Closing Bell - Closing Bell: The Fate of First Republic 4/28/23

Episode Date: April 28, 2023

Hopes for a deal that could keep First Republic afloat and independent are dimming – but a government-enabled solution could be taking shape. David Faber breaks down the latest.  Plus, Lauren Goodwin of New York Life Investments and Stephanie Link from Hightower weigh in on the week that was … and what’s at stake for stocks next week. And, Greg Branch of Veritas Financial says that stocks could retest the October lows – and it could happen sooner than you might think. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. We are live from Post 9 at the New York Stock Exchange. Market heading higher on this final trading day for the month of April. The S&P 500 up about a half a percent most of the day. The Dow looking toward its best monthly gain since January and the S&P also poised to end the month higher as well as the week. While the Nasdaq, which has been a bright spot for the past week, is on track to close down just slightly for April. We begin this make or break hour with the fate of First Republic. Hopes for a deal that could keep the bank afloat and independent are dimming, but a government enabled solution of sorts could be taking shape.

Our own David Faber joins us now on the CNBC Newsline with the latest. So, David, catch us up on what, you know, the government and some of the big banks might be discussing with regard to First Republic. Sure, Mike. You know, listen, it's uncertain as to what the fate is of First Republic, of course, as we've been saying all week, really, since the company reported earning. That said, what we reported earlier this morning was that the main conversations taking place right now seem to be between a number of banks and the FDIC, specific to what is the number they would be willing to pay, so to speak, to take over, for lack of a

better term, the carcass of First Republic. But that would include the banks being taken into receivership by the FDIC, essentially the process that we saw with both Silicon Valley Bank and Signature Bank in that weekend back in early March. That seems the most likely scenario at this point. That's something we reported this morning. That is why the stock, of course, is down as much as 39 percent right now. It's been down even more than that at a certain point. The bank has been searching for a private market solution or what some call an open bank solution in which a number of big banks,

many of the same ones that contributed $30 billion in deposits back on March 16th, would perhaps buy some of its loans and securities from its balance sheet and pay a higher price than the market would be willing to pay. And then the bank would be able to go out and perhaps raise new equity. But as this week has gone along, as we have detailed many times, that plan doesn't seem to have ever really gotten off the ground, in part because the government didn't seem willing to put a really strong hand and arm on many of the banks to say, you must do this. And so, Mike, again, uncertain exactly where we head from here, but given my reporting at least, it seems the main conversations are, what would you bid for this thing?

And then the question is, do we get a receivership deal with some bank on the other end owning what is left of First Republic? And the banks that might be submitting a bid for what they'd be willing to pay for the remainder of First Republic's business. That's with the assumption that, as you said, FDIC receivership, but they would be able to quantify exactly what that balance sheet that they'd be taking looks like at this point. So the FDIC recognizes that they're just going to absorb the on-paper losses and things like that? That's the way it goes, yeah.

I mean, the bad assets essentially would be absorbed by the FDIC. An assessment, of course, would come the way of the banks themselves, a significant one. And then if you were the highest bidder, you would walk away with the customer base, what's left of it, the branches to the extent you want them. Although in receivership, you are able to break leases. So if you're a bank that's got a branch near a First Republic branch, you wouldn't necessarily have to have that one. But you would get what you want from it. And of course, that's the question is, what are you willing to pay for it? There still seems to be a perspective that there is a good amount of value there in terms of the customer base.

Although, again, as we've reported, you've had a lot of wealth managers exit the bank in recent days and weeks as their clients spoke up, Mike, and said, hey, we're not necessarily comfortable with you being at First Republic. All of this, of course, playing out really over what's been a number of weeks here, really more than a number of weeks, almost six weeks, since we had that central mini-crisis, as I think we like to call it, of Silicon Valley Bank and Signature Bank. Yeah, March 8th and 9th. And what's interesting is the way that the market, over that span of time, has been able to essentially get some comfort, perhaps,

that only the banks that were seen to be in big trouble of deposit flight and solvency six or seven weeks ago are the ones that still seem to be in acute trouble at this point. We've been able to kind of maybe get some reassurance out there that this is not not only not systemic, but does seem like a handful of isolated cases. Exactly. And I think that interregnum has been very important sort of to bringing calm. And you can remember back to the days and weeks even that followed Silicon Valley Bank and Signature Bank, we had a lot of questions as to the health of many of the country's regional banks.

