Closing Bell - Closing Bell: Time to Be a Bull or a Bear? 4/5/23

Episode Date: April 5, 2023

What is the right call right now – to be bullish or bearish? Trivariate’s Adam Parker and Citi’s Kristen Bitterly break down their takes. Plus, BTIG’s Jonathan Krinsky is tracking trouble in the charts. He explains the key levels every investor needs to be watching. And, Bank of America’s Jill Carey Hall is changing her tune on small caps in a big way.

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 the Fed and the economy going head-to-head. More data showing growth is slowing. Another central banker says rates must still go higher and stay there for longer. Stocks and your money, well, they're caught right in the middle. Here's your scorecard with 60 minutes to go now in regulation. The Dow carried for most of the day by health care names and more defensive areas, while the broader market sees selling in technology and more economically sensitive

sectors like industrials and autos. Bond yields, they are falling as well on those new recession fears. It brings us to our talk of the tape. What is the right call right now? Be bullish or be bearish? After an earlier rally caught many by surprise, but now might be showing some signs of wear. Let's ask Adam Parker, the founder and CEO of Trivariate Research and a CNBC contributor. He is live with me at Postnight. It's good to see you again. Thanks for having me. I've had some incoming lately from the bulls who say that this market is still poised to go up.

What do you think? Bullish or bearish right now? I mean, the market's up and the fundamentals look worse than they did. So I have to like it less than I did previously. I mean, if I'm just using data, I think there's some signs that things are going to slow. A lot of my incoming is about, you know, woes in the commercial real estate market, lower growth from the regional banks. So I don't think the news is directionally positive. I guess if you take a step back, we were just talking off air that maybe a little surprising we didn't get a big negative pre-release from a corporate this week. So maybe that's a positive that, you know, we're not, you know, we're kind of most of the way through pre-release week without a big negative.

But maybe things aren't as bad as the bears want to make it seem as though they are. That's what the bulls say. It's like, you guys are just too negative. Like earnings aren't going to be as bad as the naysayers suggest. Fed's almost done. Hey, maybe the Fed's going to cut. And if that happens, you don't want to be on the wrong side of that. Do you? I don't know. I don't think you want to be on the wrong side of that, but I don't think that's going to happen. I think what the market has already told you is the Fed pivoted. I mean, NASDAQ was up 17% in Q1. Isn't that because people think the Fed pivoted already?

I mean, if they didn't, then they end up being slightly more hawkish. I think it's about what's in the price. I worry a little bit that expectations for earnings look a little too optimistic. Still? Yeah, particularly the 24 numbers, which have a V-shape. We're not there yet, but they're going to come down a little bit. Maybe it's fine. Maybe the market can rally through that. Bond yields are a little bit lower, so maybe the comparison looks okay. But I just kind of take a step back and say, within the equity market, parts of it are discounting a recession,

like energy and metals, and parts of it aren't, like semiconductors, right? So something's wrong here. I think today is a trading day. When I look at what's going on, I actually think it makes more sense than most of the other days. I think industrials- Why is that? Because I think industrials should have pulled back a little bit. Well, because the data that came out between ADP and ISM and PMI services? Yeah. And just generally, if you can't get a construction loan from a regional bank, then why is, then URI is probably worth a little bit less.

Well, let me ask you this. If the data is negative, it's been bad, right? This week, sort of been reminded that the economy continues to slow. Why are people like Mester coming out and being as hawkish as they sound in the face of weakening data? And do you take it for anything more than, well, what do you expect she's going to say? My, my, look, I don you expect she's going to say? Look, I don't know. You have a lot better Fed watchers on your program than me, so I'm flattered you're asking me that question.

But what I would say is— Doesn't it relate to how the market's going to perform? Yeah, totally. It relates to the multiple. And my personal judgment is they care about full employment and stable pricing. Which one of those makes you dumbish? I mean, to me, the tweet of the week, the last week was WM, Waste Management, WM CEO saying, I cannot find somebody to drive a garbage truck in Houston for $90,000 a year. But if I want an MBA from a small school for 60 grand a year, I can swim in those. That's telling you something about the state of the economy. We just don't have

enough workers for a lot of jobs. So I'm not sure unemployment is going to come up that much for this phase of the cycle. Inflation is still above the target. Those are the two things they care about. Why the heck are they going to be dovish? So what's in the price is dovish, but what's the reality is it's probably a little bit less dovish. That's a reason to be negative. We're asking in our Twitter question today, how many more times is the Fed going to hike? One, two, or three? If you had to answer that question in the here and now, what would you say? More than the consensus view, for sure. They're not going to be as dovish as what's on the price. Even if the economy's weakening?

