as an opposite of that >> touche. >> trailing a bit. >> all right joe. >> netflixl■ breaking out f■dr horton, stay with the home builders >> lennaunñ■it(■don't own it, b thef1 momentum has continued numbers today are great. vjá i'll see you on "closing bell. the exchange is now.ç■ and welcome to exchange. i'm kelly evans. here's what's ç■ahead. a growing consensus we might actually be heading for a soft landing, but there's also one labor market trend that could be a sign of trouble. we'll tell you what it is and why our market guest says it's time to bust out the 1999 playbook meantime, there's just no stopping the home builders those stocks ripping higher again after a huge number for new homes built. people willing to payñi■up for pricey new homes despite higher rates. is there anything thatw■ can st this housing market? what you need to know if you're in theç■ market this summer. plus, if you're looking for

a tex-free alternative to stocks there's one area that is at attractivez■■■now. before all of that, though, we have to get over to dom chu for these numbers. >> we pulled back from the year high we saw last week, but it's markedly so. if you look ate■ the picture overall, we're markedly red, but well off the lows of the session. red across the board, the dow, the s&p, nasdaq, all lower on abt 180 points the s&p 500 is now below the 4400 mark, 4394 the late rate, down 15 points and for context, at the highs of the session, wefá were down 11 points, but down 42 at the "e■m9 so again, tilting toward the upperñr■end of the daily trading ç■ n down about one quarter of 1% one place that has been showing/ real relative strengthns■ today'sqmarket is the consumer discretionary sector at one point, one of the only sectors in the green so far

today has been predominantly red. amazon, tesla, vf corp have positiveñ■ headlines today amazon is on the top pick for analysts possibly adopting tesla's charging standard for north america in their cars. that stock is up 3.5%, tesla xd. and vf corp, the new ceo of vf corporation, that stock is up around 1%, and like i5a■ consumer discretionary up couple of companies outside of the home builder tradec■ that kelly just mentioned these two stocks, amerisourcex> very surprising fed chair powell heading to capitol hill tomorrow for his e■

semiannual monetary report lm■ as consensus for a soft landing seems to be growing. steve liesman has the latest results from our cnbc rapid update steve. >> hey, kelly. good afternoon yeah,ñi■tentatively, this consensus is developing among forecasters for a soft landingç■ in the economy that's one where growth x■ flatlines but doesn't go flatlines but doesn't go negative as previously lpoá■u the first quarter coming in a bit weaker than expected in k■ march, though from march, though it's still above 1%. the cnbc rapid update for the second quarter, that's shaping up to be a percentage pointçó■ higher than march. instead of going negative in the second half of the okyear, gdp seen going up and down around zero but a pretty big upgrade to the third quarter, 0.8%. bank of america writes we revise in favor of a later and softer downturn our forecast is now as much a growth recession as a mildt■ recession. of course, zero growth is not something to be happy about, and economic hardship including potential job losses and there are those whojf aren'tf■ buying

soft landing scenario. among those who we surveyed, our recession probability says td a amer ameritrade, it indicates there's a 81% chance of recession in the next 12 months the current market dynamic looks overly optimistic. we asked about core pce inflation, forecast to fall more slowly, ending this year above 4%, and next yearok closerx■ to% than it is to 2%, before ed■ñtuz down towards the fed's 2% inflation target in 2025 the question is whether the fed fulfills that median forecast of its officials it hikes twice that turns a soft landing potenta■intol■ a hard one. kelly. >> and steve, i think a lot when we were talking about d.c. las week about the timing of this cycle and how everything is happening at different points. so the home data today, don't you think, feed into this ideax■ of what happens if the housing market comes strongly off the bottom or what happen physical we start to see a turn in ç■

manufacturing, and maybe we're hoping for a bit much here, but could that blunt the fall? probably at some point we'll get from a slowing labor market. >> yeah,ñ■ i mean, it's definity not sink ronist through different ind■ housing had a downturn, today's numbers were certainly surprising if you think about it, kelly, industries were affected differently in the pandemic, so it makes sense they come in andq out of different troughsy'd q■ times so you're right to think about, i don't know what to do with today's housi('e number. it seems off theñ■ charts in tes of how strong it was i don't think it's really all that strong. but it could be that it's bottomed out tit■e's a lot of talk about that, and manufacturing has been weak, and maybe it's going to come off the bottom, just as the consumer weakens here.e■ all of that wouldt(■sort of back up the zero idea rather than the negative idea. >> all right, steve, thank you steve liesman. >> despite the calls for ao■ softer landing, the decline ine■ hours worked could still spell

