Closing Bell - Closing Bell: Banks disappoint, Short target strikes back, Affirm CEO on consumer health 7/14/22

Episode Date: July 14, 2022

Stocks closed well off their lows after an initial plunge sparked by disappointing earnings from JPMorgan and Morgan Stanley. Hennessy Funds’ David Ellison breaks down those results and the read-through for the rest of earnings season. Affirm founder Max Levchin discusses the state of the consumer and the buy-now, pay-later model after rival Klarna took a major valuation haircut. And the CEO of Hannon Armstrong – the target of a short seller call from Muddy Waters – joins with his response to the report.

Fed fears and bank earnings setting the major averages lower, but we are well off the worst levels of the session. In fact, we are near session highs right now. It's been a remarkable recovery. The most important hour of trading starts now. Welcome to Closing Bell. I'm Sarah Eisen. Take a look at where we stand in the market. Dow is only down about 150 points. It was down 630 this morning at the lows of the day. S&P off a third of 1%. Two groups actually in the green. Technology, information technology, the chips are leading. Qualcomm, applied materials, analog devices, and the consumer staples are also positive. Everybody else is down. But again, a lot of these losses have been recovered. Energy,

materials, and financials, the bottom performing groups. Check out some of the top performers right now in the NASDAQ 100, which is leading this market comeback. I mentioned Qualcomm. There's Costco as well. And some of the semiconductors, which have been this market comeback. I mentioned Qualcomm. There's Costco as well. And some of the semiconductors, which have been hurt lately on these cyclical fears. Looks like we got a big change during the day after some Fed commentary. Governor Waller pouring some cold water on the 100 basis point rate hike talk for July. We've got a big show coming your way. We will talk to a firm CEO, Max Lev Levchin following a major down round from his buy now, pay later rival Klarna, plus a new partnership that is sending his stock higher today.

Also, Hannon Armstrong is fighting back. We will talk to the CEO of the ESG name that is the subject of Carson Block's latest short report, Muddy Waters, that sent that stock down 20 percent the other day. Let's get straight, though, to the market as stocks try to shake off these Fed concerns and disappointing bank earnings. Things were looking ugly this morning. I mentioned the Dow was down more than 600 at the lows after J.P. Morgan and Morgan Stanley missed Wall Street estimates, raising fears about the rest of earnings season. Joining us now, Richard Bernstein, CEO of Richard Bernstein Advisors, and David Ellison, portfolio manager at Hennessy Funds.

Good to have both of you gentlemen here. Dave, I'll start with you as the bank portfolio manager at Hennessy funds. Good to have both of you gentlemen here on Dave I'll start with you as the bank portfolio manager I know you have both Morgan and JP Morgan in your funds correct. Were there any big surprises here why were we gearing up for a sort of a negative report. Well I I don't think the

reports were negative conditions are actually pretty good. I think that's not that I think the issue is that things are good. That up with kind of negative going in good. I think that's not. Is that. I think the issue is that things are good. That up with kind of negative going in. So I think people are pretty bad credit there were that rates

going up the actual numbers were fine credits fine and they. The margins were up a little bit but the problem is that. Things are too good and the bank industry like some other industries need a cycle to make money. And we haven't had a

cycle in a long time because the feds held it up and so my hope here is that we have a credit cycle we have a rate cycle. We have a real rate inversion cycle we have a liquidity cycle. And that allows people like me to

actually buy stocks that will go up after that's over. As opposed to sitting here with you know everything's good but the stocks really don't go up when things are really good in this industry so to be clear you you're buying now on on hopes that the cycle turns again well the truth is i hope things get worse because then the stocks will go down and i'll be able to buy them when everybody's afraid just like in the pandemic just

like in 87 92 just like after the financial crisis of 2008 that's the time to buy financials when everything is in trouble and you buy the best managements obviously morgan stanley jp morgan are the top of that list you buy them you hold on to them and you make money as they recover uh the problem is that everybody's doing well everybody has no non performers everybody has decent loan growth. And the non performers are key if not performers don't go up. The

stocks won't go down to a point where actually we can build wealth owning them at the bottom so. Again the money's made when there's blood in the water and I'm hoping that we have blood in the water I know that's not what you want to

hear what the market wants to hear but. That's what we need to get to to make these stocks attractive. Rich, what was your takeaway from some of the bank earnings this morning as it relates to their performance, which is weaker again, and we do have that inverted yield curve and the broader market? So, Sarah, I think part of it is exactly what you just said. Number one, we have an inverted yield curve, right? I mean, it's a simple model of financial profitability, but it does seem to work. And that is the slope of the yield curve. The steeper the yield curve, the better the margins on lending, the better the

