Closing Bell - Late-Day Pop, The Case for Coinbase, World Bank’s Warning 1/10/23

Episode Date: January 10, 2023

Stocks gained steam in the final hour of trading, with the Nasdaq seeing the biggest gains. Former PIMCO Chief Economist Paul McCulley discusses the latest signals from Fed officials, including Chair Powell, and his outlook for inflation ahead of Thursday’s CPI report. Coinbase was a major winner after announcing a new round of layoffs. Richard Repetto from Piper Sandler makes the case for more upside in the crypto exchange. Meantime the World Bank released a fresh outlook for global growth, showing a sharp reduction from its last forecast. World Bank President David Malpass joins to break down that report. Plus the latest on airlines, Microsoft, and a potential healthcare deal for CVS.

Modest gains for the major averages after an up and down session as investors look ahead to inflation data Thursday and bank earnings later this week. This is a make or break hour for your money. Welcome everyone to Closing Bell. I'm Sarah Eisen. Take a look at where we stand broadly in the market. Higher on the Dow by about 90 points. High of the day was up 151, but the low of the day was down 95. Visa, Goldman Sachs and Amgen adding the most to the Dow. The rally in the S&P 500 up four-tenths. It's being driven by communication services again. Some of those media names bouncing back strongly today. Tech is doing well. Consumer discretionary as strong as Amazon bounces back. The Nasdaq higher by seven-tenths of one percent, though Tesla is sitting out the

rally. And the 10-year Treasury note yield a little bit higher today on the back of some Fed speak ahead of the inflation data, 3.6 percent. So selling a bond. Check out shares of Coinbase moving higher today again after the company announced a big reduction in headcount. We're going to talk about that move with an analyst who sees a lot more upside for this stock. Also ahead on the show this hour, a first on CNBC interview with World Bank President David Malpass, fresh off the World Bank's brand new forecast for global growth, showing a significant downward revision from previous estimates and warning of a recession. Let's head over, though, first to the market dashboard to break down these moves. Senior markets commentator Mike Santoli. Mike, what are you focused on? Some gentle lift in the broad averages, Sarah.

It seems like we're tacking on to last week's gains, kind of holding around this thirty nine hundred level. The S&P, remember, we spent weeks kind of attached to thirty eight hundred. We certainly are waiting for that CPI number, trying to digest a lot of the cross currents in Fed speak. I keep pointing out, though, there's a different shape to this rally off a new low that we got off of the October bottom here versus the prior one. So you've seen a little bit of a very, very shallow pullback consolidation. What happened after the springtime and summertime interim peaks is within two months fell pretty steeply to a new bear market low. So not to say it can't happen this time, but it's definitely a little more of a modest pullback and we're sort of finding some support a little bit higher. Take a look here at one picture. There's so many ways to represent this Fed expectations as built into the bond

market. This is the six month Treasury bill yield against the two year Treasury yield. Now, the six month is the highest yield on the entire curve at this point. So it sort of shows you that's almost entirely driven by Fed rate hike expectations. The six-month window from now basically encompasses what people assume to be the move to peak Fed funds rate. And here you see just a couple of months ago, the two-year yield started to fall below it because within that two-year window, the presumption is there's a higher probability of cuts. Now, Sarah, a lot of folks want to say the Fed's not listening, not looking at the slowdown data, is sort of oblivious to the fact that inflation seems to be coming in. They see and hear all of it, I think. But the market has to encompass all the probabilities.

And one of those probabilities is a harder landing that means they're going to be cutting despite what they say right now. And they're not going to talk about cutting. They're just not. It's counterproductive to what they're trying to do, which is still fight. And the cost of not talking about it is not that high at the moment, at least right now, because the job market remains relatively solid. But if the market and the Fed are on different pages, that's never a good thing for the Fed. I just I want to point out some of the media names. Like, look at Warner Brothers Discovery. The stock is on a roll. It's up 6.5% year to date.

And I know we're only 10 days into the year. It's up 30%. And some of these other media names are also catching a strong bid. Yes, they were underperformers last year, but they're getting a lot of analyst love. I think that's a part of it. So deep underperformers arguably got very washed out.

