.9 percent from 13.1 percent. And the reason it fell was that they had to mark down their securities in their available for sale portfolio. And also there was increased risks in trading and counterparty losses. So I think that's a real issue for many investors because they announced an authorization for a $30 billion share buyback, but they may be limited now on what they can do with that because of the capital where it is today. I guess the question is how much bad news is already in the stock. It's down now almost 20 percent from the lows, Gerard. What do you do? Are you a buyer?

Yeah. So we would say for long term investors, absolutely. Now, this is going to be a real choppy year for companies like JPMorgan Chase with their global footprint. We prefer the regional banks that don't have the exposures overseas that JPMorgan has and also the banks that don't have the exposures overseas that JP Morgan has, and also the banks that don't have big capital markets exposure. Regional lenders such as a Fifth Third or an M&T Bank or Comerica is a way to play the expectation that the Fed's going to raise rates this year. Spreads will widen accordingly. Do you agree, David? I know you run a financials portfolio, but hard to digest some of that tone from Jamie Dimon. He was optimistic in the short term, but not so much in the medium and long term.

Cautious, the buildup in reserves. What do you do? Well, anyway, first of all, hello, Gerard. I've known Gerard for many years, so it's good to see you. You know, I went through these numbers this morning. I'm glad I could bring you guys together. I know. I know.

Thanks, Sarah. This is a Facebook thing here. But I looked at it this morning. I thought they were okay. But then I sort of thought about it. It's like there's nothing really exciting here in these numbers. I don't see what's going to drive earnings substantially higher. If rates go higher, we may have credit problems.

If rates go lower, there's going to be no growth. The loan growth isn't really that good. I see, you know, look at their cost of funds is, what, 22, 23 basis points. You know, and I think you, you know, that seems like that's going to go up. And it may go up as fast or faster than their yield on assets, given it's so low. And I think all the banks are kind of in that boat now. So I come away sort of saying this is, you know, I would like to see a credit cycle. That's where I'm going to make money.

And I'm hoping to God it happens before I have to retire because, you know, you don't make any money here in these stocks until something goes wrong. And I think Gerard picks out the capital issue, the credit issues. I mean, we need a credit issue to drive the stocks lower from here to make money from here. The stock's 180 a buck, so a stock buyback really doesn't help the book value. It's trading at 11, 12 times earnings, depending on what Wall Street decides to put the earnings at for the rest of the year. That's OK, not great. And there's not a lot of growth. So we need a credit cycle. Stocks go

lower than we make money from there. So I guess the question from here, Gerard, is what what does this mean for the other banks that are set to report? Because there were some positive surprises. Trading revenues were better. That could be good for a Morgan Stanley or Goldman Sachs. And, you know, to counter David's sort of doom and gloom, the exciting thing for banks this year was supposed to be that the Fed is finally raising interest rates and that that would be good for profit margins. So what do you expect from the group? Sure. No, sir. And David touched on some important parts. And I would highlight that the CNI loan growth, when you look at the loans for JPMorgan Chase, excluding the PPP loans,

which were the government guaranteed loans that the government gave out during the pandemic. The loan growth was actually pretty decent for JPMorgan. So again, for the regional commercial lenders, we expect to see loan growth driven by inventory replenishment as well as capital market or capital expenditures. In terms of the capital market players, you're right, Sarah, the trading was better. So we should anticipate to see some better maybe trading numbers tomorrow. But I'd also say to David's point about the cost of funds, the big banks may see higher cost of funds. But then when you look at the regional banks that have the core deposits, you know, the grandmother and grandfather

accounts, we don't see them raising deposit rates very quickly because they have too many deposits. The loan to deposit ratio for the industry is very low today. So we think initially the first 100 basis points of Fed fund tightening, I think, falls right to the bottom line for many of these regional banks because they're not going to be forced to raise their deposit rates at this time. And a number of them are higher today. We've got some strength in First Republic Bank, for instance, Schwab. The brokers are higher. So it's not all financials lower, but it is the biggest loser in terms of the S&P right now. Gerard, thank you, David. Thanks to you as well. Good to have you both on. Great seeing you, David. Thank you, Sarah.

