Closing Bell - Closing Bell: Stocks soar, Gary Cohn on Fed's rate hike & CVS' CEO on earnings 5/4/22

Episode Date: May 4, 2022

The Dow rallying more than 900 points after the Federal Reserve announced its biggest interest rate hike in two decades and Chairman Jay Powell ruled out even more aggressive hikes. Fmr. National Economic Council Director Gary Cohn reacts to that decision and explains why he sees value in the market right now. And CVS Health CEO Karen Lynch on her company's strong earnings and how less spending on Covid tests and vaccines could impact the business.

You're listening to Closing Bell in Progress. Fed Chair Jay Powell, first in-person news conference from the Fed in two years. First half-a-point rate hike that we have seen since back in 2000. Also announcing plans to trim the $9 trillion balance sheet. Boy, what a rally. Take a look at the stock market. Turned on the Fed Chair's comments and kept going higher. We're now at session highs where the Dow's up more than 700 points. S&P 500 up 2.4 percent. The Nasdaq up two and a half percent. Everything rallying.

Treasuries are also rallying. Yields are coming down and the dollar is weaker. The takeaway there, he wasn't as hawkish as maybe some had feared. And he ruled out the 75 basis point hike. That was the question from Steve Leisman. We'll talk to him in a moment. But if the market was thinking that that was coming next, he really said more 50s are on the table. Check out the most actively traded names here at the New York Stock Exchange as we enter this final hour of trade right now. Uber down 4 percent. Earnings after the bell. AT&T, NIO, and Ford continue to be among the most actively traded names every day here. Joining me at Post 9 for some instant Fed reaction, former National Economic Council director and former Goldman Sachs president Gary Cohn. Always good to have you on a Fed day. What

a rally. So it was baked in. Yeah, I think it was baked in. I think the chairman like drove it right down the middle of the road. He didn't hit either guardrail. He said exactly what people probably would have hoped he said. He gave pretty good information on the balance sheet. You know, I think people are priced in the rate side of the equation. What they're worried about now, and I think what people are starting to talk about, is the quantitative part of the equation. We've gone from QE, we're going to QT. And I think the chairman very obviously told us how they're starting, where they're starting. They're going to ease in and they're going to expand. And we're going to the number that we were told he was going to. He even

laid out, you know, how they were going to do it, what securities they were going to sell. And the market likes that. You know, the market has been trained to have transparency and we got transparency. He has this new forward guidance where he is very open about what he's going to do, and it gets priced into the market, and then we have a relief rally like this. I thought it was interesting that he opened the news conference with an address to the American people. Inflation is too high. We get it. He used the word attentive a number of times, and he used the word expeditious a number of times in terms of how many rate hikes we're going to see to try to correct it. Yeah. He opened up talking inflation's too high. Labor market's tight. He talked about the PCE

being six and a half percent. He talked about without food and food and energy, it being five point two percent. And then he used the new word adapting. We're adapting. Well, because their view on inflation is totally we're adapting. So I thought that was very interesting in his prepared remarks. He came out and talked about adapting. We have a Fed that is now adapting to the new inflationary stance that we live in. So what does it mean? We'll get another 50 basis point hike? So look, he also mentioned, if you listen clearly, he said two 50s. I think he admitted to two 50s. Sarah, I think if you take a step back and you look where we are, I think we have five Fed meetings left the rest of the year. There's no August and no

October Fed meetings. He admitted two already. I think most people think Fed funds end the year around 3%. That's probably conventional wisdom right now. That's where the market has it priced in. That would most likely mean we would have three 50s and two 25s. We don't necessarily have to have the three 50s in a row. So the chairman already told you it looks like two 50s for the next two meetings. The next two meetings, June and July. Then we take a break. We actually have August off.

So when we come back in September, the chair will look. He'll have a lot of data between now and September. So if things are starting to moderate, inflation is starting to moderate, he's having his effect on demand, which the chair also admitted. He can't deal with the supply side. He can deal with the demand side. If he's having the outcome effect he wants on demand, then he's got optionality when he comes to September. If he's not having the effect, September could be another 50. And then you could have November, December be 25. So I think he's laid out sort of the roadmap for the next two rate hikes being 50s.