Everyone saw them looking cheap, things like Warner Brothers and Paramount. And they're getting costs in line. It just seems as if it's a fresh look in the new year at stocks that seem like they took their punishment and maybe are getting their costs in line. So we'll see if it lasts. January, you often have a lot of that kind of, you know, the last year's losers end up having a little bit of relief, but it doesn't always last the full year. Will be a growth and deleveraging story, according to Bank of America on Warner Discovery today, naming to its top list, top stock list.

Thank you, Mike. We'll see you soon. Mike Santoli. It has been a jittery week for markets, thanks to a number of Fed speakers and the upcoming December CPI numbers out on Thursday. Fed Chair Jay Powell speaking this morning in Sweden at the Riksbank International Symposium,

highlighting the need to restore price stability, even if it requires unpopular measures. And then we got Fed Governor Michelle Bowman saying earlier today that more rate hikes will be needed to combat inflation, echoing the hire for longer mantra we've heard from the Fed lately. Joining us now is former PIMCO chief economist Paul McCauey, always with an eye on the Federal Reserve. What do you make of this idea that the Fed and the market appear to be increasingly on different pages about the outlook? The Fed and the markets are looking at the same data. I think Mike is absolutely right there. I think what really is distinguishing the difference is a different standard of proof. Effectively the fed

wants to have beyond a reasonable doubt like you have in a civil in a criminal trial. Where the market is basically saying for ponderance of the evidence more likely than not. Like in a several trial to we're looking at the same data

is the issue of what's the burden of proof. And the market basically is saying we're at the end of this tightening cycle. It is time to bet what happens next. And the Fed is focused on finishing the cycle. So who is wrong? Given the fact they're looking at different standards of proof, neither one is wrong. But from an investment perspective, from an investment perspective, the market is right. So you expect interest rate cuts this year? Yeah, I do. I think the Fed will finish the tightening campaign pretty soon. The market has priced in three more 25s. I don't even think we'll get that many. And I think

we'll have a pivot, a rhetorical pivot by the middle of the year. And I'm looking for cutting in the second half of the year, reflecting the fact that inflation is coming down. The economy is soggy and the Fed is restricted. This is a pretty easy call. The cut call, though, is it doesn't appear to be very easy. You know, when I talk about it with investors, a lot of the, I'll say, older generation, those who have seen inflation cycles and Fed hiking cycles in the past say, the young folks have never seen this before. We're going to have higher interest rates for the next few years. This is a whole paradigm shift. And this is a generation of investors that are just used to the Fed coming up and cleaning it

up and cutting rates and not staying high for long. So it does feel like there's this kind of fork in the road when it comes to the outlook beyond, say, the middle of this year? Well, I think both crowds can be right in that you can have a cyclical reversal, but the easing campaign on the other side of this tightening campaign is not going to take you back to zero. Remember, we've got a generation that's grown up of going to zero twice back in 08 and then obviously in 2020. So the new paradigm is a positive Fed funds rate even at the bottom of the cycle. And I think that is correct. But it doesn't obviate the need for the Fed to move back from restrictive towards neutral once it has achieved its objective of inflation, crying uncle. Do you think they can get away with ending this tightening cycle

without seeing a markedly higher rate of unemployment? It's hard to tell because unemployment is such a lagging indicator. I think we're going to see the employment side slow in the months immediately ahead and the unemployment rate's going to go up. How much, I don't know. But from a market perspective, it's not so much how much the unemployment rate goes up. But when the Fed effectively said enough is enough and goes the other direction, the pivot is far more important for the markets than actually what the level of the unemployment gets to, though the opposite is true, obviously, for Main Street.

It really comes down to how fast inflation comes down. So what are your expectations for Thursday's number and where we'll be, say, by the end of this year? I don't have a table-pounding viewpoint about Thursday. Anybody who does is engaged in hubris. From the standpoint of the end of this year, I think we'll get down to four or below. My central tendency would be a free handle by the end of the year. And you think that's going to be good enough for them to to pause well before that? Absolutely, because they're looking at the dynamic of inflation not a particular level and i think the dynamic has turned in a very positive direction for the fed is going to feed on itself

