Closing Bell - Bear Market Bounce, Shorting Mega Cap Tech & Credit Market Tea Leaves 7/25/22

Episode Date: July 25, 2022

Stocks trading in a narrow range ahead of a big week for tech earnings. SVB Private's Shannon Saccocia discusses why she thinks Apple's results could be the most important for the market. Satori Fund Founder Dan Niles says he added to his short positions in mega cap tech stocks following last week's big rally. But he reveals the one tech stock he is buying right now. CFRA's Sam Stovall says he thinks the recent market rally is just a bear market bounce. Goldman Sachs' Jonny Fine discusses what bullish signals in the corporate bond market means for stocks. And Atlas Merchant Capital CEO Bob Diamond explains why he thinks the Fed needs to go big with its rate hike this week to fight inflation.

Stocks are trading in a narrow range as a pivotal week for the market gets underway. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. Here's where we stand right now in the market. The S&P giving up about a third of 1%. You've got communication services as the underperformer, and that's dragging down the NASDAQ as well. It's down a percent.

The Dow, it's been, as I said, in a narrow range. It's down 46. The high was up 129. Low today down 40. So we're near the lows of the session. Small caps are doing a little bit better. And that is thanks to some of the groups that are working today, financials and energy. Here's a live look at the S&P 500 sector heat map.

And you can see energy on top with oil prices jumping 2% onward that Russia is cutting gas supplies through that large Nord pipeline to Germany. We'll hit it a little bit later on, but clearly energy stocks are higher. Financials, utilities, industrials, healthcare and consumer staples remain green at this hour. It's the tech stocks that are getting hit hard today. Information technology down a percent. Communication services, consumer discretionary down one and a quarter percent. Some of the retailers are having a rough day today. Hasbro, Pulte, the home builder, Royal Caribbean giving up some gains from last week. Coming up on the show today, former Barclays CEO Bob Diamond joins us with his calls for the Fed to go big with its rate hike at this week's meeting. What could happen if they don't?

Plus, we'll talk to Goldman Sachs' Johnny Fine about the signals he is getting from the credit market and how they differ from the action right now in stocks. We'll begin, though, with this crucial week for tech. Key earnings kicking off tomorrow with Alphabet and Microsoft. These results, of course, come after that disappointing second quarter number from Snap last week and a mixed print for Netflix. Joining us now is Dan Niles, founder of Satori Fund, who, Dan, is making moves, I believe, in the wake of what we got from Snap, right?

What are you doing? Well, we had put out a note a couple of weeks ago talking about how we had concerns over ad spending for the Internet companies, and, you know, that would affect everybody, including, you know, Google, as well as all the other big names. And what you saw on Friday was really much worse results coming out of that market than anybody anticipated.

Remember, Snap said, you know, in June, revenues were up 30 percent year over year. That's sorry. In April, revenues were up 30 percent year over year. And by June, that had gone to zero. So for us, we covered a lot of the shorts that we had put on in the Internet ad space because you had obviously Snapchat down 39 percent, dragging everything else with it. And but we also sold a bunch of our longs. And right now we have more shorts than we do have longs in the portfolio. And we think this is going to be an ugly week for fundamentals and potentially stock prices as well coming up. I get the concern about ad spending. Clearly, Snap was a warning last quarter,

was a warning this quarter. And the worries that you might have about social media stocks, meta, alphabet, but not so much. That doesn't translate into cloud services, does it? What do you expect from those? Microsoft, Amazon, with AWS as a big piece of that. Yeah. So it was interesting because last week we were sort of, as we were thinking through the environment, it's sort of a supply chain, as it were, right? So if you think about when COVID happened, everybody's business went to the cloud.

Everybody had to order online because it's the only thing you could do. And so that really benefited the cloud service providers like Microsoft Azure, Amazon Web Services, and Google Cloud Platforms. Now, if you think about what you're seeing, people are going outside, they're going to concerts, they're getting on airplanes, et cetera. You see Netflix lose subscribers for two quarters in a row. And so that spending is now moving back to the real world to some degree. And so that's one of the things we're worried about is nobody's anticipating any problems from the big three cloud service providers. And what we're concerned about is you might actually see some issues because the utilization or need for cloud services goes down if people aren't spending as much time on the Internet. So we've got some, you know, decent size.

