Closing Bell - Closing Bell: The Catalyst for Stocks? 5/10/23

Episode Date: May 10, 2023

What is the catalyst for stocks to move higher? Is it rate cuts? Tom Lee of Fundstrat gives his forecast. Plus, Disney is set to report after hours. Victoria Fernandez of Crossmark Global Investments owns the stock and gives her take on what she’s watching from those numbers. And, Former Fed Governor Frederic Mishkin weighs in on the inflation situation and what the Fed might do next.

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with today's sell-off, despite that pretty good read on inflation and what all of that says about where your money is heading from here. It's not the market reaction obviously many were looking for today. There it is. Here's your scorecard, 60 minutes to go in regulation. Cyclical stocks, they're selling off, underperforming today. That's a drag on the Dow. It's been down for most of the afternoon, though it's recovering a bit. S&P, Nasdaq, Russell 2000 are in the green. Growth stocks are catching a bit of a bid. Interest rates are dropping on more recession fears. It brings us to our talk of the tape. What is the catalyst for stocks to move higher?

Is it rate cuts? Some say be careful what you wish for. All this is Fed member after Fed member says it's not going to happen. So where does this leave us? Let's ask Tom Lee. He is Fundstrat's co-founder and head of research. He is also a CNBC contributor. It is good to see you as always. What do you make of this market reaction today, Tom, to that CPI print? Scott, you know, I think today's CPI print wasn't like a tiebreaker. I think there was something that people who are constructive on inflation falling, they saw plenty there to like. And then there's people in the sticky inflation camp and there's plenty of arguments there. So it's sort of been like this all year where it's a game of inches being fought.

But progressively, I do think the bull case is prevailing. And if I could just point out, I think one of the biggest implications for this CPI report is the percentage of components that are actually an outright deflation. So if you look at the price level and then where it is now, these are off the peak. It's actually now hitting 40%. That's actually well above the 10- year average of 38 percent and the 45 year average of 30 percent. So we're we're actually sort of saying forward inflation should come down pretty sharply. Is that your bull case? I was going to ask you, what what is the bull case? Is it simply that that inflation comes down more sharply than people think the Fed is absolutely done? We have a soft landing because that's maybe a lot to

ask for. It is a lot, Scott. I mean, I'd say it's as some people say, it's a narrow path. What we think is the bull case is that inflation is falling faster than most people realize because we're starting to drop some of the high prints from last year. And that's going to allow the Fed's pause to become more comfortable for investors because it really leads to a soft landing. I still think that's more than a 50% probability. And then when you consider where positioning is, if you look at FINRA margin debt, for instance, there's been more liquidation or deleveraging of FINRA margin debt than occurred in 2008. So people are sitting on cash on the

sidelines. Retail money market cash has risen by $500 billion, a lot of it before March, just in the past year. So we've got people sitting on cash. And if we have a soft landing, we know corporate profits have been holding up nicely. So it is a scenario where the bonds are at 3.3 percent for the 10 year. That allows PE to expand. And that's why stocks could go up. I know. But speaking of sitting on using those words, the Fed is likely going to be sitting on higher rates for for some time. And even some of the more, let's say, dovish members like Austin Goolsbee, for example, says he's already getting, quote unquote, vibes of a credit crunch. So if it's higher for longer and we've already got some credit

issues coming into the system, that doesn't sound that bullish to me. No, it doesn't, Scott. Higher for longer would be tough because, again, it would still be a lot of tension between those who think something will break and those who don't. But what I would point out is that another scenario could emerge, and I think it comes from both the public's outcry about high rates and political pressures, is that the Fed could end up tolerating inflation settling around 3%. I know Powell's publicly dispelled that notion, but that does explain why the forward curve is where it is versus where the Fed tells us interest rates should be,

that I think there could be a point where the Fed could end up tolerating something around low 3% inflation. That would be quite good for stocks and profits, but I'm not saying that's the probable case, but I think that's why things could get better. Do you think they end up cutting this year? Is that in any way part of your bull case? We don't.

I think one reason why the Fed futures are forecasting cuts is people are assigning a probability of an emergency from a regional bank crisis. I mean, that would not be good for stocks. But I think the bond market is trying to price that in. I don't think anyone in the bond market really thinks there's actually interest rate cuts coming. But they also don't think we're going to be at 5% for the next 10 years. So I think the 10-year kind of stays anchored in this low 3% range. I don't know where the two-year ends up, but it's really going to be the 10-year that really drives where PE should be for the stock market.

