Closing Bell - Closing Bell: Summer Rally Overheating… or Just Getting Warmed up? 7/12/23

Episode Date: July 12, 2023

What is the fate of this summer rally? AJ Oden of JP Morgan Global gives his expert market take. Plus, Activision Blizzard CEO Bobby Kotick gives his first take on the FTC clearing the way for Microsoft’s push to buy his company. And, Bryn Talkington weighs in on the big move in cybersecurity stocks today.

Welcome to Closing Bell. I'm Mike Santoli, in for Scott Wapner. This make-or-break hour begins with a new two-year low for CPI, supporting a fresh one-year high in stocks. As bond yields sink, the dollar slides, and the possible end of Fed tightening comes into view. We'll unpack today's market action coming up. Plus, a first on CNBC interview with Activision CEO Bobby Kotick. His first interview since yesterday's FTC ruling cleared

the way for Microsoft to buy his company. That is coming up shortly. But we start with our talk of the tape. Inflation in retreat, leaving the bulls in charge. So is the summer rally overheating already or just getting warmed up? Let's ask A.J. Oden, J.P. Morgan Global Investment Strategist. He joins me here at Post 9. A.J., thanks for coming in. Thanks for having me, Mike. Good to see you. So a lot of things falling into place, right? We have this disinflation story. We got reinforcement on that front. Economic numbers have been coming in better than expected. The market seems comfortable with maybe one more move from the Fed. Do you view all this as some kind of a green light to take more risk? Or how would you be approaching it? Does the market have

this reaction right? Yeah, no, that's a great question. I think part of it is, you know, maybe it's a little too soon to declare victory just yet. You know, inflation did come in better than expected. It's the lowest since March of 2021. I think since we've seen more narrow leadership in the S&P performance, we expected to broaden out a little bit more. And what we've been telling our clients, we like equal weighted S&P right now. Whether inflation continues to come down, I think it's in the right path. Disinflation coming in that super core services as well as core coming in a lot better. But we still expect a little volatility somewhat later in the year because the recession still lingers out there. As a Fed, we'll have to do a little bit more in order to bring inflation down to 2 percent.

Yeah, let's get to that idea that a recession perhaps is hovering out there somewhere, because it seems as if the market is trying to move on from last year's villains, which would be inflation and what the Fed had to do to fight inflation. And now it's been concerned about growth, about U.S. growth, global growth, but maybe a little more optimistic on that front recently. Do you think it's wrong to be optimistic that we have this sort of firmness in the economy right now? No, I think it's good to be optimistic, but I think we still need to take into consideration that there will be a bit of a slowdown. Earnings this coming out this week, we expect a contraction as well. I don't think we'll see the contraction that maybe the market has priced in at. They're looking at about negative

seven and a half percent. I think we believe it's closer to maybe down negative three percent, just because margins haven't been as compressed. Consumer has been resilient, but we still have to remember that the Fed is going to be holding higher for longer. And I don't know if that's been in price as much. So I expect a little bit of volatility, but the softest landing is still very much in play. And it's possible that, you know, any recession that we see may not be as long as maybe the market has originally anticipated. Yeah, it would be maybe an odd type of recession based on what we can view right here. People talk about earnings estimates are going to be beat again, most likely.

The forecasts have held up OK. And you're saying equal weight S&P maybe is worth new money right now as a catch-up trade or a broadening out of the market. We've seen some of that in the last month. In fact, just saw some numbers that inflows into equal weight ETFs have been pretty strong. So are you encouraged by the way the tape has acted in the last several weeks? Or do you think that we still have, you know, an unbalanced market? I'm definitely encouraged by it. But I think there's also some other opportunities out there because as we look, you know, to some of the early cycle opportunities

for mid cap equities. Yeah, I know they don't get a lot of love from investors, but if you look at over the last three recessions, they typically outperformed by about, on average, 21%. And so if you're looking for early cycle and the potential for earnings to be better in the 2024, it's good to find that entry point today with mid-cap equities. And so we like that as a great attractive point for investors. But the broadening does make sense.