So what does it mean, Gary, for the markets? Because stocks are zooming here and bonds are rallying. The curve is steepening. The 2 is 10 steepening. It all makes sense it's priced in. But do you see a potential for more of a rally beyond today on this idea that the bond market just got too hawkish? Look, Sarah, I think a lot of people have priced all this in. And the fact that the chair came out, he acknowledged where they were. He reconfirmed they're behind the curve.

He said we're adapting. We're going to do what we have to do. We're no longer talking. He didn't mention the 8 or 11 increases that you mentioned last meeting. He's now talking about 50s. I think the market's starting to say, OK, we've got this pretty well priced in. I don't think there's a lot of surprises out there. We've taken a lot of the lot of surprises out there. We've taken a lot of the fluff out of the market. We've taken a lot of the hot air out of the market. The excesses. We've taken the excesses. A lot. The excesses have been removed.

Good word. We've taken a lot of the excesses out. We've now got some real value. So the stock market today is reflecting some of those values, some of those asset prices that have been beaten down. And the rate market had already moved. We already saw 10-year rates more than double. We've already seen, you know, two-year rates more than quadruple. And so we've had the movement. The market has put the movement into rates already. And the market's sort of getting a vote of confidence that they're right where they've got things priced. And it's probably not going to get much worse than that. And so that tends to lead market practitioners to say, OK, we sort of understand the outcome and we maybe have a little bit more predictability today than we did last week.

And we like predictability. And therefore, we are willing to put a little bit more risk on the balance. And I think also even hawkish Powell isn't too hawkish, could be more hawkish. Every sector is higher right now, by the way. Dow's up 700, more than 700 points. Every Dow stock is higher. Gary, stay with us. We do want to bring in our senior economics reporter, Steve Leisman, who was part of that news conference, Steve, and I thought asked the money question, which turned the market about consideration of a 75 basis point hike. Yeah, it was the question to ask and i was lucky to have it to be asked being up early in the roster there but i think what's really important and i think i

just heard the tail end of what gary was first saying when i came here i i think gary has this right here's the deal uh 50 is the new 25 and 75 is the new bell-bottom jeans and i mean that by uh it sounds like 50 is the new base case. And I think that's what Gary was saying, essentially. He said, well, you know what? Let's listen to what he actually said and listen very carefully to what he says at the very end here. We'll come back and talk about on the other side. We need to really see that our expectation is being fulfilled, that inflation, in fact, is under control and starting to come down. But again, it's not like we would stop. We would just go back to 25 basis point increases.

It'll be it'll be a judgment call when when these meetings arrive. But again, our expectation is if we see what we expect to see, then we would have 50 basis point increases on the table at the next two meetings. The next two meetings, that's what he said so that's so here's what the market is so excited about it's kind of interesting uh the market would have priced in 450s uh before this meeting it got one of those 50s now so call it 350s and one of those possibly a 75 now it hass for sure. And now he's taking 75 off the table. I don't know how great, but it's interesting to me, Sarah, how incredibly discomforted the market was from the idea that a 75 was hanging out there and how comforted it is that the 75 was off the table. But instead, there's two 50s for sure now. Well, pretty much for sure. I agree. I agree. I was surprised at

how far the market went, I guess, Steve, at pricing in a 75 basis point hike, because it's not like any, I mean, you talked to Bullard about it. It wasn't even his base case and he's the most hawkish one out there right now. That's what started all the nonsense, you know, and I don't even, you're right. Jim didn't make a strong case for it. I think Jim was simply not taking it off the table. He said 75 basis points is out is possible, but it's not my base case. Mary Daly said 25, 50, 75. We'll debate it. And then what happened is the chairman came in and put the hammer on that discussion.

He came in and he put the hammer on. He said 75 is not on, not going to happen. And I think to be fair here, Sarah, the idea for the market that there are some rules or some restrictions around how much the Fed might make the market digest every month, I can understand how that's comforting. If the whole thing was random, that's, I think, what scares the market. Now I think they have an idea of the trajectory of the Fed funds rate for the next at least couple meetings. Making new highs here of the day, up $7.75 on the Dow. Steve Leisman, thank you very much. The question, Gary, is it going to be enough? Sarah, the other thing I'll point out is we had a unanimous vote. Remember, a month ago, we did not have a unanimous vote. So what Steve's saying, and we're agreeing, is we got to 50,