trouble. my next guest sees substantial headwinds on the horizon one is pulling out the '99-2000 playbook, the other sticking with a recession call on the back half of this year kris harvey from wellsj■ fargo d francis donald on set with me, chief economist and strategist am i putting your bearishness too strongly, francis? are you in a definite recession ®jñp, or just a possible one? >> we have a 70% to 80% chance of a recession in the second half of this year. even ' ■ugh my models tell me to do that, what i tell portfolio managers is move away from the big r-word the story is we're goinó■■ towas a growth slowdown. the unemployment rateok is going to rise. less this is notqa favorable economic environment. and whether we're growing .1 or negative .1, we'lle■ trigger a rescission call, but it shouldn't change the way you're looking at the economy, whw#i■i■ slowdown ahead, problematic fundamentals that are not great for risk assets.■nú■ >> the "wall street j/u■'■l"

highlighting that tom mcclellan was talking about, which is hours worked are contracting >> it's w■massive. one of the reasons is we know because companies have told us they're aware there's ae1ñi■ recession ahead. everybody knows this the fed ist■ telling us there's recession x■ahead. the problem is we're still in a massive labor shortage that's not going to go away, so■ companies have said we're going to do everything we can to cut costs in othere@+■vj and onee■ the ways they're probably going to do that is keeping people employed so the unemployment rate may not rise as much but we'll see demandt■ declining.w a lot of economists will be moving away fromç■ traditional levels and looking at alternative measures it's now at levels consistent with pre-covid the other thing we're seeing as much as average hourly earnings are higher, weekly, the amount at the end of the week is declining and moving lower this is not a great economic u■ >> it's also significant not just as a gauge of the labor moorkt but itself or let'se1■

it nominal gdp, like the size o■ the economy, it shows some deceleration already which we have seen quite a bit ñ■of chris, you're breaking out the '99-2000 playbook, why >> so kelly, it's a couple reasons. so we had our year end price target at 4200 we had a soft landing target at 4400 we havefá sliced through both of those at this point in time. there's a4■)■mendous amount ofé and what we started to look at is just the comparison between '99 and f■2000, with tech, with uber cap, with technology innovation, also with the fed. there was another tightening cycle, but what happened was the fed continued to tighten but at the end, they accelerated the tightening they went from 25 to 50. that was the beginning of the end for the economy, for old economy stocks, but ultimately, it dragged down the new economy stocks that's really what we're looking for. this pause is not going to get you there. we don't think -- we do think there's a pullback inp,■ thei■ t term, but the longer term trend

has na■been broken. i don't think it will be broken until the fed gets a lot more hawkish than what it is now. the kind of interesting things about the market narrative lately is people thinking okay,■ hae a fewt(■times even as in the market today, one-year break evens, 172 so they seem to be on the one hand betting that the fedccould be more hawkish and on the other hand saying that'sq■ going to break something or that's going to have this callout that chris is describing. >> there's a lot ofe1 focus onxe july meeting my team is splitr what really keeps us up at night is not one or two more hikes it's what does 2024 look like? if we're heading into aw3■ recession and the central banks have said to us not just in the u.s. but elsewhere, we're still concerned about a second wave of inflation, still concerned about asset bubbles, for the first d8d going to go into easing territory. they may cut, but just to neutral. that's the real problem whenñ■ comes to how we're thinking about thee1 fed, not the nextbto