Thanks. Retail stocks surging today. Names like Gap and PBH adding to some solid gains on the week so far. We'll talk to MasterCard's chief U.S. economist about what she's seeing in terms of consumer spending as we await tomorrow's big retail sales report. And then later, do not miss our exclusive interview with Fed Governor Christopher Waller on this week's hot inflation prints and the Fed's strategy to fight it. You're watching Closing Bell on CNBC. Dow's up more than 290 points. Today's stealth mover. Actually, we've got two today, both in the pharma space and Terrace Pharma jumping after it agreed to be bought by Halazine Therapeutics for just under $1 billion. And then there's Sierra Oncology, which is surging as well on news. It is being acquired by GlaxoSmithKline for nearly $2 billion. Biotech, on the whole, having a strong session, up more than 2 percent.

Some deals bringing it back to life. Check out the retailers today. Names like Gap, PVH, American Eagle, Victoria's Secret, all jumping ahead of tomorrow's big retail sales data. Let's bring in Michelle Meyer, chief U.S. economist for MasterCard Economics Institute. Welcome, Michelle. Your first interview since joining MasterCard. It's great to have you. And tell us, with all that new data that you are seeing, what is going on with the consumer? Thanks, Sarah. It's so great to be here and to be able to represent MasterCard's Economic Institute. As you noted, we have an incredible resource here in terms of being able to drive some pretty distinct and unique insights.

And what we're seeing from the MasterCard spending poll status is that the consumer is still outspending. The latest data has shown, of course, spending more on certain necessities, and that likely reflects some of the inflation impulse of spending at gas stations, spending on food, but also out very much spending on experiences. So airline travel, lodging, restaurants, and even still durable goods. So the data that we're looking at very much suggests consumer is still plugging along. And nothing in terms of trade-offs where they're trading, higher airline tickets for apparel, that sort of thing? So that is the key question. That's what we're keenly focused on to see if we start to see any

wallet shifts where there's some signs of stress where consumers are spending more on those necessities and they're more expensive, which means that they have to cut back on some more discretionary items. But it's not apparent yet in the data. And I think that speaks to the strong fundamentals of the consumer, right? You have low debt ratios, a strong labor market with a very low unemployment rate and a lot of job opportunities, as the data shows, and also a pretty good buffer in terms of savings. That seems to be really allowing the consumer to manage through this time, at least for the time being.

So how do we know what's coming? Because as you know, there's some pessimism that's crept in. The XRT, the retail ETF, while it's springing back in the last week, it's still way down since November. And all the groups that are working instead are defensive, like consumer staples. So what's the forecast based on the data that you have. Well look I think it's very much

going to be a function of the persistence of this inflation shock. How long do we see commodity prices. At these high levels how long do we see this. This trend is increasing inflation the broadness of inflation because consumers

can't withstand this. Indefinitely of course- at some point you will start to see those that stress kick in and you will likely see these types of wallet ships so. We're continuing to really focus on items of the consumer basket.

That tend to be most vulnerable to commodity shocks historically- and that would be large- purchases. Big household appliances or items related to vehicles or even potentially airfare. Although this time around, it may be very different for airfare, given there's still a lot of pent up demand to go out and travel. Session highs up 329 or so on the Dow. So, Michelle, when you hear Wall Street talk about recession, now Deutsche Bank says it's coming in 2023. The yield curve did invert. It's quite uninverted right now.

How do you square that with the data that you're showing, which indicates no slowdown in consumer spending? Well, look, I mean, I think it was that inverted yield curve that spooked a lot of people. And as you noted, Sarah, it is quite uninverted,ited right it's now steepening out. So I think the market signals shows that there's an appreciation for some of the resilience in the economy- will we see a moderation growth. Absolutely

the economy grew at an astounding piece last year because. On the unique factors related to fiscal stimulus monetary stimulus. In the rebound coming out of a very deep hole. from the pandemic so moderation growth is to be

expected- but I think you know it was I think people just got that spooked- and started to pull forward those recession calls. Michelle Meyer it's good to talk to you again good to have you back on the show from MasterCard economics Institute

we look forward to having you back on. Let's give you check on the markets as I mentioned we are at session highs building on. Let's give you a check on the markets. As I mentioned, we are at session highs, building on those gains throughout the hour. A reversal of what we saw yesterday, where it was a pretty much big drop into the close. Up 330 on the Dow. Boeing is the biggest contributor. The Walmart, American Express, Microsoft, Nike all adding.