and what the actual level is as that dynamic plays out remains to be seen and will be a product of a lot of things. But the key issue is the dynamic has turned in the right direction. I think that's why we're having a resilient here start to the year and a good day today and stringing together a few gains. Paul, thank you very much for joining me with the analysis, as always. Paul McCulley. Shares of Coinbase, they're up more than 20% this week, getting another boost today as the company announces more layoffs. We'll talk to an analyst who is forecasting more upside for the crypto exchange next. We've got the Dow up 79 points or so. You are watching Closing Bell on CNBC. S&P 500 up a third of 1%. Coinbase shares getting a big pop again today. The company announcing job cuts impacting about 20% of the current workforce. Our next guest saw this coming, publishing a note in early December saying Coinbase was going to need to make further reductions.

Let's bring in Rich Rapetto, senior research analyst at Piper Sandler, has an overweight rating on the stock and now $65 target. Rich, so you said after the first layoffs more to come we got this today is there even more or have they right-sized this business well i i think they've taken a good first step and i think that you know what you expect of a company when you see a correction or a downturn like like we're, is for them to take control of what they can. And that's why we wrote the note back in December about headcount reductions. Even though they did one last year of 18%, it really just removed a lot of the additional hires they had done earlier in the year. And even with this 20% reduction,

it brings us flat on the employee base with year end 2021. But I guess the point is, the company's doing what it can under some pretty tough circumstances for the crypto industry overall. Right, so and I wanna talk to you about why you're still bullish

and see value in the name, but I feel like I have to preface it with what you got wrong because you've been bullish and overweight this stock for a long time and taking down your targets, haven't you? Yes, we have. And I would say, Sarah,

one thing I've been through is the imminent boom and bust. And it's just been a lot of similarities of what we see. You've seen a big run up in stocks and then you saw a correction. Not only a correction in valuation, but a correction in trading volumes and revenues. That's exactly what you've seen with Coinbase. And I'd say the second part of that is that the technology proved, you know, successful over the longer term.

And despite all the issues with FTX and the contraction in valuations in the space, it still hasn't been a real flaw in the technology where they say this technology isn't you know isn't going to prove over time that they have an extent and a substantial impact on financial services in the economy in general sure but there's been a major correction in in sentiment and belief in the system, right, after FTX. And I know that Bitcoin is still, what, $16,000 or $17,000. But don't you have to have a view that it will not go to zero if you're going to own shares of Coinbase? I have that view that it's not going to go to zero. It has $5.6 billion in U.S. dollar resources. They've narrowed their losses with headcount reductions.

And they are probably the, they could even win from the FTX debacle here. It could bring more regulatory clarity. It would move the competitor. And they still are, I think, the primary way to play, you know, crypto as we go through and hopefully get a recovery, you know, from this crypto winner, from this overall pullback in, you know, growth stock valuations. What's it all done to path toward profitability and what you expect from earnings in the next year or so? Yeah, so it's significantly expense reduction we're needed.

That's why we wrote the note in December. We think they've done a fairly good job there on expense reductions. Now, the headwind that just sort of has incrementally increased has been FTX and sort of, as you point out, sort of the impact on the industry, and that will take some recovery. So the path to profitability, we think, really hasn't all that much changed, given that they did the expense reductions that we called for that we call for over a month ago. Rich, thank you very much for joining us on the Bull Case for Coinbase. $65 price target. Richard Rapetto, appreciate it. Let's show you what's happening with the overall markets. About

41 minutes left of trading. We've got a solid rally, up half a percent on the S&P 500, more than that for the Nasdaq. And that is thanks to winners like Amazon, Meta, Netflix, Nvidia, Microsoft. Within the S&P, it's the communication services sector which continues to rally and is now the best performing sector of the year. Media names in particular, which I spotlighted, are doing well. What's not working are defensive groups, consumer staples and utilities. That's what's under pressure today.

Just Capital releasing its annual ranking of America's most just companies. One sector in particular showed surprising gains in wages and job creation. We'll explain next. And as we head to break, check out some of today's top search tickers on CNBC.com. Tenure yield getting the most interest as usual. It's higher today, 3.6 percent, followed by Tesla, which is underperforming, down 2 percent. Coinbase, we just talked about, Bed Bath & Beyond with more layoffs. The stock up 25 percent and the overall S&P 500 up half a percent, now positive for the week, though it's only Tuesday.