couple months, but how do they respond to a recession and is that playbook different than it has been for the last several recessions that's the big problem we'reç■ going to see it also meansi] the stock bond correlations may flirt positive again. very challenging chris, what would you hear from the fed chair, we'll hear plenty from him the next couple qays, that would either tell you we're replaying the '99-2000 'c■playbk or maybe something else is going to take place here >> yeah, kelly, i'm not really sure what i want to hear from him, but i'll tell you what i see. i see an economy, so the way we characterize the economy is an economic millennious the economy has been stronger than people expected and it' taking long. it will continue to take a while to roll over the job market as we all know and i think can agree upon, much stronger than expected. inflation has come xd■own, but has not -- the fed did not break inflation. and the last thing is the equity market which is a leading indicator, is up double digits why you would pause in this kind

of environment is not clear to me i agree with the view thatw■ it not about whether we're going to go another 25 or 50, but it's reallye■bout are we going to go another 100 or are we going to keep rates higher a lot longer than many people expect. >> right, and to that point, what doesxd■the housing data toy tell you, the fact that as people have saidne rate hikes in some ways have been inflationary be■o■á■ it's locking everyone into their homes and forcing people into the new build market i'm not sure if i buy that in the long term, but short term, this is way moreç■w■ momentum tn people were expecting. >> here's why other countries are providing a bit of a playbook historically, the fed was the first mover. now we have seen many other central banks thatw■ have gone a different path what have we seen in australia and canada we're done, we think inflation is coming down, and then they had data, specifically housingw■ data, that started to come back hotter that's inflationary. it says the job is not done,(■ worse, maybe we need to pause but we can't let the market know this for me, this is going to be

chair powell coming back after this data,t■ this is so ñ■stron this housing data. this is not s"5q!%9 ignore normally i say one data point, we don't react to it this is a data point we have to react to this is a central bank that probably has to keep the fires of hikes alive, whether they go in july probably depends on a couple more things >> thank you let's go xd■verseas to china specifically where the central bank is slashing two key lending rates in an effort to shore up its economy as the reopening continues to disappoint. and despite president biden saying he did a hell of a job, anthony blinken's visit to china failed to reopen military-to-military talks and china ande1 cuba arex■ plan to build a new joint military training facility on the island about 100 miles from florida joining me isok stephen roach, former chair of morgan stanley asia currently a senior fellow at yale university. great tq see you again your bearishness in january was one of the first times i sat up

and took notice.ç■ i'm curious how your thinking has evolved as we're halfway through the year now.w >> well, thanks, kelly it's always good toe1xd■see you. you know, th!m■+■■■taken a surpd turn for the worst here and the government is responding with sort ofzv■ the traditional playo of interest ratet■ cuts,l■e■ infrastructure spending, and you know, we'll see if it works. i think the second half will probably be a little bit better. but you know, the bigjf t■storyd your bullet points you had on the screen just a second ago about the lack of any breakthrough on military-to-military(m,a9q%%=■■f good xi jinping sort of said roughly the same thing if you read betweenv4(q■lines. but the failure toe■ really

restart military-to-military negotiations and discussions, i think, is a big stickinge■ poin especially in light of the near accidents we have seen in the air and in the sea to say nothing of the report ine■ thei■ "wall street journal" on the cuban gambit that china is doing with military training that's a worrisome missing link in this post median climate. >> do you atw■ some point get me shoes here, do you get more positive on china thinking they realize the severity of the problem, they're going to start to do as much stimulus as they can, or does evenqthatw■ leave ■ feeling pretty cold? >> well, i think, you know, ther"■ is a trade-off here between the cyclical stimulus majors that aree1 going tox■ be taken and the ongoing longer

term issues that china has wi÷ respect tow■ growth. one of which is the ongoing x■ conflict with the united states. but china's got an aging problem. and it's being driven more by ideology than markets right now. so yeah, they can get a pretty healthy stimulus in the second half of this year, but you have to ask yourself whate■ comese■ % and the medium to longer term issues i think remain very disconcerting to me. >> i found it striking one of the things they're going to do is relax the policy one■ buying second homes that's what fueled a lot of ghost cities and empty e1high-re unsustainable structure boom it seems they're out of ideas and trying to go back to a playbook that we know can't work in the long run. >>f■ well, xi jinpingchimself sd homes are for living and not for speculative investment añ">they have made a big deal in

