Closing Bell - Closing Bell: Big Tech’s Moment of Truth 8/3/23

Episode Date: August 3, 2023

How will results from Apple and Amazon might drive the tape from here? Stephanie Link of Hightower, Malcolm Ethridge of CIC Wealth and Evercore ISI’s Mark Mahaney break down their expectations. Plus, Chris Harvey of Wells Fargo Securities expects this broader pullback to be “relatively short and shallow.” He makes his case. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner here at Post 9 at the New York Stock Exchange. This make or break hour begins. The stocks attempting to find their footing today in the face of fast rising Treasury yields. A morning dip in stocks finding buyers in the S&P 500 just below the 4500 level as another blast of big tech earnings and a jobs report await. You see there the major index is pretty much flattish going into those numbers. And of course, the payroll report tomorrow, which leads us to our talk of the tape, where we ask how results from Apple and Amazon right after the close of trading might drive the tape from here. Here to discuss all that is Stephanie Link, Hightower chief investment strategist and Malcolm Etheridge, CIC Wealth Executive Vice President. Both are CNBC contributors.

Both are here at Post 9 as well. Welcome. Hi. Steph, obviously, look, Apple and Amazon together more than 10 percent of the S&P. So they matter for the index, how the market reacts to these numbers. But in general, in the context of an earnings season that's been strong relative to expectations and yet the market is kind of shrugged on some level. Where do you think that leaves us as we figure out if this has just been a little bit of an air pocket in August? I think it's just a little bit of an air pocket, digesting the big gains, the double-digit gains that we've seen across almost every industry. And I think that, so I think August can be volatile. Maybe we trade around, maybe even into September, Mike. But I think the economy underlying is pretty good, right?

I mean, the economic data has been coming in a little bit better than expected, especially on the consumer side, especially on the job side. I know we get a jobs report tomorrow, which will be very important. But look, Challenger Gray today layoffs, the lowest number since August of last year, right? Initial claims are well below recessionary levels on a four week moving average basis. And of course, ADP yesterday blew away the number. So to me, consumer is good manufacturing, a little less good. But if you're in certain pockets within industrials like, let's just say, aerospace or onshoring, those companies are seeing booming earnings, right? So I think you add it, you add it all up. And I think that's been driven, well, that's driving

better than expected earnings. And I think. And takes the edge a little bit off these, these higher treasury yields. I think so. One sec, we're going to get back to this. We do want to get to former President Trump arriving at Reagan National Airport ahead of his arraignment. Let's get to Eamon Javers for more Eamon. Hey there, Mike. The former president, as you say, did just land here at Ronald Reagan National Airport in Washington, D.C. Take a look at the picture from just a moment ago. The Trump airplane landing in suburban Virginia here. The former president emerging grim-faced, I think you can say, saying thank you to some supporters there on the ground and making his way to his motorcade.

He's going to now motorcade relatively short distance to downtown Washington, D.C., where the federal courthouse is located. He's going to make an appearance there in response to a summons. And remember, this is a four count indictment of the former president of the United States. Unlike anything we've seen in the history of the United States, the indictment charges the former president of the United States with conspiracy to defraud the United States, conspiracy to obstruct an official proceeding, obstruction of and attempting to obstruct an official proceeding, and conspiracy against rights, specifically voting rights, all in the context of the former president's effort to overturn the 2020 election results. Now, we can expect the former president here to make a vigorous defense of himself. He is an active candidate for president of the United States. We've already seen a number of his supporters out there making the

case that this indictment is illegitimate on the grounds that it essentially goes after what they're saying is the former president's free speech rights to simply raise questions about the validity of the election results. The special counsel in this case, Jack Smith, clearly didn't buy that argument. He addresses it in the indictment. And we'll see how this court proceeding goes from here. We're expecting the former president to be making an appearance in court around 4 p.m. Eastern time as you watch the motorcade there departing the tarmac at Ronald Reagan National Airport and making its way to Washington, D.C. So we'll see the legal proceedings

in about an hour's time. The president's going to clearly, the former president's going to clearly have plenty of time to make it there. It's not a very long drive between DCA and the Pettyman Courthouse in downtown D.C. Guys, back over to you. Eamon, thanks very much. We will get back to you soon for sure on all that. All right. Back to sort of the market set up here. And Malcolm, what do we get into Apple in terms of what we expect to see, what we expect the market to take away from these numbers? And I'm fascinated by this in particular because it's seven and a half percent of the S&P. It's three trillion dollars in market cap. The stock's up close to 50 percent year to date. And yet it's a flat revenue year. Basically, we're not really expecting much in the way of growth in the overall business. So what are you going to be looking for specifically?

