Closing Bell - Closing Bell: Time To Get in… or Cut and Run? 5/8/23

Episode Date: May 8, 2023

What should investors be doing right now with many major issues still unsettled? Trivariate’s Adam Parker and Nicole Webb of Wealth Enhancement Group give their expert market takes. Plus, Rashaun Williams of Manhattan Venture Partners weighs in on the state of the IPO market and if he thinks a thaw is happening in the space. And, JPMorgan’s Meera Pandit is breaking down recession risks and if rate cuts could be on the table in 2023.

Welcome to Closing Bell. I'm Scott Wagner, live from Post 9, right here at the New York Stock Exchange. This make-or-break hour begins with stocks wanting to see more. More evidence that inflation is falling. More evidence that the Fed might be finished. A busy week of data and earnings just getting started for us today. Here's your scorecard. With 60 minutes to go in regulation, the Dow down, well, slightly for most of the day. And that still is where it sits now. That ahead of the CPI, PPI. We got Disney's numbers this week. And, of course, that critical meeting on the debt ceiling.

And there was that warning over the weekend from Treasury Secretary Janet Yellen of a potential economic catastrophe if that issue goes south. And, by the way, there she is. A big interview with the secretary herself is just ahead in overtime. We're looking forward to that. The S&P, meantime, is largely holding in there today, along with the Nasdaq interest rates moving a touch higher as we have about an hour to go until the end of today's session.

Brings us to our talk of the tape. What investors should be doing right now with many major issues still unsettled. Let's ask Adam Parker. He's the founder and CEO of Trivariate Research, a CNBC contributor. He's with me at Post 9. Welcome back. Thanks. I noticed from your notes, it seems like you're getting a little more defensive.

You upgraded utilities to overweight, staples to equal weight, and you downgraded discretionary. Have I characterized that correctly? I just try to position for what I think is inevitable, which is either you benefit from AI, you can't be destroyed by AI, or I don't know. Right? And so I'm starting to realize, all right, I know I'm going to need utilities, I'm going to need staples. So maybe those are just going to trade at higher multiples than I thought previously, and I don't want to get too negative on them. Wait a minute. So you are making market calls, broad market calls at this point? No, not a market call. Well, sector calls, not a broad market call. Yeah. On AI? Yes. Who's going to win? Who's going to

disrupt? Who's going to lose? I think the market multiples are telling you right now who they think is going to win. Right. And then there's things that are either going to benefit or not benefit or get destroyed by it. And I think it's that simple. And I think we're what I've realized in the last three or four months is, you know what, the market's not just up because people got dovish on the Fed. It's up because there's things that are really changing, and AI is actually starting to impact a lot. And so that's part of the reason the market's up,

part of the reason growth is up, part of the reason NVIDIA's up. It's not all just speculative garbage. They're selling 25,000 GPUs for ChatGPT5. No, I understand that. But people say there's a bubble related to AI. You don't think it's too soon to make broad sector calls right now about that? It might be. It could be five or ten years out.

I just think I've been too negative. I know I'm going to need certain things for long term. And I know the things that I'm confident can't be disrupted by AI. Maybe I should pay a higher multiple than I thought earlier. We've been wrong. We've been too negative on staples, and it's hurt the portfolio. So I'm just trying to kind of take it to market weight from underweight and say, you know what? There's some reasonable names in here that I could hold that are probably going to remain at elevated multiples.

But what do you think broadly lies ahead for stocks? Here we are at this moment, right, Av? Got last week out of the way, which was a critical week. We had Apple and the Fed, obviously. Now we've got CPI, PPI. We've got companies like Disney. We've got the debt ceiling, which maybe we're finally paying attention to here. I'm a seller of caring about the debt ceiling. Maybe this will be the dumbest thing I say today, but what are the alternatives? They're just going to not pay government employees and we're going to implement massive austerity and that's it. No, we're going to raise it. And when we raise it, eventually, the market will go up more that day

than it goes down anticipating it. That's been the playbook the last 97 times we've worried about this. So, you know, shame on me if I get bearish on the market because of that. I really don't know if the next 10% move in the S&P is up or down. I really don't know.

I could see arguments for... You don't have a... Do you have a sense of what you think? I think that consensus and rhetoric is negative. But I think people are worried that it could go up and they're going to miss it. And earnings season's been better than people thought. Numbers have been okay.

They cleared the lower bar pretty universally. And there's some signs that things, you know, there's some signs that inflation's rolling over. You're seeing some consumer companies cruising data. I mean, you go down the earnings. It's not a disaster, and it's not what people thought the bear case would look like at the beginning of the year. So I'm kind of more mixed.

I don't think you can – we we talked about this a million times. You always, always sound dumber when you're bullish, right? Because if you're bearish, you're going to have debt ceiling. And most of the things don't matter. What matters is the trajectory of poor earnings. I think they're eroding but not imploding. Some companies are clearing the lower bar. I think I want to own some growth stocks.