and there seems to be universal consensus in the room that 50 is a good number. The chairman said 50 for the next two meetings. So, you know, now there's unanimity in the room. It's a big difference than dissenting votes. In that soundbite also, what you heard was, if anything, we move from 50 to 25. We don't move from 50 to 75. Exactly. And that's very not hawkish. I guess my question, though, is, is it going to be enough? If we have not seen the highs of inflation, he mentioned all of these new shocks that we're seeing from Ukraine, from China, which was now mentioned in the statement for the first time. Are they going to be able to get a handle on it? Well, I think the chairman also admitted something that everyone knows. They can deal with the demand side with interest rates. They can't

deal with the supply side. So to the extent that we continue to have an oil shock, and I said a month ago, I'm not worried as much oil as I am food. I'm worried about food. I'm worried about grains. I'm worried about the agricultural products. The oil is out there. We can get it if we need to get it. The grain market is the one that scares me. And we're just now in crucial parts of the grain market. We're in certain harvesting seasons for winter wheat. We're in planting seasons. And they're not going as well as we'd like them to go for drought conditions, other weather conditions around the world and war conditions.

You can't plant crops in Ukraine in the middle of the war. And there's nothing the Fed can do about that. That's absolutely true. And look, I think the chair acknowledged that as well. If we're seeing some of these inflation numbers and he went out of his way to quote the ex-food and energy inflation number, they realize they can't deal with the food and energy number. They're going to deal with the core numbers. What he can tamp down is some of the wage inflation. And look, yesterday we saw the jolts data. We saw 11.6 million job openings. We saw 4.6 million quits, which is, you know, the quits number to me is almost more interesting. It's a series high. People don't quit a job unless they're going to get another job at a higher

price, at a higher wage, and they're confident they're going to get that other job. So meaning the Fed is going to, it's going to be tricky for them to bring this. Are you saying that inflation is entrenched? It's not easy. Look, this is not easy. No one should think what Chairman Powell is trying to do is easy. He's trying to soft land an economy. They are behind the curve. They're not out in front of it. It would have been a lot easier had when we seen the beginnings of inflation, which look, they thought it was supply chain issues. They thought it was pandemic related. No more transitory talk. We thought I didn't say the word transitory. I refuse to say that. They thought it was supply

chain issues. They thought it was pandemic issues. They thought it was restarting the U.S. economy and it would come out of the system. Not a totally irrational thought. This was real demand. This was real economic factors at work here. So they're behind the curve. And so they've got to figure out how to get there. The piece that he can control, and he admitted it, he can control the wage growth by tamping down economic growth. That's where he has to go. So what is that going to look like? And is it going to lead us into recession? Because that is also the question that the market's been trying to figure out. So where we are today, and you and I just heard this over the last two days at Milken,

you know, corporate America, the overnight flights back. Exactly. Corporate America feels good. You know, if you talk to anyone in a consumer-facing business, they'll tell you business is good. Business is robust. Maybe people are trading down a little bit in product, but business is still good. Sales is very good. You look at corporate investment and capital investment, it's still very good. People are out spending money. We just talked about job creation.

Job creation is here. So, look, for the foreseeable future, which I will call between now and maybe the end of the year in economic terms, the economy looks pretty strong. Going into next year, it's harder and harder to predict because we've got the Fed raising interest rates. We've got the Fed starting to liquidate their balance sheet, which I think people should spend more time thinking about what that means. Not only are we going from a buyer of securities, we're stopping buying, we're flipping it around and being a seller of securities. Someone's got to buy those treasuries. So someone's got to buy those treasuries. So look, we may end up in a recession. Look, I do know something. At some point in our lives together, we're going to see a recession again.

I guarantee you we're going to see a recession. So we have to look forward. It doesn't feel like we're there now, but we could get there. But there's a lot of positive factors as well. The good news is we're starting with a lot of positive momentum. True. I just want to point out what's happening in the market because it is a broad based rally and it's picking up steam as we go into the close. Very strong. The Dow's up two and a half percent. Every Dow stock is higher right now. Home Depot is the right now. Home Depot is the biggest contributor. Again, that's where some of the pain has been. Consumer discretionary, housing related. Goldman Sachs, your old firm, also contributing to the Dow rally a lot. Honeywell, 3M, IBM. It is broad-based. Look at the S&P 500. Every sector higher. Energy's in the lead,

up 3.5%. It was higher all day long on this EU proposal to cut off Russian oil and gas. But the financials have joined the party big time. Utilities, industrials, health care, staples, materials, consumer discretionary techs having a solid day right now. The Nasdaq 100 is up three percent. And that's that's really where the brunt of the pain has been on higher interest rates. Would you buy would you buy Netflix right now down 70 percent this year? It's not what I do for a living. I don't buy single stocks. I'm just saying, some of the beaten down parts of the market where valuations have really corrected, like tech, appealing.

