Closing Bell - Closing Bell 7/21/23

Episode Date: July 21, 2023

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

All right, Seema, thanks. Welcome to Closing Bell. I'm Scott Wapner from Post 9 right here at the New York Stock Exchange on this Friday. We do have an important interview coming up in just a little bit. Mustafa Suleiman, a leader in artificial intelligence, the founder of Inflection AI. He joins us fresh after meeting with the president at the White House today. He was in the room. We'll find out what was said. In the meantime, this make or break hour begins with a critical moment for the rally. The busiest week of earnings looming along with the Fed meeting and more. This as the Dow goes for its 10th straight day of gains. That's the longest streak since 2017. Health care, the strongest

sector this week, followed by financials and energy. NASDAQ taking a breather ahead of those numbers from Microsoft Meta and Alphabet next week. There you go. We're in the red for most. Alphabet is inching out in the green today. Takes us to our talk of the tape. Are we ready to rally further or poised to pull back? Let's ask Avery Sheffield, co-founder and CIO of Vantage Rock, back with us at Post 9. Welcome back.

It's nice to see you. Great to be here. So we're at an interesting place in the rally, and we've got a really big week coming up. How do we look to you right now? Yes. So as a whole, I mean, the market looks vulnerable. You know, the bull bear sentiment is very much moved towards the bulls. Valuations at nearly around 30 times for the Nasdaq, 20 times for the S&P with interest rates, you know, at around 4 percent and and the Fed and the economy slowing,

but seeing signs that inflation might be reaccelerating. So I think it's pretty tricky and it's very stock specific. Why are we where we are then? How did we get here? How did we get here? Yes. Yes. So I think a lot of us have been asking this, right, because the Fed raised rates so so so rapidly shouldn't the Fed raise rates so rapidly. Shouldn't that have just slowed the economy and and kept the market down? But I think what what happened is that we had this infusion of about 400 billion dollars into the banking system in March. That bailed out the banks while people were taking money out of deposits, putting them into money market accounts. That, I think, was the foretell of money getting into the credit markets, bringing credit spreads down, which loosened financial conditions. The market saw this and said, oh, if credit spreads are down, multiples should go up.

At the same time, the Fed was having an impact on slowing inflation, right? We've been seeing decelerating inflation almost everywhere in the economy. And so the market also saw that and said, oh, Fed rate cuts ahead. I mean, they're still priced in, you know, for beginning early next year. And so they thought, well, the multiples can go up. The issue is that the market itself has a reflexive feedback loop and the market going up actually starts to loosen financial conditions along with credit spreads, which, you know, I think puts us in a tricky place. But I think that's how we got to where we are today. Maybe we were just miscalculating all along how strong we were going in. Thus, we're going to be better off on on the way out. And

that's why we are where we are. I think that is part of it as well. Absolutely. I mean, we've gone into this tightening cycle with a tighter economy than we've had historically, than I think we've had really probably ever historically, right? The labor market is so exceptionally tight. Goods like autos were at production lows, right? Housing inventory is very low. The housing market tight now because of higher interest rates as well. But we've gone into this from such a tight place, the labor market, again, so tight that it actually, you need a lot to upset that. And instead, we actually got an infusion of capital. Well, then why isn't that good enough to justify

where we are? I mean, when I asked you that, you said exactly as if, you know, kind of throwing cold water on this idea that it's not justified that we are where we are. Well, so I think the issue is that a lot of the ebullience in the market has actually gone to companies that are, you know, fundamentally are nowhere near justifying their valuation. Are you talking like MegaCapTech? Certainly MegaCapTech is part of that. You don't think they're in any way justifying their valuations? All right, let's go. I always say there are certain MegaCapTech companies that I think could justify their valuations. There are others that are probably quite stretched.

And actually, even outside of MegaCapTech, I think the valuations are worse. You get into areas like enterprise software, other growthy companies valued anywhere from $10 billion to $100 billion. Valuations are very high. So what you've had this year is just massive multiple expansion without the earnings growth justified in most cases. Yeah, I know. But don't you, in the kind of names we're talking about, because of what's happening with AI and the narrative around that, you're willing to pay higher multiples because you're betting on the growth that we think is going to develop. You think we've put too many chips into the center of the table on some of these names and it's just not going to come to fruition in the way that we think? I do think so.

Look, and I've said this before, I think Microsoft could potentially grow into its valuation. I've said that. Certainly, NVIDIA at this point, if the demand continues, it will grow into its valuation. It's only 50-something times, I think, NVIDIA is. It's cheaper now than it was before. It had this massive earnings bump. Yes.