I think people are too negative on energy and metals. I know those, I'm going to need those in years two, 3, 5, 10. So I think I find things that can outperform. I'm not in the bear den, but I'm worried that valuations aren't that compelling and the economy's slowing a little. So I'm kind of balanced. And you truly don't care about the debt ceiling issue, even if it gets messy around the deadline and we have a big pullback, you'd be a big buyer. Yes, I would be because I don't only because I don't see what the alternative is to them raising it. I mean, in the end of the day, what are they going to do?

They're going to just not pay the government employees and there'll be some Washington stuff like there always is. But at the end, they're going to raise it. So I'm going to the bottom. I'm doing this on the iPad and going to the bottom. Oh, they raise it. OK, I don't know what the craziness in the interim will be, but I don't believe that they're going to implement massive austerity and run at a balanced budget. Okay. So you're reasonably measured about the market overall. Let me ask you a question. What do you think of, as we're just coming off the Berkshire meeting, Buffett and company out there. What does it say that he's talking next to nothing about opportunities that they've taken on declines in the market? They're sitting on a Mount Everest sized pile of cash, not really putting it to work in any meaningful way.

Guy's the greatest investor the world's ever known. And he's apparently voting for not yet on great opportunities. What does that say? Well, I think that, you know, they do big deals. They have a lot of money, so they need to find something that's big that they can own so that, you know, there may be some things that are – I don't think that's inconsistent with what M&A is telling you. Bankers are firing people left and right. I don't think they think there's going to be a ton of deals either.

So I think that ties across the industry, and they have a lot of capital, So they're going to do bigger, chunkier deals. So I think that's pretty consistent. They also, I mean, if you listen to them, and I know we all love listening to them, I don't think they're big believers in private equity. So they're going to be more focused on the public markets. They're not going to make big bets on alternatives. So I think they have a concentrated amount of money looking for large cap names and looking for things that, you know, good businesses that are reasonably priced. So I can see that logic. The other comment that I think, you know, raised some eyebrows is Austin Goolsbee, right? Central banker. He's getting, quote, vibes of a credit crunch beginning. I'm wondering what you make of that kind of comment. Also, in the context of the loan officer

survey, which, you know, a lot of people are paying attention to today, showed tighter credit and weaker business loan demand. So you definitely have a tightening of credit. Every time I come on every week, I tell you, I don't like the regional banks, that loan growth slowing, that that's worse threshold for the economy. I don't know how somebody could be surprised about that and seeing that now when it's been obvious. Talk to anybody trying to get a loan from a regional bank, a non-recourse loan to do construction in America. Zero regional banks are giving you, of course, that's slowing. And I think that's why it's hard to be bullish because you know whatever your view of the economy was before

the banking issue, it's got to be slightly lower now because financial conditions are tight. We were just talking off air about what's the bull case. And I think it has to be a little bit of relaxing of financial conditions. You need more loan. I think we're in a pocket where it slows before it gets better. Is the Fed being done a bull case? Yeah. I mean, if they come out and say that clearly. Well, I mean, if you got Goolsbee talking about a credit crunch, the data of credit and loan demand would suggest, were they really going to keep raising rates in the face of a deepening credit crunch if one develops?

I don't know what they'll do. I think most people have been wrong predicting what they're going to do for the last several years. But it certainly feels like more of the raising is behind us. I think on the margin they're going to be a shade more hawkish than what's in the price still. We'll see. Just because they tend to look the most at full employment and stable pricing. And, you know, that data, I think the main issue is the employment cycle is going to be way different this time. You know, you don't have, I think you're gutting the middle end worker.

We talked about this on the air a couple of weeks ago, but the WM, waste management CEO, saying, I can't find somebody to drive a trash truck for 90 grand a year in Houston. But if you went to a small school and you have an MBA, I can pay you 60 grand and I can get as many as I want. That's a microcosm data point, but it's certainly a meaningful one about where we are in the economy. So I think the low end could stay with slightly better unemployment at this point in the cycle than it has been in the past, but that middle end might not be in as good of a shape. And so there could be some dislocations on discretionary, which is one of the reasons I'm a little bit less saying one about select apparel retailers and luxury, some of the things that dominate the retail sector. Do you think there has to be a reckoning

between the market's view on what it thinks the Fed's going to do and the Fed itself? And it's sort of what Marco Kalanovic of J.P. Morgan puts forth today. Remember, a guy who was bullish and he became bearish later last year. He says, quote, dissonance remains between the bond market that expects rate cuts this year. Equity market interpretation of those potential cuts is positive for risk

