Closing Bell - Closing Bell: What’s Next for Your Money? 2/21/23

Episode Date: February 21, 2023

Stocks had an ugly day – with investors weighing some serious money risks. Trivariate’s Adam Parker gives his forecast for stocks. Plus, star investor Keith Meister breaks down his market strategy – and where he’s making some big bets. And, BTIG’s Jonathan Krinsky is drilling down on the key levels every investor needs to be watching.

All right, Kelly, thank you so much. Welcome to Closing Bell. I'm Scott Wapner. This make or break hour begins with some serious questions about stocks and whether the rally to start the year is in the process of reversing and in a big way. We're going to ask super investor Keith Meister that very question when he joins me in just a little bit right here at Post 9 for an exclusive interview. We're also going to set you up for Coinbase and Palo Alto earnings in overtime, two stocks that have run a lot to start the year. We're going to see what they deliver. We do begin, though, with our talk of the tape.

Today's weakness, what it means for your money in the days ahead. And let's ask Adam Parker. He's the founder and CEO of Trivariate Research, also a CNBC contributor. And he is here with me at Post 9. Welcome to the new program. It's great to have you here. Thanks for having me. What is up with the market?

We're cruising for our worst day of the year. It felt like the bulls had the upper hand for the last, you know, several weeks. Are they giving that up now? Well, you know, I worry a little bit. The consensus has shifted. You know, we started off the year with the overwhelming consensus being, hey, we're going to be down in the first half of the year, up in the second half. I can't earn anything that loses money. So naturally, market goes higher, and the things that lose money go up the most. But I think, you know, right around now, I think the sentiment has shifted to, well, maybe things will be better.

There's going to be money flowing in. The economic data have been strong. So yeah, maybe the Fed won't be as dovish, but the bear case in earnings isn't as likely. So the market kind of absorbed what I think six months ago would have been interpreted as hawkish for the Fed as OK. This is all about the way that rates are rising, though, isn't it? The more that rates go up, and by the way, they've done so in a reasonably short period of time, that's putting the pressure on stocks, right? I think so. And I think pause is now the new cut, meaning like we didn't want you don't really want the Fed to cut rates this year because that means the economy is nosediving and corporate earnings are nosediving.

What you wanted them to do was feel like, hey, things are eroding, not imploding, and they'll maybe, you know, hike less or kind of pause. But you don't want I don't think what you want is them to cut. Whereas six, nine months ago. Yeah, we want a more dovish Fed. That's good for equity. But that's what everybody was hanging their hat on. Like what I want you to listen to what Mike Wilson said on the network today on why we got here in the first place and where it leaves us. Here's Wilson. We thought there could be a pivot on February 1st. But then, of course, the data came in a bit stronger and the Fed doesn't want to give any chance to inflation rearing its head again. So we think there's at least two more hikes, maybe three

going into June. And, you know, that got priced into the bond market over the last 30 days, but stocks seem to have ignored it. And so what we've left, what we're left with is just stocks are more expensive. And there's really no justification for that because the earnings picture really hasn't improved yet. Right. I mean, this is the idea that you've had multiple expansion based on what? And now we're coming to the reality that, OK, well, the Fed's not going to pivot. And if anything, because the data has been stronger than we thought it was going to be, they're going to remain higher for longer. Look, the worst thing is when you work at a big firm and you're bearish and you're wrong.

Like, I've been there, bullish, bearish, wrong, right. You're going to be in all four quadrants in your career when you work at a big firm. The worst thing is when you're bearish and wrong. He's been more right than wrong, though. But in the last three months, the market's ripped. And I'm just telling you, I've been in that seat. You're in the hurt locker. I know.

Are you going to change your call every 10 minutes? You can't. So you either have to say, look, I agree the market's not as cheap as it was. I think it's pretty expensive. You've seen semiconductors go from 17 times to 25 times. There's been big rallies. It happens. I think we're going to be in a more volatile market. I think the setup for us has been, how do I outperform? And that's where, you know, we don't really do the market stuff because people don't really pay for that. We kind of think about how do we outperform underneath it. It's either cheap cyclicals where balance sheet repair can happen in a roading market. Interesting on a big down day today,

copper stocks are up. Energy is relatively massively outperforming. In the past, when we had a big down day, those things would have been slaughtered. So I think the cheap cyclicals are getting a bid. And I think and or stuff that can kind of grow through, meaning their 2024 earnings and cash flows will be better than 2022. So I think that's still the recipe for outperforming. What's interesting in the meetings we're doing, you know, the growth guys are saying, I don't really have any cyclicals I can own. And they have like an envy of those guys and the value guys. I wish I could get some growth. Everyone wants something else besides what they own. Because most people are not positioned right.