their e■deleveragingq■ campaignn limiting the speculative play in second homes ande■ now by x■relg that, there's a risk they go backx■ to the old debt fáintense growth model that got them in trouble in the first place you can raise some legitimate concerns about backtracking on that point as well >> what would make you more constructive or positive or bullish, whatever you want say, about china would it be some kind of change in tone in terms of thee1 domesc relationship, u.s./china, ñ■ geopolitics? would it be the economy? what would make you feel as though, youçó■know, feel differently than how you feel now and have for the past several months >> well, i think two things.e■ if they were to really address the structural productivityçó■ issues that ixd■think stem from

relying too much on state-owned enterprises where productivity has always been a problem, and truly relaxing the regulatory domestic in the internet area that would be encouraging.p■ and then they have got this conflict with the u.s. that i think needs more thanfáe1 just standard personalization of diplomacy as we seeml■ to be getting right now. but really a new architecture, a new structure>/■ engagement. i have written about that in my latest book, but there doesn't seem to be a willingness, certainly from the u.s. side, to push ahead with more creativefá approaches toçó■re-engagement. >> no, even as wee1 have seen certain chinese watchers say our engagement china with an original sin of sorts. what engagements? >> well, i have a proposal that

i call a e1e1u.s./china secreta, a full-time organizatione■ stafd equally u chinese and american professionals with a broad remit to worke1 onñ■ all aspects of t relationship, from freight and economics to technology and innovation, to human rights, complete with a x■dispute resolution mechanism and then set them up+■■■in a neutral jurisdiction like switzerland or even singapore. and let them work on this relationship full time rather than have somebody like tonyç■ blinken fly over and, you e■kno get a perfunctory handxú(■ake in a e■35-minute one-on-onef■c■ meg with she gin pang. that's not the way to really get this relationship bac■1 on track th certainly would be a departure from wherei■ we are now.

stephen roach, thanks for your time and thoughts today. >> thank you coming up, a huge beat on housing. new home construction surging in may. applications to build also higher andn&o■■buyers seemingly getting used to this new normal of higher rates so can anything stop this housing e■t■market we'll look at the housing stocks plus, goldman says risk on is back asx■ investors bá■ the soft landing scenario. one of our guestsw3■agrees and he's taking a page from monty python to lookr side of this market. there's one of them, massive than doubling, the namee1 ahead. as we go to break, a final check dow down 178 points. nasdaq only down 12. (sirens)

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. welcome back to the exchange home builders another bright spot today thanks to a t blockbuster housing starts number is it believable diana olick has the5a■ñ■atest. >> it'st(■believable it was in the numbers. okay, the may number for k(■iqm■ was huge like you said, up 22% month to month. much more than expected. there was a downward ñr■evisionn april, but while single and ñ■ multifamily were up, i want to

that's where the market is desperate for supply starts up 18.5% month to month, still 6.6% lower than mayqof last year. single family building permits which are an indicator of future construction were upw■ a smallee 4.8% month to month, down 13% year over year both starts and permits are at the highest level since last summer and this comes on the h]m■ of big jump in builder sentiment from the national association o. up five points in june, and territory for the first time in nearly a e1year. builders say supply chain issues are easing and demande1 is very strong despite higher mortgage rates were not kind in may, starting around 6.7% and dropping briefly but then rising steadily and over 7% but the builders say buyers are getting used to this so-called new normal and the supply of existing homes for salex■■■ñ■ is so minimal thy have to turn to new construction if they want to buy. )jt■note in j(#■

builder sentiment report, they said builders are offering fewer incentives andñ■ lowering prices less apparently they say they don't need to anymore. >> ie■ can understand. diana, thank you very much xm■■■next guest says new home construction has to prop up supply because inventories are back to their lowest levels since april of 2022. andy e1walden, it's good to see you again. welcome. >> good to see e1you so overall, housing inventories are back to levels >> yeah, absolutely. they dipped in 95% ofçó■ó■marke across the countryñ=■ this is something we're almost universally seeing across the u.s., massive inventory challenges so fantastic news to see new construction on the horizon. >> so a lot of people are trying to putr and say ñ■okay, is thee■ housing market broadly speaking inflecting turning higher or are we sc9'■ at aq:î]9■■35% from the highs and going to be a drag on economic activity?l■ do you think things overallt(■he turned a corner here >> i think they're inflecting in