Look, NVIDIA could grow into its valuation. Also, we know that there's been significant front-loading of demand, so we'll see how long that continues. So I think it could be tricky, but could they get another couple quarters of very strong growth? Yes, maybe it's longer, but I think that it's a harder call here just because we don't know what the end state of demand is going to be because the NVIDIA chips are used for training models. Once you train a model, you can actually reuse those chips for the next model. And we don't know how much pull forward there's been. I'm not making a bear call on the stock

right now. And actually, the companies I would pick on the most would be non-profitable growth companies or companies that are only profitable on stock options that are trading at very high valuations that actually are not showing the kind of growth, the earnings growth that would justify them. So some would say what happened in Netflix and Tesla show that these names are priced for perfection. Yes. And that any sort of slip up shows you what happens on the backside. It's an 8 percent decline on earnings for Netflix and a 10 plus percent decline for

Tesla. So next week, as we look forward to the Microsofts and Metas and Alphabets, you think that's a risk? So with those three names, I'm actually not sure how much of a risk there is, to be honest. So because, I mean, Microsoft's a very expensive stock, but it does look like they have a lot of momentum in the business. So the third one is it 33, 34 times? Yes, yes. I mean, so there's a lot of momentum in the business and So the near term is it 33, 34 times? Yes, yes. But I mean, so there's a lot of momentum in the business and there's reasons why they, again, that valuation could be reasonable over time. In the case of the other two names, like they're not that expensive,

right? They're only marginally more expensive than the market with very dominant franchises. And it looks like advertising spending is, you know, is holding in there. And people are migrating to the platforms of technological advancements. So those aren't actually the major stocks that I would be picking on. I don't think that's not the reason why the market seems so overvalued. All right. Let's bring in Ayako Yoshioka of Wealth Enhancement Group. Aya, welcome back. It's nice to see you. Do you feel like these stocks are as vulnerable as Avery does?

Nice to see you again, Scott. You know, I agree with Avery in that, you know, the names such as Microsoft can outperform or, you know, in the short term, the sentiment might be a little, you know, overhyped with the AI story around Microsoft. But I think in the long term, Microsoft, as Avery said, will grow into its valuation and they still have growth from Azure and the cloud. So we think Microsoft can continue to do well over the long term. But let's assume that, you know, you know, there are people who do believe that these stocks are vulnerable. They may have a pullback, you know, got the rebalance on the Nasdaq coming after today as well. And maybe that's an issue, too. So if not tech, what? What's the next best place to be as some of the more lagging sectors of the year look like they're coming to life?

Sure. No, I think that, you know, the Dow has definitely done well this week, you know, up almost 2 percent, whereas the S&P was up just a little bit for the week. And so, you know, up almost 2 percent, whereas the S&P was up just a little bit for the week. And so, you know, we like areas such as health care. I mean, we've seen it today in the movement in health care stocks. UnitedHealthcare has been leading the charge on the Dow. And, you know, the stock pulled back a little bit beginning of the year, just talking about overall costs. But I think UnitedHealthcare could be a winner over the long term. Yeah, we've had some healthcare names this week as that sector has certainly been one of the best performing. I'll ask you, Avery, the same question, right? If not

tech, what? Yes. So, I mean, we like financials here a lot. And, you know, the big money center banks, I think, are actually a pretty safe place to be. I mean, J.P. Morgan is one name that we like in particular. I know it's very much a consensus long, but it trades about 10 times earnings for the dominant, like most conservatively managed actually franchise within the banking industry, you know, world class CEO. So I think that when you just where's a place you can sleep well at night and and there. And if the economy slows like they've proven in times of disruption, they actually gain share. So for 10 times earnings to have a dominant franchise that I think has the benefits of scale and credibility to give them a lower cost of capital and the ability to potentially win if anyone else goes under in the future is a pretty good place to be. You know, another place we do like certain areas with energy, like offshore drilling, I think is pretty interesting.

And the reason for that, of course, is that first from an oil price perspective, I mean, gosh, I shouldn't know what to predict the price of oil, but it has been very interesting to see that with China still weak, with Russian production coming on, that the price of oil hasn't fallen further. And I think that's in part because the Permian, you know, is slowing in production. You're also slowing production, even the OPEC countries. And so, you know, oil companies are really looking for where they can grow production longer term. And we're seeing that the day rates on offshore oil rigs are increasing quite substantially, as came clear through rigs contracting this week. I'm looking at I'm looking at energy year to date. It's the