Yeah, it's not just the economy. They care about full employment and stable pricing, and the unemployment rate and the CPI are not where they want. So if they get dovish now, I would be really surprised. And jolts, right, showed at least in the direction that the Fed has been looking for. Yeah, we were talking about the jolts off the air. I mean, look, at the end of the day, I think they look at some of the lagging indicators and they look at the unemployment rate. We'll get a data point soon. Friday. Yep, Friday. But I just think that at the end of the day, the price toto-earnings ratio for U.S. equities

is very correlated statistically significantly to Fed fund futures, and the perception is that they're going to get dovish. That's in the price with huge moves in tech stocks off lows, and so the risk-reward on those names is skewed to the negative, which is why today makes a little sense to me.

Take a little bit of air out of that, kind of what's in the price. And as you know, my price guess is the price to earnings times the earnings. And the only conversation about the Fed is about the price to earnings. But the earnings matters too. And if that's slowing,

if that's what Silicon Valley Bank told you, if that's what some of the growth things are telling you, then I think you probably want to downly revise your earnings outlook today versus maybe a month or two. Unless Silicon Valley Bank was so idiosyncratic that we look to make too much of it and suggest, you know, well, that happened, so this is bound to happen. The Silicon Valley hold to market maturity bet was idiosyncratic, at least the size of it. But the part that wasn't was the comment that their CEO made that

14% annualized decline in our deposit base in February, right? That's tech venture and other businesses showing some slowdowns in the fundamentals that were surprising. That's what, you know, catalyzed the run of the bank. So I don't know if that's isolated to just them. That's the reason other banks have run into problems with the perception they may have some exposure to that too. I don't think that affects Microsoft's earnings. Don't get me wrong, you know, necessarily, but I think it's the economy slowing. We know loan growth is going to slow, which you need for economic growth. And so I think if you're market-to-market today versus a month ago,

your fundamental outlook is a little bit worse, and the stock market's up. So if you're being intellectually honest, you have to like the market less now than you did a month ago. The tech run, you think that's directly related to hopes for a pause? At least one component of the reason why it's gone up. It's been multiple expansion. It's been more than 100 percent of the cause of it. So, yeah. What happens now, though? I think you get a pullback unless companies can put up pretty good earnings results and we'll know in the next two weeks. Do you think the bar is low

or high at this point, given the move that we've seen in tech versus the environment that we're in? I feel like you can make the case either way. Yeah, it's a good question, actually, and I'm not sure I have a great answer for it. I don't know. I think we'll have to see. What you're always looking for is a company that misses and the stock doesn't go down. You saw it a little bit with Micron a couple weeks ago. Kind of a bad number in absolute terms,

but the market had already sort of discounted it and the stock didn't really go down. They put up that same number six months ago, stocks annihilated. So maybe that's a bold case too, Scott, is price action. Let's see if in the first week of earnings, or if we get any pre-releases tomorrow now that I suggested it, or maybe at 401, right? But let's see if the market can absorb any negative pre-releases, but with the stocks not going down. Okay. That'd be a sign to look for.

Morgan Brennan, she's on alert now in overtime. Yeah, exactly. In case that happens, 401. Get a coffee. You're forewarned. Yes, get a coffee. In case that happens. Let's add Kristen Bitterly of Citi Global Wealth

into the conversation now. So let's just pick off. It's nice to see you and welcome. Thank you. Let's just pick off where we left off with AP and just on tech at first. I mean, how do you view the run that we've seen to start the year? It's stalled a little bit in the last few days. What do you think from here?

So I don't really buy this argument that tech is this defensive play and that it's a flight to quality. When you look at the returns year to date, very, very strong. But when you look at them on a prior 12-month basis, it's retraced about half of the sell-offs that we saw last year. I think the other thing is when you look at the flows coming into tech, it's really concentrated in a couple of names. Really, 20 names are driving the majority of the equity rally that we've seen. And so this isn't something that's broad-based. It is something that is very concentrated. It is favoring large over small for sure. So I think we have to be careful about using that broad brush when we say tech is rallying.

It's really a few idiosyncratic examples of what's driving it. But if we used those idiosyncratic examples, those are, would you agree, viewed more defensively than other parts of tech? I think that's fair. If we take the mega caps. Yeah, I think that's fair because like within any sector, when you start to break it down and you say, OK,

who has strong free cash flow generation, who's resilient in terms of recessionary or contractionary environments, there are going to be examples of that within the tech industry that have really cleaned up their balance sheet over the past couple of years

and took advantage of the low, historically low interest rate environment that obviously is not the case right now. So they're well prepared for the environment that we're coming into. If you had to put yourself in a camp of, is it correct to be bullish, more bullish, or correct to be more bearish, what would you say? I have to be on the defensive side here. I think it's correct to be. There's more downside, particularly, obviously, we're talking about the equity market. But when you, we started the year at Citi Global Wealth with our outlook for 2023 saying not to fight the Fed and that the impact of all of this cumulative tightening was going to have an impact on consumers, on corporations, on corporate earnings. And so we believe that we're going to see a contraction

of earnings of upwards of about 10 percent. When you have this environment of rising rates, quantitative tightening, what happened within the banking system and stress is there, that means tighter credit conditions. The idea is that there's only going to be a few isolated examples of companies under stress or actually with compressed earnings, I think, is a far shot. So I think we have downside to equities from here. So you're looking more like $200 if you think 10%-ish? Slightly higher than that, yeah, yeah. In that ballpark. Absolutely.