terms of price, absolutely we were seeing very, very noticeable price declines late&r they t we saw roughly average price growth in april. so certainly from a price perspective we have inflected. in terms of transactá■z■volumes, demand is stillhd■wni■ 35%, 40% from pre-pandemic levels in recent weeks you still have this lack of supply in the market so in terms of transaction volumes overall, we'll continue to see some suppressed numbers here over the next few quarters >> and t ■k to me about prices where do you think we go from here >> i t(■ean, i think if you look at that annual home price growth rate, the headline number everybody looks at, it's gone from 20% to zero%.ñ■ it looks like if you look at th■ treadline, it looks like it's going toe■ golp negative i think we dip e1below 0% and tn start to see a trend higher. there's just not enough supply out there, so even with demand suppressed i think you'll continue to see prices firm up and trend higher

>> it seems obvious the fed keeps hiking rates, it's going to exacerbate conditions in this direction. i do wonder about if the market wants to price ine1 lower rates year from now for whatever reason, you know, economic slowdown, inflation getting back under control, if the fed does start cutting, that seems like it could massively change the dynamics xd■ere. >> that's really the big challenge that the fed is facing e pushing on to squash demandñi■is also squashingç■ supply and as soon as you let off the brakes and let interest rates start to come down, your demand comes back i'm not certain supply is going to come back as soon5■■■as dema. that risks reheating the market. that's where the new build footprint and trending higher, that could be very good news fo■ everybody. buyers out there, builders obviously, but maybe the fed as well if you can get some of the new build inventory into the market, maybe that increases supply and lets them ease a bit where we're at now, if they start to ease, you'll see market reheats. >> there's one story on my mind.

youxd■have to tell me if this is emblematic or not. a great piece in one of the boston newspapersxd■about how c■ codqu■entals are going unfilled and no one can figure out why. if you read the article, it turns out the supply of rental homes in cape cod hase1 gone fr like 12,000 pre-pandemic to 16,000, as people think, great, i can get in on theñi■airbnb market and are chaseing these high rates and so forth. and i wonder if there's something analogous to draw here about the whole u.s. housingç■ market or not. you know, like, have we reached a point in which we think there's too little supply but suddenly things are going to no, actually, there's weirde1 dynamics going on and maybe there's too much of it >> i hope that is the case i don't thinkit is, especianl;■■ when you look ate■ some of the supply numbers acrw&a■ the market i mean, in terms of some of that rental data, it depends on wher■ you buy. if you boughtu more than two years ago, you and still cash flow that stuff easily it makes it harder to find enough rentv

work in today's market where a he and higher interest rate i hope you're right about supply i don't see it yet, but hopefully that's on the horizon. >> after that, i was checking out cape cod listing)■ for vacation i don't know, maybe if youe■ can get a deal still not sure we could do it. but thanks so much for yourlp te today. coming up, alibaba shares are down about 4% right nowe1 after news about a management shakeup. we have the latest and what it could mean for the overall china trade which continues to struggle and wall street now seems to be betting againsti■ ae■ lot of america's downtowns. you can guess theçó■reasons why. one of our guests sees some long term opportunities amidst the carnage. we'll explain ahead. as we go to break, here's a loo■ at the dow heat map with the index down about .5%.e we have unitedñ■ health and salesforce leading the names in the green, while boeing and intel aree1 your worst performe. the exchange is back after this. wherever they are... you need more than technology. you need cdw, who gets to know your business