and the Fed's rhetoric not seeing any rate cuts. What equity markets refuse to acknowledge is that if rate cuts happen, it will be either because of the onset of a recession or a significant crisis in financial markets. Talks about breadth, right? Being the weakest ever, narrow leadership. Yeah, that part, listen, I'm... Forget about the breadth thing, but this idea that there's offsides between the market and the Fed, and somebody's wrong, and there's going to be a reckoning somehow, some way, sometime. Yeah, my experience, if I were guessing, and I haven't tested this, is that the market's never wrong, right? I mean, the market being robust more than people thought is telling you that earnings will be slightly better six months from now than people thought. That's the bet I

would make, and that's the reason I'm not as negative as some of the other people are. So you're saying, you just said the market is never wrong. Yeah, I think the market's usually right, you know, usually. Not always, not never, but it's usually. I'll take the bet versus the Fed. I don't know. The market being resilient is telling you that earnings have been more resilient than you thought six months ago. Isn't that the story? So look, in terms of the bank stuff, yeah, of course, everyone knows the duration mismatch from the banks. What they don't know is the private credit. There hasn't been a lot of discovery there. And so it feels obvious that that's asymmetrically skewed to the negative and the positive. And a reason to be worried is the reason the regional bank index has gotten annihilated in

the last three months. I think that's at least mostly in the price. I think the bigger issue is what's the economic contagion from lower loan growth and tighter conditions? That feels a little bit worse to me. The part that feels better is technology is starting to impact the way businesses are running and performing. And the stock market reacts to gross margin expansion. If commodities are coming down, if wages are starting to abate a little, if the dollar weakens a little against the euro, those things are directionally positive for earnings. We had high nominal GDP. And again, I'm just, you're not going to sound as smart when you give the bull case, but I'm just saying generally, maybe the earnings, the bear case for earnings is a little less severe than it was six months ago. Okay.

Let's widen the conversation, bring in Nicole Webb of Wealth Enhancement Group. Do you agree with that? You don't have to. You don't have to. Better if you don't. Yeah, it's better. You preferred if you didn't. I would love to go back to the conversation we were having earlier, which is what breaks us out of the range we've been in for two years? What is the ultimate catalyst? So to some degree, I do agree that we need to see margin expansion. And what is the most likely catalyst for it? The implications of AI and their bringing forward. I would go back to your question about Buffett and sitting on enough cash, so much that's the size of the economy of Germany.

And what does that indicate? Well, it likely indicates to me that he thinks rates today are higher than they're going to be, so he can capitalize in the short term on not deploying cash, capture the upside there, and then make mindful investments when he sees the trickle-through effect of tightening credit. A lot of the growth we saw in the Q1 came from we still had loan growth and expansion. So, again, bringing the convergence of all of this together, and to your exact point, which is the market is pricing in cuts, is the market going to be wrong?

And it seems to be a little bit of a political game of chicken. How can you possibly go into 2024 pushing rates on a trajectory where you are forcing the unemployment numbers to go up? You're talking about the election year. Yeah, absolutely. And so how is there not some pressure on the Fed going into the year and some of the main agenda items of the current administration? And that's where I think you're seeing this push-pull effect. Do you think that the stock market is pricing in in any way or ignoring, I guess a better way to ask, policy risk from the Fed? Is the stock market ignoring that at this point? Absolutely. I think investors and the market are ignoring how fiscal and monetary

policy will affect markets in the back half of this year. If you take out some of the excess that's being built in, in terms of liquidity excess that comes into the market in the back half of this year, our valuations, which are trading near highs, is it sustainable into the new year? Well, what about Adam's point that, you know, you went into earnings season expecting, you know, an implosion of some sort. You're not really getting it that much. So maybe valuations should be higher than we thought coming into earnings season. I think there's a strong case for your point there exactly. You also saw there was a lot of tailwind in Q1.

And so if you think about what reprice is on the onset of a recession, it's a lot of what we saw price in in Q4 of last year. Breaking through it, that didn't happen to actually be a recession. We dodged an imminent recession on a global scale. And so how do we reprice the market back to where it belongs today? And it appears we've done that because when we reach the high end of this range, you start to see the capitalization, people pulling off, doing sales out of the market. When we reach kind of the mid range, you see the buys. And so how do we break through that, I think, is where one has to push on the bull case, which is, is it just a reinfusion of cash into the market? Are we just stretching multiples too far? And when and how do we get to that moment

in time? I thought Apollo CEO at Milken had a good line, you know, non-recession, recession. Like, I just don't know. I think we're used to this recession of, like, negative two quarters GDP. Well, because we've had a rolling recession under the surface, right? But at the end of the day, I don't know if it's going to manifest itself in S&P earnings the same way it did in the past. You know, I just don't think it's going to because we have so many, you know, different businesses with higher margins and the like. So I think, you know, the market getting killed Q2 last year, Q3 last year was the earnings decline year over