margins on activity. And as you just pointed out, we have an inverted yield curve. So that's not real good for the future of banking. Number two, I point out that. If you're a devout monetarist you're going to say credit is the life blood of inflation. And so if you believe that the Fed is going to fight inflation. You should believe the credit is going to slow and credit will get

riskier as a result. So on top of that we have valuations that are down so in the financial sector. You've got narrow inverted yield curve for all practical purposes. You've got valuations that are down and credit that's under pressure. And that hurts the investment banking side of the equation as well. So this is just not the time to expect banks to be shining stars. It's just the wrong part of the cycle, which I think is what David was alluding to before. Agree, although I just want to bring up First Republic Bank. It probably

has not gotten a lot of airtime today, but that is one of the bank stocks that's higher today, one of the few. It's up 2 percent. Reporting earnings, really strong loan growth, Dave, strong on a number of metrics. Credit quality remains excellent, according to the CEO, Mike Roffler. How do you explain that, given what we've seen from some of the big banks? Well, it's a niche bank, does a good job of serving their basically middle to high-end customers. And there, there isn't a lot of credit. The mortgages or the debt, you're buying a $2 million house and you've got a big mortgage. And so they do a good job of doing that. They've been doing that for a long time and they haven't. You know, so it's a growth story. And that's OK. I've owned it on and off over the years. I don't

own it now because I think the valuation is too high and the and the forward looking sort of opportunities aren't as good as they were, given the rates are up and housing is cooled. So we'll see what happens. But that there's a lot of those in this market I think the opportunity. And again that stock is down to you know pretty hard from the tie. It's not like it hasn't it hasn't gone down. The group with

the market but. Again it's a well run bank it's a niche it's not a great job over the years it has a premium valuation that it deserves. But it doesn't mean it won't get caught up in the maelstrom that seems to be developing here in the market with rates and credit and liquidity problems. True. Forty two percent off its highs. We've got to leave it there.

Dave Rich, thank you both for joining me today off those bank earnings. Good to see you. Shares of ESG name Hannon Armstrong. They're down about 20 percent this week following that short report from Muddy Waters, Carson Block, who, remember, told us on this show Tuesday this about the company. None of this is illegal, but Hasse's legal accounting manipulation is just so extreme. It's just so divorced from reality. Hasse's, the stock symbol H-A-S-I. Up next, the CEO with his first response to the allegations raised in this report. You're watching Closing Bell on CNBC. Dow continues to recover here, down a little more than 100 points. Let's check out today's stealth mover. It's A.O. Smith, one of the bigger underperformers in the S&P 500. Baird downgrading the water heater and boiler maker to neutral from buy,

cut its price target on the stock to 60 from 72, citing limited growth catalysts and year-over-year volume declines. Down 3.3 percent, just taking a little leg lower, down 200 on the Dow, and the Nasdaq is back in the red. Shares of climate investment company Hannon Armstrong in the green today after falling nearly 20 percent on Tuesday after Muddy Waters published a short report targeting the company titled ESG is for exaggerating, scamming and grifting. Muddy Waters founder Carson Block joined us Tuesday to make his case.

Well, last night, Hannon Armstrong released a response that they say sets the record straight. And CEO Jeff Echol joins us now first on CNBC. Jeff, it's great to have you here. Thank you for joining us with your side of this story. So what exactly does Muddy Waters have wrong in this report about your company? Well, let me get to that. But let me first, for the audience, just explain what it is we do. We are an investor of capital in the physical assets that reduce carbon, like wind projects, solar projects, and energy efficiency. And we get repaid when those projects produce energy or when they save energy.

Our thesis, investment thesis, will make better risk-adjusted returns investing on the right side of the climate change line. We do this with the best energy and infrastructure companies in the world. Think Engie and Clearway on the renewable side, SunPower and Sunrun on the residential solar and let's say Siemens and Johnson Controls, household name companies. And we've been doing this since the 80s. The firm is 40 years old and we've been public nine years. And it is a really complex business and it's a really big opportunity. But let me be perfectly clear. We absolutely stand by our accounting and financial reporting

100 percent. We believe our press release has indeed set the record straight. And you'll probably ask about additional questions that he posted this morning. I think if there was a careful and studied reading of what we posted yesterday, he would understand that we've already answered his questions. Well, let's just let's talk about it for the sake of our audience. So one of the accusations or questions is around the dividend and how you're funding the dividend and whether you're funding the dividend with cash flow. So the question there is, the accusation that Muddy Waters raised was that it comes from external financing, debt and equity, and that ultimately it might not be sustainable. Should investors be worried about the dividend? And can you clarify where it comes from? Investors should absolutely not be concerned about it.

