Closing Bell - Closing Bell: The Bull vs. Bear Debate 5/15/23

Episode Date: May 15, 2023

Welcome to Closing Bell. I'm Scott Wobner, live from Post 9, right here at the New York Stock Exchange. This make or break hour begins with a decidedly directionless market. Whether a breakout of this current range could soon be in the cards? I think we all want an answer to that question. Here is your scorecard with 60 minutes to go in regulation. Banks and semis, pretty good day. And it's the Nasdaq that is the outperformer today. You see it, good for one half of 1%.

Energy, industrials Industrial materials also higher. The cyclical trade actually showing some signs of life today brings us to our talk of the tape. Despite all of the risks that are still out there from the debt ceiling duel to the uncertain economy is the biggest money in this market growing a little more positive on stocks and do their recent reported moves give us any clues on that question? Let's ask Leslie Picker. She's been watching that all day long, those new hedge fund filings. What are we learning here? Lots to learn and lots of filings so far today, Scott.

Both value and growth investors seeming selectively bullish on tech during the quarter. KOTU beefing up its big tech exposure, more than doubling its position in Amazon, Netflix and Microsoft. The firm pairing back Chinese based companies, though, selling off hundreds of millions of dollars worth of Alibaba and JD.com. Tiger Global doubling what was already a sizable stake in Alphabet while adding to its largest position, Microsoft. Big tech also catching a bid from some value investors as well. Seth Klarman's Baupost bought a bunch more Alphabet during the first quarter. Baupost boosted its stake to make Google's parent company the firm's second biggest long equity holding. I'm surprised to see that. D1, historically more of a growth investor, though, rotating out of Big Tech. Dan Sondheim's

firm pared back over half of its positions in Amazon and Microsoft, also taking down exposure to home renovation trades, selling out of Florin Decor, Sherwin-Williams, and slashing its stake in RH in half. But one interesting new name in D1's filing was PNC, one of the larger regional banks. It's just a $43 million holding, but noteworthy, of course, due to the March bank turmoil and the fact that D1 typically invests in areas it sees as growth-oriented. These revelations come from so-called 13F filings, which detail managers' long equity holdings as of quarter end. Their

positioning has likely shifted in the six weeks since, and we should get the bulk of 13F filings, including Berkshire Hathaway and Appaloosa. Always too closely watched filings after the bell today, Scott. Yeah, good disclaimer that you put in there. Backward looking, so take it with a grain of salt in some respects. Although it's a good hint as to where people are looking. Leslie, thank you. If you have anything else, let us know and maybe we'll see you before the end of the hour. That's our Leslie Picker. We also heard from another big name hedge fund manager earlier today on Squawk Box, Paul Tudor Jones, weighing in on stocks where the

markets could go from here in his mind and sounding more positive than he has in a long time. Equity prices are going to get, I think they're going to continue to go up this year. I'm not rampantly bullish because I think it'll be a slow grind. You just got, as we had, if I go back to the 06, 07, 08 episode, we stopped hiking in June of 06. And even though the economy was decelerating, the stock market ground higher for another year and change and I look at the flow of funds situation which is what I like to look at in those six and I look at it now and they're very similar we've got a trillion dollars of buybacks we have no IPOs no calendar no secondaries it valuations are at 19 but nobody's rushing to offer. So clearly something is going on internally in the stock market.

And by that, I mean from a flow standpoint that's constructive. All right. Is he right? Let's bring in Gabriela Santos of J.P. Morgan Asset Management, along with Adam Parker of Trivariate Research. He's also a CNBC contributor. It's good to have you both with us. Gabriela, to you first. Equity prices are going to continue to go up this year. Bivariate Research. He's also a CNBC contributor. It's good to have you both with us. Gabriella, to you first. Equity prices are going to continue to go up this year. That's what PTJ said. He's been pretty cautious for as much as I can remember over the last 18 or so months. Is now a time to start transitioning to be more positive? So I think one of the aspects of that positive

view he mentioned is the slow grind upwards. And ultimately, we do think it will still be a slow grind. And I think you've already seen the biggest benefit coming from peak interest rates, which was certainly to fuel this initial rally in tech already up 22 percent, combined with the enthusiasm and cost cutting and the enthusiasm around AI. Right. So now the question is, what gets either cyclicals or defensives moving? And they're basically flat year to date. So what you need to see is a little bit more clarity on the macro picture. So investors actually have a bit more conviction pivoting one way or the other. And I think there's a lot of uncertainty

still around what the macro picture looks like. Ultimately, we do think it tilts more towards the defensive side of the equations. We would expect that to start leading over the next few months. But I think it'll get us to the fall before we actually have a little bit more clarity on the macro picture. What do you think, Adam? Something is going on internally in the market that's constructive, according to Paul Tudor Jones. Yeah, I mean. Because everybody's so negative. Right.

