Closing Bell - Closing Bell: Tighter Bank Regulations Ahead? 3/30/23

Episode Date: March 30, 2023

Banks under the microscope today with new questions over whether they’ll soon be under tighter regulations. Star bank analyst Mike Mayo of Wells Fargo Securities gives his take. Plus, EMJ’s Eric Jackson says the rally in tech is only just beginning. He explains why. And, PIMCO’s Erin Browne is flagging a big opportunity overseas – she tells us why this could be a major safety play. 

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9, right here at the New York Stock Exchange. This make or break hour begins with more failure fallout for the banks, for the Fed, and of course, for your money. Here is your scorecard with 60 minutes to go. In regulation, NASDAQ leading again. There it is, two-thirds of 1%. Tech continues to head higher. More broadly, stocks up for most of the day. The S&P, though, losing some steam as yet another Fed-Pres signals more rate hikes are needed at the next meeting in May. The regional banks sinking on those headlines a bit as well. And that leads us to our talk of the tape.

Banks under the microscope and new questions over whether they'll soon be under tighter regulations. The Biden administration now calling for just that late this afternoon, only adding to pressure on that space. For more, let's welcome in the star banking analyst Mike Mayo of Wells Fargo Securities. He's made his way here to Post 9. It's good to see you. Thank you. Especially on this day, you just published a note on the back of the White House proposals. No big surprises. You think this is OK, what they're proposing? Let me pull the lens out for a moment here. The banking industry has gone from blinking red lights to blinking yellow lights.

The issues about big bank solvency and liquidity, I think, are mostly done. So now we can just talk about earnings, which earnings are an issue. But we're getting out of that bank crisis phase to more of one bank recession. The other important point here is that how fast the regulators have turned this around. In less than three weeks, you had the House, you had the Senate, you have the White House. With a sketch out of a program, you put in place a liquidity backstop at the Fed for banks. You resolved the problem of banks and sold them in terms of Silicon Valley and signature. And you resolved Credit Suisse, which was a big systemic risk out there. And you sketched out a plan. And the third important point is that there's no cost to the

taxpayer. I mean, I hear it all over the place, the taxpayer this, the taxpayer that. Scott, do you pay insurance for auto? Yeah, obviously. Okay. And house? It's required in the state. And house? And life? Yes. But do you pay insurance for bank deposit insurance? I thought I was supposed to be asking you the question. But do you pay insurance through the bank insurance fund to the FDIC? No.

No, not at all. The banks are paying the price for this. So I'd say it's mostly as expected as far as what the White House came out with. More, you have the big bank regulation, like the 10 or so largest banks applied to the next dozen or so on down. More scrutiny of liquidity and higher interest rates. The one thing that I wasn't expecting is there's a carve out for community banks. For those 4,000 plus community banks, they don't have to pay for the cost of the recent bank failures. So that's less than 20% of the industry's insured deposits. So really who pays for that would be J.P. Morgan and Bank America,

but I'm not sure anyone's shedding a tear for Jamie Dimon. So, number one, how can you sit there and declare that all of the banking issues are, for the most part, over? We don't know if they are. You've got Fed people still coming out today saying, you know, we need more rate hikes. Isn't that going to cause more problems within the credit system, more of a crunch? And then what comes on the backside of all of that are changes for the banks. So let's group it, you know, short term, medium term and long term. Short term, the bank crisis issues, which had everyone unnerved, seems like it's probably over. OK, the bank bond spreads have come in remarkably

the last week or two. So the bond market saying that banks are safer. This whole idea, can I get my money from the bank? I think people are getting the message the Fed is there to give you your money. So we go from the bank crisis discount should be eliminated. Then we go to the medium term. And you're right. There are issues out there. There's commercial real estate and an office. And how will the credit be for that? Those are big issues. There's big issues, but they're not overnight issues. These are issues. They were around a month ago and they're around now. I will grant you there may be some contraction of credit, OK, because everyone's being a little bit more careful. If the banks have to build up their capital, they might be lending

a little bit less or on, you know, better terms for the banks. Isn't the base case that credit tightens and that they lend less and that they may even raise the rates on their deposits, all of which are not good for bank earnings? You know what? If we're debating bank earnings relative to bank solvency or bank liquidity, then that's a step up from where we were the last couple of weeks. But yes, there is pressure on bank earnings, funding costs. When first quarter earnings come around, there'll be questions about, you know, what's going to happen to funding pressure? What's going to happen to bank buybacks? Will they slow that a little bit? What's going to happen to loan growth overall? So, yeah, so there'll be some earnings issues. But I'd much rather be