year that already happened. I think the question now is if it's plateauing or maybe growing a little bit later in the year, then maybe the market deserves to be flattish or a little bit up and in the range it's been. And again, I'm not saying, hey, we're, you know, the trains left the station, jump on board. I think there's things I can own and things I don't want to. But I do think that there are some bigger things at force than just the Fed. Let me ask you both. I mean, what makes better sense or sounds more realistic, $4,400 or $3,800, Nicole, S&P? We're at $41.5, we'll call it. Can we get to $44? Someone raised their price target. I think

we might hit both this year. Steve will raise their price target today to 44 for this year. I think both are possible, maybe even this summer. I think 38 is possible. If the solvency of the U.S. dollar gets called into question, which it never should, then yes, we could touch. Planet Earth will end if the dollar's not money good. If we start to see political pressures for the Fed to adjust course on the back of unemployment in Q4, I think we hit 4,400 before the end of the year. Do you think that's possible? I'm just trying to do the math on 4,138, 4,400, 262.

I don't even think you gave me the same percent up as down, so I'll take the up over the down. Yes. I'll take 4,400 over 38. Just carry on the math that I'm trying to do in my head. It's kind of to your point, though. It's easy to be negative, and you can give all the lists and say, well, you can easily see us going back to 3,800. But doesn't it seem like it's a much harder case to make to get to 44? Everyone wants the market to get the recession to happen only so they can get bullish and buy stuff on 25 or 26 earnings.

So all they're trying to figure out is, is it cheap on 25 earnings or cheap on 26 earnings? Well, be careful what you wish for, too. Right. You know what I mean? But people, when you're an equity investor and you hold stuff for two or three years, you're just trying to say, what year can I justify current valuation on, right? And so I don't know. I think the bold case would be that earnings are a little bit up in 24 from 23. And I start thinking they're going to grow again for the next couple of years. I'm on a cycle. The Fed, you know, stop being, you know, hurting me here.

And then maybe we just kind of let inflation slowly come down. Margins can go up a little bit. And the bold case is you're in the beginning of a five year cycle again. And you're just you're trying to value it on 24 earnings and you've got to value it on 25 or 26. Last last quick word, Nicole. And you're just, you're trying to value it on 24 earnings and you got to value it on 25 or 26. Last, last quick word, Nicole, what lies ahead here? Well, the next, you know, I don't know, month. In the ultra short term, incredible pressure on the market to the downside as we have the looming debt ceiling. I think Janet Yellen, it was a call to action over the weekend. We were not paying attention to the fact that we're going to see loan growth decline, and probably substantially over the summer. And then the back half of this year is yet to be written.

And below the surface of the market, there's certainly still opportunities for investors to get invested, because not all companies are trading equally right now. And I think that would be my parting words to investors is pay attention and look for opportunities where AI can impact future growth potential. All right. I don't like the breadth thing, just one last thought. I don't like that because when I look at your screen, there's tons of stocks up 20% and 10%.

I think the problem is people get the breadth because they say, oh, when you're a $2 trillion cap and you go up 10% and that's $200 billion, of course nothing else can add $200 billion. But there's plenty of $10 billion cap stocks that are up 50%. So the breath thing is a little bit of a, I don't know, myth. I got a myth buster that in a research note or something. Okay. We'll look for that.

See you guys in the days ahead. All right. Nicole Webb, Adam Parker. Thanks both. All right. Let's get to our Twitter question of the day. We want to know which of these sectors has the most upside potential right now. Consumer staples, consumer discretionary, tech or energy.

You can head to at CNBC closing bell on Twitter to vote. We got the, consumer discretionary, tech or energy. You can head to at CNBC closing bell on Twitter to vote. We got the results coming up a little later on in the hour. We're just getting started here on closing bell up next signs of life in the IPO market. Venture capital investor Rashaan Williams is breaking down if he sees a thaw in that space and later regional banks giving back most of an early rally to kick off the week. We'll tell you what's driving those moves. We're live from the New York Stock Exchange here post nine. You're watching Closing Bell on CNBC. Welcome back. A little less than 40 minutes to go in the trading day. Let's get a check on some top stocks to watch as we head towards the close. Pippa Stevens is here with that. Hey, Pippa. Hey, Scott. Well, shares of Catalan tanking today, by far the biggest loser on the S&P 500 after the company said it will delay its third

quarter earnings report. Catalan also saying it will significantly reduce its full year guidance after reported production issues back in April. And from one loser to another, Tyson Foods also getting crushed. After that, company's latest quarter was well short of estimates. The meat supplier posted an unexpected loss of $0.04 per share, while analysts had been expecting a profit of $0.80. Tyson faced both pricing pressure and lower volumes. Revenue also missed, and it cut its full-year revenue guidance, though shares hitting a three-year low today.