You've got four Dow stocks in the red. JP Morgan, Travelers, IBM, and 3M. The Nasdaq surging 2 percent, reversing a decline yesterday. Up next, breaking down the market breath. Mike Santoli taking a closer look at the split performance of S&P 500 constituents and what that signals about the market's next move. And then later, our exclusive interview with Fed Governor Christopher Waller following this week's sky high inflation prints. We'll ask him whether he thinks prices have peaked. Be back in a moment.

A nice more than 1% rally now for the S&P 500. So 47% of S&P 500 stocks right now are currently trading above their 200-day moving average key technical level. Let's get to Mike Santoli taking a closer look at overall market breadth. Mike, what does it tell us? Yeah, it's caught right in the middle, Sarah. I mean, a technical analyst would look at this. By the way, this is coming into today. It's probably a little bit better right now. And say it's a selective bifurcated market. We're not necessarily in gear in the way that you might be if you're in the midst of or about to set off on a really strong advance.

A couple of observations, though. The recent lows, you didn't really have as huge washout as you did, for example, late 2018 and 2020 when you had 20 percent plus declines in the index. It looks a lot more like that in 2014, where the prior year was so strong, just like last year was so strong. Most stocks were above it. So I would say here it really reflects the fact that we've had these offsetting currents in the market, naturally commodity related and defensive stocks doing very well. Cyclicals, expensive growth have been weak. Question is, have we seen enough? Have we seen enough of this consolidation for a while right here? A lot of folks are going to wait for this to get better, to say the market's out of the woods. But of course, all the rallies start when things don't look as great on this measure. Watch in today's rally, of course, a little bit lower. Actually,

quite broad today, but yeah. Yeah, and broader today. Exactly. Mike, thank you. We'll see you in the Market Zone. Up next, Fed Governor Christopher Waller on the latest red-hot inflation numbers and whether he thinks a recession could be on the horizon. We'll be right back. Welcome back.

We are near session highs, just a little bit off of them, up 344 on the Dow. Some of today's top search tickers on CNBC.com. Ten-year yield in its regular spot, right on top of the list. And this time, we're seeing yields actually moving a little bit lower, 270 on the 10-year. So buying of treasuries with yields moving down despite what was a very strong PPI wholesale inflation rate this morning. JP Morgan earnings matter, down 3.4% on the back of that report. Tesla always in the top five of 3.8 percent. And Delta with a good quarter as well, surging 6 percent, bringing the whole airline and travel and leisure industry higher today. Apple rounding out the top five with another positive day,

up almost 2 percent. Up next, we will talk to Fed Governor Christopher Waller about the inflation situation in America and whether the Fed is doing enough to bring prices down. More big inflation numbers out today. The producer price index rising to more than 11 percent from a year ago. This comes after the consumer price index yesterday showed an eight and a half percent gain from a year ago. Meantime, gas prices still above four dollars a gallon. And Fed Governor Christopher Waller joins us now. It's great to have you, Governor Waller. Welcome. Hi, Sarah. How are you reading the inflation data that we got this week? Well, the data was high. We knew it was going to be high. So it wasn't that surprising. Oil and energy and food was going to drive the headline numbers up. We got a little bit of a break on core inflation

numbers, came in a little lower than we thought, which is good news. Hopefully we can see that continue going forward. But inflation is just, it's very high. And we know that this is causing a lot of pain for American households. And it doesn't, we're just going to continue on with our plans with rate hikes and reducing accommodation to try to get this back under control. You mentioned the core inflation number. The monthly gain was less than it had been. And it sparked this whole debate over whether inflation has peaked. What do you think? Yeah, I mean, that's that's kind of what I'm forecasting is that this is pretty much the peak. It's going to start coming down.

That was what I had in my SEP going forward for the second half of the year. Inflation would start to come back down as rate hikes started having a bite on the economy in terms of demand. And that was going to put some downward pressure on prices. We're already seeing some oil prices retreating back from where they were from the invasion of Ukraine. So I think we might be at the peak and that we'll start seeing some relief on this in the next coming months. But it doesn't relieve us of our job to remove accommodation and get inflation down. So on that note, you put out there that you were looking at a potential double or 50 basis point hike in May.