I mean. It's kind of like hearing the bull case. As you know, we try to get on the bull case a lot on the program. Where is it? What are we missing? I don't love the 06-07 analog. Not that I want to disagree with one of the most successful investment minds in the history of the world, but because what happened after that was 08,

which was a massive financial crisis. So I guess you just want to copy that for a little bit and then pump the brakes on it. So it's always hard to know what historical period I'm supposed to use for today and say it's like that. I think there is something going on underneath. I think some of it we talked about, it's AI, it's some of it's obviously people's perception about the Fed, some of it's that the bear case and earnings isn't unfolding so far. Some of it is the low end consumer looks like real reasons

it's gonna be more robust for longer and maybe not a typical recession where unemployment rockets up. So I think there's some real reasons the market's done better and definitely sentiment and positioning start of the year, every single big firm was negative. So I think that part to go contrary and make sense. Can it continue? Can it continue? I think it can continue. I have no idea about on a one month view. I mean, you know, you saw my note from this week that,

you know, a lot of stuff is just not helpful for predicting one month views. And we get on here and we talk about breadth and full bear and open market. I don't think he's talking about one month. But I think if you look out six, 12 months and you believe 25 earnings are above 2024 and you believe 24 are above 2023, then the market's going to be fine. And you'll get your long-term 6% per annum return from the equity market. And I think that's a reasonable base case to start with and then pivot from. Let's take the next seven months because as I said, everybody seemingly is negative. And when somebody like Paul Tudor Jones comes out and is positive, you're like, oh, wow, OK, I can think of listening to him, a credible bull case that others have tried to make,

but they've been drowned out. They've been drowned out. Scott, could I make an interesting case of where we are excited about equities, where perhaps it's not a slow grind kind of story and actually maybe do the parallel with 2003, 2007, which is outside the U.S.? And that's one area that we see garnering a lot of inflows, but starting from an extremely low base where the average investors overweight the U.S. by 10 percentage points. Now, we've already started to see this play out in spades in Europe, which has outperformed 20 percentage points since October. But can we make the argument for what can kind of repeat that performance going forward? And we would argue it's China and emerging markets. And ultimately, I think this big positive shock of China's reopening and its pendulum shift towards the pro-growth side, it's been expressed so far indirectly through Europe and European luxury, not quite yet in

China and through emerging markets, which is actually a bit down year to date, surprisingly. And we think if we get a turnaround in Chinese confidence, if we see some better second quarter data out of China, we'll get that tomorrow. EM can be that next leg that shoots higher, just like Europe did over the last seven months. I feel like, Adam, this is largely a conversation of the bear case has already played out versus the bear case has yet to happen. That, you know, this long talked about economic decline, we're still waiting for. The long talked about consumer decline, we're still waiting for. The long talked about earnings disaster, we're still waiting for.

And the Fed's done, we think. Can you put A plus B plus C plus D and get somewhere constructive off that? Yeah, I mean, I think that's why the market's, you know, resilient to the market's way up off lows. And look, I like that argument of, you know, the market's telling you something. I certainly wouldn't disagree with that part. You know, I don't really know about the non-U.S. equities. I'll defer to you on that. I've, you know, been lured by that in my life previously and regretted it.

So maybe it'll be both personally in my personal account as well as advice-wise. And maybe it was 10, 12 years ago. I got a little bit of trouble on the air at CNBC by saying Europe is great for vacationing but not for stocks. It turned out mostly to be right. But from here, I don't know. My view is most of the people I talk to want to figure out if they should buy U.S. equities here. If you look at the hedge fund net exposures, they're actually higher in Europe and Asia than they are for U.S. equities.

So if you're going to play a position in sentiment recovery, maybe the U.S. could have even more upside. Because I think people are not positioned for the U.S. and they're bummed they're not participating more. It's interesting you led the show off with the 13-F filings. That part I think is very interesting because most of the stocks you've referenced there are not idiosyncratic at all.

They're 80, 90% explained by macro factors when you talk about Microsoft and Google and the like. So what do you think of that in and of itself? What those people are saying is, as long as that's true representation of today, is that they're more bullish on equities also. I mean that's what these really smart, really successful long-term managers are saying

by taking bigger positions than those names is they're in essence bullish on U.S. equities. Well, I mean, they're certainly bullish on, Gabriella, where the momentum's been. Yeah. The Amazons, KOTU, Netflix, Microsoft, Tiger, Google, Microsoft, Baupost, Google, Sondheim trimming a little bit of some of his larger mega caps. But nonetheless, it's not exactly a great shock that some of these most well-known investors are going into the most well-known names.