Mark has been worried about that, Dan. Mark has been worried, and that's not a secret. And actually, the demand story and enterprise tech spending story has held up for the bulls so far. Exactly. That's the problem. I mean, if you think about it, people were worried about ad spending. It didn't stop Snapchat from getting hit by 39% on Friday. So the point is that, you know, you started the year with, oh, everything's wonderful.

Then it's, oh, well, maybe there's a little bit of slowdown in consumer. Then it's, well, maybe there's some issues in enterprise. And so this is sort of a rolling process. It doesn't all happen in one day. And remember, some of these companies got premium multiples. So you look at a Microsoft, it's trading at a 26 PE. The, Google Cloud, they're all growing 30 to high 40 percent. And growth on the Internet for consumption is slowing down. And that should concern you when you've got multiples this high. So none of them are safe from your perspective. You're out of Amazon. What about Apple?

Yeah, with Apple, we have been long at versus short positions in the Android smartphone space because our belief there is still you've got huge problems. We got out of that last week. Obviously, the stock rallied nicely off of its lows. But, you know, same issue with Apple, right? You've got a premium PE. I think it's about 24 times or so. You know, S&P is at 17 times. But again, remember, they were a big benefit from the pandemic. Their revenue growth was 2 percent in 2019. Last year, they grew well over 20 percent. And people are still looking for six percent or so growth this year. And I think it wouldn't surprise me whether it's this year or next year for that growth to go negative. So, you know, Apple's another thing you should be concerned about.

And don't forget, a lot of the high margin business is coming out of services and they get paid for things like Google search and ad revenues that comes in at very high profit margins. So, you know, this quarter probably is fine. But as you think about September, December, when you need a big ramp up in spending, you know, I think the high end consumer is going to start feeling some of the pain that the low end Android consumer is already feeling right now. Dan Ives at Wedbush says 250 million iPhones have not been upgraded in the last three and a half years. Asia checks have shown iPhone 14 units, 90 million out of the gate in line with the iPhone 13. Plenty of demand there. Are there any specific data points you're watching or you just think it's inevitable that we're going to slow? Well, I mean, just as I said earlier, you go back to 2019,

you had three out of four quarters where iPhone revenues were down year over year. Same thing with Mac. You move fast forward a couple of years into the pandemic, and both of those revenues are up tremendously. And now you're starting to see it decelerated. So you saw a lot of those upgrades during the pandemic. You've already got a lot of iPhones out there in the market. So I think you have to remember, gas prices are where they are. Inflation is very, very high.

Apple luckily sells more to the mid to high end versus Android in the mid to low end. And I think when you get around to Christmas and we think the market's going to be a fair bit lower from here, inflation is still going to be high. I see. I think you're going to see that starting to impact the mid to high end of the consumer. So that's why for us, that's why we have issues. Got it. So you're out of all of these these big mega cap names ahead of earnings. Sounds like are you short any of them? Where are you putting shorts on? Yeah, absolutely. And we'll probably, you know,

our hope is that we get some better prices to short more. But again, the cloud providers, I mean, we're short Microsoft as an example of that, but we've got a lot of shorts spread out through the space. Semis? Semis? Are you short semis into this chips act? Oh, yes, we are. We're long until actually we just bought it to hedge against that. But in general,

if you think about supply and demand and you forget about the chips act because, you know, over a short period of time being over the next year, it's really not going to matter. You've got a massive amount of inventory being built up in the supply chain at customers. At the same time, you've got demand slowing down in PCs as well as in smartphones. And now we're getting some signs in enterprise as well. And so that inventory is going to have to get burned off. And semis are up a good 20 percent off their lows. So if you think numbers are going to get reset hard, and we saw that, for example, with Seagate last week, you could have a lot more downside in these names. This is just a bear market rally, Sarah. We've talked about this multiple times and we've been on.

They're off the lows, but they're still 30 percent or so off their highs. This has been a group that's been hammered on some of these concerns already. That's not hammering. Hammering in semis is when they're down 50% plus. And if you go back to prior recessions, these stocks get hit very hard because they're very cyclical. They're cyclical on the way up, so they're over-earning.

