Closing Bell - Closing Bell: The Road Ahead for the Markets 5/28/24

Episode Date: May 28, 2024

Sofi’s Liz Young, NB Private Wealth’s Shannon Saccocia and Crossmark’s Victoria Fernandez map out how they think things will play out with tech in the driver’s seat once again. Plus, Nvidia’s stock popped as investors bet Elon Musk’s AI startup will deliver another windfall for the chipmaker. Star chip analyst Stacy Rasgon breaks down how he thinks that news will impact the semi sector in the long run. And, former Federal Reserve Vice Chair Richard Clarida reveals his prediction for rate cuts and the economy at large. 

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. And this make or break hour begins with sizzling tech. The NVIDIA surge continues yet again today. We're going to ask our experts over this final stretch how much further some of those stocks can run and what it means for the markets overall. There it is, near 7%. In the meantime, the scorecard with 60 minutes to go in regulation has more red than green on the board. As you see, Dow's negative, as is the S&P. Dow's going backwards, dragging a lot by health care. And some of the standout names there.

Mostly weaker session, as you can see. Yields are creeping higher today. The two-year hovering near 5% again. Consumer confidence, well, it was less bad than feared. Some of the data of late has been pretty good. Yields backing up as a result. You saw what the 10-year's doing there, too. So yields are green. We're also watching shares of Texas Instruments today. The activist firm up as a result. You saw what the 10-year is doing there, too. So yields are green.

We're also watching shares of Texas Instruments today. The activist firm Elliott taking a stake. That's a story first reported by David Faber. Stock not doing too much. That's interesting. We're going to ask Stacey Raskin, by the way, about that. Of course, the star chip analyst is going to be right here post-9. We can't wait for that.

And biotech, Insomed, is soaring more than 100% today. That on positive drug data. Takes us to our talk of the tape. The road ahead for the markets with tech once again, apparently in the driver's seat. Let's bring in SoFi's head of investment strategy, Liz Young. And she is here at Post 9. Good to see you. Good to see you, too. So, I mean, health care is selling off a bit today. But to me, the big story just remains NVIDIA.

Yeah. Because it continues to keep this market levitating and it continues to keep investors positive and specifically in the area of tech. And even Apple was higher today. It turned out we'll cover that in a little bit. But NVIDIA, unbelievable. Yeah. Well, and we've got this situation, too, where you've got econ data that's warming up again. Some of the stuff that we thought was softening or that was problem areas like consumer confidence, consumer sentiment, PMIs last week came in stronger than expected. So we've got this heating back up and the narrative around maybe a recovery, another recovery in some of that softer data. So there's nothing right now to look at as an investor

and say something's wrong. And even when you look at the market and what people have bought, we're not in overbought conditions. Nothing is screaming overbought. Not the S&P, not treasuries, not Bitcoin. Not the NASDAQ? Well, I think there are pockets.

We're over 17,000 today, right, for the first time ever. Now it's come back a little bit, but you get my point. I mean, the money continues to flow into tech. Right. Well, but even if you are in the camp that I'm in, where I think that we're in this elongated late cycle, what do you want to own? You want to own large caps. And in this particular environment with yields where they are, and hopefully they will come down eventually as the year goes on, large cap tech and profitable large cap tech is the place to be. That's what Goldman's Tony Pasquarello, I mentioned this on halftime, but for those

of you who didn't hear it there, I'd argue that the reporting period justified the earnings season that just ended, justifies a claim that the MAG-7 remains the most durable and at certain turns, the most convex set of stocks in the market. Said another way, this cohort displays ongoing elements of both the sword and the shield. To your point, offense, they work. Defense, they work. I think what used to be the case, and what is different this time, even though saying that phrase makes me shudder,

but what used to be the case, so if we rewind to the early 2000s and you looked at tech stocks, there wasn't that fundamental support underneath them. And we had valuations way higher than they are now. So there was a lot of multiple expansion and not a lot of support behind it. We're in a situation now where these stocks have worked for investors. So not anymore are they just these high beta, highfalutin tech stocks. People look at them as somewhat of protection and even some diversification away from old economy in their portfolios. But I would be remiss if I didn't mention some of what's going

on today and what the risks are that still are out there for some of these stocks because of yields. So yields are up today, not just because of strong economic data, but because we had a couple really weak Treasury auctions. And that could continue to push things up. The two year is approaching five percent, as we said. We had a week two and a week five year auction. And then people, you know, why does that matter? Because independent of inflation, independent of economic data and independent of what the Fed is going to do, we've got pressure higher on yields, which brings that tightening back into the conversation and lower appetite for treasuries, which is not good for our burgeoning debt problem and what the Treasury and the government needs to do to finance continued spending.

