tv The Exchange CNBC December 14, 2022 1:00pm-2:00pm EST
1:00 pm
200. else at about 22 times next year positive is that china is reopening within that's a big market for them and the weaker dollar will help >> joe t.? >> home depot, great quarter, even better technical formation, "w" bottom stock continues to move higher >> we're about an hour away from the fed. gundlach joining me in o.t i'll see you all then. "the exchange" begins now. welcome to "the exchange," everybody. i'm kelly evans and it's eerily quiet here on fed day. we're an hour away from the decision on rates, and you can feel the market holding its breath we're expecting a half-point hike, but will it seal the deal on the recession or will it send us a surprise. and what will the fed say? stocks are higher. dow is up 167 ahead of the decision let's get dom chu with the set-up >> it's pretty quiet, as well, over here in the markets, but generally positive so the wait-and-see that we
1:01 pm
normally see was kind of hovering around mild gains and losses are substantively fractional, if you want to look at it that way the dow industrials are up about 165 points, about half of 1% the s&p 500 now, 4,036, up about 17 points. at the highs of the day, we were up 31, even more so than we are now. at the lows of the day, just about down four points net-net on balance, similar to the die and similar percentage about one third of 1% for the nasdaq and composite 11,291 so wait and see, we're generally tilting towards the positive side of things win other place you are see positivity is in the oil markets. you have both opec, the oil cartel, as well as the international energy agency both offering forecasts for oil demand in 2023 that implies some kind of a demand recovery. for that reason, you're seeing a bit of a bid to oil prices this morning. wti crude bench mar prices up
1:02 pm
$2.28. 3% gain there to $77.67, but we always like to put the one-year chart up there to show you in the context of the grander scheme of things, this is very much a down trend in place right now, we'll see if it stays that way for crude oil prices and then, the, i guess, move that you want to watch right now is what's happening with bitcoin prices in the wake of what happened with ftx and its bankruptcy and sam bankman-fried getting arrested, there has been a steady relief rally, if you want to call it that for bitcoin prices currently above 18,000, 18,090, up about 3%. that's 332 prices. it doesn't seem like a lot, but this is the first time that we've seen bitcoin back above 18,000 since november 10th so, again, broader moves, we've lost about 62% of bitcoin's value in the last year, but it's up above 18,000. we'll continue to watch and see if that near-term momentum has any legs, kell i'll send things back over to you. >> pretty resilient, given
1:03 pm
everything that's happened the big question for next hour is will jay powell lean against the markets? he could do that in one or two ways either more hawkish than investors are thinking or much more dovish. steve liesman is already down at the fed getting ready and he's got that story hi, steve. >> the federal reserve is expected to announce a 50 basis point interest rate hike within the hour, following four straight 75-basis point hikes. but the fed will be reducing the rate of increase while still trying to convince markets that it's going to be higher and remaining at a restrictive rate for some time. take a look here along with sharp declines in the ten-year and the two-year, since that better than expected inflation report, the peak funds rate fell from 491 to 481 right now. and there's increasing betting that the fed could be done as soon as march of 2023. the broader question, as you say, if the fed and fed chair jay powell are comfortable with this dovish drift in the outlook envisioned in the rates, and that's loosened financial
1:04 pm
conditions since the last meeting. taking a look at how much they've loosened the ten-year treasury down 60 basis points since that november meeting. junk bonds and 30-year mortgages down 35. the dow down 7 a half of that percent just from today. average hourly earnings are up 0.6% if the fed didn't intend for financial conditions to loosen and has a problem with market levels, the fed chair today could attempt to lean against it with hawkish forward guidance. another problem for powell, the market sees the fed hike into 482, but easing by 50 basis points through the year next year that's at odds with a fed that's probably going to update its economic projections today to show the median funds rate at around 5% for 2023, plus or minus, creating a conflict between the fed and the markets rate outlook, kelly. >> there's a lot in there, steve, and i'm glad you pointed out about financial conditions easing, but will the easing matter if the curves are still inverted, you know what i'm saying >> i think so. but i do think the easing matters, because powell needs
1:05 pm
the markets to restrict financial conditions to bring down inflation, at least that's the story he's been telling. >> all right steve liesman, we will see you soon thank you very much. let's turn to rick liesman -- rick santelli, sorry, rick rates are on the move ahead of the fed decision are you shaking your head? he's having a heart attack rick santelli is out at the cme with more. how's the set-up, rick >> you know, if you want to know what the fed's next move is, i'm not the guy to listen to if you want to know what the market's next move is, maybe i'm your guy and if we harken back to early november, we're talking about the same issue what do you want to predict? what the fed's going to do or how the market's going to react? i say the market reaction has been pretty darned clear all of these charts are from the last fed meeting look at two-year note yields basically we've gone from a zone of 470 to 420. we've shaved 50 basis points off, and right now we're hovering at three-month low yield closes and if we look at ten-year, the
