Closing Bell - Stocks Skyrocket, Treasurys Tumble & Inflation Peaking? 11/10/22

Episode Date: November 10, 2022

Stocks staging the biggest rally in more than two years after the October Consumer Price Index came in weaker than expected, sparking hopes that inflation may be peaking. National Economic Council Director Brian Deese discusses whether inflation is finally cooling and the economy is heading for a soft landing. Neuberger Berman's Holly Newman Kroft reveals whether she is advising clients to pivot their portfolios to account for what could be a game changing inflation report. Morgan Stanley Investment Management's Chief Fixed Income Strategist Jim Caron on plunging treasury yields and how bond investors should be reacting to the CPI report. Blockchain.com CEO Peter Smith discusses the collapse of crypto exchange FTX and whether it is destroying investor trust in cryptocurrencies. And Lazard CEO of Financial Advisory Peter Orszag weighs in on the outcome of the midterm election and how it could impact both the market and the debt ceiling.

Off to the races. Stocks surging after a lighter than expected inflation report. Is this the moment to reposition your portfolio? 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. Up more than a thousand points on the Dow and almost five percent on the S&P 500. Look at the Nasdaq. It's up more than six percent. Surging. It's a broad rally and it is quite strong. Every sector is higher right now. Energy is the worst performing sector. It's up 1.5%. The best performers, no surprise, technology.

You've got tech stocks up 7%. Consumer discretionary up 7% as well. There's real estate, communication services, and materials. Clearly a very positive and enthusiastic reaction to that lighter than expected inflation report. Coming up this hour, National Economic Council Director Brian Deese joins us first on CNBC to discuss the weaker than expected CPI number and whether inflation is really peaking here. Also, Neuberger Berman, Managing Director Holly Newman-Croft on how she is advising clients to invest in the wake of this inflation report. Is it a game changer? Let's dig deeper into this rally over at the market

dashboard with senior markets commentator Mike Santoli. It's a wow reaction. Absolutely, Sarah. It does tell you to some degree how tightly wound this market was before. Of course, remember, S&P down 2% yesterday, NASDAQ down more than 3%. significant declines off of those mid-August highs. But we were spring-loaded for a little bit of relief because we have mostly been getting upside surprises on CPI for most of the last year, almost every month. This time it was a downside surprise, which fit into this theme that maybe the soft landing is not completely a remote possibility. Too far to actually make that leap right now.

But what I do find interesting is it takes the S&P back to that level there from late September. That was right before the September Fed meeting, not the November, but the September one. That was the previous 75 basis point rate hike. So it's sort of pulling the market out of that kind of moment in the fall when it seemed as if there was no daylight around what the Fed was going to do, as well as what the economy was up to. 3,900 was definitely a hurdle. The bigger one is probably more like 41.

So there's still 4 to 5 percent upside from here. We got this to the highs of the day around noon. We're back to them right now. So it's kind of like a pop and glide sideways. Take a look at market-based inflation expectations, the 10-year break-even inflation number. It's actually relatively tame. It has curled lower. That looks like kind of a decent top, really no higher than it was in the middle part of 2021. Not suggesting this is predictive. It has historically not been. It's basically the

market's best guess based on supply and demand for inflation protection in the market. But it does show you that the market believes the Fed's going to get there either the hard way or the easy way to get inflation back toward an acceptable level. You see this before the pandemic. We were undershooting inflation. It was below 2 percent. Remember, the Fed wanted it higher. Maybe not this way, but it's getting there. So, Mike, look at some of the moves in the bond market. A big drop in yields for the 10-year, for the 2-year. The dollar is weakening quite substantially here against the Japanese yen. It's a 3% move, which shows you how strong it was on the other side. Without a doubt. But clearly, the feeling is the Fed won't have to do as much. That's exactly right. Kind of removing about a quarter point of hikes through the end of

this year. So it's going from 75 to 50 in December, most likely. But again, it shows you how negative people were on bonds. Remember yesterday? Awful 10-year bond auction. Yields were higher. Today there was a great bond auction. And today, in the 30s, it was stronger. So that's all it takes is one good inflation number. Mike, thank you. Mike Santoli. For more on the markets and what to do next, let's bring in Holly Newman-Croft from Neuberger Berman. So, Holly, you have not really been a fan of stocks in the past few times that we've talked to you over the past few months, waiting for softer inflation to materialize.

So is this it? Does this change your mind? I wish I could say yes, Sarah, but I don't think so. Today's a great day. We're seeing that in the market, but inflation is still at 7.7 percent, which is a very high number. So we're trending down, but it's going to take a much bigger move in inflation before the Fed really takes its foot totally off the gas pedal and takes a breath to see that it's having the desired effect of raising rates. But isn't it the market's job to anticipate when that is going to happen? It's going to come first in the market before it does with the Fed. Absolutely.

We think the market, and history proves that the market will be about six months ahead of the economy. But like I said last time I was here with you, volatility is really the theme of 2022. And I think that continues today. A little bit of good news has a great impact on the market. But we don't think that this is the end. So sitting out stocks, what about bonds? Because you were starting to dip your toe in there. Well, so we're underweight equities. We still have our equity exposure because let's not forget the 10-year returns on the S&P are still well above historic averages.

You're just not adding. We're not adding, no. And we're underweight. So we're underweight equities. We've talked a lot about short-duration munis, which we still like. The notable change that we're making now and starting to make is the switch from floating rate bonds in the high yield space to fixed rate high yield. We really like high yield today. It's yielding over 9 percent. And corporate balance sheets are so strong that we don't see an increased rate of defaults, which you would typically see in a slowing growth environment. So you think high yield is due for rally here? Does that mean that we've seen a peak across bond yields? I think the market is pricing in still a couple of rate hikes,

100 to 125 basis points more. And then we think the rate hikes will stop. The Fed will take a breath. The market will start to recover, and we can all look forward to much lower inflation. What about on the economy? What do you expect there? And what do you think is priced in at this point? Because even if inflation is starting to really come down here and the Fed doesn't have to do quite as much, a lot's been done. A lot's been done. And while we expect inflation to come down meaningfully in the first half of this year, we still expect it's going to be higher than average by the end of 2023. So long-term averages are around 2, 2.5%.

