Closing Bell - Closing Bell: The SVB Fallout & Your Money 3/10/23

Episode Date: March 10, 2023

What does the SVB earthquake mean for your money and the markets in the days and weeks ahead? Schwab’s Liz Ann Sonders gives her market forecast. Plus, FirstMark’s Rick Heitzmann drills down on how the fallout from the tech-focused lender could impact VCs and startup ecosystem. And, market expert Mike Santoli breaks down what he is watching as we head into a fresh trading week.

Kelly, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with stocks down and fear up about the fallout from the collapse of Silicon Valley Bank. Other bank stocks, especially regional ones, plunging again. Big questions now about what all of this means for the Fed on a day when the jobs report comes in hotter than expected. Here is your scorecard with 60 minutes to go in regulation. The Dow on track for a fourth straight day of losses. There's the S&P 500 breaching a key technical level yet again. It's down 1 percent. A look at yields. Very much a part of the story today. Dropping like a stone on fears the economy is careening towards a recession and the impact that all of this might have on future rate hikes. That leads us to our talk of the tape as we look at yields there.

Saw what they're doing. The SVB earthquake, what it means to your money, the markets in the days and weeks ahead. Let's ask our special guest, our headliner, Lizanne Saunders, chief investment strategist for Charles Schwab. Good to see you on a very big couple of days here. How are you thinking about all this? So it's hard to separate the effect of the jobs report on that change in expectations for a 50 basis point hike. And obviously the SVP situation, I think it may have a bit more to do with the latter than the former. But I think this is clearly an example of something breaking. You know, the old adage of the Fed tightens until something breaks. And there's lags between changes in monetary policy and the hiking campaign started a year ago. And this is one of them, of course, as you all have been touching on.

We don't know yet the contagion effect. There are unique circumstances around this bank with regard to the size of their investment portfolio, the fact that they weren't subject to liquidity coverage ratio. So it doesn't look like this. We can assume that there's serious contagion here, but it's also not surprising to see the industry getting hit from a market perspective because things like bank runs are as much about psychology as they are things like liquidity and funding problems. Sure. The word of the day seems to be, at least as it relates to what's happening with the banks, more idiosyncratic than systemic. But nonetheless, you mentioned the most important point of all,

and that is something breaking. So are you worried at this moment about something else breaking if the Fed does what it says it still will? So, again, you've got long and variable lags. We're all familiar with that terminology. And that means that there is likely more impact coming from what has happened already. And I think that, you know, the Fed and Powell himself are perfectly aware of that. They talk quite often about the fact that inflation is inherently a lagging indicator and that the effects of changes in monetary policy are in the future. So they just have to assess as they go along. I'd be surprised if there weren't other things that break, maybe not directly related to the problems of SVB. But to some degree, we're already seeing breakage in terms of things like the weakness in the housing market, other areas that are clearly

in recession within the economy, even if we're not in an overall recession. So I think there probably is more negative news. Now, whether the Fed steps in specifically with regard to something breaking this or additional things, you know, history is mixed on that subject. You know, when with the S&L crisis or the Orange County crisis, the Fed did not step in the start of the continental Illinois. They did not step in in the early stages of the Nasdaq collapse in 2000, the Fed did not step in. So I think they're not likely to step in in this situation until the point where it's either a serious system wide problem or inflation has been combated sufficiently enough that they can look toward easier monetary policy. You know what? I mean, maybe the difference in this case from the ones that you mentioned from out history is that they're the ones who are to blame here. Right. I mean, you can draw a straight line from what they've done and how they've done it to what

we're even talking about today. So I don't know if that has any influence whatsoever on what they may or may not do. But maybe this is a little more idiosyncratic, too. Yeah, I mean, look, we can all be armchair quarterbacks and the Fed themselves concede that they probably kept rates at the zero bound and the balance sheet at nine trillion dollars longer than they should have. But the bottom line is that's in history. And whether that was the big mistake of that era, yeah, that probably was the case. But there's nothing we can do about that at this point. So now the Fed is in a position to do what they can, even though they might have gotten started a bit late.

And, you know, a lot of people think that they're using the playbook from the 70s because inflation has been driven by the same things as occurred in the 70s. That's not the case. What they're trying to avoid are the fits and starts of monetary policy, sort of declaring victory with inflation having come down, easing policy, and then inflation rears its ugly head again. That happened a couple of times in the 70s, leading Volcker to have to come in and pull a Volcker. So the question, though, is if we start to see something more of a systemic problem, do they ease back on the monetary policy lever or maybe they solve any liquidity problems via the balance sheet, not via the rate side? Well, does this make you, though, change your calculus on, let's say, what it was two days ago? Does it change your calculus for what the Fed may do? Right. It was when Powell was on the hill this week, it was higher, faster for longer. We started talking about 50 basis point moves instead of 25.

