Closing Bell - Closing Bell: The Road Ahead for your Money 4/12/23

Episode Date: April 12, 2023

Earnings are only two days away and the debate over interest rates is escalating… so what’s next for your money? CNBC’s Steve Liesman, Charles Schwab’s Kevin Gordon and NewEdge’s Cameron Dawson give their expert market opinions. Plus, an exclusive interview with Warner Bros. Discovery CEO David Zaslav following the company’s latest big streaming announcement. And, Bob Pisani breaks down the final moments of trade. 

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9, right here at the New York Stock Exchange. A lot of action this hour, a big exclusive with Warner Brothers Discovery CEO David Zaslav. That company rolling out its new streaming service. We'll get to that momentarily. In the meantime, this make or break hour begins with the markets and the Fed on a collision course. One says enough is enough. The other says not so fast. So who will win? Stocks, it seems, aren't so sure. Here's your scorecard with 60 minutes to go in regulation. The Dow led higher for most of the day by cyclical groups such as industrials and materials.

Though, as you can see, it's going to be a fight right to the finish. Discretionary week today. Questions continue to swirl about the health of the consumer. Tech lower, bond yields falling following that inflation print and the fed minutes which showed staff predicting a mild recession following the banking turmoil of the past couple of months leads us to our talk of the tape the road ahead for your money with earnings only a couple days away and the debate over interest rates only escalating we'll ask schwab's kevin gordon and cameron dawson of new edge in just a moment what's in store first though let's bring in steve leesman on this new forecast from the fed at least steve

from fed staff a baseline forecast i might add of a mild recession this feels like a pretty big change from where they were yeah and that's a change from where they were uh scott let me i'll get into that what they saw at the the meeting took place during these banking stresses that had flared up, and the staff looked at those and put those, I guess, into their model and said it was likely to lead to a mild recession. They'd previously said that a recession was a plausible alternative to their baseline or a possible outcome, but it wasn't the baseline in the previous minutes that we read. They saw the economy, however, recovering over the next two years, 24 and 25. Here's what else they said. They said inflation would step down markedly this year and inflation would slow

sharply next year. All of this, though, the outcome depended on the severity of the banking stresses that were out there. As for the folks who really mattered, the actual officials at the meeting, they didn't appear to embrace the staff's concern as they hiked 25 basis points. As you'll remember, they did see the banking failures leading to tighter credit conditions and likely to weigh on jobs, growth, and inflation. But they said some would have hiked by 50 basis points, so they hiked by 25 instead. They did discuss not hiking at all but decided they had done enough to stabilize the banking system with their supervisory tools most are the economic

risk to the downside inflation risk to the upside explaining probably why they hiked again so a lot of information for markets today you had the inflation report coming in more or less in line with expectations a little better on the headline you had a bunch of Fed speakers and now the minutes. And what happened? The market's view of the May meeting, Scott, pretty much unchanged with a 70% probability of a hike still built in to the futures market. I just find this so interesting that you have, I don't know how many people are on the Fed staff. What are we talking? Dozens, hundreds of economists, perhaps?

Hundreds, hundreds. And the actual members, they go like that we don't want to hear it we don't want to hear it because that's the kind of message you got today from barkin who was like ah cpi whatever there's more work to do core is still too hot he sure sounded like he was ready to do more. I think that's right. I think they, by the way, I think Daly probably did too. She said there's more work to do. The difference right now among Fed officials, Scott, I would describe as this, is you have some who are more or less concerned or ready to factor in tighter credit conditions into

their forecast. Now, and the staff at the Fed seemed ready to do that, but the Fed officials do not at this point in time. They seem to be saying, hey, we might get past this without a big decline in either credit conditions or lending to the economy and a very negative knock-on effect. They're ready to look past it and say, you know what? I've got my supervisory

and regulatory tools over here. I got my monetary policy tools over here. I got an inflation problem. I'm going to keep hiking. And despite the possible outcome here, I think it's interesting that they did kind of look past that Fed staff recession forecast. There are so many people, I feel like, at this point who scoff at that notion too, Steve, that there are enough tools in this imaginary box that the Fed allegedly has that they can deal with almost anything that comes its way. If, you know, we can continue to fight inflation, we can hike interest rates until we determine that we've gone far enough, and if anything else happens, almost the economy be