I mean, that narrow leadership we saw, I think a lot of it had to do with the AI boom. And so seeing some broadening is a good sign, I think, and we think, for markets and for investors, that it's a possibility for the market to continue to press higher as they move on throughout the rest of this year. The idea that by the end of this year we're still going to be perhaps on recession watch, maybe one technically kicks in at the end of this year. The idea that by the end of this year, we're still going to be perhaps on recession watch, maybe one technically kicks in at the end of this year. I mean, we're running out of year to some degree, right? You have five months left after, you know, after the next couple of weeks. And I wonder what you think is likely to happen to tip us in that direction. Is it simply, look, rates have been higher for longer, we haven't seen the full effect, or is there something else out there that you're concerned about? I think the labor market is not necessarily concerned because the

Fed has been very transparent about what they're trying to do. They're trying to show or see some cooling in the labor market. Now, that 80 print that we got last year, it was a bit of a splash, a bit of an anomaly. But you also, if you look at some of the other data, like the JOLTS data, the quits rate kind of elevated. So that shows the willingness for people to go out and find jobs. And that's not really endemic of cooling. That's more of a still tight labor market. And so we would like to see maybe, I think on average, typically $188,000 is when the Fed will typically- Monthly jobs. Monthly jobs and the non-farm payrolls is when the typically Fed pauses. We're still at $200,000

on a month-over-month basis. That's a strong labor market. And so it's not necessarily that we need to see, there's going to be some shock to the system, but it is a slowing economy, and that's going to have an impact on earnings as well as the market. Yeah, it's a fair point. I mean, there's no way the Fed is interested in rushing to make the all-clear signal, right? So they're going to have to stay in the game to some degree. Dollar sliding, I mentioned earlier. Obviously, it's the market trying to take away some rate hike expectations. And maybe the U.S. is a little farther out ahead of other central banks in getting to that point. What does that mean, if anything, for global investing from your perspective? Oh, definitely. I think that we've been talking about this for some time because

we've been really bullish on European equities as well as Chinese equities. You know, the valuation entry point for both of those are very attractive. I think about nine of the 11 sectors for the European equities are trading at a deep discount to the U.S. And so that dollar creates a great tailwind for investors on the domestic side going overseas to using euros and such in order to invest. And so we've been telling our clients, hey, there's an attractive entry point, but you're also going to get that boost from the dollar weakening. And so obviously the expectations that the Fed may not have to hike as much as was expected last week from that splash ADP trend, it's a good sort of tailwind for the dollar and for investors looking overseas. Yeah.

AJ, let's bring in CNBC contributor Bryn Talkington of Requisite Capital Management to the conversation. Bryn, actually that scare last week we got from the ADP report, yields rushing higher to the upper end of their range, that was an interesting little moment for everybody to stop and say, do we have to start worrying again? Today's number has yields in retreat. It seems as if it was maybe just a fleeting fright that we got. Where does it leave you in terms of reading today's market action?

I'll ask you again, is it a green light of sorts? Well, it's been a green light. I think this week was important because as we started the week, obviously the two year was bumping up a little bit over 5 percent, the 10 year around 4 percent. And I didn't think the economic data was going to be strong enough to keep both the two and the 10 year above that 5 and 4 percent. And I think the CP data was going to be strong enough to keep both the two and the 10-year above that 5% and 4%. And I think the CPI data today just reinforces that. I will say this, though, on the CPI data, I think that investors need to know, if you look at those month-over-month returns going back really since May of last year, we've been really lucky because in May of last year, we had a 0.9. In June of last year, we had a 1.2. And so those have all dropped off. And that's really one of the main reasons we've seen CPI come down so markedly, which has been bullish. And I think on top of that,

we've seen over the past few weeks, not the past few months, but over the past few weeks, that broadening out, which we've all talked about quite a bit. And so I think you can continue to have a summer rally. Where I'm thinking about later on in the year is that I think that because we've dropped off those big inflation numbers, those won't be a concern over the next two months, the CPI print. But later on in the year, if we continue to get a point three, a point two, maybe a point four here or there, that is nowhere near two. So I think that's going to be a fourth quarter battle to fight. Not today. But in the short term, I do think that the animal spirits

will remain high because I also think earnings aren't going to be, as many have said, as poor as feared. I guess the question now, and this always happens, as soon as people get comfortable that we're in an uptrend and we have this rally that seems like it's clearly breaking out on like a 14, 15 month basis in the S&P, people start to ask, people like me start to ask, OK, have we already priced in too much? Have we already gotten overheated? You mentioned animal spirits. You're seeing some of the lower quality, higher beta, more aggressive stocks really start to whistle higher, short squeeze type activity. Is any of that concern you, Bryn? Well, everything always concerns me, right? So, I mean, obviously, at the end of the

summer, we have Jackson Hole. You definitely see the animal spirits in these smaller names. But I think that earnings, though, are going to be a gut check to a lot of these companies. I do think earnings matter. I think especially in the AI space, how much was AI marketing versus how much is AI monetization? I think it's still way too early to actually get a read-through outside of NVIDIA about monetization. But I do think some of that hype over the next few quarters, especially in these smaller names that to me feel a little bubblier as it relates to AI, the proof is going to have to be in the pudding and they're going to have to have a trajectory to monetize, not just talk about it. AJ, what are you thinking about in terms of talking to clients and advising them on what type of returns to expect from here? Because I think there was a general sense, even at the lows of last October,