We've now seen all of them report earnings. We can quantify the deposit flight. First Republic having reported earnings, though, and the deposit flight was very significant. Not something that was a surprise to many who've been following things closely, but nonetheless sort of exacerbated the crisis in many ways that it's found itself in here for these six or seven weeks, Mike. The question, though, is, you know, from the government perspective, again, is I guess politically they don't feel like they really have a lot to lose from letting it go under receivership. And to your point, systemically, there's not a concern at this point or not a great concern. And so you more likely go that route than the route of figuring out a way to save it in a private market solution.

That seems to be where we are right now. Obviously, with the caveat being that, you know, as you well know, things are fluid and can always change very quickly. For sure. So we will stay on alert over the next few days. See what we get, if anything, by Monday. David, thanks very much. Appreciate that. We're going to stick with the banks here. We're hearing now from the Bank Policy Institute after the Fed's report on the SVB collapse. Steve Leisman has that for us. Hey, Steve.

Hey, Mike. Yeah, the Bank Policy Institute, which is a lobby group for the banking industry, hitting back at the Fed's report that does suggest some changes are needed on the regulatory front. BPI saying SVB problems were management and supervision, not regulations. And they're saying they're disappointed that the Fed report makes policy recommendations without input from the industry and from Congress. It says the Fed's call for higher capital requirements is reflexive and largely unexplained in the report. And we just got another note from the Financial Services Forum, another lobby group for the bank, saying the assertion in the introduction of the report

that the Fed should focus on large bank capital requirements is disconnected from the report's conclusion. So, Mike, there's going to be a bit of a, what do you want to call it, debate is probably the nice word, maybe a little knockdown, drag out over the fallout from SVB as to exactly what kind of regulatory changes need to be made. I think there's an argument to be made that SVB was a kind of custom failure in the sense that they were a very unique institution when it came to the deposit base and when it came to the kind of run that they had, and that the failures on the part of supervisors were also custom. And so had the regulators and the supervisors found this problem, we wouldn't be here talking about this and wouldn't need new regulations. Mike? Yeah, perhaps predictable that we'd have this fight, but also certainly interesting.

We'll see how it plays out, Steve. Thanks a lot. We want to bring in Lauren Goodwin of New York Life Investments and Stephanie Link from Hightower. Steph, of course, also a CNBC contributor. Thanks very much to you both for being here on a Friday. And also, let's let's build in, Lauren, a little bit of this bank situation, the stress that we've been experiencing, and even the way that the market has tried to create this firewall around a couple of banks and what it meant for the bull case, the bear case for stocks, and also the risk of recession here. Does it allow the market to have some relief or not so much?

Well, of course, the bear case is bolstered by bank failures because of credit conditions. The idea is that tightening credit conditions will work their way through the economy, make a recession come a bit quicker. And we'll largely see that through employment, actually, because tightening credit conditions are very closely tied to how companies are able to keep people, especially in small and medium sized companies that may be losing their first lines of capital from the banking sector. So that's where the bear case has lied. It's interesting that the Fed has not been convinced by that line of thinking. When it comes to signaling whether, especially in this March meeting that we last saw, signaling whether they'd be able to slow their pace of interest rate hikes or even pause earlier,

they said, look, we're not seeing evidence of that. And so the fact that we're seeing employment costs still higher today suggests that the idea that these tightening credit conditions have already accelerated the path towards recession hasn't happened yet. That is true. And Steph, for sure, Powell in March at the last meeting did say we're not seeing the evidence yet. We don't exactly know how to quantify it. But he also said we did consider pausing and not hiking in March. And so I wonder if right now we can be comfortable that another quarter point hike next week, maybe there's a signal that they're data dependent or there's sort of the market takes it as a pause. And then we're left with an economy which, at least based on the data this week, seems to be holding up OK.

It's been amazing this week, right, in the face of all of these concerns. Not only is it the bank failures and tighter credit and lending standards, but it's the geopolitical issues as well as the debt ceiling discussion or argument or lack of one. So in the face of all of this and in the face of the Fed being very hawkish, you actually did get good data. You got better GDP, not on the surface, but underneath. Personal consumption up 3.7 percent. We know the consumer is 70 percent of the U.S. economy, so that's good. Initial claims are a far cry from the 370,000 weekly initial claims during a recession. They're at 230 this past week. So really good on the job front. And of course, inflation is coming down,