Cash from our portfolio more than covers our dividend. That is full stop. This should be the end of the story. Fair. What about, even the analyst, Jeff, raised the question. They said that the business is very complex and the accounting is complex, right? So it's not necessarily easy to explain, for instance, the gains that you're getting from some of these investments and what is realizable and what is not. And I guess that's sort of the crux of Carson Block's issue. Can you just clear up for us and stand by all of the income that you have reported? Because he is saying that a lot of it is just not realizable. We absolutely stand by every dollar of revenue

we have recognized. Accounting is very complex. And I don't think there's anybody in this industry who is a big fan of hypothetical liquidation at book value gap accounting. It is hideously complex. We do it. Don't understand it. So does everybody else in the...

Yeah, it is an arcane specialty that all of us would be thrilled if there were some alternative to it. There isn't. We are fully SEC compliant. We do our accounting the exact same way as our counterparties do their accounting. And we know that what we're presenting is the best possible way to present our economic performance with the accounting, with the gap accounting rules that there are. Now, we've been working for a while on an additional disclosure that we've been talking to investors about and announced yesterday in the press

release that we will try an additional disclosure to try to get to the cash question that has perplexed Muddy Waters and some others. It isn't easy. I wish we could make it easy with a magic wand, but we do have a disclosure that we think will absolutely reinforce the statement that cash from our portfolio pays the dip. Right, because I guess his point is that some of the non-cash will never be received ultimately as part of earnings, right? It's one of the many misstatements he makes.

We have a very rigorous quarterly process. We're audited by E&Y, big four accounting firm. We have a terrific accounting team. We have a quarterly process to evaluate every dollar on our balance sheet and its collectability and what is the appropriate discount rate. We look at it every quarter before we report earnings. We are confident that we expect to receive every dollar. Well, a lot of companies do get audited. And to be clear, I just want to make clear that Carson didn't accuse you of, and Muddy Waters didn't accuse you of doing anything illegal.

Just, I think it was more aggressive accounting metrics, basically, in this report. So what do you plan? What are the next steps for you? I think we have a reputation as one of the most conservative firms in the industry. We've been around for 40 years. There's a lot of ups and downs that have affected this industry and financial services like 08 and 09. We have gone through these. We've been through much tougher times than the industry's going through right now

with a slight tick up in interest rates. As to where we're going, we report earnings August 4th. We would be delighted to have as many people listen to our earnings call as can spare the time. And we will continue to engage with our shareholders and with our analysts to make sure they understand, and frankly, they do understand from the conversations we've been having this week of the validity

of our accounting and our financial reporting. As to the future, this is a phenomenal time in this industry. We have a very big problem in climate change. The incredible change in technology to address this is increasing our investable universe every day. And then if you overlay Russian invasion of Ukraine, and it reminds me of when I got into the business in the 70s of the Arab oil embargoes. Energy security is national security. And we need all of the above in the U.S. We need

hydrocarbons and we need solar, wind and efficiency and a lot of other technologies that haven't even been invented. And when we do that, when we take all the above, we can have energy security and we can have a meaningful impact on climate change. Well, I think it's one reason why your stock has been so successful since the IPO. I think that a lot of investors buy into that narrative. Jeff, thank you for joining us and sharing your perspective here on this story. Thanks for having me.

And keep us posted. Have a good day. Let's give you... Thank you. You too. Let's check in on the markets right now. We're down about 163 on the Dow. We'll see if the Nasdaq can avoid a fourth down day in a row. It's trading just along the flat line, had gone positive.

The S&P down four-tenths of 1%. Again, we were sharply lower at the lows of the day. On the S&P, down about 80 points at the low. We're down 14 right now. NASDAQ 100 is positive by a quarter of 1%. After the break, the one level on the S&P that should be on your radar as more firms pull down their year-end targets. And then later, a firm CEO, Max Lefchin, on the future of buy now, pay later, following a big valuation downgrade for rival Klarna. Also, Stripe getting a big downgrade in its valuation today as

well. As we head to break, check out some of today's top search tickers on CNBC.com. Ten-year yield in the top spot as well. They're selling today. That means yields are a little bit higher, pushing up against that 3% level. JP Morgan down 3.6% off earnings, suspending buybacks. And then the S&P 500 down a third of one percent with crude oil a little bit higher. It was actually a lot lower earlier in the session. It's been turned around. We'll be right back. Nice comeback today in the market at S&P 500 cutting its losses. The Nasdaq currently positive.