So would I be overstating things then to suggest that your entire bull case is built on the idea of a soft landing? Yeah, Scott, it is based on that. And I know someone will say, look, we're grasping at straws. But as we've written for our clients this year, there have been six things that have happened this year that only happened at the start of a bull market. And they've never seen an occurrence in a bear market.

So it does seem like the evidence is still showing October was probably the low. We're in a rising trends for the last seven months. And if I had to explain why this is happening, to me it would be the best explanation is the soft landing ahead of us. You know what, let's expand the conversation and bring in Dan Greenhouse if we could, Tom. He of course of Solus Alternative Asset Management.

Because I want to have a debate from two market participants, those who follow and watch and actually act in the markets every day. You hear what Tom says, good to have you obviously here. What do you think? Yeah, I mean, I think there's a lot. Tom is articulating a view. He's not alone in articulating his view. Is it a credible view? Well, sure, it's credible. I mean, listen, the Federal Reserve itself more or less is banking on something resembling a soft landing, although the staff at the Fed is predicting something close to a recession. But you've got other private sector actors like Goldman Sachs that have been, that there are six things that are occurring that only occur in bull markets. Where I would take issue is the idea that in order for this to happen, you'd be thwarting 40 years of data

and activity on the part of the Federal Reserve. In that, when you raise rates, my argument for a year and a half has basically been when you raise rates, bad things tend to happen. And that's not because of any ill intentions. It's because the odds that 10 or 15 people sitting in a room can manipulate an interest rate in a $20-plus trillion economy to fine-tune it perfectly is fallacious. And I don't think that this time, in that sense, will be any different. I don't disagree that maybe the October low was the quote low, but I think the idea that we're not going to come close to revisiting that,

at least, I would challenge that. Tom, what about the idea that maybe what we witnessed with the banks to this point isn't it? And I want you to listen to what Stanley Druckenmiller had to say on the point that Dan Greenhouse is making here, that when the Fed does what they do and they do it in the speed in which they're doing it now, things break. And maybe the banks weren't the first thing to break. Listen to Druckenmiller. This is from Sohn yesterday.

We'll kick it around on the other side. When you have free money, people do stupid things. When you have free money for 11 years, people do really stupid things. So there's stuff under the hood. It's starting to emerge. Obviously, the regional banks recently, we had Bed Bath & Beyond. But I would assume there's a lot more bodies coming. What about that, Tom? Right. We're normalizing from what Druckenmiller would call way stupid. And it's inevitable that there's something else out there. What do you think? I mean, he's been proven correct. You know, as we look through the aftermath of things like Silicon Valley Bank, we did see a lot more evidence of sort of mismanaging what was

visible risks emerging. I think I don't want to be glib, but in the GFC, households were the ones who really caught off their skis because they were using floating rate instruments, a lot of leverage with zero equity cushion. In this cycle, we know homeowners have actually been a lot more prudent using fixed rate mortgages with a lot more equity. So the place where something bad could happen is where there is excess leverage and not a lot of equity cushion in a lot of lending today in the corporate that hasn't been the case so to me i do think things

are still breaking and they haven't finished breaking but But like the 90s, where you did have a sort of persistent banking crisis, it didn't take down the whole economy. So I think one of the things I'm still just using as a guide is that we had a 27% decline in 2022. That's the same decline that Volcker induced with his nine-step inflation war, when he took rates to double digits, and the maximum drawdown on the S&P at that time was 27%. We achieved that in nine months last year. So I think we already had that wealth shock. And now in the aftermath, I think stocks are climbing towards equilibrium. Yeah, listen, that's all fair. And I agree that I think people discount a 27% drop in stocks, a rise in investment-grade credit spreads from 90 to 160 or whatever.

I mean, you had a meaningful reaction in risk assets. I would also disagree somewhat in the larger sense that, like, the banks are the first things to blow up. I mean, you know as well as anyone, the unprofitable tech stocks blew up at the beginning of 2021. More profitable tech blew up, so to speak, at the end of 2022. And you sucked a lot of valuation out of the market. To Tom's point about leverage, which I think is entirely valid, in that sense bears no similarity to what happened in 2008. But to the point with respect to valuations in the equity market,

you see this in the credit market and the equity market, that you're dealing with a situation, we find ourselves in a situation where credit spreads are still incredibly tight and equity valuations are still, for lack of a better word, pretty elevated. A lot of that is because of the largest names being Nvidia, Tesla, and so on. But with valuations at 18 plus times or whatever, and high yield spreads south of 500, IG spreads nowhere. Like nothing is near a problem. And my point is everyone's, the only interpretation is that the Fed is going to stick the landing, so to speak. And I hate to keep coming back to the Fed