What would you say to those who say, you see, bitterly, Parker, they're so negative. Everybody is negative. I mean, I got that back at me today. And that's the reason why I can't be negative. Everybody's negative. What I would say to that is if I walk in the room and every person thinks I'm ugly, that doesn't make me handsome. Okay? I mean, honestly, it's person thinks I'm ugly, that doesn't make me handsome, okay? I mean, honestly, it's not just I'm going to romanticize,

I'm always a contrarian to everything all the time. Like, sometimes the reality and the data suggest you should be more cautious directionally. And this is one of those times? I think that's one of those times. I mean, a lot of people I know, they have to beat the market no matter what. They're fully invested long-only. Sure, we give them ideas of how to beat it. In the growth sliver, are there things I like more than others?

Yes. I think you can maybe take a shot at small-cap software where some of them grow gross profit, and there's a bit of an acquisitive element to some of the private equity firms looking at public equities. I can maybe say biotech, less economically sensitive than technology. I totally agree with Kristen that there are economically sensitive businesses in tech, advertising, consumer, et cetera, that are likely to slow,

and there may not be a soft landing for their earnings, particularly in semiconductors where there's a lot of inventory. But maybe biotech, you know, I don't know. I forget what the number was in 2008. I think, you know, Botox was down like 1% or something. There's some drugs that are a little less economically sensitive. So I could argue S and achievability is a little better than health care, than tech, in the economically sensitive part.

I mean, you've got to find your way through the investment ideas. But I don't see anybody could say, well, prices are up, therefore earnings are better. I think you also have to look at the fact that so when we say that we're defensive and that we do see some downside in terms of the index level of equities, it does not mean that we're not fully invested. We are fully invested. We're overweight fixed income relative to equities with a very strong quality bias. So we're participating in some of this activity, but you really have to pick your spots. And I go back to, Adam said this a little bit earlier, I go back to this concept of

the Fed and what the Fed is looking at is actually lagging indicators. Their benchmarks are around inflation and employment, and those are lagging. When you look at the leading indicators and all of the data that we received this week, whether it was manufacturing, services, jolts, even what OPEC did in terms of you could make an argument that that's really trying to forecast demand destruction. Sure. You have to actually pay attention to some of those signs and the ones that are telling you where the economy is going. What if I said to you, OK, I agree with all of that, which is even more reason why the Fed's

going to cut, and that's positive? I think there's a moment in time when bad news is bad news. Right. And then all of a sudden it is pivoting. So one thing is this discussion of what is the Fed going to do at the next meeting? We have a lot of data. We have tomorrow, obviously, not tomorrow. I'm jumping a day.

Friday. Friday. And then we have CPI. Right. So we have that data. And then we have Q1 earnings, which are really important. And so that, in terms of where the Fed ends up in May, I think is a very, very healthy debate that's going to be data dependent. But if the Fed is cutting, right, that means that's different

than a pause. If the Fed then pivots and cuts, it means that we've seen a deterioration in employment. We've seen a deterioration in this economic activity, which has to have some downward pressure on earnings and on equity markets. It's like they're cutting for a reason. For a reason, exactly. But you said, Kristen, you're overweight, fixed income relative to equities. When does that dynamic turn? What has to happen? I think that turns when the Fed pivots. And so the same thing when we're going to catch a bid on tech, the same exact thing that you're going to want to see. And what are you paying attention to? You're paying attention to unemployment insurance claims. You're paying attention.

Once that employment backdrop, that's really going to be one of those areas where all of a sudden they pay less attention to inflation, more attention to employment. And that's that would be something even ahead of that sign that they already come out and say that they pivoted. How pivotal is Friday's jobs number? I mean, the market's not going to even be open to react to it. But if it is well below the estimate or certainly at the bare minimum, not a blowout like we had a couple of reports ago, what what does the market do in light of the weaker economic reports that have led into that? You know, look, I'd say if I was trading on like a three day horizon, I would say the bad news will be good for equities, right? I think people...