Are you still there? And do you think that we're going to require more than one 50 basis point hike? Well, I think the data has come in exactly to support that type of policy action if the committee chooses to do so. It gives us the basis for doing it. I have said before I prefer a front-loading approach so a 50 basis point hike in May would be consistent with that and possibly more in June and July. How many is it going to take to get inflation down? Well I think we want to get to above neutral certainly by the later half of this

year and we need to get closer to neutral as soon as possible. Now we have talked up rates. The market rates have gone up quite a bit since December, even though we haven't actually moved the policy rate. That's all because of our forward guidance to drive up rates. And it's worked. I mean, look at mortgage rates. They're up almost 200 basis points since December and I think it's starting to show in the housing market.

So anyway, the rates are already up, but we probably still need to do some more. You think housing is slowing? Because I don't know, we keep hearing, first of all, prices are through the roof and there are concerns that they're not going to come down as a result of lower demand because there's just not enough supply. And so you're going to get into this sort of stagflationary environment in sectors of the economy like housing. Well, unless people are buying only in cash, at some point, those higher mortgage rates are going to have a bite on people's ability to finance a house and how much they can pay. So I think we'll start seeing that in the next coming months. I think you'll see some downward pressure on housing prices

or moderation in housing price increases. The quantities of houses will still sell, but the prices may not be going up anywhere near what they were the last two years. What about other parts of the economy where we are experiencing severe inflation and price hikes? What can the Fed do about the fact that Ukraine isn't going to plant as much this season and Russia is basically shut out of the global economy on its important grain and fertilizer and oil exports, at least to the U.S.?

How do you cope with those pressures? Yeah, so that's the thing. We can't really fix these supply chain problems that are out there. All we can do is kind of try to push down demand for these products and take some pressure off the prices that people have to pay for these products. But we can't produce more wheat. We can't produce more semiconductors. But we can affect the more wheat, we can't produce more semiconductors, but we can affect the demand for those products in a way that puts downward pressure and takes

some pressure off of inflation. And can you do it without getting us into recession pressuring demand like that with such tighter policy? Yeah, I think that's it's completely feasible that we can do that because of the situation that we're in. I mean, in the past when the Fed had to pull back and tighten, we didn't have situations where there were almost two jobs for every worker that was out there. We weren't staring at shortages where you couldn't get a new car for 12 months. So we're in a situation where we can pull back demand, put downward pressure on prices,

and not really have a big impact on the quantity. So it's a little special this time compared to what has happened in the past. But it's also happening at a time where global growth is slowing, and Europe is feeling it a little worse than we are. I mean, yes, on the plus side, job market's in a great spot, as you say,

and consumer balance sheets have been a good spot. But we're also dealing with a food shock and an energy shock and a global growth slowdown. It seems like a lot to put on the U.S. consumer and the U.S. economy right now as rates are rising rapidly. Right. So, again, we're trying to do what we can to keep those prices down and from rising as fast as they are. Over time, some of the supply shortages will work

themselves out markets work they'll produce stuff and get it to us at some point and right now our main concern is getting these prices down and we can do that without causing a recession some people think you have to shock the market that you have to go big and that you have to you know inflation is becoming really worrisome and entrenched is the sort of scary word there, and that you have to go big to surprise the market, you know, put pressure on financial conditions and really get inflation under control. Is that something you're considering? Not me.

Not this central banker. No, I don't see any value in trying to shock the markets. You know, we're not in a Volcker kind of moment, really. I mean, Volcker in the 70s, they were dealing with really high inflation for six, seven years. OK, we're staring at this really been a one year phenomenon. We're on it right now. So we don't need to be shocking anything just to cause a shock. We're raising rates. The markets understand

it. They've come up quite a bit. If this inflation doesn't cool off, we'll keep going. We'll do what it takes to get inflation back down. But we can do that in an orderly way without causing a lot of financial market stress. So it sounds like you're not worried about more permanently higher rates, that whole notion that this could become entrenched and we could see a wage price spiral, which would only worsen. Yeah, I mean, the whole point is to head that off now. Right. That's what happened in the 70s. They let it go for six years and then it did become entrenched. We're trying to kill it now so that we don't have that problem. So one of the things I'm carefully watching is kind of what's happening with the firms

and their pricing and wages going forward and how much of that is just getting into this kind of wage price spiral. So far, thankfully, from what I've heard from business contacts, that does not seem to be taking hold. Are you surprised to see how well the consumer is holding up, how resilient it has been to some of these crazy inflation spikes?