And on the way down, they under-earn. And so you still haven't gotten through where you've had to cut and slash and burn a lot of these numbers yet. That process has just started. It's going to take several quarters to work your way through. Even TSMC on their call, they raised their own numbers based on market share gains. But they said we have a multi-quarter inventory correction coming. That's not something you want to even micron was super negative, but then the stock went up because a lot of it was reflected already in there. Yeah. And that's what we said earlier, right? You've had five rallies in the

S&P this year that have averaged 7 percent apiece and you've lost 17 percent of your money. By the way, this is normal. During the tech bubble, when it broke and the global financial crisis, you had five rallies in the S&P that were between 18 to 21 percent on your way to losing 50 percent of your money. So this happens. You know, you can look at our Twitter account. We've a lot of times said, hey, we think the market's at a short term low. We think it's going to bounce. And we're trying to play that. But that's also how we've made money. You know, we try to cover on big down days. You try to get long, you know, near if you think you're at a short term bottom and then you put your shorts back on after the rally. And that's what we're trying to do.

Put the shorts back on. We appreciate the transparency. Thank you very much, as always, on a big week. Dan Niles from Satori. By the way, it is all those names. Dan's shorts are having a good day because it's Microsoft, Amazon, Apple and video all dragging down the Nasdaq today. Up next, there is a renewed debate on Wall Street and in Washington about what exactly defines a recession. We'll discuss with former Barclays CEO Bob Diamond and he'll tell us why he is calling for a supersized rate hike at this week's Fed meeting.

You're watching Closing Bell on CNBC. Down 43 right now on the Dow, down 1% on the Nasdaq. We've got some crypto news out of Washington. Ilan Moy with the story. Ilan. Well, Sarah, two sources are telling me that the stablecoin legislation being negotiated by the top Democrat and Republican on the House Financial Services Committee is now being delayed until after the August recess. Members have been hoping to mark this up as soon as Wednesday,

but the two parties could not agree on the parameters for this bill, which would have included a one-to-one backing for stablecoins, as well as allowing non-bank financial institutions to issue stablecoins as well. I am told that a discussion draft could still come out sometime this week, but a formal consideration is now being delayed until at least September. Sarah. Got it, Elon. Thank you. We've got the right guest on that. Bob Diamond joins us, Atlas Merchant CEO and former Barclays CEO, because Bob is trying to take Circle public via SPAC, which makes the USD largest stablecoin, right, Bob? Does this legislation influence your timing?

We still hope to have our SPAC approved in the fourth quarter, but timing is very difficult. I don't think the legislation around regulation has a direct impact on the approval of our DSPAC. But of course, Sarah, all of us are looking forward to the development of a smart regulatory framework, particularly around stablecoin, but frankly, around many areas of digital and crypto. Should they be regulated like banks, by bank regulators like the Fed or by the SEC? Listen, I'm going to leave that to the legislators. I think we do. You know, one of the things that's been very, very clear within the group at Circle, both before our involvement and today, is we embrace regulation. We have set ourselves up as the most conservative,

the most regulated, operating within the U.S. regulatory parameter. Very, very clear on our portfolio standing behind our stable coins, which is, as you know, 80 percent U.S. Treasury T-bills, three months and below, 20 percent cash or a dollar is a dollar is a dollar. And I do think regulation around a stable backing to stable coins is important. Bob, people don't have a lot of trust and faith right now in SPACs or in crypto and stable coins. Are you going to get this deal done? I don't think that's true. I think clearly the new issue market in SPACs is, you know, at a crawl, if even that. But this is a SPAC that we had announced or a merger that we

had announced about a year ago. And we're working our way through the regulatory process. So we don't think what's the disruption in the new issue SPAC market is going to have any impact on that at all. And in terms of stable coins, Sarah, I mean, think about Circle, right? When crypto winter hit, these are rough numbers, but the market cap of crypto is about $3 trillion. That dropped very, very quickly to about $1 trillion. During that period, Circle raised private money at the highest level that they have ever raised it. And the outstanding USDC went from just under $50 billion to where it is today, about $55 billion. So within that- So you distinguished yourself.

I'm sorry? So you guys distinguished yourself against the tariff, the blowups. Yes, particularly within the stable coin universe, yes. Got it. Bob, I wanted to ask your general thoughts about the economy as well. Do you buy this idea that we can't have a recession with the unemployment rate in the 3%? The White House, their new line is that yes,

technically two negative quarters of growth is recession, but it's really up to the NBER to define recession. And they're not going to do that if we have such a robust labor market. Is that true? Well, you know, we all know the inflection point was hit in so many of the indices in March and April, about the time the Fed became a bit more aggressive. But you still have sectors like autos, housing. You have a buildup in inventories, and you have an unemployment rate still around 3.6 percent. You kind of think of this as the full employment downturn. And I do believe, as you had said earlier, that the Fed needs to be more aggressive, not less aggressive. My own view is that 100 basis points would be the correct, you know, July 31st call for the Fed in terms of rates.

