Closing Bell - Closing Bell: Apple Falls on Antitrust Lawsuit 3/21/24

Episode Date: March 21, 2024

Is this long-rumored antitrust threat to Apple the real thing? How might it change the equation more broadly for tech’s market leadership? CNBC Tech Correspondent Steve Kovach and Apple shareholder Joe Terranova break down the details and what this could mean for the stock in the long term. Plus, while everyone is talking about Apple – Evercore’s Mark Mahaney says there’s another big tech name that could be caught in the DOJ crosshairs. And, top retail portfolio manager Kevin McCarthy tells us what he is looking for from Nike’s report in Overtime. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with Apple acting as the biggest drag in an otherwise broad Fed follow-through rally. Apple shares off about 4%, tracking for their worst day in almost eight months after the Justice Department sued the company for allegedly stifling competition and consumer choice in its iPhone ecosystem. You see it down more than 4%. S&P 500, meantime, up a little more than a third of 1%. Actually, not far from its lows for the day. It had been up closer to two-thirds of 1% a bit ago. Led by AI chip leaders Broadcom and NVIDIA, the AI winners,

and a raft of consumer and financial names celebrating that dovish Jay Powell press conference yesterday and a potential soft landing. But the index would be a quarter percent higher still if not for that drag from Apple. Which takes us to our talk of the tape. Is this long-rumored antitrust threat to Apple the real thing? And how might it change the equation more broadly for tech's market leadership? Our tech correspondent Steve Kovach and Apple shareholder Joe Terranova are here to discuss real thing? And how might it change the equation more broadly for tech's market leadership? Our tech correspondent Steve Kovach and Apple shareholder Joe Terranova are here to discuss

that. Let's first turn to Steve for the details of the case. And Steve, it's a pretty broad one. Yeah, and I think that's why we're seeing the reaction in the shares that we are seeing today, Mike, because, look, this covers just about everything Apple makes. There's, you know, talk about iMessage, Siri, Apple TV+, the advertising business in the App Store, on and on and on. They make a case, the DOJ does, and allegations it here, that just about everything Apple does is designed to keep people locked into the ecosystem and upgrading their iPhones and hindering competition, whether that's from other apps with competing services

or other hardware like accessories for the iPhone that can include Bluetooth headphones or other smartwatches that aren't the Apple Watch. So huge broad case. Apple, of course, is denying all the allegations and saying so much of the behavior that's described in this lawsuit is mostly done to keep the product as pristine as it can be, to keep users safe and secure, protect privacy, all those arguments that we keep talking. At the same time, though, there is also some evidence mentioned in here, and I'm sure we'll

get more whenever this eventually comes to trial, that shows that Apple privately, executives among themselves, were making these decisions in order to keep people locked into the ecosystem. iMessage is a perfect example. There's an Apple executive quoted here in an email from several years ago talking about how they don't want to put iMessage on Android, for example, because that would encourage people maybe to switch to a cheaper Android phone. So all of this to say they have to prove consumer harm in some way or harm against the app developers. That is the big barrier here. And Apple's going to fight it to the very end, Mike. Yeah. And Steve, how does the dispute with Epic Games about the App Store and

the terms under which you were able to have an app in the App Store and where the payments flowed through and all the rest of it, how does that bear on some of the allegations? Yeah, and actually that's something Apple points to because that case against Epic Games, the Supreme Court denied hearing it. So Apple largely won that case. There's one minor count that got ruled against them. But at the same time, they're pointing to that saying, look, this already went through the courts and decided that our model is okay. It is not an antitrust thing.

However, Google went through a similar case against Epic, and that was a jury trial, not a court trial, and Google lost that. So there's also that side of the equation too. But it's just going to be really interesting to see how they actually argue this in court, and also what evidence, what further evidence we're going to see that the DOJ has that backs up these allegations of anti-competitive behavior. Yeah, interesting. A little complicated, too. Joe, you know, sometimes the market shrugs off these things, even if it is an actual lawsuit from the Justice Department. In this case, 4 percent decline. You know, I would read a couple of things maybe into this.

One, a little bit of fragile psychology around Apple in the first place in terms of just exactly how much of a moat they have. They're in the right spot with AI, but also the services business is obviously 25 percent of revenue, but more than that in the in the valuation, most likely because it's the higher multiple piece. So it's broken momentum. We know that the momentum in Apple has been broken now for the better part of 2024. It's below all the critical moving averages. And in an odd way, this news presents an opportunity for you to find if there is really going to be technical strength in the 165, 168 area. 168 is somewhere around there is the low for the year in Apple, 165, six-month low. And you go back one year, it's 155 as well. So we'll test that's those support levels for sure. As long as we have NVIDIA and the ability for NVIDIA and meta to offset some of the weakness that we've seen in Tesla and Apple, I think ultimately we're an investor and you're hearing this news today and you're saying, OK, I'm going to move away from my Apple shares just on the merit of this lawsuit, you're making a tremendous mistake. And you're making a big mistake because understand that Apple and Alphabet are going to be the continued target from regulatory bodies.