Yeah, flat may be generous. The consensus seems to be that Apple is going to come in with their third consecutive negative revenue print. And that's probably going to be overshadowed by a lot of positive talk about the next upgrade cycle, the iPhone 15, where we see sales going toward the end of this year, because that phone's going to roll out pretty soon here. And I think that any good news that they can say about that, any upbeat guidance that they can say about that, those numbers, that's going to translate to the street as positive confidence about the consumer as a whole. Because Apple is a huge consumer services brand, product brand, all those good things.

And so they reflect very positively on the consumer's willingness to spend. And so I think hearing good, positive guidance from Apple on that ecosystem and the upgrade cycle is probably going to be exactly what the market wants to take away from the announcement that we get from Apple. We have obviously a China comeback story in there as well. So it's many things to many people. Apple is. It better be good, though, at 30 times because it's expensive. The average 10 year valuation is at 19.25 times. So I get it. Services has changed the mix. And services, I think, will be the bright spot, Mike, for the quarter. And I think online advertising will be the driver of that. But you could see a service number of something like 6%. But I think expectations for next quarter is that it accelerates to 10%. So it's going to be very important. That's going to be the piece,

I think, that people focus on. Not the iPhone. We know that those numbers are going to be weak. Could I say, though, to that point, I actually don't care as much about the iPhone as I know the street cares about. I really want to hear more about Apple Financial, right? They made a big shift that people may not have noticed. They initially came out with Apple Pay, then the savings account, and the credit card, and all of those were done with subsidiaries, right? Those were on other people's platforms.

But then with this new thing, Apple Pay Later, they actually went through the trouble of standing up their own subsidiary, which means that they plan to take this thing a little bit more seriously. They applied for licensing. That's the first step to becoming a bank. And so I really want to hear more to your point about services. Where does Apple plan to go with the finance piece? Because that's where I think the new frontier could be for them, seeing services as that push and bringing in those dollars from Apple Finance. Yeah, it will help margins, too.

To get very excited about the potential for longer-term growth from here, it almost has to come from these new humongous categories that they're slowly building, I suppose. Steph, though, 6% services growth, that's pretty good. I mean, CPI was probably average 6 percent, you know, over the last little while. Right. So you look at if you look at, you know, relative to how the economy has been growing nominally, you know, you do want more. You want it to accelerate from here. And that's why I go back to valuation. What are you really getting in valuation for it for this kind of valuation? If you think that to Malcolm's point that the services can expand in categories, then sure. I mean, I would be more generous in terms of valuation, but still 33 times

is a really big number. And I think just to broaden it out slightly, I mean, Microsoft has traded soft after its own report and the report itself was perfectly fine, right? It wasn't as if people were taking a lot of issue with it. It's down 10 percent off its high. And it feeds into this general view that the huge popular mega cap Nasdaq stocks maybe did what they can do for you in the short term. So where does it leave the rest of the market? And that's why it's so important to focus on the economy, earnings. And then we're also seeing this broadening, too. Right. I hope the broadening lasts because that's you know, that's where I am. That's part of the cyclicals.

You don't want to ignore technology, but 35 percent of the S&P 500 waiting in tech and comm services, that's a lot. And as a portfolio manager, I would never have 35% of, you know, of technology or any sector for that matter. That's just not a good risk profile, right? So I hope that we do see a broadening. And I think the macro, the economy being better, actually supports the broadening. We will see the macro, the economy being better, actually supports the broadening. We will see, though, if Apple's positive guidance actually makes enough of a difference. Because as I told you the last time I was on with you, Mike, about two weeks ago, the market has responded with a big yeah, but. If we look at Uber, strong earnings. If we look

at Chipotle, if we look at Heinz, Kraft Heinz, if we look at any airline, yeah, but has been the response from the markets. And so even with positive earnings, this very well may be the last good earnings season that we get through the rest of this year. I know you're more positive on the markets than I am, but if it is, the market still is responding with a big yawn. Yeah, but they're up 40, 50 percent of the year. So you have higher interest rates and that's going to hurt long duration assets. I guess that's the thought, is that the market got a little bit ahead of this quarter. And we'll see if, in fact, this is the trough and we're going to grow from here.