talking about earnings issues and what could happen in a recession as opposed to bank failures. Well, obviously, but they both have an impact, one clearly more dramatic than the other, on what the stocks may do. Right. If you think that the answer to most of your questions is going to be, yeah, there are going to be issues and there are going to be some changes. Do you think at all about what I think you have like outperform ratings on almost all the stocks you cover? Certainly from the big group. It doesn't make you rethink any of this, at least in the near term. If we're talking near term versus long term. Our big thesis here, and I've said it before, Goliath is winning. The largest banks have been regulated a lot more than the other banks.

And guess what? The other banks' regulation, that's going to catch up. So the delta on regulation for the bigger banks is not going to change so much. And they've also been the beneficiary of this time. Who do you go to? You go to the banks that have been regulated the most. So they are beneficiaries of the uncertainty. And by the way, getting rid of Credit Suisse, that was a big event. That was a potential systemic, global systemic risk. And I thought the market should have reacted more positively. So the big banks, you know, my final four, Scott, would be PNC, U.S. Bancorp, J.P. Morgan and Citigroup. So of the proposals from the White House, and there are there are several

from needing to have more liquidity on hand, more frequent stress tests, living wills, et cetera, et cetera. What's the most onerous, do you think, of all of these proposals? And by the way, they're just proposals as we see them now. Look, more capital has been the near term issue on the minds of investors. So many investors tell me we're going to see a capital race. The most important few words I saw in the White House press release, they were in bold. They said these banks, the next kind of dozen or so after the ten largest, may need more capital but quote after a considerable transition period. After a considerable transition period. In other words, they're not forcing the banks to raise capital today or next week or probably next month. That's the most important

point out of that White House report. So they are cognizant in not disrupting the markets near term, not creating extra regulatory risk on top of everything else, even while they try to have better oversight over the next several years. So, OK, you say Goliath is winning. OK, you were here with me last summer and you told me, quote, we're going to have the best Main Street banking growth in four decades. You had separated at that point the Wall Street banks and the Main Street banks, the kind of very banks that we're talking about in the eye of the storm. So have these events changed your perspective on Main Street banks?

Yes, they absolutely have. On the one hand, you have seen growth in the Main Street lending. It's up. It's going to be up like 25 percent over two years. So the fundamentals played out. But now we have to think about, OK, if you have the regulatory anchor that some of the largest banks have, then the long-term returns of that Main Street bank will not be as good as in the past. So we shift incrementally to Goliath is winning the largest banks or best positions, structurally and cyclically.

These events of the last few weeks have separated the pack to a degree that you didn't believe existed prior? I would say... It separated the field. I would say the events the last few weeks have accelerated our Goliath's winning theme by at least five years. Okay. I appreciate you being here. Thanks. That's Mike Mayo, Wells Fargo Securities, reacting to that news from the White House today.

Banks on the mind of the Treasury Secretary too today. Janet Yellen speaking at an event in about 30 minutes time. Our Steve Leisman joining us now from NAIB. And she's really zeroing in, Steve, on those regulations that were rolled back a few years ago, isn't the Treasury Secretary? Yeah, that's right, Scott. The rules rolled back by the Trump administration. It's been an area singled out for reform since the Silicon Valley bank and signature blow ups that were out there, both the treasury secretary and the white house pointing to them, though. I have to say, Scott, it's not entirely clear yet how much they have been at fault. Both the fed and the FDIC. Remember they're in the middle of reviews

about what went wrong. Those reviews don't come out till May 1st. But the Biden administration already fingering them with the blame. And Scott, I just want to lay on you this statement from the Bank Policy Institute, which is a banking lobby out there of the bigger banks. They said it would be unfortunate if the response to bad management and delinquent supervision at Silicon Valley Bank were additional regulation on all banks that would impose meaningful costs on the U.S. economy going forward. The Fed has barely begun its promised review. This has a strong feeling of ready, fire, aim. So not to take anything away from Mike, who obviously is the go-to guy that we all have when there's a banking crisis out there or banking turmoil, but the bank