you know what, there's probably some more payback to come. It doesn't seem like we got the real flush. We didn't reload the forward return capacity of this market as we normally do in a bear market. Now we're a good deal higher, 25% or so. Stocks don't look inexpensive in aggregate. So what do you think in terms of what there is to expect? Yeah, I think to your point, you know, valuations do seem a bit frothy, right? S&P trading on 19, 19 and a half times

earnings. But I think as clients add in, we're telling them to diversify their portfolios. I think the yield on the 10-year and in investment-grade bonds, that's an attractive entry point. And I know, you know, everybody was concerned because we saw, you know, yields back up about 21 basis points last week. But I think seeing them come down today and inflation coming down as well and starting to see disinflation, that's a great entry point and a time to add duration to your portfolio. So not just looking at equities, but you can also diversify and allocate to your investment-grade core bonds as well. And so that helps to sort of boo you and support that potential for volatility or any pullback that we can potentially see in the markets if the economy starts to slow. And the labor market, maybe unemployment rate raises a little bit higher than the market is priced in.

And, Brandon, in terms of playing whatever may be left of a summer rally, are there areas that have become kind of newly on your screen that seem like they have potential to move? Or is it is it sort of the existing leadership? I ask, I mean, you have energy up four percent this week. So some other things have started to kick in to the upside. So, I mean, we have an overweight and we have big positions in energy and materials. And so you want to continue to see that breadth. I think we need China to have some good news for energy and materials to continue to go higher in the longer term. But I think especially with an energy, Mike, the free cash flow yield of these companies continue to get higher. They can make a ton of money in 65, 75, of course, higher oil prices. And so I

think people are still underexposed to that. A lot of hedge funds were short energy and materials. And I think there's going to be a catch up trade. And as these companies earnings come out, I think the free cash flow is going to bring back some investors to the space. And AJ, just to kind of wind things up in terms of the Fed and whether it even matters exactly how many more increments they move, you look back and the S&P 500 was a few hundred points higher a year and a half ago before the Fed raised 500 basis points. And the market is higher than it was before the first hike. So how much does the next 25 basis points or 50 basis points matter to stocks?

Or do you think those could be the final turns of the screw that the economy can't handle? I think a lot of it seems to be priced in right now. If we look at, you know, out there with the probability of what the market sort of seems with the futures, 25 basis points is very much priced in in July. And so I don't think that's really what the market's concerned about. I think it's that surprise that we don't know. And I think what we really want to know is, is the hawkish tone going to change at this next meeting, right? The rhetoric has is, is the hawkish tone going to change at this next meeting? The rhetoric has been very much the hawkish pause. They seem like they're a little bit dissent on whether they want to even raise in June.

And so it's going to be a big question of what's going to be the conversation coming out. Will the CPI print be enough for them to consider, is this the moment to pause? And we think that they're very much close, if not there, after this July meeting, that it's about time that they pause and hold rates in restrictive territory. One of the issues that was causing people to lean on the Fed, to lean a little bit more dovish, was this idea that credit tightening, we hadn't really seen what the impact was going to be. People will point to loan growth not being impressive for the last few months, but that doesn't seem as if it's something that's really under stress right now. No, I think you've seen private credit sort of step into the market to sort of help with that. I mean, in March, obviously,

there was a bit of, you know, concern of distress. And ultimately, a lot of the loan growth that we had seen, 90 percent of it was really from the small and regional banks. And so obviously, it was sort of a wake up call and the market sort of did pull back. But private credit has really stepped into that space and sort of helped out with any sort of void that was left by some of those banks sort of being a little bit more restrictive in that space. And that's really the oxygen of the markets and for the economy is lending. But I think, you know, we still have resilience. PMI service is very strong. Consumer is still very strong. And so it's really right now at this point, well, how much further is the Fed going to go?