But generally, while we have begun to come off the top and there is, you know, we're past the inflection point, the demand that was built up with the fiscal stimulus and the monetary stimulus and the fact that the Fed waited so long to stop buying U.S. treasuries and mortgages means that they need to get ahead of this now. So we need a Fed that's more aggressive, not less aggressive. And my own view is if they do 100 or a bit more aggressive, it'll actually make this easier in the long run. And the longer that they wait to become more aggressive, the harder it is to get a 9 percent inflation world tempered down. But wouldn't it also increase the likelihood of a hard landing where you do get problematic unemployment?

Already we've started to see the data turn since the last Fed meeting. I mean, LEI down for four months straight, jobless claims now starting to spike. And you've seen the announcements from corporate America. Wouldn't that argue for not being as aggressive with the rate hikes? No, I think it's just the opposite. I feel a little bit like this is a slow puncture. The Fed is going at it slowly, and I know I know people disagree with that. But think about it, a full employment downturn. We're at three point six percent unemployment rate.

We've seen some of the some of the turn in terms of jobless claims, in terms of number of job openings, but we still have pretty much full employment. And I think for the Fed to become a bit more aggressive here and move from kind of a slow puncture would be would lessen the chance of a hard landing, not increase the chances. So you want to see them just rip off the Band-Aid? I'm not saying rip up the Band-Aid. It's been 25 basis point increase, 75. I think 100 now would be appropriate. What's the difference between 75 and 100? Well, Sarah, I mean, it would still bring the funds rate to two and a half. Well,

it's 25 basis points more. But I think it's a bit of a signal, too, that we went from 25 to 50 to 75 to 100 that we're not saying the job is done. The job is by no means done. We have a lot more to do. I do think a lot of investors agree with you. Bob Diamond, thank you for coming on always and sharing your thoughts. Thanks, Sarah. Former Barclays CEO. Show you where we are in the markets right now. Down 12 points, so a little bit of recovery on the Dow right now. In the S&P, it's a tale of various sectors. You've got strength today in groups like the financials, like energy, like the industrials, so some of the cyclical groups there, but some weakness

in technology. So today is sort of a value over growth day, which we haven't seen for a lot of the month of May. We're still July. It's July. Still tracking for our best month of the year. NASDAQ's down a little less than a percent. Coming up, we'll discuss the signals coming from the bond market and how those recession fears are playing in with Johnny Fine from Goldman Sachs. Plus, we will tell you about two stories at the intersection of sports and media that are scoring some buzz on Wall Street today. And check out some of today's top search tickers on CNBC.com. Tenure yield back on top, followed by Tesla, Apple, Snap and a new entrant to the top search tickers. Look at Weber Grill. It's off the lows, still sinking 16 percent. A disaster. An earnings warning of slowing demand and a CEO departure is sinking that stock.

We'll be right back. Check out today's stealth mover, World Wrestling Entertainment. WWE Loop Capital upgrading that stock to buy from hold, hiking the price target there to 90, all the way from 59 bucks. The analysts there citing increasing odds that the company will get sold following the retirement of CEO Vince McMahon, who is being investigated over allegations of sexual misconduct. That stock up eight, almost and a half percent. Up next, a media story not so stealthy, the NFL getting into the streaming business. Details on what this kickoff means for fans and media stocks when Closing Bell comes back. Continued recovery here at Dowdown, about eight points. What is Wall Street buzzing about today? NFL Plus, the country's most popular league,

the latest to launch a streaming service. The direct-to-consumer offering will be available for $4.99 per month. CNBC.com media reporter Alex Sherman joins us now for more. Alex, why is the NFL doing this? So, Sarah, there's sort of a near-term reason and a long-term reason. In the near term, for $4.99 per month, as you mentioned, this is a new revenue stream for the league in two different ways, really. They're offering out-of-market preseason games. So for hardcore fans that really want to watch their team immediately, you can pay $4.99 a month. This used to cost $99.99 for crazy people like me

that really wanted to watch their favorite team's preseason games. You also get mobile rights for regular season and postseason games that already air on TV. This used to be for free through the Yahoo app, Verizon owned the rights. They didn't renew them. Now they're part of the NFL Plus paywall package. That's the near term. Long term, this gives the NFL a new platform that it could eventually down the road put exclusive games on. So we'll have to see how that plays out. So that was my question. How big are the ambitions here for the NFL?