And it's a very painful trade to be out of, given a lot of these names are up double digits year to date. So it makes sense that we continue to see inflows into them. We just wonder where we can see substantial upside from here and perhaps it's actually in some of the slightly more unloved areas and here going back to that idea of international out of the U.S. Hasn't worked for 15 years so it's been a great play to just be in these tech companies in the U.S. But we make the parallel to 2003, 2007, where earnings lagged in the U.S. and it led in places like Europe, emerging markets.

And you have then that chance to close some of the substantial discounts you still have there. The part I agree with there is that if you're going to, like me, I love energy and metals. I'm sure you can do just as well or better for cheaper with European equity. So I think if you have that mandate, you can go globally. I get that. The part that I struggle with more is on the tech side, just because the theme that I believe is moving the market, in addition, obviously, to perception change about the Fed,

is AI. And most of the AI participants are US companies. They just aren't like European NVIDIAs. You know what I mean? So I think that's where the rubber meets the road. I think my view of the world over the long term is there's stocks that have exposure to AI. There are stocks that can't be messed up by AI.

And then those are destroyed by AI. And you're going to be trading 30, 40 times earnings for the ones that benefit and six, seven times the ones that people think don't. And that will be a global phenomenon. I mentioned the debate is bear case already happened versus bear case still to happen. Does this all really come down to whether you believe there's going to be a recession or not? And if you do, you can't be bullish. But if you don't, why wouldn't you be bullish? Now, we present the Paul Tudor Jones case to you as to why, you know, it's sort of like listen to the market. Market's telling you something.

Maybe things are going to be better now that the Fed is, in his words, done. Marco Kalanovic, J.P. Morgan, mid-afternoon today. While hiking cycles that are accompanied by tighter lending standards always end in recessions, right? He's reiterating, Gabriela, why he's more negative. Bonds say recession, stocks say soft landing. We have this conversation as to who's right. You have to believe one is right versus the other to shape your view.

If you think bonds are right, what do you do with that? And I think specifically the treasury market is definitely screaming recession when you look at the inversion of the yield curve, three-month tenure, or even when you look at some of the behavior in terms of the whole yield curve having seemed to have already peaked and yields coming down, looking forward to rate cuts, most likely as a result of the start of a recession. And that's ultimately why we're not that excited about meaningfully taking risk in credit within fixed income, which doesn't reflect a chance of a meaningful slowdown. You have not seen spreads widen significantly high yield in investment grade credit and in U.S. equities, because you do still have that risk of still seeing the cumulative impact of rate hikes combined with the credit tightening that's just now coming down the pike. So why not express some risk where there is positive economic momentum? And that gets back to the idea of Europe and

emerging Asia. At what point do we say, you know what, this long talked about recession and economic malaise is not going to happen? When are we confident enough to make that call? Because by that point, the train probably already left the station, right? I mean, look, I just think what all these really smart investors are telling you is the easiest thing to do is buy U.S. growth. Because if the 10-year yield comes lower because the economy slows, then we go back to the terminal value multiple expansion world we lived in previously. And if the economy turns out not to be in a recession, it's okay. These guys are going to have growth and better 24 or 25 earnings than they have now.

And so they kind of win either way. You paint a couple of situations in which the multiples can be justified in those stocks, even though they've expanded. That's why growth is working. It's working because either the 10-year yield comes down, the economy slows, in which case their multiples expand because they're the big game in town and the terminal value argument's back. Or, you know, actually, economies are right, man. We're not in a recession. It's slow. It's choppy.

But the low end's different this time. And then their earnings are better than you think at 24 and 25. And either way, you win. That's why all the really successful people were buying, you know, were buying two months ago, at least, or more, buying the big guys that benefit. So I think that's the argument they had. Once the banking crisis came out, it was like, this is easy. I'm just going to buy growth and wait and see what happens. Well, especially if you think that because of the banking issues that we've had, that not necessarily the Fed put being back, but the Fed's got you back because they've already proven with SVB and subsequent issues they're not going to let the whole system fall apart

or even get ugly. I don't want to get unbridledly bullish here, because I think it's clear that lending is going to slow and growth is going to slow from the U.S. banking system for a six, nine month period. But I think if you're looking within the U.S. market, I totally defer to you on non-U.S. because I have no clue. But it seems to me that the barbell is buy stuff like oil or metals or things that can't be messed with, utilities that you know you're going to need forever, or buy stuff that participates on the growth front and can have better 24 or 25 earnings than they had in 2022. And that's the barbell to win. And the stuff in between is tougher because