What do you make of the fact that investors continue to buy in? OK, I thought there was a really interesting story in the journal today. U.S.-based mutual and exchange traded funds have drawn a net one hundred seventy two billion dollars of inflows so far this year. And that's a turnaround from assets flowing out of those areas over the past couple of years. So they're not you know, investors aren't as risk averse. Right. There's the money that had flowed through the money market system is now finding its way into the markets. Yeah. And that's fueling some of what you're seeing in NVIDIA included. You have to imagine. I'm sure there are investors who've been sitting in cash at 5% and say, gosh, I don't know, NVIDIA at 900. Is it too late? NVIDIA at

950? Too late? Maybe not. NVIDIA at 1,000? 1,050? It's like you have to be an auctioneer in that name. I mean, it's tough. Right. And you're not getting a lot of hands up in the air at that point. I think, well, no, the point is you are. That's the crazy thing. You are. Well, so I think what will start to happen, if you look at what happened even just broadly in the market, we had that little pullback in April and we're back up to slightly above where we were, but we've been kind of sideways since we recovered from that pullback. Now I think investors are going to start searching for other places rather than the ones that have been popular. So if you look

at tech, I think what could happen, and this happened earlier this year, some of the old tech caught a bid. Some of the stuff that wasn't semis just because it was like, I want to be invested in tech, but this stuff doesn't look like a good entry point anymore. So I'm not going to buy that. I'll buy something else that's adjacent or things like copper, right? That's flying because we've got data centers and demand for copper into the future. Utes that are flying because of the same sort of theme. So I think some of these adjacent stories will catch a bid as long as the market continues to stay afloat. You know what I feel like falls into that category is even within the Mag 7, Apple. Sure. Stock falls out of favor. Nobody likes it. And then all of a sudden,

OK, you're going to put some money now into Apple. And that's led a large part of the comeback. It was it was briefly positive on the year earlier today. Now it was green and now it's pulled back red. But that's benefited, too, from this laggard within the leaders. And now it's joined the party. Yeah. Well, and the original question that you asked was about money markets. And if people are still sitting in money markets, I think a lot of people are because it's rational to sit there and get paid 5 percent to wait around. But if you're taking your money out and trying to put it to work, those are the places that you're looking for. You know, if I didn't have NVIDIA this entire time and missed it,

then where do I want to go to a place that maybe is going to be next on that leg or is going to join into the AI party? And the other thing is you don't have to be the first mover to still benefit from a theme. And I think people are, you don't have to be the first mover to still benefit from a theme. And I think people are going to start to catch on to that. All right. So we were talking about Apple getting briefly positive on the year today. It's because iPhone sales jumping in China last month. Our own Steve Kovach joins us now to break down those numbers. That's what the report was today. And that was enough, at least initially, to push these shares higher yet again. Yeah, it was up as much as 2% pre-market. We thought it was going to close the day in the positive.

But look, Apple's fortunes might, and China might be turning around here because the shares pulled back a little bit after rising earlier today after data came out from the Chinese government overnight showing iPhone sales jumped 52% in April from a year ago. Apple's been, of course, struggling in China ever since the pandemic hit, whether from COVID-related production shutdowns or the more recent competition coming back from Chinese brands like Huawei. And last earnings report for the March quarter showed China may not be as apocalyptic as some research firms like CounterPoint

had implied earlier this year. Still going to be a lot of pressure on the iPhone business, though, through the end of the year, especially for the new model we're expecting this fall, which is going to need some impressive AI features to convince people to upgrade. And of course, Scott, we're expecting to get our first taste of those AI plans on June 10th

at the Annual Developers Conference in Bloomberg over the week and reporting some details of what we're expecting to see on the AI front, like automatic photo editing and AI generated emojis. The question is, is that going to be enough to spur a new upgrade cycle, Scott? Bill, that's the beginning, middle and the end, right, Steve, of this story. Apple needs it to be. Yeah. Right. And maybe that's part of what's in the stock is the expectation that later on this year, you're going to get that. Yeah. And going into, I don't know, the last couple of months and going into WWDC, you got to wonder if this is kind of one of those by the rumor moments for Apple. That's why we've seen such a surge surge. And then we see it sell

off after WWDC. But again, it's more anticipation for the iPhone because the features that they announce in June are likely going to be stuff that everyone gets and not necessarily drive hardware purchases, which is what they need. So the iPhone, the next iPhone, is going to need something unique and special, perhaps on the AI front, to convince people to say, hey, I need to upgrade earlier than I was anticipating. They really need that super cycle to come back, not to mention bring back that growth in China. Yeah, I mean, a big buyback is only going to get you so far. It helped earnings, though. Yeah, that's true.