And what messaging are we going to get from them about that at this next meeting? Yeah, I mean, credit. Another thing on the list of things we thought we had to be very worried about, which it turned out not immediately anyway. AJ, good to see you. Thanks very much. Bryn, we will see you back in just a bit. Let's now get to our Twitter question of the day. We want to know, after today's CPI report, what will the Fed do at the next meeting? Hold rate steady, hike, or even cut? Head to at CNBC closing bell on Twitter to vote. We'll share the results later in the hour. Let's now get a check on some top stocks to watch as we head into the close. Christina Parsonevalos here with all that. Hi, Christina. Hi. Let's talk about Domino's Pizza. It's looking to spice up its lagging delivery

business by partnering with Uber Eats and Postmates for delivery orders. The pizza maker will launch the partnership in four pilot markets in the United States this fall, across the country by year end, and eventually internationally. This is actually a pretty big change for the biggest pizza company in the world since it has long avoided using third-party delivery apps in the U.S., and that's why shares are up almost 11% right now. Chinese tech names, got to bring that up, because they are higher in hopes that the years-long crackdown on the sector over, quote, a rational expansion of capital is over. The nation's top economic planner and other government officials met with several senior executives from large tech companies like Tencent Holdings, Alibaba, a few more like

ByteDance. And that's showing China's change of tone, which is helping up a lot of these names, JD.com up over 4 percent. Change of the tide in China, I guess. Absolutely. At least for a day. Christina, thank you. We're just getting started here. Up next, we're headed out to Sun Valley. Activision Blizzard CEO Bobby Kotick joins us. His first take on the FTC's pivotal move allowing Microsoft seemingly to buy his company. That is after this break. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back to Closing Bell.

Microsoft's deal to buy Activision Blizzard, overcoming a major hurdle after a federal judge yesterday rejected the FTC's efforts to block it. Let's get straight to Activision Blizzard CEO, Bobby Kotick, sitting down with Julia Boorstin in Sun Valley for a first on CNBC exclusive. Julia. Thanks so much, Mike. That's right. We're so grateful to have Bobby Kotick here. Not only do we have the deadline for that Microsoft deal coming up next week, but we just got this ruling from the judge yesterday. A big move to clear the way for this deal to close. What's your response to the judge's ruling yesterday? I think Judge Corley was very sensible. She was very deliberate, clearly understood the details of the

case, the law, and made a judgment based on facts and law and wasn't swayed by ideology. So this deal is still far from done though. That was a big hurdle clear but this deal is far from done. The FTC could still appeal before the deadline of Friday night at midnight. This appeal could come through any time before then they could request a stay on the deal. What happens if the FTC does that? I'd be surprised if they would waste taxpayer resources on something like that. The opinion was a very well-written opinion. Like I said, she's a very deliberate judge. I can't imagine the Ninth Circuit would grant this day. You never

know, but I would think that would be highly unlikely and it just wouldn't be productive. Well, we're hearing they are leaning towards an appeal, though it's certainly not a done deal. Do you have any thoughts on how that might impact this process? Like I said, I can't imagine the Ninth Circuit would grant the stay. So that's not your only hurdle, though. You're still working with the regulators in the UK. There was some discussion back and forth between Microsoft and the CMA, the UK regulators, saying they're considering finding some sort of compromise. What do you think would be a practical compromise to assuage those UK regulators' concerns? Are there certain divestitures or certain compromises or actions that Microsoft could take that could get this deal through in the UK?

Look, there's enormous competition. You know, Xbox is the third place competitor in the console gaming business. Nintendo and Sony have had dominance in the business for almost as long as I've been in the business. There's nothing but competition whether it's Tencent or Alibaba or Google or Amazon or Apple or Netflix or Oracle. There's so many different competitors. So there's nothing that we really need to be doing that's going to encourage more competition. You know, this transaction gives an opportunity for us and Microsoft together to actually be able to compete against these entrenched competitors. Microsoft Satya Nadella is here as well. What is your sense of what Microsoft's gonna have to do in order to get this through in the UK? Do you think they're gonna have to divest some

of their businesses or agree to operate things differently in the UK? I think these conversations are ongoing, but we came to a great agreement with the EU that was sensible and responsible and I think was well thought through. And so we've already come up with remedies that make a lot of sense and that work well in the EU. We have unconditional approval from China, unconditional approval from Japan, both places where you have the most successful competitors in video gaming. While we await to hear what Microsoft ends up proposing with the CMA, I want to make sure to get your sense of what's going on with the business. I know a lot of your attention has been spent on getting this deal done, but there's also this question of economic uncertainty

and how that could be impacting the video game business, either casual gaming or console gaming. What are you seeing from consumers right now? You know, there's always this belief that in a recession or difficult economic times, video games as an industry does better. I think there's not necessarily supportable data to that effect. I think what you've seen are console releases happen to have come at the same time as recessions, new games have come out, but business is good. We just launched Diablo 4, which is the most successful launch we've had of a Blizzard title ever.

