Closing Bell - Fed minutes cool market, Salesforce job cuts, McCarthy and the market 1/4/23

Episode Date: January 4, 2023

The major averages were heading for solid gains throughout the session, but a hawkish tone in the Fed minutes put a pause on the rally. Anastasia Amoroso from iCapital weighs in on the Fed’s messaging and the impact on her outlook. Cowen CEO Jeff Solomon discusses his outlook for IPOs in 2023 and what needs to happen to jumpstart new listings. Mark Zandi from Moody’s breaks down the slew of job cuts in the tech sector, including news today of layoffs at Salesforce. Plus what Kevin McCarthy’s contentious House Speaker bid means for the market, and the latest on Microsoft, Amazon, and Chinese tech.

Stocks mostly higher throughout today's session, but falling off their best levels of the day following the release this afternoon of the Fed Minutes. This is the make or break hour for your money. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the market. There's the Dow. It's up 63 points or so. S&P 500 holding on to a gain of six-tenths of 1%. The group's today leading for a change. You've got real estate in the lead. Also, consumer discretionary is having a good day. Materials, financials, second day in a row, doing well. What's not working?

Energy, consumer staples, and healthcare. Those are your three defensive sectors, consumer staples and healthcare in the red. Chart of the day, it's Microsoft at the bottom of the Dow after UBS downgrades the stock to neutral from buy, citing Azure and OfficeRisk. It's taking 75 points off the down. We're going to talk more about Microsoft later in the show. Also ahead today, Cowen CEO Jeff Solomon will join us with his outlook for M&A in 2023 and what he says needs to happen to jumpstart the sluggish IPO market.

Plus, we'll talk to Moody's Analytics Chief Economist Mark Zandi about today's job cut news at Salesforce and other tech spaces and the broader trend of layoffs right now, where the job market stands. First up, let's get straight to the market dashboard with Senior Markets Commentator Mike Santoli. What is on your radar as we just actually took a little leg higher? Now it's only energy in the red. So that rally, as you said, had some of the starts taken out of it by the Fed. And it's really just a reminder of where the Fed sits right now. The S&P 500 is still caught in that very new year mean reversion type action. The laggards of last year are still performing well.

The leaders of last year coming off the boil a little bit. And that has kept us in this zone just above 3800. Now, the market didn't make any real use of the traditional late December strength except to fail to break down. Again, this 3800-ish level keeps it out of the October low zone and takes us all the way back to six or seven months ago. Have not really climbed above that. Today is the final day for those keeping track of the Santa Claus rally period. That's seven trading days. 3822 is the level the S&P should finish above if, in fact, it's going to be considered a positive indicator.

Although really, it's much more the absence of a potential negative indicator as long as we finish higher than now. The job market, we got the jolt stated job openings, labor turnover survey. Take a look at the quit rate. This is actually a real number. Job openings are real, but they can also be a little bit of an illusion. People quitting their jobs because they find better opportunities somewhere else. High quit levels means people perceive better opportunities. There's a tight labor market going on. So this shows you the quit rate in percent among all nonfarm payrolls going back a few years.

And this line is the 2019 average level, so pre-pandemic level. So it shows you while the quit rate is coming down, so therefore some softening of the labor market, it's still very tight, well above the levels of 2019. This is where the Fed is right now, is figuring out how much more labor market softness they might need to engineer in order to get inflation more decisively lower.

And I think that the market keeps toggling, Sarah, between these two ideas of strong labor markets, good thing. Consumers can spend. But what are the implications for policy? That's exactly what I was going to ask you. And by the way, I know you don't like openings, but they're still strong, too, a 10 and a half million openings. No, it's a real, it's real. But this is more tangible. A lot of job postings online. Either way, it's a strong labor market. And my question is, what does that mean for stocks? Is it positive for stocks because it helps feed the soft landing scenario? Or is it negative because it helps feed the, well, Fed's going to have to go even tighter? It keeps the market stuck in this zone.

And I think that there are days when it wakes up and it's a positive or potentially negative. Now, since the last Fed meeting from which these minutes were taken, financial conditions have not really loosened up. Stocks are down a little. Bond yields are up a little. The dollar is up slightly. The VIX is up slightly. So, in other words, the Fed doesn't have to come out, look at the markets today and say, you guys have it wrong versus what we thought a few weeks ago. But down the road, if the market gets overexcited, that raises a different question.