Let's go to today's dashboard where Mike Santoli is here with a long term look at the S&P 500 and some clues maybe as to where we're going. Yeah, possible downside levels to keep in mind, Sarah. You have a lot of strategists who are trying to figure out what the potential downside risk might be. Now, short term, we have stayed above the mid-June lows. That was just above 3,600. So right here, you have this 1,000-day moving average. It's 200 weeks, and this goes back over 20 years, like 24 years. And what you see is since the bottom in 2009, you've kind of bounced off that level several times here. We cut through it just briefly in 2020. That is right around 3,500 at this point, just under 35.

And it's also halfway between the March 2020 low, which is 2,200, and 4,800, which was the all-time high. So you cut half of that, and you get to around $3,500. A lot of strategists have other reasons for it, whether it's valuation versus bonds, whatever it is. But that would be a little bit of a test. I'm not saying we're going to get there, but it's really not that far below the recent lows that we already have hit as recently as a month ago. We will keep an eye on that level. Up next, Affirm CEO Max Lepchin on the outlook for the buy now, pay later industry as the valuations for rivals Klarna and Stripe today plunge. We'll be right back. Fintech company Stripe is cutting its internal valuation by 28 percent. That's according to

Wall Street Journal today. And of course, this follows Klarna's recent valuation haircut of 85 percent. Another buy now, pay later company making headlines today is Affirm. That stock is actually getting a pop after announcing a new partnership with ticketing platform SeatGeek. And joining us now in an exclusive interview here for Closing Bell is Affirm CEO and founder Max Lepchin. Max, it's great to have you back on the show. Welcome. Thank you. Great to be here. I feel like with these announcements, with some of these retailers, like a SeatGeek or I remember Amazon was a huge one, the market gets all excited about the announcement and then totally forgets about it and starts fretting about higher interest rates and inflation

and the consumer. Explain what the significance is, why these announcements are so important as far as future revenue i think if i could uh if i could explain the stock market behavior i i would probably be in a different job but uh fundamentally we're really focused on driving long-term value for our shareholders executing on our vision making sure that we are staying on track with our mission i think every time we have a chance to announce a really exciting partnership it's great you know it's's certainly a lot less about the stock price and more about just signaling to other retailers and most importantly, our consumers

that a firm is available. We are a more responsible, more intelligent way to buy things. And it's just great to be able to raise your hand and say, hey, if you're thinking of going to a concert or traveling somewhere, those are the industries that are doing really well right now. We're here to help you out. And I think the stock market today is having a good day with that. And I'm sure tomorrow they'll have their concerns. Right. It's up six and a half percent. But Max, does it signal that this business of buy now, pay later is still growing as fast as it was a few months ago? So I think it's I think the stock market in and of itself is a signal that I cannot interpret, but I can absolutely tell you that Affirm as a business is doing really well and we are absolutely

still growing just as well. Give you a couple of fun stats just for 4th of July weekend because it is relevant to this announcement. Airline purchases more than tripled year and year just for that weekend. Obviously, people went out to see their family. But concert tickets, 10x. Obviously, we're coming off from a pandemic-induced lack of going out. But 10x is still a very, very powerful growth signal. So I think buy now, pay later is absolutely expanding into a giant ham that's just very, very under-conquered right now. Have you seen any softness in demand for buy now, pay later services?

You know, we're growing both by signing new merchants, growing within our existing partners and through our platform partnerships like Shopify and Amazon and Walmart. And so our growth that's been going really, really well is probably not indicative of consumer shopping. I think as the inflation, we just heard another concerning report, goes up, the demand for buy-not-bill-getter actually increases because your ability to buy goes down as prices go up and your salary isn't keeping up. A firm is there to help you manage your cash flow more intelligently over weeks and months. So the demand for BNPL itself is actually increasing among consumers. Interesting. Isn't that sort of a double-edged sword? I mean, can't people in this environment, if they are increasing their use of it, might find themselves in more financial trouble and

in more debt than they might know just because it is so accessible, these services? You know, I would argue that credit cards are infinitely more accessible. Every American has a whole bunch of them in their wallet. What we have to offer is a much more intelligent alternative. Our particular interpretation of it is extra responsible. We don't benefit when consumers are late, when they overextend themselves because we don't charge late fees. We don't compound past the number that we advertise at the moment of purchase. So we have aligned ourselves with our consumers' best financial interest and continue to do so in the ups and downs of the market. So I feel very, very strongly that what we have to offer is a much, much better alternative than just about any BNPL provider or your credit cards.

