opportunities. the health of housing. jpmorgan is houtout with a new report on the market. let's begin with the markets and dom chu has the numbers. file >> interest rates are a big part of the story and a fear for the higher for longer but even higher for perhaps longer, that's the real permeating theme throughout the markets today. we are finding a little bit of stability. it's still red across the board, but we are rwell off the sessio lows. the s&p 500, 5278, down about 27 points. at the highs, we were down roughly 24 points, so it willing towards the highs. down as much as 44 at the lows. so that gives you an idea of the trading range. the dow, down about 1%, 356 points to the downside, 38,496. and the nasdaq composite at 16,970, down 52 points, about 1/3 of 1%. the outperformer. but again in context, the nasdaq hit a record high in yesterday's trading session. deal news, it's not a takeover tuesday, but it's a wednesday, i don't know what we'll call it, but a couple of deals. marathon oil will be acquired by conoco phillips, about a $22 billion enterprise value if you include debt. about $17 billion if you look at stock alone. so marathon shares up about 8%, conoco phillips down about 4%. merck is buying ibio for $1.3 billion in cash up front, $1.7 billion in milestone payments. so shares are down about 1/3 of 1% on that news. again, a number of names in takeover talks today. and then if you want to take a look at the mega cap world, this is becoming a very interesting dynamic move between apple and nvidia. both shares are up today. apple about 1%, nvidia about one half of 1%. at this stage right now, apple's market cap stands at roughly 2.94 trillion dollars. if you look at that. you can see it right there. the market cap for nvidia, $2.8 trillion. so if you are talking about a roughly $140 billion difference in market cap, that perspective in context is roughly the size of a nike in market value, so there could be in the coming days an interesting move where nvidia might, hypothetically, overtake apple as the second most valuable company in the world. back over to you. >> i'm just looking for syn synonyms, consolidation wednesday. >> what's a "w" word? >> there's no "w" words for merger. as he weighs that question about market cap, the larger question is whether nvidia is overvalued. the answer may be know, based on its low forward pe. but the sheer size, you might be wondering. n my two guests join me now. great to have you both here. welcome. >> thank you. >> nick, let me start with you. the low pe, and again, i think sub-40 is still where we are is pretty good for what this company is up to, is often cited as a reason why nvidia can still go on a strong run from here. do you think that's likely to be the case? what do you think about the valuation? >> yeah, i think it's entirely fair. 40 is a big double, the market trades for 20, so it's double that. but it has all this locked in growth rate from all the companies that want to invest in generative ai. against that metric, it looks good. the highest intel ever got in the 1990s was number three in the s&p. we're now talking about nvidia perhaps getting to number two. so it is interesting that chip companies have a little bit of a cap where they can end up in market cap. but given that nvidia is much stronger than intel in the '90s, we can keep working from here. >> shawn, turning to you. what are your thoughts on it? >> sure. so just to step back a little bit and put this in historical context, there's always the element that we should be wary when we see high price-to-earnings ratio. if we look back at the data, we find high prices relative to earnings struggle to generate enough earnings to repay those high valuations. now, this is a broad feature rather than something that applies to every individual basis, but it should set your baseline expectations that for a company that has a fairly his price-to-earnings ratio relative to the market, you should already be scrutinizing where it will find those extra sources of growth. now, nvidia in this case has performed quite well in the last couple of years, where it's really increased its earnings substantially and brought its price earnings ratio down. it used to be substantially higher. so it may be an exception here where it is able to generate sufficient earnings growth to justify those high valuations. it will really depend for comdme ma -- demand for its product. >> nick, the point about earnings, i don't know if we can show a historical pe chart for them or other stocks, but if you go back to 2010, netflix had a pe over 100. there was massive debate whether it was justified. in the long run, it was. tesla, maybe during covid, had a pe of around or a little over 100. that seemed to mark more of a sign of a short-term top. so is there a number at which pe means something, or are they stages of momentum, or can nvidia earn into the high ratio that it has? >> i tell you, i used to work for steve cohen. he would drill into our heads that valuation in a single stock company level just doesn't work for picking stocks that go up or down. in a single stock level, i don't worry too much about pmee, whether it's 10, 40, or 100. in addition, 1% to 2% of stocks generate all the long-term