1:06 pm
range, we've shaved it from 420ish to 350, about 70 basis points and if you look at three months to 10s, the yield curve, a couple of days ago, it closed at the most inverted in 21 years. it's only up a couple of basis points from that at minus 83 and it really is telling us that the way the markets are set up, most likely there may be a recession at the end of this but traders don't trade for 16 months out a lot of traders don't even trade for 12 weeks out they trade for basically the here and now and maybe add three to four weeks. and if there's a recession, they'll make adjustments they're not playing for that they're playing for the bullish move in treasury yields. and if we look at what's going on with respect to the dollar index, same thing. since the last fed meeting, it's basically gone from a 112 area to now 104 area. these are huge moves and even though just like inflation, the dollar may be week it's historically high, and finally, the hyg
1:07 pm
nothing tells you how investors are feeling about interest rates or nervousness in the markets of interest rates than an hyg high-yield etf and it's been steadily climbing. as a matter of fact, yesterday it closed at a 3.5 month high. kelly, back you. >> rick, what are you most going to be watching, the dots you know, their rate proj projections. we've obviously got the language from the fed itself that's more impactful. the market reaction? what do you think is going to be key, do you think? >> i'm going to count how many times we see the word "longer," we're going to be, you know, higher for longer, longer is going to be the new term we should key on, but what i'm really going to pay most attention to is if the chairman gives the market some credit they've only had mild success. >> and what do you mean by "longer," rick explain that for a second? >> well, i think that steve liesman's had it right, for the last three meetings, the issue, and i think the market's have focused on it is the fed's heavy
1:08 pm
lifting, according to the markets is done. inflation and the peak is in the rearview mirror, although it's still much too high. but ultimately, keeping rates at a higher level longer is most likely going to be something that the treasury market will be able to live with along with the equities, depending on earnings and remember, traders don't trade for 12 to 14 months out. >> no, day don't rick, thank you. we appreciate it, rick santelli. now, a half-point hike does look baked in right now, but could yesterday's cooler cpi number impact where the fed goes after today? here to discuss, head of u.s. rate strategy, and kim forest is the cio of boca capital partners it's great to see you both kim, i'm struck by the fact that in quite simple terms is, is the problem or opportunity right now that for the first time in years, there is an alternative to the u.s. stock market, some of the yields you can get, forget even, you know, in financial markets, in a savings,
1:09 pm
you know, savings account these days are pretty good we're talking about 4% it's going to go even higher after today's fed rate hike. so what is the net impact of all of that, do you think? >> sure. well, i think the headline looks really great for interest rates, right? if you're somebody that wants to lend money somehow, if that's through a cd or if it's through buying a bond. so no doubt, you're getting better rates but here's the flip side of this inflation is really high and if you're looking to grow your money, not just get return for some shorter period of time, bonds generally are not the way to do that you have to be an owner of stocks in order to get money over time. that's just the way it works >> in other words, yes, they're high in nominal terms, but still low in real terms. so if inflation is cresting, you pick up those yields while you can and you don't have to worry about the stock market collapsing in the case of a
1:10 pm
recession. >> absolutely. and it's also a very good hedge. if you're looking to a potentially good recession, we could see some volatility in the market, but bonds are going to be your safe bet when you buy a two-year note, or even a treasury bill, you're locking in that interest rate for the period of time that you are long that bond so to me, it feels like it's a good time to not just be focused on risky assets, which is what we've done over the last several decades, but also offset some of that with some real returns in the bond market. beyond that, corporate bonds and other risky, riskier bonds where the default rates are still very low look quite attractive to us. >> kim, what would you say about that and where do you sit when you look at the investing landscape right now? >> sure, well, you know, once an equity analyst, always an equity
1:11 pm
analyst. so i'm going to, you know, steal my own thunder there but, to be sure, you may want to move into bonds, but for goodness's sake, stay on the short end of those bonds don't buy anything way out in time because, again, you have got to have these assets, not just returning cash to you, through dividends and yields, but you also have to have it grow and if you're going to play the trading game, you might not come out on top, because as rates fall -- sorry, as rates rise, you know, the prices fall. so do be aware of that if you're going to trade >> let's just talk about the landscape. what are markets telling us right now about the possibility of fed errors being committed here when they're about to raise the benchmark overnight, and nothing else on the curve is even