policy seems to think there's more cost to the banking system of these new regulations. I go back to the kind of conversation, Steve, that we had in the days following the SVB collapse, the hearings on the Hill when we had that wall of the timeline of when regulators first sort of flagged or the sirens started going off back in, I think it was November of 2021, if my memory serves me correctly, that there were some issues there. And it just raises the issue, whether it was the regulations that were rolled back or the responses by the regulators were maybe deficient in really what they should have been given some of the flags that started to be

waived. It's an important point, Scott. And there was some talk about that yesterday, certainly among Republican lawmakers who said, hey, do we know if you followed your procedures that you have now? You want new rules? Why do you want new rules? Did you follow the rules of the regulations? And Scott, one of the things I've been bearing into on my reporting is the process at the Fed. You know, was the San Francisco Fed the one at fault? Or maybe it was back at the board where the problem lay. So that's a little bit unclear to me. That's why we're waiting for that May 1st review to come out to see sort of where the

decisions were. And it's really interesting because it is true that banks the size of SVB were exempted from the stress test. However, the stress test, as we've talked about, did not test for rising interest rates. What was the Fed thinking in an environment of rising rates that would almost certainly stress banks that it wasn't testing for that? That's the, you know, I don't know how many trillion dollar question at this point, Steve. It's like, really? Like testing for testing for a falling rate environment when they're the ones who are raising interest rates, which, by the way, the new proposals from the White House would have stress tests that assess rising rates and potential outflows of deposits as well.

Yeah, but let's be a little careful with what the White House is saying. My read of it initially, Scott, is that I don't know how much authority the White House has to make these things happen. A lot of the powers that of things they want done are with the Fed or with the FDIC. So the White House can call for these things to happen. It's not necessarily in their power. The other thing is, you know, look, the reason you were principally down there is because the flurry of Fed speak that we've had today. And yes, the banks are on the mind of Fed presidents to Boston Fed Susan Collins. At least some banks are likely to be more conservative in their lending. But she goes on to suggest that some

additional tightening is needed, excuse me, to lower inflation at the same time. So this is what we have is a lot of two-handed economists talk when it comes to the outlook for rates. On the one hand, inflation is too high. Collins is saying it's too soon to say what the FOMC should do at the next meeting. On the other hand, she's saying some additional policy tightening will be needed. They're also talking about this idea, Scott, of the conduit of tighter credit standards ending up in the economy, possibly reducing inflation. What's interesting to me, Scott, is to look at the probabilities. And I really think these probabilities right now may reflect the thinking of the Federal Reserve, which is a slight

bias towards perhaps hiking at the next meeting, but by no means overwhelming. It's something like 45-55 towards a hike at the next meeting. But again, there's data to come and the main question is, I really thought the interview with Mike Mayo was very interesting. Is he ready to sound the all clear alarm so we can come out of our cellars that the storms have passed when it comes to the banking crisis? I don't know that that's true. It certainly feels that way today relative to yesterday. There's been some talk. There may be a few other banks out there, but maybe the system did work, Scott. Maybe indeed the amount of

capital at the big banks was enough to buttress them from this storm that came through and with the addition of the extra Fed program. But maybe there's more shoes to drop. We just don't know. It's interesting to hear Mike make that call this early. Yeah. I mean, is it too early? He's still here. So let's ask him, is it too early to make that kind of a statement? I said and I say that it's most likely all over. Doesn't mean there's some smaller banks. When I look at the largest banks, the solvency and liquidity issues are off the table. Once you go past the top 20, there might be some things, but those are not, they shouldn't

be systemic sort of issues. So it's not the all clear, but I think we're over the speed bump. And I think it will wind up being a speed bump if everything goes in its current direction. And let's see what the Fed does from here, too. It all comes back to that one simple question. What will the Fed do? All right. Now you're done.

Mayo, thank you. Steve, thank you very much. We're going to hear from Secretary Yellen, I think, in about 30 minutes time. But I appreciate that. Let's get to our Twitter question of the day right in the same area. We want to know, should there be more regulations for the banks or not? You can head to at CNBC closing bell. Vote yes or no. We'll share the results a little bit later on in the hour. And we're just getting started here. Here is a look at where we stand as we head into the close. We've got 45 minutes left. We're still hanging positive across the board, though, that the move lower in regional banks is certainly weighing, as you see, on the Russell 2000.

Up next, our all-star panel on what's ahead for stocks, forecasting the Fed's next move as well. Plus, EMJ's Eric Jackson is back with us today, too. Why, he says, we're at the beginning, just the beginning of a rally for tech. OK, you're watching Closing Bell on CNBC. Got about 40 minutes to go in the trading day. Let's get a check on some top stocks to watch right now as we head into the close. Christina Partsenevelos is here with us again today. Christina, I want to talk about Square parent company Block.