You're going to continue to hear about a one billion dollar fine that's paid or a $2 billion fine that's paid ultimately. And at the end of the day, the ability for these regulatory bodies to prove that the consumer experience is not a good one for a consumer base that continues to grow, to be able to prove that from a pricing standpoint, that Apple's competitors are not raising prices as well that there hasn't been an impact from supply chain disruption or inflationary pressures and to believe that they can take the Apple product and make it something different skinny it down so where my hockey tickets my baseball tickets my car reservation my membership all of that is no longer aggregated

in the Apple wallet. It's an individual app. I just think it's completely false. Or what about, though, Joe? I mean, there could be business practice changes. Who knows if that's going to be the case. But, you know, if they either take a lower share of App Store revenue or if they permit, you know, the direct charging of in-app purchases, things like. In other words, you know, maybe that's not going to move the needle very much, but then it raises the question of why are we doing it this way? And I think Apple is prepared for that. I think they've indicated a willingness. They've done that in the case of the EU already. There's been a willingness on the part of Apple to be accommodative in that standpoint.

You know, back towards messaging and the third-party messaging app, WhatsApp is what it is today because of the iPhone. So I think Apple will be more than willing. And again, look, if you're selling the shares today based on the merit of these regulatory bodies who, quite candidly, can't keep pace with the technological merit of these regulatory bodies who quite candidly can't keep pace with the technological innovation of these companies. You're making a mistake. If you're telling me you're selling because of the broken momentum, the technical indicators that you began this conversation with, I can understand that. Yeah. Steve, is there anything in the kind of litany of allegations that that maybe was a little bit surprising we've known this type of

thing has been hovering over apple for a while in fact you know apple was conspicuous as being one of the big tech companies that didn't quite yet have a formal case here but is there any piece of this that seemed like that you know we weren't quite prepared for yeah and there's this uh big focus in the lawsuit mike about uh what they call super apps. And that's if you're familiar with WeChat, very popular in China, still available here. And this is the idea of an app that has many apps within it. For example, WeChat lets you book a car and and make payments and do all kinds of other stuff. And basically the allegations here saying Apple doesn't allow these apps when they kind of do. So that was an interesting thing. I will these apps when they kind of do. So that was an

interesting thing. I will also note that a lot of this, we got to talk about the AI of it all, because this is happening at the cusp of Apple about to announce whatever AI product it has. We're still at the very early stages of what AI is. And this lawsuit's all about the technology of today that may not even be around that much longer. The app store and all these things we're talking about may not matter as much as AI comes more into play. And then the question becomes, and this is something I'm going to be watching, I feel like a lot of people are going to be watching, as Apple works through this process and spends so much time and money and effort fighting this case, fighting the DOJ, do they miss out on developing AI and fall further behind, or at least how they

are perceived behind? We saw it with Microsoft. Microsoft largely blames its struggles with antitrust case, you know, 20 plus years ago with missing the mobile revolution. You know, something to watch out for is, does this make Apple miss the AI revolution? Yeah, it is interesting, too, that by the time that Microsoft case was resolved, the browser wars were over. It was basically and Google was around. So, yeah, it's a good point, Steve. Appreciate all the color. Thank you. Let's bring in Lauren Goodwin of New York Life Investments to talk about this this market and what we did or didn't learn from Powell yesterday, how it bears on the prospects for a soft landing and, you know, whether it's supportive of risk markets still?

Well, one thing's for sure. If you take what the Fed showed us yesterday at face value, that growth is going to improve, inflation won't be much worse, unemployment isn't going anywhere, and we'll still get three rate cuts this year, there is nothing not to like. That's risk assets all day. And to be honest with you, I expect that this rally can continue until the other shoe drops. And what I expect the other shoe will be out of this whole Fed dynamic is that the reason the Fed can continue with its plan to cut rates, even as inflation stays sticky, is because we are starting to see little cracks in the labor market. If that's not the case, then this balance doesn't work. If it is the case, then we are starting to see growth slow. So something's got to give here, but it's not giving right now. And until we see unemployment claims start to climb,