But shares of Zscaler rallying on strong preliminary earnings and full-year guidance. The cloud security company saw revenue and billings ahead of estimates and raised its outlook for the rest of 2023, those shares got up 20%. Bipa Stevens, thank you very much. We'll see you in a little bit. Can view shares slightly higher to start off the week after a solid debut in the public markets. It was the largest IPO since Rivian back in 2021. It's been a minute. Is this a sign that the IPO market is finally thawing out? Let's ask Rashawn Williams of Manhattan Venture Partners. Good to see you. Welcome. Hey, Scott. Good to see you. You know,

I was I was here and I was watching that all go down on the floor and it was excitement, the likes of which we hadn't seen in a while. Is it the start of something? It's not. And thanks for having me back. I remember I was on talking about the Mobileye IPO and I'll just reiterate the same talking points before. What we just saw happening was J&J doing a technical IPO and that does not apply to all businesses. Whenever you have like a corporate spinoff, you can really restrict the supply. You can price it below comps. You can oversubscribe the book. They still own vast majority of the company.

So corporate spinoffs are very easy to do. Not very. They're more likely to be done now because they have more control over exactly how much supply, where they price it. They're less price sensitive. And they're just waiting for the multiples to expand again for that thing to trade up. Where the vast majority of companies where you have all of these VCs looking for liquidity, you have these founders, you have these employees. And the way they're looking at the IPOs is whether or not they can get fair multiples today. I just don't think it applies.

So I think it's a little bit of a head fake. But I think for all of the big corporations, they could do deals like this quite often. You do have a lot of tech companies, especially in the hopper, so to speak, just waiting for the right moment. When is that moment going to come if this isn't it? A few fundamental things need to happen. So first and foremost, the market needs to be rising and consumer and investor sentiment needs to be positive because everyone looks at the performance of IPOs

and no one wants to jump or grab a falling knife, right? So I think overall, the economy needs to be doing better. The market needs to have some type of sustained rally. I think people need to feel more positive about it. And you need to see a few non-corporate spinoff IPOs do really well. And then you have all of the companies that we invest in, that we love, that we've been waiting to go public, can tap the market and normalize multiples. No VC wants their company to go public at a fraction of the multiples that they were just 12 to 18 months ago. Yeah. You say secondaries are actually the new IPO, right? Yes. Secondary is a new IPO. And we love it because our firm, we mostly buy most of our shares in the secondary market.

And it's funny because seven years ago, the secondary market was looked upon as like the evil stepchild of like the primary market in venture capital. And when I was working at Goldman Sachs on Wall Street, you know, in the early 2000s, we all knew the secondary market was seven times larger than the primary market and fixed income. So now the secondary market in pre IPO and growth stage technology companies is not only maturing, but it's actually doing very, very well. And the reason is very simple. VC funds are staying private longer. And now that the capital markets are closed, these VC funds need liquidity events. The founders need liquidity events and the employees are at risk losing stock options unless they find some way to exercise those stocks and sell them. So you have all of these buyers out there, not only institutional buyers that are set up specifically for this asset managers, but you have sovereign wealth funds. You have individuals. There are individuals out here buying secondaries on websites right now

where if they couldn't get a piece of the primary round, which are always oversubscribed and very difficult to get in, they can buy a little smaller chunks and build their positions over time in the secondary market. So that's the way that some people have been accomplishing realized gains in this market where you're otherwise locked out because of the capital markets. How many times a week are you getting a look at AI related deals? What do you think about that whole space? It feels like we've gone from zero to 100 miles an hour virtually overnight. Had a gentleman sit next to me a few moments ago

rethinking his sector allocations in the market all because of AI, winners, disruptors, losers, etc. How do you think about it? Well, between AI and cybersecurity, those are the two industries that we think are poised

for huge growth that we haven't evenised for huge growth that we haven't even really tapped into the total adjustable market and the commercialization of those industries. I would give a third to climate tech and maybe a fourth to quantum computing, right? See a lot of quantum companies still going public and still value that billions, even though they haven't even commercialized the technology yet. But AI is one of those things where you feel like you have to be in it because VCs are looking around the curve. They're saying, what's going to be popular and normalized five or 10 years from now? Not today. But it is scary to see how

quickly it's going. I think Hollywood has done a great job of telling us exactly what the downside could be. I don't think we as investors have done a good enough job explaining what the upside can be. And to your point about it coming up quickly, it's actually been around us for a decade already. We use AI on a daily basis with Siri and all of these different technologies, with Alexa, with Amazon. I mean, my phone can literally do a lot of the things that I used to manually do using AI right now. Sure. As we get deeper, it's becoming a lot more complicated and a lot more scary. But I mean, we're deciding alleged stock market winners and losers today based on technologies that are yet to be developed. We don't even know who the true winners and losers. I mean, in the most obvious cases, perhaps we know who the winners are going to be, or at least among them.