worst sector. It's down four percent on the year. The only other sector that's negative utilities, everything else is green, even health care, which is a smidge higher. Do we think there's going to be any sort of catch up trade in areas that have dramatically lagged? Yeah, I think, you know, energy was the best performing sector last year. And so, you know, I'm not surprised to see it give back some of that simply because, you know, we had the same thing with tech. Tech was the worst performer last year and now it's the best performer this year. I think over the long term, I think there's been not as much capital spend on the whole energy complex. And so I think that's going to continue in order to, as we go through this greening transition over a very long period of time,

it is not going to be overnight. And capital will need to be spent in order to continue to drill for new wells and new discoveries of oil. And so I agree that over the long term, perhaps it'll be a little bit lumpy, but we think that energy could do well going into next year. Let's bring it full circle back to where we started, thinking about big tech next week, because Aya, you guys own Microsoft, Alphabet, Amazon. You own Apple too, of course, not reporting next week.

But nonetheless, are you concerned, as I discussed with Avery, this price to perfection idea that what we saw with Netflix and Tesla, it's not going to take much to drive these stocks even a little bit lower, just given how incredibly well they've done? Sure. And then, you know, in combination with the special rebalance of the Nasdaq, you know, I think in the near term, you could easily have a little bit of a pullback in any of these names. However, over the long term, as we mentioned, you know, Microsoft, Amazon, you know, a lot of these names have long-term growth prospects to them. And, you know, Google has been one that's sort of been thrown out as the loser within the AI space. And we actually think that, you know, it's relatively cheap compared to some of the other ones.

It's only trading at 20 times and it's getting dinged because of the ad spend and the slowdown in the overall advertising industry. But we think that, you know, if they continue to do what they did at their investor day and showcase their strengths within AI, you know, that stock could do well in the long term as well. We're going to leave it there. Ladies, thank you so much. Aya, we'll talk to you soon. Avery,

it's nice to see you again. Good weekends to both of you. Let's get our Twitter question of the day now. Which earnings report next week are you most closely watching? Is it Microsoft, Alphabet, Meta or McDonald's? Head to at CNBC Closing Bell on Twitter to vote. The results coming up a little later on in the hour. In the meantime, a check on some top stocks to watch as we head towards the close. Christina Partsenevelos, of course, is here with that. Christina. Hi, Scott. Well, shares of CSX are under pressure today as the railroad giant's revenues come in a little lower than expected.

The company citing soft intermodal volumes and a slowdown in imports. The railroads have also been working through worker shortages and supply chain disruptions, and that's why shares are down about 3.5%. Elsewhere in transports, Mattson is having a great day. The container ship giant issuing preliminary Q2 results that are well above estimates. The company says it expects its China service to be nearly full during its peak season. Shares hitting their highest level in a year today, currently up almost 9 percent. Happy Friday, Scott. I'm out of here. All right, Christina, you have a good one. Christina Parson, Nevelos. We're just getting started. Straight ahead, the latest AI summit just wrapping up at the White House. Executives from a number of leading companies in that space were there today.

We'll talk to one of them, Inflection AI CEO and co-founder Mustafa Suleiman. He'll join us with his takeaways as the industry draws more attention from lawmakers and investors. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. We're back. Leaders in artificial intelligence just wrapping up a key meeting on AI safety with the Biden administration. Among those committing to secure their platforms were Microsoft, Alphabet, OpenAI, and our next guest, Mustafa Suleiman. He's the co-founder and CEO of Inflection AI, also co-founded DeepMind, which was sold to Google back in 2014. His book, The Coming Wave, out in September, joins us now from the White House lawn. Nice to see you again. Thanks for being with us. Great to see you again. Thanks for being with us.

Great to see you, Scott. Good to see you. Yeah. What's your sense on how this went today? It's been a really good meeting, actually. I mean, this is the second meeting we've had in three months. And this time around, President Biden laid out a set of initiatives that we've all signed up to. One of those is red teaming our models. That means adversarially testing them, putting them under maximum pressure,

just like people do in the security industry to find bugs. And then when we learn about how those models have found weaknesses, we share them with, you know, otherwise our competitors. And that's actually really great for safety and trying to improve how this new wave of AI turns out. Nothing today though comes as binding. So what's your sense on to, you know, what was talked about today will actually be followed through on? Right. Well,

we've committed publicly now to having external audits and sharing the lessons of those audits with everybody else. And so at the moment, obviously, that isn't a binding regulation, but it's a serious commitment that we're really committed to. And all of the seven biggest AI companies that are building very large language models have signed up to this together. So I think it's an important step forward. But you're right. I mean, it's just the beginning. The Commerce Secretary was on the network earlier today.