Is that off the table in your mind? Well, the market is certainly saying that. I mean, it's been a complete boomerang. We were at about a less than a 25 percent likelihood of 50 on Monday, and that jumped intraday on Wednesday to more than 80%. We're back down again around where we were on Monday. So we've still got a CPI report. My guess is that if the market's expectations stay on the low end of the spectrum and we get a less hot CPI report, it's hard to think that the Fed kind of goes against both of those and does 50, especially if we don't get any calming and concerns about SVB and any potential contagion. So, yeah, I think the likelihood is 25 at this point. But

I think aside from the banking system issues, the CPI report is the is the next big tell. We'll have to see what market expectations do when we get that. I mean, had SVB not happened and you just had the jobs report to go on today, what would you say? You know, that's a great question. And I'm not sure I know the answer to that because it really was a mixed report. There was something in it for everybody. You saw the stronger than expected payroll number. You did get some downward revisions. You saw a weaker number on the household survey. You saw the easing on a month-over-month basis in average hourly earnings. But we know that that gets biased

by mix shifts, given that a lot of the hiring has been down the wage spectrum. A lot of the firing has been up the wage spectrum. That has an impact on a metric measured as an average, not as, say, a median. So I'm not sure if the jobs number in and of itself would have moved the needle all that much. I think it really was the SBB situation that probably was a larger contributor to the move down in those 50 basis point expectations. Let's bring in John Mowry now, Lizanne. He's chief investment officer at NFJ Investment Group here with us, as you can see at the New York Stock Exchange. How does that look? You're missed. You are the epitome of a bull in this market. You come on this show. You give me all the reasons always and our viewers, too,

about why you should be bullish. Don't listen to all the bears. What about now? Well, I would step back and say the reason we were so bullish going back to October was because cyclicals were way too cheap. And to be quite candid, over the last six months, cyclicals have led. Pharmaceuticals are down year to date. Staples are down year to date. Procter & Gamble, J&J, Merck, all these names, all the names that people were rushing to to be defensive, Scott, have actually backfired and they've lost money in them. So the cyclicalsical semis, industrials, these have led as well as housing related stocks. So this was not a top down call. It was a bottom up decision that we made that the evaluations were too attractive. But I will pivot. Today is a very big day. And the reality is with a large bank failing,

this is the first time we've seen this since 08. And I remember I started my career in 06. I remember that in 07, when Bear Stearns was falling, people said, hey, the building in Manhattan is worth more than the stock. And it was consensus that this had to be a buy, and then it got worse and worse. So I think the real risk that the Fed is facing is that this does bleed into a more contagion type scenario.

And the reality is, if you think about what the Fed has now, they have a problem. Because on the one hand, they've been focused on taming inflation. Now they have to think, okay, do I have a banking system crisis that could be brewing? And people were lining up outside the bank to get their cash out today. That happened with Wachovia. It happened with Wamuu. So it's a real problem for the Fed. And you have three forms of tightening going on now. You have QT, you have higher rates. And now by taking one of the biggest banks out of the system, that also is a drain on liquidity. Is it a problem for bulls like you?

It sounds to me like you may be changing your view given these events. Well, no. A couple things I would say about that. The first is that defensives have gotten cheaper because they've been underperforming for six months now. So we are seeing some utilities come back. We are seeing some staples. We have increased some exposure to staples, for example, as those have gotten cheaper. But what I would say is that risk is not necessarily inherent to an asset. It's always relative to the price you pay. What do I mean by that? When you see valuation dislocations, you know, is there a certain evaluation that the risk makes sense? So I don't think that you should just step away from all the risky assets. And in fact, when I look at the financial system, it has been recapitalized. They do have much healthier balance sheets today than they did. And I know that's been consensus today

throughout the day on the shows. But the reality is it's true. So I think that if you step away from risk, what is your alternative? And again, I'll pivot to your alternative. I mean, how long do you have? Right. Because hasn't that question changed? Well, I mean, you can sit in cash. That's not a great way to meet long-term objectives. You know, if you're buying short-term paper, actually a lot of people that have done that are losses. People that were stepping into shorter-term bonds at the beginning of the year and in October actually have small losses, Scott, because they kept raising rates. So getting defensive has not actually rewarded you. It's actually hurt you. So I would argue, again, that you need to be focused on the bottom-up fundamentals.