We'll be right back. What is Wall Street buzzing about today? America's most just companies, Just Capital and CNBC, releasing the Just 100 list, ranking companies by key issues that the American public say matter the most, like wages, job creation. Billionaire hedge fund manager and Just Capital co-founder Paul Tudor Jones, speaking earlier on CNBC about the financial performance of these companies versus their peers. Listen. The Just 100 paid five times the amount of dividends that the rest of the Russell paid.

So I think, you know, all the attacks on ESG and investment performance, I don't think they're looking at the data. CNBC's Brandon Gomez joins us now at Post 9 to dig into which sectors, Brandon, and companies saw the biggest gains from last year. What can you tell us? Yeah, so tech and financials are leading. So tech traditionally has already been leading. You have names like Nvidia. Microsoft has been in the top five for all six years since the list's inception. So, you know, not too much of a surprise there. Financials, though, are getting a big boost this year. You have Bank of America, the number one company, truest financial, synchrony, JP Morgan in the top 10. All of that really led by the fact that these companies are disclosing a minimum wage, which is a new metric that just tracked

this year. But Bank of America has been climbing the ranks year after year. They were 105 back in, I believe, 2018, climbing up to just within, where am I? Climbing up, yeah, climbing up, and then all the way to number one this year. So, and PNC, it looks like number 15. How are they weighted in terms of the issues? You mentioned the wages factor in, but climate also goes into here, doesn't it?

Climate also does go into it. So essentially what's happening is they're doing research with the American population, asking them what issues matter to you most. Then once they have those issues, they say, okay, now in order of importance, how important are these to you? So a lot of worker issues are the top most priority. About 44% of the Just Capital score is actually made up of those issues that pertain to the worker stakeholders. And Paul Tudor Jones mentioned that they pay more dividends than other companies. You can track the financial performance. They do better, right? You can, and we do. So within the Just 100 index that we track, we see that they're actually

outpacing the Russell 1000 companies, their peer companies, by about 13% since the index's inception. And so we're constantly updating that day to day, seeing how those companies are performing. But we are actually able to see that constantly updating that day to day, seeing how those companies are performing, but we are actually able to see that at the end of the day, these metrics are good for business. It's good for the bottom line. And then they boast the rankings too. Companies try to get these rankings, I guess,

for that very reason. It's true, and it's the companies that disclose, right? Disclosure, disclosure, disclosure, transparency is key. The companies that are the most transparent are the ones that are performing best in these metrics, But it's just a matter of time until more companies are more transparent. Got to think it matters not just to investors, but to employees as well. Brandon, thank you so much. Brandon Gomez. And for more on the Just 100 list, you can go right now to CNBC.com slash just dash 100. Just dash 100. When we come back, the World Bank slashing. Speaking of slashes,

its global growth forecast for this year because of inflation. Up next, President David Malpass on the increasing risks of a worldwide recession. We've got the Dow up 114, just took a little leg higher. S&P 500 up almost half a percent. We'll be right back. The World Bank out with a new report today, slashing its 2023 global growth forecast to just 1.7 percent. That is down from the 3 percent forecasted issue just six months ago. Also warning the slowdown could result in a global recession. Joining us now in a first on CNBC interview is World Bank President David Malpass. President Malpass, welcome back to the show. Good to have you.

Hi, Sarah. Not such a cheerful report you put out today. The global economy is perilously close to recession. What is making you so nervous versus where you were a few months ago? Thanks. There's several factors. One is inflation stayed higher for longer than people had been hoping, and so interest rates are going higher. The capital access of countries gets, and of companies, gets cut off progressively as this process goes on longer. And we also, of course, have the energy realignment

that's taking a long time to sort out. The thing is, investors, you know, aren't as negative as you might be sounding. On Twitter, someone wrote back when I teased that you were coming on, Caterpillar's trading at a record high. If the world economy was perilously close to a recession, would Caterpillar,