But we don't know a lot about who stands to gain, you know, the most, who stands to lose the most. And we're having to make these investment decisions today. Yeah, it's kind of similar to biotech. I'll never forget when I started, when I left Wall Street and entered the venture industry, they said, how can you possibly invest in businesses that aren't profitable, that, you know, are worth billions of dollars? And I just simply pointed out to them that at least one third to 40 percent of all IPOs were from unprofitable companies, especially led by biotech. So what you're betting is that the ones that make it through FDA approval are going to be billion dollar corporations curing cancer at some point. Most of them won't. So with the same mentality, you can go into AI, you could go in technology. And what you're trying

to do is get real estate in the most expensive beach in Malibu, right? And you're saying that, look, we're putting, there's more ocean in the water now. All the boats are going to rise. I just want to grab a hold of the few that I have access to that the market deems are public ready. And I want to add those to my portfolio before they're worth 10 times what they're worth today. And that's why people are investing. That's very common in the venture space, but it's very uncommon in the public markets. Yeah, for sure. Rashawn, I appreciate it very much. We'll see you soon. Thank you for having me.

All right, Rashawn Williams joining us here, closing bell. By the way, CNBC's annual list of fast-growing innovative startups is back for the 11th year. It's the 2023 CNBC Disruptor 50 list. It gets revealed tomorrow on air and online at CNBC dot com slash disruptors. Up next, trading recession risks. One top market strategist breaking out her playbook for the rest of 2023 and how she is navigating the big headwinds she is forecasting for stocks. We're back on Closing Bell right after this. All right. Another critical week for the market shaping up. Investors bracing for key reads on inflation and the consumer, and that after the Fed's latest rate hike. But our next guest believes weakening economic momentum could signal recession and rate cuts by the end of the year. Let's bring

in Mira Pandit of J.P. Morgan Asset Management back at Post 9. It's good to see you. Welcome back. So you're looking for rate cuts? That's one of the great conversations in the market right now. What the market thinks, what the Fed says. You're going with the market. I think there's two reasons why the Fed might have to cut by the end of the year. The first we've been thinking about for a while, potential recession into year end. If we see that inflation is closer to 3%, even 3.5%,

if economic growth is actually potentially negative or slow, it's going to be hard for the Fed to keep rates above 5%. And then as we think about some of these ongoing banking issues, obviously, of course, that is leading to slowing credit growth. We saw that in the senior loan officer survey this afternoon. But in addition, not only will it tend to slow down economic growth from that perspective, but also it's putting a lot of pressure, higher rates, on the banking system in general. And when we think about what is the solution to relieve some of that pressure from small and medium-sized banks,

that has to do squarely with rates. There's a number of other Band-Aids that we could apply from a policy perspective, but the big one is bringing rates down to a more reasonable level so that it's not putting as much pressure on deposit basis. Marco Kalanovic, also of J.P. Morgan, essentially says today, be careful what you wish for if you're looking for, as the market is, rate cuts, because that means that the economy has gotten to a point where they have to cut rates and that's not good for risk. Is that sort of what would you share those views? I would share those views because essentially it's not that the Fed would be cutting preemptively. They have said long since the cycle has begun that they want to get rates to a restrictive level and hold. So they absolutely don't want to cut.

So if they did cut, it would probably be because they're essentially forced to cut based on financial or economic data. So in that case, it would not necessarily be a positive for risk assets. Where are you right now on your view of where do you think we're going from here? I mean, the market's been resilient, maybe more so than people thought. We got right on the doorstep of 4,200 and then we faltered back, looked like we were going to break down. We were teetering a little bit. And here we are back, you know, as of the end of last week, moving back higher. How does it look? It's possible that we stay a bit range bound for the near term as the market and the economy continues to absorb rates at over 5 percent and some of the other risks that we have

on the table. But if we see further deterioration from where we are today, that could result in a bit of a more of a downward trend. So I know you're having a prior discussion about 4,400 versus 3,800. I'd say that 3,800 is probably more likely than 4,400, especially when you fold in the profits picture. Profits for a year now have been better than expected, but nonetheless, I don't think there's a catalyst to catapult them higher. So when we think about valuations,

when we think about profits, when we think about weakening economic growth, I think we could see the market slide a bit more from here. Doesn't mean we have to reestablish a new market low, but we have a lot of headwinds ahead of us that could cause a bit more gyrations. You like international over U.S., correct? We've had a pretty unwavering commitment to international this year, and it's been pretty fruitful so far because we've seen that the dollar has continued to slowly but surely move lower. When we think about recession risks outside of the U.S., from a European perspective, looks like they'll be able to avoid recession for longer than the U.S.

China is picking up. It was that the ceiling on Chinese growth was 5%. Now it's looking like the floor. So as we see different markets pick up, that could lead to better earnings outcomes and potential earnings upgrades. Add valuations into the mix. There's just still a lot of reasons to like international over what we're seeing in the U.S. But you put China high on your list of liking international over the U.S. I feel like there's some questions today as to what is actually happening with the China recovery relative to where expectations were. Expectations went way here real fast. And I wonder if we need to dial that back based on what some of the companies that are exposed there are telling us.