Twenty twenty four results going to start to become a lot more expensive. Let's turn to Amazon. We can actually expand the conversation to Mark Mahaney of Evercore ISI can handicap for us. Mark, what we're looking for within Amazon, this is a stock that was really sitting out a lot of the rally until this year, had a big catch-up move, but still not quite all the way back. I think you set it up, Mike. And you may even have been charitable. Amazon as a stock has been a dog the last two years. It started to turn and three things that matter

tonight. Are we going to see this recovery in North American retail margins? I think that's a probability. Are we going to see signs of an acceleration in North American retail sales growth? And this is kind of the big data point on the U.S. consumer. I'm not sure I think it's possible we will, but I don't think Amazon's retail business is gangbusters yet because of the consumers not. But I think this possibility, we'll see some green shoots there. And then what really matters to the stock tonight is this AWS business, which has gone in freefall mode from 30% plus growth to now 10, 11%. But that's all in the past. The question is, will they acknowledge or will they guide to acceleration for the back half of the year? And that's an

unknown. I think it's 50-50 whether they do or not. We're going to be doing 9%, 10%, 11% growth year over year. If you had known that a few years ago, you would have sold every share of Amazon you had. That would have been the right call. But that's the past. What's going to happen now? I think you're going to get this acceleration moment, whether we get it into this next quarter's read or whether it's later in the year. I think it's coming. It's one of the reasons why I like the stock here. It's interesting, Mark, because you still do have kind of at least on the surface level, you know, the sell side is on board. It's mostly buy ratings out there. But there seems to be a lot of skepticism or just this barrier with with investors to really believing that there's a sense of urgency either on the cost side for Amazon or that they're

moving quickly enough in the right direction on AI, wherever that might mean for AWS. And so all of it together feels like they have something to prove. I think you're right. I think there's a fair amount of skepticism. I know this talks up year to date as a lot of joins with the other big tech names. There's a fair amount of hope, but I still think that there's a little bit more skepticism on this name. There's a higher level of skepticism on Amazon than there has been at most parts of the last, call it, eight, even ten years. Did they lose the cloud crown to Microsoft Azure because of AI? I think that's a real thesis that's out there in the market. Can they really recover these North American retail margins that went negative the first time

in a decade last year? Are they losing market share maybe to Walmart and other omni-channel players? That's probably less of a fear. The real big one, the elephant in the room is AWS. And is Amazon a winner from AI or is it a loser? It almost certainly is a winner. But, you know, we want to see that in the numbers. 10% year-over-year growth is not an AI winner. 20% is. And the question is, can we believe that they can get there next year at some point?

Right. Malcolm, you own Amazon. How are you thinking about it here? Yeah, I'm actually more interested in what Amazon is going to tell us about digital advertising, right? Because they slotted themselves as the third contender as far as the global digital ad sales market is concerned. But even more importantly, in the near term, I'm interested to hear what their plan is for the AI unit since they made this decision to go open architecture, right? Not the meta version of open architecture, but truly where builders can come in and decide to develop on the Lambda LLM. They can build on ChatGPT or anybody else.

And Amazon's positioned itself to get paid one way or another regardless because anytime they interact with that chat bot, whatever they build on top of it, Amazon Web Services is going to collect a little bit of a toll on that highway. And so I'm really interested to hear one where Andy Jassy sees opportunity

to take some market share in the global advertising space, but then also where the longer term picture is for AI as it relates to AWS. And Steph, you would think just in a really big picture way, the number of digital interactions Amazon has with customers, the number of transactions, the preferences, the volume of data that the company sits on, you would think that if those are, that's the raw material for kind of AI progress, that they have a lot to do here. Market seems to feel like, well, they're just kind of a logistics company and they're spending a lot to deliver people's stuff the next day and not really taking much of a margin off

of it. Yeah, it's not really the AI play, right? I mean, it is, but I don't think it gets the respect, like to your point. So AWS, if they grow 10% this quarter, the second half comparisons get much easier. And that's why it's going to be all the more important for the company to also not only talk about easy comps, but generative AI and what it can do to see that acceleration like Mark was just talking about. 10% is not really exciting. I do think they're taking share in e-commerce, Mike. And I think