They're firing back right now at short seller Hindenburg, arguing claims that Square inflated the Cash App metrics was completely false. So in Block's new report today, they said that of the 51 million monthly active users, 44 million of those numbers have been verified. And then of those 44, 39 of them have, or 39 million, I should say, have been linked to unique Social Security numbers. One thing missing, though, that I was going through really quickly was the percentage of cash out gross profit that was generated from illicit activity. That is one of the accusations from a short seller.

You can see shares are up almost 3 percent today on that report. JD.com, though, shares are soaring higher after the e-commerce firm announced it plans to spin off its property and industrial units and then list them on the Hong Kong Stock Exchange. This revamp comes after rival Alibaba announced plans just yesterday to potentially list six of its units for IPOs. And so that's why JD.com is one of the biggest movers on the Nasdaq 100, Scott. Christina Partsanovelos, thank you very much. We'll see in just a bit. Stocks losing their early steam as more Fed speakers call for additional rate hikes and banks weigh on the major averages amid calls for tighter regulations.

For more on where things head now, with just one more trading day left in the first quarter, Joe Terranova of Virtus Investment Partners is with us, CNBC contributor, and Victoria Fernandez, Crossmark's chief investment strategist. Victoria, I go to you first. We got talks of more rate hikes. We had a good quarter. Victoria, I go to you first. We got talks of more rate hikes. We had a good quarter. Where do we go now? Yeah, I think this is a very difficult journey that we're on here, Scott. We expect a lot of volatility for the rest of the year. And I think we still have a foggy windshield. We don't have a clear sign of where we're going.

I think you look at what a lot of people are saying, looking at the market over the last few days, and you say, okay, some of the issues around the banking crisis have dissipated. We've talked a little bit about that already on the show today. You have the Fed's people assuming the Fed is going to make a pivot, and they already have cuts priced into the market. I don't necessarily agree with that, but that's what the market is saying. And you have a consumer, and here I think it's true, you have a consumer that is strong and supporting the economy. Liquidity has been a key word.

And you look at consumer balance sheet liquidity, liquidity versus their income is at 60-year highs, that ratio. So there's strength there. But I just think you have to be concerned. You have these Fed people talking about hiking rates some more. If the banking crisis is dissipating, then why would the Fed not go back to where they were a couple of weeks ago or maybe 75 percent of where they were a couple of weeks ago and say, wait a minute, we're back to higher for longer. That's going to flow through to earnings. That's going to hurt consumers in the labor market.

And we're heading back to that recession talk. So maybe that's why we're getting the market pulling back a little bit today. I just think it's still foggy and it's uncertain exactly where we're headed. But I do think we'll get a mild recession regardless. Doesn't seem, Joe, the Fed's going to go back to where it might have before the banking crisis happened, because then they would really be concerned about not only breaking something, but obliterating something. Listen, we are a in-the-moment society, so we tend to forget where we were previously. We are still in the midst of the single most intense war against inflation in the last 40 years. And what comes to mind for me

is that at the end of January, the S&P was 4076. The S&P today is 4050. A two-year treasury was 4.1 percent. A two-year treasury today is 4.1 percent. So why did the S&P fall below 3800? Why did a two year Treasury go to 5.08 percent? Because two numbers were so important, 517,000 and 311,000. And those were the job reports for January and February. And there was this overwhelming concern about an overheating economy and that a Federal Reserve was going to have to do more. Now what you're introducing is credit tightening. And credit tightening is actually an ally for the efforts of the Federal Reserve with their monetary fight against inflation.

And I think the market has kind of lost a little bit of focus, and certainly in terms of positioning and sentiment. Once again, they're off sides for that. And that's why we're rallying. But you said to me the other day, and it might have been off camera, the market shouldn't be here. Oh, it shouldn't be here. If you were the implication you were making is like, how are we up to the degree we are and how is what's leading leading in this whole environment?