Our Candy Crush is at record numbers. Call of Duty continues to be a great franchise that's evolving into not just what it historically has been, but now it offers free to play. And mobile gaming has been transformative in our industry. We're seeing more people in more places than ever before having access to video games. So when I look out over the next 10 years, I think that there's going to be nothing but opportunity in video games. Mike Santel look out over the next 10 years, I think that there's going to be nothing but opportunity in video games. Mike Zintel, you want to jump in here and ask Mr. Kotick some questions? Sure. Bobby, it's good to see you. Of course, Microsoft, in attempting to

get this deal through and close it, has, of course, offered assurances there'll be nothing like exclusivity for Activision Blizzard games on their platform or anything of the sort. In that case, what are the advantages to an Activision being part of Microsoft? Where is it going to be a better competitor and what kinds of things will you be able to do as part of that company? Look, I think one of the great things about the business combination is, you know, Microsoft as a console manufacturer doesn't have the same advantages that Sony and Nintendo have with deep rich libraries of intellectual property. They don't have a movie studio, they don't have a TV studio,

they don't have a music company, they don't have 40 years of franchise success with Mario. So with a company like ours, they get three franchises like Candy Crush, Call of Duty, Warcraft. We get access to better technology, more talent. And in a world that's increasingly competitive, where you have so many people entering the video game industry. It gives us an opportunity to have access to more resources. And I think on a combined basis, it gives us a chance to more effectively compete. So that suggests that part of that competition

would be going into those areas like studio, like using the intellectual property library and your games as vehicles for media content? Well, that's a pretty difficult thing to do, but I think we wanna be able to make sure that our games are on more platforms. Mobile's been a big push for us across the games that we make. We have games that we have aspirations to be franchises

that having access to more technical talent will give us the opportunity to do. I think as AI becomes more important in gaming, having access to AI and machine learning talent is gonna be increasingly important. Data analytics, user experience, and user interface talent. And Microsoft is principally an enterprise company, so our hope is that we'll be able to attract people from the enterprise side of the business to want to work in gaming,

which is a really fun industry. I want to ask another question about a different type of legal hurdle you've been dealing with. Activision countersued California's Civil Rights Department for its suit over sexual misconduct and pay discrimination. There was the suit, there's the countersuit. What's the state of those negotiations now? Well, you know, we already settled a long time ago with the EEOC. We released a transparency report that was very clear and showed that we had a model workplace, that we've made great strides in building a welcoming inclusive workplace and we don't have any pay equity issues. We have publicly disclosed our pay equity.

It's been something that we have always taken very seriously and so when it comes to promotions and pay equity, that information is publicly available and it shows that we've always done a good job of paying people fairly. Just a quick final question. We are out of time, but I have to ask you about China. What is the state of your relationship with your former partners in China, future partners in China? What's the state of, what's going to be the future of Activision Blizzard's business in China? So we view China as a great opportunity, and we've had a great partnership with Tencent for a long time now.

They've been a great both an investor and partner. They've been a great commercial partner. And we're in the process now of finding a new partner for the Blizzard content. And I think we're making good progress towards finding a partner in China and making sure that all of our players have access to all the Blizzard games. Well, we'll be looking out for that headline as well as more headlines around this Microsoft deal. We appreciate you joining us in the midst of all of this news. Activision Blizzard CEO Bobby Kotick, thanks for joining us here from Sun Valley. Mike, I'm going to send it back over to you. Julia, thank you so much. And thanks to Bobby

as well. Coming up, Treasury yields tumbling on the back of today's crucial CPI data, but our next guest is still finding opportunities in fixed income. He will explain after this break. Bond yields are falling after today's cooler than expected CPI report, but our next guest is still finding fixed income opportunities and believes the asset class should remain a healthy alternative to stocks. Let's bring in Brian Weinstein, head of fixed income at Morgan Stanley Investment Management. Brian, it's good to see you. First, your read on the CPI number.

The market seems very clear in its verdict that this shows you entrenched disinflation for a while, maybe a more benign Fed, at least after the July meeting. What's your read? Yeah, Mike, I think that's right. I think the Fed sees this as maybe a little bit of a victory. So if you go back to the end of the year, end of 2022, the Fed told us, hey, we're going to slow down. It's going to be OK. We're going to get to five, maybe five and a quarter. And then we're going to wait. And so, yeah, they'll go again here. But it's kind of played out the way they said.