Because we know how valuable their content is. We know how everyone goes crazy and how it's must watch, not just for crazy people like you. There are some in my household. But I know they're trying to negotiate the Sunday ticket, right, with Amazon and Apple. Could we be in a world where they could compete if they don't like the economics of these deals? Just do NFL Plus, make themselves their own distributor.

Down the road, I think that's absolutely a possibility. This gives the NFL optionality where they can say, look, if you don't meet our price for X rights renewal, we can always put the games on NFL Plus. However, I don't think that's going to happen anytime soon their local and primetime games are already locked up this happened last year from between 7 and 11 years down the road depending on certain out clauses and contracts and as you mentioned the big prize for out-of-market games is sunday ticket that is going to be announced uh as as next month, potentially, certainly by the fall in terms of who gets that for next year. DirecTV on Sunday ticket for this year. It's the last year of that rights deal. As you said, it could be Amazon. It could be Apple. The New York

Times reported even Google's YouTube put in a bid for that. So we'll find out who wins that. That will be given a certain amount of time X years. We don't know exactly the length, but the NFL assures me that whoever the partner is will be given ample runway to build up an audience with Sunday Ticket. So I think this, in terms of a platform for exclusive games, will be a years-down-the-road thing, not a near-term thing. Well, it's going to be fun on any platform to watch the Bengals win the Super Bowl this time this year. Alex, thank you. We're next. Good luck, Alex Sherman. Up next, Goldman Sachs's Johnny Fine discusses what bullish signals in the corporate bond market that he's seeing mean for

the stock market. Down 40 again here on the Dow. We'll be right back. Treasury yields nudging a bit higher here today ahead of the Fed meeting this week, but still significantly off their highs of the year. Joining us now is Johnny Fine, Goldman Sachs head of investment grade syndicate. Johnny, it's great to have you. What is the corporate bond market telling us right now about recession and the Fed? Well, it's great to be back on, Sarah. Thanks for having me. I think the corporate bond market has been picking up on a number of cues that macro markets have been picking up on since we got the CPI data at the beginning of this month. And I think what the market's telling us is that they feel good about the Fed having a really strong handle on inflation

and that they have the strength to be able to take the battle and win it. What that's allowed to happen is that as rate volatility has subsided, we've started to see a reliquification of the lower risk markets like investment grade corporate credit. We saw almost $50 billion of supply price out last week. That's the busiest week that we've had in our market for about three months, another almost $15 billion today. And so I would say overall, the market's sending some nice positive signals here that hopefully the Fed can affirm when we hear from them later this week. So it's a pretty cheerful assessment from a credit person, which you don't always get. And I think

also, Johnny, helps explain why we've seen stocks rally in the last few weeks. The question is, is that right? So even if the Fed comes out 75 basis points as expected, they're still talking tough on inflation. And I'm not sure that people think the ramifications in a recession has fully been priced in. So I would agree with that. And I think that actually speaks to a lot of the advice that we're giving to a number of our issuers who are considering looking at the market in the forthcoming window post earnings. And that is, is that the window that we have right now, it could be fleeting. We think now that inflation probably peaked at the earlier part of this month. We'll get more data as we

get into next month that may challenge that. If it does, then we'll reprice where the terminal rate is. We'll reprice the number of hikes that we think that we'll get from the Fed. And we'll get another bout of rate volatility, which will damage a lot of the capital markets activity that we've seen. If we don't get that, then I feel good about the liquefication we're seeing in investment grade flowing through into other riskier markets and buoying us in terms of capital markets activity through year end. Well, part of the thesis is that the Fed's going to start cutting right in the next few months. It's not just going to be a pause. It's going to be a total pivot where they would actually ease policy because they overdid it

on the economy. Is that something you're seeing in the markets and how likely is that? So we certainly see it in the market. I think both the Goldman Sachs forecast as well as the market expects the Fed rate to peak at year end at three and a quarter to three and a half percent. If you look at the Goldman Sachs forecasts, we think Fed funds stays flat through 23, 24 and 25. The market's actually looking for about 50 basis points of cuts throughout 2023. I personally think that's very unlikely. I think the Fed will get to that point. And if they've won the battle against inflation, I think they'll still be fearful of any resurgence because of how close

it is in the rearview mirror and therefore will keep policy tight until they're really really confident that inflation has gone away so you think the market upshot is a little too enthusiastic right now and you sounds like you'd be cautious on stocks and corporate credit so i'm not sure about direction of the market overall although i will say from from a corporate credit perspective i about direction of the market overall, although I will say from a corporate credit perspective, I think one of the bigger challenges that investment grade will face is more technical in nature as opposed to fundamental. We're seeing a lot of capital leave the system.