1:12 pm
yielding that? >> they are focused on inflation, so raising rates is the right way to go to try to curb inflation, but the question is what the end point is, and what's a good time to look at perhaps going long bonds when the fed is done. in our view, the fed raises rates by 50 basis points today, and then delivers at least another 75 basis points of rate hikes next year. so when they get to the federal funds rate, which might be as early as march, or may of next year, we'll get it steady for the remainder of next year we have a recession penciled in for early 2024, so, you know, for a good portion of next year, yields could remain relatively highly in the front end. so i see an opportunity in the bond market under these circumstances. yes, on an inflation-adjusted basis, right now, it doesn't look so attractive, but as we
1:13 pm
progress through next year, inflation will gradually decline and the returns of bonds will look even more attractive. >> what would you like to see them do, kim, from a practitioner's point of view you're in the markets, and looking at these companies, you don't want to see a recession. what would the fed's best move be here in order to kind of get this one right >> well, i think that they need to go very, very slowly now. i really think that inflation that we're seeing was not caused by anything that the fed did, other than in asset prices, we all know that, but in money supply and the money supply is dropping precipitously now, and i think they know that so i think being measured and looking for more data about where inflation is actually going is what i want to see the fed do it. and oh, by the way, tell us a lot. i think powell has been really great about being transparent about what he's doing. >> and you want to see even more candor about, hey, these are the exact variables we're looking at here's what they define success
1:14 pm
as, yeah we'll see. if thhe tiptoes in that directin wouldn't it be nice? we have a big press conference coming up where he might be able to do that thank you both as we await that big decision in about 45 minutes' time. coming up, delta airlines expected to nearly double next year thanks to robust travel demand phil lebeau will be here on set with what's driving their optimism on earnings but first, the banks have really underperformed the market just over the past month will that worsen after today's fed decision we'll debate as we head to break, here's a quick check on the market landscape ahead of that call we have the dow leading the way with a two-thirds of 1% gain ten-year yield, right on the nose there, around 3.5%. "the exchange" is back after this good luck.
1:15 pm
td ameritrade, this is anna. hi anna, this position is all over the place, help! hey professor, subscriptions are down but that's only an estimated 15% of their valuation. do you think the market is overreacting? how'd you know that? the company profile tool, in thinkorswim®. yes, i love you!! please ignore that. td ameritrade. award-winning customer service that has your back.
1:16 pm
just look around. td ameritrade. this digital age we're living in, it's pretty unbelievable. problem is, not everyone's fully living in it. nobody should have to take a class or fill out a medical form on public wifi with a screen the size of your hand. home internet shouldn't be a luxury. everyone should have it and now a lot more people can. so let's go. the digital age is waiting.
1:17 pm
welcome back with the federal reserve raising rates at the fastest pace in four decades, the financial stocks were supposed to be a major beneficiary, but it hasn't happened, even as the funds rate is about to crack 4%, both the regional and bank etfs are tracking below the s&p, on pace for their worst year since the 2018 tantrum anton, welcome
1:18 pm
it's good to see you again before i ask about your recommendations, are there -- what were the bright spots in the investing landscape so far this year. who did benefit from this environment. >> well, i mean, at the end of the day, you've really had a lot of sectors hurt. energy was the biggest beneficiary earlier earlier in the year it's really been a tough year for investors, for stock pickers. i think some of the biggest winners have been, the guys who have been trading large moves, trend followers, because there have been some big trends, particularly earlier in the year, and you've had funds like bridgewater have really big swings in returns, as well a tough year for most people >> so what about the banks why haven't they benefited from higher net interest income and in some cases record highs >> so, you can't, you can't have your cake on any of the reasons that people have been trying to figure out why banks are good. but the one thing that has happened is earnings have
1:19 pm
actually done quite well for regional banks they have benefited from rates being at fund zero, which was not a good thing for the banking space. but people have worried about a recession engineered by the fed. so they've worried about credit. now they're worried about the top of their interest rate margin cycle they want to keep worrying, but what's happened is, a lot of these companies are seven, eight, nine times forward earnings with big dividend yields and lots of capital i think i've said this for quite a while, but banks are not part of the problem it's the lending outside the banking space that's riskier, right? the cracks in the credit that we've seen out there have been companies that have, you know, targeted subprime consumers, the lower tier and obviously, that's hurt a lot. it increases productivity tremendously those people are having a hard time paying their bills. banks tend to not bank those types of customers you know, the other big fear is commercial real estate