Yeah, I mean, the thing is that, you know, just when you hear news from the banking industry, consumers have a lot of money in their bank accounts. You know, we had a period where there was fiscal stimulus. People have a lot of forced savings that they really haven't had a chance to spend yet. So there's still a fair bit of the money available in people's accounts to maintain the spending that they want and kind of absorb the higher prices. So finally, just to round it off, I just want to make sure I understand fully your position. Are you more worried about the Fed being too aggressive when it comes to tightening policy and hurting the economy or not aggressive enough in fighting inflation? Which is the bigger risk in your mind? Well, I think we're going to deal with inflation.

We've laid out our plans. I think we have sufficient rate hikes to get above neutral, get inflation back down. I think we're in a position where the economy is strong. So this is a good time to do kind of aggressive actions because the economy can take it. It would be harder to wait another eight or nine months and then say, wow, now we really have to get aggressive if we start seeing growth slow down and employment slow down. So it's better to do it now while the economy. A lot of people think it's already kind of late. Governor Waller.

Like I said, we started talking about it in December. So rates have jumped since December. So just because we haven't moved off the policy rate, market rates have gone up quite a bit. Look at where the 10-year is. It was at 140. Now it's at 270. 270. So the markets have pushed up the rates without us actually moving the policy. As they tend to do. Governor Waller, thank you for joining me. Thanks for the time and the candid

answers. Thank you, Sarah, for having me on. Fed Governor Christopher Waller. Up next, Jeffrey's aerospace and defense analyst Sheila Cayalu gives us her top airline picks as those stocks soar following Delta's earnings today. That story and a closer look at the action in other travel names and PayPal, which is getting hit today when we take you inside the Market Zone. Stocks rising into the close of 350 on the Dow. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here as always to break down these crucial moments of the trading day. Plus, Leslie Picker on J.P. Morgan's earnings and what is ahead for the banks.

Jeffrey's Sheila Cagliolo on the big rally in airline stocks. But let's hit the broader market because we are near session highs heading into the close. S&P and Nasdaq on track to snap a three-day losing streak. And, Mike, we've sort of been building throughout this final hour. The comments just now from Governor Waller of been building throughout this final hour. The comments just now from Governor Waller of the Federal Reserve really struck me. First of all, I thought he was very candid and very just plain spoken about the idea that he's not, he doesn't not worry that this is a Volcker type moment and that inflation is out of control like the 70s.

Thinks they can execute on a soft landing and gave some pretty convincing arguments that I wonder if that's what the market on these up days focuses on. And that is the fact that there's a big cushion in the economy, in what's happening with jobs and the consumer. We just heard it from Michelle Meyer at MasterCard, no slowdown, to take the higher interest rates and to absorb some of these inflationary shocks where when the Fed can move now aggressively, it has the space to do it and it won't necessarily sink us in a recession. Is that something the market can hang on to? I do think the market is in tune with that idea in general. And in fact, I think the other piece of it, which is that whatever the Fed is likely to do,

has been priced in to a large degree over the last few months. So if you look at the things like the two-year note yield backing off pretty hard in the last week or so, we've got past the CPI and PPI numbers, which really would qualify as the two known potentially scary events as it relates to what policy is going to mean and whether inflation is really becoming unanchored. And so we're past that. The equity market did not fall back into that kind of breakdown zone around the lows. And so you have a little bit of an upward grind because people got pretty defensive. I think all that makes a lot of sense. And the other piece of it, Sarah, besides the fact that, yeah, the consumer has momentum and some savings built up, is that we are in such a

high nominal growth economy right now, obviously mostly because of inflation, that it creates even a cushion in terms of overall activity. And so that's why the Fed feels as if on a nominal basis, a soft landing is actually relatively likely, even if on a real basis you do have a retrenchment. He says that inflation, he believes, has pretty much peaked and should come down in the next few months and is advocating for aggressive action now and not later. Let's hit the banks because J.P. Morgan is the worst performer right now in the Dow. It's hitting a one-year low despite beating Wall Street earnings and revenue expectations. Net income fell sharply from a year ago because the company set aside nearly $1.5 billion in anticipated loan losses. In the earnings release, CEO Jamie Dimon warning of higher probabilities of downside risk to the economy because of inflation,

also supply chain issues and the war in Ukraine. The deluge of big bank earnings continues tomorrow when Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley all report results. Leslie Picker joins us. Leslie, what clues could JP Morgan's results give us about what we're about to learn tomorrow? Yeah, I think the market's digesting the results from JP Morgan and extrapolating it to the big banks. On the positive side, what you saw with trading, analysts and investors were really expecting that to be kind of a wild card for the quarter, but it was really only down about 3%. FIC held up relatively nicely. That's fixed income currencies and commodities. So that fares well, especially for Goldman. And you can see Goldman shares are up about half a percentage point right now.