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. welcome back, everybody. breaking the win streak that the s&p dips below 4400.ely ase- the dow down t(■50, but that sa, the nasdaq is currently only down about six points and could turn positive. and we're well off the dow lows which were down more than 300 points let's get a check on some of the names bucking the downturn, and avis budget group is one of nem. up 8% after adam jonas at morgan stanley upgraded the stock to overweight he sees a■3■normalization of key inputs in the rental care■ unit. they can run a larger fleet compared to hertz. shares are up nicely.a5■ e.l.f. beauty also up higher after they hiked a target by $15 to $120, currently around $107

e s■ marketing spent will lead to fáe increased marketing share and shelf space at major retailers at target and walmart could increase their customer base and here's one you might be as familiar with, atmous filtration technologies why is it getting attention today? jpmorgan, goldman, e1wells, upgrading the stock. they were spun out last month, so now analysts can initiate on it shares up 4.5% on that bullishness. over to tyler now for a cnbc news update. >> thank you very much the coast guard search for aw■ missing submersible carryingx■ five people growing moree■ desperate as the vessel's four-day oxygen supply ise1 ñ■ waning rem#+■rs believe the titan sub only now has about 40 hours of breathable air left, after it a mission to explorst■hee■ wreck of the titanic crews say it'se■ a complex sear

mission that spans 6700 square miles. >> our focus is on searching with what we know. as soon as we receive the report on sundayó[■ evening, we immediately launched search -8es we flew assets thatnb■ evening d we continued constant surface and air asset surfaces since that point >> parts ofé@■ the south, been enduring triplez■ digit temperaturesy■■■days now the operator of texas power grid urging residents and businesses to conserve electricity tonight to prevent outages >> and estonia bec ■q■the first central european countrye■ and ex-soviet state to legalize same-sex marriage today. parliament apprztt■the measure in a majority vote the law takes effect in 2024 kelly, back to you >> thanks. >> comingxl■1 up, the big rallyn big tech, touching off concerns about the breadth of the recent market run, but in a new note,ñç goldman says risk■1e1 appetite

back and the sharp pro cyclical rotation continues on top of that, sentiment indicators are seeing a bullish ift. does it all mean a top is near we'll dive into that next. an od delivery service. business was steady, until... gogo-foodco. go check it out. whaatt?! overnight, users tripled. which meant hiring 20 new employees - and buying 20 new laptops. so she used her american express business card, which gives her more membership rewards points on her business purchases. somebody ordered some laptops? cynthia suarez. cfo. mvp. built for cynthia's business. built for your business. amex business.

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welcome back to the exchange stocks are lower across the board, but just four points loeter for the nasdaq, although at the lows we were down about 1% and goldman is now warning equity sentiments is at the highest level since april of 2021 they call positioning stretched even asnb■ investors warm up toh idea of a soft landing my next guest points out the mega eight stocks are trading at a forwardñr■pe of 30 times plus. amazon at 85%, tesla at 76%, nvidia at 56%. let's bring in jeff crumpli ■ am iñ■ right about that, jeff? welcome. >> thankcgñ■ou yeah, i would say that you're right that we'r■ sticking with tesla, and we actuallye■ came io a number of these growth stocks, including tesla, after they had, as burnished as these long duration assets that were dead last year, wew3■just found wonderful entry x■points, and

tesla was one of those nvidia, believe it ore1 not, up 100% this year, was one of e1th. we think it's so much moree■ th just these mega l■eights.ñ i really like the broadening that we're seeing in the market at least as we have pushed through may into early june.-5q! >> so does it trouble you, you know, my shorthand is the fear and greed index, that's anj■ extreme greed zone goldman is fancier sé stretched at levels of equity sentiment highest since april of 207a are we broadening or just everyone is firmly in5a■ the bullish camp and we're about to reverse the other way? >>p■■■we are bullish camp i think if we look at the various readings, we're kinde■f, we definitely5a■ moved from uber negative, uber bearish, to more positive, but we're not so positive that it's a contrarian negative, like you're

suggesting i think that we're kind of neutral across all w3■reas we're neutral on fundamentals, neutral on valuation and yeah, you can talkñ■ about e mega eight trade 30 times but the rest of the market is trading at 15 times. iqwould rather see 492 stocks trading at 15 times than a couple of them overvalued than and on the technical front, this broadening, i do think, is what we really needed to see. and it's not to say we're all clear. this is just a rocket ship now we doçó■think ours thiesz of st sober, stay measured, 4500 plus by year end. keep your eye on the prize, which is we're getting less worth on inflation we're in the eighth or ninth j■s economy aren't all that bad.ñ■q■