1:20 pm
you know, oh, my gosh, people have not come back to work or it's going to get canceled if you start to think about the big commercial real estate, it's gone into the plans and the large life companies banks typically don't have those very large buildings in major cities, other than their short-term basis during construction >> so you need -- i was just going to say that valuation wise, basically, it's a good time to get in broadly speaking. you also like, you say, the self-help stories. what would a couple of examples of those be? >> so near community bank, it's interesting i'm talking about the northeast, because you've heard me talk about tax advantage states so here community bank has just closed a merger and the company they bought is actually a large mortgage company they have quite good commercial lending products i think the combination of the companies will lead to better deposits, better products. and they'll use a lot of technology to help drive efficiencies in flag star. i think the company will need to
1:21 pm
pay its 8% dividend yield, and will also eventually be able to buyback stock. i think earnings estimates are too low on this company. i think there's a lot of fear for real estate, they lend a lot to multi-family real estate, and particularly rent-controlled if you think about that, rent-controlled. no one is leaving a new york city rent-controlled apartment >> so before i let you go, am i hearing you sound pretty bullish and upbeat on the prospects of the northeast, anton what is happening? how can this be? >> i'm being bullish on your community. actually, provident bank which is in new jersey some of them from pennsylvania, that merger, i mean, you'll get a lot of cost cuts out of it a really nice dividend yield you get paid to wait and these companies will invest a lot of technology to help them improve their efficiency and be better so, yes, i am bullish on some states in the northeast, particularly the banks benefiting them. >> all right
1:22 pm
anton, we'll see how this plays out next year with recession risks and all the rest headed our way. for now, thank you very, very much, anton shutz with mendon capital advisers next up, jeffrey's chief financial economist ahead. but first, apple is set to close out its worst year since the great recession. and now a new law in the eu is putting some of its profits in peril. we'll look at what's at stake for the world's most profitable company. only three stocks are negative pre-fed, and those are goldman, verizon, and amgen, while merck, mroicsoft, and home depot are leading the way. stay with us
1:23 pm
another busy day? of course - you're a cio in 2022. but you're ready. because you've got the next generation in global secure networking from comcast business. with fully integrated security solutions all in one place. so you're covered. on-premise and in the cloud. you can run things the way you want - your team, ours or a mix of both. with the nation's largest ip converged network. from the most innovative company. bring on today with comcast business. powering possibilities.
1:25 pm
at the highs, we were up 256 points as we head into the fed decision the s&p is up half a percent, just a little bit shy of that for the nasdaq apple's worst year since the great recession could still get even uglier thanks to some big changes in europe. here's the stock up 10%. down 18% year-to-date. steve cocevak is here to explain >> this is all about the digital markets act, that's a law passed in the eu this spring and it's targeting the power of big tech companies. let's talk specifically about how it's targeting apple now, apple under this law will be required to allow third-party app stores to open up other parts of the phone to third parties as well. now, a bloomberg report yesterday says that apple was working on a new version of ios that complies with the law for when it goes into enforcement, but that's not until 2024. but here's an interesting bit from that report, kelly. only the eu will have the third party app stores
1:26 pm
the rest of the world won't. so we're seeing apple talking about this they're fighting about it in the name of privacy and security for the users. that's all good. what it talks less about is the app store profits and margins they're trying to protect as well it's a good thing this is the starting, the eu, at least in apple's view the eu is a tiny market for apps they estimated only 6 billion in sales last year. compare that to the $29 billion in sales for the app store in the u.s., and $85 billion globally what this tells me is that apple is going to fight this country by country, instead of just ripping off the band-aid and making these changes globally, instead. and they still may be able to find ways to charge these third parties for access to ios, but it will take years for this fully shake out. and while the eu may not have big app store sales, u.s. lawmakers are considering similar legislation here that will have much more impact on apple's revenue. >> do we have any examples of these third-party app stores yet, or do we have to assume
1:27 pm
that once they're allowed to proliferate, you could go to something other than what's literally called the app store to download, and would that download of an app be cheaper because there's not a 30% cut. but even those third parties have to make money somehow, right? >> absolutely. potentially, it could happen the way you just described obviously, right now, there are some third party app stores on android. >> what could happen here, this is where most of the money is made, and the "fortnite" maker, epic games, which is going through a legal process wound with apple, they would love their own store. the offer is more or at any other third party app store offers more favorable economics to the developer they may be paying apple in some former fashion >> it's so much smaller, is gaming just not as big in