And we are absolutely watching out for our consumers overextending themselves. And sometimes where you have to say no to a transaction and we have a chance to underwrite every transaction, we do have to say no and tell our consumers with love and compassion, you're overextending yourself. Please don't buy this. What are you seeing with delinquencies right now? You know, I think you can start to see through the signs of concern on the horizon, but because of the structure

that we've put together for ourselves, very short-term transactions, underwriting every single transaction, we are able to drive delinquency as an input into our models as opposed to a consequence of lending. And so as a result, we feel very good about our preparedness for recession, but it is absolutely no doubt that the rising prices are going to stress consumers. What do you make of this Klarna markdown? It was stunning. A company valued last year at $46.5 billion gets marked down to $6.7 billion.

What does that say about faith in the model, in the industry, and could it be an opportunity, a competitive advantage for you? No, I think each one of the BNPL players is very different. From the very beginning, we had said that we're going to be the superior technologist, the superior risk manager, that we're going to cue to the best consumer's financial interest and our merchant partners' needs. I think other players were very focused on growth at all costs and cutting deals that may not have been very profitable for them at all or, in fact, unprofitable. And so the market in the short term is a voting machine and the long term a weighing machine.

I'm very fond of that quote. I think the right time to ask the question, hey, what happens to all of you BNPL players is towards the end of what's likely to be an oncoming recession. We feel very good about our ability to survive and thrive and add value to both consumers and merchants. We'll see what happens to the rest of the market. Yeah, I mean, you're alluding to it, but the stock has really been trashed. And Max, increasing talk that if we are seeing something like a dot-com bubble bursting here with all that liquidity going away from the Federal Reserve, they're going to be ultimately winners and losers. And some are looking at buy now, pay later as a sign of that top, of that high liquidity, and wondering whether this is an industry that's going to be around in the next 10 to 20 years,

next time around, a real survivor of this. I'm obviously heavily biased, but I'm very confident a firm will be around 10 years from now. We have over $3 billion available cash that we were very lucky to raise right before the current dark times began. We have exceptional partners that we have done great things with and continue to do great things with. We're growing really well.

We're trying to be a very responsible lender. And so far we're seeing excellent consumer and merchant satisfaction. So we have lots of things to build and deliver on and we'll continue to do so. And I'm quite sure 10 years from now, the market will appreciate that. And what about all this competition, Max?

I know you always get questions about Apple, PayPal is getting into this as well. The barrier for entry seems low because you have all these players jumping on the bandwagon. That actually feeds into your prior question. I think the barrier to entry seems low, underlined, seems. Underwriting is hard. It's something that we took 11 years to build. We feel great pride and confidence that what we have created is something that's complex, is a real moat, something that others cannot do just by showing up and saying, hey, we'll do this

too. Again, we'll see how the movie plays out over time, but our technology and underwriting skills are unique and different for the rest of the industry. And that's what it takes to survive in a stressful market. In many ways, as much as I don't wanna sound like I'm taking a victory lap too early, a recession is a test that that's what you find out if your underwriting is any good.

And high interest rates also. I think the market's very concerned about that and the impact to your business model in particular. Max, the other risk I read about here around this space is regulation. What are your expectations? What are the regulators looking into here and what can they do? I actually think that's probably the single, again, it sounds too schadenfreude, but as a lender that doesn't charge late fees, that doesn't use compounding interest, we stay with simple interest, doesn't do deferred interest, all the things that regulators love to point a finger at and say, hey, that's anti-consumer. We don't just do none of those things. We actually actively try to help our consumers not get into financial trouble. I think regulatory attention to this space is good. Obviously, it has to be thoughtful. It has to consider the interests of the underlying consumer.

But generally speaking, things like creating a simple set of rules for how to report buy-now-pay-later loans to the credit reporting agency is really powerful and really important. And I'm excited that there's good work happening there. I think regulating things like excessive fees gathered by some of our competitors would be a really good thing. So on and so forth. So I think, generally speaking, that's a net positive for the industry. Max Lefkin, addressing all the concerns out there that the market has and the new deal today. We appreciate the time.

Thank you. Thank you for having me. CEO of Affirm. Take a look at where we stand right now in the markets. The continued recovery is amazing. We were down 630 at the lows this morning, down 144 on the Dow. We're positive on the Nasdaq, looking to break that losing streak we have seen pretty much all week long, at least on the Nasdaq. The S&P is still down about four-tenths of a percent. And most of the sectors are still red, financials and industrials at the bottom of the pack.