Steve, thank you. Steve Kovach. Let's bring in CNBC contributor Shannon Sikosha of Enby Private Wealth and Victoria Fernandez of Crossmark Global Investments. Ladies, good to see you. Victoria, talk to me about this market. How do you see things from here? Yeah, I mean, look, Scott, we've obviously had

a good upleg from the pullback that we saw in April. And there's some reason for that, right? I mean, there is the seasonality. It's typically supportive through the end of July. So you've got that. We've had a good earning season, although you could say take out the mag seven and it's not near as strong as what people anticipated. But because there is the belief that the consumption is still there, because there's the belief that GDP is going to be pretty high. I mean, you look at Atlanta GDP now, I think it's what, three and a half percent. And the belief that the Fed is going to start to lower rates this year. I'm not saying I agree with all those assumptions, but I think the market is making those assumptions then you have a tendency for the market to move higher and I don't think you

want to miss out on that so I think you do want to be fully invested we are for our clients but based on some of the things that you and Liz have been talking about I also don't think you can completely ignore some of the flags that are out there when you look at consumption right we're seeing weakness in different areas consumption is one real uh retail sales have actually been flat for the past form yeah even the consumer numbers though philly fed the empire the manufacturing numbers are a little weaker um as well and we're going to work on victoria i'm going to move on to shannon victoria we're having a little weaker as well. And we're going to work on Victoria. I'm going to move on

to Shannon, Victoria. We're having a little bit of an issue with your shop. But Shannon, you want to weigh in on this market? Scott, I think we're you know, we're entering into what could be honestly a little bit of a choppier few weeks as as you and Liz talked earlier about Treasury auctions. We've got PCE coming up. We've got a ton of Fed speak. And the challenge here is that the Fed is really a taker on policy right now. If you think about what's happened from a fiscal perspective, if you think about the better-than-expected growth, the stronger and more resilient consumer of last year,

it's really put the Fed into a bit of a bind in terms of moving from data point to data point. And that type of volatility is not going to necessarily show up immediately in the equity market, but it's going to show up in the bond market. It's going to show up in yields, as you guys were talking about earlier. And I think in the absence of micro results, we're entering a macro vacuum, if you will. And frankly, unless PCE comes in a little bit lighter than anticipated, which it could based on asset management fees maybe being a little bit lighter after April's market activity, I think we're entering into a period of some difficulty. Now, the good thing

is, is that there are places to go. You know, we've seen some strength in financials. We, as you know, have been very optimistic on utilities even before everybody started buying them for AI. And I think that the broadening out of industrials and materials, those cyclical sectors give you an opportunity to potentially add positions here if we do get some weakness coming into the next earnings season. But I think right now it's going to be tough because there's just not a lot of micro to go out there to go out there. So Liz, JP Morgan says favor a barbell of defensives and commodities, while Wolf says

you're going to have a choppy summer ahead. Go mag seven and the secular growers. Those are the ones that are likely to outperform. What do you think? So the commodity play, I mean, I've been talking about metals for most of the year. Wasn't that your contrarian play? It was my contrarian pick in late January. We talked about copper, which has worked out, not exactly for the same reasons that I thought it would. We add on this AI theme and the data center play. But this metals play continues to run. And I do think that exposure to commodities, especially at a time when we don't have hard data yet that says the economy is faltering. You're going to see investors continue to at least hang out around the cyclical trades and commodities is one of those that's been benefiting. We're in a period of the market, and this is to Shannon's point,

we're in a period of the market where you almost need confirmation now. We've made these new all time highs. You need confirmation from some other areas to say that this deserves another leg up. We haven't gotten it yet. We're not getting it from small caps. We're not getting it from the GDP data yet. We're getting sort of whispers of it, but not really anything concrete. This is when we need that confirmation. We don't have an earning season for a while still.

So we are going to need inflation data, right? I guess that's the next thing we look to starting at the end of the week. And we got some of it in CPI. People were happy about that. We have not slayed the dragon yet. And I think that's what we get caught up in is that we hear this hawkish commentary from the Fed. So then any little hint of cooler data, people celebrate. But we're not done yet. And even what we heard today from Kashkari, maybe there are still more hikes to be talked about. Who knows?

Unlikely. I agree. Unlikely. But you saw the face that I made. Is that why you reacted that way? I don't think the viewers saw the face. I saw the face. Thank you for not taking a two shot. But the face was made. Therefore, the reaction from Liz. Shan, you said that the data, the stronger data puts the Fed quote in a bind. Doesn't it give the Fed cover? And you also said that the market's making assumptions of what the Fed is going to do. I don't think the market's making any assumptions anymore. If anything, the market's assuming that the Fed's not going to do anything anytime soon. And the data is good enough that it gives the Fed the cover and the market's content enough with that. It'll take stronger growth over more cuts.