We do not expect to get there by the end of next year. But what's really important for your viewers to remember is while a slow growth economy is scary and it might sound scary to the investor, it's the intention of what the Fed has been doing all year. So a slowing economy is what's going to bring inflation down and what's going to ultimately get the market to recover and bring us out of this. Yeah, right. The question is how hard of a landing it is. Paul Krugman today on Twitter says that today's report increases the chance of a soft landing.

Hopefully. Hopefully the market's up 1,000 points, and it's not impossible. And we've talked on previous shows about whether we're in a recession or not in a recession. All we can hope for is to be really smart about navigating these choppy markets, and we're expecting things to start to turn around over

the summer. We still have a few unknowns in the market. You know, we've got is it going to be a very severe winter in Europe? And is gas shortage going to be an issue? We'd love to see some clarity on what China is going to do with their zero covid policy. And again, the to stop raising rates. And we expect by the end of the first half of next year, we'll start to see things turn. What about the midterm elections? Does that make you feel any differently about the outlook? No, I don't think the elections had much impact on the market. The market likes a divided government, so that there's not much change.

A surprise that the Democrats rallied, but not much change in the market outlook. You've also said, you've also talked about commodity exposure in the past. What's interesting is now with this positive reaction to CPI report, the commodities rise and then the financial conditions soften. Is that still a good place to be? Yeah, because it's still, you know, we're not seeing inflation come down dramatically. I think you said energy was the worst performing sector today, but we're not exiting our commodity exposure. Particularly oil. You still like oil? Up half a percent today. Yeah, we're still maintaining a diversified bucket of commodity exposure. We don't want to make a single bet.

What about crypto? Do you get questions from your clients there? Only theoretical questions because we had zero crypto exposure in our books. You know, our clients have worked really hard for their money and our job is responsible preservation and growth of their capital. So we didn't have any crypto exposure. It certainly created a lot of billionaires and just as quickly wiped those billionaires out. Yeah, no kidding. I think the question today is whether there's, I mean, today it doesn't look that way, but in the last few days, whether there's any real systemic pressure on the stock market because of this blow up happening in crypto land.

Crypto has been so volatile and so hurt. I don't think that's going to have such a huge negative impact on the market. Ultimately, what would it take to change your mind? A softer, continued softer inflation rates? It's continued more of a significant move. We'd like to see inflation come down more. We'd like to see the Fed indicate that they are going to, in fact, stop raising rates. And we stand ready to pivot. And, you know, equities have been killed. This is the worst year for a 60-40 portfolio in almost a century. So we are ready to go back into the equity markets. Where would you go first? You know, we're going to continue to be overweight to value, but we've been underweight every equity asset class this year. So we're ready to go back in as soon as the indications in the market suggest it's time. Value in the U.S.? Some might

say more value abroad. Yeah, I mean, international and emerging markets have been so disproportionately punished that I think there is going to be a great opportunity there. Not yet. Not yet. Not yet. Even for U.S. markets. Holly Newman-Croft, thank you very much for joining me. A huge market day, up more than 1,100 points on the day. In fact, I'm told that I have another moment with you. All right. So, Holly, just in terms of looking at some of the correlations, I'm watching the bond market. The 10-year yield is lower. The dollar is significantly weaker now, down 2%. You know, these are pressure points that have weighed on the market.

You know, the other thing people are saying is that when the 10-year comes down below 4%, that the quant traders are going into the market. It's a bit of a trigger. So that could also be boosting up today's market. You're saying that this is classic bear market rally type behavior? This is the volatility of 2022. And that's what we're seeing. And we will continue to see it through the end of the year, I expect. Okay. I thank you now, Holly Newman-Croft. I appreciate I'm from Neuberger, Berman. I want to zero in on the Nasdaq because it is the big winner today, rallying more than 6%, an eye-popping number. Christina Partsenevelos is here with a look at the big movers at the Nasdaq. Christina. What a day today. You're saying 6%.

I guess you could say we're breathing a sigh of relief after getting that slightly cooler-than- than expected inflation report. And you really saw tech just skyrocket after that. Mega cap names are some of the biggest, I guess, movers. It's part of the reason we're seeing the Nasdaq on a weighted point swing. And so that would be Apple, Microsoft, all of those names up. Some of them, Amazon was up 11 percent just moments ago. And it's not just mega cap. You have other

semiconductors, part of the big turnaround too. Some of that has to do with the fact that TSMC did say in October they saw sales climb 56%, so a nice outlook for the market. ASML has an investor date tomorrow. That stock was up over 10%. They increased their 2025 forecast, so that stock is climbing a little bit higher today, along with the entire sector, AMD, Nvidia. These are all stocks that are climbing much, much higher on the NASDAQ today. But if we want to pinpoint some red, biotech wasn't doing as well. Names like Seagen, for example, that was one of the biggest laggers on the NASDAQ. They did announce a new CEO coming from Novartis,

so that was a little bit weaker. But across the board, we are seeing strength and that mega cap helping ARK, Cathie Wood's ETF, that climbing over 10%, risk on, so we're seeing a lot of movers in all those pandemic favorites like Zoom, Peloton climbing higher, over 13% the last I checked.

So a lot of names right here and a turnaround for the chip sector as well as clouds. That was a lot, right? And what, 20 seconds for you? 30 seconds? A lot. The ARK Innovation Fund up 12 and a half percent. Some of those movers in there. Invitae up 35 percent.