1:28 pm
europe, what's the difference? >> it's where all the money -- android is way bigger in europe, so a lot of that money goes there. but look, iphone customers spend the most money iphone is the dominant market share here in the u.s. that's why that number is so high and the china numbers,have esti those are huge if similar regulation comes to the u.s. and goes into enforcement as well, it will be a much bigger impact than what we're going to see in a couple of years >> steve, thanks let's get to frank holland for a cnbc news update >> here's what's happening at this hour. the parisian government has declared a national emergency that will last 30 days it follows days of violent protest after the impeachment and the ouster of former president castillo six people have died in clashes with police. demonstrators are calling for castillo's immediate release and new national elections prosecutors are seeking an initial 18 months of detention for castillo after he was charged with rebellion and conspiracy twitter has suspended an
1:29 pm
account that tracked the movement of elon musk's private plane. twitter notes unverified rule violations for the suspension. twitter's new owner previously said he would leave the account alone due to his commitment for free speech. similar musk-tracking accounts remain active including ones on instagram as well as on telegram and pope francis is calling for a more humble christmas, he's urging people to reduce spending on gifts and donate the savings to help people suffering in ukraine that's the very latest >> always bringing that up, reminding us not to forget, frank. thank you very much. frank holland. still ahead, delta shares are flying high after the airli airline upped its guidance big-time we've got the news and what it means for airline travel in 2023 plus, tesla's wild ride, morgan stanley making ait a top pick shareholders voiced concerns weavalthlaitr.ocus on twte he l e test, straight ahead. e first person to live to 150
1:30 pm
has already been born. it could be you! wow. really? of course, you'll have to eat your greens, watch your stress, wear sunscreen... but to live to 150, we're developing solutions that help doctors listen to your heartbeat while they're miles away, or ai that knows what your body will do before you do. cool. introducing elevance health. where health can go. it's hard to run a business on your own. with shopify, you have everything you need to setup your online store, to connect with customers, and to bring your dream business to life. because when we work together, the future is bright. these days, your customers are not just down the hall. they're all over the world. so cute. it doesn't have to be lonely at the top. join the millions to finding success on their own terms. start your journey with a free trial today. [holiday music] ♪
1:31 pm
for people who love their vehicles, there is only one name on their holiday list... weathertech... laser measured floorliners that fit perfectly in the front and rear... seat protector to guard against spills and messes... cargoliner, bumpstep, and no drill mudflaps to protect the exterior... and cupfone keeps phones secure and handy... [honk honk] surprise!! shop for everyone on your list with american made products at weathertech.com...
1:32 pm
1:33 pm
they joined the likes of united and alaska air in seeing sustained spending in travel ban. phil lebeau got a chance to speak to delta's ceo at bostion and joins me on set. what's notable about this is what a contrast it draws to yesterday when united and jetblue shares were down >> jetblue brought everybody down, simply because it did not give a guidance that was as rosy as many people were expecting. if you want an expectations-filled guidance report, and you say, yeah, demand is there, check out what we got today from delta. delta is going to be better than expected, at least that's the expectation from the fourth quarter. and look at next year and the following year earnings, more than doubling ais the expectation for next year, then topping $7 a share in 2024. when we talked with ed bastian, they said it's clear that they continue to see very strong demand large corporate travel, which has lagged small business travel is continuing to gradually increase and that will probably happen
1:34 pm
even more in 2023. the one constraint, if there is one, is on the supply and the training of pilots here's mr. bastian >> capacity constraints are real and listen, we're not holding, we tried this spring, you saw it happen it broke we had to dial it back and so, it's still pretty fragile. pilots are the biggest constraint, the resources, i think that's going to continue to be a resource constraint for several years. >> remember, they have a tentative agreement in place with the pilots to basically give a 34% raise over the next four years keep in mind, i've heard from a lot of people, like, 34% is ridiculous they didn't have a contract for the previous four years. that 34%, if you look at it over the course of eight years, is not outrageous the question is, do they get it finalized by the rank and file that's a completely separate question we'll see that play out over the next quarter twob , two quarters >> as you said, maybe the last 48 hours illustrates the difference between the outlooks for these airlines