a global industrial that tracks growth, get an all-time high? That's a good input to you. So Caterpillar works largely or has big markets in Asia, has big markets in the U.S. And one of the things my impression is going on is people are finishing projects that were funded some six months or a year ago. And so there actually is strong current demand that's showing in even in the GDP numbers. But the question is, what's it going to be in 2023? That's the forecast that we're looking at. And it looks like a sharp slowdown in most of the world. China, though, is reopening. Are you not buying into that excitement? I saw you guys took down your China numbers as well by a full percentage point. We did. But I think China is a key variable. And there may be some upside for China if they push

through the COVID as quickly as they seem to be doing. You know, most of the world had a post-COVID rebound that was sharp, and China delayed that through the lockdowns. And so it's possible that they'll come through in the way you just described. China's big enough by itself to really lift global demand and supply. And so then one of the questions for the world would be, which does it do most? If it's mostly putting upward pressure on global demand, then that raises commodity prices. But it also means the Fed will be hiking for a longer period of time.

I think a lot of this all just has to be worked out in 2023. And the dominant thing is we were at a zero percent interest rate environment for much of the world for a decade or longer. And so there's lots of repricing that has to be has to be figured out. What is your expectation as far as when the Fed stops raising interest rates? They'll probably stop after they're comfortable with the inflation expectations. And that depends somewhat on how fast people increase their production and the labor force. You know, one of the frustrating things is that in the U.S., the labor force hasn't been rebounding, and you need a lot more people working in order to produce the goods and services that are needed by the economy. So

those might be some of the factors the Fed will look at. They speak often and talk about their models, and so I'll be watching how they do that. The 10-year yield you saw backed up some today from, I don't know, 3.5 to 3.6. And so you're seeing the market trying to figure out what the long-term resting rate is for interest rates around the world after, as I say, the dominant factor is over 10 years of near zero interest rates. Japan is still working that out because their 10-year yield is capped. They have a price cap on it.

Do you think we've seen the peak in dollar strength for this hiking cycle? It's starting to come down pretty sharply, and that's been helpful to the world economy. Yes, definitely helpful. And so I think the best model is to have the dollar be strong and stable over the long run. And so if that can be achieved at the current level, that would be a good outcome. And the question of whether it goes up or down against the euro or the yen depends really on the rate of rate hikes in the in the U.S. versus those economies. And I think that is just going to depend on on a lot on who produces more. If the if the U.S. could really boost a lot of production, then that you'd end up with a somewhat stronger

dollar, but a better growth outlook for the U.S. and so on around the world. So bottom line, President Malpass, do you think the U.S. can come out of this without going into recession, the soft landing scenario? Certainly there's that chance. And you might even say we seem to be on the course for a soft landing right now. My worry is more about developing countries. You know, we have this giant problem for there are really billions of very poor people around the world that are harmed, that are not getting access to capital, not getting new investment. and they're seeing their growth rates go down and the availability of fertilizer and food go down. So I think while we can wonder about the exact growth rate for the U.S.,

the bigger issue for the world is this crisis-facing development. Are you going to be stepping up your lending this year? We already have. You know, we're 35% above our normal run rate. We'll be pushing hard on that over this year and into next year because of the needs in the developing world. And we're also working very closely with shareholders, and we will be with the world community about ways to have more resources,

whether from inside the World Bank itself or from the global community. The developing world certainly needs big new sources of resources, sources of money, but also of investment dollars. Got it. Thank you very much for coming on to talk through the forecast today, President David Malpass. Good to see you. Take a look at where we stand in the markets, up about 113 or so on the Dow. S&P 500 up half a percent. It is going

strong. And there's the Nasdaq. It's winning today, up seven-tenths of one percent. Amazon, Meta, Microsoft, Netflix, NVIDIA, all driving things there, but also the strength in the media names. Warner Brothers Discovery now up eight percent on the day. As far as the Dow, it's Visa, Goldman and Amgen that's helping lift things higher. CVS reportedly looking to make a big expansion into the pharmacy health care industry, and it's sending shares of One Health Network sharply higher today. Details later on the show. Check out today's stealth mover. It's Bumble. Investors are certainly buzzing about this stock.