But technology is positive. The chips are leading and staples are also holding up quite well. Up next, the big picture on a pair of new reasons why the Fed may have a hard time fighting inflation. In today's big picture, a few data points. The inflation issue is going to be hard for the Fed to contain. The average monthly rent for a Manhattan apartment surpassing $5,000 for the first time ever, $5,058 to be exact, according to a report from Miller, Samuel and Douglas Elliman. Averages for rental prices were up 29 percent from last year. And then we got the June producer prices for the country up 11.3 percent. That was near a record jump. Measures what suppliers charge businesses and other customers for goods at the wholesale level. And even without food the country up 11.3 percent. That was near a record jump. It measures what suppliers charge

businesses and other customers for goods at the wholesale level. And even without food and energy, which is a big part of it, wholesale inflation jumped 8.2 percent from last year. It's a signal that that inflation is permeating the production chain and becoming more entrenched. But one potential better sign for the consumer, energy prices really have come down. Brent crude oil falling below levels it saw at the start of the Russian invasion of Ukraine today before turning higher later in the session. They're about flat right now, below $100 a barrel. We'll keep an eye on it. Up next, we will discuss whether Taiwan semiconductors' better than expected earnings are calming concerns about chip stocks. That story plus banks speeding up and another big deal for EV maker Canoo

when we take you inside the Market Zone. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here, as always, to break down these crucial moments of the trading day. Plus, Leslie Picker here on the banks. Christina Partsinevel is on the chips. Stocks staging a comeback from session lows, but all three major averages are still in the red right now.

NASDAQ's been wavering between gains and losses. Mike, it still is a pretty strong recovery from what we saw earlier this morning. What was it, the Fed speak? It seemed like it was the Fed speak, Sarah. It seems we're trading, I guess, between three quarters of a percent and one percent in terms of an expected rate hike in July. Once we did get Governor Waller out there essentially saying not endorsing a full percentage point. So the two year note yield come way off the highs, three and a quarter percent. So the U.S. dollar index go down by half a percent, give up its gains. So that's basically the story.

Meanwhile, the S&P kind of did test the low end of this range we've been in for the last couple of weeks. So I think beyond that, there's not a whole lot driving it except that sensitivity to every little new fresh input about what we might expect out of the Fed so far. Just wanted to share some reporting about a big bond deal that went well today. Apparently, PepsiCo priced three tranches, five tens and 30 years. It was a $2.5 billion deal. The demand was off the charts, $16 billion in demand. We're talking about corporate bonds right now and apparently pretty tight spreads compared to, say, the five-year yield. Mike, it just speaks to the fact that there still is very strong demand for investment-grade

credit, especially a name like Pepsi, which just had really good earnings and is considered sort of a safety stock in this kind of environment. But some people look at the especially investment-grade market and say there's a bit of a disconnect with the stock market, where the stock market is more bearish. Well, I would say possibly that is the interpretation, although it's a similar dynamic. In the stock market, you do have a bid in predictable, steady quality type assets. And it's the same kind of thing with corporate bonds, right? Pepsi is like an A-plus rated credit, obviously incredibly safe. Finally, given what's gone on in treasuries, you have rebuilt a little bit of a nominal yield cushion. So maybe it seems attractive with some relatively safety-seeking money. You're getting 4% or whatever it is on a five-ish year paper. So to me, it's understandable why you would have that

bet, even when you have riskier debt that's kind of selling off and the spreads have been widening out. Right. Let's talk about the bank stocks, because they are under pressure again, this time after disappointing earnings from JP Morgan and Morgan Stanley. J.P. Morgan's profit was hit by an increase in loan loss reserves. The company also temporarily suspending its buybacks. And then Morgan Stanley missing on the top and bottom line because of a decline in investment banking activity. Leslie Picker joins us.