So therefore, we are where we are. I think there are pockets of the market that are giving the Fed some cover. And I also think there's pockets of the market that if you think about the Fed's mandate, Scott, which is price stability, price stability is not being relayed in the in the data that we're seeing right now. And most importantly, if we talk about the Fed being apolitical, if we talk about going into an election season, I don't think that that's going to color their move, if you will. But I do think what's happening in the lower income cohorts of the U.S. economy and what we're seeing in terms of credit card delinquencies, balances, percentage to max, all of that is weighing on the Fed in terms of how they want to deal with inflation. So, yes, when inflation is, you know, sort of starting to trend lower and we're getting

the trend that we want to see on inflation, the Fed has plenty of cover. Unfortunately, when they stated that they were looking for greater confirmation, now everybody is hypothesizing what exactly, to Liz's point, does that mean? What is that confirmation that they're looking for? And although we look at the fourth quarter and we expect both earnings and revenues to be higher for the S&P 500 than they were in the first quarter, you have to earn that if we're not going to get rate cuts and we're not going to see any additional accommodation. Victoria, UBS says we're going to 5,600 on the S&P. It's a 5.5% move from here, maybe a little more with the midday pullback that we've seen. What do you think of that number? Yeah, I would say it's a little bit high just based on what we're seeing.

But that could change if we see investment start to go higher. Look, consumption leads investment. Investment is really the trigger for a pullback in the market when investment goes lower or for a recession. With consumption being weaker, I think we have to be concerned of having another 5%, 10% move higher before we get a greater pullback, closer probably to around the 200-day moving average. Well, I mean, you mean consumption by consumers? Yes. So you have to have that consumption in order for corporations to have the investment. When you look at the CapEx coming out of the earnings season, about 75% of the gain in CapEx was strictly from Alphabet and Microsoft. So we've got to see a broadening out of that,

and it's not going to happen unless consumer consumption continues to do well. Well, we'll see. I mean, the confidence number today was less bad than feared. So maybe the demise of the consumer remains greatly exaggerated. We'll find out. It might be. Yep. I appreciate it very much.

Victoria, thank you. Shannon as well. And Liz, of course, to you, too. Let's send it to Christina Partsenevalos now for a look at the biggest names moving into the close. Christina. Thank you, Scott. Well, Zscaler shares are falling right now on a downgrade to equal weight from Wells Fargo analysts. They're worried right now about increased competition for the cybersecurity firm, as well as the number of executives who have recently left the company, jumping ship. And you have competitor Palo Alto that is also lower in sympathy, down about 4 percent, Zscaler down four and a half. A vote of confidence from Victor Capital Management. The investment firm actually acquired over 3,400 shares of him's and hers, according to the firm's recent 13F filing. Victor Capital, not the only one buying into the telehealth firm. Bellpoint Asset Management,

EMC Capital, Corton Capital, just a few of the firms who added positions in their last quarter. Recall, just last week, HIMS and HERS announced a weight loss shot, an injectable that would be cheaper than Wigovi and Ozempic. And so the stock has really climbed and it's up over 11 percent right now. All right, Christina, thank you. Thanks. We're just getting started. Up next, Nvidia shares are rallying yet again. And this latest bounce, thanks to Elon Musk's big push to build a supercomputer using NVIDIA chips. Star chip analyst Stacey Raskin is here in the house. New York Stock Exchange is going to be here at Post 9 to tell us what it means for you and the rest of the semi sector. We're live at the New York Stock Exchange at Post 9.

You're watching Closing Bell on CNBC. All right, welcome back. NVIDIA again driving the NASDAQ to all-time highs earlier today. That stock also at records as investors bet Elon Musk's AI startup will deliver another windfall for that chip maker, maybe the whole space overall. Joining me at Post 9, Bernstein's all-star analyst, Stacey Raskin. Welcome. It's good to see you in person. Good to be here. Thanks for having me. So when you see NVIDIA do what it is doing, what is your reaction?

I think you have to be there, right? I mean, I'm not surprised that it is doing what it is doing, right? We had the numbers a week or two ago, whenever it was. Clearly, the demand for their products is still off the charts. You've got a product cycle that it's on its way. They took the air pocket transition risk out. What's not to love? I know. But at some point, like when I talked to you the day of earnings pre-number, we were, I think, at 950. That's

right. And I think I told everybody to sort of relax. You did. You said it was going to be, I think, mundane. Yeah. I mean, it certainly wasn't shocking. I mean, to be fair, like maybe it was. I don't know. The numbers were they were a good beat. They were probably in line with with sort of the whisper numbers. Yeah. But they said two things that I think were really helpful. One is, again, they took that air pocket like transition risk as you go from Hopper to Blackwell. They took that off the table. And then number two, I think his commentary on the pace and timing of the Blackwell ramp, their next generation product was very supportive. People were thinking it was coming next year. He was pretty clear. We're going to say we'll see a lot of Blackwell ramp, their next generation product, was very supportive. People were thinking it was coming next year. He was pretty clear. He said, we'll see a lot of Blackwell