KeyBank showing some love for the online dating company, upgrading the name to Overweight from Sector Weight, $27 price target, implying a nearly 35% upside from yesterday's close. The analysts, they're citing valuation mainly after last year's 38% sell-off in Bumble shares, as well as strong global online dating trends. Airline stocks flying high today have been soaring to start the year. Up next, a top analyst on whether the sky's the limit for these stocks. That story plus, Microsoft reportedly making a big bet on AI,

and CVS may be eyeing another health care deal. All when we take you inside the market zone with the Dow up 120. That's 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. Plus, Jeffrey Sheila Cayalu on Boeing and the airlines. UBS private wealth management's Ali McCartney joins us on the trading day. Plus, Jeffrey, Sheila, Kayalu on Boeing and the airlines. UBS Private Wealth Management's Allie McCartney joins us on the market strategy. First up, though, let's look

broad. We've got the Dow up 114 points right now, the S&P up half a percent. Mike, it's easy to see the case for the bulls and for the bears. For the bulls, you know, this market has priced in a lot of bad news. And inflation, if it really is coming down in a meaningful way that the market is expecting and seeing, then the Federal Reserve should pause at a time where China's reopening and we haven't yet gone into recession. That's a good thing. On the other hand, Fed's not even saying that. That's exactly right. And of course, you in theory could also get a bit of an upside surprise on inflation, even though all the indicators say you really do have a good downside push in inflation measures. You never know what one number is going to look like on Thursday.

I think the way the market is trading right now, it's been a relatively broad rally to start the year. You've had kind of the rank and file stocks doing better than the headline indexes. There is some of it just picking up the losers of late last year, of course. But the market is remaining open to the chance of getting lucky. I really think that's what it is. Now, you could say that means there's not enough of a margin of safety. We haven't really priced in a dire scenario. Therefore, why would you buy? But you never know along the way whether, in fact, things can turn out better, especially when growth, economic growth, has seemed like it held up rather well late in 2022. Let's zero in on Boeing. It's underperforming today, but finished 2022 on a strong note, delivering 69 airplanes in December, booking just over 200 new orders. Full-year deliveries

and net new orders were also higher than in 2021. Let's bring in Jeffries analyst Sheila Cayalu to discuss. She's got a buy rating, $240 price target on this stock. Talk us through the delivery numbers, how they compared with street expectations. Thanks so much, Sarah. So it was a good December number. We were skeptical of whether Boeing could meet its deliveries, but it hit its target and mainly on the max. So it delivered 374 maxes in 2022 versus its forecast or guidance of about 375. And we have that number going up to 425 by 2023. And why that's so important is each max figure is about 10 million of free cash flow per plane. So it's really getting them to their target. And their 23 target, as a reminder, is three to five billion

of free cash flow generation. So doubling what it did in 2022. So where does this set up Boeing for this year, especially against rival Airbus? Well, both Boeing and Airbus actually had very good orders and delivery. So if you look at orders, they were double the delivery numbers for a book to bill of 1.7 times to end 2022. And we've seen a lot of incoming requests for what other airlines following United's order could order more aircraft. And China, as a reminder, hasn't ordered a single aircraft since at least 2018. So there's order momentum. But the two things we're watching for giving Boeing momentum this year is the 737 max production rate. It's

currently at 25. It's set to go to 50 by 2025. They need to get incremental step-ups there to 31 by the end of this year. And also the 787 rate. The 787 just restarted deliveries a few months ago. So Boeing had a good December delivery number, but it hasn't really ramped up production rates there. Let's talk about the airlines because you also cover them and they have started, we've noticed very strongly here in terms of performance in 2023 after a rough end to last year. What is the outlook? Are investors looking for a slowdown in travel spending or not? So we're quite skeptical on the airlines. The momentum thus far this year is because the airlines are trading at a 20 percent discount to their historical average. So airlines got

really beaten up at the end of last year on two concerns. One is ongoing costs. Costs are slated to be much higher. We just saw Spirit Airlines hit their pilot agreement where salaries are increasing 34 percent over the next two years. So costs are a concern for the airlines. And second, we're worried about pricing coming in. We're just talking about inflation. Pricing in Q4 is set to be up about 20 percent for the airline carriers.