if you look at the Prime Day, items bought were up 25% year over year. That bodes well. And they're fixing some of their delivery, their networks and that sort of thing. And inflation is coming down. We've learned that from FedEx, right? package yield per package came down substantially. So that should help. And logistics pricing should get better for this company. Right. And so I think it's probably going to be decent. I don't know. Fifty seven times forward estimates, 58 percent of the year, 22 times EBITDA. Yeah, there's a lot of expectations. Yeah, I know, Mark, that, you know, you make the case that on a cash flow margin, cash flow, multiple basis, it's really not make the case that on a cash flow multiple basis,

it's really not out of line with how it's traded in the past, using some assumptions for how much the company can grow. Where do you come down on this sort of sum of the parts idea? Not that it's going to be broken up, but I've seen some work that says AWS is worth 50% of the current market cap. Advertising might be 20 plus more of that from there. And you have this massive e-commerce operation that is not reflected particularly heavily in the in the one point three trillion dollar market value. Well, I know a lot of people do look at it on a sum of the parts basis. I think this company has no interest in spinning off AWS. And I'd be shocked if they were really forced to by regulators. I mean, truly shocking event. So I think that's a very low possibility event.

But if you do look at it on a sum of the parts basis, having said all that, the market generally, or a lot of investors have been willing to give that AWS business almost a trillion in value. I'm not sure they will if this growth stays at 10%, 11%, 15%. If it gets back up to kind of that golden you know level of like 20 plus yeah then you could start talking about that and then but some of the parts argument gets awfully uh attractive and on you know you throw in advertising and uh to malcolm's point and i agree with him on this you know i think amazon's the next 100 billion a year ad revenue platform out there it's going to take them a while to get there but i think they're going to be there so that's

all goodness for the margins you get this recovery by the going to be there. So that's all goodness for the margins. You get this recovery, by the way, in the AWS business, that's all good for the margins too. The pitch on Amazon, it's the best mix shift story in tech because the fastest growing businesses, they should be the fastest AWS in advertising, are much higher margins than the core business. So I just think there's this wonderful fundamental inflection point that we're right on the cusp of. I think we're going to get that in the second half of the year. And I want to buy the stock before that's obvious to everybody. Yeah, that's a good point that the faster growing business is going to become a greater part of the whole and therefore the multiple. For better or worse, it is traded right in line with the cloud sector in the last like three years.

So it seems to be the way the market views it for now. Everyone, thanks very much. Steph, Malcolm, Mark, great conversation. All right. Let's get to our question of the day. We want to know what's the best tech stock among the big ones to own right now? Apple, Amazon, Alphabet or Microsoft? Head to at CNBC closing bell on X, formerly known as Twitter, to vote. We'll share the results later in the hour. Let's now get a check on some top stocks to watch as we head into the close. Seema Modi is here with those. Hi, Seema.

And Mike, we got to start with shares of Expedia under significant pressure today following a miss on quarterly gross bookings, which came in about $1 billion short of Wall Street consensus, due in part to weakness in the U.S. travel market. More travelers headed overseas this summer. CEO Peter Kern telling CNBC earlier today that the travel market is not slowing down, just normalizing a bit. The stock, again, down 16% on pace for its worst day since March of 2020.

The market now awaiting booking and Airbnb after the bell. A different story, though, for Clorox, which is on track for its best day since the pandemic. Higher pricing helping offset volume declines in the quarter. Household categories like cat litter and barbecue grilling saw strong demand. CEO Linda Rendell still anticipating a mild recession next year, but the stock up nearly 9% at this hour. Mike? Seema, thank you. Talk to you again soon.

We are just now getting started. Up next, short and shallow. That's the call from Wells Fargo Securities' Chris Harvey on any pullback in stocks. He'll make his case after this break. We're live from the New York Stock Exchange. You're watching Closing Bell on CBC. Stocks off their session lows after an early dip of about half a percent in the S&P 500, now down two-tenths of a percent.