Some of the genomics names in particular. But that's, again, where they've been the hardest hit on these rising rates. But if you look on a five-day basis, ARK is what, not even up, at the last I checked, it was up 1% or was even just relatively flat. So we put it into perspective, like Mike Santoli talked about, just looking at the markets over a longer term, we're coming back to these levels that we were at just a few months ago. Same applies to these individual ETFs and stocks. Absolutely. And of course, the context is it's down 70 percent from the highs. The ARK Innovation

Fund. Christina, thanks. Christina Partsenevelos. Crypto is rallying today along with the broader market. That is despite little new clarity surrounding possible fallout from FTX. It's division posting on its website today that trading may be halted on the exchange in a few days and advising clients to close down positions that they want to close. We heard today from some major players in the crypto sector and they voiced their frustrations. It's unbelievably frustrating that, you know, we basically have a situation that looks like Theranos. Looking back, there are always red flags. And you're like, oh, you know, I kept asking myself,

where is he getting all this goddamn money? Excuse me. Excuse the cursing. I'm angry. Where is he getting all this money to be buying these things? Ultimately, we're moving from the entrepreneurial stage, where this was a wild west offshore, where anything goes, to an institutional digital asset stage where the big players like Bank of America and Fidelity and BlackRock and the Goldman Sachs

and JP Morgans are going to enter this space. And we're all just going to grow up and the world is going to benefit from that. And then just a few minutes ago, we heard from Coinbase CEO Brian Armstrong. Do you see a possibility of this being salvaged? You know, from where I'm sitting, it seems incredibly unlikely. I don't know why investors would put money into this, given the allegations. And so it's surprising to me that Sam is still pursuing that line of trying to raise money for this venture. But again, without being inside the firm, I couldn't say exactly what is going on in there. Armstrong talking about FTX in particular. Joining us now is Blockchain.com CEO Peter Smith. Blockchain.com ranked number seven on this year's CNBC Disruptor 50 list.

Peter, where do you see this going? You know, I think that this is going to really result in two trends. One, a trend towards regulated crypto institutions, so onshore players like ourselves, like Coinbase. And then secondly, on the consumer front, you're going to see people shift towards storing their crypto on their own private keys. And, you know, we have about 85 million signups of people that are doing that today. And I think that trend is going to accelerate. You know, the ultimate reality and the coolest part of crypto is that you can store your funds on your own private key where you have no counterparty exposure. And it's been our mission to enable that for the last decade.

And so you're explaining why this is beneficial because what? Because of what you think happened here with FTX and its own tokens? Look, I think what happened with FTX is really a tragedy and a total failure of governance. FTX did not have a board. They didn't have a CFO. They didn't have a chief compliance officer. It's really confusing to me how investors could back that company. But the net result of it is that people are going to swing back to the original ethos of crypto, which is holding their own funds themselves. Crypto is one of the very few assets in the world that you can custody yourself. And I think we're going to see folks increasingly move back to that model,

as well as move to a model of trusting regulated companies in the space. But this isn't just one of these companies that a lot of folks haven't heard of having liquidity problems. This is one of the biggest, arguably one of the most successful, seemingly one of the most high profile exchanges. Peter, it sort of cast doubt on the

entire system. Look, they were very high profile with the press as well as with Silicon Valley investors. But from a market sizing perspective, they were not a market leader. You know, they had 6 million total account registrations, you know, a couple hundred thousand monthly active users. And so while they had a lot of hype and they had a lot of press and they were very popular in those circles, Silicon Valley, you know, the press, they weren't a key integral part of the ecosystem. And I think one of the things that, you know, we're going to have to all ask ourselves is, you know, why weren't more questions asked? You know, we were not an FTX investor or an FTX partner, but to us, it was always confusing. Where was all this money coming from? Why were investors so excited about this company? And, you know, why wasn't there a board? Why weren't there licenses? You know, why wasn licenses? Why wasn't there the normal kind of executive team you'd seen?

And advisory board. They had a former CFTC commissioner advising them. Advisory boards don't matter. What ultimately matters is the governance of a company. Who's sitting on that board? Who is responsible for the conduct of that company? And their entire board was the two co-founders and an employee. So ultimately, you know, you and others in the industry

are going to have to deal with the ramifications here. Sequoia has marked its $214 million stake to zero. I know you're a venture-backed company as well. Isn't it going to be impossible to get money after this? I don't think so. I think that investors will increasingly focus on things like good corporate governance, on things like, do you have a board? Do you have a proper corporate structure? And I think that's largely going to be a net positive for the space. Like this was, you know, very much a Silicon Valley momentum play. And we've seen that very clearly not work out. Well, Peter, we appreciate

you joining us with the perspective, highlighting some of those governance issues from blockchain.com. Let's show you what's happening with this rally. We've got 40 minutes left of trade, and we're going strong. The Dow is up more than 1,100 points. The S&P surging 5%. Every sector higher, strongly higher. Technology and consumer discretionary each up more than 7%. The Nasdaq up almost 7%. Quite a day, a reaction to the softer-than-expected inflation numbers.

Small caps also joining the party, up almost 6%. Up next, the National Economic Council Director Brian Deese expected inflation numbers. Small caps also joining the party up more than almost 6 percent. Up next, the National Economic Council director, Brian Deese, on whether inflation is finally starting to cool and whether a soft landing for the economy is still on the horizon. As we head to break, check out some of today's top search tickers on CNBC.com. The 10-year Treasury taking the top spot. A ton of buying today, putting pressure on yields all the way down to 3.8. We were above 4.1 earlier this week. Tesla, which is having a nice comeback, up 6%. Amazon, with some news of its own, sending shares up 12%. We'll hit that later. The S&P and a rebound, a mini one for Bitcoin. We'll be right back. The news of the day, inflation. The Consumer Price Index coming in cooler than expected this morning,

showing prices rising 0.4% in October from the previous month versus 0.6%, which was what it was expected. That news sending markets surging. Joining us now is the National Economic Council Director Brian Deese from the White House. I'm sure you guys are very pleased to see this report. The take from the market, Brian, is that the Fed won't have to do as much tightening to fight inflation if we are really starting to see it come down. Do you agree with that? Well, certainly this was a welcome piece of news and it does represent progress. We saw that both on headline and core inflation deceleration month over month. And when you look under the hood, particularly in core inflation, you saw some important areas like