I either have to dream earnings accelerate a ton. That's kind of tough. Or I have to dream the multiple expands a ton. That's kind of tough. So I think you're on the barbell with growth in oil and metals, and that's how you outperform. How does that sound to you as a strategy? Within the U.S. I mean- Yes. Well i say forget the the international play for a moment does it make sense can you get your arms around what it doesn't have please disagree yeah he wants he's begging he's giving you the t-ball to disagree here i was hoping to say no we do still to be honest we do still think the most likely outcome is a meaningful slowdown from here. Once you have taken crisis off the table.

So it's a slow, slow down and perhaps a mild recession towards the end of the year. But we would be much more tilted towards the defensive side of the equation in the U.S. And yes, that includes tech, but it also includes consumer staples, utilities and health care versus exploring a more pro cyclical view outside of the U.S. You think the Fed, you can do both. I want to ask you both. Do you think the Fed's done? Paul Tudor Jones says Fed's done Bostick today. Well, kind of predisposed. I don't know. Maybe we go go again. What do you think? We think post banking stress. Yes, they're done. And the most likely move is a rate cut. And we've seen this historically. They wait for four months between the last hike and the first cut.

And that sets us up nicely for the fall for the first cut. I have no idea. I have no idea. I mean, we have we have several. No one has an idea. We have several interns at our turn this year. The first from this year, the first assignment I gave them all was read the year head outlooks from the biggest five banks, what they said last November and December on economics, rates, and equities, and then tell me what's happened so far. And the point is the smartest and best people in the world have no idea what's going to happen. No, but if I told you the Fed was done, you'd say what?

My guess, and I'm randomly guessing, and I'm not good at this, okay, is that they're not done. Which is why I'm helping you is that they're not. Which is why I'm helping you. And they're not done. That's my view. If they are done. Because the unemployment rate and the CPI, those two charts alone don't indicate it. And I think in the end, they're going to end up lagging like they did on the way in and they'll end up being more hawkish. Unless they come to the view that they don't have to crack the labor market like they once thought. Right. And as inflation comes down, right, you naturally start to have higher positive real rates and they're still tightening without

having to raise rates further. If they are done, the thing we would say is cash is the worst place to be. It's time to start increasing duration. And you usually see 12 months out outperformance of treasuries and investment. And that's growth stocks. I mean, that's the duration. That's another way to express that. Yeah. All right. Great stuff, guys. Thanks so much. Thank you. That's Gabriella Santos here, Post 9, Adam Parker as well. Let's get to our Twitter question of the day. Paul Tudor Jones says equities will continue to go up this year. Do you agree with PTJ? Yes or no? Head to at CNBC closing bell on Twitter to vote. We got the results a little later on in the hour. We're just getting started, though.

Up next, PayPal's turnaround trouble. Shares down nearly 40% from their recent high as concerns grow over their search for a new CEO. Now the street is looking for some answers, too. We'll explain coming up. Plus, a bull bear battle over the road ahead for stocks, where they see the biggest risks and rewards. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. About 35 minutes to go in the trading day. Check now of some top stocks to watch as we head into the close. Pippa Stevens is here with

that. Hey, Pippa. Hey, Scott. Starting with Western Digital popping more than 10 percent following a report that the company's merger talks with Japan-based Kyoksha are accelerating. The two companies are currently partners with the majority of Western Digital's flash memory chips produced through the joint venture. Meantime, shares of SoFi Technologies under pressure after Wedbush cut the stock to an underperformed rating. The firm saying the company may be, quote, nearing a tipping point on the fee income it recognizes related to loan origination and sales. The firm also raising questions about SoFi's capital levels adding it might look to raise more this year. Wedbush forecast shares falling nearly 50 percent to two dollars and 50 cents. Finally Shake Shack going in the opposite direction

jumping on reports that activist investor Engaged Capital is planning to launch a proxy fight for three board seats. The stock, Scott, is at its highest level since March 2022. Back to you. Sure is. All right, Pippa, thank you. Pippa Stevens, Wolf Research is issuing an open letter to PayPal's board as concerns grow over the company's search for a new CEO. Deirdre Bosa has the details for us. Dee? So, Scott, this is interesting.