She called this meeting today, quote, a bridge to regulation that will ultimately come out of Congress. You yourself just mentioned regulation that may come out of Congress. You yourself just mentioned regulation that may come out of it. What do you think that's going to look like and what role do you think Congress should play here? That's right. So we met with the president today and he said exactly the same thing. I mean, this is a step towards regulation and regulation is going to be required if we're to provide more access to the way that we train these models. What is the data that sits inside of them?

How big are they and what are their capabilities? And so those are the kinds of things that I would expect to see in regulation over the coming year or so. We've obviously been really trying to emphasize that it's important that we enable innovation and creativity to go as fast as possible here. And I think everybody is aware of that. The Commerce Secretary Gina was there today, too, and she stressed that to everybody at the same time. We keep focusing on what's happening here in the United States, but I'm wondering how you think our viewers, investors and the like

should be thinking about this, what essentially is a global race for this new technology and as other companies, countries look to develop their own models, how are you thinking about the risks associated with that? You're totally right. I mean, the great news is that we are a long way ahead in the US and in the West more generally. But obviously that lead won't last forever. Everybody else is also trying to build cutting edge AI models.

And I think the good news is we have the opportunity to set standards and try to define culture. What does it look like to get the best out of these models, really make them deliver value for us, and turbo boost productivity, which is obviously what we all really want. But at the same time, how do we put guardrails around it? How do we create transparency? How do we make sure that they always operate within the boundaries that we set for them as humans? And I think if we get that right over the next 18 months or so, that will set the standard for the way that the rest of the world generally has to abide by. Do you think the global nature of this brings with it increased security risks, whether

it's around cyber or it's just simple intelligence? Yeah, absolutely. I mean, the cyber risk is going to be elevated over the coming years. risks, whether it's around cyber or it's just simple intelligence? Yeah, absolutely. I mean, the cyber risk is going to be elevated over the coming years. There's going to be nation states and other actors that will try to hack at companies that have access to these models and try and steal the weights, the underlying core piece of software that is actually relatively transferable. And so, you know, the cyber risk here is pretty significant. It's something we're going to have to pay a lot of attention to. Maybe not something as, you know, a matter of national security, obviously, like the ones we're talking about now.

But I'm interested in your take on what's happening from a copyright standpoint. In the lawsuit that was filed by the comedian Sarah Silverman against OpenAI and Meta on that very issue, how should we be thinking about what is the property, essentially, the intellectual property of others being stolen? I completely understand the concern. A lot of people have raised that there. And I think there's two camps here. There's data that's made available on the public open web

that has been crawled and searched, like, you know, a blog post that you post and so on. And then there's other data which is, you know, a blog post that you post and so on. And then there's other data which is, you know, subject to paywall or maybe it's in, you know, a kind of another form like a book or so on. You know, that's obviously in different class here. So I think that we're going to shake this out over the next few years and it's going to pass its way through our institutions and culture and we'll figure out what the right kind of norms are eventually. We've been so focused, too, on the companies that are in the lead or trying to be in the lead. Those who have or at least have been said to have fallen behind. I think of Alphabet. We mentioned Google obviously buying DeepMind some years ago.

The word on the street today is that Sergey Brin is back at Alphabet in the trenches, so to speak. You're smiling. What's your what's take, and what does that mean to you? I've heard that, too. Obviously, I've still got lots of friends there, and it sounds like Sergey is certainly turning up to the office, reviewing code and sitting on hiring committees again. To be quite honest with you, I think that's great news for Google. Sergey's awesome, and so they probably need all the help they can get at the moment. And I'm sure he's having a hugely beneficial impact on their progress.

When you say that they could probably use all the help they can get in the moment, do you think this is a clear sign that the company feels like, or at least the founding members of that company feel like it's lost its edge in that regard? I mean, look, there's no question about it. Google hasn't been, you know, existentially challenged probably ever in the history of its business. It's 20 years old now. And I think the last six months have shown it,

you know, shown that there's potentially another path for new startups like my own, Inflection AI, building Pi, our personal intelligence, you know, to really take on the big guys and see if we can introduce, you know know a personal AI to the market that people love and so you know Google's certainly pivoting on a dime to try and respond to that competitive pressure we're gonna leave it there but I know that this conversation will continue and I do appreciate you continuing the dialogue

with us here on closing Bell mustafa you be well great to see you again Scott take care you too mustafa Suleiman, joining us, as you see, at the White House today, fresh off that meeting with the president. Coming up next hour, Nick Clegg of Meta. He was also in today's meeting. He's going to be live on Overtime. And don't miss that key interview as well. Coming up next, the man behind T. Rose Technology Fund shares his strategy for the second half of the year for that sector. Earnings season, of course, about to get way underway. We'll find out how he's managing the AI mania, his top tech ideas as well. The space is up more than 40 percent this year. Bozy Bell, right back.