returns in stock markets around the world. so you have to look for those 1% or 2% of stocks that work over 15, 20 years. nvidia is clearly in that camp. and it should continue to be in that camp. it is bust of those must-own stocks. >> shawn, the question for me is a little more difficult to answer is how big a company is nvidia going to be potentially? if it's already $2.5 trillion in size, and if it runs up -- let's say it doubles from here, which the stock investors probably think is conservative, are we talking about a $5 trillion company? i don't know if people want to incorporate buybacks into that, but i'm sure size alone -- i would love to know the economics and the market history behind the company of that sheer size putting the pe totally aside. >> right. so there's certainly the element of how large a company this can eventually become, and in terms of how large the eventual market can become for the product that it's selling. now, one point i'll highlight here is that a lot of the discussion with nvidia revolves around what the prospects for ai will be going forward, but one element that doesn't get say as much discussion, when you're buying into nvidia, you're not just making a bet that say ai or ai needed chips are going to take off and dominate the market going forward, but you're making a bet it will be specifically nvidia that continues to dominate that market 10 to 15 years down the road. i think that's where it becomes a little more difficult to try to evaluate whether it will earn enough to repay say a $5 trillion valuation. it's not just a question of how much demand for ai processing power will go up, but whether this company can remain as the dominant figure there. because what we have seen in the past is that there are many industry leaders that are eventually sup planted. it's relatively difficult to remain the industry leaders for 10 to 15 years. there's obviously the example of say cisco, the most valuable company in the world at $2,000, which eventually was unable to really reap the benefits of increasing use of internet services, for all those transformative elements that we saw develop, but largely profited other companies. >> that's a great point. we know the next phase could be that in which other companies try to do exactly that. gentlemen, stay there for a moment. just had a seven-year auction. the five-year yesterday was poor. let's bring in rick santelli. how did it go, rick? >> you know, a little better than yesterday's five-year, but not by much. 44 billion in seven-year notes, completing $183 billion in coupon supply from the treasury. the yield, 4.65. the one-issue market, well, 1.5 basis points lower than that, which means it tailed, not good. and every metric was below the ten auction average. the ones that stand out, 2.43 bid to cover the week since april of '23. dealers take 17% versus 14% ten auction average, the worst since november of '23. d minus -- excuse me, i gave it a d plus. yesterday was a d minus. as you look at the charts, a couple things jump out. we keep moving up all day, and seven-year doesn't look as aggressive a selloff pushing the rates off as the longer maturities like 10s and 30s. it's on pace for a one-month close in high yield 7s. if you look at the chart, right now with the ten-year solidly above 4.5, with the 30-year floating with 4 3/4, and the fed on hold potentially, many think the two-year will be glued to 5%, and all the action will be on the longer maturities. and that certainly seems to be the case. kelly, back to you. >> rick, thank you. so nick, another poor auction. what do you make of sit? this comes as global bond yields are moving to the other side. >> the bond market has been in a mess the last couple of weeks because of worries whether the fed will cut rates on the short end and issuance on the u.s. side on the long end. the issuance has become more of a factor. it tails back to our discussion of nvidia. how many companies out there are rate proof over the next 12 months? does it matter if rates go to 6% on the 2s? not at all. that's an appealing factor for the stock. >> appealing factor for the stock? >> yeah, that's in nvidia's favor. you don't have to worry about rates in the context of that. >> professor, i'm going to put you in the hotseat here. you see these bond yields breaking out to the upside. there's a lot of different ways to think about this through corporate finance and so much more. but i'm just curious what your take is. >> so if we want to connect this back, there's certainly the element where high interest rates really change the amount of patience investors have for these types of long-term investments to pay off. while definitely i agree with nick's point that for a long-term investment say into ai or ai processing power, fluctuations and interest rates over 12 months are not that substantial, given their long horizon. it does indicate that investors are likely not as patient as they were in the last 10 to 15 years where we had extremely low interest rates and companies could make these long-term investments and rely on investors for those to pay off. now we are seeing a lot of companies, meta, microsoft, alphabet, sink very large investments into ai. there may be some substantial