damned, we'll just deal with it. Because if their own staff says their base case is for a recession and it doesn't move them in any meaningful way, and maybe we won't find this out until a couple of weeks from now on May the 3rd, then what will? I don't think anything, Scott. I think, you know, you could actually look at the Fed's own numbers. And we had Diane Swonk in the last segment talking about this, Scott, and say the Fed has already built in a mild recession, that that's really a part of how they expect to bring inflation under control, is negative growth creates a whole lot of slack more than subpotential growth does. And what I mean by that is if you're negative, the economy is

actually contracting rather than 1% growth compared to 2% potential. So that creates a whole lot of slack. And if you look at some of their numbers, 0.4% growth, a 1% or percentage point increase in the unemployment rate, you could say they've already, some of them have already baked in a recession, Scott. Yeah, Steve, thank you. Thanks for sticking around for us too. This felt like a bit of a game changer, what happened in those minutes. I appreciate you breaking that down.

So Steve Leisman says, well, the Fed has all but priced in a recession. Perhaps the question is, has the stock market? And on that note, let's bring in Schwab's Kevin Gordon and Cameron Dawson of New Edge Wealth to kick this around. Cameron, I'll turn to you first. Is that priced in to the market right now, a mild recession? No, not at $220 a share in earnings, trading at 18 and a half times those earnings. If we have a recession, that 220 is too high. It likely looks something like 200 or lower. And then we would likely want to

put something more of a lower multiple on that initially, just because you have the de-risking that happens when you have uncertainty about future growth. Term premium goes down. So I don't think that at this level, the market is pricing in a recession. I mean, when you hear that coming out of the minutes today, and then you have Fed speak like you did today that says we need to do more. We really don't care. We're more concerned with inflation than we are in the economy. And I think that's kind of the message. And I felt like and I mentioned this earlier, when Sarah Eisen asked Barkin directly that question, whether you're now in the soft landing camp or you still think you can get a soft landing. He didn't even answer the question with that. He said, we're focused on getting

inflation down. It speaks to what they're willing to sacrifice in order to get inflation down. In their own forecast, they have unemployment going all the way up from three and a half percent today to four point six percent by the end of the year. That means that in theory, if we take them for their word, they would tolerate a lot of labor market weakness before they would even act to ease policy. So that tells you they think that they still need to see a weaker labor market. They still need to see weaker demand. That was the comment from Barkin today. Less demand. So we'll watch retail sales very closely before they even think about easing policy. To me, Kevin, the market reaction

today, the price action from two o'clock forward was so telling. At first, you see the market look like it was going to have a bit of a rally and it started to rally. And I'm like, all right, I totally get it. Market thinks that, OK, the Fed is not going to be able to. Who cares what they say? They're not going to be able to do anywhere close to what they still suggest they might because the economy is going to be too weak. And now I go back to, OK, well, bad news might be bad news again for at least this moment, because if you think we're going into a recession and you don't, like Cameron said, think it's priced in, then where do you go? Yeah, I think that's the right way to think

about it. We're relative to last year. We're shifting away from kind of inflation being front and center as a concern for the market and slowly moving towards labor and then the broader economy. I think one way to look at it is even the retracement in yields today kind of picked back up after the initial drop from the CPI report. But, you know, broadly over the past couple of months, you've started to see a reconnection in bond yields and stock prices, most notably when you move actually up the scale, up the cap spectrum into things like mega cap tech. I think that's a more telling signal, not something that we think will last in perpetuity, but a more telling signal that if you have that reconnection and then you go into slower growth, yields will be falling for the so-called wrong reasons. With growth actually slowing us getting into a recession, that probably

puts more downward pressure on the stock markets. I think that's the right way to think about it. If there's more downward pressure, downward pressure, excuse me, because I've had a lot of different predictions this week alone. Some who suggest, well, we're going back to the October lows. We're going to retest that. It's just a matter of time from others who say we may have a pullback, but we're not going that low. Yeah, I mean, I think it depends on the part of the market you're looking at. I mean, there was a lot of enthusiasm about how much, you know, how strong year-to-date gains have been,

but it's been driven by a handful of stocks, just really a small sliver of sectors. But if you kind of go one step below the surface, look at the sector level, and then another step even at the industry level, I mean, look at the banking index, even the regional and the small banks, they haven't gotten any kind of a lift since the huge drawdown in March. You kind of need that to work in conjunction with other cyclicals in order for the market to kind of find its legs again and keep going. I think that the deterioration in breadth over the past couple of months has been a pretty strong tell that, you know, participation has just looked relatively anemic, both on the breadth side, but also just from an investor enthusiasm perspective, you haven't seen really

any flows into equities. It's really shifted mostly into the bond market. Part of this, Cameron, like Jeremy Siegel of the Wharton School told me earlier this afternoon, next three to six months are going to be tough for stocks. He's still a long-term bull, no big shock. But here's one of the most traditionally bulled-up people that you'll find who at the beginning of the year said, we can do 10% to 15% in the stock market this year. And even now he has tempered his own expectations.