And we forecast that coming in with the Jefferies Economist forecasting a hard landing at the end of this year. So we're forecasting pricing coming in. And the third headwind for the airlines is, of course, the operational issues at Southwest, as well as all their free cash flows going towards new planes that they have to buy. So it's positive for Boeing, bad for the airlines. But on the flip side, China reopening, big source of international travel demand. We view that as a beneficiary, actually, to the commercial aerospace name. So on a China reopening play, we would buy Boeing and Spirit, a big structures manufacturer, as well as Heiko, an aftermarket play that's not well known,

but is a spectacular investment in our view. So the airlines on China routes, United would be the best play there, but it's only 2% of sales overall and actually very low margins given they compete against the state-owned carriers. You're not buying it. Airlines up 14.3% to start the year. The best performing S&P subsector. Thank you, Sheila. It's good to see you. Sheila Cayalu. Let's talk health care. Look at shares of Oak Street Health soaring on a report that CVS is exploring a deal for the company which provides primary care for Medicare recipients. That deal could be worth more than $10 billion. Bertha Coombs joins us. CVS in another speculation here for a deal. It's been, it feels like a string of these

over the last year or so. What's the strategic interest here? It has been. You know, basically all of the pharmacies are looking to grow primary care as a way to keep people coming in, not just for prescriptions, but also to give them other services, particularly for Medicare patients, to really wrap a bunch of services around for them, to keep them coming and keep them engaged. And for CVS, especially with an insurer, Aetna, that makes a lot of sense. Last summer, we heard that they were in the hunt for one medical. Amazon took them over. Then they bought Signify, which is a health assessment. And now we're hearing that they may be in talks here with Oak Street Health. Now, Oak Street is one of the better performers in this Medicare primary care space. Although they're not profitable, the company did give a bullish outlook for 2023.

They expect to grow from 150,000 members to over 200,000 members this year. They have more than 160 shops, clinics where they treat these members. So they do have an infrastructure and they also have that technology. That's what CVS is looking for. At J.P. Morgan today, Karen Lynch said they're still exploring their options. And one of the things we have to think about here, Sarah, is that it may not necessarily be some of these publicly listed companies. There are also some private options that they might explore, companies like a Citiblock Health or others, they are basically saying they might build something rather than necessarily just buy one piece. Well, it looks

like investors are giving their approval. CVS Health only down 1%. Bertha, thank you. Bertha Coombs. Microsoft, speaking of deals, reportedly investing $10 billion in OpenAI. That is the parent company of the popular chat bot, ChatGPT. The investment, part of a new round of funding that values OpenAI at $29 billion. Microsoft declined to comment on the report. Steve Kovach joins us. It's interesting. Steve, what does Microsoft get out of this?

Yeah, what they get out of it is a really cool tool, Sarah, that can boost a lot of their existing products. So obviously, when we all started chat GPT botting, we thought, OK, this would be really good for Bing search. Yes. And that's a threat to Google. But beyond that, there's a great report in the information this week and talking about how Microsoft plans to inject this technology into their office apps. So Microsoft Word, PowerPoint, Excel. So imagine telling Microsoft Outlook to find me every email Sarah Eisen has ever sent me, for example, or draft an email to Sarah Eisen about doing the Market Zone segment. So they do have some tangible plans for this, and you can

just imagine it helps Microsoft more than just user-facing stuff, but also people, their back-end engineers, their IT people who are literally coding Windows. This is also a tool for them to use as well. And basically, they get in on a really hot technology that appears to be further ahead than even something that Google has been able to come up with, Sarah. It is impressive, if you haven't tried it. Yeah, it's great. Just what this chat GPT can actually do. Steve Kovach. Steve, thanks. great. Just what this chat GPT can actually do. Steve Kovach.

Steve, thanks. Thanks. Wanted to ask Mike about Microsoft. It's up half a percent, so it's actually underperforming the market right now. A lot of people are watching Amazon, or Amazon, Apple, and Microsoft, really, on the recent weakness as market leaders.

What have we seen in these comeback days? Well, yeah, they've certainly underperformed. They have not been the area where people have rushed to pay up for still premium valuations. I think that, you know, as a stock, Microsoft still probably has a little more work to do to come back into line valuation-wise

with where the overall market is, where growth rates are. It's not expected to have particularly impressive earnings growth in the current fiscal year. But bigger picture, I mean, this proposed or possible deal in AI is almost exactly why strategically Microsoft has been this core holding for so many people, because they can integrate almost anything that happens in technology, spread it across their portfolio. It's a $1.7 trillion market cap. $10 billion is nothing to throw out there if it can be an enhancement.