We've had a string, I think, of 17 consecutive outflows from mutual funds, and supply continues to want to run at a decent clip. So I think just from a technical perspective, we're likely to widen modestly into year end. Look, whether or not we get policy easing as we get into next year, I kind of think it's a little secondary at this point. I think what the market really wants to see is that the Fed absolutely is going to take and win that battle over inflation. We'll have to look at conditions then. We'll have to look at what the macro backdrop, employment growth, et cetera, looks like in 23 before really, I think, having a view as to what the outlook for 23 and beyond

looks like. But for now, I think that the back end of this year, I would expect a more robust level of capital markets activity for sure. Johnny Fine, thank you for helping us pregame the Fed decision. The signals from the bond market. Appreciate it. From Goldman Sachs. Thank you for having us. By the way, Dow turning positive now. It's up 13 points. Chevron, Travelers, Caterpillar and Dow Chemical driving us higher. Up next, CFRA chief investment strategist Sam Stovall and whether last week's rally was just a bear market bounce. That story plus fintech fallout and the countdown to earnings from a big chip maker when we take you inside the market zone next.

We are now in the closing bell market zone. SVB private bank, private chief investment officer, Shannon Sikosha is here to break down these crucial moments of the trading day. Plus, Deirdre Bosa here on FinTech. CFRA's Stam Sobol on today's market volatility. We'll kick it off broad because the S&P 500 did snap a four-day win streak on Friday. Looks like it might host its second day of losses here, but all major averages are still on pace for their best monthly gains of the year. Shannon, going into a week where it's the busiest week of earnings season, all the mega cap tech stocks are going to report. We've got a Fed meeting. We've got a GDP report. You think the rally we've seen so far in July

can sustain itself? Wow. I mean, if it can, Sarah, what a story. There is so much going on and so much to look at. And I actually think it's a great week because I think we're going to get a number of different types of data points. So we're going to get guidance from these companies, which is going to be critical for the second half of the year. We're going to get that GDP print. Everyone's been concerned about a second negative print. You know, are we in a recession? And then we're also to get some great housing data. So I think a lot of this is going to create much better context for investors than maybe we've had over the course of the last couple of months, where it's one big statement from the Fed or it's the CPI print. This week, we're going to get a lot

of really interesting data. And I think the more data points we can get right now to craft the appropriate narrative for the second half of the year is a really positive thing for investors. So I'm excited about the transparency this week. I'm looking forward to hearing what the Fed has to say. But I'm especially looking forward to that GDP print to see if many of us who are stating that it will be a positive one turn out to be right. Let's hit the tech stocks because the Nasdaq is underperforming today. We did speak earlier this hour with top fund manager Dan Niles. Here's what he said explaining why he sold one tech giant that some people call the most important stock right now in the market. Listen. Apple's another thing you should be concerned

about. And don't forget, a lot of the high margin business is coming out of services and they get paid for things like Google search and ad revenues that comes in at very high profit margins. So, you know, this quarter probably is fine. But as you think about September, December, when you need a big ramp up in spending, you know, I think the high end consumer is going to start feeling some of the pain that the low end Android consumer is already feeling. He's also short Microsoft, Shannon, I think you are on the other side of a lot of these trades. You hold Apple, Microsoft, Amazon. Are you not worried about the fact that the economy is slowing and they're sensitive to it? So, no, I mean, I think it would

be naive to state that you're not concerned about the economic slowing that we're seeing and some of the deterioration in the data. I think as it relates to Apple in particular, just because you just had that great clip that I would opine that I don't disagree that we could see some delay of services revenue. More importantly, if we see some delay in handset replacement and that demand gets delayed, probably not destructed because I am more optimistic about 2023 than perhaps the back half of 2022 in terms of consumer confidence and sentiment. But if we do see that handset replacement delayed, that does impact services revenue. You certainly need to have a newer handset to be able to fully get all of your updates, to be able to download more apps.