Leslie, so what is the read-through now for the rest of the banks reporting tomorrow and Monday? Yeah, it's interesting, Sarah, because if you look at how the rest of the banks are responding, all of them are underperforming the S&P 500. But Morgan Stanley is the best performer out there, which would indicate that the market isn't too concerned about the results that they saw with regard to investment banking. They were pleased by the offset that came from trading activity during the quarter. But underperforming in addition to JP Morgan is also Citigroup and Bank of America, which of course have much more exposure to the benefit one would suspect from second quarter net interest income, which was served as a tailwind from rising interest rates. That's,

of course, the profitability metric that they get from being able to charge more for loan making. So it's kind of surprising to see such a large sell-off in the more commercially oriented banks, whereas the Wall Street ones are holding up a little bit better despite the big slump in investment banking. And really quickly, Leslie, Jamie Dimon usually sets a tone in terms

of what he says on, he said the hurricane about a month ago and people are still talking about it. What tone did he strike today? He struck a more measured tone, especially related to the tone that he had back at that Bernstein conference in early June, where he talked about the economic hurricane is essentially, it's coming. It's just a matter of how big it's going to be. We're being very conservative today. He was he definitely highlighted more positives. He talked about the strength of the consumer. He talked about how business credit was better than he's ever seen in his lifetime. And because of that, the consumer is in a really good place leading into some of the potential risks that are

on the horizon, noting that, you know, we should know within the next six, seven months or so what all pans out with the likes of quantitative tightening, with the likes of inflation, interest rate hikes and the like, and how that all impacts our economy. Down 32 percent this year, JP Morgan, down about 40% almost from its highs. Don't miss, by the way, a First on CNBC interview with Wells Fargo CFO, Mike Santomacimo, tomorrow at 3 p.m.

following that earnings report. Let's hit the chips. Taiwan Semiconductor, a bright spot during today's sell-off. The chipmaker beating Wall Street earnings estimates, hiking its full-year sales forecast as well, partially due to strong demand from automakers. Christina Partsenevelis joins us. Christina, investors really like these results and it looks like the whole sector is rallying. Any red flags to be aware of? Yeah, well, TSMC is an incredibly resilient company in a cyclical semi world,

but there are three points I want to focus on from this report. The first one is the company or management did acknowledge that customer inventory levels are elevated, so what does that mean for future orders? The second point, the obvious one we've talked about a lot, the slowdown in PC sales and handsets and consumer electronics as a whole. And then the third point is that supply chain issues are still persisting within wafer fab equipment, so much so that the company itself, TSMC, is lowering its capex.

And that could mean that there'll be delivery delays going forward because they just can't get the tools that they need. Nonetheless, like you mentioned, sentiment is pretty strong. The VanEck ETF is up higher. You're seeing Qualcomm and Analog, both possibly hitting their second week in a row

of positive territory. And then AMD getting a price target uplift of 15 percent higher from Bank of Montreal, BMO. So overall, sentiment is strong with TSMC. But there is there's some spots that we need to focus on and keep in mind for the future for semis. Got it. Thank you, Christina Partsenevelos. I want to move on to EV news because we've got a lot of that today, including a pair of analyst calls on Tesla. Morgan Stanley lowering its price target on Tesla to $1,150 from $1,200, citing slowing economic growth and credit headwinds. And then there's Truist initiating coverage of Tesla with a buy rating and a $1,000 price target, citing significant

margin upside potential. Look at shares of Canoe soaring on a contract with the U.S. Army to demonstrate the functionality of its electric vehicle platform. That's on the heels of a deal with Walmart, remember, which is acquiring 4,500 electric delivery vehicles. That stock has now more than doubled since that purchase was announced. Phil LeBeau joins us. Phil, as these EV sales grow in the U.S., is Tesla's dominance really starting to erode? That has been the question all along, but we are seeing traction from some of the competitors. Well, some traction, Sarah, but remember, Tesla still sells 71 percent of the EVs in the U.S. That's how much of their market share they had in the first half. In the first quarter, it was 74 percent, so a little bit of erosion.

They'll still remain strong over the next couple of years. The call from Adam Jonas, you should point out is or I should point out, is not just about Tesla. It is about the auto sector overall and the fact that if we are approaching a recession, you've got a number of factors here that could be a headwind, not just for Tesla. He's there. Adam Jonas cutting the price targets on a number of the auto stocks, five to 15%. You mentioned the slowing sales growth. Pricing in mix, that could deteriorate rather quickly if we see the country moving towards a recession. And then quickly, I want to talk about Canoe.