I think it's a full go signal. Although, you know, Powell explicitly said a stronger job market in itself would not be an impediment to RACA. It seems like they're determined to kind of trim a bit off the top of wherever Fed funds rate is right now, above 5 percent, unless something really conspicuous shows up in the way of an inflation flare up. That's right. I think the Fed is is very interested in cutting rates. And there's a clear reason for that. That is how they keep financial conditions, market financial conditions loose enough to move this economy through at least the rest of the year, right? That's the closest that they get to an immaculate soft-ish landing. What I'm seeing in the data, though, is that we are already seeing cracks in the labor market. Nothing existential so far, but we're seeing hours worked come down, small

business hiring intentions come in, temporary work come in. These are all signals that strong wage growth is eating at profit margins and typically the last sort of domino to fall before we see broader layoffs. So I think the Fed sees that, and it's why they feel pretty comfortable moving forward with this plan. Yeah, the Fed, is it the Kansas City Fed that has its own labor market indicator that has rolled over, you know, pretty conspicuously i would have to say i'm

not a lot of mention of that if any yesterday uh... in the in in the meeting joe market ad you know got a little bit of room for the open it rallied after uh... the press conference yes sir during it uh... you know you had the sort of we were gonna slow down the quantitative tightening soon but i guess we're starting from a pretty high base here. This rally has already, you know, gone up 10 percent on the S&P year to date.

Maybe it's just not as if you had a real springboard effect going into today. Yeah, I think you look at today and you dismiss the price action because it's largely attributable to what we witnessed with Apple. Today is a very positive reaction, in my opinion, and I agree with what Lauren's saying. And in addition to what Chairman Powell did, he also addressed the potential liquidity concerns surrounding the reverse repo program winding down. He got ahead of that. I think the market liked that. He's obviously, in his words, consistent with other global central banks, Swiss National Bank cutting rates, Bank of England, ECB, Canada, Australia, all ready to follow suit.

So the market today is performing well. We've got a tranquil environment. The range in the VIX year to date is slightly below 13 to slightly above 17. That's telling you something about the marketplace overall. Guess what? Financials are about to be the leading sector in terms of S&P sector performance year to date. Right behind it, energy, industrials performing really well. So technology is actually only the fifth best performing sector of the S&P 11 sector. that this is positive I think this is. As optimal a

asset allocation environment for investors as I could remember there's so many different places that you can go beyond the mag seven and just back to Apple for a second. It reintroduces the conversation about S. and P.

equal weight and I think that's a real yeah. Lauren, so for fresh money right now, yes, there's a lot of options. A lot of things seem to be moving in a positive direction. But you already have credit spreads really tight. You've had this big move in large caps. You have some broadening of the market. But if your concern is that there are cracks in the expansionary story, does that mean a rotation that the cyclicals make sense? So I wonder where you feel as if you'd kind of establish your hierarchy of better places to be here. Well, Joe's absolutely right. We're seeing an important broadening and actually all year we've seen a broadening in market activity. And so for investors that can be tactical,

I think it makes sense to take advantage of the uptick we've seen in value in small caps in this sort of more cyclical environment. But as I mentioned, I am concerned that the second we start to see unemployment claims start to rise, that you're in a riskier environment. And so the type of balance we're drawing in a multi-asset allocation is incremental money and take your equity-like risk in high yield. Spreads are almost certainly going to widen as economic risk rise but you've got a really interesting carry there and i expect actually that if the fed is likely to cut we think june if it's june july the fact of the matter is now is the time to be moving

from cash into short duration credit assets and because we don't love duration risk with an inverted yield curve, we like to balance that short duration credit with long duration municipals taking advantage of a structural theme and infrastructure. So like Joe said, there are so many interesting opportunities and actually a balance that investors can bring because you can get carry and yield in a fixed income side of the portfolio. Sure. So it can do its job within a portfolio. Yeah. By the way, I don't want the rate cut. I don't want the rate cut because the pause period and history will teach us this is the best return period for the S&P 500. You go back to 95, that period from February to July, the market gave you 19 percent. Go back to June of 06 through September of 07, you got 22%. Now look at December of 18 through the middle, I think it was August of 2019, you got 19%. So we've got 15% so far. We have a little bit more to come.