They're not positioned right. That's right. Because they were short the profitless companies and bearish on the market. So let's expand the conversation and bring in CNBC contributor Bryn Talkington and John Mowry of NFJ Investment Group. Good to have everybody with us. John, you first. I mean, you've been arguably the biggest bull who's come and sat on this desk with me or appeared like you are right now. You're not wavering one bit? Well, Scott, good to see you again, as always. Look, we were very bullish going into this year. And we definitely had some calls we've gotten wrong. And this one, we definitely were positioned correctly. We were overweight cyclicals. We were underweight defensives. And this was predicated on the fact that you had sentiment that was totally

washed out. And then you had steeply discounted valuations, particularly based on price to book. And if you look back historically, price to book was the single best factor leading out of the big downturn back in 2009. So look, are stocks as cheap as they were back in December when we were on set together? No. Are there still some tremendous values out there? Yes. I think you have to be a little bit more choosy. I think that you're going to need to look for cyclicals that have pricing power. We have trimmed some exposure, Scott, with cyclicals that have gotten a little bit richer, that have run hard. Some of the homebuilders, for example, are up 50% over the last six months. They have less pricing power and the valuations look a little bit richer. So we've reduced some exposure there. But I would argue that if you look particularly at REITs, which

are deeply discounted because of what the 10-year bond is doing, or if you look at life sciences, those areas are extremely attractively priced. They have pricing power. They have moats around their businesses. I think that if you look at defense, the fear that I have for investors is if you sit in defense and you wait for a white flag to be flown and say, hey, now it's time to get into cyclicals, you'll miss the move. And the markets are still up 15 percent, Scott, since the bottom in October. And the 10-year is only 25, 30 basis points off of its all-time high. What is that telling me? It's telling me that the market's not going back to those levels. It's pricing this risk appropriately. No, but you are making the assumption all along here that the stock market was in a sense and quote unquote right and the bond market wasn't

telling the right story because the bond market has moved more in line with the fed it's the stock market that some would suggest has been delusional through this entire process how would you counter that well i would counter that by saying that the bond market's been right because the long bonds controlled by the market the short end of the curve is controlled by the fed the fed has been very aggressive on pushing rates as high as they can to tame inflation. That makes sense. That's one of their mandates. But the long bond has been telling them no. The long bond could be at six or seven. It could be. We'd have a very steep yield curve. That'd be better for the banking sector. That's not what we have today. The long bond has stayed relatively low. And you have an 80 bps

inversion on the 10 and the 2. So I would argue that the stock market has said that they're wrong. And I would argue that the long bond has said that they're wrong. And then the gift that the investors got in December was that everyone moved away from cyclicals and they piled into defensives. And there's a reason, Scott, that Merck's down this year. There's a reason Pfizer's down this year. There's a reason all these defensives are down. It's not like these companies got bad overnight, but people overpriced them. They pushed the valuations too high and they created a massive dislocation in cyclicals. So I would argue that the market was right in pricing that. And the bar market's been right

all along, I would argue, particularly the long end of the curve. Yeah. Bryn, what's wrong with the bull case right here and now? Well, the bull case, the market was game set match. The Fed is done. We're going to move on. We're going to have a V-shaped recovery. And the bond market has to respect the stock market. And what I have not understood is the folks that have been saying we're in a new bull market. I have yet to see in history when you have a new bull market start while the Fed is still actively raising rates. And on top of that, we have QT. And so I think, unfortunately, we're in this trading range. And if I look back to see the last time yields were at this level, Scott, the Nasdaq was about 10 percent lower and the S&P

was around thirty nine hundred. I don't know if we'll get that, but investors need to understand that. On top of that, Scott, what the bulls got wrong, I think the bulls got wrong, is that I've talked about this sentiment and positioning. The first five weeks of the year, we had this massive short covering from the CTAs and the hedge funds. And that has been covered. And so now the energy to move higher has to go from somewhere else. And so I think while it's been nice to see a really nice beginning of the year, we're now back to reality that the Fed isn't done and inflation just isn't going to go straight back down to two. And so I think we're going to be in this muddled area, unfortunately,

where you have a little bit of something for the bulls, a little bit of something for the bears. But I think these extreme calls are going to be wrong on both sides. I think we're going to have to muddle through the next few months. What do you want to say about that? I don't think it's about the interest rates, the 10-year or the two-year. I think it's about the perception about rates of Fed fund futures. I mean, but they've gone up pretty quickly. Right. And so, yeah, I think each 100 bps they get incrementally hawkish from here is a turn and a half of multiple contraction. That's what the work shows. So I think that's the case for getting more bearish going forward is that they're

getting incrementally hawkish. Here's what happened. But I don't think it's the case for getting more bearish going forward is that they're getting incrementally hawkish. Here's what happened. But I don't think it's the level. I think it's the Fed fund futures. You had this super strong employment report. This is when this all started. You had this super strong employment report. Bond market moves. Fed funds futures move in alignment. And the stock market blows it off.

The stock market didn't seem to care. Right, because it was about the bear case and earnings having a lower probability, not just the hawkish. You've got to multiply both. You've got to multiply. But then it was bull case built on no landing. Right, because it was about the bear case and earnings having a lower probability, not just the hog. You've got to multiply both. But then it was bull case built on no landing, right? Not taking into consideration that a strong economy only antagonizes the Fed more. The market's a distribution of outcomes. There's a probability times a bear case, a probability times a base, a probability times

a bull. And I think the probability of the bear case went down because the economy was better than people thought, at least for now. I mean, I think that's a realistic data point. The only thing on Bryn's point on short covering is, the only thing I'd say is, the firms that have been most successful making money in the last 12 months have been the platforms. The platforms have big, big balance sheets. So they might run $80 billion, but run at $600 gross, $480 balance sheet. So the question about short covering and cash on the sidelines is always tricky because it's not, are they done covering? It's, are they done borrowing money from the big three or four?