And I would argue that areas like some of the REITs, some of the discretionary names, they are attractive. How can you have REITs, okay, expensive when rates are low, and then they're more expensive when rates are high? That does not make sense to me. Bear with me for two seconds. Let me get to Phil LeBeau. We do have some breaking news with Phil regarding Boeing. Phil, what do we know? Scott, check out shares of Boeing moving higher after the FAA has said that they have done their analysis of the paperwork that Boeing and its supplier have filed regarding a component for the 787 Dreamliner. Essentially, they have said you're clear to begin deliveries of the Dreamliner next week. So Boeing says that they expect that that will likely be the case. Remember, this has been two or three weeks now that they have halted deliveries of the 787 Dreamliner,

but they did not stop production. And this is not a safety issue that impacted the use of Dreamliners in service around the world. So it's not a huge surprise, but it is official now from the FAA that they've completed the analysis and likely sometime early next week, we will likely see Boeing resume deliveries of the 787 Dreamliner. Scott, back to you. All right. Yeah, Phil, good stuff. Thank you for that update on Boeing. That's Phil LeBeau for us. So, Lizanne, when you hear somebody like John Mowry, who's here, you know, and you've heard what he said, who, you know, just thinks the story is more positive than people have led on and points to numerous places within the market where you can still find good opportunity and where risk is worth taking. That's the key. What he thinks their risk is worth taking in certain areas of this market.

What's your response? So my response is that what I would maybe say that's a bit different from what John said. I think there are opportunities within the market, but I think you have to be really careful about assessing them at the sector or industry level. I think it's more important to think about them at the factor level, the characteristics. And in an environment where we've got higher volatility, a lot of uncertainty, you have to look at the macro forces that represent things that are dear, that are less ample out there. So in a rising interest rate environment where now there's liquidity risks, you want to look for companies that have strong balance sheets with high cash and low debt. They don't have to come to the funding markets. They're self-financing. When

we're in a declining earnings revision environment, look for companies that have positive earnings revisions, positive earnings surprise, shorter duration companies in a higher inflation, higher interest rate environment. You want those near-term cash flows and earnings not way out into the future. I think things are still expensive there. Look for dividend growers, not just dividend yield companies. And in a tougher pricing environment, companies with pricing power. And I think you can apply that analysis across the spectrum of sectors and or industries, because within any even industry, you can have a wide array of companies in terms of their level of attractiveness on those factors that I think

matter most. We have the return of the risk-free rate. It means fundamentals are reconnecting with prices, equal weight doing better than cap weight, and active management having one of the best years in many, many years. And that suggests more of a factor-based approach in this environment. So before you came on last time in your note, you called financials increasingly attractive, quote unquote. Do you still feel that way today? Or are you a bit hesitant to urge people to look in that space, given what we're still trying to figure out is the fallout from SVB? Well, I do think the financials are very interesting. I mean, you're seeing some of the larger banks. You said attractive last time. Well, they're attractive. They're attractive. So if you

look at the larger banks, they're responding pretty well to what's going on. I think that is an indication that they are very healthy with their balance sheets. They have been increasing their dividends. And the reality is the Fed has made it clear that they're going to have to step in like they did with Lehman if you have some type of an issue. So again, I would argue that the valuation discount, the stronger balance sheets, as well as the healthy dividend growth, I mean, I totally agree with Lizanne. You want pricing power. You want dividend growth. And you're getting that with a lot of financials.

You're also getting that in other areas. I mean, our portfolios are biased toward higher ROEs, higher ROAs, and dividend growth. So I totally agree with all those comments. But, again, I would step back and say if you blew out of all financials in the first quarter of 2009 or in the fourth quarter of 2008, you didn't get back in. That's the reality. You did not get back in because it was too dark, too hard. You had to stay invested through those periods. And I do think as an active stock picker, it is a time where you have to be assessing those idiosyncratic risks and build portfolios that are defendable in a more challenging environment. You know, Lizanne, one thing that has surprised, I think, to say the least,

investors to start this year is the way that technology has performed relative to what it did last year and the fact that many weren't positioned for that. And it's not lost on me today at all that the NASDAQ is the biggest loser of the majors. And I'm wondering if what we're witnessing out in Silicon Valley is the thing that reverses that trade because of the dramatic and still somewhat unknown impact on the innovation economy out there. And tech is going to be impacted one way or the other by the events that are still unfolding. Now, it may be from the bottom up, the smallest up, rather than the top down facing some of the largest.