Certainly. We do need to be realistic about our expectations here because I think the biggest challenge in China right now is confidence, whether it's consumer confidence, because about two thirds of the consumer balance sheet is held in property. That compares to about a quarter in the U.S. So if the property market is still undergoing some challenges, that's going to weigh on consumers. And similarly, from a business perspective, do you want to invest when you think that there's going to be more political uncertainty? That is a challenge there. So confidence

is what we're looking to see a pickup in and potentially also earnings upgrades. But there's many ways to play the China recovery outside of China. We're seeing that in luxury stocks within Europe. We're seeing that in emerging markets, which have been reasonably stable outside of China. So there's other ways to play the China reopening. But that's one of the ways I was thinking of it in terms of it not working out. Estee Lauder, perfect example. Thinking that there's going to be this luxury, you know, retail travel from China that is just not materializing yet. And the reason for that stock specifically, which I'm not asking you to opine specifically there, but just that idea. Beneficial, no-brainer to places like that until it isn't.

We've already seen a huge run-up in Chinese stocks in particular and a lot of the stocks that are linked to that recovery. So I think that we also have to be mindful of the pace. We don't actually want to see stocks take off to the moon. We want to see them backed up by earnings, backed up by numbers. So we're willing to be patient here with a lot of these different themes. I don't think we can expect a three-, six-month turnaround here. It's going to take many months, potentially many years, and that's how we think about stocks as long-term investors.

Amir Pen, thank you very much. All right, we'll see you soon. Up next, we're tracking the biggest movers as we head into the close. We're back in two minutes. About 15 minutes to go before the closing bell. Let's get back to Pippa Stevens now for a look at the key stocks to watch. Pippa. Hey, Scott. Well, some big earnings reports on deck in overtime, including Devon Energy. That stock higher today, but still down 16 percent for the year amid the decline in commodities. Still, we've heard from competitors that cash flows remain healthy. So investors will be listening for commentary on the company's capital returns plan.

And shares of Palantir on the move ahead of the company's first quarter results. During Q4, Palantir reported profitability on a gap basis for the first time, but growth across its government and commercial businesses has slowed. So that, Scott, is something to watch there. Back to you. We will. All right, Pippa. Thank you, Pippa Stevens. Another name we'll be watching closely in overtime, PayPal. The key metric to watch. We will tell you exactly what it is. And a last chance to weigh in on our Twitter question. We asked which of these sectors has the most upside potential right now? Staples, discretionary, energy or tech?

At CNBC closing bell, vote please on Twitter. We'll bring you the results after this break. Let's get the results of our Twitter question. We asked which of these sectors has the most upside potential right now? Consumer staples, discretionary, tech or energy tech. That's in the lead. Forty three percent of the vote. It has led. And yes, you all think it still will. All right. Up next behind the regional banks, big move. The sector remains volatile after an ugly week. We got the latest and what is ahead for that group. And don't forget,

Treasury Secretary Janet Yellen on overtime in just a few minutes. You can't miss that interview with everything going on around the debt ceiling fight. Closing bell right back. We're in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down the crucial moments of the trading day. Plus, Leslie Picker following the money in the regional banks. Well, after that route, the worst week since March last week, Christina Partsanova looks for the look at what investors should be watching for when PayPal reports in overtime. I turn to you first, though.

I mean, what are we waiting? We got CPI. We got PPI. We got some Disney earnings. The debt ceiling as we inch closer to this purported deadline of June 1st, we're going to, I suppose, be more worried about it by the day. Presumably, although sometimes it's not worried at all and then very worried just right beforehand. So it's fascinating just psychologically in terms of how the crowd thinks about this,

because pretty much everyone knows that on an enduring basis, this is not the make or break thing. But it's very hard to really resist the momentary stresses that it could create. And, you know, you're seeing gold try to break out. You're seeing the T-bills get all distorted because of where they mature around the ceiling. When it comes to the stock market, I think the combination of continued better-than-expected earnings,

the idea of a Fed pause, still pretty defensive positioning, or at least a lot of hedging, based on how the big money has been positioned in futures and things like that, is enough to keep the market here. What I also find fascinating is the very confident assertions

that the only reasons the stock market is here are because of this perfect scenario over Morgan Stanley, not Mike Wilson, but on the on the investment committee side. They say the only reason the market has been resilient is because a soft landing is priced in, is because the thought that inflation has been tamed and that we're going to get 200 basis points of Fed easing within 12 to 18 months. Who says? The market doesn't show its work. It doesn't mean this is what it's based on. I've always been of the thought that a Fed pause is enough to explain where the market is as opposed to getting into that conflict between

do we really want the circumstances under which the Fed would cut. All right, Leslie Picker, regional banks, they are going to remain a big part of this story. Maybe a bit of a reprieve, certainly today. But who knows where we go from here with these stocks? Yeah, a bit of reprieve, but definitely down from where they were at the open this morning. You can see, you know, among the biggest laggards of the month, they are in the green today. You've got PacWest, Western Alliance, Zions posting gains, but definitely, as I mentioned, down from where they were at the start of today's session.