It also fares pretty well for Morgan Stanley, although they're more skewed toward equities trading rather than FIC. However, those provisions that you mentioned, the setting aside the $1.5 billion for potential loan losses, I think investors are reading that as a potential, potentially that J.P. Morgan is being conservative here, but it could also indicate that they're concerned about something bigger and more systemic happening with the economy that they just want to be prepared for. So you can see a little bit lower in Citi and Bank of America today, just kind of based on that dynamic, because that's important for them. Obviously, they have a large amount of loan exposure. Mike, what do these stocks need to work? And what did we learn about the credit cycle?

There is a lot of talk about that and what the buildup in reserves, Doug Cass, who's been betting against the bank, says. It shows that there is a turn here in the credit cycle for the worse. Market needs any sense that we've basically been panicking prematurely about recession and about consumer activity eroding. Is there a price for something like that? One of the things that's a big overhang on the banks is we did rush into late cycle conditions. And that is when they start building credit reserves. And they kind of didn't really have a lot of time in what you might consider

mid-cycle to just nurse the better net interest margins and return capital to shareholders and have a very clean investment banking story. So I think it's a little bit muddled. Now, things like J.P. Morgan, they're starting to look cheap on a five-, eight-year basis based on earnings. So if there's no financial accidents and we start to feel as if, you know, the recession scare is unwarranted, they'll probably do better. But they're not acting particularly well. The final point I'd make is over the course of earnings season, you often have the pendulum swing two different directions on bank earnings. Everyone gets geared up for weakness after

JP Morgan reports, and therefore the bar psychologically is lowered for the other ones. Financials are the worst performing sector right now, down two-tenths, even as we continue to see an improvement here in the broader market. Don't miss a CNBC interview with Wells Fargo CFO Mike Santamassimo tomorrow, 3 p.m., right here on this show. Closing bell after that company reports. Leslie, thank you. Leslie Picker. PayPal is one of the bigger decliners right now in the S&P. After a C-suite shakeup, the CFO, John Rainey, will be departing the company next month to become Walmart's new CFO. The world's largest

retailer has been making inroads, we know, into fintech as part of its strategy to generate new Resbo news streams. Kate Rooney joins us. Kate, questions about what this means for PayPal's future? There have been a series of different appointments on the earnings front and whether this means there are more resets to come. Yeah, a lot of questions there. And in the near term, Sarah, so PayPal has earnings coming up in two weeks. So usually when there's a big management change like this, companies want to give the markets something really good to chew on. So Mizuho and Dan Dolove, an analyst there, came out with a call on this this morning. I talked to him about the move and the shakeup. And he says if PayPal had some good earnings coming out,

they would have given some sort of pre-release. And we saw that with Marketa, another big fintech that lost its CFO a couple months ago. They announced that, but at the same time, they pre-released some of the numbers. PayPal notably didn't do that. So that appears to be one of the reasons the stock is getting hit today. The other thing here on John Rainey's departure, so the interim CFO is actually PayPal's head of IR. So that could be another sign that the move was pretty abrupt since there isn't a successor yet. And then when it comes to Dan Shulman, it just adds more pressure to what really was and is a high pressure situation. Growth at PayPal is slowing. They changed their user guidance last quarter.

They had a 700 million user target that they scrapped completely. So Shulman and the executive team are under a lot of pressure and really need to earn the trust of the analyst and investor community at this point. Now it's up to Shulman. He's really the sole person responsible for turning PayPal around at this point. He was sharing the limelight with Rainey. And so it's a tough situation for him. And he's really earnings will be big in two weeks here. PayPal stock up off 66 percent from from the highs. Kate, what about the flip side? So Rainey's going to Walmart. How do the companies that you cover and FinTech and payments like a PayPal view Walmart? Are they a real threat at this point?