Welcome back. Tech stabilizing today after yesterday's sell-off. Microsoft, Alphabet, Meta, Intel as well, all set to report next week. My next guest remains bullish on the sector he names Microsoft as one of the key reports he's watching. Let's bring in Dom Rizzo of T. Rowe Price. Welcome back to Closing Bell. Good to see you. Hey, Scott. Good to see you again.

All right. So it's a pivotal week, obviously, right? Master the obvious. But it comes also as this sector looks, I don't know, I'm not going to say wobbly, but yesterday was kind of ugly. Are we primed for a pullback or is this just a momentary blip? Well, let's look at the numbers, Scott. If you look at the global technology index, that's up roughly 40 percent year to date. Semiconductors are up 45%. Software is up 40%. So yeah, it wouldn't surprise me at all if we saw a bull market consolidation over the next three to six months or so. But when we look out 18 months, which we're always trying to optimize for in our strategy,

we still like this place. We still see fundamentals inflecting positively. We still have relatively reasonable valuations. I mean, OK, let's go there then, since you just I was going to say something else, but since you just relatively reasonable valuations. Well, what does that mean? Because you have people who look at these valuations of, let's just say, the big five or you can even throw a couple more in there. And the multiples have expanded dramatically since the beginning of the year. How do you justify it? Well, it's certainly a harder setup than last time we were on, right? Last time I was on the Global Technology Index had a forward 2 PE of roughly 21 times earnings.

Now it's roughly 24 times earnings. But you got to keep it in perspective too, right? Historically, that peaks at roughly 27 to 28 times earnings. So it's definitely a harder setup from here. You have to be smart about what you're investing in. But we're still in the range of reasonableness. You know, Sebastian Page, our head of multi-asset, had a great piece on LinkedIn about this. It really depends on how the AI boom is going to play out.

You know, if the AI boom plays out anything like the internet boom and you look at valuations relative to then, it actually still looks a lot like 1998 rather than the year 2000. So yes, you got to be cautious, you got to be smart. And we could see a bull market consolidation here in the next three to six months. But over the next 18 months, we still feel relatively positive. Who do you think is most, and I've used this terminology already, priced for perfection? What some suggest that Netflix and Tesla were, and that's the reason why, you know, even the earnings were horrible or anything like that. But the stock suffered, you know, somewhat significantly, at least for a day or so. Who in your ownership group do you think is now most priced for perfection that you would worry could have a pullback?

Well, you know, again, like I said, a lot of different stocks may pull back in the relatively short term, but we still feel good on the medium to the long term. Netflix and Tesla are great examples, right? So Netflix actually had very positive fundamentals in the report. I think the trend on password crackdowns is going quite well. And I think that the advertising tier is starting to see some positive inflecting data points. Now, the question is, are we going to get more ads in the next quarter than we did this quarter? Who knows? That remains to be seen. On Tesla, on the other hand, you actually saw some really positives in that

fundamental report as well. Cost per unit is going down very nicely. And of course, if we get a full self-driving OEM adoption, that would be very positive for the stock. So that's why we saw those two stocks pull back a little bit. I'm thinking of a couple of others I'm looking at in terms of what I have as your top holdings and maybe not full-fledged warnings, so to speak, on where we are, but ringing the bell at least to say, hey, you know, you've got to pay attention here. Warnings this week from Taiwan Semi, right? You got that. SAP, when what they did yesterday in terms of their earnings and their guide dragged down the cloud software space, you have ServiceNow as well. So how are you thinking about those if we get away from the

mega caps for a moment? Yeah, I think TSMC is a perfect example, Scott, about how this AI battle is going to play out, right? So let's look at TSMC's numbers. TSMC said, guided that their revenue would be down 10% year over year. That's okay. But if we look at AI itself, the AI business, which is roughly 6% of their revenue, is growing at a 50% CAGR over the next five years. It's not often that you see that fast of a CAGR. And when you have that small percentage of your business growing that quick, it doesn't take that long to see those fundamentals really play out in the long run. If we look at TSMC, TSMC is only trading at 15 times fiscal two earnings and fundamentals should probably bottom here in Q3. And then from there, we're going to see a fundamental improvement as

inventories normalize across the semiconductor space. We'll leave it there. Don Rizzo, T-Row, thank you. Talk to you soon. Thanks. Up next, staying in the cautious camp, the playbook from one of the top-rated private wealth teams in the country, Morgan Stanley's Chris Toomey on how he's positioning his high net worth clients right now. Stocks are near 52-week highs. He'll be here next at Post 9 to Welcome back to Closing Bell. Dow's win streak. Well, it's at risk. Gains are fading in the final hour. We're going for 10 in a row.