1:35 pm
we can't keep lumping them altogether it's not as simple as a shutdown for covid reopening. >> there is a reason for when you read the analyst notes, they will say, here is our pick and many of them are picking delta, because it's a very well-run company they've got their ducks in a row. that's not to say other airlines are a basket case. but it is to say that the analysts are specific when they say, here's why we like this company. and in this case, delta is the pick for many analysts we think it's the best-run airline right now. >> all right so on the management note, let's turn and talk about what's going on over at tesla shareholders are increasingly concerned that elon musk is too focused on twitter, that tesla shares are hovering near a 52-week low. we've talked about the massive valuation reset, phil. but you see calls on twitter, where there's a lot of tesla fans and even they are saying, we need a new ceo. we need someone who's going to be a tim cook to the steve jobs to draw the apple analogy. we need a pr or an ir department you know, we need all of these mature, corporate things to help this company and the shares maybe reflect the reality of
1:36 pm
where they think they're going to -- >> i don't think they're going to get any of these things elon musk created the company. this is how he runs the company. for better or for worse and for a long time, what gave the oxygen tothis stock was either a new product being revealed, a sales report, or elon musk himself. he's occupied right now for the most part on what's going on with twitter and as the stock moves lower here, you have to keep in mind, there is a difference between tesla the automaker, and tesla the momentum-driven stock. adam jonas, from morgan stanley out today saying, we are staying overweight, it's our top pick for 2023, for a variety of reasons. they have more manufacturing capacity than other automakers as they go into evs. and also, when you look at it, there is this macro economic drag on ev stocks. take a look at what elon musk tweeted out last night this is not going to be the type of tweet that's going to make people say, yeah, i've got to go buy my tesla shares. he said, tesla will be great
1:37 pm
long-term, but doesn't concern macroeconomic ties which is true. as the interest rate have gone up, all tech stocks have been under pressure look at the ev stocks. and tesla is the best performing, which isn't saying a whole lot of the ev stocks, though it lags the traditional automakers, whether it's toyota, volkswagen, general motors >> but it does look more -- better capitalized, we could say, in a higher yield, lower-risk environment than what its competitors have been doing. and obviously, this kerfuffle over whether they did or didn't stop production in shanghai, there's no one to answer to, no one can get a handle on those estimates. >> nor have we ever been able to >> and it comes at a time when the brand question in the u.s. is also being questioned do we have any hard data that says that tesla is becoming, you know, less of a status symbol and more of a political statement to its detriment >> no, there's nothing that says, that is the reason why you will see tesla lose market share. tesla's going to lose market share, because there are going to be more evs from a broader array of automakers that are available. whether it's gm, ford, or the
1:38 pm
upstarts like a livian or a phys kerr, you just have more choices. so people in the past who would have said, i'll go with tesla. they are going to go to other automakers as well but don't confuse that with this being a company that is not well run in terms of ev manufacturing, gross auto margins, skpand ev capacity. they are still king of the hill. i know that's not what people want to hear, but remember, the stock is driven on so many things separate from the fundamentals in tesla. >> what you just said is why the bulls are losing their minds, because they think now it's being held back. instead of having elon musk halo effect, it's now kind of running in reverse >> right >> all right phil, thank you. good to see you. still ahead, inflation has cooled over the past few months as the fed rate hikes continue to do their job, but one economist argues that there's a very real inflationary threat still looming on the horizon what it is and the potential impact on powell's messaging, that's next. ♪ ♪
1:39 pm
wow, we're crunching tons of polygons here! what's going on? where's regina? hi, i'm ladonna. i invest in invesco qqq, a fund that gives me access to the nasdaq-100 innovations, like real time cgi. okay... yeah... oh. don't worry i got it! become an agent of innovation with invesco qqq our clients come to us with complicated situations that occur in their lives. for them it's the biggest milestone, the biggest accomplishment, the sale of a business, or an important event for their family. for them, it's the first and only time. we have seen this literally thousands of times, in thousands of iterations. ♪ ♪ i am vince lumia, head of field management at morgan stanley. whether that's retirement, paying for their children's college education, or their son or daughter getting married, our financial advisors need to make sure that they are making objective decisions,
1:40 pm
every step along the way. every time you hit a milestone, an anniversary, a life event, the emotions will run high. making sure that you have somebody, a team of individuals that have seen it before, have seen every circumstance and seen every challenge, and have your back when you need it most, is one of the most valuable things a financial advisor could provide to a family. i am vince lumia and we are morgan stanley.