Brian Belsky, another notorious bull yesterday, was suggesting, well, I still think, you know, we can do well, but even my own expectations are not as enthusiastic as they were. Yeah, I think that maybe they didn't count on getting more than halfway there over the course of just one quarter. And at the same time, just like the Fed staff said, there is likelihood that this banking issue ups the risk of having a recession at some point in 23 or 24. And so if you were in the soft landing camp, maybe you were thinking that there was actually upside to earnings and so valuations weren't so stretched. Now, if you start going the opposite direction where you're thinking that earnings have more downside risk. And if you look under the surface in the back half of the year, there is a huge earnings recovery already priced into that $220 a share. You're not going to because you're not going to stay in an earnings

recession forever. Right. We're going to be you know, the projections are you're going to have three straight quarters of negative earnings growth, but you're going to emerge from it. Right. You eventually will. But I think it's important to note what's driving this earnings recession. It's all margin. It's not the top line. The top line is not going negative because the economy is not yet in a recession. And the margin compression is just a function of the give back of the over-earning and margin expansion that came when inflation was so hot.

Companies had such high pricing power. They had really big margin expansion up to new all-time highs. Now we're starting to correct to normal. And so the question is, do you have typically margin compression in a recession? The answer is yes. So it could be more of a protracted earnings recession this time around simply because of that margin dynamic. Speaking of earnings, Kevin, Friday gets real.

And then we're going to start hearing and learning what the numbers are and what the outlooks have to say. Yeah, you could argue that actually Friday is more important than even the data we got today, not least because it's a little bit lagged. But I think given the nature of now what has become a little bit of a banking crisis, even if it's been ring fenced by the Fed, I think a lot more of the important data is going to come from earnings, not just from the banks, but what Cameron was saying, kind of broadly across the market. You still have, I think, for this quarter, fourth quarter was a little bit different,

where revisions had been brought down at a pretty significant pace. I think for this quarter, it's been a little bit slower. And our view is that you still need to see more revisions to the downside before you can kind of feel out where that trough is. But I will say, from an earnings perspective, to have a little more of a maybe a bullish tilt on it for later in the year, you know, the best zone for the stock market in terms of annualized performance is when earnings are down between 20% and 5%. That's after you've gone through the significant contraction and then you're moving back higher. So if we're in an earnings recession now, you get to that scenario in the middle of the year, maybe towards the back half of the year, and then you're sort of finding your way to the trough and then bouncing back, that would actually be a pretty bullish setup for stocks.

It would be certainly consistent with this heavy washout that you saw in sentiment metrics back at the October low. So we still have more earnings weakness to the downside, but I don't want to lose sight of sort of the potential that that actually brings for better days, maybe in the back, maybe the latter half of the year, of the half of the year. Banks, I mean, are you optimistic or pessimistic about what we're going to learn from the banks this week? Ooh, that's a great question, because we do know that there will be a big split between how the large banks will talk about the state of play versus the small banks.

But we think the thing overall to watch is their forward guidance about credit and lending growth, because that's the real tell about the impact to the broader economy. It's less about the deposit flows. Yes, that's important for small bank stability. But we think that it's the commentary that they give us about how eager they are to pull back on lending growth. If that's the case, that's the mechanism at which we'll see this bank issue start to filter out through the broader economy. So that's what we're watching the most closely. And retail sales, too. I don't want to gloss over. You've got PPI still ahead. Retail sales. Are you worried about where the consumer is right now? I think the reliance on credit for the past year, I would worry about that because you've had this so-called kind of excess savings cushion basically wither away. Now, with the coming contraction, we would assume an expectant credit.

I think that puts the consumer on a little bit more uneven footing for this year. But, you know, I'll say in terms of a formal recession, you know, prior recessions, some of them haven't really been sort of marked by significant weakness in the consumer. I know that's been a big part of the recovery story and it's a big part of the economy, but you don't necessarily need to have the consumer fall off a cliff to go into a more formal recession. I would actually consider that more of a mild recession if it's a little bit more investment driven, business investment driven rather than consumption driven. Well, because consumption is our lifeblood. Two-thirds of our economy. I get you. All right, Kevin, thank you. Thanks, Scott.