Mike, as you know. It's definitely coming down from the peak, but it is still elevated. And that's the reason the Fed is going to go next week. And they could go the following month in June. We'll have to wait and see. But the bottom line is we're in the eighth or the ninth inning of the Fed hikes. They're going to keep rates high for a long period of time. But if they're at the eighth or the ninth inning, and to your point, if they're a little bit more dovish in their language, I think the market can go even higher. I think the market, again, has been so resilient in the face of all of this negativity. That's a good sign. It's led to much better than expected or better than feared earnings as a result. Yeah. And Lauren, this whole debate really illustrates why the market

is caught in between, because everything we're saying that looks pretty good right now can be answered with, yes, lagging indicators. It often looks this way as you head into a downturn. And the market has absolutely been resilient, but it's also been a little bit of a less clear picture underneath when you have just the big growth stocks doing most of the work. That's right. And that's something that I came out on this program and said last week I did not expect to see this week that, you know, yes, likely the tech stocks that released this week would do well. But I didn't expect the valuations to move quite as high as they did. Now, what that does, the picture that that paints is that the market is telling a story of disinflation, that, yes, recession may be on its way, but it's not here yet. And we're probably more excited on aggregate about that disinflationary story, the lack

of threat from the Fed, at least to hike more than they said for the last nine months they're going to hike more than they said for the last nine months they're going to hike. But I have to agree with Stephanie that probably the risk to the market now is that we see more hikes rather than less. And so from an investment perspective, we need to be balanced as investors, be ready that rates volatility isn't behind us. And what does that mean, I guess, in practical terms as an investor right now with where stocks and bonds are valued? I expect that while some areas of the equity markets, like growth equity, are likely overvalued, by which I mean you may be paying for growth

that may not come here in the next six or nine months, there are plenty of opportunities. And in fact, one of the conversations that I'm having all the time with investors in the marketplace is actually how to put cash to work. It took a while for investors to warm up to the idea that rates were higher, they could make money and money markets flows were a little slow in that direction, but then have really accelerated. And now with recession potentially being another three, six months away, investors are saying, what can I do with this?

And I frankly see plenty of opportunities. There's opportunities in what I call new defensive equities. That's digital infrastructure. That's green and brown energy infrastructure. There's also opportunities to take equity like risk in bonds, be able to just acknowledge that you can take equity like a risk while still clipping a coupon in the meantime. It's interesting the thought that people rushed into cash this year and did not get immediate gratification with the recession starting that moment. But I guess that certainly is the way psychology in the markets work. And, Steph, you did mention earnings this week. week, just some numbers coming out in the last little while in terms of the companies that track the estimates are showing that for 2023, over the course of April, the consensus for the S&P has actually ticked slightly higher. So in other words, the back end of this year is not looking

like it's necessarily going to be that cliff, at least based on what we're seeing and hearing from companies this week. And yet the market didn't trade really all that well off of earnings outside of a handful of huge names. So I wonder, I guess we're just going to be stuck with this debate for a while. Yeah, I think we are. And I think we're in a trading range. But to the extent that companies can produce good numbers and, by the way, decent guidance. I mean, it's not terrific guidance, but decent guidance. I mean, I think that's a sigh of relief. And I think those that are calling for sub 200 earnings this year for the S&P 500, I think it's really just way too negative.

And I look at margins and margins have actually held up remarkably well. Mike, I look at inflation. Inflation has come down. Right. It's still high, but it's helping a little bit or it's hurting a little bit less this year. We look at supply chains that are easing. You look at the weak dollar that helps multinationals. And then you listen to what the companies are saying about international and the growth is a little bit better. China just reopened. They just went maskless last month. And that's going to help. And we are hearing from companies talking about there is starting to see some momentum being built in China. Japan, a little bit better growth on GDP and the eurozone as well. I know we're going to slow. I got it. But at least you have some pockets in the world that may be able to help offset some of the slow sectors that are not trading at the S&P multiple like 18 and a half times that are trading much less. And I highlight materials and energy as to and even some health care names as well.

So there's opportunity to be had. Lauren, some of the cyclical parts of the market, would they be candidates for cycling some of that cash into the market? Because that is where you've seen at least in the last couple of months, some discounts develop. That's absolutely the case. I think where cyclicals are concerned, quality is so important because we do expect that while this recession has been slow to roll its way toward us, it's still rolling its way here. And so investors have to be very careful to look for, again, some of the things that Stephanie's citing related to strong revenue, ability to make up for some of the squeeze and margins that we are seeing across the board, and in many cases,

generate consistent cash flow. I think the reality for many investors is that holding equity with in comparison to bonds or other areas of the market that are yielding actively in the marketplace, your cost benefit analysis has changed. There is a higher hurdle rate for sure. We'll see how that goes. Laura and Steph, great to talk to you. Thanks very much and have a good weekend. Let's get to our Twitter question of the day. We want to know, with most of mega cap tech having reported this week, are you more bullish on the market? Head to at CNBC Closing Bell on Twitter to vote. We'll share the results later in this hour.