From a positioning perspective myself included completely offsides all year the commentary throughout this entire week from most people on the network has been fundamentally the market doesn't belong here the market should be rallying the market should be understanding we have credit tightening we have a looming potential economic recession, we have the potential for the Federal Reserve to be doing more work. That all seems so logical and it seems so easy, right? It seems so easy to say, sell the market here. That's why my intuition is saying to me the harder thing to do is to understand that there's something dynamically going on here in the market that's doing what? It's moderating the overwhelming bearish pessimism and overwhelming bearish

positioning. And it's returning the S&P, Scott, not back towards the high from last year. It's just taking the S&P and it's putting back towards the top end of the range that it's been in since November, which is thirty eight hundred to forty two hundred. That's all we're doing. I thought the most interesting, you know, certainly one of the most interesting views you had, Victoria, with our producers is to focus on value because value has gotten run over. Right. It's been pancaked. It's been all about growth. It has been. But I think with our outlook that we are going to have a mild recession we would have said a couple months ago it was going to be in the fourth

quarter maybe now that's been brought forward a little bit we're looking maybe third quarter for a mild recession then perhaps at that point you're going to start to see things turn around a little bit i know that valuations in regards to value stocks has been higher, but I also think you've got a lot of quality names in there and quality stocks. And that's what you need when you think you're going to have a lot of volatility in the market. I need to see strong balance sheets. I need to see business models that make sense. I need to see management teams that can prove to me that they know what they're doing and they can lead through volatility. And these are a lot of the value names that you have. Now, I will say, I know Joe said, you know, you don't want to go completely out of the market, right?

And you don't. But I think you can be opportunistic here. We've actually been trimming some of the tech names. We've seen the run that tech has had. We don't think it's quite sustainable. Some of the reasons that tech has moved the way it has, some of those reasons are probably going to come back over the next month or so. So you can trim names there. We've actually

gone in and bought JP Morgan because of the hit that they've taken as of late. General Mills, some of these other names that are more staple, more value names you can have in your portfolio. I don't know. Dr. Michael Burry, big short uh fame I was wrong to sell I was wrong to say sell he said on Twitter there it is so we'll just keep following that we'll see Victoria thank you Joe T thank you as well up next weighing the tech rally the XLK seeing some serious upside so far this year you know what tech has done are more games really in the cards though EMJ's Eric Jackson gives his take. We'll do it next right here on Closing Bell.

NASDAQ moving higher yet again today on pace to notch its best quarter since December 2020. The question now, is there really more room to run? Joining me now, EMJ Capital's Eric Jackson. It's good to see you again. And you actually think the answer to that question is yes. Why? I do. I'm going to take the other side of what Joe and Victoria just offered on the last segment. I think it's perfectly logical and rational what the market has done in Q1.

When I was on with you, Scott, in January, I said we could just be at the beginnings of a 10 month rally because the playbook that I think makes the most sense for what's going on right now in the market is 1981, when inflation finally rolled over, started dropping like a stone, and the Nasdaq took off on a 10-month rally that took it up 100%. We got a great Q1, but this could just be the beginning of what could be a much broader and longer rally. What if the Fed isn't kidding, right? I mean, we've had more Fed speak just today, yet again, suggesting more rate hikes are coming. They don't believe that inflation is dropping like a stone, apparently.

They have to say that. They have to be guarded. They can't seem like they're, you know, they're getting behind some rally. They have to talk tough. But the reality is that month by month, inflation keeps ticking lower. We all have to be guarded, but we have to make investments, too, in the meantime. And the fact is that tech has done penance for the last two years. Tech investors have been out in the wilderness.

And so now is the time when we have to look ahead, even if we are going into a recession. And the fact is that these multiples on a lot of tech companies, not just FANG, but broadened out to the smaller and mid-cap size, you know, these are levels back in, you know, 12 years ago, 13 years ago in some cases. And those are going to get interesting for a lot of investors who are just not exposed enough to those types of names. You know, I'm looking at the notes from a pre-interview you did with one of our producers where you say, I saw the show yesterday where Adam Parker was saying this rally has been driven by the big fangs so far this year. I disagree. Well, what do you mean you disagree?

It's a it's a fact that's been driven like the seven biggest tech stocks in the market have carried the entire market. Well, I mean, that's a function of market cap. I mean, these these these names sneeze and the market takes notice on the upside as well as on the downside. But the reality is some of the names that I was pounding the table on with you, Scott, in January, Coinbase up 80 some percent this quarter. Tesla up, I think it's 59 percent this quarter. Shopify, you know, 36 percent, I believe, this quarter. I mean, those those are great years, let alone quarters. So the gains in tech haven't been limited to just the FANG names. Certainly, those matter most from a market's point of view.