We're still green. So we'll see what happens over the final 20 or so minutes. Our next guest says it is prudent to stay cautious. Chris Toomey, Managing Director at Morgan Stanley Private Wealth, joins me now. Welcome back. Thanks for having me. See, I got to tell you, I was wondering. I was like, OK, Toomey's going to show up. He's going to say I've turned. Now I'm bullish. I thought you were going to say it's been a while since I've been

here and the market's going up. And now that I'm here, it's going to start going down again. Been a while since you've been positive on the market. Yeah. Why aren't you? Why aren't you now? I mean, look, I think it's a question of a Wall Street adage. Were we early or are we wrong? And either way, we're wrong right now. The market's gone up dramatically. But I think if you look at earnings year over year, they're down about four and a half percent and the market's up over 16 percent. So what did we get wrong? Right. So we got a little bit of a China bump when China reopened. We got a big bump with regards to the fiscal stimulus that we weren't anticipating with chips and the Inflation Act. And then I think the big issue that's really kind of prolonged this is what Avery was talking about when she first came on here,

which is when the regionals really got in trouble, the Fed stepped in and provided a tremendous amount of liquidity. So that stabilized the market. But in reality, if you remember correctly, our expectations for GDP were basically flat. They've only moved up about 1%, right? And our expectations for earnings are significantly down and earnings have been down. We're in an earnings recession. Yeah, but they're not down nearly as much as some thought. That's another reason as to why we are where we are. The things you list are big things to quote unquote get wrong. They're also potentially big enough things to get you to change your view because, you know, when you start talking about well well, Fed injecting liquidity, I think we know the power of all of that. Earnings hanging in there better than we thought.

The economy still a little better than I think a lot of people thought, along with the consumer and the Fed near done. But I mean, let's not get caught up in like the Wall Street game of putting these low bars with regards to different company earnings or S&P earnings. They keep coming down, right? They started at 29, 2229. They're now at $2.22. They're ratcheting them down. And remember, one of the big keys for 2023 earnings was the fact that the Fed was going to break the system in the first half, and then we were going to get two Fed rate cuts in the second half. And instead, we're going to expect a rate hike next month, next week. Next week.

And there's a potential for another one. All right. And the Fed is also now saying there's a 70% chance that we're in a recession in the next 12 months. Well, that's the Fed staff. That's the Fed staff, which even the Fed chair himself, it's not like they're going out and saying we wholeheartedly agree. They've kind of distanced themselves in some respects from what their staff thinks. And that's a, you know, a few hundred economists. I totally get it. But I don't know. The economy appears to be in much better shape than many thought it would be at this moment. It's in better shape,

but it's not in great shape. Right. We're not in a situation where if you look at the P.E. multiple on the S&P 500, which is north of 20, right? And we've seen in the NASDAQ it getting north of 30 in an environment where we've been constantly raising rates, right? And the economy is slowing and we're in an earnings recession that you'd see earnings or P.E. ratios going up 15. Remember, equity risk premiums almost at an all time low. Right. So you're not really getting paid enough to take the risk that you're taking in the equity market right now. Next year's earnings, though, are like 245. So as you suggested, I know and they're coming scoffing at that and they're coming down. Right. It's a question of playing catch up right now.

Right. And so you're seeing it on the strategist side. Right. So all the strategists that came in really bearish at the beginning of the year, your house are all ratcheting it up. He's not. He's not. Right. Because he's looking at the facts when the facts change. My opinion will change. And the facts look the same as to what we're saying. Yes, economic activity isn't as bad as we thought, but it's not good. Right. So in our mind, you've seen prices go dramatically higher that aren't justified. So what would make us go into your camp, right? What is going to make us switch? So let's look at earnings. It's not my camp. It's just the factual. The fact of the matter is, is the market's at a great first half. If you look at Bloomberg, right, 18 of 20

strategists have an equity return assumption that's below where we are right now. So there's still a lot of people that are raising their estimates, but they're still below, right? So what are we going to see? We've got, to your point, earnings priced for perfection, okay? So if you look at top line, do we think companies are going to be raising prices in this environment? Probably not. Earnings aren't necessarily priced for perfection everywhere. That's true. They may be priced in seven stocks for perfection.