owner-occupied rent, which is an area that takes more time for price transition mechanism to start to move through. You saw some deceleration in inflation in that context as well and for things that matter to american households i think the deceleration inflation in food food at home at the grocery store is a welcome indication and consistent with what we have been hearing in in retail and grocery channels of at least some softening over the course of the fall so i think that that is all all positive sign and at the the same time, the rate of inflation is too high and we're going to have to stay at this and stay focused on bringing prices down. I think that's what you heard from the president. That'll continue to be our principal focus in terms of the

tools and the levers that we have here to keep making progress on bringing prices down. As an economist, do you think we truly have seen the peak at this point? And I ask because we just got a reading from the Atlanta Fed GDP predictor showing that we're tracking 4 percent GDP, a potential acceleration here of the economy, which could bring up inflation again. Well, look, I think that it is welcome that we're seeing some deceleration, certainly an absolute price declines in certain goods categories as well. And at the same time, we have to keep at this and stay focused on needing to see those price declines persist across time.

And certainly there can be unexpected setbacks, there can be bumps in the road. And so we're going to, as we say, even in the months where we see more welcome data and also less welcome data, you never want to over-index too much on any individual one month of data. So we'll try to keep looking in the aggregate. But I do think that if you look across the economy, you are seeing some important signs of the resilience of the economic recovery in the labor market and in the broader economy while we're also seeing some reduction in price pressures as well. That's the dynamic we want to see continue. It's the dynamic the president has been talking about for some time now, this transition to more steady, stable growth. And so that's certainly what we

want to see. And certainly this data gives us more confidence that that's what we will see going forward. So it sounds like you're not willing to say we've peaked. I think I'm willing to say exactly what we're seeing, which is we are seeing moderation and deceleration in these numbers. And we're seeing it in some areas that I think are good indications of what may come as well. The future is uncertain. We face a complicated global environment. And so both at both the headline and the core, we're just going to stay focused on what we can control. The good news is that some of the things that we're seeing, for example, on health care, health insurance, on prescription drug prices, on energy prices,

policies that we have already enacted are going to start to take effect and help to provide additional price reductions here in the next set of weeks and months. So that's positive as well. Well, a lot of people say, look, maybe the path from 9 percent or 10 percent to 4 percent on inflation may be easier. You've got things like the base effects, you know, the comps from last year. You've got the supply chain thawing and easing. But what about going all the way down to 2 percent, which is the Fed's target and the range we're looking at? How difficult is that going to be? When will that come? Well, look, you know, I'm going to I'll leave the discussion about the monetary targets to the purview of the Fed. What I will say is that for typical American households and consumers out there,

we want to see a reduction in inflation, and we want to see that in ways that will help them in their daily lives without having to give up all of the extraordinary and historic economic gains that we've made. And we have extraordinary resilience in this economy, a job market that is producing important economic benefits for people across the country, a resurgence in American manufacturing. These are strengths that the United States has unique strengths in a complicated global environment.

And so we want to see this persist while bringing price pressures down. And importantly, while I can't predict the future, what I can tell you is that the policies that we're enacting right now on the fiscal policy side and through the executive branch are going to provide additional price reductions in important areas for household balance sheets as well. So that is positive and we'll have to keep our head down and try to keep making progress. So it does after the midterms, and I know you're happy, we heard from the president yesterday, it does look like the GOP will take the House.

I'm wondering how you are planning or whether you are bracing for a debt default. They're already threatening to use the debt ceiling to try to cut federal spending, potentially in Social Security and Medicare. What is that going to look like? Well, we don't know the outcome, the full outcome of the election in the House or the Senate, so we're going to wait on that front. What I will say is a couple of things. First,

you heard from the president very clearly yesterday that he's prepared to work with Republicans and Democrats on any constructive idea to try to move the country forward, any constructive idea to try to reduce price pressures forward, any constructive idea to try to reduce price pressures. And where he's not going to be compromising is in ideas that would make inflation worse or that would cut Medicare and Social Security. Those are things that he is not going to do. But you've also heard from him consistently, and I will reiterate it, that the full faith and credit of the United States government is not something that anybody should be playing politics with. Anyone should be holding hostage.

And we need to demonstrate to the markets in the world that we're a country that makes good on the commitments that Congress has already enacted. And that's certainly what we expect Congress will do, as they have consistently under prior administrations, Republican and Democrat. Yeah, but there have been some close calls. Brian Deese, thank you so much. Appreciate it on the inflation report today from the White House. As we continue to look at these gains, they're holding more than eleven hundred points higher on the Dow. The S&P 500 up more than five percent. This is our best day for stocks since 2020. And look at the Nasdaq. That's been obviously the pain point entering this entire bear market.

It is getting the biggest benefit today, up more than 6.8% at the moment. Mike Santoli here joining me at the New York Stock Exchange. Something going around, something very bullish going around, comes from our friend Jim Paulson, the chief investment strategist at the Luthold Group, who says since 1950, the S&P 500 has posted a total return of 13 percent on average over the 12 months following the last 13 inflation peaks. Yeah. Is that what we're about to be in? Well, I mean, it looks like it's so far. Listen, high inflation that is declining is the most bullish setup for markets, almost

no matter what level it's declining from. So that is the hope. And that, I think, is what the market is trying to make sure it doesn't completely discount. It doesn't want to set aside the possibility that we're going to see inflation come down somewhat more quickly than feared and that the Fed can therefore go slower and that the economy doesn't have to necessarily be pinched that much more before we get to that moment when inflation is more tame. Now, a lot of things have to go right, but you do have a situation where the market was already being pretty resilient

in the last several weeks, not buckling to new lows, trying to differentiate between the companies that were really disappointing on earnings and had trouble with the cycle and those that were, you know, withstanding it okay. And that has led us to this point where we get through the election, we get through the CPI number that was pretty benign, and now you can maybe have a little bit of room to operate where you have the stronger seasonal effects, still very cautious sentiment. That's the bull case, right?