Cameron, thank you as well. Thank you. And of course, our thanks to Steve Leisman too. Let's get to our Twitter question of the day. We want to know where will the S&P be by the time the Fed next meets and gives its decision above 4200 between 4000 and 4200 or below 4000? You can head to at CNBC closing bell. Please vote. We've got the results coming up a little bit later on in the hour. We are just getting started and we have a big interview coming up. Warner Brothers Discovery holding its big streaming event today, unveiling a new Max streaming service. We hear exclusively next from CEO David Zaslav. It's just after the break and later playing a potential slowdown. One top technician has three charts to help you trade a slip in stocks. It's just ahead. You're watching Closing Bell on CNBC. Warner Brothers Discovery announcing its new Max streaming service today, combining content from HBO Max and Discovery Plus. Our Julia Boorstin live in Burbank, California, right now for an exclusive interview with Warner Brothers Discovery president and CEO

David Zaslav. Julia, it's all yours. Scott, thanks so much. Really appreciate it. We're very excited to be here today on the Warner Brothers lot for the big announcement of Max. It's coming on May 23rd. And the big headline is that it's going to cost $16 a month, which is the same cost as HBO Max, even though this will also have so much Discovery content. You've said so many times, David, that you are focused on profitability. Why does it make sense to charge the same amount and give more content? First, we want a really seamless transition. We have a very significant business with HBO Max right now with subscribers that love it, and they're paying $16 to provide more value to those subscribers and

Have a seamless transition. I think will be really helpful to us in terms of number one Secure the strength and the power that we have in the market right now in addition the one of the big issues with this business for everybody is churn and By by increasing the amount of content we have on the platform, content for kids, content for families, nonfiction content, food, home, the biggest motion picture and TV library, by putting that whole bouquet of content, we think the broadest array of content available, that the churn will come down. So it'll be a significant amount of economic gain for us just by subscribers feeling more nourished, happier, less churn, more people in the family using it. And that's the

basis of a healthy subscription service. So in addition to that $16 ad-free version, you are going to have a lower cost version with ads. Do you have any plans to have a free ad-supported version? And how concerned are you about an overall ad contraction, especially when there are more ad players in the market, such as Netflix? Well, HBO Max has a nice amount of ad-light subscribers already. So Max starts off with a nice base. And $9.99, when you look at the marketplace, the traditional marketplace around the world, there are people that are willing to pay a fair amount of money to get premium and have it be ad free. Then there's

people that are willing to pay less, but they'll take, they need to accept advertising, which is sort of like basic cable around the world. And then there's a big population of people that only want free, that are never going to pay. And so it's important for us as the largest provider of content, we have the biggest TV library and most picture library in the world, that we make our great content available to everyone. So this was a big day for us with launching Max on the 23rd. We will have a fantastic service at 16. We're also going to have the ad light at 999 and it'll be robust. We've started to offer AVOD channels with other providers, but you will see an AVOD service from Warner Brothers. You will

see a Warner Brothers TV that's free, and that'll allow us to capture everyone. Our objective is we think we have the greatest storytelling, the greatest content. We want everyone to see it, but right now, we think there's a tremendous amount of opportunity and growth for us to take advantage of what we already have, which is a fair amount of scale, a really high-quality service on both sides. Discovery Plus. Discovery Plus is very low-churn and high. People love it. And HBO Max, you know, if we add those two together,

we think we're going to get better retention. So we will stay tuned for details on when we'll get that free ad supported service. But one thing that's notable here is you talk about the breadth of the content, but you don't have live news and sports included in this new Max service. What are your plans in terms of sports? Are you going to be bidding for NBA rights to include in Max? And what about live news? When are you going to or will you include CNN in this? Well, first, this is really a fabulous entertainment, full spectrum service. So we're going to take this out and we think we're going to do very, very well with it. But the good news is that the future has a lot of uncertainty for all of us. And we're trying

to figure out exactly what consumers want and where do uncertainty for all of us. And we're trying to figure out exactly what consumers want and where do they want it. The fact that we're a leader with CNN, a global leader in news, and the fact that we are a leader in sports, where we have the NHL, we just finished with March Madness, we have baseball playoffs, we're going to be carrying hockey to right through to the Stanley Cup. And then we have the NBA for another couple of years and hopefully for long term. So that's artillery. You know, in a battle, ultimately, I think the best content wins.