because at the end of the day, all roads lead to the Fed. Sure, but to borrow a phrase from our old friend, corporate profits are the mother's milk of stock prices. And I just, I don't, the negative repercussions are not leverage or a blow up. It's just simply going to be the economic environment is going to worsen, presumably at some point, and stocks and spreads are going to start to reflect that sometime in the back half of the year, something like that. Tom? Yeah, I mean, I think Dan's making sort of the point why this is a game of inches.

I just would point out a few other things. One, when you look at PE, ex-FANG, it's closer to 15 times. And the two most expensive groups after FANG are staples and utilities. They're the defensive groups. Forty percent of the European stock markets are at all-time highs right now. In fact, several are at new all-time highs. And Japan is at an all-time high. So when we think about this global inflation war

and all the credit risks that people are sort of jaw-blowing about, a lot of developed equity markets are at all-time highs, except for the S&P. What about mega-cap tech, Tom, which you've been dead right about? You said it was the time when it was kind of out of favor to start the year that you thought mega cap was going to have a good year. Well, it's had a year's worth of gains in just a few months. But what now? Well, our base case for FANG this year was that it could rise as much as 50%, partly because it was one of the first groups to really get hit. But I think as this year has unfolded, it really looks like FANG, and I'm being a little

broader including things like Nvidia and the semis, are so relevant to how you deal with inflation, whether it's through AI or automation. So these are incredibly important companies. And I think Stan's made that point that you can't really say that you're going to have diminished demand for these products. It's actually going to grow and there's not new competition. So actually, their ability to make future profits is higher. And that's why I think their PE could expand. And again, that really pulls up the whole market. I mean, you want to make a case for cyclical stocks over FANG-type mega cap stocks? Yeah, I can make that case.

You can? But sticking with the Fed. No, no, no, no, no. How do you make that case? Well, listen. And I tell you that the New York Fed's recession indicator spikes to the highest since 82 today. And you want me to buy cyclical stocks? Well, a lot of Fed recession indicators are based off the yield curve.

And with the yield curve still inverted, granted, it called 50 base, twos, tens, as I call it, 50 basis points. It's not as inverted as it was. I'd call it 100 basis points, but still levels that are entirely suggestive of a recession going forward. I'll get to cyclicals in one second, but I want to make the point about FAANG. Just with respect to the market as a whole, we talk a lot about how the market's holding up. If you break the S&P or the NASDAQ down into deciles, the top decile by market cap, which is gonna include the NVIDIAs, the METAs and the like, are tripling the performance of any other decile

and most other deciles are down for the year. And I know that we've all made this argument that you have incredibly narrow leadership, but with respect to FAANG, it really is doing the job in terms of holding up valuations and holding up the market in general. That's not to say that we'd be off 10% or something if they weren't up. And we've seen this movie before. And we have seen this movie before. With respect to cyclicals, like, listen, if you're going to have a downturn in the back half or the beginning of 24,

then presumably everyone's going to do poorly. It doesn't have to be a downturn in the back half or the beginning of 24, then presumably everyone's going to do poorly. It doesn't have to be a 2008 type scenario, but if we're going to crimp corporate profits even further, then it's going to be pretty hard for any sector to rally. What I would argue about something, let's say like energy, for instance, you continue to have secular tailwinds to the space. Oil is off by call 13, 14% from the highs. Some of the large cap names are down four or 5%. They should be down much more with oil off by 15%. There are fundamental secular reasons at work in some sectors that are larger than just simply the Federal Reserve. All right. Thank you for being here. That's Dan Greenhouse. Tom, thank you,

as always. Great day to have you on. This is the kind of day we wanted to hear from you. And by the way, don't miss Tom Lee at our virtual financial advisor summit. It's next month, June 15th. We'll discuss market risks ahead, potential buying opportunities, obviously much more. You can scan the QR code or register. We have a great group. And you see Dan Niles, Roger Ferguson, Rebecca Patterson joining Tom. We're excited about that. Let's get to our Twitter question of the day. We asked, will the Fed cut rates this year, yes or no? Head to at CNBC closing bell on Twitter to vote.