The bear case is three-month Treasury yield is still above the 10-year. You still have this inverted situation. You still have consumers just now feeling the pinch. You have housing almost at a standstill relative to where it was a year ago. So, you know, there's going to be some wear and tear on parts of this economy. The question is how much is already kind of discounted in profit outlook for next year. And, you know, you've got year-end performance dynamics with investors that don't want to allow a market to leave them behind.

Here's another potential bearish point, just to think about and consider. So you have a huge rally like this. And, you know, the market has been resilient, as you've been pointing out lately. Are financial conditions tight enough to bring down the demand-side inflation that the Fed is trying to fight. Supply side, sure. And that's good that we're starting to see that alleviate somehow. But on the demand side inflation, that tricky move to 2% could be hard, especially if financial conditions start to really ease up here on a day like today. We're seeing that big time. And it's completely

unclear. And it really rests in the services spending and inflation in services. Now, you saw a little bit of relief there, but not definitely at all clear in terms of services. Now, I've seen some numbers on disposable income has definitely come in. There's still a savings buffer, but it should actually happen that services come off the boil a little bit. But we don't know. And I think 2 percent, the target inflation rate, that's out in the distance somewhere, right? We're much more talking about getting less bad for a while and a market that's already down 22% coming into today. Well, bulls will say they're going to have to raise that target,

and they might. Right. We can deal with that when it happens, but the average stock in the S&P is down 35%. True. Scott Minard, by the way, just tweeting of Guggenheim. Room to run. The uptrend in rates was broken, so tenure may be on its way back to 3.5%. Strong seasonals, post-midterm performance, technicals, target 4,100 for the S&P 500.

People pay attention. Everyone's looking at 4,100. That's where the 200-day moving average is. Just crossed the 50-day on the NASDAQ, first time in a while. Mike, stay close. Thank you very much. Mike Santoli. Let's bring in Peter Orszag, CEO of Financial Advisory at Lazard. How much stock do you put into this inflation number as far as a positive catalyst going forward? Well, you know, Sarah, as I said before with you, we've been waiting for a moment like this. I think it would be good to see, let's say,

two more months of the kind of disinflationary numbers actually showing up. But this was definitely a good moment for those of us who have been waiting for it to show up, which is to say that the inflationary pressure easing somewhat and again, coming back to the point that we still have a lot of the impact of monetary policy tightening yet to come, yet to hit the economy, which is, again, one reason why central banks should just take this into account. It would be good to have, let's say, two more months before reaching any definitive conclusions, but it was definitely an encouraging sign.

And you have been worried about the Fed, and particularly the ECB, overdoing it when it comes to tightening policy. Does a number like this today make you feel a little bit better about where we're headed on that front? Well, it depends what the Fed does from here, of course. But yes, I mean, the point behind that concern before was most of the impact of when the Fed tightens, we haven't seen yet. So that's coming in 2023. And the point is, if inflation is coming down anyway, then you're going to get walloped with the lagged effect of the monetary policy tightening when you don't really need it. And you might be causing an unnecessary recession in an era when fiscal policy is going to be hamstrung by the likely divide

between the Congress and the White House. So that's where I was going to go next. Peter, what are you telling when your clients call you and say, what do you make of the midterms? What does it mean for the markets and the economy? What are your big takeaways that you tell them? Well, first, I'd say the rejection of extremism was really encouraging for, you know, just the governance of the country. But I also think those Democrats who are rejoicing need to take need to just take a pause for a moment and realize that next year is going to be really challenging. And at the top of my concern

list is what you mentioned with Brian Deese involving the debt limit. I think it would I think what should happen at this point is the most consequential lame duck session of Congress since at least 1974, if not before, in which you tackle the debt limit, you tackle funding for Ukraine, and you tackle other things, but those are the two top priorities, that if you don't do it now, could prove to be really difficult to do in 2023 and could, again, just create unnecessary uncertainty. And I'd highlight the imperative on the debt limit in particular, because it's not only that our politics are somewhat more radical than the past times when we've managed to land the plane, albeit a little bit in a bumpy way, but also the liquidity in the

treasury market is materially lower. You just do not want to be playing with matches around that potential fire. That would be a bad idea and it would be better to do it later this year. So what does all this mean for the business that you guys see? How much pent up demand is there for M&A and IPOs and all the things that have gone quiet in capital markets as a result of the bear market? And are we going to start to see it open up if we continue to get these better inflation rates? Well, I think you are. There's a lot of pent up demand waiting for the signal from the Fed in particular that the coast is clear in terms of interest rate increases

in lots of different areas. We just launched a new infrastructure center here at Lazard today. We're very pleased that Secretary Raimondo was able to join us for part of that. And in that area, you see a huge amount of pent-up demand that reflects all of the infrastructure investment that we haven't made over the past decade or two in semiconductors, across the board, in broadband and so on. That's one of many examples of the pent-up demand phenomenon that you mentioned. And then finally, Peter, I'm curious what you think about potential contagion, ripple effects from this from this Bitcoin latest blow up disaster.