And so the fact that we not only have this extraordinary amount of great entertainment content with Max, as we see what consumers want, we can say, OK, and we've done it in Europe. We've moved news in where people go more often. In a number of markets, we've put sports in. So we'll see over the next few months. And we are building an attack strategy. You will see news and sports deployed to drive our overall streaming domestically and around the world because we have it and we're a leader and because live news and sports is powerful. So more change is coming. Now, I have to ask you about the comments that we heard today on CNBC on Squawk Box from Warren Buffett. He said he doesn't like the streaming business. It's a fundamentally challenged business. And I also

have to point out that Bob Iger, CEO of Disney, has said that undifferentiated entertainment is another challenged area. These are two men who are both invested in the space, Warren Buffett and Paramount. And I think the question here is, how do you avoid those pitfalls of either being undifferentiated or just the overall challenges of streaming? Okay, first, it's probably, we are more differentiated probably than anybody. We have Harry Potter, all brands. We have we have the whole D.C. portfolio. We have Hanna-Barbera, Looney Tunes, Game of Thrones. We have brands, food, home, discovery and HBO itself.

So when people want to navigate what we have, we're not a huge morass of content. It's very easy to curate, which is very important. You can curate through our characters. You can curate through our brands. And you can curate through the content that we love. So I think that we have very differentiated content. We have tentpole content that people love everywhere in the world. To Warren's point, it's not an easy business and we're in the middle of a transition.

We've been really dramatically moderating our losses. Last quarter we significantly reduced them. We were down to a loss of only 200 on our streaming business. We have a very big advantage. We have a huge library of content that's owned and paid for. TV library of content that's owned and paid for, TV library of content, traditional. Then we have our whole nonfiction library, global library. We have 10 channels of content we've been producing for 30 years in language all over the world, home, food, discovery, animal

planet. And of the content that people consume, 80% of people spend an awful lot of time with nonfiction. So we start with a cost base that's much lower. And then we have all these brands that people love. Plus, we're disciplined. I was the first one with our leadership team that said, we want to be in the streaming business. But we're also the biggest maker of content. We make a lot of money selling TV to other players. We're also in the traditional media business. We're in maker of content. We make a lot of money selling TV to other players. We're also in the traditional media business.

We're in the gaming business. And so for us, we're a content company. We're a storytelling company. This is a very big day for us with Max. And we believe that having a streaming service above the globe is critical, which is the final point that it's a more difficult business if you're playing really primarily in the U.S. Think about the value creation by the FANG companies. That value was created was is because they were above the globe. They built the product and they were able to deliver it everywhere in the world in every language.

That's what we're going to do. We're just getting started. And I think that will give us scale and a real opportunity to have this be a big business. And we've said that we'll be breakeven in 24 and that we'll make a billion dollars in in the overall segment of streaming by 25. So we feel really good about it. Scott. David, it's great to have you on the program today. I so much appreciate you being with us. You mentioned being a bit of a first, and I do feel in some respects like you were a trailblazer, if you will, in this new movement of subs at any cost is not happening anymore. And others have sort of followed that mentality. I guess my question is, is that a moment in time view because of the kind of economic cycle that we're in? Or is that going to be a permanent thing? Or the next time we're in,

you know, that next big upturn, if it's going to be back to an arms race? Well, look, I think that you and I have been around enough that we've seen these cycles. In the 90s, it was clicks. And eventually, well, we're valuable users. And ultimately, I'm a free cash flow guy. I built Discovery by driving free cash flow. How much money are we really making? We're creating content. We're driving EBITDA and free cash flow. Last year, in nine months, we generated $3.5 billion of free cash flow. We're driving great stories. We want great talent. But ultimately, if we're not making money on subs, if we don't have any ARPU, we're not helping

ourselves and we're not helping shareholders. And it was very clear as you looked around the industry that they were chasing a phantom effectively. And we did something important last year. You know, we brought these two companies, and there was a lot of talk of synergy, but that really wasn't what we were fighting for. We were fighting to say, what does this company look like to have a chance to be really successful for the future, whether it's HBO, Warner Brothers Television, our traditional businesses. So all the changes that we made, fighting to get all of our motion pictures back in the theater, where we can delight audiences, open those movies on Main Street, but also make more money, because they're

more valuable in the theater, and then they're more valuable on HBO Max. But we restructured our company. We made a lot of decisions. Some of them may turn out to be wrong, but that's in the past now. Now we're off and running. It's not just with Max. We're on offense and we're a pure content company and we have all these tools because we have all this content that people love. So I think going back to this idea of subscribers, you know, I'd rather have a hundred million subscribers or a hundred million, 150 million subscribers and have it be really profitable than try and stretch for some big number and in the end lose money. And the good news is consumers show you what they love.