It's interesting because I've had a few people say to me the minute the Fed actually cuts rates, that might be the inflection point where you get a market correction. It seems both plausible and a little too cute. Right. Because 95, we kept barreling higher after the first cut. That's the best case scenario, as I keep saying. Lauren Jo, great to talk to you. Thanks very much. All right. Meantime, check out shares of Reddit. The stock making its market debut today. Julia Borsten is at The Post with all the details. Hey, Julia. Yeah, that's right. I'm here at The Post. The stock is now trading up at $50 a share. So it did briefly dip below its opening trading price of $47. But right now it's up 47% from its offering price of $34 a share. So the volume here has been

incredibly high. Nearly 41 million shares have traded. That's on an offering size of 22 million shares. So that's nearly double. So incredible volume here. I spoke to Reddit's designated market maker, Glenn Carroll. He told me that this was a picture perfect opening for an IPO with a ton of investor interest. Now, New Street Research just issued the first price target that we've seen on the stock at $54, saying that that does include a 5% discount due to overhang from the FTC inquiry into its data licensing practices. Newstreet saying it does believe Reddit should trade at a premium to small and mid-cap social media stocks due to its higher user growth rate and emerging opportunity to license data. Now, Reddit CEO Steve Huffman

telling me about the trading this afternoon that he feels immense gratitude and quote, while we celebrate today, it's just a day and tomorrow we get back to work. You see shares are now just over forty nine dollars a share. Back over to you. All right. Yeah, the pricing seemingly conservative at thirty four seems to have paid off at this point. Julia, thank you. Let's send it over to Kate Rogers for a look at some other big names moving into the close. OK. Hey there, Mike. So shares of Papa John's lowered today as its CEO, Rob Lynch, is set to take over the chief executive role at Shake Shack in May. Remember, Lynch took over at Papa John's as it sought to revive its image in the wake

of John Schnatter's ousting there. And during his tenure at the company beginning in 2019, shares grew 55 percent of the stock today, having its worst day since May of 2023. And shares of Darden also lower today after the company reported earnings. Its CEO noted that at Olive Garden, spending from consumers who earn under $75,000 and $50,000 annually fell versus a year earlier as customer behaviors continue to shift. Darden is down nearly 7 percent, having its worst day since May of 2022. Mike. Kate, thank you. We are just getting started. Up next, weighing big risks to big tech. While everyone is focused on Apple's antitrust news, there's one top analyst who says there's actually

another tech company that could get caught in the DOJ crosshairs. Details on that next. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Shares of Apple down more than 4% on an antitrust lawsuit filed by the Justice Department accusing the tech giant of maintaining an iPhone monopoly. My next guest says the government's regulatory crackdown could also be a risk factor for Alphabet, which currently has two key cases on the docket. Let's bring in Mark Mahaney of Evercore ISI. Mark, I know you've just done kind of a big deep dive in general on Alphabet

and all aspects of the business. How does the antitrust piece fit in here? It seems like it's been an overhang for a while, but is it a little more here and now? I think it is, Mike. It's more real. So you're going to get, by the end of this year, a decision by the judge on the DOJ search antitrust case. And, you know, this isn't a novel, I'm no lawyer, but this is not a novel antitrust case and you know there's this isn't a novel I'm no lawyer

but this is not a novel antitrust approach based on the experts we've talked with and so there's a it's very unclear how this could come down there's a very significant chance to come down against Google which would then lead to a series of trials to determine remedies this may let this will well last for two or three more years but you know this is all of the regulatory concerns that have been rising for Google are coming to fruit this year. And we're going to have your first decision. And you also have a case. This is going to be a jury case that starts in the fall in Virginia. And you bring a jury case, an antitrust case in big tech. You know, that sounds like a lot of unknowns there. So, yeah, the risk is bigger

and it's it's more real now than it's been in the past. Some unknowns about, you know, whatever potential awards or penalties or settlements or whatever. But also, I just wonder about what the risk might be to the actual business franchise and the way that Google does business. I know there's been attention on the advertising tech that Google operates. But what does it mean, I suppose, for the search franchise at a time when people are kind of asking questions about how durable it is in general? Well, OK, so I do believe that the search business is highly durable. Let me just address that right away, because there's this concern that Gen.A.I. may upend this golden goose that's been wonderful

for Google for two decades. I don't think that's the case. I actually think that there's a real opportunity here for Gen AI, Gemini, search generative experience, and all the different permutations we're gonna see at Google over the next year or two. We think this could actually materially increase Google's search query volume. I mean, if Google is the one that's got a decent shot of being the AI assistant for consumers,