I thought Kristen just said bad news is bad news. That's a thing. A three-day, like on Monday morning, we're going to open higher if people think the Fed's more dovish. But I think if I'm looking out any investable timeframe where obviously, you know, any investors looking out six, 12, 18 months, it's a sign the economy's slowing and probably not good for earnings. And I think so far the trade has been only care about price earnings, don't care about the actual earnings. I got one more for you. You say we would look to pair trade banks aggressively in your notes.

What does that mean? So what we show is that when you get volatility, it's a good opportunity to be long-sum and short-sum, meaning not all banks have problems with the whole maturity portion of their balance sheet. So there are some banks where they have huge mark-to-market losses, and so their intellectually honest loss-adjusted tangible book is a lot lower than their stated tangible. There's others where it's really not a big deal. So what do you mean, like big versus little pair trade? No, I mean like I can long some banks and short others.

I probably don't want to make a big active bank bet because I think the economy is slowing. But I think not all banks are the same. I don't like the characterization that this is a regional bank issue because some regional banks are totally good. They don't have like this mismatch asset liability thing, and their deposit base is solid. Others have a problem. Quick last word on that? I would say where we like financials is actually in the preferred market. So when you look at what happened in March and some of the dislocations where you did see that price

gap, a really interesting data point is on a trailing 12-month basis, preferreds have outperformed treasuries. And so you have high single-digit yields that have taken a lot of that downside risk. So from an entry point standpoint, getting high single digits, that is a hybrid instrument, is attractive here. Yeah. You guys are great together. Thanks. Thank you. Great having you both.

Have a good holiday weekend. Yes, you as well. Thank you. We'll see both of you soon. That's Kristen Bitterly, Adam Parker, right here at Post 9. As we mentioned, our Twitter question. Hey, Dad, CNBC closing bell to vote. How many more times will the Fed hike? One, two, or three? We share those results later on in the hour.

Let's get a check on some top stocks to watch as we head into the close now. Christina Partsenevelos is here with that. Christina. Well, shares of regional bank Western Alliance are down about 12%, but off the earlier lows when we saw it down about 21% this morning. The bank gave an 8K company update last night, but failed to provide details about the total number of deposit outflows. And of course, that had investors wondering, what were they hiding? But this afternoon,

post 12 p.m., you can see on your screen the stock uptick because the bank provided the notice, seeing a new notice, I should say, seeing quarter to quarter deposit growth increased by an additional $1.2 billion as of April 4th, yesterday, and that outfalls returned to normalized levels. So that's a form of assurance given what happened to Silicon Valley banks. So shares are down about 12%. And it's not every day you see utilities leading the Nasdaq 100, but here we are with American electric power up almost 4%. Investors are definitely leaning towards defensive stocks today after another hiring report showed a slowdown in private sector job growth and has investors

worrying about this market that may be cooling. Scott. All right, Christina, thank you. We'll see you in just a bit. We're just getting started, though. Up next, trouble in the charts. Top technician Jonathan Krinsky is tracking some big potential market headwinds. He explains after this break live from the New York Stock Exchange. And you're watching Closing Bell on CNBC. Welcome back. The rotation back into mega caps and leadership from tech has the S&P 500 sitting on a six percent gain to start the year. Our next guest, though, believes there is more uncertainty under the surface. Joining us now, though, believes there is more uncertainty under

the surface. Joining us now, BTIG's Jonathan Krinsky. Welcome back. It's good to see you. I've had technicians tell me this week alone that we're still in an uptrend. Do you beg to differ with that? You know, the market really is in the eye of the beholder right now. And, you know, you mentioned the S&P is up about six percent. If you look at the equal weight S&P, it's about flat on the year. And then you go down the cap scale, small caps are much weaker and micro caps are churning on 52-week lows right now. So the question really is, which one do you believe? And we continue to see more and more evidence that suggests the market continues to thin out. And ultimately, you know, that's a tale that we see over and over throughout history at market, whether it's major peaks or the end of

bear market rallies where breadth continues to thin out. And ultimately, once those fewer names succumb to the downside, that's what leads to the weakness on the cap weighted index level. And if we mention that, if we're talking about the NASDAQ specifically itself, while the NASDAQ composite got back to its February highs, more or less, internally, it's a much different picture. So at the February highs, you had about 57% of the NASDAQ above the 200-day moving average. On the recent move up this week, we only got about 37%. And then you look at the credit side of things, You can look at CDS on the tech sector, and that's actually wider than it's been even at the fall at the at the wides we saw last fall. So credit and market internals are giving a much different picture than even the cap weighted