Now that we know from Powell what the plan is and it's already in the market. When I was here a month ago, I talked about multiples. We had to see a contraction in multiples. When the Fed is throwing the party and they're throwing money all over and money is easy, money has to go somewhere. So multiples expanded. And we saw multiples really expand. When the Fed's tightening and they're taking liquidity out of the system, multiples naturally have to contract. The question is, did the market contract the multiples enough? That's what I'm asking you. To buy it right now. You know, it feels like we've clearly gotten there, but I'm not smart enough to say absolutely we've gotten there.

You know, jump in. You know, it's not what I do for a living. What about bonds, though? Would you be a buyer of bonds here on the fact that they got pretty stretched also on the downside? Tenure reached 3% yesterday. You know, look, it looks like you're getting some return here. You're getting some more return. But we've seen very orderly moves in the credit spread markets. So, you know, when you look at what's going on in investment grade and you look at what's going on in high yield, we have not seen

really volatile markets or irrational markets. We've seen those credit spreads move, you know, in very, very orderly fashion. We've seen those credit spreads move in very, very orderly fashion. We've not seen massive widening in credit spreads. So the credit markets have behaved very orderly. So there's opportunity there. You're definitely getting a much higher rate of return to buy a high yield bond today than you were three months ago. So there seems like there are opportunities in some of those markets. That doesn't mean that the underlying yields can't go higher. You know, I think that the chairman made it pretty clear. We're going to do two 50s.

We're going to take August off. We'll come back in September and we'll see if we need to do another 50 in September. We'll do it. If not, our next muscle memory is to go back to 25. Finally, Gary, there's a lot of 900 on the Dow. It's all you. No, just kidding. It's all you. Chair Powell speaking, turn the market around. And it has just continued to climb to new heights,

up 900 now on the Dow, almost 3%. So really a relief rally more than anything. I'm watching IBM over my shoulder. $5.11. Come on. Gary, vice chair of IBM, should note. But here wearing another hat today, a lot of talk about should note, but here wearing another hat today. A lot of talk about neutral. We're going to hear about neutral. Neutral. What is neutral? What is the significance of it?

And should the Fed be telegraphing some sort of neutral rate? And should the market be worrying about going above neutral into restrictive? Explain these words. You and I have talked about neutral a lot. You know, neutral is one of these concepts that, you know that if I could make it disappear, I'd make it disappear. I'm not sure the Fed might make it disappear if they could wave a magic wand. This miraculous rate where we're not contracting, we're not growing the economy, and it's miraculously neutral today. Is it the same rate tomorrow? Was it the same rate yesterday?

It's a hypothetical place where we're basically at a standstill. It's a nice concept, and I'm sure we can pass through it for a millisecond, but I'm not sure we can stay there. It's a place that we can stay and say, look, our target is to be neutral, and we're going to stay here for a long period of time. Really quickly, because you have such a good feel on the markets, Does the Fed still, he was asked if he worries about his credibility. He addressed the American public. We understand inflation. We know it's painful.

They were late, as you said. Do they still have credibility when it comes to this fight? Look, I think the opening prepared remarks clearly had to do with the fact that he, the chair, is trying to assure the American public about their credibility, that they're on top of the situation, that we should feel confident that they can attack inflation, that he was trying to be sympathetic, that he feels people's pain when they're holding down the gas nozzle and, you know, it's becoming a triple-digit number to fill up your gas tank. So I think the chair tried to appeal to the public today, which was a good idea.