This is not an activist investor, so you're not seeing the stock move much. This is a Southside research firm that's looking for some answers, and they said that they wrote it for a few reasons. One, in response to what they say, the magnitude of inbound calls about the firm, that is PayPal, and two, to tell PayPal's board that there are investors on the sidelines who are seeing better metrics, but they don't want to jump in because of that succession uncertainty. So essentially, PayPal is in limbo. We've talked about its metrics compared to rival Block, better profitability, but thought to be less exciting, less innovative. And that's

a problem because PayPal was once a fintech darling. It was worth more than $350 billion in market value, more than all of the big banks except for JPMorgan Chase. And if you zoom out even further, since it's separated from eBay in 2015, it has underperformed both the S&P 500 and the Nasdaq 100. It was this really amazing pandemic story, one of the biggest pandemic stories and biggest jumps. And it's really come down a lot from there. And, you know, Shulman has said that he's going to step down by the end of this year. But on the latest earnings call, there was no update. We don't know who it's going to be and when it's going to happen. You know, Dee, it's interesting you use the words in limbo. Gordon Haskett last week called called this a lame duck stock, right, because of the very issues in which you're talking about. Also, openly wondering whether Elliott, you know, the activist who was there is even still there and didn't use the opportunity of a stock pop from earlier to maybe head for the exits.

Yeah, and, you know, for a little bit, it seemed like PayPal might be appeasing, you know, the activist investor in Elliott because we did see better expense management, better profitability. But it turns out it's just not enough. I mean, for a stock and a company that is supposed to be at the leading edge of financial services with the many, many Venmo users, hundreds. I mean, it just absolutely puts its rivals, you know, Square Cash in the dirt. It just isn't doing much with it. It's been slow to monetize, but now it has a growth problem. And that's part of the reason why Wolf Research wrote this letter.

But they had a few other points. They said, listen, there were seven points. They said number two to seven. They don't really matter until there's a new CEO. So that feels like the most urgent thing for this company. Yeah. All right. Good stuff. Thank you. That's dear. Up next, a bull bear face off. BMO's Brian Belsky goes head to head with T. Rose Sebastian Page.

They'll debate the Fed, the debt ceiling, maybe what Paul Tudor Jones had to say today as well. The best place for your money. They'll try and tell you where that is. Plus, we're celebrating Asian-American and Pacific Islander heritage throughout the month of May, sharing stories of influential AAPI business leaders. Here's the co-founder and CEO of the Panda Restaurant Group. I'm proud to be Asian American because we really value family. We value togetherness and we value education. And most importantly, we value giving back. But also we want to exhibit kindness in action throughout our life and also our career life.

Welcome back. Stocks struggling to find direction to start the week as investors turn their focus to the ongoing debt ceiling negotiations, among other things. So where will stocks go from here? Let's hear two competing market calls with me now. Sebastian Page of T. Rowe Price, Brian Belsky of BMO Capital Markets. Gentlemen, it's good to have you both with us. Sebastian, it's nice to see in person. I'll turn to you first. You've described yourself the last two times you've been with me as a reluctant bear. Are you still? I'm still reluctant. You know, I was just watching your prior guests and it sounds like you need a bear on the show right now. So I'm happy to play one. I don't know. Bears seem to be everywhere. They are. They are everywhere. And the reason is that the bearish narrative is incredibly compelling. Gabriela talked about the yield curve being inverted.

The 3s to 10 is more inverted than it's been in all the data I have going back to the 80s. LEIs are flashing red. PMIs are down 17 points on the manufacturing side. Stocks are more expensive than they were before the 2022 sell-off, if you adjust for the level of rates. And on and on, the market, you know, we you adjust for the level of rates, and on and on. The market, you know, we're expecting double-digit earnings growth in 2024. So it's a pretty compelling narrative with markets being up so much year-to-date. My other guest is, I mean, you're a bull, right? I mean, I don't even think you're that reluctant, are you, Brian?

Well, first of all, it's wonderful to be on with Sebastian, a longtime client. We've been in a lot of meetings at T-Row when I go down to Baltimore, so nice to see you, Sebastian. No, I'm not reluctant, you know, from very big picture to intermediate to near term. From a big picture standpoint, remember, we still think that U.S. stocks are in a big 25-year secular bull market where the new cyclical bull started in October. We believe those lows are well in place from an intermediate-term basis. Our target for the S&P 500 year-end is 4,300. So it's not exciting, Scott, which brings me to kind of near-term.