Nasdaq itself is showing. I feel like you've got to be careful, though, perhaps if you look at, let's just say market breadth and say, well, 20 stocks have carried the whole thing for the S&P 500. Without them, we wouldn't be up. In fact, we'd be lower. I mean, we've been here before and it didn't really matter. You know, the mega caps had carried us at times over the past few years and it it managed to actually carry us pretty far now yeah I mean look it's that's that's been a playbook we actually think the the reason the Nasdaq has been so strong it's been a beneficiary of the selling in in banks and others in the

market I mean if you're you're a long-only money manager with a with a cash mandate you can't you know you have to be fully invested and you just sold a bunch of banks and other cyclical areas of the market, of course, you're going to probably put that money into tech and maybe some defensives like Staples Healthcare and Utilities. What's concerning is just the persistent weakness in the banks, in small caps. Biotech continues to remain weak. And then recently this week, the biggest development is probably in the industrials, which had been, you know, kind of the holdout of the cyclical trade. We're seeing transports and machinery stocks and truckers recently starting to break down. So,

you know, that's not giving a great message. And then you have this other backdrop, you know, when you put everything together, you know, interest rates continue to fall and we're seeing that correlation shift last year was all about uh... stocks and bonds being highly correlated as the mark was concerned about inflation we're starting to see this year uh... stocks fall with interest rates which tells you the markets starting become more concerned about the economy

and we're seeing a bull steepening in the yield curve where uh... the curve is actually steepening as rates are falling. Another sign of economic stress. No, I mean, that's obvious. I agree with you on that because it's undeniable. I was talking about that earlier. At one point, you know, the spread between the two year and the 10 year today hit thirty nine basis points, whereas it was over one hundred, you know, a month ago at most. So what does this mean? I plug all of these things into my market prognostication machine and it tells me that we are in danger of dropping to where? Yeah, look, so we've still been in this sloppy trading range for the S&P 500. Let's call it 3,800 on the downside, 4,200 on the upside. You know, outside of a few weeks in the fall,

that's pretty much been the trading range, right? But if, you know, to us, there's more and more evidence that suggests we're going to fall back at least to the lower end of that rate trading range and likely break 3,800 on the downside. You know, it's just a matter of timing and, right, that's, you know, we're now, what, 15 months into the spare market. It's kind of wearing on everybody and we're kind of waiting for resolution. But again, if you look below the surface to us, it would be a much better picture, I think, if you had cyclicals and small caps kind of outperforming. And it's not just that they're not participating in the upside. They're actually moving to the downside.

So that's really the key issue. It's not so much that the banks and small caps are lagging. It's really they're continuing to show absolute weakness. And so that's just a matter of time before ultimately mega cap tech plays catch up to the downside. I got to run and I want you to be quick if you can. October lows, are we going to be back talking about that? I think so. I think we will be in the next few months. Wow. All right. Which means we'll talk a lot. Jonathan Krinsky, BTIG. Thank you very much. Up next, a crucial cost cutting plan at FedEx sending shares higher today. We've got those details how it could impact the rest of the transportation sector ahead. Closing bell.

We'll be right back. 30 minutes to go until the closing bell. There's a look at where we stand right now. The Dow is still hanging on to a gain today. S&P 500, NASDAQ, Russell 2000, all in the red. Shares of FedEx, though, moving higher on the heels of announcing fresh cost-cutting plans. Frank Holland here with me to discuss all that. They did that right here. Yeah, they did it right here at the New York Stock Exchange. Not

only cost-cutting plans, but just major transformation plans for this company. As you mentioned, FedEx is moving higher after announcing that major transformation. For a brief moment, I got to speak with CEO Raj Subramanian ahead of his Mad Money interview. He told me he describes this and also founder Fred Smith. They both describe this as an evolution. Either way, this is a really big swing. So here it is. In June of 2024, FedEx will transform into just one company. It currently operates as three separate companies.

You know them, Express for Air Delivery, Ground for E-Commerce, and Freight for Trucking. FedEx also increasing its dividend by 10%. And executive compensation will now be tied to return on invested capital. We're also seeing a restructuring at the top. Roz Subramanian will be the CEO of the FedEx Corporation. Then from mid-April until June of next year, current ground CEO John Smith becomes the CEO of Ground Operations. Current Express CEO Richard Smith, son of the founder, becomes the CEO of Air Operations. Then Subramanian becomes the CEO of this brand new FedEx after June of next year.

Back to the dividend increase. It brings FedEx closer to its rival UPS. UPS also ties executive compensation to return on invested capital. Spoke to a few analysts that were here today, Scott. A lot of them said these are positive changes. The invested capital piece, that's an accountability measure. The dividend, of course, returning value to shareholders, something that the activist investor, D.E. Shaw, has pushed FedEx on. Why is this happening to this magnitude that it is? Is it activists with the push trying to be more like UPS? Stock performance last year trailed UPS.

This year it's beating. It's beating by a wide margin. Because of this transformation idea, correct? So, again, I spoke to Raj. He's going to do his full sit-down with Jim Cramer and Mad Money, but he just told me it's time. It was time for this company to change. You and I were talking about this earlier on Halftime.