You know, I think in general you could make that argument that those seven stocks are probably too expensive. I could make the argument that the economy is going to see some real issues with regards to the consumer as well as credit, right? So we just saw an article in Bloomberg this week about $500 billion worth of distressed debt that's sitting out there that was financed at 5%, that's going to have to get refinanced at 10%. So what is that going to do to the market? We've got the Fed back on QT, and we've got a situation where the consumer savings rate is at all-time lows and consumer credit debt is at all-time highs. So to your point, two-thirds of the economy is the consumer. We're a little concerned about the consumer. And don't forget about student loans, right? In October, that's going to be pulling money out of the system as well. I mean, I keep hearing the same concerns from a lot of people,

obviously, people who are cautious, and yet the market just keeps going up, right? The trend is kind of undeniable. Sentiment is definitely, and perception is definitely going higher. Fundamentals have stayed the same or gotten worse, right? The two most important parts of that sentiment trade was going to be those Fed rate cuts that we're not getting. You said, and I didn't let you finish, and my apologies, but I want you to finish. When you said what makes us bullish is what? What turns you? Right. So we obviously have to get wrong on earnings, right? We either have to see top line do better, which means either prices go up or we see more volume or margins expand. And we don't think either of those things

are going to happen. So I think what you're going to have to see is you're going to have to see prices come down. You're going to have to see something happen that is going to give us that price for perfection desire to be actually putting money into the market. So look, we're still cautious. We've got our hedges on. We're also hedging our hedge, if you can say that, by looking at if you want to add equity exposure, doing it on equal weight. So if we're wrong, the market goes and we get to kind of narrow that gap between the two. But I mean, look, Scott, there's so much other opportunity out there besides the equity market, right? So treasuries, corporates giving you 5% to 6%. That's nothing to get too upset about. And then you've got in the private credit world, you're getting 10 to 15 percent. You've got an equity like return at the top of the capital stack. So in our minds,

you don't necessarily need to be in equities right now to get a good return for your clients. All right. We'll make that the last word. I appreciate it as always. That's Chris Toomey, Morgan Stanley, Private Wealth. Last chance to weigh in on our Twitter question. We asked, which earnings report next week are you most closely watching? Is it Microsoft, Alphabet, Meta, or outside of tech, maybe McDonald's? Head to at CNBC Closing Bell on Twitter. The results are right after this break. We're back in a quick news alert.

We have the Wall Street Journal reporting Spotify is planning to raise the price for its premium subscription by a dollar. The ad-free plan would rise to $10.99 in the U.S., with other key regions likely to follow in the months ahead. Of the company's 515 million monthly active users, just over 200 million are on the premium tier, according to the company's latest earnings report. Let's get the results now of our Twitter question. We asked which earnings report are you most closely watching next week. Microsoft, the winner, near 45% of the vote, followed by Meta and then Alphabet and then McDonald's. At the bottom coming

up new cnbc reporting on disney's search for a strategic partner free spn our alex sherman breaking that story today joins us next with the details as well sending the shares higher by about one percent late in the Closing Bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of the trading day. Plus, Alex Sherman has a scoop. It's about ESPN. That is moving Disney stock. Kate Rooney on American Express earnings and what they could mean for the consumer.

Mike, we're going to battle it to the end to see if we get 10 in a row for the Dow. We will. And, you know, I don't know that the stakes are that high about it, except it is underscoring the fact that dull grinding markets that go that inch higher tend to be a bullish setup. And even though we're getting a little bit extended, something's going to come along to cause a little bit of disturbance. I don't really see it being the consequential top of any sort, at least not right now, at least not what the market is telling you. You know, I do think there's a chance we get blinded by the year-to-date numbers.

You know, NASDAQ 100 up 40-plus percent. It's flat over basically two years. We're basically taking back most of last year's decline. It doesn't mean it's not up a lot. It means it's not necessarily in uncharted territory. Yeah. Let's turn it to Alex Sherman because I'm looking at Walt Disney shares as we edge towards the close here, which are getting a bump by more than 1% on your scoop, which is?