We're just getting started here on Closing Bell. Up next, weighing big market worries. Why one analyst says commercial real estate is not the next shoe to drop despite rising investor concerns. He will make his case next. And later, trading the chips. Intel popping on its results with numbers from AMD and NXP still on deck. We'll hear from an analyst with what to watch just ahead. You're watching Closing Battle on CNBC. With the S&P up about three quarters of a percent on the day, pretty much at the April highs. Let's get a check on some top stocks to watch as we head into the close.

Courtney Reagan is here with that. Hey, Courtney. Hi, Mike. Good to see you. Well, the cruise lines are moving higher today as J.P. Morgan initiates coverage on all three names. Royal Caribbean gets an overweight rating with analysts citing confidence in the company's recovery plan. Carnival Norwegian getting neutral ratings, as analysts see both in earlier stages of their COVID recoveries. And Hasbro is higher again today,

as analysts at B of A upgrade the stock to neutral and raise its price target to $63 a share from 42. Shares are up 15% so far this week, which would be Hasbro's best weekly gain since March 2020. Remember that month, Mike? Back over to you. Yeah, that was a pretty good month to be compared to in terms of stock gains. Thank you, Cora. Thanks. All right. The increase in office vacancies and interest rates is raising concerns about

the health of commercial real estate as the ongoing banking turmoil weighs on investor sentiment. But our next guest believes that commercial real estate isn't the next shoe to drop for the market. Joining me now is A.J. Rajadesk, Global Chairman of Research at Barclays. And, A.J., thank you so much for trying to lay this out for us, because it has been this shadow over the market, over the banking system for some time, maybe a slow-moving crisis, but considered to be a crisis all the same. How are you reading it?

So there's two points to make right at the start. The first is it's not all commercial real estate that is the problem. It's office commercial real estate, which is maybe 15 to 20 percent of the mix. And the second is even their leases are staggered. They don't all roll over at once. So there's time for this. It is a problem. Don't get me wrong. Office vacancy rates are very low, you know, very high. There's a lot of office space available. But it's something that is going to play out over a long period of time, not all at once. And there's another sense out there that because we already have the threat of some credit contraction among the smaller banks, lower risk appetites.

They won't be able to work with a lot of the commercial real estate owners and developers. And it seems like there might be a snowballing crisis. Is there anything in that process that you are concerned about in terms of it becoming less than orderly? Not at an aggregate economy-wide level. Put simply, here are the numbers. There's about $550 billion of office commercial real estate loans, we think, on bank balance sheets. Now, that sounds like a lot.

But keep in mind, maybe about 8% to 10% of these loans roll over every year. And you're looking at a banking system with over a trillion dollars of equity capital. It's very hard for this to be a problem. This is not subprime. It wasn't subprime that was subprime. It was the fact that we had two, two and a half trillion dollars of CDOs and CDO squared. Remember that?

Which were all levered. There was an entire superstructure on top. That's missing this time around. That is certainly some comfort there. If this is the case, presumably the market has perhaps overreacted in some pockets to what's perceived as a bigger threat. Are there areas of the markets, equities, bonds, REITs, anything that seems like it is overshot? What is likely to be the reality in terms of the pain here? Not equities. Equities have actually done a pretty good job generally ignoring this. I mean,

if you look at even this week, right, the equity market decided that First Republic there were issues with, but is ignoring what that means for the broader banking sector, which I think is correct. Where there is a problem in my mind is the bond market, which seems too eager to price in Fed cuts too soon. The fact of the matter is, yes, you are going to get a credit contraction from the smaller banks in the U.S. economy, but we are a very bank-light economy. The Fed has not hiked 500 basis points in nine months for their health. They want some things to break. They don't mind some jobs being lost. And if it comes from small businesses, harsh as that sounds, that's something that the Fed is not going to jump in to offset.