I think the jury's still out on the credibility. You know, he's late, but doesn't mean the story, the last chapter of the story has been written. If he miraculously lands this relatively softly or if he even lands it not hard, I think he will have credibility. And I think you went a long way today of telling you, I've got 50, I've got two fifties lined up. I've got some time off and we're prepared to do more. And so look, he's going to need things to go well. You know, he's in, as you said, I'm in control of demand. I'm not in control of the supply side. And that's where a lot of volatility is right now. Gary Cohn, thank you very much for the time and the analysis. Come back soon. We got to talk about the midterms and this new outlook. Meantime, Dow just roaring here up almost 900 points.

Technology also on a tear. Apple, Microsoft, Facebook, Tesla leading the triple Qs. Coming up in the market zone, Uber and Lyft, both sitting out this sharp rally on the back of earnings. We'll tell you what Lyft's president is asking from investors as his stock loses a third of its value today. Plus, we'll talk exclusively to CBS CEO Karen Lynch about her better than expected results and guidance. And do not miss DoubleLine CEO Jeffrey Gundlach, his reaction to the Fed in the market rally. That's going to be at 4 p.m. on Closing Bell Overtime. We'll be right back. We are now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day.

Plus, CVS Health CEO Karen Lynch on her company's earnings this morning and Jefferies Chief Market Strategist David Zervas on the Fed. Markets near session highs. Take a look at this rally after the Fed just raised rates by 50 basis points. It was a double. They announced plans to start trimming their balance sheet. But Mike, I guess it could have been worse and more hawkish because the market was very relieved to hear that the Fed is not considering 75 basis points, which would be a triple hike. And Fed Chair Powell really laid out a pretty clear roadmap that was already there.

What do you make of the reaction? Exactly. And we were somewhat spring loaded. I mean, the market we've been talking about for a while was pretty bared up and investors were going around collecting new things to worry about. And that included the possibility that the Fed was going to be even more full steam ahead, wanting to keep that 75 basis point potential for a hike out there and essentially being interested in breaking things as opposed to just trying to get back to normal. So given the position we started in, it seems as if we just sort of triggered that same reaction we had in the past two Fed meetings. We went into all of them at the correction lows, January, late January and mid-March.

And then once we cleared away the actual fact of the meeting and in the last case, the rate hike, we did spring higher. Now, where have we gotten to? The S&P 500 has essentially just burned up a bunch of the oversold conditions at 4,300 or so. That's where we closed last Thursday. So there's work to be done. And I think there's a lot of people who said, let's not get too negative. Now the interesting part happens. Are we still trapped in this real narrow range up to 4,400? Or can there be a little bit more lift to it as we clear this uncertainty away? And I'm just looking, everything's rallying right now. It's very broad-based, Mike. But if you look at what's working best, yes, energy, we saw higher oil prices on more concerns out of Russia, Ukraine, and Europe, but also communication services and technology. Those are your two best-performing sectors. NASDAQ 100 jumping about 3%, more than that, 3.25% right now. Just the most beaten down names. percent, more than that, three and a quarter percent right now.

Just the most beaten down names. Yeah, the beach balls that were held the furthest underwater have popped the most. And if you want to go look at the lower quality, super trashed sectors of the market, they are flying as well. That's normal. That's the way it happens when you basically go from a deeply oversold spot and then finally get a little bit of relief in buying power. A lot of the selling had sort of dried up coming into the last couple of days. People were talking about volumes were light, but it just was no conviction on the buy side. So this was enough, I guess, to get people to say maybe we can try again and see if we get another one of those, you know, five, seven, 10 percent rallies, which is what happened after January and March.

We'd also note that Treasury yields are falling and the dollar is weakening, both relieving some pressure on those hard hit areas as well. I want to hit some individual names. Shares of CVS climbing today after reporting earnings this morning. The company beat estimates, also raised its guidance for the full year. CVS also reported increased demand for prescriptions, but demand for COVID vaccines and testings declined. Joining us now for a CNBC exclusive interview is CVS Health CEO and President Karen Lynch. Karen, it's great to see you.