you're gonna use Google more than you did in the past. So I think some of the fears about Google the one that's got a decent shot of being the AI assistant for consumers. You're going to use Google more than you did in the past. So I think some of the fears about Google being disintermediated by Gen AI, especially on the search side, I think are way overstated. But bringing it back to some of these law cases, especially the first one, which is could they actually stop Google and Apple from reaching a commercial agreement on district deals? I mean, it sounds like that's a plausible outcome. That could be great for Google's P&L immediately because that's $20 billion in cash they could save. I think the challenge in thinking about this company strategically is the advantage they've had as a search engine is they've got so many queries, they've got so much volume out there. So if you're going to crimp that volume by 10 percent,

at some level, that is going to kind of hurt the efficacy, the power of the Google search model. So I actually view it as a strategic negative if they were to lose the Apple distribution deal, even though it would save them 20 billion a year. Right. Yeah, it is a sort of self-reinforcing thing to dominate search that much. So where does it bring you on the stock itself at these levels? Because clearly, you know, hasn't participated to the degree that some other MAG7 names have. And it's a relatively modest valuation. Yeah, so I'm picking it up here, Mike. I recently made a couple weeks ago, I made one of our top picks for the first time in over two years. I've had a strong preference

for Meta for the last two years as that company kind of rebuilt its ad tech stack and really did a lot of things right but mostly just executed really well on some product cycles and I just think we've become a little too bearish on Google but the forever overhangs here are they won't manage their cost structure they're not going to give you any of that cash back in terms of the dividend their revenue growth is getting too mature and their gen AI roadkill and I think all of those overhangs are overstated and disprovable or they can be fixed now whether google actually comes out and pays it then like

they darn well should because they got 100 billion cash burning a hole in their pockets i don't know but i think they will they must feel greater pressure given what meta did last quarter and whether they really come out and get more aggressive with their cost structure i i think they will they certainly have the ability to do that. It probably requires a little bit of culture change. And I know there's a lot of skepticism they'll do that. But I think there's at least the opportunity and at least none of this is priced in. So if they come out with those two moves, I think the stock moves up. I like the asymmetric setup on Google shares right here. All right. Yeah, it seems like there are some things within their control, even if the legal side is less so, Mark. Thanks very much.

Good to catch up with you. Thanks, Mike. All right. Up next, charting out the rally. The S&P headed for another record close and one top technician is betting on more upside ahead. He'll explain why and the sectors he thinks might lead the way higher. Closing bell. Be right back. Welcome back. Stocks in the green with the major averages and seven of the 11 S&P sectors hitting new highs. Our next guest is charting a course for potentially more market upside ahead. Joining us now is John Kolovos, chief technical market strategist at Macro Risk Advisors. John, it's good to see you. I know you've been in the mode of saying, look, you have to give this market credit. It has shown, especially on the S&P 500 large caps, that it actually has this pretty solid uptrend in place. Where do the recent gains take us?

And I guess how would you play it from here? Yeah. Hey, Mike, thanks for having me on. Yeah, there's really little to complain when you look at the S&P 500 itself. Solid series of higher highs and higher lows, moving averages in the right configuration, all that. I'm looking somewhere north of 5,300 on this leg. Maybe even, dare I even say, with the 50 handle, 5,350. And with major support, I would say 5,105. So as long as we stay above that support level, I would assume that pressure is higher. And between now and the

next time we talk, I would say that, hey, that 20-day moving average is also a good proxy for the short-term trend. If you were to take that back to the November low, the indices hugged that quite nicely. It's a good trailing stop. So I think 5,300-ish, if not a little bit more, on this leg. Yeah, so that's, you know, it's only a couple, 3% up from here, right? So it's not exactly like you're saying it's getting. But even though it was kind of hard to imagine, you know, six months ago that we'd be talking about those levels,

what is potentially going to get in the way, either in the way of leadership, if this sort of momentum kind of fatigue in some of the market might take hold or seasonals or the fact that sentiment might get somewhat elevated? Yeah, I think it's all of the above, to be quite frank. I think a lot of us, including me, thought the market would stall out, maybe a little bit lower, but it keeps proving us otherwise. Seasonals are an issue. The election is going to be an issue. I would say if I had to guess which one, and I was talking to clients about this earlier

today, it's kind of hard to pinpoint which one it is besides the unknown unknown. It could be hawkish macro trends. You know, the interest rate, the 10-year yield has been pushing higher all this year. It's still in an uptrend from that perspective. Trying to roll over really hasn't. The dollar's been sticky strong. So I think hawkish trends that translate into stickier inflation could be something that could stall the market out. And I know that technology, you kind of downgraded it in your work to more of a neutral type position. What are the favored sectors and what happened with tech that it seemed to have taken a backseat? Yeah, don't get me wrong. It's an equal weight, right? So I haven't

punted all the way down to underweight at this point. It's quite interesting because there is rotation going on and it's basically the downgrade of technology has made room for other sectors to move up, like energy and materials because of the commodity rally. And those are really compelling. But within technology, what still looks okay, semi-equipment is still strong. The hardware names, the system software names, basically what's happened is that the smaller, cap-less, profitable ones have come down. Think ARC names. Those have come down. My universe, by the way, is a Russell 3000, right?