The market's had a nice run here. We're trying to explain the unexplainable, I think, both on the bear side and the bull side. The traditional academic stuff isn't working for the bears, and the traditional academic stuff is actually against the bulls, but the market remains quote-unquote resilient. Add all of that up, and I think the market can, will, and should likely be soft heading into summer, but this is about stock picking, and I believe that the era of stock picking, like the 80s and 90s, is upon us. And I think that's what portfolio managers, from the equity perspective, are going to have to live with. Now, from an asset allocation perspective, this is in Sebastian's

wheelhouse being a multi-asset person at T. Rowe. And I think he's going to do quite well owning both stocks and bonds, but the more kind of fundamental in his pickings, I think that's going to work. And I think for the first time in 10 years, you're going to want to own a little bonds. You say that the bear case is so compelling, but is it getting a little tired and is it getting a little played out? And when someone like Paul Tudor Jones comes on, who's been, I think, more bearish than not over the stretch, you know, of the last last year let's call it minimum if he's starting to see a little bit of sunshine through the clouds why isn't it time to do that he made some compelling arguments this morning on squawk no the trend is not our friend and it's not

turning you know i think i the way i would put it is think of what i would call the four horsemen of the recession the yield curve which basically indicates the four horsemen of the recession, the yield curve, which basically indicates the Fed is tightening and the long end expectations for growth are coming down. Never a guarantee, though, for recession, right? Not at all. But that's one of the four horsemen. I'm trying to summarize why the macro dashboard is flashing red everywhere. Second, the PMIs.

I mentioned they dropped, especially on the manufacturing side. Third, credit conditions. Now, that one is peaking on the horizon, right? The senior loan officers, 46% of them, according to the last survey, are tightening conditions. When did we reach 46% in history, Scott? 2020, 2008, 2001, 1990, four recessions. And fifth, the last horseman that we're still waiting for, it's sort of starting, you saw on Friday, claims pick up, it's unemployment, which is typically lagging. So when you put it all together, the only reason why, Scott, I'm reluctant, and to Brian's point, it pays to be invested in stocks over time.

And we are. We're just pulling back a little bit. Is that a lot of these indicators flashing red, right? Your dashboard is red all over the place if you look at macro data. A lot of them are year over year data that represent the unwinding of massive COVID distortions. We pushed a bunch of cash into the economy and now we're pulling it back so we need to interpret those red signals carefully and now i know i got to be the bear so i'm going to stay the bear well you said you're reluctant but maybe we maybe we stimulated things so much to uh a historically incredible degree that the cushion that we built was a lot softer

and larger than we expected at the time. And that is what's playing out. The Fed has done 500 basis points in 13 months, unemployment rate's down. We haven't had this, the world's ending thing happen. And if you'd asked any economist a year ago, what do you think will happen if the Fed hikes by 500 basis points over the next year? Most of them would have said four or five, six percent unemployment.

It hasn't hyped. We had two trillion in accumulated household savings. Yes, that's drawing down. But we're still at 800 billion in accumulated household savings. We're a consumption economy. Two-thirds of the economy is built on the very savings that you're talking about and the spending that comes as a result of it. Right. That's why some say maybe the bear case has already played itself out and that now is the beginning stages of something better.

You know, again, I don't think it's played itself out. There are ways to play the markets in a way that's selectively contrarian. In other words, if you want to take risk, I wouldn't take risk tactically. I wouldn't overweight risk at the top level on stocks. You talked earlier on the show with Gabriela about high yield and high yield spreads. She thought the high yield spreads were tight. I'm an asset allocator. I'm comparing high yield total yield with the stock market. I'm getting 9%, even 9.5% for short-term high yield. And Paul Tudor Jones said, oh, it's going to be sort of a grind higher. That's perfect for carry. Our analysts are predicting about 3% default rate for the total index for high yield.

That's what's different about the prior recessions. Default risk is low. So I would put risk back in the portfolio, but through high yield and maybe even short-term high yield. Brian, I mean, this is essentially a conversation, as I described earlier, that the bear case hasn't played out yet, but it's going to. And we are just seeing the shoots of it now, if you will. We know that lending is going to be less. We know that credit conditions are going to get tighter. And all of that is going to have an impact on whether you see it through, you know, various spikes in initial claims, as Sebastian mentioned, and other places, you're going to see it. That's a great point. And remember, too, that the macro models were absolutely right last year for the first time in a long time. And now the macro stuff is not working like it usually does not

work because it is so lagged. I would say on the credit tightening conditions, remember the last time we had a potential credit crunch and issues with credit, the banks were in much different condition. We think the large banks are well positioned from a balance sheet perspective and a price to tangible book position and also cash flow to pick up some of the slack with respect to the small, medium banks. You know, we're not the sky is blue and the screens are green. I think that's going to be tough as we kind of filter through what happens with economic debt and certainly unemployment numbers the next couple of months. And then we haven't talked about the debt ceiling yet, too, so that's a bit of a kerfuffle. But at the end of the day, I think stock picking and fundamentals win. In North America,