This company started off as a term paper idea from Fred Smith, the founder, when he was in college 50-odd years ago. Raj just told me it's just time for the company to change. The accountability when it comes to management with the return on invested capital, the dividend just giving back more money to shareholders, it's time for this company to change, not only to compete with UPS, but just compete with other companies out there buying for investor dollars that are focused on return of shareholder value.

And you mentioned earlier, and I think you reiterated it here, that Fred Smith was said to be. Said to be. Said to be pleased, understanding that it was time for this transformation to happen. At the same time, it does take this company further away from FedEx under Fred Smith. The legend. Absolutely. I mean, I call it a big swing just to be neutral. Some people are saying it's a full departure away from Fred Smith's original vision. But mean, I call it a big swing just to be neutral. Some people are saying

it's a full departure away from Fed's Fred Smith's original vision. But remember, that was decades ago. That was a completely different time. Right now, when we're looking at the logistics market, 90 percent of the growth is expected to be e-commerce, most of it on the ground. So it's just a different business than this air delivery model that FedEx was founded on. And the difference between FedEx and let's just we talked about this to the idea of Carol Tomei, the UPS CEO, there aren't other CEOs of different divisions, right? Absolutely not. They have a lot of the same businesses, but Carol Tomei runs the whole thing. Very similar businesses. UPS is more e-commerce, ground-focused. FedEx is more air delivery-focused. But the big difference is Carol Tomei runs the

whole shebang. She's in charge of everything. Why shouldn't one person run the whole shebang here? In FedEx? Yeah. Well, that's going to happen in June of 2024. Then on, it's going to be one person, Raj Subramanian, running the whole show. That's a long time from now. By the way, they upped their guide last quarter, too. As well. Didn't they? Their EPS guys. I want to show everybody a graphic here, Scott. Here's the EPS that FedEx had in the first three quarters of the year. So the first three quarters, they did not exceed EPS of $3.44. And then last quarter, they guided for four-year EPS of $14.60 to $15.20. So did some rough math here to use the calculator. You're allowed to use the calculator. Use the calculator. It's not a calculus class back in high school. So anyway, Q4, to be in line with their own guidance, EPS would have to be 457

to 517. As you can see, that's a really big jump from what we've seen in the other quarters. So that's going to give us a really great sense of how this cost-cutting plan is really working. I talked to one analyst. They said, cost-cutting is great. You're giving us numbers. We're cutting this amount of billion, that amount of billion. So far, year-to-date, FedEx says it's cut $2.4 billion, their overall goal this fiscal year is to cut $3.7 billion. But one analyst, year to date, FedEx says it's cut $2.4 billion, their overall goal. This fiscal year is to cut $3.7 billion. But one analyst has said to me, well, when are we going to see it in the bottom line? When is that going to translate into more profits for the company? Q4, June 20th, we're going to find out. I mean, the CEO, too, is somewhat negative about the trajectory of the economy. When was that, a year ago? September of last year, very dire forecast

about where the global economy was coming. He said a recession was coming. FedEx's volumes did indeed decline very dramatically, but we haven't quite seen that recession yet. We, again, are always seeing the specter of recession in the economy. We're looking at the inverted yield curve. We're seeing this bank come out with a forecast for a recession. We see our own CFO survey. The majority of those CFOs saying recession in the second half of this year. But when it comes to a full-blown recession, we haven't seen it. We have seen a slowdown in the freight market, but FedEx and other freight carriers still retain a lot of pricing power. All right. I appreciate you being here and I appreciate you sticking around.

I know you've had a long one, but we're happy to have you here. That's Frank Holland. Scott, thank you. Right here, Post 9. Up next, we're tracking the biggest movers as we head into the close. And later, our most valuable pick is back. One firm upgrading a pair of health care names. The analyst behind those calls will join us. Closing bell right back. We have 20 minutes to go before the closing bell. Back to Christina Partsinovelis now for a look at the battle brewing over who has the best AI chips. Christina. Well, the question, right? Who dominates AI?

With an 82% run-up year-to-date, investors, I could safely say, were betting on NVIDIA's chips. But today, Google published details that its artificial intelligence chips called Tensor Processing Units, TPUs, are faster and more power efficient than NVIDIA's A100, or just AI chips if you don't know the lingo, which already power ChatGPT. But critics point to the fact that Google didn't compare its AI chip with NVIDIA's latest AI chip, the H100.

Google argues that NVIDIA's newer chip came to market after Google's AI chip and is made with newer technology. So in Google's eyes, it's not comparable. But without directly calling out Google, Nvidia just published, maybe about 20 minutes ago, a blog, a new blog, that its chips are still, and I'm paraphrasing, king of the AI world. Why? Because a newly published AI chip test that was out today as well suggests NVIDIA's latest chip is four times faster than its previous chip, the one that Google was comparing itself to earlier this morning.