First, talk about the raising of guidance and what gave you confidence to do that. We haven't seen it too much this earnings season, given the uncertain outlook right now. Hi. Yeah. Hi, Sarah. Very nice to see you. You know, first of all, I would say that we had very strong revenue growth, 11%. We grew earnings, our EPS of over 8.5%. Every single one of our businesses

performed, had very strong performance. And clearly this is our strategy in action. We rolled out a strategy in December. We're making very strong and meaningful progress, and we're meeting consumer demands across every single one of our businesses. What about the COVID factor, though? How do you calculate? It's obviously been very helpful, and the retail sales were strong, prescriptions. But with the vaccines and the testing demand, how do you forecast what that's going to do to the rest of your business for the rest of the year and into next? Yes, Sarah, obviously what we've learned with COVID is most unpredictable variant that we've seen. What we've predicted is that testing, we'll continue to see testing, but we'll continue

to see a decline in testing. We factored in the fourth booster, but we'll continue to see a decline. But we've got strong performance across every single one of our businesses. We're having good results from our front store. We've taken script share eight quarters in a row. Our healthcare business has performed quite strong. We're benefiting from our strong revenue growth in Medicare Advantage. And we had the strongest selling season for the first quarter in our pharmacy business. So solid results all around. What about inflation, Karen? Topic du jour, just heard from FedShare Jay Powell. They're focused on it. How is it impacting you? Everything from the drugstore business to the prescriptions to insurance. Where is it showing

up the most and how are you coping with it? Well, it's interesting because it shows up across each of our businesses very differently. In healthcare, inflation will have an increase in premiums. We'll offset some of that through the change in interest rates. We have a strong bond portfolio. So as we're selling off bonds, we recognize and realize capital losses, but we'll see gains over time in that portfolio as those higher interest rates kick in. In our pharmacy services business, we haven't seen a big impact. All the grand inflation, generic inflation within our expectations. And then in our retail business, we've had very strong pricing power. We have alternatives through our store brands and our subscription program are offsetting some of

the impacts of inflation for our customers. Quickly, Karen, just in light of what happened yesterday, the leak of the document from the Supreme Court potentially overturning Roe v. Wade and some of the moves we've seen from states like Texas on potentially overturning Roe v. Wade and some of the moves we've seen from states like Texas to crack down on abortions. I'm curious in your insurance business what you're seeing from companies whether whether they're making moves and adjustments to cover abortions out of state and and to make reproductive care more accessible even in the last 24 hours what are you seeing seeing? Yeah, so Sarah, we've been talking to our customers for a long period of time. You know, they've been interested in, you know, what

opportunities they have in benefit designs. We're working very closely with them on the choices that they want to make relative to their benefit designs, you know, and we'll work with them in making sure that we administer those plan designs in accordance with applicable law. And, you know, and we'll work with them in making sure that we administer those plan designs in accordance with applicable law. And, you know, every day we're having those conversations with customers and we've seen an increase in the conversations today. Yes, I would expect that. Companies are doing that. Karen, thank you for the color. Great to talk to you on earnings. Thank you, Karen Lynch, CEO of CVS Health, which is jumping 5%, along with the

broader market, which is sharply higher right now. Top investor Bill Gurley from VC firm Benchmark was on tech check earlier today. Here's what he had to say about sky-high valuations. Listen. When you have a fraud, the world and everything trades on price to revenue multiples. People, you know, talk about all kinds of numbers and they don't talk about the bottom line. So you have a ton of, you know, this adjusted that, you know, and people want, you know, real earnings. They want real free cash flow now. And so all these companies that have lived in this, you know, high froth environment for the past decade, they kind of have to readjust. And I think the sooner they do it the better. Question my cat

have we started to see that from some of these newly public companies and. And other sort of frothier parts of the market where they are. More focused on things like cash flow and profitability given. The markets complete moved mood

shift here that Gurley talked about. Yeah I would say that the peak in buy it at any price based on. You know on high sales multiples and the total addressable market and forget about profitability, that's probably 15 months ago was the peak. So we've obviously had a lot of those types of stocks crash. The IPO market's basically been closed for a few months right now, especially to those type of high growth companies. To me, the interesting question is, if that psychology pervades the

private market, private companies, what is it going to mean for the pipeline of spending, which goes into things like Facebook ads to build brands for startup companies? I think that's the big question for investors right now is exactly what the profit trail that goes from indiscriminate spending of venture capital money without an eye to profitability toward the profits of existing large companies that we now try to place a multiple on. Session highs up 3% right now on the S&P. We've been showing you the Dow tick for tick up 950 points right now as we head into the close. Take a look at the ride sharing companies, though. Uber and Lyft not in the celebration. Under heavy pressure today, Uber reporting a narrower-than-expected loss and a revenue beat. The company also says it won't have to offer significant incentives to maintain its driver base, which is at a post-pandemic high.