Interesting perspective and certainly relevant as we prepare for next week's Fed decision and what comes after. AJ, thank you so much. Appreciate the time today. All right. Up next, the big recession debate with the Fed front and center next week. Investors are left wondering what could be next for the economy. We will discuss. And a special programming note, tune in next Saturday, May 6th, to the Berkshire Hathaway Annual Shareholder Meeting live on CNBC and CNBC.com. Becky Quick and I will be live in Omaha starting at 10 a.m. Eastern time. Closing bell, be right back. We're counting down to next Wednesday's Fed decision as stocks head for a mostly positive monthly close.

How will the critical rate decision impact the market and recession odds? Let's bring in Ed Klissel, chief U.S. strategist at Ned Davis Research, and Jeff DeGraff, Renaissance Macro Research chairman. Good to see you both. Jeff, just in terms of the market setup here and as it relates to expectations for where we are in this economic cycle, a lot of credit being given to the market for kind of hanging in there and a lot of criticism of the market for how it's doing it, which is with only a handful of stocks. What's your read on that? Yeah, I think breadth is being overplayed. You know, that can catch up very, very quickly. Breadth was pretty good up until Silicon Valley Bank, and then it did fall apart. It hasn't made a new low, but I think that's a technicality.

It's pretty close to doing so. Most of the weakness that we see in small cap, I think you can look at from a sector differential, right? There's about twice the weighting in small cap names as there are in large cap names for banks. So I just got back from London last night, actually, and it was certainly a topic and an area of concern with clients. But I think the other thing to just keep in mind is how much better the global indices look than the U.S. indice. And, you know, if you gave me a choice between stronger global indices and weaker breadth domestically or vice versa, I'd take the former. I think the breadth that we're seeing globally is more important about the economic outlook, about really the

health of the market than what we're seeing from, you know, I think what can be characterized as probably some concerns around the banking system. But other than that, pretty contained. That is that's a good point. And Ed, I know you've been doing a lot of work on what is an admittedly ambiguous picture of where we are in terms of this market being a new bull market, being still kind of stuck in the bear phase and really conflicting evidence working in both directions. Where do you come down? Yeah, so we're most likely in a bull market, even though we haven't made a technical definition of one. And I think we really need to think about it is that in the early phases of recovery, say around year two or three, it's not uncommon for there to be fears of a double dip because the U.S. economy

is so large, so developed. You're not going to maintain the growth rates that you get coming out of the recession. And so those fears of a double dip cause the market to pull back. But because double dips are very rare, only one in the last 60 years, that was in 80, 82, that bear market tends to be cut short. And that's pretty much what happened in 2022. We had a growth scare. We got a bear market. But it really fit that kind of non-recession bear scenario. And so what we could see from here is a recovery that could last at least until later on in the year.

And then we'll have to see if the recession risks really come to fruition. And actually, we get the recession going into next year. And I know you're also focused on some of the maybe oddities or distinguishing characteristics of this cycle when it comes to the interplay between the markets, the economy, Fed and things like that. And basically, if we don't get a recession in the next month or two, it would perhaps be the longest time between an S&P 500 peak and the onset of a recession that we've ever experienced. Is that right? Yeah. So on average, the market peaks about six months before the start of a recession. There's been some variation around that, but the longest we've gone

is about 17 months. And so if we peaked in January of 2022, once we get to mid-year, we would have blown past that record. And so what happened last year is the market went down in anticipation of a recession that just hasn't happened yet. And so we have this window because of the resilient economy for the market to rally. Maybe we just got a little ahead of ourselves in anticipating the recession that was supposed to start last year. That just hasn't happened. And Jeff, I guess whether or not we should be broadly concerned about the fact that it has been some poor breath in this market, I guess it should instruct us how to play it. I mean, do you look for laggards or is it about essentially being selective about what's

already outperforming? Yeah, I mean, we haven't seen the extreme yet to get us to sort of flip. So we're still momentum players in that realm. But I do think things like semiconductors, as an example, we're seeing some corrections there, which are still in very good uptrends from our work. We're starting to see some emergence out of healthcare equipment names. Absolutely, this part of the cycle, that's something that can work as they tend to have a little bit more cyclicality within healthcare. So we tend to stick with the winners, particularly in an early cycle. I would agree with Ed. We're in a bull market. It is not a table-pounding bull market. I actually think one of the ironies might be here that the bears will get emboldened by a recession.