All right, Christina, thank you. Christina Partsenevelos. Yep. Last chance. Weigh in on our Twitter question. We asked, how many more times will the Fed hike rates? One, two or three? That's CN CNBC Closing Bell on Twitter. The results right after this break. Let's get the results now of our Twitter question. We asked how many more times will the Fed hike rates? 43% of you said one. Two hikes coming in in second place.

Up next, Bank of America's Jill Carey Hall is back and she is shifting her view on small caps in a very big way. That and much more when we take you inside the Market Zone. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of the trading day. Plus, B of A's Jill Carey-Hall and why she is turning cautious on the small caps. John Ransom of Raymond James on his bullish call on two health insurance stocks.

Mike, I begin with you and what feels like a textbook slow economy trade. There's no doubt about it. I do think the notable thing is the way it's staying really contained at the index level. It kind of showed that the flip side of having been a very narrow rally with only a few stocks driving the upside momentum coming into last week, really not just this week, is that there were only a handful of stocks that were really overheated and had to pull back and cool off. So that's that's underway. But yeah, there's no denying the fact that anything cyclical is is giving up a lot. The small caps are maybe a percent and a half above their March and December lows. They're giving up any kind of benefit of the doubt that they might have earned. And, you know, of course, the regional banks are in a similar position. So I do feel like the market has some weights on its ankles at this point from the cyclical trade, but it's really managing to rotate away from the worst hit areas at this point.

Healthcare, it's not going to go up 2% every day, but right now it's doing enough. And lower yields, also keeping things like home builders in the game, because we've seen the sensitivity of housing demand to every downtick in mortgage rates. You heard Jonathan Krinsky, BTIG earlier, you know, economically sensitive sectors, weak breadth is weak. Thirty eight hundred is the door he's looking at. If you go through it, it's a trap door because you could go back to the October lows. Well, it could certainly. I mean, thirty eight hundred. We were there March 10th. So the Monday after SBB went down, the low in the S&P was 3808. That's not very long ago.

You wouldn't necessarily want to revisit it this quickly if you are looking for a market that's trying to get clear of the lower end of the range. But I think what that reflects is that this really is an eye of the beholder market. When we go sideways for 10 months, you're going to be able to make the case either way. You're going to be able to trade the range. It's a very tactical market. And I agree that it's whatever you earn in January from the force of the rally and the breadth of it has mostly but not entirely been given up. Jill Carey-Hall, you're changing your view a bit on the small caps. I can only imagine it has everything to do with how Mike and I started this conversation, because the economy looks like it is slowing even further. Well, I think small caps, you know, what hasn't changed is

small caps have been more adequately pricing in, you know, the risk of a mild recession more than larger stocks have. But we did turn tactically cautious on small caps in mid-March, given, you know, everything that happened with several of the regional banks. Small caps obviously have a lot more exposure to regional banks than large caps do. And a lot of the macro indicators that are most correlated with small versus large cap relative performance have since been moving the wrong way. Tightening credit conditions, wider credit spreads. The ISM has continued to deteriorate, which is one of the more correlated macro indicators with small caps. So, you know, I think near term, it makes sense

to be tactically cautious on small caps. But, you know, I think a lot of the longer term positives for small caps are still there. So depending on your time horizon, you know, I think a lot of the things like peak globalization and the fact that small caps are, you know, very historically cheap versus large, still suggests upside for longer term investors. You still prefer small caps over larger caps, though, even in the kind of environment that we are not only in now but may progress into in the weeks, if not months ahead? Well, I think near term, you know, we want to see more signs of stabilization. You know, the tightening credit backdrop that we're seeing, you know, there could be more to go there. So I think that's a risk. I think if interest rates were to, you know, continue to demonstrably

rise, the fact that small caps have about 40 percent of their debt that's either short term or floating rate is another risk for the size segment. Obviously, some sectors have more risk than others. So I think a lot of those indicators that we're looking at are suggestive of an environment where small caps could continue to underperform near term. I think, again, it really depends on your time horizon moving out. If a lot of this stress in the markets, we see a more benign environment. And if our call is right that we have a very mild U.S. recession, I do think the mild recession backdrop is something that small caps have been pricing in more adequately. And once the market bottoms, which usually tends to happen about six months before a recession ends, that recovery period tends to be the most positive phase for small versus large cap stocks. So I think near term we would stay cautious, but if you have a long enough time horizon,

it's definitely a compelling opportunity for small versus large. And I think focusing on particular areas within small caps as within the overall market is important. Being selective, being active rather than passive. It's actually been a good several years for active managers and particularly small cap managers and I think the fact that there's so many cross currents within the market right now. These environments tend to be ones where, you know, selecting stocks tends to, you know, work better than than just buying an index. Gotcha. Jill Carey, Jill Carey Hall, thank you very much for joining us.