revenue this year, I think was the quote. Did you expect that? I expected it next year. It was earlier than we thought. So at least in terms of like getting material amounts of revenue, that was earlier. Is that one of the reasons why you raised your price target? Well, and our numbers went up materially. So it was both of those reasons. But yeah, but it drove the numbers. But what do you do when the stock continues to outrun you? You know what I mean? It's not outrunning us yet. But I mean, it's on the verge of outrunning everybody and everybody's price target.

So how do you handle that? Again, I think we've had this conversation. Don't get too hung up on the price targets. I know, I like price targets. I mean, the price targets matter. People look at the price target and they're like, OK, now what? People don't update their target prices every single day. You know, for now, I think you can let it run, though. I think that the story is really

good. The numbers are going higher. And the stock, remember, it's not like it's expensive. If the numbers come in anywhere close to where I think they can come in, the stock is very inexpensive given the growth trajectory. What is the risk at this point? Now the stock's at the highs of the day. It's up 7.2% as we're having this point. Yeah. Now the stock's at the highs of the day. Okay? It's up 7.2%. Okay. As we're having this another $76 today.

Yeah. Yeah. Look, I think in the near term, like, there's not a lot of, like, negative catalysts that are on the way. Again, we know the numbers are fine

for now in the near term. We know the product cycles are coming. Computex is next week. Like, they'll... I don't know if they'll talk as much about data center or Computex.

It would be a little weird for that, but, you know, they're going to be there. center or Computex. It would be a little weird for that. But, you know, they're going to be there. Jensen's going to speak there. Jensen's going to speak there. You know, it looks pretty good for now. But you're literally telling me there's no risk? I mean, production.

Well, I know there's always risk. We walk outside, the bus comes. Right. But is there legit risk? I mean, you said that they pulled forward the Blackwell production expectation. I don't know if it was versus their expectation, but versus ours that came in. So, I mean, the risks are a few, right? So there's always that cyclical risk. That seems to be off the table in the near term. We can talk about longer term, but the near term, fine. Longer term,

I think the worry would be that there is a lot of investment that's happening, and eventually there has to be a real return on those assets, either driving revenue or driving efficiencies and saving costs, or ideally both for their customers. And if it were to turn out over time that the return is not there, then clearly the whole thing would come crumbling down for NVIDIA and for lots of others. I don't think that is the case, and it's not a risk now, but over time, certainly, you want to see business models starting to get built on this, sure. What about interest rates? Do they matter? Well, they're already high, right? They haven't mattered at this point. If they keep going higher a little bit, it doesn't matter?

I don't know. Like, I'm not a macro economist. I know, but you don't look at that sort of thing and say, well, it could be a risk in the near term, at least. I mean, interest rates go high. It does tend to drive multiples lower, although, again, it has not happened, like, especially in the semi-space. Like, multiples are quite high, It does tend to drive multiples lower. Although, again, it has not happened, like especially in the semi space, like multiples are quite high. Right. But certainly you watch it. But again, that's that's not idiosyncratic. That's not that's not NVIDIA specific. Right. Those are broad risks. Interest rates going higher and impacting things would impact lots of stuff.

Why is AMD up almost three and a half percent? Is it the halo on this? Yeah, probably. So, again, you mentioned like the whole XAI Musk story. Because like Broadcom's down. It's not like everything's up, but AMD's up. Yeah. Yeah, I mean, I think the players that are viewed as maybe more, like, direct beneficiaries of AI may be up. Although I would argue that Broadcom is a direct beneficiary of AI as well. Well, a lot of people make that argument as a cheaper way of playing NVIDIA. No, at this point, it's not that much cheaper.

Yeah, well, it's quite a bit cheaper. It's still very inexpensive. And, by the way, Broadcom's a little bit of a different AI. You asked about of playing NVIDIA. No, at this point, it's not that much cheaper. Yeah, well, it's quite a bit cheaper. It's still very inexpensive. And by the way, Broadcom's a little bit of a different AI. You asked about risks to NVIDIA. One other risk is competition. The hyperscalers are doing their own chips. Broadcom is a key beneficiary of that. They do the work for the hyperscalers. But there's only two companies out there that

have really material AI stores, enough to offset anything else. Right now, it's NVIDIA and Broadcom. That's kind of it. Do we know for sure whether XAI is going to spend all this money with NVIDIA? I don't know that we know anything for sure yet, but it does seem that they are going to be, they just raised money. It does seem they're going to be spending money. It does seem they'll likely be spending with NVIDIA. If they want to build an AI supercomputer over the time frame that they're talking about, they don't really have any choice. There's one option. It's NVIDIA. If they want to build an AI supercomputer over the time frame that they're talking about, they don't really have any choice. There's one option. It's NVIDIA.