And even though we don't really see that happening here, let's say that we're wrong and we see that that comes to fruition sometime maybe late in the summer. What's interesting is one of the things keeping a lid, in our view anyway, on the S&P is the relative attractiveness of what you're seeing in the bond market. So a recession actually would end up pushing yields down, which therefore could actually give a bid to equities as that yield differential starts to make equities look a little bit more attractive. So bears might actually have it completely wrong that the recession ends up being bullish for them versus bearish. So we'll see. Yeah, that would be quite a twist. And Ed, I guess if you have this notion that, in fact, we could just be able to sidestep a recession for a while, almost no matter what comes in the next few months, what do you say

to those folks? But the way the yield curve is set up, but what leading indicators are doing, all those things that seem to really be lending some pretty high conviction to those who feel as if kind of sagging into a recession is inevitable. Yes, I'd say two things. One is the lead time on a lot of those indicators varies widely. So it doesn't mean they're, quote unquote, wrong. It just means that maybe they're earlier than normal. And then the second thing is that the U.S. consumer has been pretty resilient. If you get outside maybe the lowest 20 percent of income households, there still is that savings glut from COVID. It'll run out over the next few quarters. But that's really what's been helping people.

You know, I'm sure we talk about this anecdotally. Friends, not in the industry, they may ask me a few questions. Are they worried about the market, worried about the economy? And I ask them what they're doing this summer, and they're taking the big vacation. So people are still spending. And the U.S. economy is two-thirds consumer spending, and that matters. Yeah, some of that data this morning on personal income spending and savings actually seem to support that, that there's perhaps for the moment anyway, enough to go around. Ed, Jeff, I really appreciate the discussion. Thanks very much. Thanks, Mike. All right. Up next, the key stocks to watch as we finish out the trading week. Plus, bracing for a retest. Could stocks see October lows again? That would make those bull

market calls incorrect. Why one money manager thinks it could happen sooner rather than later. That's ahead. Closing bell. Be right back. Just about 20 minutes until the closing bell. Here is where we stand, still holding on to most of the gains of the day. The Dow up almost 200, S&P 500 up a little more than half a percent. NASDAQ lagging just a bit today and small caps at least participating. Let's get back to Courtney Reagan for a look at the key stocks to watch. Hey, Courtney. Hi, Mike. Yeah, I got a couple more for you. Colgate is outperforming after beating estimates on the top and bottom line. The company also signaling that customers were

willing to absorb sharp increases in prices through the quarter, which is something we've seen from other consumer staples names like Coke and Kimberly-Clark. And now we'll turn to CloudFair, which is getting hammered as its second quarter and full-year revenue guidance missed estimates. And as a number of analysts cut their price targets on the stock, CloudFair is heading for its worst day on record. CEO had some pretty sharp comments about the macroeconomic environment. Mike, back over to you. Yes, a rough one.

Courtney, thanks so much. Last chance to weigh in on our Twitter question. We asked, with most of the mega cap tech companies reporting this week, are you more bullish on the market? Head to at CNBC closing bell on Twitter. We'll bring you the results right after this break. And a quick programming note. Don't miss Altimeter Capital's Brad Gerstner on Halftime Report Monday. That is at 12 p.m. Eastern Time. Closing bell back in two. Let's get the results of our Twitter question. We asked, with most of the mega cap tech companies reporting earnings this week, are you more bullish on the market? The majority of you, about 53 percent, saying yes, with Apple yet to come next week. Up next, your Apple earnings rundown, the big tech name reporting next week, the key

themes and metrics to watch and what's at stake for the sector that is ahead. And much more as well when we take you inside the market. We are now in the closing bell market zone. Greg Branch, a Veritas financial group here to share his outlook after this wild week for markets. B.J. Rakesh of Mizuho on what's next for Intel after its latest quarter. And Steve Kovac on what to watch in Apple's earnings out next week. Welcome to you all, Greg. We have a decent kind of save for the week, a bit of a shakeout. Middle of the week there. The large growth stocks have come through. And I guess bigger picture, you know, we're looking at maybe the final Fed

rate hike next week. Economic data holding together OK. The recession is not arriving on time. What's not to like? So there are a number of things not to like, Mike. It's true. This has been a great week and consensus has reacted accordingly. And so when we looked at the back half of this year, it used to be that consensus was expecting 1.6 percent and 8.5 percent growth in the third and fourth quarter. And that has actually risen. Consensus is now looking for 1.7 and 8.8, which is the wrong direction to go. Consensus has been woefully behind with just about every quarter, except maybe the second quarter that we're in now, where consensus is looking for

negative 5%. But even this first quarter, Mike, consensus was flat when the quarter started and was at negative 6.7% by the time the quarter ended, which looks to be directionally correct this last week, notwithstanding. So what's not to like? Well, this reminds me of August 2022, where we had this sentiment, a very similar sentiment and emotion-driven rally that then collapsed on the back of the Fed coming out vociferously to articulate their commitment to beating inflation. And after that Jackson Hole, we then reached the October lows. I think a similar situation will play out here, not only with the debt ceiling, but when you look at consensus in 2024, it's at a whopping $245 of earnings.