We had a surge in Treasury yields along with it. This all coming a day after Fitch downgraded the U.S. credit rating, driving equities lower, at least in part. My next guest says he expects this pullback to be relatively short and shallow. Let's bring in Chris Harvey of Wells Fargo for more on that. Chris, short and shallow. Sounds like the recession a lot of people had been predicting until we didn't get even that. I'm curious how you're thinking about the field position for stocks,

given that a lot of folks will say sentiment got over its skis coming into August, sitting on 20 percent S&P gains, seasonal weakness. We now have yields higher. What gives you the confidence this will be a viable debt? Yeah, so what we talk about, what we're saying to clients is the macro is incredibly strong. You're right. The market is up 20%. But if you look, credit spreads are hitting, or at the end of the last month, they hit year-to-date tight. If you look at consumer's net wealth, that is up. Furthermore, when you look at

the economy overall and the cash in the system, it's still plentiful. Mike, that's not to say there aren't risks. There are plenty of risks out there, right? You were talking about some of the risks with Microsoft and, excuse me, with Amazon and Apple later. We're also talking about the risks with higher rates. And again, we can get pullbacks. But at the end of the day, do we see a point of inflection with any of this? No, we don't see that point of inflection. What we see are pullbacks. We think they'll be short and shallow. And one of the things that we talk about is when we turn the calendar in September, the calendar will be stronger. That's when we have a lot of conferences. Optimism will start

to build. And we could see froth start to really build at that point in time. And that's when we have a lot of conferences. Optimism will start to build. And we could see froth start to really build at that point in time. And that's when we become concerned. But right here, right now, it's really more manageable, shallow and shorter pullbacks. Yeah, I mean, September or really even starting now, this focus on next year's potential earnings or next year's economy more broadly. And you don't think that necessarily we're going to hit bumps along the way in terms of the macro from here. I mean, I agree with you. Everything we can observe looks like things are liquid and risk appetites are healthy and we have a pretty good footing in the economy. But I just do wonder with yields where

they are and the Fed potentially having to do a bit more, whether it'll stay that way. Yeah. Yeah, Mike. So here are the two big risks that we see. The 10 year is making a beeline to four and a quarter. That's your that's your high over the last couple of years. That's your high for a long time. Right. If we get through that, then things could get sloppy. If we get some numbers, and I agree with the earlier guests, some of the reaction functions to earnings haven't been great because you've had such a great run-up at this point in time. But I don't think anything is going to break. It's just more of profit-taking, if you will. But the risk is that the 10-year, for some reason, continues to go higher and that

people don't step in. If you look at when the 10-year made it to four and a quarter back in October of last year, credit spreads were much wider. So your all-in yields were about 50 basis points higher. Maybe the current yields aren't high enough for people to step in and things get a little bit sloppy. The second thing that we worry about is something good happening, is that the consumer actually starts to step up and starts to spend even more. And what that does is it start to accelerate inflation again and that brings the Fed back to the table toward the end of the

year. But that's more of an end of year type issue. Yeah we do certainly have some time. You know next Fed meeting not till like late September. So we're going to get a lot of numbers between now and then now in terms of how to approach the

market I know I think you've been emphasizing maybe mid caps and smaller stocks or somewhere outside the very large growth names. Yeah. So, Mike, what we've been emphasizing is really mid cap growth. We think mid cap growth is your best risk reward. And the thing we've been focusing on is mid cap growth. But from a sector point of view, what we've also liked is we've liked that media and entertainment group that's done exceptionally well. It still has a lot of the corporate properties that we like. It has an AI kicker. It's working. And what we want to do is we want to balance that with something defensive. And that something defensive is healthcare

pharmaceuticals. And we think that's a good one-two combination. So if you're looking for sector play, we think it's still media still meeting entertainment barbell with pharmaceuticals or if you're looking for something that's a little bit better what we think is a better risk reward and can have some multiple expansion it's mid-cap growth and in terms of the overall uh valuation uh flag that's being waved out there people saying oh how can we sustain a 19 times s&P multiple if yields are here or whatever? What is the answer? Is it just to stay away from the biggest stocks? Yeah, that's something we've been contending with for some time. The issue and what we come back with all the time is valuation is not a catalyst.

Valuation is high and it's hard to really justify these valuations or really say that multiples are going to expand from here. And that's why we're looking at some of the other places. Media and entertainment still has a valuation that's less than the market. Pharmaceuticals does. Mid-cap growth also does. But, yeah, the valuation of the overall market is a little bit troubling. But at the end of the day, what we're telling clients is think about this as 2000, excuse me, 1999, 2000.

At that point in time, what really derailed the economy and the new economy stocks was the Fed as the Fed got more aggressive, not less aggressive toward the end of the cycle. We're just not seeing that at this point in time. So until we see some sort of major catalyst and that catalyst would likely be the Fed, we just don't think there's a big point of inflection. And that was and that was, of course, after the S&P spent about three years well above 20 times. So it didn't happen the moment we got there. Chris, thanks very much. Good to talk to you. Good talking to you, Chris Harvey.