And what's funny is if you look at last week with ADP on Wednesday and then today's movement, you're getting these wild swings in yields really to nowhere, right? Ten-year treasuries are unchanged on the year. But the market's trying really hard to calibrate exactly where they're going to end up. The funny part is I'm not sure that five versus five and a quarter matters that much. It feels like they're going to go again, and then they're going to try to pause for a really long time. In that case, this higher for longer scenario, we still, of course, have this fairly deeply inverted yield curve,

longer-term yields on the Treasury curve much lower than short-term yields. Where is their value? And I guess the other question is, what economic scenario are you assuming when you try to figure out where there's value? Yeah, all fascinating questions. So I think the yield curve should continue to disinvert. I think six, eight months from now, we should be looking at a yield curve much closer to flat than 100 basis points inverted. How does that play out? Well, the first half of the year was about growth surprising high and inflation surprising low. Eventually, it took a little time. I think the second half of the year is going to be a bit of the

opposite I think inflation not the next two or three months but when we get towards the fourth quarter will be sticky and I think growth will start to fall right because the feds race rates a lot and we haven't seen the effects yet so I think you want some combination of cash you want some carry look at bank loans, emerging markets, high yield. They've done great this year. They should continue to give you great yields. And when tender notes get above 4%, call it 4 to 450, then you want to buy duration. So I think we have some time for that trade. And if you do think that we're still going to see some of the economic effect of what the Fed's done already, so some risk to slower growth, how does credit behave in that environment? You mentioned high yields should continue to do well.

What is it about the current environment that says riskier corporate debt should do well as the economy weakens? Yeah, well, I think what happened last year was we took care of a lot of that. So if you look at where we ended the year in spreads and rates, there was a lot of room for high yields and loans to do well. Now, no one really believed that at the time, but obviously in the performance, you can see it. It's tougher from here, but I still think you have another quarter, quarter plus of earning that great carry. And then you do probably want to lower your credit

exposure. But again, I don't think we're going to have like a super soft landing, but I don't think we're going to see data suggesting a hard landing anytime soon. So I do think you got to play both sides, a little bit of cash, a lot of carry, and then you want to change that to some duration as we get towards call September, October. And in terms of that potential for a few months out, having a little bit of a tougher time for inflation to go down toward the 2 percent target, do you think the Fed has to restart and get more aggressive or are they going to be happy with holding rates where they are? I think they're going to hold rates for a long time because I think it's 12 to 18 months. You said, do I think there's going to be impact from Fed tightening? We know there

will be impact from Fed tightening. It's just hard to say exactly when it comes through. Now, by the way, financial conditions have eased the last six months, so that'll offset some of the headwinds. But you'll definitely slow down in growth later on in the year. I think the hard part is timing it. But at the end of the day, the Fed needs to wait and see. And inflation is giving them the window to do it. Will they hike again before they ease? I don't necessarily think so. I do think they've raised rates a lot. I think growth headwinds will show up eventually. But I think inflation staying sticky will keep them from easing as quickly as they have in the past. Brian, thanks so much for the time today. Appreciate it. Thank you.

All right. Rally weakening just a little bit. The Dow up less than 100 at this point. The S&P holding on to the majority of its upside. Up next, we're tracking shares of NVIDIA as we head toward the close. Christina, standing by with the details behind that move. Well, we got to talk about it because NVIDIA is making news yet again, a new investment in a biotech firm and a potential investment in another semiconductor company. Stocks are moving on that. Tune in next. 19 minutes until the closing bell. It looks like NVIDIA is in talks to become an anchor investor in arms IPO. Christina is back and has that story for us. Christina.

Well, thanks, Mike. Less than two years ago, NVIDIA tried to buy British chip designer ARM for about $4 billion, but failed to do so because of antitrust issues. Flash forward to today, and NVIDIA could play a major role in ARM's IPO. ARM makes the blueprint designs for chips and smartphones all around the world and has expanded into auto design as well as servers. It's expected to be listed in New York as early as this fall by parent company SoftBank. The FT reports that NVIDIA was approached to be an anchor investor to take a lead role in buying shares.

I reached out. They told me no comment. SoftBank has, though, a 75% stake in ARM with the rest held by its Vision Fund, so there's a lot riding on this IPO, given some of SoftBank's, let's call it, investment missteps in the past. And having NVIDIA as an anchor investor builds confidence among other investors in a tough IPO market. So a lot riding on that. And speaking of the power of NVIDIA, it was announced also today it will invest $50 million in biopharma firm recursion sending shares soaring look at that on your screen 79 higher although i have to point out there was some short covering recursion uses ai and machine learning to help speed up the drug discovery process and nvidia

would gain access to all of that data and be able to use that data for its cloud service called bionemo that it plans to license in the coming years. So we'll have more on this deal in about, what, 30 minutes or so with a first on CNBC. The recursion CEO, you can see it on your screen, Chris Gibson, 4.15 p.m. Mike? Yeah, shows exactly what the market is most energized about there with the NEAI story. Although on the arm anchor investor idea for NVIDIA, Christina, now clearly they would be a minority investor, presumably a passive investor. You can see why it's an advantage for ARM and SoftBank to get this deal out into the market. But you wonder about the

direct advantage for NVIDIA. I mean, clearly they won't control the company, but maybe they'll just keep their hand in that side of the industry. Well, it's because NVIDIA and ARM already have a new partnership to work on CPUs. These are the central processing units, the storage. So this is a way to heighten their relationship. But to your point, it's not just NVIDIA. There could possibly be a consortium of investors, Intel, Qualcomm, SK Hynix, have all shown interest in ARM just in the last year or so.