So you've got a lot of those names in there. They've come in. But also just semiconductors, that industry group, outside of a couple of mega ones, real ones that we talk about all the time, There's been some splintering in that area. So that's what's kind of brought down the ranking there. But it has made room for energy and materials to push up. And then financials, I know they've also improved. And, you know, you actually have to make a distinction between financials entirely and then banks, because really a lot of the financial sector is non-bank that's correct yeah uh like i guess one thing we can look for to be optimistic let's just say let's just make a

scenario where we might want to buy regional banks interest rates right interest rates need to kind of just stop doing what they're doing because there is this relationship between market breadth and interest rates and a big component of market breadth would be these smaller cap banks so you're right mike i agree with agree with you. Insurance names look good. Capital markets look great. It's just not those regionals. But I'm just trying to think, you know, what would be the next area that could potentially improve within financials? It would be those regionals and it would have to be tied to the direction of interest rates. Yeah, that's absolutely been the pattern, though. Yield, get some relief on yields and smaller stuff tends to be able to work. Market can broaden out. We'll see if that holds true. John,

appreciate the time today. Thanks so much. Thanks, Mike. Up next, the future of ESPN. We've got a first look at a new CNBC documentary featuring some exclusive comments from former Disney CEO Bob Chapek about what might be next for the Cable Sports Network. That is after this quick break. Closing bell. Be right back. Welcome back.

ESPN is about to enter the ring in streaming. But can it win in that arena? CNBC.com's Alex Sherman dug into the sports platform strategy in a new digital documentary out now on CNBC.com. Take a listen. To increase the popularity of the flagship streaming app once it launches, ESPN has begun talking to potential strategic partners, including the NBA and the NFL, who could help market the product and provide it with additional content.

ESPN could even offer a partner a small stake in its business, although Pataro says that may not be necessary. It's not about equity, right? It's not about these partners taking an ownership interest in ESPN. This is about partnership and accelerating the launch or the adoption of ESPN flagship. It's possible that maybe that cash itself is what they're after. But strategically, I don't really see a benefit in bringing on yet another minority partner into ESPN. Alex joins me here at Post 9 to talk more about this. Alex, there has been some puzzlement around the notion of a partner for ESPN, whether it would be, you know, spreading ownership around or just really some marketing

mechanism. What's the state of play? And by the way, it's such a confusing array of streaming things that ESPN is going to be putting out there. So how does it all fit together? Yeah, two great points. So a little spicy, I thought, in that comment with Bob Chapek saying he didn't see any strategic logic for Disney ESPN. It's funny because I actually do see some strategic logic from the Disney standpoint if they wanted to do a deal with the leagues because it would basically make the leagues put skin in the game for ESPN's existence, development, flourishment. I don't see as much strategic logic from the league standpoint because they risk irritating all of their other media partners who are bidding

on those rights against ESPN if they were to do an equity deal. But those talks are still ongoing as far as I know. Bob Iger brought this up about nine months ago, though. Still, we have not seen a deal. That's probably indicative that maybe there's not an easy one to get done. To your other point about the streaming services, I think this is a phenomenal thing to talk about. I remember a few years ago when HBO had HBO Max and HBO Go and HBO Now. ESPN may be entering a world where it has this new sports JV that it's going in with Warner Brothers Discovery and Fox. And it has ESPN Plus. And it has the ESPN flagship direct-to-consumer, which comes out next year in the fall. And ESPN will be on cable.

You do wonder if consumers are going to be like, so what do I get? What is this? What does this mean? And bundled in with Disney Plus and Hulu. Different bundles in and so forth. So I think that's a problem that ESPN has on its hand. It's going to need to have a very clear message to consumers about what you get with what package? Ultimately, for any of these companies, and certainly Disney, ESPN, the dream is to become agnostic as to how somebody consumes your stuff. Right. You know,

financially agnostic. Correct. Right. Probably a long way till there to replace what the affiliate fees through cable gets. But can this get them? Look, I would I would go even a step further. The dream is that you're subscribing to multiple services. That's the real dream. But agnostic is maybe the more realistic dream, where it doesn't matter. The economics are basically the same, whether it's streaming or whether it's cable. And that's why when ESPN does come out with its flagship direct-to-consumer product, you're going to see it at a price of $25 or $30 a month, because that means that in the cable world, everyone that subscribes to cable is paying for ESPN about $10 a month, no matter whether or not they're watching. In the streaming world, you're only subscribing to ESPN, theoretically, if you want ESPN.