Mike Central, I mean, small caps first in, first out kind of an idea. I mean, I think that's arguably for sure. And the valuation divergence has been very stark. You look at the small cap 600. It's been back to like 12 times earnings, under 11 times at the lows, I think. That goes back to the low in 2018. So, yeah, I do think it's been largely discounted. It's hard to know exactly what gets them going unless you have a clearing event like,

I think when the banks report earnings and there aren't a lot of smoldering craters in their books that we didn't know about before, and all of a sudden you feel like the stock's got cheap enough and we're not going to have a massive credit crunch, maybe that's going to be the thing to do. But it's still mostly a cyclical and risk appetite trade. John Ransom, your kind of day. You know, health care stocks like UnitedHealth certainly had a decent day relative to most other things. Why is now the time for a strong buy? Good afternoon. Good question.

We downgraded United and SIGMET and a couple other stocks in early December. We were concerned about the overhang of some complicated regulatory actions that I won't bore you with. Suffice to say that these were cleared up in early April when CMS released what's called the advance notice. And we also got an audit rule. So the simple story is the stocks traded down into the fear of these regulations. The regulations were not as bad as feared. And, you know, just with the new quarter, and I agree with you, maybe the timing is good for a more defensive tone. The stocks are off. You know, in the case of Cigna, for example, it's off 27% from its peak multiple.

United was off about 15%. So the relative multiples look very good. We had a clearing event with some regulatory stuff getting cleared up, and we just thought the time was good. How about Cigna? I mean, you mentioned it, and, you know, UnitedHealth gets all the play today, maybe for obvious reasons, but Cigna goes to strong by two.

How's the story different, if at all? Well, a fun fact for your viewers is we have almost the exact same earnings per share number in 2025 for both companies. One's 31.50, one's 31.65. So for the same amount of earnings, you're buying Cigna this morning at about, you know, high single digit multiple. I believe it was nine times our 24 number. UnitedHealth was about 17.6 times. So you get Cigna for roughly half the valuation. So Cigna is a very kind of boring mid-single-digit operating income grower and a low double-digit earnings grower. Their share count was $380 million

in 2018, and we've got it going to $275 million by 2025. So the company's taken out 100 million shares and you're kind of using its strong cash flow. I think the thing I want to mention with Cigna, they are about 50% of a PBM, a pharmacy benefit manager, and Washington's going to take some shots at their PBM business. I think that's one reason the stock traded down 9% in March. But we don't, we think the fears, if you added up all the things we worried about with managed care versus what actually happened, the fears are almost always greater than what actually happened. So our bet is that investors eventually look through the noise

and think that these business models are very resilient over time. All right, John, appreciate it very much. That's John Ransom joining us. His big upgrade today of UnitedHealth, and as you heard him talking about as well. Cigna, back to Mike Santoli as we approach the two-minute warning. We can talk health care for a moment. Second best sector of a down day. Utilities leading, obviously a bit defensive. Energy managing a bit of a gain, too, but it is health care today, which is leading the charge one and three-quarters percent as a sector. And pharma in particular, in terms of the upside contributors on a net basis to the S&P 500. Now, J&J is moving on news, right, of the legal settlement, but even kind of drafting in the

wake of the other pharma stocks. And that is, you know, classic. They're certainly at undemanding valuations and money is finding its way there. So, yes, rotation toward very traditional safety. It's really the playbook that you would employ if you basically said the two-year note yield is crashing. Essentially, economic numbers have gone from one of the strongest upside economic surprise trends to a steady bit of disappointment. That's the way it works.

Those things are just oscillators that go up and down because people revise their forecast. So we do get weekly claims tomorrow. We'll see if that either changes the story or confirms the way people are leaning right now, which is harder type landing risk has been increased and we need to trade for it accordingly. It's been really tricky for this entire cycle to figure out what's getting priced in when and how much we're over anticipating weakness because we've done it a couple of times in the last few months and how much of it is just a recognition of what's already going on.

You had the Atlanta Fed real GDP number obviously crack down toward a percent and a half down toward almost from almost 3 percent for the first quarter a few weeks ago. You know, the job report is always consequential. I feel like this Friday, you know, yet again, it's raised in terms of how important it's going to be. After the JOLTS report, so job openings are going in the direction that the Fed wants them to go. You've got these economic reports, as you said, suggesting more slowing. Is hiring finally going to crack? That's right.

So weekly claims are a big part of that. Those usually trend higher when things are weakening. And we will immediately say that if the job market is softening up, the Fed can shift its focus on jobs away from inflation, at least over the next few weeks. OK, bell's ringing. Dow's going to go out with a win. Others, though, in the red.