So this is a huge benefit for SoftBank, which in their filing, their public filing, SoftBank did say that Arm is still going to be a subsidiary post IPO, which means it'll still be, to your point, the majority shareholder, even though we don't know just how much SoftBank will sell at stake. Interesting. Yeah. So a lot of players see strategic value there no matter what. Christina, thanks so much. Talk to you soon. Thanks. Last chance to weigh in on our Twitter question. We asked after today's CPI report, what will the Fed do at the next meeting in a couple of weeks? Hold rates steady, hike them or cut? Head to at CNBC closing bell on Twitter. We'll bring you the results after this break. Let's get the results of our Twitter question.

We asked after today's CPI report, what will the Fed do at the next meeting? And you see 56% say the Fed will hike. The market agrees with that, although a pretty solid sizable minority saying they may hold rates steady. We will see. Up next, Coinbase on a tear. That stock more than doubling this year. We're breaking down the fundamentals and what could be next for the stock when we take you inside the Market Zone.

We are now in the closing bell Market Zone. UBS's Julie Fox is here to break down these crucial moments of the trading day. Plus, Bryn Talkington is back with how she's playing the cybersecurity stocks amid today's sell-off. And Kate Rooney on what's putting pressure on Coinbase shares. Welcome all. Julie, market seems to be interested in celebrating a likely soft landing for the economy, inflation coming down faster than the economy has weakened.

Is that a takeaway that you would endorse? Yeah, I mean, the market is rallying off of the softer-than-expected inflation report. Inflation is decelerating. But if you look at core CPI, it's still almost three times the Fed's 2% target. Now, core CPI was at 6.6% last October. So we're going in the right direction. But it's been a very slow deceleration in those core numbers over the past many months. And that's why the market is still pricing in a near certainty that the Fed raises again in July. We don't think that today's numbers cause the Fed

to declare victory on inflation. And I think that that's a risk for stock investors. So I think we really need to see that core number move much closer to the 2 percent target. And the Fed has been very vocal about its 2 percent target. And that benchmark is not going to go away anytime soon. Sticky inflation isn't just limited to inflation data. We're also seeing it in the labor market. Last Friday's jobs report was strong. The economy is still creating jobs.

So for investors, I think we still have this Federal Reserve wildcard. And we still think it's a wait-and-see market. It's really a question of how fast is the core inflation going to decelerate? Will the Fed raise a few times more this year? And then what are the economic risks around inflation and the Fed's tightening? I think those are really the biggest questions that we're still seeing in the market right now. So if you think that it's still too soon to stop worrying about inflation being persistent and the Fed having to go after it why do bonds seem attractive at this point yeah I mean I think that you have this risk-reward

dynamic right now in the stock market and it is unappealing and that's how we characterize it and we do see better opportunities and high quality bonds right now rather than stocks and that has been our main message for investors if you look at the two-year Treasury for, it's yielding 4.7 percent and it breached 5 percent last week. And that's a very attractive yield. Our bonds over stock right now really has to do with rich valuations in the stock market and that narrow market breadth that we've seen. And the overall market is trading at 19 times forward earnings. Now, if you look at valuations for the S&P 493, which excludes the biggest seven technology stocks, you're looking at 15 times earning, which is definitely more

reasonable. So that really gives you an idea of that narrow market breadth. And that's not a new dynamic. We've been talking about that for a while. And so I think, you know, that really is why we have that case on, you know, we see attractive yields and fixed income right now and we can take advantage of it over the stock market. You can lock those in. Exactly. Julie, thanks very much. Appreciate it. Bryn, love to get your thoughts on the cybersecurity stocks. You see Palo Alto down six, seven percent. There's this report of Microsoft making inroads. What do you think? I think it only makes sense for Microsoft to want to be a player in this very fast growing space. I was just looking at earnings estimates for Zscaler and Palo Alto for this this quarter,

which come out in April, August and September. And estimates are for Palo to grow earnings at 60 percent and for Zscaler to grow at 90 plus percent year over year. So these are the whole space is such a fast growing space. I get why the stock sold off today. But listen, these companies that are so focused on this really important space growing very fast, I wouldn't bet against these companies. I think it's just a small sell off. And what's been a banner year for both the whole space, especially these two companies. So have they already then, with this pullback, reached a point where you say, you know, some of the froth has been skimmed away and their buy is here, or you want to wait for them to come further in? We'll see.