So in the documentary, Rich Greenfield brings it up, there's probably only 25 or 30 million people that fit into that bundle that I'm a hardcore sports fan and I'm willing to pay what it takes in a streaming world to pay for ESPN instead of just getting it lumped in with all of my channels. Does the betting piece change the equation quickly at all? I don't really think it does. I mean, ESPN has this ESPN bet licensing deal with Penn Gaming where they've just licensed the name.

I think where it plays in is you will see more personalization and programming toward the avid sports better in this new flagship direct-to-consumer service that will launch next year. It's possible ESPN has some innovative things it does with that new programming, but you know, how many people are really betting and willing to, again, to pay 30 bucks a month? It's probably generally the same audience that would have paid for ESPN anyways. You need to see the games if you're betting on it. All right, Alex Gang, thanks a lot. Thanks, Mike.

Good to see you. All right, watch ESPN's Fight for Dominance now on cnbc.com slash sports. All right, still ahead, we're gearing up for Nike numbers, the retail reporting in overtime. A top portfolio manager will join us with what he's looking for in that report. That is coming up. And as we head to a break, a quick message as CNBC celebrates Women's History Month. To me, a changemaker is someone who sees an opportunity to make things better. I've also been told that for real change, you have to accept that it doesn't have to be

perfect, but don't let perfection be the enemy of the good. And I remind myself that life is fleeting, and when you get the chance to affect change, you should move with real urgency. Up next, your earnings setup. FedEx, Lululemon, and Nike reporting in overtime. Our reporters standing by with a rundown of what to watch. That and much more when we take you inside the Market Zone. Here to ring the closing bell at the New York Stock Exchange are some

Congressional Medal of Honor winners. That would be Captain William Swenson, Sergeant Ryan Pitts, and Navy SEAL Britt Slablinsky. You will see them ring the bell in just a few minutes. And we are now in the closing bell market zone. We have a number of key earnings we're watching in overtime today. Frank Holland brings us what to watch for FedEx. Courtney Reagan is monitoring Lululemon. Plus, Neuberger Berman, Portfolio Manager Kevin McCarthy on Nike's earnings and his outlook for retail.

So, Frank, FedEx, stocks been on a little bit of a run here. What should we expect? Yeah, a little bit of a run recently, but FedEx shares, they have far underperformed the market year to date, but they're still are outperforming their rival UPS. Winter weather in a softer e-commerce environment. We're expecting a muted quarter that covers the beginning of December through February. This is a company that also trades on margin. And this quarter, it's increasingly important as a read on the company's cost-cutting plan.

This is also the last quarter before FedEx consolidates its three units, Express, Ground, and Freight, into one single company. Key area to watch for this quarter, however, is Express Air Delivery. It generates just about half of all revenue, but it's also a key area for cuts. Estimates have revenue falling slightly year over year, but margin, that's really the big thing here. That's the thing to watch as the company tries to right-size its fleet and its staffing. The estimate, 1.1% margin. Ken Huckster from Bank of America on Worldwide Exchange earlier today telling me that will be the lowest margin since the bank has begun covering this stock. So a lot to watch in that signature air delivery business. Yeah. And Frank,

I mean, is the path to widening out those margins strictly on the cost side or is it a business mix thing? What should we be looking for? You know, Mike, it's kind of complicated right now. DHL, which is a similar company, obviously has a different profile. It's over in Europe, really talked about softness in their air delivery business. And then on the other side of things, ground that also kind of bleeds into Express. We had GXO and also Ryder talk about softness in e-commerce. Cost cutting is going to be the main thing, but there's also just softness in a number of parts of the business. Right. Waiting for some of that stuff to come back. All right, Frank, thank you. Courtney, Lulu, perennial winner. What should we expect here? Exactly. I think that's exactly how I would describe it, Mike. I mean, Lulu Lemon is expected

to report another strong quarter. Comparable sales expected to be at more than 12 percent for the fourth quarter, the holiday quarter. Interestingly, this perennial winner has underperformed the S&P 500 so far this year. Still, the street calls out strong brand momentum that's expected to continue even in the face of ever-increasing competition from everyone like an aloe pure plate yoga to any other brand that sort of sell their own version of athleisure. Now, expectations are for gross margin expansion to continue from improved inventory positions as well as lower freight costs. And as always, investors are going to want to know, how are trends quarter to date? Will Lulu give us any clue on that? More details on the men's division and that growth, and of course,