The slight bounce comes after last week's tremendous volatility. In fact, according to Goldman Sachs hedge funds, net sold global financials at the fastest pace in the past year, with notional net selling in global financials ranking ranking 98th percentile last week. Piper Sandler describing the wild swings as, quote, meme stock frenzy in reverse. In other words, the fundamentals remain decent, according to analysts. Recent Fed data shows continued stabilization around deposits for both big and regional banks. And there's been a decrease in emergency liquidity programs. But still, today's senior loan officer opinion survey on bank practices, known as SLUs, showed banks in April had continued to pull back on lending

with concerns over the economy, funding costs, and deposit outflow. So all of this kind of has a cyclical impact as people digest exactly all the variables that are going into the sector right now, Scott. Yeah, Leslie, thank you very much. I mean, one of your learnings, I think we call it from out in Omaha over the weekend, doesn't seem like Buffett was taken in any way by the upset in the regional banks in terms of putting money to work. He certainly found some things to criticize in the way a lot of this has gone down in terms of management and the like, but not really willing to put a lot of money, if any, to work here. No. First of all, these are extremely, I mean, the ones that are really in the

crosshairs, low market caps, purely regional, not necessarily something that would rise to the level of, oh, that's a definite Buffett stock. Yeah, not the Buffett playbook. On the other hand, he both didn't see them as really cheap and a huge green flashing light to put capital at risk. But he also seems to feel as if it's not quite a systemic thing. If you just look at the numbers, you're not seeing the same level of deposit flight. You know, I was interested in Wells Fargo's piece today, Mike Mayo's piece, saying of the top 100 banks, if you just run their unrecognized losses through the books, they all have positive, tangible net book value. So that tells you that it is mostly a trading phenomenon in the sense out there that these guys are in a fundamental trap,

even though they're not necessarily, you know, it's not an insolvency crisis at the moment. Yeah. Christina Partsanovalis, we have some earnings to look forward to after the bell and an important one at that. At one time, a stock that had a bigger market cap than one of the big banks. Oh, how far we've come. But one of the main drivers for PayPal this quarter is going to be e-commerce growth. And recent trends could signal some stability in Q1. Why I say that is because Visa sales and that sales with no card present, think digital, they were up 9 stability in Q1. Why I say that is because Visa sales, and that's sales with no card present, think digital, they were up 9% in Q1. MasterCard spending, Pulse e-commerce data up 11.5%,

while Amazon's e-commerce sales came in flat. But that still means stability. And PayPal's CEO actually spoke at a recent Morgan Stanley conference and indicated e-commerce was coming in better than expected this year. Which leads to my second focus, engagement trends among merchants. In Q4, PayPal said that out of the largest 100 internet retailers, 75% of them already accepted PayPal, and 33% of them used some advanced version of PayPal Checkout,

which means there's more room to grow, as long as Apple Pay doesn't steal market share. Competition is wrapping up and we'll want to hear about PayPal's branded checkouts and how it's leveraging its Venmo brand as well. Lastly, the major overhang stock for this company, Scott, is the lack of a CEO succession plan. CEO Dan Shulman is stepping down at the end of this year and they have not announced his replacement. I'll be sure to ask him that when I speak to him, I think in about 30 minutes or so on the phone. Shares are trading.

We can bring that back up just so you can see. Shares are up, barely in the green, six-tenths of a percent up. Scott. All right. Thank you. See you with those earnings. We've had the two-minute warning here on Wall Street. I wanted your opinion on what Adam Parker said, and I'm not sure you had a chance to

hear it or not, about this myth-busting, if you will, of the so-called bad breath in the market. With these top-heavy stocks doing all the work, he's like, well, I mean, you've got the biggest market cap companies in the market. Of course, if they go up, the market's going to go up. Well, there's a hazard to saying what percentage of a net change is attributable to a handful of stocks? If you think about that, every stock that didn't go to zero contributed to the fact that the S&P is up 8% today. So just because you're toting up the gross market cap and saying, now, if you look at a list of stocks that are within, let's say, 5% to 10% of their 52-week highs, it's a much longer list.

A lot of them are staples. A lot of them are kind of the sort of better franchises within consumer discretionary. There's some there's some industrials and equipment makers in there. So it's not as if it's just a few stocks that are up. But I do have to grant fewer than half of all stocks are above the 200 day average. It's not been a very inclusive, you know, widely distributed strength in this market. But sometimes you don't get that. And it also doesn't tell you how it gets resolved. So I do think there's always the possibility

that, you know, Apple today is taking a breather. It's right at resistance in August. If it goes down a lot, sure, it's going to be a drag on the indexes, but that doesn't mean that couldn't come on a day when the banks catch a bid or energy is working.