regardless of what everybody else thinks in terms of what's going on in emerging markets in Europe, they did very well last year from a price performance basis. But fundamentally, they're still lagging. And remember, too, they're way behind the eight ball in terms of their issues in terms of monetary policy. So I still think U.S. and Canada is the place to be, but you have to be excessively selective. I mean, let's be clear, too. You said your target's 4,300. As bullish as you say you are and you're not reluctant, those are your words to say that you're not. I mean, you're looking for 4% at most upside from here. So that's not exactly a raging bull like you sound. No, no. But at the end of the day, I hope I'm wrong. I'd rather play the card of Jamie Dimon and Brian Moynihan under promise and over deliver. I hope I'm wrong. I

hope my bull case of 4,800 and 230 are right, that a recession is completely mixed. If not, we've already been in one, but I think there's a very good chance that my 4,300 is wrong. We just have to kind of get through the summer and see how things start cranking up in the fall in terms of the new deal calendar and things. Remember, we've had no new issues, no secondaries, and that typically doesn't happen until stock prices go higher. So we need to see a solidification of the market. And I think as stocks start to sift higher, I bet we're going to get a very strong deal calendar in the fourth quarter. Maybe that's a little what PTJ was thinking himself in the way that he described what he's looking at. Guys, it's been great. Thank you. Sebastian, thank you for

being here. Brian, thanks as well. We'll see you again soon. Brian Belsky up next. We're tracking the biggest movers as we head into the close. Pippa Stevens back with that. Pippa. Hey, Scott, one biotech name is popping 30 percent today. We'll tell you what and why coming up next. About 15 to go before the closing bell. Let's get back to Pippa Stevens for a look at the stocks we're watching. Pippa. Hey, Scott, check out shares of Sarepta Therapeutics surging 30 percent today after an FDA panel voted to support accelerated approval for gene therapy for Duchenne muscular dystrophy. The FDA is slated to make a decision by May 29th. And H&R Block under pressure following reports that the government is looking to create its own online tax filing program as

part of the Inflation Reduction Act. The IRS is due to release the report this week. According to the Wall Street Journal, that stocked out about two and a quarter percent. Scott. All right, Pippa. Thank you, Pippa Stevens. We're getting new 13F filings. They continue to come in, including one from Michael Burry, Scion Asset Management. Leslie Picker is back with us with that. What do we know here? Hey, Scott, for all that talk about short sellers and regional bank stocks, one of the names behind the big short fame is actually long some of these names. That's Michael Burry, as you mentioned, and his Scion Asset Management revealing in a 13F filing that it took new stakes in PacWest and Western Alliance. Both of those stocks are surging today.

First Republic, which ultimately was seized by the FDIC and taken over by J.P. Morgan, was also part of Burry's buy list during the quarter. But we don't know if he sold before the failure of that bank, which took place officially on May 1st. He also added new stakes in Huntington Bank Shares, New York Community Bank Corp, and he took stakes in bigger banks like Wells Fargo and Capital One during Q1 as well. To be clear, though, these are relatively small stakes in the millions of dollars each, and we don't know how he's positioned on the short side. These come from 13F filings, which only show long equity stakes, and they're backdated to the end of March.

So they may have changed in the six weeks since that time, Scott. I mean, that's super important, especially on these, just given not the who necessarily we're talking about, but the what. Regional banks at a time of crisis and concern, I think we can fairly say, and whether he is even in those names anymore. These could have been quick trades. We just don't know. It's interesting, Leslie, to see the stock reactions today up so sharply in a couple of them. The fact of the matter is we just don't know. It's interesting, Leslie, to see the stock reactions today up so sharply in a couple of them. The fact of the matter is we just don't know. Yeah, there's almost

more that we don't know from this filing in particular than we do, but clearly getting some stock reaction on just a vote of confidence, even though, like I said, we don't know how he's positioned on the short side. We don't know exactly how he's hedging this exposure. But just the fact that there is kind of a revelation that someone was long, even going back to March is enough to send shares of PacWest, Western Alliance higher because, you know, there haven't been too many vocal champions these days. Yeah, no doubt. I mean, obviously a highly respected investor. It's just really eye-opening to see these. Leslie, thank you again. That's Leslie Picker. It's your last chance to weigh in