Well, that's what the minutes were all about today. Financial conditions. Mike, thank you. We'll see you soon. Let's turn now to what we got from the Fed just in the last hour and the kind of market spill that we had after it came out. Yields are still lower on bonds, but they're a little bit higher than where they were before the minutes. The dollar is still weaker. Our Steve Leisman joins us now from Washington with some of the highlights. Steve, what was your takeaway? Minutes to the Fed's December meeting released this afternoon showing Fed officials just about as hawkish as the Fed chairman, Jay Powell, was in his press conference following the meeting. The minutes said no member thought it would be appropriate to cut rates in

2023, directly contradicting expectations in the market for rate cuts this year, and that every member, every member raised the expected path of the funds rate in their projections this year uh in december compared to their projections in september for a taste of how the hawks ruled the december meeting and there weren't really many doves present at all the minute said there was a restrictive stance was needed until they were confident inflation was heading towards target. Several said history warned against prematurely loosening policy. And while the risk of tightening too much was acknowledged by many, the risk of tightening too little was clearly seen as the bigger concern. You can see how much concern there was by looking at the Fed's forecast for rates above 5%. That's 17 of 19 Fed officials. And yet a forecast for the 2020-23 growth to be a year well below trend,

according to the minutes. Finally, the Fed is clearly watching market levels. Yields had fallen in the lead up to the meeting, and the minutes said officials warned against a premature easing in financial conditions. Some of those financial conditions have bounced back, but they remain looser than they had been back to you so steve is this the clearest sign yet that the fed is getting worried that the stock market has rallied too much that the the dollar has weakened too much away from their goals of tightening to get rid of inflation sarah i'd have to check to be sure but this was certainly one of the more stark mentions of concern about the easing of financial conditions. You remember what happened in the summer of 21 when financial conditions eased,

and that kind of led the Fed right back to the 75 basis point rate hikes that it was doing, and really to clamp down on financial conditions and essentially target them. What happened, if you want to judge it, I don't have a chart with me, Sarah, I'm sorry. But if you look at the Goldman Sachs Financial Conditions Index, it fell by about two points leading up to that meeting. And it's gathered back about a point of it, which tries to include all of the different aspects out there, like the stock market and bond yields. But you're right to point that out as a major concern of the federal reserve they need

rates high to keep growth low and to loosen up the job market to get rid of that threat of inflation they feel is out there it's especially problematic i would think when the loosening of financial conditions speaks to the market expecting cuts when the fed is saying we're not cutting in 2023 so a little bit on different pages on both of those sides. They went right at that, Sarah, in a way that I had not seen in the past. They said no Fed member has forecast cuts in 2023. They didn't have to say that because you can see that by looking at the SEP. But they made a point of saying exactly that, trying to get right at the market's expectations for cuts.

Steve, thank you. I know you have a flight to catch, which is why you're joining us from the airport. We look forward to your interview tomorrow morning with Esther George, Kansas City Fed president, where they'll talk much more about that outgoing Fed president there, Esther George. For more on the Fed and the markets, let's bring in Anastasia Amoroso, iCapital's chief investment strategist. Fed's telling you pretty clearly, Anastasia, they do not want higher stock prices.

And you know the old adage, don't fight the Fed. So is this a big red light? Don't fight the Fed. That's right. And I think what we saw today is this price action of this tug of war is likely to continue for the next few months. And what I mean by that is you have signs that, on the one hand, inflation seems to be peaking. I mean, look at the manufacturing data. You have a clear slope in manufacturing. You have a huge pullback in prices paid, in fact, almost on par with what we had during COVID. So there's more and more signs building

that inflation is, in fact, peaking. And yet you've got Fed on the other side, on this other side of this tug of war is saying that's not good enough and we need more substantial progress so i think what this means for stocks is that any time they try to rally they're going to be met with an obstacle and that is the fed i think that's going to be the story for the next few months unfortunately so what do you do. Well I think you recognize the rally. Oh well I think you recognize the twenty

twenty two has been a huge year of a reset. And twenty twenty three should actually be a better year but it doesn't mean it's gonna happen immediately. And so what I mean by that I mean let's talk about some things I'm we're

optimistic about. I mean first of all inflation is indeed peaking its fuel- that's lower its food that's lower its durable goods prices that are clearly in fact heading into deflation territory right now so I think over the next few months that that's going to be a positive. So inflation is peaking the second thing is everybody's been waiting for a recession a growth slowdown and Sarah I think we're in one right now it is upon us. And guess? I actually do think that that's priced in. I mean, take one look at the consensus GDP projections for this year and consensus expects nothing in

terms of growth or very little in terms of growth for 2023. So again, I think this slowdown has actually been pretty well priced. And then the last thing, the big reset that we had last year is all across the board in valuations. I mean, whether you look at semiconductors, whether you look at software, whether you look at publicly traded REITs, for example, we had a massive reset. And so to your question, what do you do? Well, you recognize that and say, you know, investors now have the luxury of being defensive, but at the same time being opportunistic. And what I mean by that, being defensive, I mean, if you were in cash last year, in the beginning of the year, you got paid zero. You know, today you get paid four,

four and a half percent cash and cash equivalents, high quality fixed income yielding five to six percent. So you can afford to take little risk there and get the yield. But at the same time, you look across the board and whether it's semis, whether it's real estate, whether it's pockets of software, whether it's buyout private equity, we are seeing a massive recent evaluations. And therefore, you might as well take some opportunities there. Right. So you're not it doesn't sound like you're super bullish on stocks. You like some of the alternative and expect interference here from the Fed. But but you do see some interesting opportunities. And one of them, Anastasia, I noticed in your notes is public REITs.