pressure for those to turn around profits relatively quickly. investors may not be willing to wait 10 years for those to pay off. >> very interesting. i know one area you're watching is the spread between a lot of corporate bonds and treasuries. that's becoming narrower and narrower. plenty of people said they wouldn't be surprised to see people be more interested in owning apple than u.s. government debt. we flirted back and forth with some of those key borrows going sub-what the u.s. treasuries are offering. do you expect us to plum new lows in that realm if we have people worried about the u.s. deficit situation, but not really worried about corporate finances? >> it's very interesting. i looked at single a corporate spreads of treasuries going back to the '90s. you would think they would be tighter than the 1990s, but they're on the same levels. so if there will be a move to very high quality corporates over sovereigns, we haven't seen it yet. so there's still room for that move to happen. >> gentlemen, thank you both. appreciate your time. we had another weak bond auction with the ten-year hitting its highest level in a month. my next guest doesn't expect yields to come much longer, though. joining us is paul siana. great day to have you with us. you see these moves. it feels to us nonexperts a breakout to the upside, but maybe you see it differently. >> it sure does, kelly. we just published a new note, the short-term technical patterns point to upside in yields, breakouts in the five-year and ten-year, and following signals that etas might get involved. so we see upside in june. but bigger picture, kelly, i would say our base case is starting to shift towards buying the dips, because our year ahead call has been yields rebound in the first half, likely peaked by the end of q2 and begin to roll over in the second half. >> why do you expect them to rollover, or is that just what the charts say? >> sure. mostly that's what the charts say, but two good reasons off the cuff here. number one, we view the trend in the u.s. unemployment rate as up. if you remember last year, the u.s. unemployment rate was 3.4%, and since then it's made three higher highs and three lower lows. so slowly the labor market is starting to crack and reached a two-year high. when we look at ten-year yields, there have been seven dincident, and both secular and bear markets for treasuries. so that's one. the second would be the seasonality patterns at hand. good to know is that the average trend in the ten-year yield throughout the course of the year since 1963 is up into may. it begins to top and rolls over into year end. now, this is a special year, because january was an up-month for the ten-year yield. when we look at those years in the past, ten-year yields tended to be up in august, peaking by september so the word patience by the fed screams itself in the seasonality patterns here. so shifting to buy the dips this summer, being patient with the turn. but we think it's coming by the second half of the year. >> overarching thing that you think is happening is an employment slowdown. that does obviously explain a lot of what could be going on. and in that case, you would say okay, well, then the fed's next move would still seem like a cut and not a hike, unless they squeeze in a hike before that takes place. >> yeah. look, the fed's in a tough spot, as the markets have covered. and one side of it, you have the labor market starting to weaken. on the other side, you have commodities rallying substantially. and financial conditions very loose with equity markets at all-time highs, right? so there is that predicament of what is the fed's next move? do they have to come in and squash inflation by tightening policy? i don't have the answer to that, that's out of my realm. what i do know is that in the past, kelly, there have been ten technical bottoms in the u.s. unemployment rate. many of the patterns we talk about, this would be the 11th. it does suggest that the rate does go above 4% this year. and that's a modest comment relative to history. history would suggest that it should have broken sooner and gone further. so patience. >> no, absolutely. and i guess the next phase of this discussion and debate moves to, you know, how far does the ten-year fall? a lot of people think not nearly as far or fast given that dynamic. you don't have anything on that yet, do you? >> we do, actually. so in one of our many trend following strategies, it would suggest that now wave c occurs next, which could be 38.2%, or a third of the prior up-trend, which was essentially the ten-year yield from zero to 5%. so 38.2% retracement of that, kelly, is 3.25. that is something that technical academia would suggest. that's a headline. we like a headline. everything surprises us. paul, thank you very much. thanks for your time today. >> thank you. coming up, mortgage rates for today are moving higher. but new numbers suggest the higher rates aren't stopping renters trying to buy a home. a look at what that means for the market. but first, stocks not named nvidia are moving lower today. and what's the next catalyst for the market? we will dig into that next, on "the exchange." 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