I think what's interesting to watch from here, though, Scott, is that if I'm right and this thing broadens out, people have to say, OK, what else looks interesting? And there are some other tech names that are flat on the year, maybe some even who are down on the year. There's some value names that are kind of have been left aside. And I think people are going to say, what about those names? And that's how a broader, longer rally takes place. So I'm particularly interested in some other kind of lesser-known names who have yet to really participate this year in the rally. I mean, it sounds to me like you are more bullish overall than you've been in quite some time.

I think we got the off-ramp from the 10-month rally with Silicon Valley Bank, obviously, but we're back on the interstate now. I mean, you know, that's in the rearview mirror. We're looking ahead. So, you know, and I think you really have to be stock-specific. I mean, Victoria said, you know, I only want kind of fortress balance sheets on the last segment. You know, one of my favorite names is Bombardier, the private luxury jet company. That's a value stock if there ever was one. It's got a terrible balance sheet. It's got too much debt. But guess what? They are improving. Their debt is getting paid down.

They are guiding to like doing a billion dollars in free cash flow in a couple of years. And, you know, that has the chance to make a major leap in value as kind of the enterprise value shifts away from the debt over to the equity. There's a profitless tech company I love right now. It's probably my favorite one called Freyer Battery making electric batteries. You know, we don't want to buy electric batteries from from China anymore. And yet there are very few pure play Western companies. The Inflation Reduction Act incentivizes, you know, these kinds of companies. So I like those kinds of lesser known names that could still have big gains ahead of them.

Sure. But you you declare sort of the you know, the issues over around the banks. But, you know, as well as I do, that, you know, earthquakes often come with aftershocks and quite often they're powerful aftershocks. So are we too quick to just say, hey, the coast is clear, all's good? Well, if everyone coming on the network was as bullish as I am, I would be very worked. But the fact that we, you know, I think, you know, a side effect of what you're talking about, Scott, is that so many people are clutching their pearls right now, worried about what's going to happen next, what's the next shoe to drop. That just is sort of fuel to the rally to continue on. So we have to monitor sentiment, but it's still lousy for the most part out there.

So that, to me, signals that this thing can continue. All right. Eric Jackson, we'll talk to you again soon. Thank you very much. A quick programming note as well as we head to break as part of Women's History Month. CNBC is hosting a special pro talks with three successful investors hosted by Halftime Report's own Hattie Martell. You do not want to miss that. It is Friday. That's tomorrow, 1.30 p.m. Eastern Time. Up next, we're tracking the biggest movers as we head into the close. Christina Partsenevelos is standing by once again with that for us. Christina.

And once again, investors pouring money into another high-growth, unprofitable firm that just posted another quarterly loss. What's going on? We'll discuss next. 20 to go until the closing bell. Christina Partsenevalos is back with the key stocks to watch as we head to the end. Christina. Let's talk about shares of EV charging company EVgo.

Soaring above 22% after posting a smaller than expected loss on a revenue beat. But their full revenue guidance actually came in between a range of 105 million and 150 million, which is actually a little wider than normal for this firm. And that's because of uncertainty of when their charging stations will be installed at major highway truck stops. Nonetheless, EVgo is an early stage high growth firm, unprofitable, and investors like the results. That's why the stock is up 23% today, but still down 42% just over the last year or so. Roku shares falling as the streaming company is cutting 200 jobs and plans to exit some of its office space. The layoffs represent probably about 6% of the platform's total workforce. And the stock is down, look at that, about 52% just over the last year.

Scott? Yeah, kind of a rough ride. Christina, thank you. Thanks. Last chance to weigh in on our Twitter question of the day. We ask, should there be more regulations on the banks? Yes or no. There's still time. Go to CNBC closing bell on Twitter. The results after this break. The results now of our Twitter question we asked, should there be more regulation on the banks? Near 73 percent of you said yes, there should. Up next, big opportunity overseas. PIMCO's Erin Brown is back and she is flagging a key safety play abroad.