Meantime, Lyft shares plunging there, down a third of the company. On week guidance, warning it will have to continue spending on those driver incentives. Lyft president John Zimmer weighing in on the stock sell-off this morning on Squawk Box. Listen. It's a choppy market environment right now as a whole. And the market wants to understand the business model coming out of the pandemic. And we asked them to give us one more quarter to make investments that we feel like are the right thing to do for long-term profitability. Not giving them the benefit of the doubt today, Deirdre Bosa joins us. Uber says it doesn't need to spend significantly on driver incentives, but with

Lyft continuing to spend, will Uber eventually have to? Is that why it's down today as well? Yeah, I think that's exactly why, Sarah. I think the market doesn't really believe Uber when they say that they're going to get to free cash flow, they're going to get to a better measure of profitability. If their biggest competitor is going to be spending on driver incentives, that is going to change the balance once again. So will Uber have to continue to invest? I did speak to CEO Dara Khosrowshahi earlier, and I said, what makes you so confident that this is the right strategy,

that you're not maybe giving up your lead to your competitor? He says that he's confident in the super app strategy. So they're getting drivers and couriers from the delivery side, from the ride sharing side. We'll have to see how that plays out. But to what you and Mike were talking about in reaction to that Bill Gurley thought that you just ran,

these companies are well aware that they need to start showing a better measure of profitability. It used to be adjusted EBITDA. They've hit that. Now they're talking about free cash flow in the case of Uber. So we'll see when they get there. But right now, I think based on what the stocks are doing, the market doesn't buy it. So just to be clear, Deirdre, not a problem with demand, right? Certainly not from Lyft. Didn't seem like it from Uber. People are going out again. It's all around this driver shortage issue and what they're

going to have to do to fight it. Is that the big issue? I mean, Lyft is near pre-pandemic levels. I believe Uber is there. So demand isn't the problem. They're cautiously optimistic that this year is going to be better than last based on what happens with future COVID trends. But it is the driver supply. Yes, many of them left. We are in a tight labor market. This is the independent contractor model, which they say employees like because it gives them flexibility. But we haven't really seen that in a big way because they are having trouble getting drivers back on the platform. So, yes, Sarah, that is the problem. Deirdre Bosa, Deirdre, thank you.

And do not miss a CNBC interview with Uber CEO Dara Khosrowshahi tomorrow, 8.30 a.m., on Squawk Box. Stocks are surging. The Dow is up 960 points here into the close. David Zervos, wouldn't be a Fed day without him. The chief market strategist at Jefferies. What a reaction to Fed Chair Powell. You think it was the fact that he ruled out that 75 basis point hike and confirmed market expectations? I think that's a part of it, Sarah, but I think it's just we now know. We now know what we're dealing with over the summer. We've got 250s pretty much locked in we know what uh an aggressive

policy response to this inflation outcome looks like and a lot of us didn't know exactly what that was the committee had to debate that they debated it they came up with a unanimous decision i think that's important there's not a lot of dissents uh they're gonna go pretty strong but the market was pricing in the risk of something stronger and you, you know, Sarah, just not to get too ahead of ourselves, this is exactly where we were Thursday, Friday last week in terms of S&Ps, the dollar and a lot of other indices that we would look at for financial conditions. So I think the market just saw the beginning of this week and got a little bit nervous that it could get more aggressive, especially after last FOMC meeting when they delivered a very hawkish S&P relative to market expectations.

So I just think it's a standard relief rally to a Fed that is not as panicky as some might have feared. And I think that's important. Well, also a big reaction in bonds. Yields came below that 3 percent on the 10-year yield. A big bounce there. Bulls steepening in the yield curve. The dollar is weakening. Even the Japanese yen is strengthening. Powell basically did it all. Investment implications, though, beyond this just reaction in the near term? We're going to get hit pretty hard with monetary accommodation removal. The risk was we were going to get hit harder. So it was just a question of how hard he was going to punch. And the punch wasn't as severe as feared. That doesn't mean that he can't up the ante as we go

through the summer and the inflation data don't cooperate. We all will be waiting to see that. I think the other thing about his press conference that was important, Sarah, is he is so focused on the inflation. He's not talking about any serious cracks in growth or the labor market or the housing market. So you really, really need to see this inflation come down and come down in a relatively, I don't want to say aggressive, but in a calculated and continuous way. Otherwise, he's going to have to change course a little bit. So it's a reprieve. There's no question we get a little bit of a springtime reprieve from a less than aggressive J than we had feared.