And so I don't think Dan's incorrect in his concern about services revenue. But I do question that that's going to be an area that's the kind of the first level of demand destruction, just given that it is fairly small dollars and it tends to be sort of wrapped up in your online spend in total. So I'm concerned about the consumer slowdown. I think Apple's important because it represents not only this revitalized Nasdaq trade that we've seen over the last couple of weeks, but also that consumer trade. So it's sort of in the epicenter, I think, of concern for this week. Maybe not so much as Microsoft and Amazon's already seen its sell-off.

So perhaps, you know, you're right. Apple is perhaps the most important report this week. Apple's down 14 percent this year, which actually still makes it an outperformer. S&P is down a little more than 16. It's been a brutal year for the fintech companies, especially in that buy now, pay later industry. Private companies Klarna and Stripe recently seen their valuation slashed. Earlier today on Tech Check, Klarna CEO told our dear Drabosa about his company's strategy for prioritizing profits over growth in this type of environment. Listen. We have a billion dollar gross profit business in Europe, and we have used the last few years to establish a massive business in the U.S. with 30 million

users, with, you know, 30 of the top 100 U.S. retailers and tons of transactions. So now it's all about just turning it back to profitability, which is something fortunately we know how to do. Deirdre joins us now. Certainly they're changing their tune as so many of these companies are on profitability. Can they continue to expand? Deirdre, do you think Klarna with that massive slash in valuation is unique or a sign of what's happening out there? I think it's a sign of what's happening out there? I think it's a sign of what's happening out there. I mean, their new valuation is more in line with what we've seen in public comps, like a firm, the other buy now, pay later firm,

that is really big here in the U.S. The key for Klarna is that, yes, it has experience being profitable, but can it turn on those levers here in the United States? It is a much more competitive market. He told us himself that they are not yet profitable here. They're still in growth mode. So you have to wonder sort of what their investors in this latest round are asking in terms of that path to profitability,

which is, as you said, Sarah, what it is all about. We also talked about the buy now, pay later space. He made the comparison that as we enter this economic downturn, it's actually going to be more appealing to consumers, especially those younger consumers that we know love to use it. That's what Max Lefkowitz said on the show last week from a firm. So what is Wall Street so worried about here? Well, this is what I asked Sebastian Sibotowski. I asked him if it was a bubble.

I mean, a nearly $46 billion market cap, that is huge. The multiples on that, some would argue, are crazy. There's been so much money in private markets. A firm was part of this as well. Then it went public, and we see what the public markets have done. So that's sort of the key question. Can it ever get back to that point? Can it ever be worth more than $40 billion again?

Of course, he's confident that they can. He would say that. He made the sort of comparison to an Amazon, it had its boom then bust then boom again but remember everyone loves to use that example of amazon there were many companies at the time uh that went bust all together and even some like cisco that just never reached that don't calm that peak valuation good point deirdre bosta deird thank you. Is there an opportunity here, Shannon, in some of these buy now, pay later? So I know Klarna is private, but some of the public stocks that have gotten shellacked or fintech overall?

Well, let's talk about this space in particular, Sarah. Yeah, they did great when the buy now, pay later, when you didn't necessarily need buy now, pay later, right? That's the right time to be extending credit, particularly to the consumer, is when they don't necessarily need it or where you feel really secure that they're going to be able to pay it back. Obviously, if we enter into a recessionary environment, the demand is going to be there, but the risk for these buy now, pay later companies is going to be much higher. And I think they're going to have to be compensated for that. You know, when we talk about profitability in terms of how much they're you know, how much they're taking on in terms of that credit. So for me, I think that's probably a little bit early for these companies. I do think there's also just from a competitive perspective, not a whole lot

different in the business model. So there's probably some winners and losers here. But I think that this space is going to continue to be under some pressure from a valuation perspective, but also just given what they do and what does that demand end up looking like for the type of consumers that they really do want to be affording credit to. Just want to point out the S&P 500 just going positive again here in the final moments of trade. It's been wavering back and forth all day long, trying for our fourth up day in the last five sessions. NXP Semiconductor is the big name on today's after earnings, after hours earnings calendar. Christina Partsenevelis joins us. Christina, what's the key number we should be watching in NXP? If we're just going to talk about earnings for sure, that's $3.35. But there

are a few points that we're going to be looking out for because the fundamentals seem strong for NXP, but it's more about the outlook that could potentially be wavering. And what do I mean by that? You have four issues. You have one that we talk about that slow down in demand, but for NXP, given they have about over 50% exposure to the auto sector, how much is auto going to compensate for the weakness in PC and handsets? And that leads to the second point. Piper Sandler pointed out that NXP actually has under exposure to EVs. So any comments there? They just said that they're partnering with Foxconn just last week on EV platform.