That and much more when we take you inside the market zone. We're now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down the crucial moments of this trading day. Plus PIMCO's Aaron Brown on why China could act as a safe haven. Greg Mellick of Evercore on his Walmart upgrade today. We begin with you, Mike. Banks are a bit of a drag. Yes. But we've picked up a little bit of steam as we've headed towards the close. Yeah, it's been relatively solid most of the day. If you look at breadth, yeah, 60 percent of stocks up. So we're continuing to levitate. We've kind of gotten above that pre-SVB level. Now the thing is you make a new high for March and get back to that area

the end of January when we had that great first month of the year. That sort of would signify maybe getting free of the lower end of the zone. And, you know, when you get to the end of the first quarter of the year, you start to build up a little more benefit of the doubt that the October low might be important. Right. You have down year followed by an up first quarter. Bespoke is talking about how you've never actually lost the rest of the year after that setup. And, you know, other things like we never went back below december's uh low so all this stuff starts to build like maybe uh we're climbing this wall of worry which we understand why it's in place but uh so far the market has had an answer for a lot of those concerns told you the top of the program we were waiting for the treasury secretary jennet yellen to make her

remarks at the NAEP conference down in Washington, D.C. We want to show you. In fact, she is speaking now. We had the opportunity, of course, to have an advanced look at those comments. Heavy on the roll, a rollback of those prior regulations may have had on the collapse of SVB. This as the White House rolls out its own set of proposals, if you want to call them that, on strengthening regulations around the bank. So we'll keep an eye on those comments. Mike, I just come back to you quickly, too. Former Fed chair, obviously, as more Fed speakers are talking about more Fed hikes. Yes, they're keeping the two-way flexibility. Obviously,

they can react to any downturn in terms of financial conditions getting tighter, in terms of the inflation coming in hard. But for the most part, they're going to try to stick to the story. I think the big objective here is to seem strategic and to seem deliberate about whatever decision comes next. It's just too long from now to the next Fed decision to really be straying and speculating on what's to be. Obviously, they hope. We'll do it anyway.

Yeah, we will. But it's too soon for them to do it. Right. And I really do think that they want to keep betting that what they've done is enough for now. The market might test that proposition, that it's enough for what they've done on backstopping deposits and things like that. But so far, it's seeming more localized than a real

outbreak. All right. Erin Brown, PIMCO, let's get a little bit of your playbook as we end the quarter. We head into a new one. And why you say China offers a safe haven right now? Sure. So I still think we're in a market environment in the U.S. where we're likely going to grind higher and then gap lower. And we're still climbing a wall of uncertainty with respect to the stock market. So I think it's okay to stay invested in certain high quality, you know, more defensive oriented stocks in the U.S. But where you're looking to get more of your sort of juice in your portfolio, I think you really want to turn your attention to emerging market stocks and specifically to Chinese equities, which are really decoupled largely from the global economic cycle and are really operating on a reopening story that I think is going to really fuel further outperformance. Chinese equities have underperformed relative and done a little bit poorly in the first quarter of this year. So I think you're actually getting in at a much better time today than you were

as we turned the page into 2023. And I think that looking at more of the service-oriented stocks that are really going to benefit from travel and reopening in China is where you want to place your bets. And these stocks are still trading at valuations, which I think are compelling. And what's important is that the growth that you're starting to see accelerate in China is not yet priced into the share prices of these names.

I want to go back to what you said at the outset. Grind higher than, in your words, gap lower. That doesn't sound great. When does all this transpire? Well, we've seen it over the last couple of weeks, right? Even as we went through the banking crisis, we've been grinding higher since the beginning of the year and then had, you know, obviously banking turmoil sort of put everything on its knees and we saw a gap lower in the equity market. Now we're sort of grinding back to, you know, new highs or, you know or new levels. But I think that we're not out of this risk period yet for

equities because we are heading into a recession, which is likely going to come before the end of the year. And in those environments, you typically see more volatility in equities. You start to see credit underperforming, which we've seen year to date. And we're starting to see a lot of these sort of pieces line up that make me concerned about, you know, being very risk on in my portfolio right now, particularly as we head closer and closer to recession and we start to see more breaks and cracks in the system. You surprised, though, at how resilient the market has looked and acted since the whole SVB thing went down? Yeah, but I think it's really a tale of two markets when you look and decompose the equity market performance. You've had, Russell, you know, 2000 companies, small cap companies,

which have underperformed meaningfully year to date versus or at least over the last month versus, you know, sort of large cap equities and the tech sector, which is 20% off its December lows. So there's been a real bifurcation over the last month, where I think the market's actually appropriately discounting the risk in the more vulnerable parts of the equity market, the smaller cap companies, the ones that don't have as much liquidity or access to capital. Those are starting to underperform, companies, the ones that don't have as much liquidity or access to capital, those are

starting to underperform. And I would expect that they'll continue to underperform throughout the rest of the year. Those companies that are large cap that are maybe not as reliant upon regional banks in terms of their lending and have more access to different liquidity levers or have meaningfully outperformed like the tech sector. And I would expect that that bifurcation in the market is going to continue to persist as we head closer to a recession. All right, Erin, we'll talk to you soon. Erin Brown, PIMCO joining us now. Greg Mellick of Evercore on his big upgrade of Walmart today. In your note, Greg, welcome. You said it's time. Why? It's time because Walmart has momentum with traffic.