the inflation reduction act which is really a spending bill, it drives reon shoring in the u.s. i live in cincinnati here, and we're spending $3.5 billion on a bridge we have been trying to do for 20 years, and folks are sick and tired of thinking we may fall into the ohio river. we're finally going to build that. >> yeah. >> it's getting construction employment to all-time highs. i think that's really underappreciated. >> also a van of volcon. we look at what happened with the pennsylvania bridge rebuild. the infrastructure stocks are taking off. steve liesman and i have been talking about this. hearing you weigh in, this idea of rolling recessions and in a way rolling recoveries. we'll leave it there. thanks for your time today. we appreciate it. jeff crumpleman. >> when we meet again, may we all be carefree. that's how alibaba's outgoing ceo signed his memo to staff announcing he'll be focusing on the cloud business as part of

their restructuring plan. bobba shares down more than 4%

>> remember, the companies breaking into six different businesses. they're the more international

facing executive who of course owns the brooklyn nets. he's going to be the incoming chairman. eddy wu is going to be the incoming ceo. they're looking at the e-commerce side of the business. we haven't spent enough time talking about daniel jung himself. he took over from jack ma years ago and he's going to head up the cloud unit which in some ways could be more significant because this is where the artificial intelligence, generative ai drive is going to be taking place. while you could look at this as a bit of a demotion for him, he's taking up mare the most sexy parts of the business as it all splits up. >> and alibaba, we're watching, i guess, is it deconglomerizing. is that a word, give us context under the shakeups they're under. >> that is a word. it's splitting up, deconglomerizing. that's accurate. this has been one of the biggest, most successful chinese companies a few years ago and jack ma was trying to take a

fintech company public. he had to go into hiding. alibaba came under so much pressure being affiliated with jack ma, losing hundreds of billions of dollars in market value. since that time, so it's been under this pressure, under this regulatory pressure. so maybe this is a signal, the fact it's eddy wu taking over, maybe tells us that's in the rear view mirror. however, there are challenges ahead. over the last few years while alibaba has been under pressure, another chinese rival, pinduoduo, the temu app here in the u.s., has made a lot of strides. so not as big as alibaba in terms of its market capitalization, however, it has had a lot of success, especially in this environment when consumers are looking for cheaper priced goods. so there's thinking maybe with joe huh sigh at the chairman of the e-commerce unit, maybe they'll make more of a push into

the u.s. >> if anything, it's been too long already in that effort. deirdre, thanks. >> still ahead, the hybrid work model not just a problem for office rates. the "wall street journal" reporting investments links to america's downtowns are now under pressure. but is the time to scoop them up at a discount this very moment. >> and thout june, cnbc is celebrating pride month by sharing stories of corporate leaders. here is glaad president and ceo, sarah kate ellis. >> coming out for me at work helped surge my career. i wasn't hiding who i was. that takes an extraordinary amount of energy and time and resource that you could be putting against your career. your job, your clients, your employees. and so for me, when i was in the magazine business and i finally came out, i saw my career take off. so be who you are.

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welcome back according to a new piece in the "wall street journal," wall street is betting against america's downtowns. from floundering office reits to cheaper public transportation bonds the post kovid landscape has created weakness in these once stalwart investments. but my next guest sees some long-term opportunities and she's adding some duration to her portfolio. fearless initiata patel, portfolio manager at pair ahmetric it's great to see you again. >> great to be here. >> this is quite a headline. is it a lot of downtowns just the most obviously challenged ones? what's going on here >> i think it's a combination of both so you do have the challenged downtowns that are always going to have a little bit of extra scrutiny, especially as we head into a recessionary environment. but i think the major headlines around the larger cities, especially in a post-pandemic world where you are seeing less tenants in office buildings, so san francisco comes to top of

mind, new york city comes to top of mind, these are major and newer headlines. now, i will say that while credit due diligence is warranted, when you look at the office space tax collections as a percentage of overall property tax collections for these major cities, it's a fairly small percentage so when you're talking about san francisco issuing muni bonds, maybe 40% of their bonds come from taxes but that's a combination of all property taxes there's a much smaller significance, probably closer to around 7% to 8% only, that comes from office and actual office building taxes >> those are good data points because i think we can all say san francisco's uniquely challenged where they're probably facing revenue problems on many fronts maybe office at the core but many, many -- we've seen the retailers leaving and people -- whereas other cities it seems to be more just a question of empty office buildings it's funny because you almost wonder like we've heard officials say it's good for america, it's good for these