But the innovation economy, to me, seems a bit upset, to say the least, by what's unfolding. Well, I think that brings up, if you think about what the letters SVP stand for, there's been more focus in today's action and today's commentary on the B part, the bank part. But it may be the focus should be on the Silicon Valley part and what it says about, at least in their case, who the customers were, the fact that it was a high percentage of non-transactional accounts. And I think it's part and parcel to some of the failures we've seen in other areas and in keeping with the very high profile layoff announcements. And certainly not every company, but when you're in the zero percent interest rate environment, financial repression

and the lack of price discovery that comes about with that, we're sort of seeing what happens in the aftermath of the most aggressive tightening cycle. And I don't think for many companies, and I wouldn't just blanketly say this about tech, we can't look at it monolithically. But for many companies that were long, long, long duration in nature, you know, some of the factors associated with a tighter monetary policy environment are coming home to roost. Yeah, we'll leave it there. Lizanne, I appreciate it very much. Have a good weekend. We'll see you soon. Lizanne Saunders of Charles Schwab, John Mowry, NFJ, sit next to me here.

We'll see you soon as well. Thank you. Let's get to our Twitter question of the day. We want to know how many more times will the Fed hike rates after the SVB collapse? Will it be once, twice, maybe three times? Head to at CNBC closing bell on Twitter. Please vote. We're going to share the results a little later on in the hour. Now let's get a check on some top stocks to watch as we head closer to the end on this Friday. Seema Modi here with that. Seema. And Scott, take a look at DocuSign tracking for its worst day since June, despite beating estimates on earnings and revenue. JP Morgan downgrading the stock to underweight, citing increased competition from Adobe and Microsoft,

along with DocuSign's exposure to challenged markets like real estate and venture capital-based fundraising spaces. Stock down 22%. And Peloton is extending this week's declines today, now heading for its worst week of the year. The sell-off really intensified when regulators announced a ban on some imports of the company's devices sell-off really intensified when regulators announced a ban on some imports of the company's devices because of a patent dispute. Peloton telling Reuters it was disappointed

in the ban, but does not expect it to impact users. Nonetheless, shares are down, as you can see here, Scott. All right, Seema, thank you. That's Seema Modi. We're just getting started here on Closing Bell. Up next, the Silicon Valley Bank fallout. First marks Rick Heitzman. He breaks down how this could impact startups and VCs. He is one of them. We'll talk to him next right here, post nine. And we are live from the New York Stock Exchange. You're watching Closing Bell on CNBC. We have to make sure that both our employees, our customers and our investors, you know, we're protecting the things that we have. So that's what we're looking to explore.

But they just came out and told us that the bank is shut down. We tried to get a few transfers in. Everything was blocked. Phone lines are blocked. Online access was blocked. And we have our funds there. You know, we have to pay salaries. Of all things that I think through as a CEO, and, you know, there's been a lot of hiccups over the last nine years. A lot of lessons learned,

a lot of wisdom has come my way. Thinking that my bank was going to fold for one of my accounts was not anything that's ever crossed my mind. Oh, you just heard there from a number of Silicon Valley bank customers amid the fallout from the tech-focused lender. So how will the SVB collapse impact VCs and the entire startup ecosystem? Joining me here post-9 to discuss that very question, Rick Heitzman of FirstMark Capital. It's good to see you. I mean, you've been with us for so many steps along the way of talking about this industry. What have the last 36 hours been like, 24 to 36 hours been like for you? They've been crazy.

They've been like, you know, when Bear Stearns collapsed and people asking, what does that mean? And what does this mean for me? What does this mean? Can I make payroll next week? There's really existential crisis that this has caused many companies. What about for your exposure, you know, both for the company and personally? What is it and what was theirs to you, if any? So, you know, fortunately, I was a Silicon Valley Bank customer. I have very little exposure. As a

firm, we were customers both on the lending side as well as on just the depository. We obviously, like everybody else, have some depository issues, but it doesn't create any risk at the firm. You know, we're probably more concerned with our operating companies who are thinking about what are they doing with their deposits. The key thing that you thought you had years of payroll, except if you only have 250 grand. And what does that mean? Can you even process payroll if you're caught in the SVB system today? Well, you say you have some depository issues that's the language that you used that tells me you've got some deposits with them that you may not get back is that that's correct expand on that that's correct so you know as of right now and obviously