It's been positive for three straight quarters. We think the inventory is cleaned up enough now, the margins have bottomed. And the bottom line is their stores, their own execution, that traffic building, their stores are better positioned in the country. They're in the southeastern states where we're seeing population growth and we're seeing job growth. And the parts of the country where, frankly, population is shrinking and jobs are struggling to grow, California and the Northeast, that's not Walmart's bread and butter. So we like their store positioning. We like what they're doing with the stores. We like the momentum they have. And frankly, that strong balance sheet is the kind of thing you want as the consumer generally slows.

Yeah. I mean, how much of this is about the consumer deteriorating, so to speak? Well, I think it starts with their own turnaround. They've done enough investments in productivity to get that momentum. If the consumer continues to decelerate the way we think they will into the back half, we think Walmart will start to to finally outcomp us retail sales frankly which they haven't done over the last three years if you look at their three-year comps they're actually still trailing overall u.s retail sales growth so the fact that they're getting the trap back they could benefit from that strong value proposition that they've always had

and i think start to do better than the rest of retail as we go through the rest of the year you know it's interesting i'm looking at numbers. The base case you have is 23 times. Some would suggest that's way too expensive in the environment we're in. Why isn't it? Well, that's a great question. It's sort of in the middle of where it's been the last five years. I guess what I would say is when we do our sum of the parts work, we would point out that once you back out Sam's Club and Walmex and some of their other assets like JD.com, Walmart Core US trades at around 17 times their rates, which is in line with Target, even though the traffic trends and outlook we think for Walmart are stronger. So that's how we get around that more elevated PE multiple for the whole enterprise.

You like Walmart better than Target? We do. And the reason is that it's that traffic turns three straight quarters of building traffic and the fact that with their strong value proposition, we think they can keep that traffic growing at a time that the overall U.S. consumption of goods will probably slow because it's run well above trend the last three years. Excellent. Greg, I appreciate your time very much. Greg Mellick, Evercore on his Walmart upgrade today as we head towards the two minute warning about 20 seconds away from that. Mike Santoli, we head towards the final trading day of what's been a pretty good quarter for stocks, certainly mega cap tech. And that's going to be one of the largest questions about the largest

of stocks. For sure. I really do think that you can't say that there's no quarter end effects going on. I was just looking at the best performing 25 stocks in the S&P year to date. All but three are up today. Right. So that's much better breadth than the overall market has. So, yes, people are rotating a little bit into the winters. Probably have to see how we handle things on Monday to see if it was all that. But I think most of the things point to the market has stayed away from trouble through rotation as opposed to just kind of liquidating. And it's absolutely true that the outlook is foggy and there could be a lot ahead and earnings could be too high. But in the very middle of last year, June 30th, you know, we were 12 or 15 percent higher in S&P earnings for this year.

You still had four full percentage points of Fed tightening ahead of you. And the S&P was a few percent lower. So I do think that just in general, it's found a way so far to hold together without really getting escape velocity. I admit, if October was the low, this kind of five, six month performance after a major low is not that impressive in terms of overall market gains or even in terms of participation. But it's still managing to stay insulated. And I'll still say, too, all the conviction lies with the people who are very sure there's a recession coming and that the market is too high and that we should stick with quality as opposed to beta. I mean, look, you're right to say the outlook is foggy, as Victoria Fernandez, who was on with us a while ago as we head towards the close, said, you know, the windshield's all fogged up.

You still can't really see where you're going. Part of this rally has to be from those who suggest, you know what, we've cleaned the windshield a little bit. Yes. We may not have a whole clear view, but we certainly have a better one today than we've had in the past. Yeah, or we've built up enough cash and we have a little bit of security and a cushion there that you can add or feel like the multi-year returns look like they're going to be okay from here. B of A was saying that they're not that bullish on this year, but they're saying, look, we're priced for 7% annualized over 10 years.

It's not terrible. All right, we've got one day to go tomorrow in the quarter, but we're going to go out with a gain across the board today.