Well we don't know yet because we still don't know whether this is fundamentally the classic divide between a solvency problem and a liquidity problem. We don't know the the second and third round of facts. But I think what we do know is that this is going to lead to a much more aggressive regulatory stance on the area. In my opinion, the regulators have been waiting too long to get more attentive to this particular arena. And I think what we're seeing over the past several days is going to significantly change that. Peter Orszag, thank you. It's great to have you on a day like today. Thanks, Sarah. Good to see you. From Lazard, formerly of the White House. And by the way,

I mentioned that tactical new target that Scott Miner just put out from Guggenheim. Scott Wapner will be talking to him next hour in overtime. He says that the market can go to forty one hundred in the short term, three and a half percent on the 10 year yield. Scott has minored. He also has Carl Icahn. So that's going to be a can't miss hour. Check out the bond market. Huge moves. Treasury yields tumbling in reaction to that lighter than expected consumer inflation report out this morning. The 10 year, which had top four point two percent earlier this week. Take a look. Now below 3.9, lowest level in about a month. Let's get more with Jim Caron, chief fixed income strategist at Morgan Stanley Investment Management. Does this move make sense or is it an overreaction? How do

you read it? Well, I think it does make sense. I do think it's a little bit of an overreaction to the extent that we still have inflation issues. Wage inflation is still present. It's above where the Fed wants it. But look, Sarah, I think the key message here today is that Fed policy doesn't have to drive the U.S. economy over a cliff in order to get inflation under control. So it does suggest that whether it's 5 percent or 5.25 percent or maybe even 4.75 percent could be the terminal policy rate. This certainly gives people in the bond markets a little bit more assurity. And, you know, we've been saying for a long time bond yields are high and it's attractive. But the one fly in the ointment has been that yields keep going up.

And, you know, maybe if inflation is peaking, this may mean that yields may not continue to go up perpetually. So therefore, the value becomes a little bit more apparent. So what is the move here? Would you buy bonds? Think we can go farther? So I do think that scaling into fixed income right now is the right thing to do. We've been saying that for the past month or so. So it's essentially what we would argue is that you want to have roughly a three-year duration. And we would get there by owning some long-dated bonds, so some around the 10-year point and some at the very, very front end. The front end is somewhat attractive these days, given that we you know, we think the Fed policy rates are going to stop, you know, somewhere closer to 4.7 to 5 percent. And I think that credit also becomes attractive. So the all in yield for investment

grade credit was up above five and a half, six percent, some even higher than six percent. That's pretty attractive when you're moving into an environment where inflation may be slowing and we may even have a mild recession. Yeah. But don't you think the Fed is going to be very careful, Jim, with the language it uses in terms of switching to be very dovish very quickly? They've been wrong. They were wrong and late on inflation. I feel like they're going to be pretty cautious in suggesting that we've seen the peak or that they're going to do less. Is that going to rattle markets or can the market look past that? Sarah, that's a great point.

And that's why I'm not pounding my fist on the table and saying this is just an easy buy at this point. The Fed has been wrong before. Inflation is the price of the upside. We still have a strong labor market. If the Fed has inflation on the run and their prescription is still to put policy rates 4.75 percent terminal or 5 percent terminal or maybe even higher than that, then that's going away on fixed income markets. So like anything else, I think timing your entry points and being slow and building that position in fixed income makes some sense. And when bond yields were at 4.25% in the 10-year or 4.2, you know, it sounded a little crazy because, well, yields kept going

higher and people thought they were going to 4.5. But the point here is that I think that the 4 to 4.25% area in bonds represent value at this current juncture. Maybe we'll get a backup. Maybe we'll get another piece of data that does that. But this this is uh you know it's an opportunity to really start building uh positions in fixed income which i think people have been underweight uh unfortunately you know for right now because i think there is a pretty good opportunity going into 2023. final question do you think the dollar's peaked this is some substantial weakening we are looking at here now, down more than 3 percent for the month of November. That's a huge move. Obviously, it's still up a lot for the year, but it shows you how many people, for one, were piled onto one side of that bet.

But how do we know if that's peaked? Yeah, I think a lot of the dollar move has been linked to the Fed policy. So the fact that Fed policy is showing fact that that policies showing more signs of public stops. Around the terminal rates not probably stops around 5%. May. He takes some of the wind out of the sales for the dollar but we

also have to remember that you know things are going on in Europe aren't necessarily all that positive either. But the fact that the C. B. may continue to put policy rates higher. Does probably strengthen the euro at the

expense of the dollar. So I would say that the dollar, at least the up move in the dollar, is paused. And maybe we can argue that we're settling into a range now as opposed to just a steady trend higher. Well, certainly the stock market likes that added plus today. Thank you very much, Jim Caron. Appreciate it from Morgan Stanley. We're going to take a break free straight into the closing bell market zone here on this huge rally. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Deirdre Bosa is here on Amazon's

double digit move higher. And Frank Holland watching the cloud stocks. We'll kick it off broad, Mike, because we're still holding on to this more than 1100 point surge. Home Depot is actually adding the most, which makes sense because it's been hit on all the rate concerns. Microsoft, Goldman Sachs, Salesforce, it's exactly the places that have been hit hard on fear of rising rates going the other way. The question is, you know,

biggest rallies come in the bear markets. That is very true. It fits together, right? The logic chain fits together, downside surprise on CPI, massive move lower in bond yields and the dollar. Rate sensitive stuff. And the areas of the market where you did have people either underinvested or way over committed on the short side. I mean, the heavily shorted

tech stocks today are flying double digit percentages. Now, that being said, the magnitude of these moves as a general matter is not the most comfortable situation. When you see the two-year note yield drop a third of a percent in a day, right, that's not your normal kind of market processing of the environment. When you see the U.S. dollar next down 2 percent in a day, that's not what you typically would see. Now, we know that these are very tightly wound markets. We've been dealing with a lot of stuff. And this is what happens when you have all this focus concentrated on one data point and where the downside surprises in terms of market outcomes have been more prominent. So I get how this all fits.

You'd want the market to be a little bit more kind of smoothly functioning. The bond market's closed tomorrow. Maybe it'll be more of a relaxed tone. So we'll see. Yeah, bond market closed for Veterans Day. By the way, the crowd here and the noise here for the New York Stock Exchange welcoming the Department of the Navy in celebration of Veterans Day. Mike, the bull case is clear, right? We could see inflation start to come down.

The Fed won't have to do as much. Maybe we'll see a chance of a soft landing because the economy has actually held up pretty well. Certainly the jobs market could see a soft landing. The bear case is 2023 could be rougher. This is a seasonally strong period and we're getting the inflation to back up the rally. But next year we could be looking at recession and more rate hikes. Right. The bear case is that you also see a lag effect of rate hikes on the economy itself, not just on inflation, right? So the bull case for now has been, well, the Fed is going to basically start to downshift and take their time in getting rates any higher from here because they recognize that, you know, the rate hikes operate with a lag.