And they could still gross up bigger and bigger going forward. So sentiment position can last painfully long. It may not be over. That's the only pushback I give on Bryn's point there. Just want to make everybody aware of what we're watching on the screen. 662, the decline on the Dow. We could very well have the worst day of the year thus far for the three major averages. John, that leads me back to you to wrap up our conversation. I mean, you don't think that much of this year's rally

was due to, A, just positioning, and B, what Mike Wilson suggests, this false notion that a pivot was coming, and that led to a big whoosh higher in a lot of the most beaten up names that were just ripe for a huge bounce. And you throw on a pivot on top of that. And that's why you got some stocks up 60 percent to start the year. A lot packed in there. There were some bogus rallies for sure. You had stocks that were very beaten up. You did have short covering. I would totally agree with that. You also have very You had stocks that were very beaten up. You did have short covering.

I would totally agree with that. You also have very high quality stocks that are up a lot. I mean, is NVIDIA just a short covering story? It's up 50%. It's up 50% in six weeks. But that's up 60% in six weeks. That's a lot. That's a lot.

That's a lot. But I would argue that that's not just short covering. Okay. Zoetis going up, you know, 20 percent off the lows is not just short covering. So I don't think that's all that. I do think that you did a positioning, Scott, going in and you did have a massive January effect, I think, in play because you have very wide dispersion between good momentum stocks and bad momentum stocks. When you have that, you set up a nice January effect. What I would say, though, if you step back, big picture, everyone seemed to agree that the back half of this year was going to look good. Everyone seemed to agree that was consensus. Well, now we're two months into this year. We're moving toward the end of February. When are you going to get in? What are

you waiting for? Are you waiting to get to June 30th and say, now it's time to buy stocks in the more cyclical areas? I personally don't agree with that. I think you should be layering it. And these days today are good. We need consolidation. I mean, the market was looking for an excuse to pull back, in my opinion. Home Depot gave a great excuse. Home Depot did not get bad results. They gave moderate results, and the market's selling off hard. So I think these consolidation days are absolutely prudent for long-term investors. I think if you're performance chasing, you're scared today. That's not the reason you should be in the stock market. All right. We're going to make that the last word, John. I appreciate

it very much. Bryn, thank you. And Adam Parker right here at Post 9. We'll see you soon. Yep. Thanks for having me. Yep. Here in Closing Bell. All right. Let's get to our Twitter question of the day. We want to know, is the early year rally now over? A simple question. Simple answer to yes or no. You can head to at CNBC closing bell on Twitter. You can vote. We'll share the results coming up a little later on in the hour. We are just getting started here, though, on the closing bell. Up next, star investor Keith Meister joins me right here at Post 9. We'll find out what he is forecasting for stocks and what he thinks the Fed's next move might be.

Talk about his portfolio as well. Do not go anywhere. You're watching Closing Bell on CNBC. All right, welcome back. Show you where we stand here. I've got about 40 minutes or so to go in the trade before overtime begins. There's a Dow down 662. So it's been a rough day throughout the session.

Industrials, bad. Discretionary, not surprisingly, given Home Depot, down about 3% is that sector. Christina Partsenevelos is here with a look at the stocks moving now into the close. Christina? And I'm going to talk all about cars right now because J.P. Morgan analyst telling investors to sell AutoNation, suggesting the stock is overvalued and that recent acquisitions aren't going to help with growth in the near term. And that's why you're seeing the stock down over 7%. They're also downgrading Sonic Automotive, also down 7%. Both Sonic and AutoNation just hit all-time highs just last week. But

Carvana is the biggest laggard of the group. Shares of the online used car dealer plunging right now over 10%. This ahead of earnings that are out on Thursday. The company also says they hit their 10-year anniversary today. So happy birthday, Scott. Yeah, not a very happy one. Christina, thank you. Christina Partsenevelos, we'll see you again in just a little bit. Stocks are down sharply in this closing stretch, as you know by now. Some now saying even more weakness is ahead in the coming weeks. Keith Meister is the founder and chief investment officer of Corvex Management. He is here with me at Post 9 for a CNBC exclusive interview. It's been a minute. Welcome back. It's good to see you. Thanks, Scott. Great to be here.

Interesting day for you to be here. What is your general view of where we are right now? So we're micro investors, but we believe we need to let the macro inform the micro. And last year was all about the move from QE to QT. And this year is going to be all about the move from interest rates being zero to some higher number. Over the last six weeks, the terminal rate for Fed funds has increased by 50 basis points. And the data that's come in has said that the Fed has more work to do. So my sense coming into the year is sort of unchanged. I thought it would be a choppy year, a year of dispersion.