We got the results later on in the hour. Let's get a check on some top stocks to watch as we head into the close. Christina Partsenevalos is here with that. Christina. Well, analysts right now are loving Exact Sciences, pushing up their share price targets for the company. This is a company that provides cancer screening and diagnostics and shares are almost 11 percent higher right now. Just yesterday, Exact Sciences posted strong earnings, raised its full year revenue forecast, and that was driven primarily by the company's

test for colorectal cancer. The stock is currently trading at levels we haven't seen since February 2022. And even though losses keep growing, shares of Roblox are jumping, what, 9% today? Investors are really focused on future cost-cutting initiatives. After bookings grew, management warning on the call, they can, quote, moderate their rate of investment

in headcount and infrastructure, improving operating leverage. No word on any cuts. Scott. Oh, yep. Christina, thank you. All right. We're just getting started here on Closing Bell. Up next, Disney reporting results. Less than an hour. We've got your big setup ahead of those numbers. Plus, we'll hear from a shareholder about what she'll be watching and later debating the inflation situation. Former Fed governor. There he is, Frederick Mishkin. He's going to join us with what he thinks the Fed's next move will be. And the one big wild card he's flagging for stocks.

Don't go anywhere. You're watching Closing Bell on CNBC. All right, we're less than an hour away from Disney's results. They, of course, report an overtime stock a bit muted into that. Julia Borsten here with your setup. Julia, what are we watching for today? Well, this quarter, we're watching Bob Iger's cost-cutting efforts and the progress he's made towards his plan to cut his target of $5.5 billion in costs. Plus, we're also looking to understand Iger's approach to some big hurdles ahead. In Disney's fiscal second quarter, Disney is expected to show 7.5% higher revenue,

while earnings per share are expected to decline by nearly 14%. Streaming is, of course, in focus. Investors looking for about 163 million Disney Plus subscribers. That's up just slightly from last quarter, but they're also hoping to hear that streaming losses are declining to about $840 million in the quarter. That's down from a more than billion dollar loss in the prior quarter. Investors are also hoping to learn more about, one, the impact of the writer's strike, two, Iger's outlook on the advertising market and also an economic contraction, and three, how the escalating legal battle with the state of Florida could impact the company. Scott. All right. Lots for you to cover. Julia, we'll be looking to you when this number breaks. That's Julia Boorstin.

Now let's bring in Disney shareholder Victoria Fernandez of Crossmark Global Investments. What are you going to be looking for in overtime tonight? Yeah, well, some of the things that Julia just mentioned, obviously, when it comes to advertising, we want to see what that looks like. We did not get good news out of Warner Brothers and Paramount. So we'll see if that continues with Disney or if they're able to turn that around. Looking at the subscribers there, we know last quarter they had a loss on the international side of subscribers, even though domestic grew. So we want to see that the writer's strike obviously is going to be important. I mean, look, Disney has a good catalog. So even if there is a

writer's strike that goes on for a while, especially for the younger generation, they can still have their subscription paying viewers there and watching. I mean, I'll watch Mulan again for the hundredth time if there's nothing else to watch. So we'll be getting their opinion on the writer's strike. And then the cost cutting as well that Julia mentioned. This is key for a few different areas, Scott. One, the dividend. If they're still in that cost cutting mode, let's see how much progress they've made with the job cuts and the restructuring. Are they going to bring that dividend back? Originally, it was thought that 2023 might be the year we see that. I want to

hear what they have to say with that. And if they are cost cutting, what does that mean in regards to Hulu as well? So all of those elements we're watching. Options trading is telling you there could be some extreme volatility here, like 7% move, which is about 2% higher than usual. So we'll be watching all of that. All right. So that's a pretty good wish list. Now, are your expectations high or low that you're going to get the answers you want? Yeah, I'm not sure we're going to get all of the answers that we want. I think it'll be pretty vague around the cost cutting. It was just last quarter that they laid out that plan. I'm not sure there's been a tremendous amount of progress in regards to that. I'm not so sure we're going to get positive news on the dividend,

and we were really hoping that that could be a boost to the stock. So I'm not sure we're going to get the positive answers. And advertising is going to be tough. How many of their subscribers switched over to the ad-supported subscription versus the non-ad-supported? And what does that mean for revenues? It's going to be a difficult quarter, I think, but Iger will probably get a pass because he's still fairly new back on the job. So I think he'll get a pass. But again, I think we're going to see some volatility. So to trade around that,

we think trading options is the best way to handle Disney right now. What kind of tolerance, though, do you have for these losses related to streaming decelerating? Yeah, I mean, no one wants to see the losses come in. Obviously, you want to see that improve quarter over quarter. But look, it's a tremendous amount of competition out there. Hulu is a key component of this streaming as well.