And I was wondering why of all the places that have been hit in 22, you're calling out REITs in particular with so much pressure and question. Even today's announcement from Salesforce on commercial real estate that they're cutting back. What's going to happen to that sector? Well, first of all, there's so many pockets of commercial real estate and you know you've got multi-family uh residential that's one of the largest sectors of commercial real estate so it's not necessarily office and retail that we're being optimistic about but it's some of the secular growers like housing as well as logistics but the reason i call out the sector broadly is because you had a massive correction in sector and not because the fundamentals of it are poor, but because there's been this huge rate impact.

But now, if you do believe the long end of the curve, I think the rates peak has actually been behind us, not in terms of the Fed funds rate, but in terms of the long end rates. And I also think that we've probably seen peak rates volatility as well. So to the extent that rates subside in the long end of the curve, to the extent that rates fall declines as well, that should be the reprieve for the publicly traded REITs sector. And one other way to look at it, Sarah, is if you look at the valuations of publicly traded REITs as it relates to the underlying value of the real estate properties, those publicly traded REITs are trading at a pretty meaningful discount to the underlying property values. And that's why I think they've priced in the bulk of the rate shock, maybe even some recession shock,

and they should be poised to do better, especially if rates actually start moving lower in the long end. Well, they're certainly doing well today. They're on the top of the market. Even before you came on, Anastasia, thank you very much for joining me. Up 2.4 percent, that sector. Anastasia Amoroso. After the break, the CEO of investment bank Cowen will join us here at Post 9 to talk about the IPO market and M&A market in 2023 after a big slowdown last year. He'll tell us what needs to happen to reignite new listings. You're watching Closing Bell. We're up 100 points. S&P up about seven-tenths of 1%. So we've taken a little tick higher just as we picked off this final hour of trade. Every sector green except for energy. We'll be right back. 2022 was a rocky year for IPOs. The market saw volumes fall 45% with proceeds down 61%. Felt like more than that. In the U.S., the number for IPOs. The market saw volumes fall 45%, with proceeds down 61%.

Felt like more than that. In the U.S., the number of IPOs fell 76%. Proceeds down 95%. There's the U.S. figures. And take a look at the Renaissance ETF IPOs. It's down more than 50% over the last year. So does a new year mean new opportunities for the IPO market?

Joining us now is Cowan CEO Jeff Solomon. Always like to get a good read on the capital markets with you. Welcome. Good to see you. Happy New Year. Happy New Year. Is this year going to be better for the markets than last year? Well, let's talk about IPOs and financing. In general. In general. In general. The Fed is, talking about the Fed today, they're doing exactly what they said they were going to do. They have got to make sure that everybody understands they're going to cure the scourge of inflation. So it's not at all surprising to those of us in the market who've been around for a while. If you're a student of the market, you know what happened in the 70s. They know what happened in the 70s.

The Fed took their foot off the gas, crushing inflation, and just had to come back bigger and badder later. This Fed chair knows that story. So he's going to continue to talk down inflation by continuing to be hawkish. And that is exactly what happened today. Exactly what we thought would happen. But we rallied through it, which means a lot of that is in the market. Listen, the market has the market is a leading indicator. The Fed is a lagging indicator. The Fed is going to wait for affirmation that you're seeing the slowdown they expect to happen before they take their foot off the gas. The market will price that in as the market has priced that in.

You know, we all focus on the last few weeks of the year because we have recency bias and that wasn't great, like no Santa rally. But there was a fourth quarter rally. And why? Because the market is pricing in the likelihood of settling out ultimately at a much higher level. And OK, it's still pretty good. So does that mean we're going to see IPOs this year? I don't know if it'll be the same as it was. It's hard to argue that it'll be the same as it was in 20 and 21. But could we go back to 18 or 19 levels? Yeah, I think we could. There's more than over 100 plus companies that have selected bankers in the backlog waiting.