The markets repriced a lot last year, but this was going to be a tough year. I think we're all surprised by the move in January. I heard earlier in your show, you were talking about positioning. That was a big contributor. The economy being stronger was a contributor. China reopening. Mike Wilson today talked about liquidity from stimulus in China, from yield curve control in Japan, from a weaker dollar. All these factors sort of drove equities up in the beginning of the year. But the fundamental backdrop did not change. And that fundamental backdrop is how much more work does the Fed have to do? The economy is strong. And if interest rates are higher, what are equities worth? And our general view at Corvex is it'll be

a choppy year. If you think about the risk premium for equities, a week ago it got as low as 150 basis points. So the excess return you make in yield owning equities versus bonds. So it's you know not great asymmetry owning equities. With that said there's you know always wonderful one-off opportunities and my guess is this is a year which people can create value by being good stock pickers knowing businesses well finding idiosyncratic events trading around positions taking advantage of short-term dislocations the good news is there's not massive structural problems the good news is the biggest companies in the market have a lot of

self-help and trade at relatively reasonable valuations. You're talking about like the mega cap tech names, for example, when you say self-help in terms of right-sizing their businesses. The question for those, and you've been involved in several of those throughout the years, is whether they've right-sized enough, whether their valuations have right-sized enough too. Look, Silicon Valley has historically not been great cost cutters. However, everyone's gotten the message and each company will do it differently. But my guess is what they have going for them is they have a lot more self-help than the average widget manufacturer that over the last 13 years of a good economy and lower for longer has probably optimized their business. So how do

you make money owning an equity? You make money if you get multiple expansion, which we've had, and we're probably not going to get from here. The risk premium point is our multiples are probably at peak levels. So multiples become a headwind. What is your tailwind? It's earnings growth. If the economy is slowing, how do you make 20% owning a stock if we all want to make 20% EPS growth? You're not going to get that from most status quo businesses unless they have levers to pull or one-off idiosyncratic events. So we're trying to manage a balanced portfolio that can find some GARP names that have that, some idiosyncratic event names that have that, and some old economy names that have that. I want to talk for a moment just about your 13 F's, which tend to be very misleading.

They're so backward looking and between end of year positioning and tax loss selling and the like, I just want to make sure we're all on the same page. The recent 13 F's said you cut Microsoft and Google stakes and then you sold out of Amazon. What's the real sort of status about where you are with those names and how you think about them right now? We still have some exposure to all three of those names. We think they're unique businesses, but we found that a better way to own that exposure was by selling long-dated puts in those names.

Volatility was high in the market. We believe there's a cap to the upside, so if you could sell, use Google as an example. If you can go out to January of 2024, volatility is probably in the mid to high 30s. You can sell a put at a 20% discount to the share price. So a $75 or $70 put, bring in $5 or $6. That's a 25 delta. So at the equivalent of one delta, you're going to make a 20% IRR.

And the only way you don't make 20%, you're going to make a 20% IRR. And the only way you don't make 20% is if Google's down more than 20% when it's a business that grows. Next year it'll do $6 of earnings. And if you have to buy the stock at 70, it's a great value. So in a world that we think is going to be choppy, right? Doing things that are a little bit hard, taking advantage of what the market gives you is of more value. During a period of QE, all you had to do was buy the easiest, obvious things. Your multiple was safe and you had the earnings growth.

During a period of QT, you get paid for complexity. So if we can invest in companies with complications, with value add, it's worth more to do now because beta's harder to get. With that said, we should have balance. There's still a role for Microsoft and Amazon and Google, the greatest businesses in the world, but maybe we can own it through a different structure that can create more value than just owning common stock. You talked a lot about incumbents. And most recently,

I've had conversations with investors and they use Uber as the example, which I think you own, versus a Lyft, for example. And in a zero interest rate world, all things look equal. The startup, so to speak, the one nipping at the heels, is able to compete or at least apparently compete with the incumbent. But in times like this where you're no longer in zero interest rates, you sort of separate yourself from the pack. Is that a fair way to describe what's happening with Uber lately, which seems to have a kickstart here? I think that's right. There's some one-off things that also affect Uber. But if you think about it, incumbency is a very powerful thing when capital goes from free to very expensive. When it's free, Uber is competing against lots of subsidized business models.

Uber builds the biggest marketplace, has the largest gross market value, the most activity on their platform, is effectively a profitability break-even, and then capital goes from free to very expensive, plus it's hard to get. What does that mean? Less competitors. So Uber should be in a much better competitive position today than they would have been. Said differently, if you knew capital was going to get really expensive, you would want to spend it recklessly when it was free. So what's the best example of that? Look back to the dot-com crash and Amazon.

They spent the capital, they built the moat, and they won as capital got more expensive and there was less competition. So whether it's Uber in ride-sharing and food delivery, mobility and food delivery, whether it's a in ride sharing and food delivery, mobility and food delivery, whether it's a few names that were invested in sports betting, we think there's a bunch of companies

that will win from incumbency. So this concept of rates going from zero to five doesn't necessarily kill everything. It creates winners and losers. So at Corvex, our gross is actually pretty high right now and our nets are relatively low because we think it's actually a really good environment for traditional long-short investing. And markets will probably end the year in a relatively tight range from where we are, but you can add value by finding businesses that have good things going for them