You've got 48 million subscribers there. So are they going to make a play to bring that in? Does that then help with the decelerating that we're seeing? People are going to be patient here because it is Disney and they have faith in Iger. But how long that patience goes on, we'll wait and see. We hold it in our option strategy where that underlying basket of stocks is something that we hold for a longer period of time usually. So we're willing to give it a little more time than maybe a regular trader would. What about succession? No one mentioned that. And, I mean, he has this self-imposed two-year timeline.

You think, and when do you want to know? When do you want to know who's going to be next? Yeah, we've heard those self-imposed timelines before, and they come and go many times without a change. So I'm not sure he's going to achieve what he wants to achieve in two years or at least in two years be able to hand that over to someone else. I think it's going to be a longer time period, and I'm actually OK with that. I like Iger's management style. The stock did well under his reign before. I think it'll do well again. So stock did well under his reign before. I think

it'll do well again. So I have confidence in him as the leader. It's one of the things that we actually have liked about the stock is the governance component when he was at the helm. So I'm not opposed to him going more than two years, but we would like to have at least 12 months notice if he's going to be leaving. And again, I think that's just going to be too soon. It's coming up too quickly for them to make that decision. All right, Victoria, I appreciate it very much. That's Victoria Fernandez joining us up next, the road ahead for the Fed. Former Federal Reserve Board Governor Frederick Mishkin is back. We'll see if he thinks the Fed is done and if a cut could be on the table. It's next. Closing bell right back. All right, we're back. Stocks largely hugging the flat line, though.

You see the S&P 500 now moving higher by 1.5% – excuse me, by 0.5%. The Dow is still negative, but way off of the lows. And that is following this morning's cooler-than-expected April CPI report. My next guest says the Fed is far from declaring victory over inflation and may have to keep raising rates. Let's bring in Frederick Mishkin. He's the former Fed governor and CNBC contributor. Frederick, welcome back. It's nice to see you.

The market sure thinks the Fed is done. Nick Timoroso, The Wall Street Journal, published about an hour ago that says summer break appears likely as officials monitor effects of banking stress. Why the inflation report reinforces the Fed's plans to pause. You think we're wrong? Well, I don't think that the inflation report actually does reinforce that the Fed should stop raising rates. It's true that the headline rate was a little bit lower than expected, but the core rate came in exactly where it was expected and in fact is still at a very high level.

It hasn't really fallen very much. So given that, plus a very strong labor report that we just had, the Fed basically cannot declare a victory, that inflation is still a real problem. There's no clear-cut evidence that, in fact, inflation is coming down towards the 2% target over a reasonable horizon. So the Fed, I think, potentially has to raise rates. But even more importantly, there's no way the Fed should think about pivoting for a very long time. Very key is that the rates be kept high for a long time unless, and here's the wild card, the wild card is the banking sector. If there really

are some problems in the banking sector and lending stops, that's a whole new ballgame. We could be in a very different environment. However, the Fed has much more information on that than we do because they're actually supervising those banks. They can see whether, in fact, there's a problem. And so far, the rhetoric coming from the Fed is that things look like they're pretty contained on the banking side. If that's the case, they could even have to keep raising rates. But certainly, for a very long period of time, and I've been saying this for quite a while, that the Fed had to raise rates and keep them high and not make the mistake of starting to lower them too early. That would be a really a very, very problematic move for the Fed. I know, but we already know from the senior loan officer survey of just a few days

ago that credit is tightening, that loan demand is declining. Austin Goolsbee, Chicago Fed himself said he's getting, quote, vibes of a credit crunch. You're not moved by any of that? Yeah, I think that there is some issue that there's some slowing. The question is how much? If in fact the banking problems had not occurred, surely the Fed would have to raise rates another at least another 50 basis points. So that's why my view is that the fact that there has been some tightening in credit markets is one of the reasons that it's not clear that they have to raise or raise that much. But there's no indication that basically that inflation is contained. Poor inflation, inflation that takes out these volatile items that don't tell you about trend inflation, what the future of inflation might be, that's still pretty damn high. And that's the problem for the Fed. You know, they're not