The scoop is that Disney has held talks with the NFL, the NBA, and Major League Baseball in terms of becoming a strategic partner in ESPN. This kind of dates back to last week when Bob Iger spoke to our David Faber and mentioned that he had had sort of preliminary discussions about a strategic partner for ESPN. The speculation at the time was that maybe he was referring to a big tech company or another media company. But I'm reporting today that those discussions really have actually been with the leagues themselves, which makes some sense in that the quote that Bob Iger used to describe why he wanted this was he was looking for a partner to bring either distribution or

content. Well, who owns the content? The leagues own the content. So that makes the most sense as a content partner. Sure, but it also raises all sorts of issues that I'm thinking about, not least of which would be how do you, as a news organization still, objectively cover leagues that are now invested in you? Yeah, I'll give you several things that are sticky and problematic about this. That's one, right? ESPN would somehow have to put guardrails around their own ownership to make sure that there was still some, you know, objective reporting

going on. I suppose the flip side of that argument is that ESPN is already reliant on these leagues for their business. So that objectivity would be pressed even further with minority shareholders, no question. Other reasons that, look, the leagues would risk irritating their other media partners, you would think. If they were to go into a joint venture with ESPN, there would be all sorts of concerns about preferential treatment toward ESPN. There may even be regulatory concerns around such a deal. So I think there's a lot of stickiness and complexity to this. That's not to say that it's impossible, but I do think that we're in the early stages of things and both

the leagues and ESPN are kind of feeling each other out and trying to figure out some pathway forward where both of them can make the most money as they can in a streaming direct-to-consumer dominated world and not the old traditional model, which worked great for all parties. Yeah, Mike Santoli's here as well. I mean, there's been a somewhat of a sense of desperation around Disney. Iger's planned to turn it around. He's now, as we know from what he told David, he's staying for a couple years longer. And the stock just cannot get out of its way.

It's just a few bucks off a 52-week low. Yeah, and arguably the biggest reason for that is the fact that ESPN and the rest of the linear cable networks are so tethered to declining subscriber bases. Everyone acknowledges, Disney included, there has to be some other solution. So, you know, a subscription-based direct-to-consumer, whatever it might be. What I'm interested in, actually, Alex, is this only seems to also make sense for a Disney if it somehow gives them capital or saves them money on the money they pay the leagues for the rights to broadcast the games. Yeah, look, first of all, there may be a capital injection here if the leagues themselves take a stake in the league. But you're right that you have to wonder if part of this is, look, maybe in terms of an equity deal, we can get sort of a discount on the rights and back. Look, it's not just the rights to the games. It's also all of the, as Bob Iger put it,

shoulder programming that ESPN gets from the various leagues. So maybe there's some sort of deduction on highlight costs and other sort of perks to this deal in order to make sense for ESPN. Really, though, I must say, I think it kind of makes more sense for Disney than it does for the leagues themselves. That's kind of what I'm interested in. Why are the leagues really thinking about doing this with all of the risks involved? Maybe we'll get an answer and they'll speak publicly to this in the days and weeks to come. Well, thank you very much, by the way, and great scoop. It really comes at an interesting time because of this conference that we are having next week in which ESPN's Jimmy Pataro is going to be a panelist at. It's July 25th out in Los Angeles. You can join me and CNBC

in boardroom for Game Plan, a high-powered event bringing in the most influential leaders across the sports landscape. Scan the QR code on the screen. You can visit cnbcevents.com slash gameplan. We have a lot of interesting discussions there, ownership, TV executives, et cetera, really on the back of what is an interesting scoop from Alex as you just caught there.

Thank you for that. The bar high for American Express. Kate, as I'm looking at this, the stock's down near 4 percent. And it's, you know, it's going to be a fight for the Dow to hold positive to the end. Yeah, Scott, that really is the story for Amex. The bar was extremely high heading into this print. It's our record card spending in the second quarter. but growth slowed a little bit and there was some disappointment around guidance as well. So build business, that's essentially payments volume, still grew at about 8 percent. It wasn't quite the 16 percent growth that Amex had seen in the first quarter. It also didn't raise guidance. That was interpreted by some as caution going forward. CFO Jeff Campbell,

though, said not to read into that stable guidance. He said Amex tends to only give annual guidance. They only change it if something is wildly different, say the pandemic, for example. He also reminded us that Berkshire Hathaway owns about 20 percent of Amex. He underlined that Warren Buffett doesn't like the fact that companies give any guidance at all. It was also a pretty rosy snapshot of a high-end consumer. He says the premium consumer that Amex tends to cater to is very strong, continues to be very strong. He pointed to travel and entertainment strength. And then

delinquencies finally were flat for Amex. So good news there for them. Yeah, thank you very much for that. That's Kate Rooney. All right, for all the marbles next week, Mike? Yeah, it looks like it's going to be. I mean, there's going to be plenty of inputs. And I do think things like Amex, feeling like they're not that confident in terms of raising guidance, maybe some top-line softness. We'll see if people think we have basically the same economy we had six months ago with the market up big and the Dow just about flat.

Yeah, it's settling out. So maybe we'll get 10, maybe we won't. Have a great weekend. We'll see you on the other side, Morgan and Don. I'm going to send it over to them in overtime.