We take a look at what people watch on Max and we could see exactly what they like and exactly what they don't. And some of the stuff they're not watching, you know, we can put it on a fast on an Avod platform. And some of the stuff that they're not watching, we can keep it not exclusively on Max, but we could also sell it to others. So we are relentlessly focused on creating great content and monetizing in every way possible. Could you ever see a day, David, where there's a return to some kind of bundle where all of you and your competitors, you sort of throw up your hands and say,

maybe we're better together than each one of us doing our separate thing. And maybe through, I don't know what distribution method we're talking about here, obviously, but you come together with however many of you all, and you offer, I don't know, 50 bucks a month, and you get five different streaming services. Is that such a far-off thought?

Well, look, ultimately, we have to create an environment as an industry that's easy for consumers. And imagine a world 25 years ago where you needed to subscribe to ABC, NBC. You needed to subscribe independently to different channels. And people spend 11 minutes on average trying to figure out where the show they want to watch is. So ultimately, consumers have already started to do it. What are the app offerings that I love? And many of them put us at number one in quality. And there's a lot of great

out there. And for each person, they're aggregating. But it's still awkward. And I think eventually you will see a reconjugation, which will be very healthy for the industry. And there'll also be some that, as Warren said, simply can't make it. You know, how long can you be losing billions and billions of dollars? So I guess the question there, David, is do you think there needs to be more consolidation among the streaming players? Do you think that now, as this combined service, you're big enough to compete with the likes of, say, a Disney, Hulu or a Netflix? And at the same time, how do you respond to the fact that just last week four Democratic lawmakers said that they want this deal, the Warner Brothers Discovery merged

company to be reexamined by the DOJ? So on one hand, are you too big or are you big enough? Well, look, I think what we demonstrated today is we're pro-consumer. How do we provide as much great content as we can and make it available to consumers in multiple ways? If people want to just have the Discovery Plus content, food, home, Discovery, Animal Planet, they can continue to do that. And so our focus is very pro-consumer. I think there will be consolidation, but it could happen in a number of ways. One, it could happen the way Scotty just said, which is that there isn't a consolidation of ownership, but there's a consolidation through a package. That package could come through a number of us content owners over the next couple

of years coming together. Or, you know, in some ways, Amazon is doing it right now. Amazon, Roku, Apple, they're having their own chase. They recognize, Tim recognizing it, Andy Jassy does, that it's a bit of a chaotic environment. And so when you can make a better experience for consumers, there's value creation. And so, look, I think it's a very exciting time to be in this business, particularly if you have a diversified media company that can generate real free cash flow, which is which and you have great brands that people and content people love everywhere in the world. So I like our chances. I like our hand. And it's it's a it's a bit of a chaotic time, but everything's possible right now. Well, certainly a lot of big news today. And I know

you'll have more news coming certainly around the sports and news piece of your business. And we also should know that you've been in a quiet period, so you haven't been able to give specific numbers, but we'll learn more at your earnings. But in a couple of weeks, David Zaslav, thanks so much for joining us. Scott, back over to you. All right, Julia, thanks. And our thanks, of course, to David Zaslav as well here on Closing Bell. Up next, today's cooler than expected CPI print sending bonds lower, bond yields lower. So how might inflation impact the Fed's next move? We discuss after the break. We're back right after this on Closing Bell.

Bond yields lower after today's cooler than expected CPI report, with the market focused on a possible policy pivot by the Fed. Our next guest, though, believes sticky inflation may get in the way of that narrative. Joining me now, Oksana Aronov, J.P. Morgan Asset Management Head of Market Strategy for Alternative Fixed Income. Welcome. It's good to have you. Thank you. No pivot? Do you know what pivot stands for, right? Pretty insane valuations on treasuries. Come on. It's really fascinating to me how rates are reacting here, given that I think that the Fed's hands are going to be tied here to deliver the kinds of aggressive cuts that are priced into this market. And of course, we're also seeing oil moving back up. And that has been the major component driving inflation lower, not just last month, but also year to date.