cities to bring employees back to the office, but the data just seems stubborn that that's not going to happen in a much more meaningful way beyond what we're seeing today >> i would agree, right? like post-pandemic we just cannot get back to probably pre-pandemic office occupancy level. you've had massive industry shift. you've had companies shift to more of this hybrid model. so it's hard to envision a place where we're going to go back to the pre-pandemic occupancy levels now, cities will have to get more creative and will have to diversify their revenue streams a little bit more. again, if they're depending upon these types of revenue streams i will is i this post-2008 as many of these cities and insurers learned the hard way they have adapted to it and have vastly diversified their revenue streams today. to versus where they were in 2008 but no doubt there's going to be challenges as we hit kind of a soft landing, a recessionary period they're going to have to tighten their belts, right as they always have had to so possibly look into the reserve levels, make the

appropriate expense cuts, look to raise revenues in other ways. these are all things the cities and states have to do in any kind of economic downturn. >> and we're showing philadelphia, atlanta, boston. these are some of the places that are still below 50% of activity downtown precovid so what's the investor angle here do you take kind of some of the distress levels where you might get high yield and you can be really tactical about how to thread that needle in these downtown places or do you go where the money and the population has been going, i.e. more to the suburbs or just to different areas like that? >> yeah, i think it's a combination of both. right? i do think in this environment we do want to be stressing on higher quality credit. i do think that some of these occupancy levels and some of these trends are not going to be going away if you do see a pocket of opportunity to where you see spreads widen out and there's a very attractive level to where you're saying you know what, this is too cheap relative to where we're viewing -- or relative to kind of where we think this is a great bond, let's look to buy this, that could be a good entry point. but i would say in general from

our philosophy standpoint, especially as we enter a recessionary environment, we are much more favoring the higher quality type of bonds. now, san francisco's a goo example. aaa rated generally from external rating agencies. >> it is stip aaa rated? >> triple a, double a. but internally, let's just say the viewpoint in that space of fraught tax collections are very high think about the median property values it's about four to five times the median of what you might need for a triple a credit these are very, very high property assessments, property values, and hence the property tax collections coming in pretty significantly. that's very different than office tax collections, which again i mentioned was fairly low. but that doesn't mean that we may not internally valuate this to be closer to let's say a double a credit or maybe a single a credit. so there it's more about assessing what's our internal view on that and are you getting paid the appropriate price >> any other areas where you see opportunity right now that you think people should be kind of -- again, i like this idea of kind of walking this fine line between conditions might be a

little bit worse but there might be hey, we didn't realize that this funding source should be okay >> well, i would say the exciting story right now in general is that muni bonds are, let's say, up for a fantastic sale or flash sale, as we call it so even if you stick to high-quality bonds, the great ones, the local school districts, the essential water sewer systems, we're seeing an opportunity to lock in about 3% -- over 3% tax-free yields, which on a taxable equivalent basis is 5 1/2 to 6% for new york city, california clients you're looking at about 7% taxable equivalent yields, which is pretty phenomenal to be able to lock in. so rather than thinking short term where there's a very high reinvestment risk, treasury bills yes could look very attractive, but that reinvestment risk is significant. why not go out a little bit longer, lock in thooez those yields and additionally we like adding duration to today's portfolio. toward the end of the fed's tightening cycle i think there's a significant upside for bonds particularly >> no, a great point, especially for investors who maybe did that six-month -- maybe that one year

on the t-bill and okay, what am i going to do next time around >> yes >> here's an alternative nisha, thanks. good to have you here as well. nisha patel joining me from parametric that does it for "the exchange." for more sign up for my newsletter in one easy step cnbc.com/newsletter or just scan that qr code next on "power lunch" maybe you've heard of the lipstick index the cardboard box indicator the hemline one i think. there's a shrimp indicator as well the ceo of omni hotels and resorts will tell us about wha afd lereveal about the economy. tyler can't wait i'll join him on the other side of this break.

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