it could have changed since I sat down and that's the way it's been changing over the last 24 hours that right now they're saying hey you could have access to 250 grand of your deposits, but anything beyond that is unsure, unsure of both the amount and the timing. And, you know, no different than any other company. You know, you don't want to hear money you thought was safely deposited. You're unsure if it's there and when you can see it again. How many of your portfolio companies have exposure? And there's tiers of exposure, as we talked about. Some of them have depository exposure. Some there's tiers of exposure, as we talked about. Some of

them have depository exposure. Some of them have payroll exposure. Some have just day-to-day banking exposure that they can't send wires out. They can't pay their bills. And I would say most companies have been touched by this in some way. But most companies, I think, because the benefit of being old and having seen this before is that you know we've been generally conservative diversify have multiple bank accounts think about how you're using leverage think about where you're keeping your money think about what you need for liquidity in the short medium and long term so I don't think there's any existential crisis in the portfolio there is going to be a lot of anxiety for the next several days I'm

trying to think of what the I mean mean, you use the words existential crisis. I'm trying to think of the bigger picture issue, whether it is in fact that for the innovation economy, as I've been referring to it today, what it means for the future of founders and startups and venture-backed businesses, the ability to not only draw capital, but VCs and their willingness to deploy it. So taking a step back, Silicon Valley Bank was a key cornerstone in the innovation economy for the last several decades. Forty years. Yeah. When I got in the business 25 years ago, you didn't go get a bank account.

You got a Silicon Valley bank account. And that was part of your standard issue VCs funded used to be in the term sheet you fund into a Silicon Valley bank account because everyone knows and trusts them So they were a real pillar of how you grew up as in life sciences and technology Over the last 40 years first in Silicon Valley than everywhere else now is that's eroding. It's just gonna erode trust I think that a lot of these systems we work through, JP Morgan, a lot of other money center banks have gotten into the technology business as it's become so big, and that's enabled our companies to diversify. But it's rattling in the way that other large bankruptcies are rattling, and it just

shakes folks' confidence. I'm thinking, I guess, another interesting question would be, does the fallout now stunt the growth of some of these younger companies because of the lack of access to the capital that they thought they either had or were still was on the come and the ability to go public? Is that pushed out further as a result of this? To a certain extent. I think that it's stunted in two ways. One, obviously, hey, if I can't make payroll, I'm not going to invest in my own growth. If I'm unsure how much cash I have in the bank, I'm going to be much more conservative

how I'm going to innovate on product and technology. The other thing that's not obvious is there's a lot of people who might not get paid next week and worry about payroll. And if you're thinking about hiring that next person, whether it's from Google or whether it's from JP Morgan, the chance they walk across the street and start a company or join a startup, which is really the lifeblood of how this works, has decreased as the risk factor is perceived as being much higher. I've asked you on the numerous times you've come on with me, whether valuations had reset enough in the private markets out there, and most had said, maybe not, not yet. Is this, and I've asked Lo Tony this, who was on with me

earlier as well, of Plexo, whether this was the final shoe to drop in that regard. And this is that thing that finally brings valuations down to a degree where they perhaps should be, for lack of a better word. And it was coming, and we've talked about before, you kind of got to a little bit of a bottom, and we've been bouncing around the bottom. But we also said there was going to be several other black swan events, unintended consequences of rates being so low and going up. This is a downstream effect of that. I think you're going to see a couple more high-profile blow-ups, you know, in private companies and public companies that

got careless about managing their balance sheet, got careless about what are the downstream consequences of macro events. You mean specifically within tech? Within tech and tech adjacent. I would say SVB is a financial services company that serves tech customers. I think there's gonna be, you know, a couple other over the course of 23 companies that people know the name of that will stop existing. Really? Wow. That's a scary thought. But at the same time, you're getting through the system and we're probably, you know, halfway across the lake and we have no choice but to keep swimming. And I think that most people understand that. I appreciate you sharing your insight with us and our viewers. Thank you. First Mark Capital joining us here

post night up next, navigating the volatility. There's been plenty, but an ugly week on Wall Street, to say the least. We hear from one top financial advisor what he is telling his clients today and where he's finding some stability amid all this turbulence. We're back on Closing Bell after this. Back here on the Closing Bell, we have a little less than 30 minutes to go. You want to see what, at least in part, a flight to safety looks like? Take a look at that on your screen here. $4.60 is the yield on the two-year note. Why do we highlight that? It was just, what, not even a handful of days ago, we were talking about a close above 5% for the first time since June of 07. Well, that's what happens when you have a bank failure like we had with Silicon Valley Bank. Maybe it's added

concerns about careening towards a recession. Maybe some of the fallout, too, about the Fed's not going to be able to hike as much as they talk about because of all of this fallout. But keep watching the two-year. Keep watching the 10-year. The move in the two-year, I mean, we're at 5%. We had a 40 basis point move. That's just incredible in and of itself over the last few days. There's 370 on the 10-year.