How we get from this year's 206 to 245 next year is beyond me. How we get to 10% in the back quarter of this year is beyond me. And so I think consensus is off this week, notwithstanding. I think that we'll see a bifurcation not only in tech, but in financials. The large money centers are in a different situation than the regionals, which have more pain to come through CRE. And in tech, we're seeing the Nasdaq 1000 dramatically outperform Nasdaq overall, as well as the Russell 2000 growth index. Well, last August, if we want to kind of follow that pattern, I mean, the Fed was, by its own admission, still way behind the curve. The market pricing had really built in that they were going to be soon pausing. Powell didn't want to see that. Now, you haven't had a ton of pushback

in terms of how the market is pricing the Fed, Pat. The bigger risk seems to be maybe the economy starts to wobble in a more pronounced way between now and maybe when the Fed finally declares that it's finished. I'm going to challenge that, Mike. I don't think there's a difference because right now, Fed funds futures and many of our colleagues still articulate rate cuts in the back half of this year. And the Fed has been pretty staunch in saying that they don't see a scenario in which they do that absent a black swan event. So I see the same kind of disparate views of what the Fed is saying and what the market is doing. And so, yes, while the rate hiking cycle may be over, we're certainly nowhere near any rate cuts at this point. That's fair. And in fact, I guess it all comes down to the debate on whether, in fact, you think the stock market truly has been internalizing that outlook for potential rate cuts. I do want to get you quick before we go, though.

What do you do in terms of tactically right now in the market? Defensive groups have outperformed. Seems like the market's bracing for a slower economy. Yet you probably have to pay up in terms of valuation for those types of stocks. Right. And the increasing valuation is really a backburner concern of mine. What the assets are doing is they're seeking safe haven. They're seeking safe haven in money centers. They're seeking safe haven in that mega tech, mega tech, NASDAQ 100 that has secular tailwinds. But the issue that's going to arrive before the recession issue arrives, Mike, is the debt ceiling, where I've said many times that our best case scenario is the 2011 example that we have set, where the market declined 20 percent

in the three weeks before the X date. You see even in the yield curve that concern over this is starting to grow, where there's a market difference between the one month and the three month. But hang out at the short end of the curve where it's safe. That's what I think. That's fair. As the deadline approaches, probably becomes harder for the market to shrug it off. Greg, great to talk to you. Thanks so much. Have a good weekend. Appreciate it. Vijay, Intel, it is up. It's up 4 percent right now, off its highs from the morning in reaction to those, I guess, somewhat reassuring results that it printed last night. What's your take on the quarter and whether, in fact, things have truly started to turn for the better for Intel? Yeah, thanks for having me on. I think

Intel and a lot of the same e-names, it's been a game of low expectations. I think the expectations bar had come down enough. It is under-owned. And so they put it in a decent top line. But I think the expectations bar had come down enough. It was under-owned, and so they put it in a decent top line. But I think where the issue is is that it's still a show-me story. I think they still need to execute on the data center side. They need to show Safar Rapids is coming on time. They'll ramp well, et cetera. And I think that's where the real issue will be, where AMD probably will have a pretty strong presence with their data center roadmap with Genoa and Bergamo, et cetera.

So I think for Intel, definitely expectations are low. They came in better on the top line. But again, they're executing well on the PC side, not sure on the data center side. So I think that's where the issue will be going to the back half when AMD comes on strong on data center. And on the PC side, you still have issues with a weak consumer going to the back half. Right. I do, if I'm kind of looking across a lot of the reaction to the quarter,

it suggests that essentially the bet is that maybe things have gotten washed out enough. And when, in fact, activity is bottoming out, inventories are getting better, the stocks sometimes don't really give you a chance to get in before the recovery is actually confirmed. So do you not think there's a risk of that with a stock like Intel? I think there is a lot of time on the clock. I think it's still a show me story. I think as you go into the back half, they still need to execute on the data center side. They need to show ramp on so far rapids. I think the consumer side,