So it's kind of a good long-term story. But right now, the stock feels as if it's just not where the market's fresh money wants to head. Well, we've got five minutes into the close, and we are seeing some strength. We're actually at the highs of the day, certainly on the Dow. Caterpillar adding the most. Look at that, up 184. Also on the S&P and the NASDAQ, which is outperforming. Allie McCartney joins us, managingaging Director at UBS Private Wealth Management. Allie,

you've been pretty cautious all of last year, really, on the Fed hikes and the economic forecast. Are you telling your clients anything different to do right now? I think that the big thing that's changed, Sarah, is that it's 2023, not 2022. And although for all of us, having gone through one of the worst years in the history of being an investor, it's really tempting to want to collectively exhale and start to lean into markets and think positively. Now, you were just talking about the optimism that's been fueling the last couple of days of trading, the beginning of the year. And mind you, we are almost exactly a year out from the historical high on January 3rd last year. And that's based in the steep decline we saw in the ISM number, the early signs of moderating inflation, most specifically and most important, the hourly earnings. That is moderating. But as you said,

it's completely at odds with what the Fed is messaging to us. And so while I came on a number of months ago and said, unfortunately, I think it's early for a pivot party, I think it's still too early for a pivot party. I think investors, it's great to be optimistic. And I think we're going to have more clarity through the next earnings cycle and through the next two federal reserve and CPI prints. But markets and investors are famously fickle and fragile. And I think that staying defensive, building cash, leaning into quality right now with a shopping list is the way to go. So let's talk about then what the strategy should be. Should you still be leaning defensively? And if so, what does that look like? Is it cash? Is it utilities? What do you like?

So first of all, I think when you look at fixed income, I think you have to put cash now because of the level of returns in the shape of the yield curve in that bucket. And so if you are an ideal with largely extraordinarily taxable investors and you can get the kind of rates, especially state and local tax free that you can right now for short term treasury paper, that's super interesting and it buys you some time to see what happens and what happens with credit spreads in the market. In addition, on the active sort of looking for equity exposure, you led the segment talking about health care more in consumer discretionary.

But when you're talking about health care, there's a place you can hopefully have your cake and eat it too. We're talking about from a demographic perspective, that's one of the fastest growing defensive sectors there is. From a valuations perspective... Almost up, yeah. Oh, sorry. What were you going to say? No, I was just going to say relative to both the broader market and to other defensives, it's still undervalued. And so that's a place you can lean in during what might be a potential deceleration and recession, but also even into all the positive that we're going to see, hopefully at the end of 2023 and beyond. Ali McCartney, thank you very much. Good to check

in with you on your on your forecast and what you're telling clients this year from UBS. Mike, what do you see in the market internals here into the close? They've been strong. So about three to one advancing to declining volume. So that's consistent with how most of the first six trading days have gone. Take a look at the material sector relative to the market the last few months. It's really opened up a bit of a lead here. Hard assets over soft. You have China reawakening. Things like copper running pretty well. The volatility index very subdued. We're down by 20. We have the reawakening. Things like copper running pretty well. The volatility index, very subdued. We're down by 20. We have the CPI coming in a couple of days. And yet still, this very gentle index behavior is allowing volatility to drain out of the tape, Sarah.

Dow is up 191 points. We're at the highs of the day here into the close. You've got Goldman Sachs, Caterpillar and Amgen adding the most to the Dow rally right now. The S&P 500 up seven tenths of one percent. Every sector higher except for consumer staples. The leader is communication services on this big rally in the media names. Warner Brothers Discovery, I keep mentioning it. It's up eight percent now at the highest of the day, whereas just about all the other stocks are as well. The Nasdaq outperforms today. It is up a full percent.

You've got names like Amazon adding a lot to the S&P and to the Nasdaq outperforms today. It is up a full percent. You've got names like Amazon adding a lot to the S&P and to the Nasdaq. Also, you've got strength in some of the chip names as well, the NVIDIAs and Microsoft and Netflix, Apple also adding to the Nasdaq gains, Tesla under pressure. That's it for me. I'm closing now.