We were talking about that at 4% too. So we'll watch that along with stocks dow right now is down better than 300 points with again a little less than 30 to go uh the s p is closing in on its worst week of the year by the way following that stronger than expected jobs report regulators shutting down the bank as we talked about today our next guest says that the market storm clouds are likely to stick around for a bit. Let's bring in CNBC contributor Malcolm Etheridge of CIC Wealth. Welcome back. Your thoughts? Yeah, good to see Scott. It's interesting because at, I don't know, the start of the day today, call it 8.31 a.m. to be exact, when the numbers came out, the payroll numbers came out north of 300,000, I was absolutely certain that the Fed was going to use

that for cover to go 50 basis points at the next meeting. And then the news around Silicon Valley Bank and all of a sudden, I don't know which direction they will go. I think this is probably the most precarious position the Fed has been in since we started this particular cycle. And that's, you know, the last year and a half that we've been talking about them having to do something aggressive to fight inflation. I think this is the toughest call the Fed has had to make throughout that entire cycle, because on one hand, we've seen just how hard those initial rate increases going so fast and so high have impacted the financial sector. But there's also an argument to be made that there's still some work to do on inflation, long term inflation. And that's the Fed's mandate. So it's a really

tough call. Heads you lose and tails I win kind of scenario. And I honestly don't know why anybody would be putting new money into the market today unless there's one or two particular stocks that you've been watching for some time and you absolutely can't think of a better entry point than the one you see before you today. So this makes you more defensive just by nature of the unknown that still lies ahead. That's right. I have gotten more defensive in the very short term, even before today, saying to folks that you're better off hiding out in the two year, like you just pointed out, which is going to get you somewhere between

four and a half and five percent. Why bother tipping into the pool of risk when you know with certainty where you can you can get some yield in the short term and see what happens? And that was heading into the meeting before I knew the Silicon Valley news was going to break. And there will be questions circling around the financial sector. So I just I don't see why investors would want to be chasing this particular downtrend, especially in the financials, because we just don't know how much contagion there really is. And not even necessarily from a technical perspective, but more sentiment driven than anything else. Let me just ask you this before I let you go. Let's just just let's just for argument's sake and the sake of this conversation say there's no contagion.

OK, this is idiosyncratic. It's not going to have a run on or systemic risk of any kind. But it will force the Fed's hand and it will make the Fed stop sooner than just a few days ago. It sounded like they were ready to do why isn't that bullish but doesn't the market still have to fall at that point since the consensus that i was fighting against i think back in january i was on with you and i was saying that i think anybody who's saying that they're pricing in a cut toward the back of the year is making a mistake and there's absolutely no way the Fed decides to start cutting. I did think we would get a pause, but I thought a cut was absolutely ridiculous. And now we're making the case that the cut is already baked in, which means that it's

got to come back out. If we're saying that we get a pause and nothing else or we continue to get raises, that lessens the likelihood that that cut happens. And if the market has been in positive territory, January at least, because of the expectation for that cut, then that has to come back out somewhere. And so I still think it's a bearish signal in the near term until we find out exactly what the Fed's plan actually is in the next meeting in a week or so. Malcolm, we'll talk to you soon. I appreciate you coming on with us. Enjoy the weekend.

That's Malcolm Etheridge. See what develops over the next 48, 72 hours as well. CIC Wealth, of course, joining us here. Up next, we're tracking the biggest movers as we head into the close. Our Seema Modi is standing by with that. Well, Scott, we are going beyond the regional banks to hunt out where else we're seeing selling,

including the industrials. Take a look at Caterpillar, down about 5% on pace for its worst day in seven months. We've got the full story coming up. Less than 20 minutes till the closing bell, and we have a sliding market. The Dow's down 436, 1.3% S&P, down about 1.75%. NASDAQ's been hit the hardest today of at least the three majors, but not to be outdone. The Russell 2000, lots of regional bank exposure there. Small caps down three and a third percent. Sima Modi has a look at the key