and the opposite for businesses that have challenges. Let me ask you quickly before we take a break because it just brings to mind this idea of what's run to start the year. Unprofitable, tech versus profitable. When you see the kind of moves that you've had in the highly speculative names, the highly short names, what do you think about? Are you thinking about increasing your short exposure to some things that look just insane to you? Or what do you think about? It's clearly positioning and it's clearly, maybe there was a fear that inflation was out of control and we've gotten it more under control, but we don't want to go out and run out and buy business models that don't work, that are based on TAM. We've slightly leaned into shorts on high growth equities,

but we've tried to avoid the names that are the cuspiest. It's a hard way to invest, but there's ways to play it. And I would say on the margin, we've been betting against the recovery and unprofitable tech and would prefer to own the high quality Garpy names. All right. And we'll talk about some of those. Let's sneak in a quick break. We'll come right back with Corvex Management's Keith Meister. Closing bell. We'll be right back. Welcome back. Closing bell. Keith Meister still with us, the founder and chief investment officer of Corvex Management. Let's talk about some individual stocks. Salesforce. You own Salesforce,

right? Yes. There weren't enough activists in there for you? Exactly. Well, look, let's call it the efficient market theory. We bought Salesforce last year because we thought it was a great company that had been overly punished by the market. And I think it's very rare that you see a great company that had been hit as much because there was one-off events that caused a crisis in confidence at Salesforce. The business model didn't change. They sell a product that everyone needs. That's a deflationary force in an inflationary world. 90 odd plus percent of their customers renew their product every year. It's 100% recurring revenue and they sell 10 to 15% more of the same thing to the same customers every year. Management changes, some acquisitions that didn't go the way people expected them to, and just software and tech stocks getting hit, all occurring at the same time,

created an opportunity to buy one of the best businesses in the world at a discount to market multiple. To start this year when Salesforce was trading at $130, you were buying the business at 16 or 17 times cash flow. So if you want to be optimistic about the world, lots of smart people bought it because it was cheap. And there was a view that, you know, Mark Benioff was an amazing founder who created one of the best, most enduring businesses in the world. However, sometimes founders can, you know, have one unique skill set that is their strength to build these companies, but often that strength can be a weakness at times as a manager.

Do you think the presence of the activists is a plus for you and your position? I think for all investors, whether it's the activists who are there or the reality, I think a positive rate of change is going to occur at Salesforce, and the market gets that. And forget who gets credit or how or why it happens. I said to you, you're only going to make 20% owning a stock if its free cash flow grows at 20% a year. There's very few companies that have the ability to have idiosyncratic growth like that. Salesforce, because they have so much self-help, has the ability to do that. And they can take a business that could grow revenue at 10 or 15% a year and turn it into five plus years

of 20 plus percent free cashflow per share growth with an amazing business. The market gave you a one-off opportunity. And my bet owning the stock is I think Mark Benioff is aligned with me and gonna ultimately do the right things to create value for shareholders. So I'm very happy to own the shares. I am happy that other people are doing what they're doing and I'll watch what happens. And I think I can make a great risk adjusted return. Activision is a new position.

Is that an ARB play on the deal getting done because it's trading so far below what the deal price actually is? So it's another example of exactly the same thing. It's an idiosyncratic event with a great company with a great product cycle. So either Microsoft buys the business for $95, which is a big return from the low 70s it was trading at to start the year, or the deal doesn't happen, they get a breakup fee, they have $12 or $13 billion of cash, they're going to do $4 plus of earnings this year, and you're buying a great business with a huge product cycle around call of duty at a discounted valuation. So either way we can win and we could use an option structure to buy a lot of our Activision position where most ARBs want to hedge a break price. We could say we'll sell a

put at some price because we're thrilled to own as much Activision at 60 or 65 and use that premium to buy upside calls tied to the deal happening. So we felt we had a trade where if the deal didn't happen, we don't lose any money. And if the deal happens, we make a lot of money. So it's trying to find opportunities like that in this market that we think are really value-add. Lastly and briefly, IAC, new position, Barry Diller, related. Yeah. So I've been on the board of MGM with Barry Diller and Joey Levin for a couple of years

now. The one thing I can tell you, which most people know, is they're really, really smart people. They're really, really aligned. They own a lot of stock and they want to take a common sense approach to do what's right for owners. I know MGM well. I'm a big fan. I'm on the board.

We're buying back stock. I think Bill Hornbuckle does an amazing job running the company and our future is bright. Half the asset value of IAC is MGM stock and I get to buy the MGM stock at a discount through IAC. If you take the value of MGM plus the cash they held on their balance sheet, I was paying plus or minus $10 for everything else. That $10 could be worth $40 or $50. So once again, very asymmetric. I understand people were selling it at the end of the year because it was tax loss harvesting. They had a bunch of businesses that were levered to ad and e-commerce. And they bought a big asset, Meredith, at a time when advertising turned

and they had some hiccups in agreement. Guess what? They'll get it fixed. It'll work. And ultimately, whether it's Meredith.dash, whether it's the Angie business, whether it's Care.com, their other assets, you're getting paid to own those assets. And to get paid to be with Joey and Barry doing smart things around capital allocation seems like the right time to trade for this market. It's a great way to kick off our new closing bell with you here. I really appreciate you coming down. Great. Thanks for having me, Scott. All right. That is Keith Meister of Corvex Management right here exclusively at Post 9. Let's take a look at where we stand here. Again, we were trending for our potentially worst day of the year for all three of the major averages.