1:41 pm
welcome back "the exchange. we're 20 minutes away from the fed's rate decision, and while a half-point hike to over 4% is widely expected today, what happens next is a little murkier. my next guest says the fed will have to keep hiking next year because there's a very real inflationary threat looming that isn't getting enough attention joining us now is the chief financial economist at jeffries. annetteta, it's great to see you and you see wages going up is that right? >> that's right. so i think the message from powell today is going to be that, look, we're certainly, you know, winning the inflation battle on several fronts we're winning on the supply chain front, commodity front, housing not quite yet, but we can point to something that suggests in the future that housing will slow. but there's that last remaining piece of inflation, and powell reminded us last week that that's 50% of the core pce
1:42 pm
basket and that's very closely tide to the labor market and to wages and thus far, we haven't seen any improvement on that front. if anything, wages seem to be moving in the wrong direction again. >> and when you say wrong direction, everyone else goes, well, what's wrong we're talking about five, six, seven, eight% percent wage gai in some cases. is the argument that that is ultimately going to push inflation higher, and if so, when >> it doesn't necessarily push it higher, but it sort of embeds that last 3 to 4 percentage points of inflation and makes it very, very difficult to break through that barrier so i'm fully onboard with the idea that inflation will slow to about 4% i'm skeptical that without sort of breaking labor demand and reducing it substantially, that we'll be able to break that 4% inflation floor. at some appoint as it plateaus, it might become clear that the labor market is sort of creating that floor and speaking of wages, you know, obviously, we've seen some
1:43 pm
increases last month plus upward revisions. those wage increases were corroborated by some other data sources. the atlanta wage tracker if you look at the new york fed's expectations of household income, they actually accelerated sharply in the last two months to new cycle highs. and that's partly driven by the coming social security adjustment, but there's some upward drift in wage expectations, as well. and as we get into january, which is typically when companies make those year-end comp adjustments and cost of living adjustments, there's a very good kmchance that we see further upward pressure on wages. >> and it's fascinating that the c cola is the new wage pressure we see. looking at the wage piece, is it possible that the fed goes, we'll take 4% cpi and take 6% wages, because that's sounds better than, you know, hitting our 2% target and triggering a recession, as a result >> i could see some of the fmoc
1:44 pm
arguing that i doubt powell will be onboard with that, because obviously he's worried about his legacy. we've seen this move before. we know how it ended when the fed was willingly tolerating inflation. and if the market sniffs this out, that the fed implicitly says we're okay with 3 to 4% inflation, we have to reprice break-evens. and that means we could deanchor the long side of the treasury curve. it certainly wouldn't be productive in a way, i think it could actually be counterproductive to their objectives >> and if that's the case, right now you think the market -- what do you think the market is saying that we are going to go back down to 2%? i'm seeing forecasts of 2 to 3% inflation numbers in the back half of next year is is that doable >> i think it's difficult. a lot of folks in the market view this inflationary episode as a supply shock. it just took a little bit longer to resolve than initially expected and certainly, if you believe in a supply-side sort of, you know,
1:45 pm
drivers of this shock, then, you know, it makes sense to conclude that inflation will normalize. i think demand played a very significant role it's clearly still well above pre-pandemic levels. and goods and services and even in the labor market, so it's just hard to envision kind of how we restore the demand/supply balance in the labor market in particular without actually putting some downward pressure on demand and again, haven't seen much signs of that, yet >> if you're right, are we going from hiking over 4% today to having to go to over 5% still, which is more hawkish than the market is expecting. and what's the impact going to be on stocks, on bonds >> i don't necessarily think that we have to go way above 5 it's a question of how long we stay there and i think that's what powell needs to or will probably push against today, this idea that as soon as inflation peaks and starts dom down, they can start cutting rates. certainly middle of next year, i
1:46 pm
think the employment market will still be very, very tight. and if inflation is, you know, 3.5 to 4%, i don't see how they can justify cutting rates. in fact, my view is that we probably won't see cuts until employment gets close to 5%, which is what i think many of the fed believe is the current nehru. >> greta, great to have you. especially in a moment like this thanks so much for your time and coming up, home equity is still sitting at record levels a new report predicts that owners will be putting it to work next year as rates claim. the impact on consumer spending and the latest mortgage demand data are next. as we head to break, don't want to call it, but markets look like they're getting their hopes up a little bit about this fed meeting. dow drifting to session highs, up 265 pretty much up 0.8% across the board. will these hopes be litevadad or destroyed. stay tuned, in 14 minutes. we'll be back in 2
1:47 pm
which saved investors over $1.5 billion last year. that's decision tech. only from fidelity. ugh, this rental car is so boring to drive. let's be honest. the rent-a-car industry is the definition of boring. and the reason can be found in the name itself. rent - a - car? you don't want a friend. you want the friend. you don't want a job. you want the job. the is always over a. that's why we don't offer a car. we offer the car. ( ♪♪ ) sixt. rent the car.
1:49 pm
1:50 pm
the numbers. diana? >> kelly, it took a while from them to really react to those lower rates, but after a month of declines, mortgage application volume finally rose last week, thanks to those lower rates. the average rate on the 30-year fixed did increase ever so slightly to 6.24% from 6.41 on the mba survey, trajectory for rates has been lower for the past month inflation was cooling. special rates dropped sharply yesterday after the cpi release. as a result, applications to refinance a home loan rose 3% last week from the previous week of course they're still down 85% from the same week one year ago. still not a ton of people who can benefit given the record low rates during the first two years of the pandemic. the annual comparison is now shrinking slightly as rates drop
1:51 pm
arms dropped to 7.7% of total applications from just under 13% in october and we could actually see growth in another type of home loan home equity loans and lines of credit transunion is forecasting that home equity originations will increase by 24% in 2023 from this year as homeowners tap into about $19 trillion in collective home equity, kelly. >> which makes sense and could prolong consumer spending. but does it increase the fragility if all of a sudden home prices start to wobble and decline? >> well, if home prices start to weaken a little bit, it could. but remember what they're trading this home equity for is actually lowering their rates on other debt so that's what we're asking, why are they using the home equity it's not to renovate their homes so much but to consolidate their other debt and pay it off that has higher interest rates. >> that sounds financially savvy.