stocks we need to watch as we inch towards that close, Sima. And finding some spots of green. Gold prices surging as we watch treasury yields fall in the dollar weekend following that hotter than expected job support, Scott. Gold miners also catching a bit up about 2 to 3 percent. But back to the sell-off. Industrials lower. Adding to the pain is a big downgrade of Caterpillar by UBS from neutral to sell. Analysts there cautious about Caterpillar's mining and oil and gas business, raising concerns also about its exposure to residential construction. Other big movers in

the XLI industrials ETF, you'll see Deere, United Rentals, Airlines like Delta trading down by 3% to 5%. Scott? All right, Seema, thank you very much. Seema Modi, last chance to weigh in on our Twitter question. We asked how many more times will the Fed hike rates after the SVB collapse, one, two, or three? Head to add CNBC closing bell on Twitter. We'll bring you the results after this quick break. The results now of our Twitter question. We asked how many more times will the Fed hike rates after the SVB collapse one, two or three? Wow. Three wins. 48 percent gave that answer.

Up next, the regional bank route. That group deep in the in the red today again sinking as we head into the close. Look at those losses. Twenty thirty plus percent. We'll hear from an analyst now about what could be the next domino to fall, what it might mean for your money. That and much more when we take you inside the market zone. All right, let's do it. We're in the closing bell market zone. Ten minutes to go before we ring the bell. Mike Santoli sitting next to me. I mean, there are a number of things to pick on today, okay? Dow's down 430. Yields. Wow.

40 basis points in no time, it feels like, for the two-year. And that's the big switch. Yields being down with stocks down. Clearly, the relationship has changed to where obviously there's a safety bid in treasuries. It's the lower yield relief is not helping stocks. Now, that's because we're afraid of big, scary stuff at risk in the financial system. And of course, the potential economic repercussions of that, as opposed to something else. You know, people have said that often does happen if you look at previous long bear markets, where at first, higher yields in the Fed are the enemy, then lower yields in the weakening economy are the enemy. You can't say we're skipping over to

that phase, but that's the complexion that the market now has taken on. Maybe some of it, you know, trying to reflect, okay, maybe the Fed won't be able to do as much as we thought just a few days ago. There's no doubt about that. Our senior economics reporter, Steve Leisman, joining us now, too. Steve, what are you hearing at this moment? You know, I want to lay out a fact here, a factoid for you, Scott, which is 87% of Silicon Valley banks deposits were uninsured.

The percentage for banks of similar size like Citizens are Key is 40%. They were really running on the edge here. And the idea that, which everybody's trying to figure out, right? If you're an uninsured depositor at Silicon Valley you want to know more detail for everybody else the only thing that matters is this a one-off or is this part of something bigger or broader the extent that this bank had flighty deposits and i just talked to sheila bear and i was asking her about the structure of this bank and here's what she told me uh she said it's a good reminder banks that have to rely on uninsured deposits are subject to runs and that's something uh that i think is, for one hand, self-evident. On the other hand, the question is, were regulators, where were they, Scott?

Should they have been concentrating as much on the liability side of the bank balance sheet as they were on the asset side? It seems that sometimes they spend more time looking at, well, what are the bank holding in terms of assets to offset those liabilities without looking closely enough at the asset, at the liabilities themselves? Let me ask you this, then, if it's deemed to be a one off because of, you know, just a part of the structure, the nature, et cetera. Is that less than a less of a deterrent for future rate hikes from the Fed than otherwise would be the case? I mean, you know what I mean? Yeah, it's a good question, Scott. I'll answer it two ways. I think, yes, it is.

But the Fed has to make sure it is a one-off. And the one-offedness of this thing, the idiosyncrasy of it, is dependent upon perceptions, right? So it has to be that investors, depositors, folks understand that there's a reason to be confident in the bank. And that may be a reason for the Fed to do a little bit less. I think the Fed still has an inflation problem, still probably wants to address that with a meaningful hike, depending upon the CPI next week, Scott. But but if if if it's required, if it feels it's required to help restore some confidence in the banking system to do a little bit less,