happy about this. They'd love to see inflation come down faster. You know, nobody likes higher interest rates. The Fed doesn't like them. They don't want to do them. But in fact, if they don't have high interest rates to contain inflation, then you'll have higher rates, even higher rates in the future. So, you know, they have to do their business and stick to their guns and do the right thing. And it's not always easy to do that. But, you know, you've got to be a tough, tough SOB sometimes. I want to point out as well, as we're having this conversation, stocks are now positive. The Dow, which was negative for most of the day, has now gone into the green. We've got about we got less than 30 minutes to go before we're going to close it up. And we're green across the board. And maybe part of it is

on this idea that Timberose puts forth, that this break from hikes looks likely. And I want to be clear with what you're saying here. If you're in the room, are you saying that you would vote for a hike in June? You know, I'm not sure because I'd really want to have more information on what's going on in the banking side. So, in fact, you know, I've been very hawkish thinking that we had to raise rates. When the SBB went under, you know, I actually thought it was reasonable for the Fed to pause. Now, they did raise rates, which I thought was fine because they have better information than I do on what's happening in the banks. So that's really the key issue here.

But in a sense, having a little slowdown in credit from the banks is actually helping them not have to raise rates more. So it's not that the problems of inflation have been solved. It's not that inflation is absolutely under control. The Fed's done a very good job of reversing course when they made some serious mistakes before. But as I say, I would have been much more hawkish if, in fact, the banking problems hadn't existed. So it's not that the credit, that some of the credit supply may have weakened somewhat.

That's actually a factor in my thinking that in fact the Fed did not have to keep on raising rates to the 5.5% level. But on the other hand, there's no indication at this point that the problem is solved and the Fed has to be super vigilant. And most importantly, even if they don't raise rates, is not to try to fall into the pressure of lowering rates, which in fact we've seen in the past when Volcker did this once and that was a mistake. It's happened before.

That's the real danger right now. Now hopefully there's no big problems in the banking sector. That's a whole new ballgame. But the Fed has a lot of information there that we don't have. They have guys inside the banks checking out what's going on. They can see whether there's a real serious problem or not. I mean, that worked real well in SVB. I mean, I don't know about that. Let me ask you this. At the separate, it was a major regulatory failure, but now they have a lot more information.

OK. The chairman himself said that we are close or already there in terms of being in restrictive territory enough. Do you disagree with that characterization? No, I think that that's a real possibility. That, as I say, there might be needed to be another small increase at this stage. That basically, I think the reason why he's saying that is because there has been some weakening in the credit markets because of the banking situation. But in fact, one of the things that's very key, when you have inflation that spins out of control, it's really important for you not to basically wimp out and start cutting

rates too early. The only reason you start doing something like that is if something really bad starts to happen in the economy. Now, I haven't heard anything from Fed officials that indicates that's the case. Again, if there's something else going on there, we'll start to hear about it and get some sense of it, and they'll actually start talking about it. Then we're in a different ballgame. But that's not what I'm seeing right now, at least from the information I have. But if I was in the room, I might have other information that would make me say something different. I know, but you're much more of a monetary policy expert than me, OK? Obviously. But when you do 500 basis points of hikes in merely

13 months, don't you need to give it some period of time now to see what the dramatic effects of all that are going to be. If you continue to raise and raise and raise and raise, you're not going to be able to give yourself the opportunity to see what you've done. Why isn't pausing now when we've already broken something and taking a look around, taking a couple of deep breaths and seeing what the effects of that are? What's wrong with that? So the effects of that are what's wrong with that so the two things that i think are very important one is that the fed started a point where in fact they were very expansionary they really got it wrong they were kept rates at

too low for way too long and they and in fact when they started raising rates even when they started doing the 75 basis point increases they they were still in actually expansionary territory. So it took a while, by the way, to even get back up to neutral, which I think is more in the 4% range or so, or maybe a little even higher than that. And so it hasn't been that restrictive, as many people actually say, given where they started from. So I think that's point one. Point two is it's true. I'm not saying necessarily the Fed has to keep raising rates because that they may be near where they need to be,

and particularly because of the softening in bank lending because of the problems in the banking sector. But on the other hand, what's really clear is that the Fed has got to keep those rates at high levels

unless there's some serious weakening of the economy and we don't see that yet economy is much stronger than people have expected you know the unemployment rate is historically very very low levels uh... you know that and i'm somebody who thinks that that uh... that the fed's most important job is to control inflation although it also needs to be aware of what's happening on the employment front so you know there have been times when I've been very dovish. I've been very hawkish the past two years or so, maybe a year and a half.