And I don't think there needs to be a Fed pivot in order for that to clear. There just needs to be a significant sign that inflation is actually abating and that the Fed is going to actually stop raising at some point. And I think there's a misperception sometimes I read. People want to see Fed tightening. I don't think it has to be Fed tightening. I just think it has to be Fed's not raising is good enough. And I think this market today kind of indicates that. So are you looking, what, toward the end of the year for more action? Yeah, I'd be more second half. I think there will be IPOs. Look, there was one meaningful billion-dollar-plus IPO, Mobileye, this year, right? And it traded up really well, but only

one. Like, it's hard to say that this year is going to be worse than last year. And so I think if you're looking for, you know, a silver lining in this, last year was pretty rocky and pretty rough. You know, this year, it's hard to see how that gets recreated because we just know so much more about how things are going to settle out. What about M&A? So M&A volumes have picked up again. I think last time I was here, I talked about how I think, you know, we'd see a bit of a

rally in the fourth quarter that actually happened. I think we've seen, we probably put in the low in M&A in the first half of last year. I think we'll get, again, we'll get back to levels that we saw in 18, 19. I think it'll be much more selective though. I think there'll be certain types of deals that get done and other types of deals that won't get done. If you're a sponsor to sponsor deals, still getting done, lots of money in the sponsor's hands. If you've got good cash flows, easier to finance in this environment. Private financing, still much more available than leveraged lending. So those kinds of deals, middle market deals, getting done. What's not getting done? If you've got a cash shortfall, if your

business model requires or a deal is required to have like margin improvement in order to meet the numbers. Like people aren't doing those. Why? Because they don't have to, unless it's priced right. And that's the last thing I would say. I think we're finally starting to see both for the IPO market and the M&A market, formerly high-priced valuations of private tech companies finally coming down 50%, 60%, 70% on their next rounds to match what's happened in bellwether names like Tesla. Like Tesla's down 70 you can't tell me that your tech company that's a private company isn't down or isn't down

meaningfully and i think that's that's kind of what's happening that's starting to happen that degree in the private market people who need to raise money reach a point at which they just say i need the money and the valuation is less important. And those that did it, because the lesson, like a lot of people got wiped out this year, right? Because they didn't get themselves financed in 20 and 21. So, yeah, I think the message is, valuation is less important in a difficult, dicey environment. Get your money, execute on your business plan, long-term things will work out. Cash flow is everything. So, within that criteria, is biotech? Are we going to see deals? I know that you've always got a handle on that at Cowen.

We did see a big Amgen Horizon was a mega deal. Yeah. So I will just tell you that biotech operates in a sphere unto itself. It's a very tight ecosystem. I actually think coming into this year, we're much more bullish on that. I don't know that we'll see the same kind of IPO activity that we saw in 20 and 21, but I think there'll be many more companies that get financed, and they'll do it off of the back of good news. I think that's certainly the ones that are public already. I'll know a lot more after we get back from that conference that's in San Francisco next week.

Yeah, JPMorgan Healthcare. Oh, that one, yeah, that one. We're all over it. Meg Traill's back. Very exciting. Good. Good to have her back. What about SPACs? That was the third thing that sort of fell off a cliff last year. Yeah, so I don't anticipate us going back to, again, 20 and 21. I think there needs to be a clear-up. There were a number of SPACs that either terminated last year, redeemed last year.

I think there's probably a little bit more that has to go on that. But it will return to a more rational amount of capital in that market. And again, I think we need to get some regulatory clarity here, which I've been, I think, vocal about. The SEC should get around to understanding the benefits of SPACs. It definitely got overdone. There's no question there were people. So there are benefits of SPACs. I just think it's another path for certain types of companies to raise money. And again, if you've got a really good management team and the

company was ready to be public and you've got a sponsor that actually understands how to underwrite, then you can get good outcomes. And it's just the problem is we had way too much capital chasing way too many deals at ridiculously inflated price points. And that's not sustainable. It came out. Is the froth out of this market? Yeah, the froth is definitely, I wouldn't say it's out completely, but it's definitely down a lot. Listen, again, I go back to when you have bellwether stocks in the fangs down as much as they are, you don't need to do a lot more work to understand that people have de-risked in their portfolios. So in this year, you actually get to be able to pick and choose your spots.

It's a lot less frenetic right on the way up. On the way down, you're always feeling like you're missing something, you should be doing something. Now you can be patient, think about how you're going to actually position your portfolio for some longer term things like the ones we talked about last time, energy transition, reshoring and supply chain rebuild. These are mega themes that are going to play out over the next five years. And you have the time to really do your homework, make your investments,

because the market's probably not going to get away from you as fast as it has been in the last couple of years. Jeff, good to see you. Thank you for the outlook. Appreciate it. Always happy to be here. Happy New Year. Happy New Year. The CEO of Callen.