I mean, going into, I mean, once again, the earnings estimates are so high. The way that I own it is I own the ETF bug. It's a Global X ETF, which Zscaler and Palo Alto are the two biggest holdings. It's market cap weighted. I think this is a secular tailwind. And so if you own those individual names, I think Palo is up 67% versus bug is up about 15% year to date. So that diversification definitely hurts you on the upside. But I want to be in this space. And I don't think that Microsoft is going to overtake any of these companies anytime soon. I think it's just going to be a nice to have for Microsoft's suite of products and can add earnings, incremental earnings to Microsoft as well.

So I think it can ultimately be a win-win for all these companies. It is kind of amazing. I mean, Microsoft, the $2.5 trillion market cap, presumably you pay up for a company of that size because you assume they're going to essentially look around the corners and get into other areas. So do you think it's actually something that is another additional reason to own Microsoft or are we just already kind of given the company credit for it with the valuation? I think we've given the company credit with its valuations. It's just I mean, as a Microsoft shareholder, they've already been doing security. So this is just another level on that.

But I don't think this is going to give you another multiple turn because they're moving into this space. Yeah, presumably not. We're already above 30 times or so forward earnings, I guess, on Microsoft. Bryn, thanks so much. See you again soon. Kate Rooney, Coinbase, bit of a battleground stock at this point. Markets really taking it higher. The street not loving it. Yeah, yeah, Mike, there is a growing skepticism on Wall Street that this Coinbase run we've seen

can really last, especially with the list of challenges the crypto company is facing, really heading into earnings in about a month or so. Cathie Woods, ARK Invest, among those who took profits this week. We're also seeing a bunch of analyst downgrades pour in. We had Atlantic Equities this morning citing weak volumes in regulation. They said the risk-reward is looking a bit less attractive. Oppenheimer also saying that sentiment has improved, but fundamentals have not, as they put it. They say they're cautious heading into earnings.

And then Piper Sandler saying it's all about valuation and regulatory uncertainty. Part of Coinbase's rally has been based on Bitcoin's recovery. It's been really a high beta play on Bitcoin. So there's also hope for a spot Bitcoin ETF. Coinbase was named as a partner in BlackRock's recent application. And this is one of the most highly shorted stocks out there. That's important to note. About 22 percent of the available float or available shares are sold short. That's really adding to the volatility we've seen. Although Coinbase is

down a little bit today, so taking some of the wind out of that rally. Yeah, without a doubt, it's caught up in part in this broader short squeeze. It's been much higher a couple of years ago, the stock has. I'm interested that the stock in part seems to be benefiting from a lot of the initiatives on a Bitcoin ETF, mainly because that would seem to, if you were to buy and hold the ETF, it would seem to kind of leave out, you know, the customers don't necessarily have to trade as much on a crypto platform. Yeah, it's really counterintuitive because the thought of an ETF and a spot Bitcoin ETF especially could bring people more to traditional brokerage firms like Charles Schwab or Fidelity. You're going to just buy the Bitcoin ETF. You might not need to open

a Coinbase account and that could long term hurt the stock if you think about it. But they are named as a partner here. It also grows the entire industry coinbase. The bull case has really been that this is a play on blockchain. It's a play on Web3 and it's a long term investment. You've heard Brian Armstrong say that before. Going to be volatile quarter to quarter. But if you're in this for the long term, he has made the argument that this is the company and this is the way to get exposure to that sector. Bank of America, interestingly, interestingly, Mike, had a really good analogy. They talked about silver. So apparently silver started trading in 1933. The silver ETF or exchange traded product didn't go live until 2006. So that definitely is

a reason to question if this is going to happen right away or at least in the next couple of years. But BlackRock is a pretty good track record. Yeah, things move a little bit quicker now than they did starting in the 30s. But that is an amusing one. Yeah, Kate, thanks so much. About 30 seconds left into the cause. The S&P 500 holding on to most of its upside for the day, although it has moderated those gains at 44.70, up about two-thirds of 1%.

Market practice has been strong all day. Russell 2000 up 1%. The NASDAQ, once again, the leader, as bond yields have receded to 10-year yields down below 390 on that much cooler-than-expected CPI report. That's going to do it now.