But in fact, there are times when you need to be dovish, but that's not the kind of information that I'm seeing out there right now. And again, if I was in the room and I'd been there, had some different information about what's going on in the banking sector, I might take a different view on this. I appreciate your time so very much, Frederick. Thank you. That's Frederick Mishkin joining us here. Closing bell up next one, financial stock. It's bucking the bank trend. It's up over 50 percent so far this year. We tell you what it is and why, and we'll give you a rundown of the other key movers as we head into the close as well. Christina Partsenevelis is standing by once again with that, Christina.

And we've got a short squeeze on our hands. and this time it doesn't have to do with the typical meme names. Can you guess who it is? I'll have the answer and much more after this short break. I got about 15 to go. Before the close, Christina Partsenevelos has a look at the key stocks we are watching. Christina? Well, short sellers are feeling the pain right now, and I'm not talking about GameStop. Shares of AI fintech firm Upstart are on track for their best day in more than two years after securing an extra $2 billion in funding. But Upstart is a highly shorted company given the recent drop in demand for new loans

amid a high rate environment. And so that's why 35% of the float is shorted. So many short sellers today were left buying the stock to limit losses, and that's causing shares to surge 35% higher. Shares of cloud solutions firm RingCentral are surging right now almost 15% higher. The improved guidance was helped by small and medium-sized business growth, improved margins, and retention rates, even though some customers did downsize their orders. Analysts on the street liked the company's performance. For example, KeyBank bumped their price target to $45 a share, up from $40 a share.

The stock, though, is trading at $30.46 right now. So still a lot upside to go to hit that price target. Scott. All right, Christina, thank you very much. Now, Leslie Picker taking a look at another big mover today. And it's a regional bank. Yeah, believe it or not, Scott, today, and it's, is it a regional bank? Yeah, believe it or not, Scott, this one really is an antidote to the regional bank turmoil that we've seen recently. First Citizens, though, shares up about 7% today and more than 50%

on the year, the best performing name and biggest weighting in the Spider S&P Bank ETF, KBE. The move today spurred by the revelations that First Citizens made nearly $10 billion by acquiring most of Silicon Valley Bank from the FDIC. The one-time gain boosted first quarter earnings by 4,000 percent. The provision for credit losses jumped as well to $783 million due to the deal. Still on this morning's conference call, First Citizens CEO Frank Holdings described the SVB deal as a, quote, home run financially for both earnings and tangible book value. Its quarterly profit, about $9.5 billion, ranks the lender second behind only J.P. Morgan in bank earnings for the three months through March. Scott. All right, Leslie, thank you.

Leslie Picker, last chance to weigh in on our Twitter question. We ask, will the Fed cut rates this year or not? Simple, yes or no. Head to at CNBC closing bell on Twitter. The results are right after this break. The results of our Twitter question. We asked, will the Fed cut rates this year? The majority of you said no.

67.7%. Up next, Google with its I.O. event will bring you the headlines. Also, we head into the market zone. We are now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down the crucial moments of the trading day. Gary DeBosa is live in Mountain View, California, with a rundown of the biggest headlines from Google's I.O. event. Mr. Santoli, I begin with you. It's been an interesting day. The president is in the New York area. He was upstate talking about the debt ceiling duel. There's some suggestion that he is showing a willingness

to discuss some possible budget restraints. He said, quote, America is the strongest economy in the world, but we should be cutting spending and lowering the deficit without a needless crisis. Market may have moved a bit on those comments, or at least around that. And it's trying to fight for positive territory as we go to the close, at least on the Dow, because S&P is nicely positive. Yeah, around that and around just maybe a growing sense that today's inflation numbers were consistent, perhaps with a Fed pause,

as we've gotten some reports that affect. And I see it just as a reason to turn the dial this much in the direction of maybe there is a way where this turns out in a benign fashion for a while. You know, I think that we got stuck in this mode of feeling as if it has to be hard landing or soft landing. We have to know absolutely before we know which direction the market's going to break. In reality, there can be these equilibrium moments where the Fed's not really fighting you

and the economy hasn't fallen apart yet and the market kind of does what it does and you get a little bit of excitement about AI over here and then the banks don't, you know, go to zero tomorrow. And so you have a lot of give and take in this that's keeping us in this range. But, you know, I think also it's preventing the market from really getting alarmed by all this stuff. And I agree on the Biden stuff and on even after the meeting yesterday with the congressional leaders, this idea, hey, we're going to keep in touch. We're going to meet. We're not going to kind of go out there in the most adversarial way every day and hammer at