Show you what's happening in the market. So we've cut our gains in half, at least on the Dow, just in the last few moments, up 44 points. S&P is still higher by about a half a percent. Real estate in the lead. But you've had a number of sectors go negative just in the last few moments. Energy, staples, health care, and now technology joins the red list. The Nasdaq remains higher and is an outperformer today. It's up about four-tenths.

Wall Street is buzzing about Kevin McCarthy's multiple failed attempts to become Speaker of the House and the potential market impact of a stalled Congress. We're going to tell you what all the Wall Street analysts are saying about this next. And as we head to break, check out some of today's top search tickers on CNBC.com. Tesla right on top, and it is actually higher for a change. It's up about 5% today. It was, Jeff Solomon said, down what, 70% this, 70% over the last year? A bellwether indeed. Ten-year note yield is right there. It's 3.7%.

Yields remain lower after the Fed minutes, but a little higher than they were before that came out. Apple, Microsoft, and Salesforce, which is up 3%. We'll talk about some layoffs at that company as well when we come back. What is Wall Street buzzing about? That major drama in Washington, D.C. over who will serve as the next speaker of the House and potential market and economic impact. So far, we've seen five rounds of votes, three yesterday, two today, and they are about to start voting on the sixth

round each time. Kevin McCarthy coming up short, losing as many as 20 Republican votes when he can only afford to lose four. The House will be paralyzed until the impasse is resolved. So what does it mean for the markets? Well, Goldman Sachs out with a note just now writing the debt limit will likely come to a disruptive standoff characterized, quote, by increased market volatility and a sell off in Treasury securities maturing around the debt limit deadline. That could be around the summer. standoff, characterized, quote, by increased market volatility and a sell-off in Treasury securities maturing around the debt limit deadline. That could be around the summer. KBW's Brian Gardner says, quote, investors should be on guard as the summer approaches, noting brinksmanship over the debt ceiling could lead to market volatility and a risk-off trade,

adding that the current situation is a clear signal of what to expect later in the year. Height Capital Markets notes that McCarthy has agreed to several concessions in his attempt to become speaker, and that could hinder his ability to pass critical legislation. Bottom line, the market impact right now doesn't seem like a whole lot, but the chaos in Congress could certainly have implications down the road, and Wall Street is closely eyeing that debt ceiling decision. When we come back, Salesforce, a big Dow winner today after becoming the latest tech company to announce job cuts. Up next, economist Mark Zandi discusses how these tech layoffs will impact the broader economy. Salesforce shares moving higher today. One of the top performers in the Dow, the company announcing spending cuts,

which include layoffs affecting 10% of workers and reducing some of its office space as well. This is part of co-founder Mark Benioff's restructuring plan, saying Salesforce hired too many people over the past two years. Tech companies as a whole have been laying off workers at the fastest pace now since the pandemic began, according to The Wall Street Journal. Lyft, Amazon, Meta, Twitter, all announcing layoffs in recent months. Let's bring in Moody's Analytics Chief Economist Mark Zandi. It's a reminder, Mark, that tech is just not that big of a part of our economy's workforce because it really hasn't shown up in the broader economic data, which continues to

point to a strong jobs market. Do you expect it to make an impact? Well, it will have an impact, but it's small. You're right. I mean, the grand scheme of things. I mean, if you look at we just got a data point today, Sarah, from the JOLTS, that's the Job Opening Labor Turnover Survey from the BLS. And it said that the number of layoffs in the month of November was about a record low. It's been lower, but rarely in the past 20 odd years that the data has been available. And it's well below what we saw pre-pandemic. So despite the surge in tech layoffs, it's not translating into layoffs economy-wide. The rest of the economy is still absorbing those people that are losing jobs and creating enough jobs to keep layoffs down.

So, so far, so good. It's not translating into any significant impact on the broader economy. But is that coming next, this year? I would expect it, right? I mean, it almost has to by design. I mean, the Federal Reserve is working really hard to cool off the job market, get job growth down to something closer to zero, because they want to see unemployment start to notch higher and get that wage growth back in so that inflation comes back in. So they're going to continue to push, meaning continue to raise

interest rates until that happens. So yeah, I'd be pretty surprised if we don't see layoffs at least normalized. Right. I mean, they're well below what you typically see. Interestingly enough, the labor market has cooled off a bit. I mean, job growth is definitively slowing. But all of that is because of less hiring, not because of increased layoffs. I have to give you credit, Mark, because you've been bullish almost in the soft landing camp, at least for several months, especially when all the doomsayers were calling recession, when the Fed really started tightening triple rate hikes, four in a row, inverted yield curve. Do you still think that they can pull this off while avoiding a recession or a very shallow one? Well, you're very kind. I'll take it. The kind