I think the Fed might because I think we were talking about this earlier in the things that the Fed cares about, usually systemic risks and the sanctity of the banking system is in the number one poll position for them. I mean, I sure as heck hope so. You're going to be a busy reporter this weekend. I have a feeling of that, Steve. Thank you, Steve Leisman, joining us. David Ciaverini is Managing Director of Equity Research at Wedbush, covers the regional banks for us. to see you too um how you thinking about this fallout in your space yeah it's crazy days for sure nobody foresaw silicon valley bank you know closing its doors um two days after announcing you know this this equity offering so it is leading to some opportunities but bigger picture it really

is shining a light on some of the stresses that we've seen. On the overall banking industry we're seeing you know the fed is. Doing what it set out to do raising interest rates. Leading to liquidity coming out of the system they're lowering the size their balance sheet. So

it's putting pressure on deposits so. I think you guys hit the nail on the head earlier and saying. You know regulators focus so much on the asset side. But it's the deposit side that many investors are focused on these days. Sure. But if this leads to tighter lending standards from banks, especially some of the smaller ones in your universe, what are the more broad implications of that? Yeah, tightening lending standards, it absolutely could lead to less credit availability and if there's less credit availability then you could see the economy

slowing and then with an economy slowing some of the borrowers may not be able to pay back the loans that they took out so then you could see higher credit costs for the banking industry. So on the deposit side as well, you've got higher deposit costs coming through, which is going to lead to, you know, slowing NIM expansion for the group. So there's several headwinds for the banking sector. And we've been cautious on banks and many of our top picks are defensive names in the group. Interesting, David. Thank you. We'll talk to you soon. Meg Terrell joining us now on the sell-off in biotech names tied to SVB. You know, Meg, hadn't gotten a lot of attention today,

but if you say, okay, tech is one, life science is 1A in terms of the fallout for some of these younger companies and these startups out in the valley that are impacted. Yeah, you're absolutely right, Scott. I mean, you're seeing quite a reaction, a lot of nervousness in the biotech space right now. People really just trying to figure out what the fallout is going to be and which companies will be the most affected. If you look at the biotech ETFs that we track most closely, those are the XBI and the IBB. The IBB tracks the bigger biotech companies, the XBI, really the smaller and midsize names, and that is the one that's down more. Check out Biotech's SVB exposure.

The bank works with nearly half of U.S. venture-backed tech and life sciences companies, which I think you pointed out earlier. About 12% of SBB's $173 billion in deposits are life sciences and health care companies. And so what you are seeing now is that analysts in the space are reaching out to all the companies they cover and asking them what their exposure is. And so far, everything we've seen back for at least these publicly traded biotechs is that the exposure is minimal.

They're not expecting a huge effect of this. The effect is expected to be seen most acutely on the private companies. And right now we have not yet heard from any companies that are saying this is going to be a major problem for them. What I am hearing from people in this space, both across venture capital and in sort of biotech management, is that there could be sort of short-term issues with making payroll, things like that. But it's not expected to be a huge driver of extreme disruption. There will be some disruption, but we're going to have to see how it shakes out

really going into early next week. But hearing a lot of stories about companies, you know, trying to pull their money, maybe not all of them obviously being able to do it right now. Scott? Yeah. Appreciate your insight and your reporting, Meg Terrell. Thank you so much for that. We have two minute warning. There it is, right on cue as we head toward a close on this Friday. Mike Santoli, of course, going to wrap it up for us with his last word. Terminal rate, 6%. Yeah, it looks a little more of a stretch right now. So if that was the thing you thought was the thing to be worried about coming into the week, you've gotten a little bit of relief, but not really for the best of reasons. I don't think anything could have happened on a Friday afternoon to embolden anybody to really add a bunch of risk because of the unknown factor of what might happen

over this weekend. That being said, I mean, I think the regional bank group down 18 percent month to date. So you've kind of taken 100 plus billion of market cap off of that area. That's pretty close to the kind of haircut we're talking about on the asset side in terms of the unrecognized loss. My point is, we've kind of gotten a fair distance on, you know, pricing in some pain. I don't know if, obviously, it's the full way. Overall levels become somewhat interesting. We're back to, like, January 6th, last levels, last seen in the S&P, first week of the year. But the December lows become really pretty important. They're more like thirty eight hundred. It's the lower end of the range we've been in for months in the first part of a calendar year. You don't want to breach the December lows. It's an old trading rule of thumb. So that's, I think,

the way to frame out what we're looking at here going into next week. The other piece of it, everything happening in terms of bank runs, in terms of not making payroll, in terms of people taking haircuts on what they have in the bank. It's disinflationary, if nothing else. So we'll have to see how that plays through. Yeah, it's certainly going to have an impact on one's desire to take risk within this market. But we'll follow all of the implications throughout this weekend. We'll certainly look forward to being with you next week as well. We're going to wish you a good weekend. That does it for us on Closing Bell.

Send it into overtime with Morgan and John.