any product innovation that's expected to come down the pipeline. Back over to you. Court, I mean, it's been forever. People have wondered whether there would be any resistance to that kind of full price all the time, premium pricing of Lululemon. Is there any sign in this environment that maybe any of that's taking hold? It's unbelievable, Mike, but it doesn't seem to be affecting Lululemon. They just have this strong brand momentum. They're able to charge a higher average selling price than so many of their other competitors. They've never

really done sales. Sometimes you can find some clearance items, but that's not really a traditional sale. And somehow, even in this environment, it's working for them. Yeah, as it has been for a while. Thanks very much. We'll see what the numbers say. Kevin McCarthy, Nike numbers. Obviously, there's been some disappointment here. The premium valuation has been compressed. Really going to be earning less in this fiscal year than it was a couple of years ago. You've made the case or trying to make the case that the company is currently under-earning. What would you say to try to persuade somebody of that case and what can it do to change that? Yeah, thanks, Mike.

I realize you put me on the hot seat here. It's been a mistake to get bullish on the quarter for basically the last two years going into the Nike print. But I'd argue that that risk is known here and probably reflected at around $101 today. So I think, you know, as it relates to this quarter, as long as they can kind of demonstrate a path toward more sustainable gross margin upside, sustainable underlying, provide some proof that the growth in the U.S. after lapping these wholesale, you know, elevated wholesale ship-ins is sustainable, and then kind of show a line of sight for mid-single-digit growth in China. And you've got right now in China, you know,

some good news from local competition. You've seen Li got right now in China you know some good news from local competition you've seen. Leaning right out there you know back in growth mode stock up forty percent so. I think you know as it relates to this quarter- if they can do that. Then the stock could work so what I'm looking for here is you know maybe a modest speed on revenue nothing crazy, something flattish, but good gross margin flow through and, you know, maybe a nickel or so beat on the EPS. Three months ago, you know, in the last report, Nike did flag what it perceived to be somewhat softer consumer trends. And whether that was, you know, broadly speaking or just in their categories or just in their brand, it's hard to say. How do you see things right now in terms of, you terms of whether the consumer has much left in the tank? On paper, the consumer looks okay. However, we're not necessarily seeing that with the

trends playing out so far year to date. You're seeing a lot. I mean, it's really channel by channel specific and it's also income cohort specific. So even though the low-end consumer is on an incremental basis looking a little bit better given disinflation, we're not seeing it yet. You heard from Darden this morning. They didn't put up great numbers, but then you hear like a Chipotle or you hear a Kava or a Sweet Greens, and they're doing pretty well so i think there is a little bit of a lagging effect here um nike has more idiosyncratic opportunity more self-help opportunity and it's and it's this debate between you know the bears that say the innovation engine is broken and the bulls that say you know what this is an under earning company they went from 20 billion

to 50 billion of revenues and the margins are the same so you know what? This is an under-earning company. They went from $20 billion to $50 billion of revenues, and the margins are the same. So there's probably $7 in earnings power. So right now, the shorts are winning. I think that paradigm can shift. We'll probably see a little bit of hints of that in this quarter, but it's not going to be until next quarter when we get the outlook for $25 that we'll really get some concrete data points on that. Yeah. And just, I guess, real quickly, where would you place a fair value for Nike if, let's say, we're talking about getting towards $7 in earnings power? Well, that's a fiscal 28 number. So I think, you know, if this company trades at 25 to 30 times, you know, you've got to kind of discount it back proportionately from there with an appropriate discount rate. Gotcha. Kevin, thanks very much. Thanks for

setting us up for those Nike numbers after the close. And as we do enter the final minute of trading, we are on pace for another record high in the S&P 500. You see, we were up about four-tenths of one percent at the moment, three-quarters of a percent in the Dow Industrials at 39,800. The Russell, the big outperformer, has been since the press conference from Jay Powell yesterday. Bond yields not doing a lot today to help out the equity rally, but they're staying out of the way. The 10-year at 427 at this point. Gold, is that another strong day? It's actually making a run toward the record highs that we saw earlier this month, up about 1% today. Kind of an everything rally,

commodities, stocks, bonds, after the Fed yesterday. Swiss National Bank cutting rates, also putting a little bit of a charge there perhaps in the gold price. As we do get into the close, we do have a nice positive day. 2-1 up versus down volume on the New York Stock Exchange. With one more to go in the week. That's us at the Closest Now. We'll send it into overtime with Morgan and John.