1:52 pm
diana, thank you everybody, we are less than ten minutes from the fed's rate decision and "power lunch" picks ea our coverage after this quick brk. the dow is up 231. stay with us company. of wireless in sports, catches are a good thing. wireless? not so much. so we don't do catches. with visible you get unlimited data for just $30/mo. switch now to get a five-year rate lock. not a catch in sight. [finger-tapping] if your work, works for your community, then you're on team earth.
1:55 pm
hi, everybody. welcome to "power lunch. i'm kelly evans along with dom chu. welcome. >> it's good to be here. >> is there a fed decision today? >> there is. we are just about five minutes away from the fed's decision on interest rates and a half point hike is widely the expectation we also get the dots they'll offer us clues on how much further policy makers expect us to go. >> stocks are at session highs the dow, the s&p and the nasdaq as you can see there moving higher to the tune of around maybe half a percent or so at this stage we've got a big fed panel today. jpmorgan asset management's david kelly, mona with edward jones, also john bellows with
1:56 pm
western asset management company, wamco as we used to call it back in the day. let's start perhaps, mona, with you with the expectations that you have from an investment strategy standpoint if people need to do anything with their money in the wake of what we get from the fed today >> it's a great point. i don't think necessarily we need to move money after this fed meeting. what we will be watching for of course is that dot plot. really what we're looking for is to see if the markets and the fed are converging towards the same terminal rate right now markets are expecting this 5, 5.25% terminal rate. if the fed implicitly blesses that level, if we see a dot plot that also leads to a 5, 5.25% terminal rate, that in fact may provide the market a bit of comfort that we are closer to the end of this fed tightening cycle but also perhaps after that we'll get this pause.
1:57 pm
and then what will be really interesting to see if they start putting in any rate cuts for 2024 and beyond. we think the markets will really look forward to when the fed may not only pause but move rates lower once again that will really stimulate the market rebound but generally speaking, we think we're towards the end potentially of this bear market. any volatility in the months ahead will provide that opportunity to position for what we think is a better market backdrop and potential recovery in 2024. >> john, the market right now is pricing in a certain expectation. we got a little bit of a mu movement in some of the fed fund futures. the consumer price index softer than expected this past week here, just yesterday do you feel in your mind as though the markets are appropriately positioned in other words, are the expectations correct for that so-called ending of the fed cycle with a terminal or ending rate in that kind of we'll call
1:58 pm
it 4.75% at this stage >> i think you're right, cpi yesterday was important. i think it was important for two reasons. the first is that i think the fed is moving towards a more forward-looking policy over the summer and through the fall they were just reacting cpi was too high and they were constantly on their back foot and reacting to those numbers. looking in the rear-view mirror is not the best way to do policy and the fed is very happy to finally be more forward looking. i think cpi yesterday and the month before will allow them to be more forward looking in their policy i think that's generally a very positive thing the other thing that's important about cpi today is after today's hike it's the case that the policy rate will likely be higher than the run rate for core inflation that's the first time all year that's been true i think the fed will look at that and have a little more
1:59 pm
confidence that policy is restrictive. cpi may still be too high, although i think that's debatable. but with a policy rate that's higher than the core run rate of inflation, it's just a matter of team before inflation starts coming down and i think that's a big development. generally speaking cpi yesterday was a big deal because it enforces both those points the fed can be more forward looking and after today's hike, that's important for forward-looking expectations. >> we've just got a few moments left before the decision comes out. you've seen a lot of decisions before this year the numbers suggest there's been a lot more volatility around the fed rates with the markets do you expect that today >> not really. i think the dot plot will go up 25 basis points but a terminal rate of 4.75 to 5% i think jay powell will actually smile during his press conference because there is better news on inflation that opens the window a little
2:00 pm
wider for soft landing i think we're in a good place and evening market expectations and the fed's view are kw converging. >> there's the 10 huff year yield, 3.51% ahead of the fed decision with wti up 2%, the s&p up three-quarters of 1%. let's get to steve liesman with the fed decision >> the federal reserve raising interest rates by 50 basis rates to a new range of 4.25 to 4.5 as expected the fed saying ongoing rate hikes will be appropriate. they are also raising the 2023 median forecast up to 5.1% it had been at 4.6%. this is higher than market expectations for a peak funds rate it is right in line with a fed survey 17 of the 19 officials are now above 5% in their forecasts for the 2023 funds
85 Views
IN COLLECTIONS
CNBC Television Archive Television Archive News Search ServiceUploaded by TV Archive on