It's interesting. It's actually been less about the Walmarts of the world and more about big tech. So Walmart was the example, I guess, more than a decade ago of a big company that was looking to become a bank. They weren't actually able to get a bank charter. And so they sort of scrapped them. They've been doing more of a partnership model. So it seems like fintechs really see the Walmarts of the world as potential partners, although someone like John Rainey moving over there could be a sign that they're going to take payments more seriously and start building things in-house. Big tech actually seems to be the real threat when it comes to a lot of the fintech companies. Bill Reddy, who was the head of Venmo, left to go to Google. So there was a

similar conversation around his departure. What does that mean for Google and Alphabet when it comes to payments? But some of these big companies are now just building things internally. It'll be interesting to see if there's less of a partnership model going forward. Absolutely. PayPal, one of the few losers right now in the triple Qs. All those tech names are rallying today. Kate Rooney, Kate, thank you. Zscaler, Zoom Video, Splunk, CrowdStrike, everything that's been beaten up hard, getting a big pop today, up 9% to 8%. Take a look at shares of Delta, also rallying a lot, 6% after reporting a smaller-than-expected loss. The company forecasting a profit for the current quarter. Delta CEO Ed Bastian was on Swapbox earlier today saying the company has been seeing an absolute surge in travel demand.

Listen. The demand is phenomenal. We've never seen in our company's history demand for our product and services at the level we are. In the month of March, we had the highest sales in terms of bookings of any month in our history. Let's bring in Sheila Kialu from Jefferies. She's got a buy rating, $45 price target on Delta. Sheila, and I believe this was your top pick. Why did this come as such a surprise? We knew how the airline executives have been telling us how strong demand is for a while. I think really, Sarah, people miss the

fact that everybody was so focused on costs in Q1. And that's really why we downgraded Southwest a few months ago. But the discussion shifted from costs to pricing power and how strong demand was, as you said, especially what Delta talked about in their March trends with corporate coming back 70 percent to 2019 levels, domestic premium only 10 percent below 2019 levels. So now the question is becoming how long could this strength exist for the consumer? And you've been talking to a lot of your folks about that on your segment today. Right. So, so far, it's pretty good when it comes to consumer spending, and airlines are a place that they want to spend. But if inflation does start to come down and demand comes down, then, Sheila, what do the economics look like? Because you still have higher jet fuel costs versus where

we were, you know, in years prior and some headwinds on international travel demand like China, which is still seeing lockdowns. So I think you're starting to see that shift in Q2, where capacity is actually 15 percent below 2019 levels, but your revenues are only 5 percent below 2019 levels. So that pricing power is really strong in Q2. And, you know, as your economist said earlier on this segment, as Ed Bastian pointed out, the consumer is strong and they're not seeing a slowdown. However, we published a travel survey this morning, our leisure team did, and is inflation going to start hitting that consumer at the lower end? So what happens if your airfare is going up by $100? That might not stop that travel, but if your Miami hotel room becomes $2,000 a

night, then does that pull back that consumer spending? And we're seeing that in our travel survey published today, where 40% of economies slash midsize hotels said they're going to see shorter stays if prices go up by only a 20% increase. So right now, investors are questioning the elasticity of this curve and how strong the consumer could continue throughout the summer into the fall. Well, not today. Today is a good day for everything that touches airlines, hotels. Boeing is leading the Dow. American Airlines is leading the S&P up 11 percent. So what do you do with these stocks now? Which do you like and which not so much? We really favored airlines into the quarter out of all the stocks we cover, whether

it was aerospace or defense or airlines. And it was on this pricing pitch because we saw strength across the board. So we continue to like airlines on pricing, and that's what we're monitoring. How long can the consumer stay strong? On defense, we don't expect a robust Q1 for the defense crimes, but we see defense budgets are going up no matter what, whether it's in the U.S. or NATO. So those are the two groups we're preferring right now. And we're putting a hold on the commercial aerospace suppliers. Got it. Sheila Koyalu, thank you for your take. And as I mentioned, the ripple effect, hotel stocks getting a big boost by Delta's outlook for business travel in particular. Seema Modi joins us. Seema, which companies here stand to be the benefit,

the winners and really benefit the most if business travel does roar back, if it does? Well, yeah, well, Delta CEO Sarah laying out clearly a very optimistic picture on the return of business travel as corporate travelers return and get back on the road. They're overwhelmingly staying at hotels over the short term rentals that really benefited during the height of the pandemic. Stocks like Airbnb, Expedia. The big winners of business travel continues to outperform. It's the hotel names like Marriott, Hilton, and Hyatt. I spoke to Marriott last week. They were telling me that demand for corporate retreats is trending higher week over week.