But generally speaking, I think we should all be on the lookout for for something that's more aggressive in the future, not a an immediate pullback and say, oh, all is clear. We nailed this. It's good. Even if the inflation data come out OK. Also, to your point and the fact that he was so serious, you know, speaking to the American public about inflation and the duties that they have. I do wonder if that, you know, if there is a policy mistake, it's more in the camp of recession than in letting inflation stay too high for too long. And they're and they're willing to tolerate that. So, David, that seems to me to be a big risk for stocks beyond beyond today and maybe the near term? Yeah, I'm with you, Sarah. I think they're gonna err on the side of really pushing inflation back into a hole. Even if we get good numbers, I think they're gonna still remain cautious.

There was a point in the press conference where someone asked him about fiscal policy and he made an off-the-cuff remark about how, let me just figure out my job, which is getting inflation down here, and then I'll be able to give some advice on fiscal policy. I think there's a bit of self-deprecation going on, a bit of soul searching going on that just says, hey, we've got to get this done. They're hoping that this is enough. The market priced in a little bit more. They gave them a little bit less. It feels good today.

We're only back to where we were last week, which is still down 10% on the year. I wouldn't get too overly excited about some runaway and risk assets here. That's my take. Mike, where does the market on the notion of a soft landing and whether he can pull it off? Well, first of all, I don't think the market is presuming a hard landing, because if that were the case, we'd be a good deal lower. That would mean a recession. That would mean a lot lower earnings that we're now contemplating. So I think there's some decent probability assigned to some version of a soft landing. There's always scares along the way, whether you get to the soft landing or not. So I think it's going to just take it in bits, not necessarily try to project, you know, nine months

ahead to say where this all ends up. And I think for now it's palatable, given all the risks we've already discounted at the moment. Also, another piece of it that the market seemed to, you know, grab onto from the press conferences, Jay Powell said the obvious thing, which is their forward guidance has had a lot of effect. It's priced into the market a lot. So we're already kind of there in terms of, you know, the known tightening trajectory for the moment. So, David, would you be buying tech stocks? NASDAQ's still down about 17% this year. Sounds like you're not fully convinced. Yeah, not really.

Look, I think we can have a nice little bounce here. Maybe we go back up another 100 points to ES&P, and, you know, your short-term views are you maybe sell around that. But I think this is a covered call kind of year. That's how we've set it up from the beginning of the year. I don't see the big runaway upside. I'm kind of coming to grips with the idea that the runaway downside isn't there either. And maybe that's all what the VIX is starting to price it today, coming down so hard. But I think the upside is going to get pushed very hard against by the Fed. They're going to use that as an opportunity

to be more hawkish and get inflation down faster. But when they see the S&P down 13 to 14, the Nasdaq down 23 to 25, they probably don't want to push as hard. They don't want to create anything too messy. Maybe that's what we started to see. S&P now down 9.8 percent for the year. David Zervos, thank you for your first reaction from Jeffries. Really quickly, Mike, what are you seeing in the internals? Oh, it's positive. I mean, obviously it had a big kind of buying binge. Once we did get clear of the Fed meeting, you see there, 4 billion shares advancing to half a billion declining. So basically, very comprehensive.

Banks versus energy over the past six months diverged, right? This measures why when inflation became a threat to growth and credit, as opposed to just being a good thing, and now both curling up, that's a slight net positive for the moment. The VIX getting crushed down to 25. It was 36 a couple of days ago. So that's another good spike in the chart market trying to stabilize here. The VIX futures are back in an orderly direction as well, Sarah. As we go into the close, a 3 percent gain for the S&P 500. What a reaction to Fed Chair Jay Powell. The Dow is up 935 points right now, just about at the session highs. Every sector is higher.

Every Dow stock is higher. Energy leading the way. Communication services, technology, and materials are your three best performing sectors. You've got names like Apple, Microsoft, Tesla, Meta, Alphabet, NVIDIA leading the NASDAQ right now, which is going to go out with a gain of 3.2%. That's it for me on a crazy Fed day. We're closing now.