Well, that also means that there might be shoes to drop in terms of the economy, in terms of profit growth. 2023 earnings forecasts have been coming down. They're still showing growth. It's not that they're falling out of bed, but they're definitely declining. So therefore, it becomes a valuation issue at a certain moment as well. Someone on Twitter wants to know what the volumes look like on this rally. I mean, they're very lopsided to the upside volumes. I wouldn't say it's overwhelmingly heavy volumes, but it's perfectly sufficient. And I wouldn't worry that much about it. You always see lighter volumes on rallies versus declines. Got it. Some good signs from the luxury consumer space to talk about. Let's hit some movers. Tapestry, which is the parent company of Coach and Kate Spade, beating on sales and

earnings. It did lower its full year forecast, but that was mostly because of the strong dollar. China also was a drag and is an important market for Coach. They're delaying the recovery there. China, on the other hand, was a bright spot for Ralph Lauren, another big mover today. CEO Patrice Loubet of Ralph Lauren telling me sales grew 30 percent in China despite 35 percent of the stores being closed there during the quarter. Ralph Lauren also beat on quarterly earnings and revenue. Loubet also told me that the higher inventory number, which some are focused on, reflects higher sales, earlier receipts, and more goods in transit. He said that number will come down in the near term. On the guidance, which some of the analysts saw as a little cautious, he said, look,

the value-oriented consumer we're being more cautious on, we're being more cautious on Europe. They see what's happening in the world. But the luxury consumer, according to the CEO of Ralph Lauren is performing particularly well, and he doesn't see a sign of a slowdown there. He also noted that it's been helpful that people are returning to the office because you're seeing strong demand for more put together looks,

which certainly helps that you're seeing more sports coats instead of hoodies selling. So overall, pretty strong read on those luxury stocks, even if there's some notes of caution in there. Right. I would say reassuring across the board, there's a company that's been buying back stock in a material amount. It's a very modest valuation. Tapestry as well, even cheaper. Almost all the apparel names, branded apparel, looks inexpensive. The problem is there's an impediment to getting high conviction in owning something at this level if you do believe that the consumer in 2023 is going to be slightly

less flushed than he and she has been this year. And so I think that's been the tough fix that they're in. I'm looking at the consumer discretionary sector, which is on top of the market, up more than seven and a half percent. I mean, these are wild moves. Caesars Entertainment up 19 percent. Etsy, of course wild news. Caesars Entertainment up 19%. Etsy, of course, related to e-commerce and the Amazon story, which we'll hit in a moment, up 16%. Carnival Cruises, some of the home builders, Pulte and Lennar.

It's easy to see what's working today. It's the places that have been hit the hardest. Hit the hardest, most under pressure based on the macro. Definitely one day is not gonna turn the tide in terms of consumer discretionary performance relative to more defensive areas. But it is helpful. I mean, of course, Amazon and Tesla punch way above their weight in the sector itself because they're massive market cash. But even the equal way to consumer discretionary up almost 7 percent today. So, you know, it's exactly that theme where it's kind of the last shall be first type of market.

Yeah, it's not even the best performing sector now. That would be technology, which is up 7.9 percent. Real estate is also going very strong today. Let's hit the Amazon story because it's a huge winner on a report that the company is launching a cost-cutting review, which could focus on its Alexa unit and other money-losing businesses. Deirdre Bosa joins us. Deirdre, this follows the trend of cost-cutting moves this week with Meta and others. Yeah, in big tech, right? Meta, 11,000 employees and all. So, you know, Amazon tells us that they're telling workers in money-losing operations of the company to perhaps

look around for other positions. So this trend continues. In terms of what else Amazon can do, the Journal reporting that it's looking at that Alexa unit, which is really part of this Amazon flywheel. It's all those devices like the Echo shows, the Echos, the Fire TV, etc. Alexa's really built into it, but the Journal reports that in some years it lost as much as $5 billion.

We knew this was a lost leader, but I don't think we knew the size of it. So what else could be on the table for Amazon? Well, remember that AWS is cloud business as well as advertising. Those are the real profit engines of this company. E-commerce isn't even all that profitable, if profitable at all in some quarters. But, of course, that is its core. But do remember that Amazon has been trying to get into groceries for over a decade now with little success, at least if you look at the market share that it and Whole Foods now has been able to get.

There's also physical stores, which Amazon has already been closing down some of them in terms of those bookshops and five-star stores. It's also spending a lot of money on prime video content. Who knows if we'll see cuts there, but certainly it's spending a lot on content like the Lord of the Rings series and NFL football. Hiring, though, is, as you started with, Sarah, that's where a lot of these companies are looking to. And you can see that Amazon has hired more than any other big tech over the last few years. I do wonder, Mike, you know, while the market is cheering cost-cutting and layoffs right now, when the focus turns to growth again and whether some of these companies are, I'm not picking on Amazon, but just in general, whether they're cutting too much, whether they're stunting

their growth. Yeah, I don't think we're there yet when it comes to the companies that are doing the cuts, because we are dealing with something like Meta, where, you know, their profit margins were totally seen as being under their own control because of their discretionary spending and how much was hired. These are companies that beefed up so much over the course of the last couple of years during the pandemic and even before that, that it's a rationalization moment. There's going to be companies that absolutely will just hunker down too much and sacrifice the long term. I don't think we're talking about that when it comes to these companies that were extrapolating too much growth and chasing bodies in a scarce labor market and hoarding labor. And now they're having to especially spill some of that tons of capacity