So that means corporations are now starting to deploy more of that travel money that we really didn't see last year and of course not in 2020. One thing to keep in mind though on the topic of interest rates, just in the past month we have seen the US hotel pipeline raise some concerns as construction has slowed by as much as 16% compared to the same time a year ago. So the fact that developers are slowing down their pace of construction, that tells you that over the long term,

they're still concerned about the full recovery in travel. But right now, Marriott on pace for its best performance in nearly two years. And you'll see Airbnb also on track to break its three-day losing streak. Seema Modi, Seema, thank you. Mike, just want to hit the broader market right now in this recovery we're having. We're still down for the week, but it's shaping up to be a pretty strong rally and a broad rally.

And what's notable today is that Treasury yields are lower. And you might expect after two very strong inflation reports that, you know, you keep seeing selling of bonds, but it's actually going the other way. And I wonder if that's giving the market some support today and whether anything's really changing underneath. Yeah, because it does build the sense that the markets have already gotten to this place of anticipating these hot inflation numbers. Obviously, bonds were already very oversold, too.

So, you know, Treasury yields were stretched to the upside. They probably needed a breather no matter what. But it definitely does show you that equity investors were not going to be blindsided by these numbers, if nothing else. Again, put it in context. The S&P 500 did kind of firm up about in the lower end of this several-week range. It did not break down further. I think it's really the absence of a negative, absence of follow-on selling pressure. You have some decent seasonal effects coming up, the lifting of some tax loss selling. So I think all's really the absence of a negative absence of follow on selling pressure. You have some decent seasonal effects coming up, the lifting of some tax loss selling. So I think all that stuff is probably in the mix right here and probably also relatively impressive that it's happening when the banks continue to be on the weak side. So everything else but the banks is more or less a contributor.

Well, it also shows that the earnings commentary is going to matter a lot. And we might not get the same thing out of various sectors. The bank, you know, the line out of the banks were bumpy times ahead and caution and potential recession and changes in the cycle. And then the word from Delta was spending, pricing power. It's going to be key. And I guess it could be, Mike, a tale of different sectors and different stocks, depending on brand strength and where the consumer wants to be right now. Yeah, it always is a push-pull during earnings season, probably more so this time. What's interesting, too, the investors seem to want

to embrace this huge transition into services from consumer goods. The issue with the index is consumer services just isn't that big. I mean, discretionary consumer services. That's why the travel stocks go. Restaurants, very small market cap relative to overall national restaurant spending. So it's interesting. There's not that many places for it to go because media is more non-discretionary. Well, we've got just about two minutes to go here in the trading day. And as I mentioned, the gains have continued pretty much for the final hour, especially hard hit parts of the Nasdaq are doing well today. Nasdaq 100 up 2 percent. Mike, what are you seeing in the internals right now? It's been quite strong. You know, even the last two days, the indexes were lower. Breadth was a little bit better than you might expect here.

You got 80 percent upside volume. So that's a relatively strong showing. We were talking about the travel and leisure related stocks. Look at them compared to home building related. And that shows you the story of the last month. Basically, people feeling like durable goods, not the place to be. Services have the advantage. And I would say the volatility index now down below 22. Again, it shows you we were braced for something potentially scary with the inflation numbers. Now that's draining away. It still looks like, you know, it's a short term uptrend. You'd want it to relax more. But so far,

not getting in the way of the market. Mean reverting higher here. As we go into the close, take a look at the Dow. It's up 331, almost a full percent. Most Dow stocks are higher, especially strength in places like Boeing. Actually, only two Dow stocks in the red, JP Morgan and Travelers. Boeing, Microsoft, Home Depot, American Express adding the most to the Dow right now. S&P 500 up a full percent. We've got real strength in consumer discretionary. We mentioned the travel names. The retailers are having a good day as well. Two and a half percent gain for that sector.

Financials and utilities are lower. Technology is doing well. Also, Amazon, Apple, Microsoft, Tesla, NVIDIA, Google all lifting the NASDAQ right now. PayPal is a drag there. There goes the bell. NASDAQ up 2 percent PayPal is a drag there. There goes the bell. NASDAQ up 2%. Russell 2000 also up 2% on the small cap. That does it for me on Closing Bell.