So we see the Dow down a little less than 2%. It's at 33,212. Really watching the S&P 500 over the next 20, 25 minutes or so to see if we can hang on to that 4,000 level. We're about six and a half, seven points or so ahead of that key level. Want to try and close above that. NASDAQ, obviously, the biggest loser today, along with the Russell. We are tracking the biggest movers as we head into the close. Christina Partinello standing by with that. Christina.

And what we're seeing right now is a price war erupting in one sector, and that is dragging down the Nasdaq 100 today. I'll tell you who's involved after this short break. We've got 20 minutes before the closing bell rings here. Dow Jones Industrial Average down by 650. That's a near 2% decline. S&P 500 at a critical level as well, just above 4,000. We're going to see where exactly we close there.

Nasdaq's been the biggest loser throughout the day. Rates have been moving up. NASDAQ and technology and growth stocks have been moving lower. Christina Partsenevelos is back for a look at the key stocks to watch before we close it up here. Christina. And today's theme right now is margin compression, growing price wars among Chinese tech names are weighing on the NASDAQ. Chinese e-commerce giant JD.com plans to spend $1.5 billion to better compete with PDD Holdings, which operates Pinduoduo's shopping app, and Chinese ETF tracker KWebNegative the past three weeks. And you can see JD down 11%, PDD down almost 10% right now.

And lastly, retailer Dillard's down, look at this, almost 17, over 17% right now. It's worst day since November 2021. That's after they posted weaker sales at the start of the quarter and during the important holiday season, leading to higher markdowns, a.k.a. margin compression, hence the theme. The retailer plans to close three stores this current quarter. Scott. All right, Christina, thank you.

Christina Parts and Novelist, last chance to weigh in on our Twitter question of the day. We want to know, is the early year rally now over? Head to at CNBC closing bell to vote. We'll bring you the results after this quick break. And do not miss the Norfolk Southern CEO in overtime. That's at 430 Eastern. Can't miss that. Closing bell right back. Let's get the results of our Twitter question now.

We asked, is the early year rally over? Well, the majority of you said, yep. Yes, it is. Near 59 percent. And we are now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down these crucial moments of the trading day. Erin Brown's here, too. PIMCO for her market outlook. And Wedbush's Dan Ives has his look at Coinbase and Palo Alto ahead of those key reports. A couple of stocks that have moved a lot to start the year. I begin, though, with Mike Santoli. I mean, we're tracking for the worst day of the year for all three of the majors as rates continue to go up and stocks look unsteady.

And a pretty steady bleed lower. It's a little bit of a different feel. It's almost a 2022 feel with just kind of repricing stocks a little bit lower in the face of those much higher yields versus a few weeks ago. What I do find interesting is it's the worst day since December 15th. And there's a lot of synchronicity between today and then, which is we were kind of going sideways for a few weeks into mid-December. We basically went down two and a half percent that day, then continued a little bit lower and chopped sideways. People thought that was kind of it. We were pricing in a worse economic scenario.

So it seems like a similar setup. Only 100 points higher in the S&P versus what we were then. So I don't think you say all of a sudden the entire start of the year was a mirage. But this is the pullback that we built up the cushion for coming into February. The question is how much more pain is ahead. According to our next guest, there could be more. Erin Brown of PIMCO says the higher likelihood of a no-landing scenario for the economy could keep the pressure on Wall Street.

Joins us now. It's good to see you. I mean, it's the catch-22, right? Economy is probably better than you thought it would be at this point. That only provokes the Fed to do more doesn't it. Yeah I think that's exactly right and I would agree with your poll. You know showing 59% think that you know the

strength is in for the market and that we might see lower prices from here. There's been a real dichotomy I think between what the fixed income markets pricing in and what the equity markets pricing in. Over the last month and a half since the

start of the year and you've seen. Yields move higher and equities also move higher as well. And the market really isn't pricing in the fact that Fed tightening still has ways to go in terms of working its way through the economy. And so the higher, the stronger the economic data is, the more potentially the Fed is going to have to tighten rates. And that puts, I think, equities in a position where they're vulnerable right now. I find it so interesting, though. It feels like the bulls have had now the upper hand.

And now we've had a few bad days. And it all of a sudden, Erin, feels like it's over. Are we too quick to just say this is done? No, I don't think we're too quick to say that it's done. And look, I do think that there's probably better days ahead for equities, but I think that's likely going to come in the second half of the year after we've seen downward revisions to earnings, after we see the Fed truly go on pause,

and after we see bond market volatility subside. And we're not there yet. We still have estimates which are too high, bond markets which are too volatile and yields which are moving higher, none of which is a good environment for equities. Yeah. Mike, I mean, it just brings to mind how very much this rally is viewed as guilty until proven innocent. And this sort of underscores it how quickly sentiment can change in an uncertain and uneasy market. I find it also interesting because the two clusters of high conviction, if you went back a month, if you went back to the start of the year, one was, look, the breadth of this market, technically speaking, got lift off. We might be in a new bull market. It looks like you have to trust the tape the other note of conviction was all the leading indicators of recession are saying

it's a done deal and we're going to slide into it what's the way that both of those camps can be proven wrong a continued high pressure economy running higher stickier inflation better growth tight labor market where the fed has to do more so i think that challenges both for now again but it's happening at higher equity levels. It's happening at a higher base of earnings. You know what earnings were in the S&P in 2019? 160 a share, right? So we're talking about doomsday of it going down to 200 if it continues sliding lower.