the stalemate. It's going to be hard to get out of this range, though, as long as the debt ceiling thing is is the overhang. Right. You're not no one's going to place any, you know, push the chips into the middle of the table before we know whether the rug is going to get pulled out from under us. I mean, presumably, I think the market is pretty good at not worrying or not panicking about something until it finally is forced to. So, you know, if there's progress along the way, it's probably not going to be the sort of thing where we're going to proactively decide to liquidate. Because let's remember, it's not as if people at the moment are overloaded with equity risk. So they've been playing a little bit more defense. You've seen a lot of wear and tear on the cyclical and

value parts of the market already. It's not like you've got to resell them down here when, you know, as I keep talking about these big benchmark cyclical names like Best Buy and Ford and Capital One and Whirlpool that are at seven or eight times earnings already. Deirdre Bosa, Mountain View, California, all the pressure out there on that company. The CEO, obviously, Sundar Pichai. I'm looking at a stock that's up near 4%. Did he deliver today? Is that what the market is suggesting? As he says, not so fast, Mr. Microsoft.

It does seem like Sundar Pichai and his team delivered. Scott, I last spoke to you when the event was getting underway. It took about halfway through when they started to talk about search and how it would integrate with generative AI. Then it was off to the races in terms of the stock price. There was something for developers, for investors, for consumers. Here's CEO Sunder Pichai in his own words. We are at an exciting inflection point.

We have an opportunity to make AI even more helpful for people, for businesses, for communities, for everyone. We have been applying AI to make our products radically more helpful for a while. With generative AI, we are taking the next step. With a bold and responsible approach, we are reimagining all our core products, including search. Key, including search. Google's evolution of search called Search Labs, it really stole the show here. It seemed to show investors that when generative AI meets search, it doesn't actually kill search. It can make it better. And that's exactly what investors wanted to hear. So for now, perhaps on Earth, which I Google may have the edge, at least for now, over Nadella,

Microsoft and chat GPT. We'll see if it lasts. Yeah, we certainly will. Dee, thank you for covering that for us. A big story, by the way, the CEO of Google Cloud is coming up in overtime so we had you know Stan Druckenmiller yesterday at so and talking about the power of AI in terms of where he's thinking about placing his biggest bets and video Microsoft right somehow alphabet has has let the narrative get away from it right it's almost cast itself as a victim of the AI movement as opposed to a beneficiary or an exploiter of it. And this probably changes that a little bit in the process.

You wouldn't call Alphabet, you know, a super cheap stock. But on like a free cash flow basis, I was just looking at it today. It's like five and a half percent free cash flow yield. Microsoft down around three. Meta is much lower. So there you have a little more of a cushion because people were worried and still remain worried, I think, about the Google search experience in general. This cast a light on how it's gotten a little bit sloppy and spammy.

And so maybe that's going to be less profitable in the near term as things shift over. But again, you know, you need to have something besides maybe the economy doesn't slouch immediately toward recession to get the market in a better mood. And I think the AI stuff is probably overhyped in some pockets. It's probably a hand that we've already in the process of overplaying with certain stocks. But it is something that causes companies to say they have something worth investing in. And it's a growth story as opposed to purely playing defense and cost cutting. You want to take a look at Disney as well as we inch towards those numbers which are coming in overtime. We've had the two minute warning, of course, about 90 seconds or less. What do we what do we think here? There certainly is not a

lot of enthusiasm around this stock. Sure, there is in the company because of what Iger is doing in terms of his cost cutting, but that's largely known. Now let's see it all play out. Yeah, the cost cutting is known in terms of the target dollar figure they're going for. Progress toward that is probably a significant element of the report we're going to get today. Theme parks should be hopping. I mean, that should be a real strong suit. It's a real source of cash flow. And it's really a matter of the degree to which the street is willing to feel as if the streaming side is profitably investing and, you know, hemorrhaging cash flow as opposed to kind of doing it in an indiscriminate way. You know, I know Citi has

the company excluding the streaming business at worth like 95 bucks a share. Right. So it's most of the value of the stock right now. We're at a level in this stock it first got to seven, eight years ago. So it's not that demanding if you see a path towards streaming becoming, you know, less of a drag in coming quarters. Yeah, watched for a number of things, obviously commentary around the parks and consumer strength. It's a good box office story in the moment, too. Yeah.

Consumer that's been hanging in there to say the least. All right. Doesn't look like we're going to get positive on the Dow, but we might fight it to the finish.