words are. And of course, there's a lot of script to be written here. And the risks are high. I mean, with inflation where it is in the Fed on the warpath, you know, if anything else goes wrong, recession does become more likely. But yeah, I think we have a fighting chance. I mean, you know, we've been getting some reasonably good news here over the last couple of months, everything from lower oil prices to the end of China's no COVID policy. It feels like the job market's kind of cooperating here, more or less. So it feels like everything's moving in the right direction to get inflation back in the bottle sufficiently before the Fed has to push rates up and push the economy into recession. So we need a little bit of luck. Nothing else can go wrong. And the Fed has to get it right. They've got to be pretty deft

with their policymaking. But yeah, I think we can make our way through. And I'll have to say, even though I think recession risks are high, my baseline outlook, the outlook that I, you know, the headline forecast that we provide to clients has no recession and slow growth. I call it a slow session, but but not a recession. And in 2023. My question is, what happens to inflation this year? Because if demand if demand holds up enough to not take us into recession, Mark, are we going to see inflation come down fast enough for the Fed? I think so. So oil prices, if they're down and we're paying $3 for a gallon of regular unleaded, that's going to translate through the middle of

this year and lower inflation. We've got the no COVID policy coming off. So once China gets past these infections, I think the supply chain is normalized. Vehicle prices will start going south. That'll help. And then by this time next year, the fact that rents have gone flat here for lots of different reasons will translate into a lot lower housing cost inflation by this time next year. And then by then, I do think the labor market will be soft enough. Unemployment will be up enough. Layoffs will have normalized to a significant degree that wage growth will come in and allow service price inflation to come in as well. So, yeah, I think we can get through this with inflation coming back in. Now, clearly, consumers, we don't want consumers to go out and spend with abandon,

but that's not what they're doing. You know, they're spending just what they need to spend to keep, you know, everyone in the game and keep the economy moving forward. As long as they can continue to do that, yeah, I think we can avoid an outright downturn. Mark, thank you. It's good to get an update on your thoughts, especially on this big week for jobs. We've got a big jobs report on Friday. Mark Zandi of Moody's Analytics. Well, even with Mark's optimism about the soft landing, Dow's just gone negative. We've lost that steam. UNH, UnitedHealthcare, Microsoft, and Honeywell are the biggest drags on the Dow

right now. The S&P 500 down. It's up, but it's down from where we were when we started the hour. It's up a quarter of 1%. The Nasdaq 100 also just turning negative. And the Nasdaq holds on to a small gain of a tenth of 1%. Tesla is still higher. So is NVIDIA and Netflix. But Microsoft, Amazon and Alphabet are pulling the Nasdaq the other way.

Bang stocks, speaking of, they were crushed in 2022. Coming up, we'll be joined by an analyst who says investors should sink their teeth into these names. Find out why when we return. We have got a market flash on Carnival. Let's go to Seema Modi with the news. Seema. Hey, Sarah. We're looking at shares of Carnival spiking here on a Dow Jones report that the company is starting to raise prices on certain things like gratuity charges starting April 1st will be going up. Wi-Fi charges on board a cruise will also be going up. It's a sign that the cruise lines are perhaps starting to get pricing power back. And that is sending shares of the major cruise lines led by Carnival higher by as much as 9 percent. And the big story last year, Sarah, was when were the cruise lines going to be able

to raise prices? At first, they had to lower prices to really attract the value customer. But could be a sign that things are starting to turn back to you. Yeah, I mean, maybe they're in the sweet spot where people are still traveling a lot before they before we're in a potential recession and things do get worse on the economy. Seema, thank you. Cruise lines taken off today. Let's check out today's stealth mover. It's Jaron. Shares of the biotech firm are soaring after announcing positive late stage study results for its experimental blood disorder treatment. The company says it plans to file for FDA approval by the middle of this year and then hopes to launch the drug in the U.S. in 2024.

The stock is up 32.5 percent. Breaking news on the House speaker vote. This is what? Vote number six. Ilan Moy with the details. Ilan. Well, that's right, Sarah. California Republican Kevin McCarthy is on track toward losing his sixth vote to become Speaker of the House. Currently, there are seven Republicans opposing his nomination. He can only lose four, so he is expected to come up short once again.

Now, on the floor, Republicans are admitting that this is starting to feel a lot like Groundhog Day. Lawmakers are getting antsy and frustrated at the lack of movement here so there is some discussion about potentially adjourning after this vote is over so that lawmakers can get in a room and start negotiating get down a brass tacks and potentially reach some sort of breakthrough though at this point it's unclear what that path would be but as for now the house on its sixth vote for speaker and currently no candidate has garnered enough support in order to win that top job. Sarah. What a mess, Elon. Thank you, Elon Mui. Look at Alibaba. It's leading the Chinese tech stocks higher today. On New Hope's, Beijing is easing tech regulations of 12.5%. That story

plus Salesforce surging and a bullish call on the FANG stocks when we take you inside the market zone next. 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 as always. Plus, we've got New Street's Dan Simon on Amazon and Deirdre Bosa on Alibaba. We'll kick it off at the broad market. Mike, what happened to the rally? Dow's now down eight points, S&P up nine. I know that the Fed minutes came out this afternoon and they were pretty hawkish, but we expected it.