on our Twitter question. Do you agree with Paul Tudor Jones that equities will continue to go up this year at CNBC closing bell to vote? The results are next. All right. Do you agree with Paul Tudor Jones? 61% say yes. Well, the Market Zone's next. All right. We're now in the Closing Bell Market Zone. Mike Santoli here to break down the crucial moments of the trading day. BFA's Jill Carey-Hall on the growing opportunity in one part of the market. Contessa Brewer here, too, on Fanatic's $150 million play in the sports

betting space. Mr. Santola, you first. 60% of those surveyed in our poll agree with Paul Tudor Jones. These are going to go up. A little more bullish than I think a lot of the other gauges suggest, but he kind of made that good sort of big picture case. You also have today an answer to the question of if Apple goes down a quarter of a percent, can the S&P possibly go up? And so, yes, when banks go up three percent, small caps bounce. We have the stock buyback window mostly back open. So it's one day. We'll see if it's the start of a rerotation or not. A bank saying it's doing pretty well to Jill Carey Hall. The growing opportunity in one corner of the market is?

Well, I think, you know, for small caps, we've been tactically cautious near term. So if you have a very short time horizon, I think, you know, we're continuing to watch the signs of stability in, you know, regional banks and credit, as well as volatility ahead of the debt ceiling. So, you know, some risks short term, but we're still in the view that this is a you know an opportunity for for long-term investors um you know small cap valuations the this is the only size segment that's still cheap valuations don't typically tell you a lot about what happens over the next few weeks or months um but but over multiple years it's one of the most predictive signals for for return so- we think you could see better returns on an annualized basis over the next decade for for small caps than for large caps. And I think

even now near term there's still a lot of opportunity for for active investors in the size segment despite the near term risks we definitely think given all the cross currents in the market- this is a time when you want to be active over passive.

Lots of opportunities within small caps to do that. And our firm covers, you know, more than 900 small and mid cap U.S. stocks. So, you know, lots of places where one can go. Jill Carey Hall, thank you very much for that one opportunity. Interesting play at an interesting time. Contessa Brewer, Fanatics wants to be big time in sports betting. They sure do. And they bought PointsBet for the low, low price of $150 million. What a bargain. CEO of Fanatics Betting and Gaming, Matt King, says the costs for market access have plummeted 40 to 50 percent from their highs. I know you want to see stock moves, right? And here you've got PointsBet traded in Australia. Fanatics is private. But look, this is a gauntlet thrown down to market leaders. You've got Fandel, whose parent, Flutter, intends to list on a UExchange later this year.

DraftKings, BetMGM, Caesars, they consider Fanatics a formidable new entrant with its database of roughly 95 million customers. Look, it's late to the sports betting party, Scott, but it is making a splashy entrance. Is there enough room for everybody? No, no. You've got more than 60 operators right now. Expect to see consolidation. I asked Matt King today, what's your prediction here, what we get to? He goes, I think max 15 to 20, and most of those will be small operators with, like, regional niche attraction.

Wow, interesting. All right, well, watch that, Contessa. Thank you very much. Contessa Brewer with the latest there. Two-minute warning right there is your sound effect as we wind down this first trading day of the week. So for Paul Tudor Jones to be right, does he also have to be right, I think he does, that the Fed is done as he thinks they are? I think that's the premise. I mean, in theory, could we get close to the June meeting and they say we bump at another quarter point?

Possibly. I don't think we could kind of stay on the same treadmill, waiting for the economy to slow, waiting for the Fed to say we're not yet done. But we kind of thought that before May, too. So it's hard to know. I think that, you know, one of the reasons that you have this pretty good two-sided debate

is that even if you're bullish that the Fed is done, you still are looking at deleting indicators of a steeper slowdown in place, and you're kind of playing the lags. So even if we muddle through for a while, which I think is a very plausible scenario, that the economy kind of stays resilient for a longer period of time, you still have these late cycle conditions. You have low unemployment.

You don't have fiscal contraction. Whatever happens with the debt ceiling, we're not going to be spending more this year than next versus last year. So I think all that stuff in the mix keeps people unexcited. And as I said earlier, it keeps that cautious tone, the wall of worry, keeps people from jumping in with too much risk. And that kind of keeps the market from overshooting. So the mega cap growth trade has been a defensive trade in that context. And now if we re-rotate around it and we have cyclicals that look pretty cheap

if the economy is in OK shape, I think that's where the pendulum keeps swinging between. These 13 Fs giving us some clues as to where the so-called smart money is continuing to put its money. Never know if they still hold those positions or not, but whether it's KOTU or TIGER and maybe some of the ones we could still get after the bell, it's Berkshire and maybe David Tepper's Appaloosa. And the idea that banks are actually viable for some is interesting. Yeah, good stuff. All right.

Thanks, everybody. Have a great evening.