And we're starting to see that move the other way. It's interesting. The market just doesn't want to believe what the Fed has to say. I mean, you saw it again today. There are various Fed speakers who are out suggesting our work's not done. Core is too high. We're going to keep going, whether you believe us or not. And the market's like, whatever. And in fact, how long does that last? Yeah, I think that what the Fed effectively said today is that every day that there's not a banking crisis is a day that rates are too low. They said in the absence of a banking crisis, they would be, or banking turmoil, they would be moving higher or setting the target higher. So how long does that last? I think that as we continue to progress through this year and we continue to see how entrenched this inflation is,

because getting from 8 to 5, I think, is has been a lot easier than it will be to get from five to two. And it's going to be more sticky. It's going to be more sticky. I mean, we're seeing it stick certainly in core services, which is a significant portion of it. And really, as I said, the thing that's been driving it lower has been energy and oil prices, as well as some things like used cars, which are also somewhat volatile. And so as we continue to go through this year. As long as inflation remains. Meaningfully above the feds target which let's

remember is 2%. I think the feds hands are going to be tied here to deliver the kind of cuts that are priced in and. You know as investors we should remember. That as goes inflation so goes the correlation between bonds and stocks which is kind of the founding. right cornerstone on which portfolios are built that 60-40

no that was come on I mean that was like thrown out of whack last year as you obviously know before I let you go yeah the best play within fixed income in your world now is what so right now our overarching advice to investors is preserve optionality you've never been paid more to essentially maintain some liquidity in the portfolio while attacking opportunities as they evolve. The banking turmoil is one of the many unpleasant surprises we're going to encounter as we continue to go through the effects of this Fed hiking policy because yes, their hiking is closer to the end than the beginning. I think we can all agree on that. Sounds like you're making the case for cash.

But we are just starting to see the effects of this hiking policy and so there's going to be certainly a widening of credit spreads that investors will be able to take advantage of and so what we've done you know and we run an opportunistic discipline is attack opportunities where they have been which is bank paper selectively select selectively insured, investment grade floating paper, which moved out very meaningfully on the stress in the banking sector last month. So there are definitely things to do, but investors should absolutely preserve optionality because this will be the year that credit punch is delivered to portfolios. All right. Optionality, the word of the day. It's great to see you. Thanks for being here. Thanks so much.

All right. That's Oksana Aronoff again joining us today. Right here, Post 9. Up next, we're tracking the biggest movers as we head into the close. Christina Partsenevelos is standing by, as always, with that. Christina. And it's going to be a hot button issue. Shares of Cirrus Logic down on rumors. Apple abandoned plans to use the company's more high-tech buttons on the new iPhone. Details next. Let's get to Christina Parts and Neveless now for a look at the key stocks to watch 15 minutes before the close. Christina. Let's talk about Cirrus Logic because it's under pressure. I was closely watched Apple analyst Ming-Chi Kuo says iPhone 15 models won't utilize solid state buttons. So Cirrus is a supplier of components for solid state features,

which is essentially just a touch surface. It's not those buttons that you actually have to press down hard. And Apple had used Sirius as a supplier, but has, according to this report, we've seen some unresolved technical issues. This, according to the analyst, so sticking with the traditional method will simplify production and testing. Sirius declined to comment. We reached out. We haven't heard back from Apple either. But as we head into the close, Sirius is on pace for its worst day in two years,

down 12 percent. Apple barely changed. Yeah. Brutal, though, for CRUS. Christina, thank you. It's the last chance to weigh in now on our Twitter question. We asked, where will the S&P be at the next Fed meeting, the next decision day on May 3rd, above 4,200, between 4,000 and 4,200 or below 4,000. You can head to at CNBC Closing Bell on Twitter. We have the results after this break. The results now of our Twitter question. We asked, where will the S&P be at the time of the next Fed decision? 41% of you said below 4,000, but it was reasonably close, too, between 4,000 and 42.

Picks up second place. Up next, the star Wedbush analyst Dan Ives getting even more bullish on Microsoft. Is that really possible? We'll find out. He'll explain what he sees as the big driver behind that name when we take you inside the Market Zone. We're now in the closing bell Market Zone. Chris Verone of Strategas takes to the charts for a strategy to play the slowdown. Wed Bush's Dan Ives on why he is getting more bullish on Microsoft. Bob Pisani breaking down the crucial moments of the trading day. Heading into the close, a little bit of selling as we inch towards the exits as well. Chris Verone, though, I begin with you.

Are we vulnerable right here or not? Yeah, I think we are. And listen, this is the second time this year we're right back in this 4,100, 4 begin with you. Are we vulnerable right here or not? Yeah, I think we are. And listen, this is the second time this year we're right back in this 4,100, 4,150 range. But what's different this time around? I think the leadership is much more tepid than late January, early February. You see it with discretionary is softer, staples is stronger. You see it with copper's weak relative to gold. You see small caps at multi-year relative price lows versus large caps. And for all this talk of the banking crisis has passed, why can't the banks

rally? So I look at the setup here, and all I knew was two-year yields were down 100 bps over the last month, and banks were at 52-week lows, and copper is weak relative to gold. I'd say that sounds more like the leadership backdrop of a slowdown, not of a re-acceleration. Even with technology leading accentuates that? It's too top-heavy? You know, it's funny. It's like, does tech or is tech almost fulfilling the role of the consumer staples or the utilities here? Yeah, I think there's some to that. Right. And I think this move to the top of the market, is it Apple or is it the Bank of Cupertino, right? If we're taking our money out of First Republic and going somewhere else, I think tech has been the destination for that.