during COVID. Deirdre, it's also been hit harder than some of the other big cap tech stocks like Apple lately in this sell-off, which might help explain the big rebound today as well. Yeah, because it was such a COVID winner. So it poured so much money into building up its logistics arms in terms of its warehouses and capacity. And that turned out to be too much. So now Amazon has sort of had to walk that back, which it's paying for, which it's seeing a lot more in cost. Of course, it's subject to those Forex headwinds like the other big tech companies. So it has been hit really hard because it is seen as one of these pandemic beneficiaries. Where does it go now? Advertising has been a boom, but we know what that market is looking like now. And while its advertising model may be a little bit more protected, a little bit less vulnerable. It's still going to feel the effects of that. But today, certainly a wild day for Amazon. I don't

know the last time I saw it up this much, if ever. Just short of that trillion dollar mark, though, Sarah, still not quite back at that hump. Yeah, which just shows you how far it's come down. Deirdre, thank you. It's sort of an everything rally right now, but a lot of these technology and cloud stocks that were in the eye of the storm are in the eye of the buying today. Look at the cloud stocks in particular on a tear among the best performers. The WCLD ETF, it's up more than 12 percent. Best single day ever. Not a single stock in that group lower.

Salesforce, Adobe, Snowflake, CrowdStrike, they're all surging. Let's get to Frank Holland for more on this group. Frank. Hey there, Sarah. You know, not a big mystery here. Rate relief equals a rally when it comes to cloud and enterprise names. I'm going to show you this chart. It's really going to illustrate the whole thing.

Here's the week-to-date performance of the 10-year and also the WCLD ETF. You see kind of like a wishbone pattern here, if you will. As soon as those rates decline after that CPI report, you see these cloud and enterprise names, they just spiked up higher. Earlier this week, the U.S. 10-year yield was at 4.2 percent. That 40 basis point relief giving a lot more room for these high growth, high valuation names to rally. I'm going to focus on two of them right now. Let's look at Snowflake and Datadog.

Number one, Snowflake's trading at 600 times forward earnings. You can see the move to the upside. It's down 57 percent year to date. And then you have Datadog, another company that's's a high valuation name trading at about 90 times forward earnings. That's basically more than twice what the Nasdaq's trading at. And you see it's also spiking. So these companies, their narrative, everybody believes in it. Everybody believes in the cloud transition. The question is just about how the rates impact them and impact their future growth. And today we're seeing investors say, hey, if the rates are going to decline, if we're going to see some relief from both rates and also the dollar, but also important to note the dollar down more than 2% today, we believe in these stocks are willing to buy them. If we see another swing in interest rates, we could expect that these same stocks are going to decline. Dollars weakest day. Thank you, John Spolanzani of Miller Value. He just told me in 10 years. So this is not an everyday move we are seeing across assets. Frank Holland,

Frank, thank you very much. We're looking at session highs right now, Mike, into the close, up almost 1,200 points on the Dow. It's hard to find losers in this session. You have one in the Dow, that's McDonald's. You have a few in the S&P. They're all related to either healthcare or consumer staples, like Hershey, Campbell Soup, General Mills, Bristol-Myers. So a lot of the safe spots. And insurance, which is a very strong area that has held up very well. So I think that's the only kind of source of funds, so to speak, unless there was a news-driven move. No, it's pretty much across the board.

I mean, Apple up 8 percent is stunning and a little bit jarring. In other words, the chart looked like it was about to fail. It was looking like it was very toppy. It had to catch down to meet some other stuff. So we're just kind of buying the indexes in a very aggressive way or sellers just getting out of the way and letting this play out. Don't want to poo-poo it. We are just kind of with the S&P getting up above 39.50. That gets the index into the

upper end of this range. We've been in this range since April, in a way, if you kind of trace it all the way back. And now we've climbed back into the top half of it. But I don't want to see $2 trillion companies go up 8% a day. Apple's having its best day since July 2020. So you're saying these kind of moves are jarring in a bad way? It's jumpy. No, I mean, it says real demand. It says maybe we ran out of sellers. It just hopefully it kind of locks into a little bit more of an orderly pace. And it's not just a rush for everything and a kind of fear that the market's going to kind of go away without you. Again, you're also on the other side of it. Saw people caught short both in bonds and in riskier stocks. And that's getting unwound today. So what are you seeing in the internals, which I imagine are overwhelmingly positive?

They are overwhelmingly strong. However, we've had a bunch of these days where you had like 90% of the volume that has been to the upside. And here, you know, it's roughly in that zone. Actually, not quite as strong as you might expect on a day when you have a very, very rare 5.5% gain in the S&P 500. You know, I did want to take a look at, you mentioned Home Depot before. Take a look at the HomeBuilders ETF, the ITB relative to the long-term Treasury ETF. That's pretty much been a lockstep move. It's been a rate story. Notice the HomeBuilders did not make new lows below the June level. So that's been kind of

interesting nobody can quite figure that out yes they're cheap but people do expect there to be a real kind of crunch in the home building market but they are now responding to this rate move volatility index down below 24 down almost three points today sort of confirming what we're seeing in the overall market on the other hand five percent daily moves in the index market. On the other hand, 5% daily moves in the index, even if they're to the upside, are only going to allow the VIX to go down so much. So it's constructive. You've got a nice little downtrend on this chart. The real big rallies this year over the course of the bear market have topped out when the VIX has gotten down more like in the low 20s or even to 19. So we have a room to go there. We may have had a few big rallies in the spare market, but not like today.

Not on a single day. Best day for Dow, S&P, Nasdaq since April and May 2020. Remember, that was in the middle of the pandemic when we were having some wild swings back then. A celebration, clearly, of a meaningful decline in the inflation rate going up. The dollar is tanking and treasury yields are sinking. And all of that is leading to this big surge in stocks. There's the Nasdaq. It is up 7.4%.

An unbelievable rise here, up 12% now on the Dow. It looks like we are going to close. It's the final of the day. And again, best day for stocks in spring of 2020. There's the Dow. It's up 1,200 almost points. S&P 500 up 5.5%. It's taken it positive for the week by a lot,

up 5% now for the week. There goes the bell at the rise of the day. That's it for me here on Closing Bell. See you tomorrow, everyone.