Yeah. Right? So what was the problem? Cool things off a little bit. I will say most of what we're seeing in terms of the indexes coming in is, again, the effect of things like Microsoft and some of the mega caps not cooperating. The equal weighted S&P still up 1 percent. It doesn't really change the story, which is the market really can't gather up a lot of conviction for a directional move and hasn't been able to for, you know, 20 or so trading days right now.

I thought that the data today were very instructive about the situation we're in. Manufacturing looks rough. ISM number, a new low for this cycle. However, inflation coming down within it and the employment component strong. Jolt's labor market indicator relatively firm. So you have to ask this question. Can the economy decompress enough for the Fed satisfaction just with housing and manufacturing taking a hit and the rest of the economy not doing so, which would support corporate profitability. That's where we find ourselves at the beginning of the year. Got it. Let's talk Microsoft, because it is under some heavy pressure today. Actually, one of the biggest drags on the Dow, UBS downgrading the

tech giant to neutral, citing weak Azure field checks and the view that Office growth is likely to slow in 23. But here to make the bull case is Jeffries analyst Brent Thill. He has a buy rating and a $270 price target on the stock. Why is that analyst wrong about slower growth for the drivers, Azure and Office? Hey, Sarah, I don't think they're wrong about slower growth. It's just the question of how much is already embedded in Microsoft. Many of the tech leaders have fallen considerably. Many have expected and embedded numbers to go lower.

Microsoft still is the best house in the neighborhood, which again, this neighborhood in tech is not a great place to be right now. But Microsoft, in our opinion, in terms of double digit growth, steady margin improvement, and the quality of this management team leaves us long-term more bullish. But I think tactically, everyone's very worried about tech. There still has to be a reset.

We still have seen numbers not bottom yet. Amazon lowered their cloud forecasts, and we continue to believe numbers this year across both the big hyperscalers, Microsoft and AWS, will decelerate again this year. So I think ultimately you come back to Microsoft as a $10 earnings power story, plus you put a 24 to mid-20 multiple on your back, kind of in the mid-200s. And so I think that's the issue with a lot of investors right now. Microsoft feels a little

capped on the upside. You have to put a more aggressive multiple on it to make it work. And right now, I think that's a hard thing to argue in the environment we're in, especially as we head into the recession in the back half of this year. Yeah, it did underperform Amazon, though, for the year. Brent, I wanted to ask you about Salesforce. Speaking of coming economic weakness on the news today that they're going to be cutting 10 percent of the workforce, cutting back on some of the real estate. To me, it signaled, OK, Mark Benioff is back in the driver's seat after the Brett Taylor exit. He launched this company during the dotcom bust, been through the 2008 recession and is taking steps to preserve margin.

How does that how do you view it? Yeah, there's no question. I mean, the big concern here has been margin. This company is massively under-earning on the bottom line relative to Microsoft, Adobe, Oracle. And it's been the single worst stock in the last three to five years relative to the large cap names. So I think the bulls will argue, look, they're finally getting religion around margin. The bears will say, we've heard this forever from them. That's all words. There's no action. They have, as they say in Texas, big hat, little cattle on the margin.

And I think that they're putting the right steps in. Look, everyone believes this is a show me story. There is no question there's been incredible departures. The sentiment is awful on this name. It's probably the worst sentiment of any of the software names we cover. So that's the good news. It's in. They're making good strides to get their margins above 25%, which we think they can with this cut. But they're a little late. Remember, I mean, Facebook, a number of tech names put these cuts in the fall. So everyone said, why did they wait so late? So at least they showed up

with with more discipline. But again, I think investors are still very skeptical. And this may signal that there's a demand issue that's bigger than we all see. So the other question is, what happens to revenue now? And I think that's that's that's still a big open question in the front half of this year. One thirty9. Your price target is still $230 on Salesforce. Brent, thank you for joining me on some of those big movers. Brent Thill. Speaking of Amazon, it is coming off its worst year since 2000, trading around its lowest level since the beginning of the pandemic.