It's sort of negative, but within a range is, I think, the way we're trying to navigate it. Aaron, you've been, I guess I'd call it a nonbeliever in the things that have gotten us to this point of this year. Do you expect that we're going to go back to the 2022 playbook, if you want to call it that, stay with what led last year, don't believe the hype of any of this stuff that's going on to start this early year? So I think that you're going to see a change in sector leadership for sure. I do think that defensives should outperform. I mean, year to date, what's been strong have been the cyclicals, have been some of the junkier names, some of the value names. And I am a disbeliever of that rally. I think really what you want to stick to is the high quality names, the health care sector,

utilities, consumer staples that have good solid earning growth are not going to get hit very hard on margin pressures. But the names that have rallied year to date, the consumer discretionary names in particular, up double digits, to me, there's risk there in those names when you're hearing from companies like Home Depot and from Walmart about the increasing cost pressures that they're feeling, both from lagged pressures from labor, as well as from higher interest expense and higher taxes. So to me, I think that there's going to be a real rotation in sector leadership. And I would stick to the high quality companies that are a little bit more defensive in nature and should be able to weather the storm of, you know, potentially a cyclical downturn well. Yeah, tough day for Depot. We just

showed it down near 7%. Aaron Brown, PIMCO, thank you very much. Let's get the technical take now. BTIG's Jonathan Krinsky joins us. You told us on Friday that that may be a critical signal as a turning point. Okay, well, here we are. We're barely hanging on to 4,000 on the S&P. What are the charts telling you now? Yeah, Scott, I think it's just a continuation of kind of what we talked about Friday, Thursday, actually, I think we were with you. And it's really that over the last 18 months, there's been this lead effect where rates have bottomed, started to move up. Equities have kind of, you know, to some extent ignored the move up in rates

for a couple of weeks, and then equities kind of follow suit and follow bonds to the downside so i think that's what we're seeing now it's coinciding with uh you know broad-based momentum that's rolling over on the s&p similar to what we saw um in april and august and december of last year so um you know as far as absolute levels you know we take away of the evidence approach so you know everyone's got their levels uh I think that's less meaningful to us. But, you know, the next level is we're watching kind of around the 3940, 3970 range on the S&P. That would be a confluence of the 50-day and 200-day moving averages. But let me just ask you plainly, I mean, we're at001 on the S&P. If we close below that level, is that meaningful to you? You know, 4,000 is not as meaningful to us.

It was 4,100 really was important because if you think about the rally we had to start the year, we broke out above 4,100 and we kind of consolidated there for a couple weeks. And that kind of led to a bit of complacency, I think. And I think what this market's shown is that in bear markets, these bullish consolidations or bullish patterns have a propensity to fail, right? So we had several weeks above 4,100, couldn't push above it, back below it. So 4,000, that's a nice round number, but to us it doesn't hold as much significance right here. Yeah, Mike Santoli, as we trend a little bit lower again,

very well, they're going to have the worst day of 2023 for the three majors. You watch the technicals as well as anybody else, too. Yeah, and I would say very similar thought. I mean, I think there's a lot of attention on the round number strike prices for a lot of the short term options that are out there. I think that's a little more of a red herring. People have sort of leaned on that idea that that matters and it's kind of the tail wagging the dog. But I do agree, you know, that the five to seven percent off the highs, which kind of gets you down to the 200 day average, is still what you would define as a normal pullback. I understand Jonathan's point

that those types of routine setbacks have not really played out in a bullish way for a little over a year right now. But I still think right now it's too early to say it's game over. As I said, in December, things looked like they were getting momentum. The downside didn't quite get there. Just looks unsettling to even see $39.99, just given where we've been. Jonathan Krinsky, my thanks to you as well. We are walking you right up to some critical earnings in overtime. Coinbase among them, it is falling ahead of those results.

Analysts are preparing for a steep drop in revenues. Let's bring in Dan Ives of Wedbush Securities. Has an outperform rating at $75 as the price target on the stocks. Good to have you on Closing Bell as well. I mean, the stock's up 80 percent, 80 percent coming into this report. Really? Look, I think right now it's really I mean the streets expecting rip the band-aid off quarter in terms of trading volumes but I think what we're seeing across risk assets is there some sort of stabilization going 2023 and I think this is a big quarter for coin base and I viewed almost a fork in the road here in terms of how they navigate that call. Yeah I mean you what about competition?

I mean, I've got a lot of things on my list, right, of worries, theoretically, that don't seem to be worrying you with the outperformed rate. I got competition, right? We're talking about Fidelity and others, regulatory crosshairs, what's being talked about now. And by the way, the surge in crypto to start this year, the word on the street is that that hasn't been led. In any way by the retail investor which would play right into Coinbase his hands in fact it's been the opposite you have no concerns about any

of that. Clear concerns I mean there's dark clouds everywhere you look right I mean for them it's really. Can trading start to come back they cut costs is that stabilization terms of of cash per share? Then you have the other businesses that they're starting to ramp up. I think those are the bigs here going into 2020, but no doubt.