which is where a lot of the PC demand will rest, we could have some challenges in the back half. So I think we are getting a move today, but we would be still watching to see if Intel can execute on the data center side as well. So I think there's time on this clock. What would you prefer within the group at this point? Is it the stocks that have already been showing leadership away from the pack,

the NVIDIAs and AMDs? Yeah, I think if you look at the semi-names, some of them have definitely come in the last couple of weeks. I would say watch the thematic names. I think NVIDIA continues to execute well on the AI side. They dominate that space. in the last couple of weeks and i say i would say watch the thematic names i think nvidia continues to execute well on the ai side they dominate that space i think amd has also come in quite a bit we should see them execute on data center near term might be cloud enterprise is still weak but i think as you go into 2q3q uh with genoa and bergamo you should start to see they should start

to show execution but also the memory names i I think we talked about Micron quite a bit. I think that's one name that is really should be well positioned as you look out even into 2024 because that's where supply is getting cut significantly. And if there's a rebound, you could see a significant strengthening on the memory pricing side as well going to the back of Micron, Western Digital, et cetera. And that will pull up many of the semi-cap names as well like a mat Lamex extra extra so I think those names definitely work out well and don't forget the electrification side when they look at EV silicon carbide a supply chain with

on semi-alegro micro ALGM except I think that whole pack should do well because they're on a pretty secular technology roadmap there. Does Intel have a plausible case that AI investment remains a tailwind for them at all, or are they just sort of trying to participate in what the theme is elsewhere? Absolutely. I think it's just that they have to show a ramp of the new products. They have to show execution. They have to show customer adoption because I think where AI has done very well is for NVIDIA, where they established a big beachhead with a very strong software container called CUDA. And then they introduced a whole slew of hardware on there with their NVIDIA GPUs.

And so it's been even a tough task for AMD to crack in because they have come at it from the hardware side, and they're still trying to crack the software side of AI. So for Intel, I think they have Gaudi, they have the AI roadmap, but again, key will be start from the server side, execute, show execution on the AI side, show the product, show adoption. I think that's still like i said ahead of them there's still a show me story on that side so sure is uh stock trading

above 30 but still a little bit below where it was uh in early april uh vj appreciate the time today thanks a lot and you'll hear much more from from Intel CEO coming up on overtime in just a few minutes. Steve Kovac waiting for Apple, the last big one to drop. It's interesting. The stock is now made quite a run and it's basically not too far below its August high. So what might we expect to hear from the company next week? Yeah, Mike. And as we saw, the other big tech names show modest growth for that first quarter this year. It's going to be a different story for Apple. They're expected to shrink a little bit year on year. Sales will be down. A lot of that is due to just this collapse in PC demand that we saw. We got a

hint of that from some reports like IDC and also Microsoft's own report. And that just spells danger right now for the Mac business, for the iPad business. But of course, the iPhone business is the most important. And with China's reopening, they get some benefit there on two fronts, on the production front to meet the demand that they may have missed in the holiday quarter when those shutdowns caused them just to basically miss a lot of sales. And then also the consumer is getting back out there in China. So China is going to be incredibly important, more so than ever. I'm sure it will. And, you know, it's interesting. Apple's a stock that people are happy to buy for its kind of stability and safety attributes when things look tough. And then they pivot to saying, well, what's the next big thing? So what's Apple going to dangle in front of us in terms of the

product cycle? What might be coming relatively soon? Yeah, I don't know if this is going to be really a big catalyst for the stock, but that headset, the AR VR headset that we keep talking about, we're expecting to finally see Apple unveil that on June 5th. That's for their Worldwide Developers Conference to hold every year. So that's their first major new product since 2014 when they showed us the Apple Watch. All right, 2014, that's a whole nine years ago. Kind of amazing.

We'll be talking plenty about it next week as the numbers come. Steve, thanks very much. And as we head into the close, about 40 seconds to go, the Dow up about 250 points. We're holding on to most of today's gains. S&P 500 also up about eight-tenths of a percent, pretty close to the highs of the day. Also on track for a gain for the week, as well as for the month of April. Market breath looking a little bit better. It's been a narrow rally to this point, but today we have 70 percent of stocks up and the volatility index poised to close the week under the 16 mark, really showing stability and sturdiness in the stock market this week. That's going to do it. The closing bell. Have a good weekend. Let's bring it over to overtime with John Poole.