But our next guest calls it his top pick for 2023 and sees a major turnaround ahead. Let's bring in Dan Salmon, U.S. Internet Research Lead at Newstreet. He has a buy rating of $130. Price target implies 52 percent upside from here. So, Dan, beyond the fact that it was a big loser last year, what makes it different this year? Well, look, I think what we're seeing across a lot of the Internet sector right now is valuations that have come down and been compressed because of fears of recession, fears of more macro headwinds. And broadly across the group, you know, we're fairly bullish to buy into that that fear. And we titled our initiation report the famous Warren Buffett quote about be greedy when others are fearful. For Amazon, as our top pick, obviously a lead out and near term here in the next few quarters still may be a little bit choppy in the

e-commerce market. But we think that by the time we're crossing into the back half of next year and exiting through holiday season, we're going to see Amazon beginning to take share again in the e-commerce space. I'm going to allow those higher margin businesses like cloud, like advertising to start to shine through and allow operating leverage to flow through in that stock, especially after so much investment that they've done in fulfillment and logistics that goes back even pre-pandemic to when they were investing in one day shipping. We think it's time for that investment to start to play out. You like a number of the FANG names

for similar reasons. I think Google you see as an opportunity, like Meta, Snap, not a FANG, but certainly one of the high-flying tech names that collapsed in the last year. And I get the valuation argument, Dan, but what about the macro? What about risks around higher interest rates?

We just got a message from the Fed two hours ago that their work is not done. They're not planning rate cuts in 23. And they're worried about easing financial conditions. All of that is bad for these stocks, isn't it? It is. And it all comes back to sort of what are we baking in in the market? And look, if there's a big incremental step down, it's maybe a little less interest rate driven for me with those names that you mentioned, Google and Meta and Snap, which are all pretty much primarily advertising driven. We're really interested in the GDP forecast, where unemployment goes and where ultimately consumer spending goes.

You're right. I mean, right now is the fearful point. I think that investors are very concerned with what's coming. When you look back in history, you tend to find that these are the sort of moments where building longer term positions, and that's really what we emphasized here. We weren't making a big call just yet on the quarter or anything along those lines. But if you're looking on a 12 to 18 month view, we do think that this point of sort of maximum fear is when you want to start building those positions. There you go. There's the bull case, Dan.

Thank you. Daniel Salmon, New Street Research. Appreciate it. Got to hit the Chinese internet names, Alibaba and some of the others soaring after Jack Ma's Ant Group received approval by Chinese regulators to expand its consumer finance business. Deirdre Bosa joins us. Investors, Deirdre, seem to be taking it as a

good sign that Beijing could ease up on regulatory pressures. We've been fooled before, but I guess that they have to try to stimulate their economy now. What do you make of it? We have been fooled before, and I think where investors probably are looking or putting more weight into is the property sector, not necessarily these Chinese internet names. Because Sarah, as you said, we've been fooled before. And just last week, we know that the regulatory bodies in China started to look at online brokerages. And some of the names in that space, the names that are listed here in the U.S., just crumbled under that pressure. There's also this question of how much damage has already been done. Yes, Alibaba is one of the leaders moving higher on the back of that Ant news, but is Ant going to

be worth $300 billion ever again? And there's also other companies. Tencent has lost a lot of its growth after Beijing cracked down on video games. There's also Didi lost so much value that it had to be delisted. So even some of the new and up and coming names, not new, but the ones that have benefited, like Pinduoduo, Meituan, are they getting too big? Will Beijing look to them next? These are all questions that plague the Chinese markets and Chinese tech companies, Sarah. Got it. Deirdre Bosa, Deirdre, thank you. We've got two minutes here to go in the trading day. Mike, what are you seeing in the market internals? Things softened a little this hour. They have in the index level, Sarah, but under the surface, you can actually see that most stocks are up and the vast majority of the volume is to the upside.

It's about 6 to 1, advancing to declining volume. The mid-cap index up 1%, mentioned earlier. Equal-weighted S&P also outperforming. So really it is the huge mega caps weighing on things. Here's consumer discretionary and consumer staples over three months, equal weighted, showing you discretionary actually starting to make a run, even on a six month basis, outperforming. So the consumer holding in OK in the market's estimation at the moment. Volatility index still subdued. It's in the 22s. We've had a very, very calm stretch of

trading days. We're in a tight range. So it still shows you that we're bracing perhaps for a little bit more whippiness throughout January, Sarah. And we're back on the upswing here into the close. It's been kind of all over the place, but now we're higher. The Dow's up 131 points. S&P is up about three quarters of one percent. So some buying here on the close and the Nasdaq up seven tenths of one percent on the close. If you look at where it's coming from within the S&P, you've got every sector green just like that in the last moment or so. What's working best? It's real estate having a good day. Materials, financials, consumer discretionary, even energy, though, managed to close green with a big slide in oil. And the Nasdaq managed to close higher as well. Almost a percent. That's it for me on Closing Bell.

See you tomorrow.