I mean, there's still a lot of wood to chop here. Our call here was just it was way overdone. You've had a huge rally to start the year, but no doubt it's a proving stock, and it is a seminal quarter. I mean you're down 85 percent last year up 80 to start this year and how much of how you view this company is tied to where crypto goes in in the near term? Well look I think crypto is clearly key in terms of levels we're seeing there and you, you know, obviously a lot of, you know, I think what I view is sort of going forward,

they need to prove not just from a trading perspective, but they could ramp institutionally as well as their other businesses. It's also about blockchain in terms of the broader strategy. And I think that's why 2023 is going to be a significant year one way or another for Coinbase. We're more optimistic, but no doubt there's clearly some tough days ahead here they have to navigate. I hope you don't miss our exclusive interview tomorrow. Speaking of Coinbase, by the way, legendary short seller Jim Chanos will join us in the closing bell coming up tomorrow.

Cannot wait for that interview. We'll see what Coinbase has to deliver and what Mr. Chanos has to say about it. We're also walking you up to Palo Alto Networks. It's been your quote-unquote table pounder, right, out of the cybersecurity space. What are you looking for here? Another stock that's gone up a lot this year to start things off.

Yeah, look, Scott, if you look at cybersecurity, that has been really a rock Gibraltar sector in terms of what we're seeing spending. You know, that here, I think Palo Alto could be 25, 28 percent type billings growth. I expect positive guidance. Our checks have been strong specifically in federal. It's a double table pounder. I mean, this is our top cybersecurity name, along with names like Zscaler and CrowdStrike. And I think that's really what's proven during earnings. Cybersecurity is really just a massive area of strength, despite many skeptics going into the year. I mean, I know you like it, but frankly, I mean, how can anything be

a table pounder in this environment? Doesn't that sound dangerous to you? Oh, yeah. I mean, look, I think it's been a dangerous market for the last six months. But when I look at the free cash flow, I look at the threat levels that we're seeing around the world, and I look at how out there it is. I mean, it's a stock that's much higher over the next three, six, nine months. And also, I think that you can also, in cybersecurity, it's an underinvested sector, where I think many sort of went negative over the last three, four months. That's why it's our favorite subsector, along with cloud, of

hack overall. You worried, though, that if there is a pullback in, you know, these more growthy names, which have run a lot, that this is just going to get caught up in the downdraft? It's a shoot first, ask questions later sort of market. Oh, clearly. I mean, that could clearly happen, but our view is not for the next day or for the next week. Where is the stock in the next nine months, 12 months? Palad's been one of our favorites for, you know, really for many years. And I think this is a stock, in terms of cyber, it's still being way discounted relative to the growth opportunities. And that's really across the sector of cybersecurity. That's really been what's proven from Fortinet to Check Point, Weeblee, Zscaler, and CrowdStrike as

well. I'm going to let you run. We're going to see what happens in just a matter of moments with Boats Point and Palo Alto. That's Dan Ives of Wedbush joining us. We'll finish things up with Santoli here as we look at a Dow Jones Industrial Average down by 700 points. It's going to be the worst day of the year for all three of the major averages. What are you thinking about as you find us closing what looks to be around the lows? Yes. I mean, obviously, the cross-current of concern about what the Fed's going to have to do to the economy at the same time that big retailers talk about being really careful about margin expectations came together in a pretty tough way for the tape today. What I do find interesting is we've seen early cycle sector leadership for weeks now,

more than weeks, months, right? U.S. Steel's up today, right? You see this weird combination of heavy machinery and raw industrial metals working and consumer cyclicals, you know, having a little bit of hesitation. Awful existing home sales today, underscoring that as well. So the market's not sure about how this goes. And there's a case to be made that we front ran the Fed tightening because we started going down hard before they even hiked once. We kind of front ran the implications of the recession.

Maybe now it's time to figure out whether we've kind of taken that a little bit too far in front running, you know, that we're not going to hit a recession call. So I don't think it's very easy on a one day basis to figure out where we've gone except for repricing in accordance with what the 10-year treasury is doing. Now, the 10-year treasury yield is looking a little stretched in the very short term. So see if you get a little relief on that as we've run up to the mid-390s on the 10-year. Do we get too excited about the consumer, this theoretical strength of the consumer that has really given people the idea of either soft or no landing? I only bring it up because discretionary is bad today to the downside.

It's been the best sector year to date. I don't know if we got too excited. I think that the narrative did shift in a hurry toward, wow, January was a powerful consumer momentum month. We had the big jobs print, the retail sales. We could look back on it someday and say, well, there was a lot of seasonal adjustment and warm weather stuff in there. So be careful of extrapolating that. Do you feel like tech is maybe the most vulnerable in the right here and now? Just because it has the most to give now.

Take a look at the NASDAQ down 2.5% as we head towards the right here and now. Just because it has the most could give. Take a look at the NASDAQ down 2.5% as we head towards the close here. Probably so. Yeah, so we're watching that. You see we're closing it up here. We're going to have the worst day of the year for stocks. Dow's going to lose about 700 or so. That does it for us.

That's the scorecard on Wall Street.