There you go. That's why the stock continues to go up. Last question. Texas Instruments. So Elliott takes a stake, and the stock doesn't do anything. Are you surprised? Not really. No. I mean, look, TI, it's an interesting activist play because TI knows what they're doing. They understand the impact. For your listeners that don't know, TI is spending a lot of capital expenditure to expand capacity. It's unclear where they're going to get the revenue to fill it. They understand what they are doing.

It is a 15-year investment horizon that they are on. I don't know that Elliott taking a stake is going to make them take a pause in what they're doing. They understand the results, the impact it's having on the numbers, the margins, the free cash. I don't think they care. Like, they're in this for the long term. So they're going to spend what they're going to spend regardless of Elliott telling them to cut back. Over the next several years, I suspect they will. Yeah.

At least through 26. What gets you off your underperform? So there's a few things. I think revenues are too high going forward. I think gross margins are too high, and certainly the capex is high. I mean, if we have some massive amount of revenue rebound, or they start to take material amounts of shares such that they can actually fill the capacity that they're talking about, and again, it's unclear how they're going to do that, but if they could, that would be a positive, certainly.

We covered a lot. I appreciate it. It's good to see you. I'm happy to be here. Thank you. Stacey Raskin here, Post 9. All right. Up next, investors anxiously awaiting some critical inflation data this week for clues about what the Fed's next move could be. Former Federal Reserve Vice Chair Richard Clare, that will join us after this break. Closing bell is

coming right back. Investors turning their attention to key inflation data on Friday as an indication of when or even if we're going to see any rate cuts this year. Minneapolis Fed President Neil Kashkari sitting down with CNBC International saying he thinks the Fed should take its time when it comes to cuts. Let's listen. The U.S. economy has remained remarkably resilient. GDP growth has been strong, much stronger than forecast. Most people thought that we'd be in a recession toward the end of last year. That didn't happen. Instead, we had very strong growth.

U.S. consumers have remained remarkably resilient. The housing market has remained resilient. So I'm not seeing the need to hurry and do rate cuts. I think we should take our time and get it right. Well, joining me now to discuss is PIMCO's Rich Clarida. He is also the former vice chair of the Federal Reserve. Mr. Clarida, welcome back. It's nice to see you again. You bet. Let's cut through some of what Mr. Kashkari said. We should take our time and do it right. What does that mean? Well, I'm glad to hear that from my good friend, Neil Kashkari. I think it means data dependence.

The data has been disappointing year to date. And so Fed rhetoric has moved away from highlighting a cut to we'll let you know when we're going to do that. And I think there's a real there's a real case that we may not get any rate cuts this year, although I think on balance, I probably in the direction of that. But I think it's pretty closely balanced call right now because of the inflation data. But you told me last time you thought we'd get one cut. Are you rethinking that? I think it's a closer call, I think, than when I did the show last time. Again, it's going to depend on the inflation data.

The calculation, though, Scott, is basically for the rest of the year, inflation needs to come in at around 0.2 per month for the rest of the year to keep it under 3%. That may happen, but so far we haven't seen it. So I think it's a close call, but I lean in the direction that we probably do get one cut. You do think, though, that the outlook that we get at the next meeting could be rather interesting in terms of what it shows, the so-called dot plot, which gives us at least an idea of what they're thinking in the room about the number of cuts we may get. Exactly. So at the March meeting, which seems like a long time ago, the dot plot showed three cuts this year. It's certainly, I don't think, going

to show three cuts this year. I think it's probably a close call between one or two cuts. I think my prediction is that the June dots will show one cut, that actually may be a close call as as well. When people suggest that, you know, good news on the economy is so-called bad news for the stock market or it has the connotation of being bad news because it's going to, you know, make maybe the prospects of inflation staying too strong for too long, rates elevated for too long. How do you and those in the room look at that? Do you sit back and you say, well, the economy is just too resilient? The data is too good. Can you give us some clarity on that?

I can. Again, it's a different committee than the one I served on. But certainly, I gave several speeches as vice chair saying, you know, the Fed likes it when people get a job. So the Fed's not targeting any particular rate of unemployment. It really does come down to the inflation data. Last year, the economy grew well above trend and inflation came down because of the improvements in the supply side. So, no, the Fed is bad news. Good news for the economy can be good news for the Fed so long as consistent with inflation returning to target.