This contract with the Army is for one vehicle to demonstrate viability and the potential usefulness for the Army when it comes to evs the potential here is why the stock is up it's not actually a contract where they're going to be providing an x number of vehicles but the potential here is significant you take that with the walmart news that's why the stock has moved higher this week got it phil aboe phil thank you very much mike on on tesla phil clarifies the point on on adam. The stock is still trading, what, in the 700s. So even though it's a price target cut, it's still higher today and they still see the price. What I do find interesting, though, is the rationale, the way that Adam Jonas gets to that eleven fifty price target, which is only five hundred and sixty five dollars of the stock price for Tesla's core automaking business based on a twenty thirty target of eight million annual units. In other words, even if you believe they're getting there

to eight million units in eight years, he thinks that's about half the market value, the rest of it being the mobility business and some third-party sales and the rest of it. So I think that's just instructive in terms of still what's built into this stock at this price. By the way, Jim Cramer will be talking more about EVs and our future tonight on Mad Money. He's going to be joined by GM CEO Mary Barra. Just want to note the S&P continues to climb a little bit. We're off now a third of 1%. We've got three positive groups now. It's technology staples and utilities just popping into the green. So it's a bit defensive there. More grim news for shoppers. ConAgra, the food

company which makes Hunt's tomato sauce and Duncan Hines, another brand, says it's going to keep raising prices for consumers over the coming months. But the price hikes, not enough to offset ConAgra's cost inflation fully. Profit margins did fall in the quarter, and the forecast was light for the latest quarter. Shares are down more than 7 percent, among the worst performers in the S&P 500. This comes after yesterday's hot CPI report showed food prices increased 10.4 percent from a year ago. Mike, what was also interesting about ConAgra is that, sure, the company is benefiting from pricing, but that's where all the sales growth is. That's right. They actually had declining volumes, unlike a PepsiCo.

So maybe there are increasing signs that the consumer is pushing back. Right. I do think that's what's being expressed in the market right here, that there is some concern about how long know how long you can essentially defend uh revenue with the price increases in the categories that you know canagra competes in with their brands the company has a investor meeting in a couple of weeks maybe the street's going to be alert for anything in the way of uh potential brand sales or portfolio trimming things like that it's been a tough story story. It screens out looking like a cheaper stock within Staples, as a lot of the, some of the food companies do.

But it's really been sideways, this stock, in the 30s, I mean, more or less for seven years. So it's not a new story that there's a lack of faith and a lack of enthusiasm on the street for ConAgra in particular. But what it says for the macro is interesting, because you're going to have to start to second guess the plans for pricing power and the claims of pricing power, probably for a lot of companies this earning season based on what's going on in the economy and the commodity markets. Well, it's going to depend what brands you have, how strong they are.

It's going to depend what categories you're in, frankly, and whether consumers are still spending. We've heard a little bit more of softness in the durable goods category. I don't know if you heard the Max Lepchin interview from a firm saying that they are starting to see a turn with more delinquencies, turn in the credit cycle, but didn't actually necessarily say it was all bad for his business, that people are using buy now, pay later even more because they're struggling amid higher inflation. I was curious what you made of that interview and those comments,

especially around the weakness we have seen both in the private market around Klarna and public market like Affirm. I mean, look, the market is kind of saying it's an interesting new user category. They are going to get more market share longer term, but it's not fundamentally different from providing personal loans, selling those loans into the market, wholesale funding into a slowdown. It's not like you're getting better and better caliber credits as you make personal and product loans. So it's a tough business at this stage, and the market just more or less reflects that. Down about 100, well off the lows. What do you see in the internals? Yeah, it's been pretty weak to start. Actually, it was almost 90% downside volume to start the day. It's not turned fully, but definitely has improved improved just slightly still some broad declines on the new

york stock exchange and nasdaq outperforming home builders this month actually worth taking a look at still down much more than the market on a year-to-date basis but they have started uh to improve here as you see up almost eight percent in the last month or so the volatility index not a lot to say here kind of snoozing in the high 20s uh pretty much volatility index, not a lot to say here. Kind of snoozing in the high 20s, pretty much as expected. It's a pretty hedged up market going into the CPI market, at least still suggesting that we clear the macro away for a little while, get into the push-pull of earnings season, and it's holding above the lows for now, Sarah. All right. As we go into the close, Goldman Sachs, Travelers, and Caterpillar are the biggest Dow drags right now.

The NASDAQ is positive. That was the first place to really see the turn. We're seeing strength in groups like the chips, as we mentioned. Information technology is your best-performing sector right now on the S&P 500. Consumer staples and utilities are positive as well. What's not working today? The banks at the bottom of the list, along with materials, down 2% on the financials index. That is on top already of a big loss we've seen so far the year to date now, down 21% on the financials index. That is on top already of a big loss we've seen so far

the year to date now, down 21% on the big banks. As we go into the close, the Nasdaq is just barely positive. Apple is a big gainer, and that's part of the story there. Costco is doing well. Microsoft is higher. So is Nvidia. So is Amazon. Meta, though, not participating in the tech rally. That's going to do it here for Closing Bell. See you tomorrow, everyone.