So maybe that'll change. The third point is something that's relevant to all semiconductors right now. Is an inventory correction coming down the pipeline? Have we hit that yet because of double ordering, because of bloated inventory levels, because supply chain problems are starting to ease? And then last but not least, this is already baked into the guidance, but that would be just the China COVID lockdown. So these are all things that we'll be looking out for on revenue of three point two six billion dollars for NXP. We're expecting it to all the street expects it to come in line. It's more about the future, right? The near term future for a lot of these companies.

Got it. Christina, thank you. NXP down about 8.10. SEMIs are underperforming as the market recovers here with the S&P going green. NASDAQ has caught its losses from down 1% at the top of the hour. It's now down about half a percent. Let's talk broader markets. Dow also picking up some steam here into the close, up about 78 points. Joining us is Sam Stovall, chief investment strategist at CFRA. And Sam, the question everyone's wondering, we've had a nice rally here in July, best month of the year. Is it a bear market bounce or the bottom? I think it's a bear market bounce, Sarah. I think the bottom is probably a ways off. I went back and looked at going back to World War II at all,

one day advances of 2.8% or more as we got last Tuesday and found that a majority of them, two thirds were in bear markets. And within those bear markets, essentially three out of every four of these 2.8% bounces or greater were well before the bottom was put in place. And actually the average is about five months ahead of that eventual bottom. So eventually, we will get a nice bounce that could top us back into bull market mode. But I think right now, the early bounces really are simply bear market bounces. And the other question is, what about technology? Because that's what we've seen showing some strength over the past few weeks, especially over last week.

We're going to get a lot of earnings. Today's a day where they're underperforming energy, financials, industrials. It's more value over growth. Which do you prefer? Well, I think for the near term, I would prefer more value over growth. We've been seeing weakness in the growth areas for communication services and consumer discretionary really on a relative basis since fourth quarter of last year. Technology in the first quarter, it began to underperform the overall marketplace and still just sort of bouncing around here. So I would tend to say that in these challenging periods, third quarter

of presidential election years that typically have 70 percent higher volatility, you want to be sticking with the defensive and in many ways the inflation hedge areas. So what about earnings, Sam? Where do expectations stand now that we're we've seen some some of the of the key groups like financials report overall? How are they doing and what does that mean for the market? I think it's been a bit deceptive, Sarah. We started the quarter on June 30th expecting a 6% year-on-year increase in second quarter earnings. We went down to 4.9. Now we're at about 6.2. So you would think we're ahead of the game. But actually, the improvements came from consumer staples, energy and from health care. Technology was off, cut from 2.8 percent growth down to 1.4. Continue to see negative prints expected for

communication services, consumer discretionary. And we're also continuing to see sharp declines for full year 2022 and 23. So I would tend to say that while we got the valuation reduction in the first half of this year, now we're actually seeing the earnings reductions. Got it. Sam Stovall, thank you for joining us. CFRA, Shannon Sokosha, always great to have you on board. Thank you. As we head into the close, S&P is positive. It's up about a tenth of one percent. You've got groups like Energy in the lead. Of course, crude oil up about two percent. Unwarned that the Russians are cutting gas flow to Europe in that key pipeline to Germany. Utilities, financials, health care, staples, industrials, materials and real estate are all positive in the S&P 500. What's not? It's

technology. It's consumer discretionary. Amazon is lower today. Tesla is lower. Technology stocks like the semiconductors are lower today. Communication services are also lower, about a third of 1%. Some positioning there perhaps ahead of a very key week of earnings, which kick off tomorrow with Microsoft after the bell. The Nasdaq is down about four-tenths of 1%, though, which is a nice recovery from what we saw earlier after the bell. The Nasdaq is down about four tenths of one percent, though, which is a nice recovery from what we saw earlier in the session. At the top of the hour,

the Nasdaq comp was about one percent lower. The small caps are also making a nice move higher, up six tenths of one percent. Treasury yields a bit higher as well, still well below that three percent level. As we go into the close, Nasdaq down four tenths, S&P up a tenth. That's it for me. I'm closing now.