The problem this year is not the real economic data. It's been that the inflation data has been stubborn. But if you listen, though, to members of the committee like Mr. Kashkari, it leads you to believe that, well, the economy is is almost too strong or it's certainly stronger than we thought it was going to be. So, you know, that raises the issue of inflation remain remaining stronger for far longer than we expected it to be as well. However, if the A, the inflation is not necessarily being caused from traditional forces, like too much demand, and B, if you look at the stickiest part of inflation, or at least one part of it, which has been rents, and that's a tremendously lagging indicator, is the Fed looking at the right thing and thinking about the right moves? I think they are. But your question suggests that it is important to look into the into the details. You know, Scott, if we calculated

inflation in the U.S. the way they do in the eurozone, it'd be running at two percent right now because over there they don't even try to do this owner equivalent rent calculation. So, yeah, I think the Fed is focused on the inflation data. It's focused on the on the labor market. I think the progress has been remarkable. You know, two years ago, inflation was 7 percent. It's now in the twos. It's moving in the right direction. I think it's appropriate for them to be in this data dependent mode.

So I don't have any big complaint with with where they are right now. You you raise an interesting issue, though, when you make the comparison between here and the eurozone. Some would look at the situation now and say that they should cut right now here, that they're going to risk this whole thing by waiting too long. Then they're going to be reactive after it's too late. Well, and I think that's a legitimate risk. You know, in monetary policy, there's always an element of risk management. And but what I would say is I think here there is the path dependence and history dependence is important. The fact is, is that inflation in the U.S.,

my last year as vice chair for two years since, has been well above the 2 percent goal. And I think given that history, it's important for the Fed to do what it needs to do to get inflation down to target, even if that means running an elevated risk of perhaps they keep rates higher for too long. But I think right now that is a call that they should be making. And I think that's the one that that they're going to be focused on. How closely to the election do you think Chair Powell is willing to walk up to? Well, you know, I think the Powell Fed is going to do what it thinks it needs to do this year. I think their decision would have been easier had the data cooperated

and had they been able to get a rate cut in at the June or July meeting. It looks like now if they do cut, it's going to be in the fall. And you know the calendar as well as I do. I think they probably want to avoid moving at the November meeting because that's the day after the election. So right now it's looking like perhaps September or December if they want to get that rate cut in. We'll see how it all transpires. Rich, I appreciate your time very much. Thank you once again. Thank you. You bet. Richard Clarida, live today on Closing Bell. Up next, we're tracking the biggest movers into the close. Christina is back with that. What do you say? Well, we have a biopharma stock that's downgraded

amid weaker growth expectations. I'll have that name and much more after this short break. About 15 out from the bell. Let's get back to Christina now for the stocks that she is watching. Tell us what you see. Well, that name was Surreptive Therapeutics. Those shares are seeking right now after a downgrade to sector perform. From outperform at RBC Capital, the stock is up, yes, 17.5% year-to-date. We can see down over 8% right now because RBC thinks that setup looks really less compelling amid these growing expectations for the FDA's label expansion of a certain gene therapy. In other words, they're saying that we need to temper expectations for this expansion of this gene. Norwegian Cruise Line shares jumping on an upgrade to buy from neutral at Mizuho.

You can see the stock up over 3%. The bank raised the price target to $24 and said cost cuts should boost the operator after about two years of underperformance. Thank you, as always. Christina Partsenevela still ahead. Draft Kings and FanDuel parent Flutter are falling on a new sports betting tax hike in one state. The details and what could happen if more states follow suit there, we'll tell you coming up. The bell is coming right back. We're now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day.

Plus, Contessa Brewer on what is behind the sell-off in sports betting stocks. Has a little bit to do with taxes, which we'll talk about in a minute. Mike Santoli, it's NVIDIA's world, and we're just living in it. Yes. So without NVIDIA's move today, the S&P would be down more than half a percent. It would be more in tune with the other indexes. It's not fully masking the fact that it is a little bit messy under the surface. You've got two stocks down for every one that's up.

You have the Dow. You know, the Dow is a good 3.5% below its high when it hit 40,000. Equal weighted S&P the same. So what that means to me is you've had this kind of stealth digestion kind of churn going on in this market after we had that four-week rebound up 7%. And it's kind of held the S&P 500 and the NASDAQ pretty harmless along the way. So that's a good way to play defense, I guess, if it can last. The other piece of it I would take heart in today is that the traditional defensive groups are actually getting blasted. So consumer staples and pharma are some of the weaker performers. So it's not as if the market is the worst sector today. It's not as if the market in general is