I'm not sure how sustainable that is. And I think the view out there is that rates down is a panacea for the market. I'm not convinced of that. When we look historically, the easing part of the cycle, actually not great for stocks. The pause you can rally. Maybe we're here at the pause, but the easing part, not great. You know who I think is going to disagree with you about that view on technology? That guy sitting right to your left. You very well may. Dan Ives of Wedbush joins us now. What do you think? Vulnerable? Look, I mean,

vulnerable in theory, but I mean, my view in terms of checks, and it's why we raised price target on Microsoft. I mean, enterprise checks have actually improved from what we saw in January. You look at Apple, things improved from what we saw in January in terms of February, March. So my view going into tech earnings season, it's not just going to be better than fear. I think slight beats. And I don't think, I think a lot, many are on the wrong side of that trade. I think tech continues to have a green light going into 1Q earnings. Well, when you, I mean, let's just say, okay, maybe the degree of the growth declines in key areas for argument, let's just say cloud, maybe that's stabilized, but it's still depressed from where it was. Is that fair? Yeah. I mean, it's definitely not roses and champagne in terms of our checks on the enterprise. But I think what's discernible is that we've seen improvement the last 45 days.

And I think that bodes well going into the rest of the year, which, in my opinion, is why tech still has another 10% to 15% upside. So you mentioned this Microsoft price target goes to $315 from $290. You say share gains versus AWS from Amazon, obviously, are front and center this quarter. What do you think the result is going to be? And by the way, Andy Jassy is going to be on the network tomorrow morning. So you're going to hear directly from what Amazon thinks is happening from AWS. But what are you talking about here? I think it's footsteps from what Nadella is doing in Redmond because ultimately they're gaining share in their enterprise backyard.

You're seeing street fights out there. But I think ultimately who's the winner is Microsoft, and they're doubling down. Right now Nadella and Microsoft, they're on the offensive. A lot of these other tech players are on the defensive. And I think just further flexing their muscles between chat, GPT, and cloud, which is why, in my opinion, Microsoft's best cloud name out there. Okay. Appreciate that. Thank you for being here. Bob Pisani, I turn to you as we head towards the two-minute warning. And we've had some weakening after an initial, I guess you want to call it, pop following the minutes. As I said

earlier, thinking, okay, well, the market thinks that this only means the Fed is going to actually either pause or cut. And now it's maybe facing the reality of a slowdown a lot of people want to blame the sell-off on the fed minutes but if you look at when we started selling off 224 or so the the french bank president francois villaroy made some comments right at that time he said inflation is more broadly based than we thought it's still still too strong. It's too sticky. The ECB may have to continue to hike. That's not helpful for the markets overall. But I agree with you, Scott. The Fed minutes normally is a snooze fest. What I see here, two things. The banking crisis will precipitate a mild recession. That's the staff. That's base case now. Yeah, that's according to

the staff. That's new. And secondly, not anticipating cutting rates later this year. So immediately they're undermining the Goldilocks scenario that the market's based on. Now, you know this. If we had even a mild recession, any kind of recession, earnings normally dip 10 to 20 percent. Multiples can contract 20, 25 percent. You even get that's a mild base case recession. We're not anywhere near that. In other words, earnings that are at, let's say, 220-ish still go down to 200 or below.

190 even. Which is why I've asked people who've come on the show, including Halftime, is a mild recession priced into the market? And they say absolutely not. Not even close. If we have even that mild number, you're at 3,200. Suppose you get down 10%, you get a 20% contraction of multiples, you're down in the low 3,000.

We're at 4,100 right now. Well, Bob, think about the balancing act between differentiating between a mild recession and something else. I'm not sure the market is going to be particularly good over time. 2000, 2001, 2002 was a mild recession with an equity market that went down 50. 1991 was a deep recession with an equity market that went down 20.

So I'm not sure we're going to make that decision. There's the bell. Thank you, Dow. Thank you, Pazani. Thank you. Dow is about a 50-point or so loser right now. They'll pick it up in overtime with Morgan and John.