saying, OK, you got to kind of hunker down and get ready for something tough. Now, we obviously are responding to this move higher in yields. There's some sensitivity in that. That's when market breadth suffers is when yields go up. But aside from that, it does seem as if NVIDIA benefits from it being easily the highest conviction source of fresh funds for anybody out there among mega caps. The shoe year goes to five because we're at 497, right? So we're on the doorstep. Is that a line in the sand that we need to really keep a close eye on for this market? We've traded above it without really terrible impact. But I do think that what it shows you,

just think about it, in two years, we're talking about maybe one rate cut between here and there. And that's not literally what it means. But, you know, the Fed funds rate is above four, five and a quarter right now. I do think that if the 10 year starts to migrate back up to five, that's a little more of the gut check for the broader tape. We can make progress with yields sticky because the first time we hit four and a half on the way up on the 10 year was September 26th of last year. The S&P was under 4,300. We're up 1,000 points in the S&P. Yields are the same. So that shows you when earnings are growing and people at least have a line of sight toward potential Fed rate cuts notionally, you can handle that

in the stock market. Well, because the economy is stronger today than many thought it would be, and earnings are rising. And Claret is not willing to give up the ship entirely on cuts this year, as you might have heard. Yeah, because I think he correctly reads, you know, the weight of the Fed's intentions still wise in that we're looking for an opportunity to ease their bias institutionally in that direction. Their framework points that way. But you're not getting a lot of help on the numbers. So he did imply that's a pretty high hurdle for inflation coming in softer on average to get there. Contessa, tell us about DraftKings. Well, it's a I mean, it's down today. If you take a look at these shares down almost 11 percent,

FanDuel, which is the nation's market leader, saw its parent company losing some share price as well, down 8 percent on the day because Illinois, the fourth largest state for sports betting, has proposed legislation that would hike the tax rate from 15% for sports operators to as high as 40%. It's a progressive tax. So if it makes it into the final budget, FanDuel and DraftKings would take the biggest hit. But analysts argue these two operators also have efficiencies of scale that could make them more immune. It would benefit them if other states follow suit in hiking taxes. The industry points out, though, who really benefits when you hike those taxes is the illegal offshore sportsbooks, which

already capture the lion's share of sports betting dollars. Those sportsbooks don't pay any taxes at all. And so what might happen is, say FanDuel and DraftKings pay more in taxes, they shift their marketing and their promotional spend, and perhaps there are fewer pots of dollars than to tax. DraftKings' Jason Robbins said in his most recent earnings call, in fact, that the burden goes to the consumers as they would look to recoup the cost. So, you know, an interesting take on this. On the other hand, the industry, and I've heard this,

Scott, at many conferences, is hopeful that as states look for new tax revenue, they'll consider legalizing online casino games or iGaming, which is far more profitable than sports betting and one that FanDuel and DraftKings have now overtaken the number one and the number two lead spots in terms of market share. Contessa, I appreciate that. Contessa Brewer. You know, Mike, I'm also thinking about it's not like earning season is fully over. Right. CRM, Salesforce is going to be important, especially at a time where software stocks haven't done that well. It's been all chips in the mega caps. Exactly. It's definitely been a little bit sidelined by the fact that all anybody really cares about is the hardware investment cycle at this point. I mean, Salesforce has had a decent story to tell about implementing AI.

It almost fits perfectly in with what they've always tried to do. Now they call most of what they've been doing all along AI in some version. That being said, you know, the bookings rate and everything that reflects what companies are spending on incrementally, you know, that's going to come to bear on CRM. So, you know, it matters, but it doesn't feel like it's where everyone is right now. What I did find interesting, too, today is industrials giving back 1% as well.

So, you know, it's a little bit of a winnowing of the leadership of this market. So software is not really playing along. Microsoft actually has just kind of been capped at the old highs as well for a little while here from back in March. So you do want to make sure that it doesn't become, they do have the annuity business, if you will, the membership fees. But otherwise, it's pretty decent, so. So as a macro tell, what's great is when they seem to be gaining market share. So when their comps are better than the industry, as they typically tended to be, they are a force of disinflation in the world.

Because what they do, as a matter of course, forever, is they cap their profit margins. They will not accept a higher than, you know, target profit margin. They make the money on the membership fees, which means they're kind of giving back pricing to consumers over time, to small businesses. So I do think it's almost a net positive when Costco's doing well, when all we care about really from a macro perspective is inflation, you know, coming to heel.

Speaking of, you know, PCE later this week. Yeah. I feel like over the next couple of days we could be one of those. OK, it's the wait and see again, Mike. We had our activity today. I feel like it is going to be a wait and see in the mat. And the question is what the Treasury yields get to right ahead of that number. Which direction are we going to be leaning?

We'll see if they try and front run it higher or try to snip something out. Set up a relief train. Yeah, exactly. All right, good stuff, as always. That's Mike Santoli. I'll see you all tomorrow. I'll send you to the O.C. with Morgan and John.