Wells Fargo up next is a time to short bonds. That's the big call today from one billionaire investor. We'll debate it after this break. Closing bell, we'll be right back. Ten-year treasury yield hitting its highest level of 2023 today. Highs not seen since November. This after Bill Ackman said it's time to bet against bonds, specifically the 30-year. Let's bring in Jim Caron, co-CIO of Global Balanced Funds at Morgan Stanley Investment Management. Jim, it's good to see you today. We'd love your take, first of all, on actually what seems to be driving this sell-off in treasuries, this rise in yields. I mean, there's plenty of plausible explanations

out there. Obviously, pretty sturdy U.S. economy. You had the Bank of Japan last week getting global yields moving to the upside. Of course, the Fitch downgrade may be focusing attention on Treasury supply out there or other, I don't know, positioning. What's your take on why we're moving here and whether this move is sustainable? Well, good afternoon, Mike. And look, I think it actually runs deeper than even that. So I think there are four things that are taking place right now. Number one, the market is starting to think about a higher for longer Fed funds and even possibly one more rate hike. The second thing is that the narrative in the market is starting to incorporate a soft landing. The third is that by incorporating that soft

landing, they're reducing the risk or the probability for a hard landing. And the fourth part of this is that time is money, meaning that if you were in longer-dated bonds to get the duration protection or, I should really say, the hedge to your portfolio by owning longer-duration bonds, what people are realizing is that that came at a very, very big cost because the yield curve was so inverted with long-term yields so much lower than front-end yields that people were paying up for that hedge. And now they're not willing to do that as much, given that the expectations are that the Fed may stay higher for longer and that we'll have the soft landing. So I think those four things are probably more important than the recent Fitch downgrade or the Bank of Japan or anything or anything like that. And so what does it mean from here? I mean, it suggests perhaps we're in a higher range in terms of yield for some time. You know, I know you've been making the point that, you know, we go back a long way

before October when we got to like four point three percent of the 10 year before the global financial crisis, before you were out of here. So it seems like a trend change. But where does it carry us to? Well, look, I mean, I think a lot of it has to do with the shape of the yield curve, right? So even if we look at, say, the Fed funds to 10-year yield, if we look at that spread right now, that spread is like 130 basis points inverted, 120 basis points inverted, meaning that the 10 ten year yield is so much lower than the fed. Funds rate even if that went to flat even if that went to slightly a

zero for example. You would start to have a natural rise in in the long term- bond yields and that could bring ten year yields up towards you know it. Could be four and a half percent four point seven five even five percent. Is not out

of the question and that would still mean that the fed funds to 10-year spread is still inverted that doesn't even flatten the curve that so just keeps it negatively sloped and it just keeps it there but but but less negatively sloped than what it is right now or less inverted than what it is right now so is the bond is the market implicitly saying, first of all, if we got there, let's say we did get 10 year yields going back up to where Fed funds is right now, which is above five. Could the economy handle it? Is the market suggesting that, well, if we even got there, something would break along the way and we're going to have Fed rate cuts or something would disturb a linear move to that level?

Yeah, exactly. Mike, look, I think that's a great question. And that's why the yield curve is likely to stay inverted for a long period of time, because the further we are in this cycle, the more likely it is that something will break and that we're eventually going to have a recession. And as yields continue to move higher, what the market's basically betting on is that it can't handle those higher yields, that we could get there there but it could create a bigger downturn and that's why the longer term bond yields may stay lower than the fed funds rate but in the process they could be higher than where they are today and i think that's that's the

balancing act right now that the market is trying to actually figure out is how much lower should the 10-year yield be versus a Fed funds rate? Should it be 130 basis points lower? Should it be 50 basis points lower? Should it be 75 basis points lower? Whatever it is, all roads start to lead towards these higher back-end yields, as long as you incorporate a soft landing and a non-hard landing scenario. What does it mean to you as an investor in terms of where you see value, whether it is in fixed income and other asset classes related to this yield regime?

So, you know, the way that we start to think about this is that if we are gonna have a soft landing, then areas in the markets like, for example, high yield and even bank loans, if we have a lower default rate cycle if we have a mild recession I think these bond yields today the all in yields. Actually look

reasonably attractive. Non agency mortgages even look relatively attractive on the equity side. What I would say that I would start to look more along the lines of the value sector counting on a broadening of the breadth of the market.

And also also I would even start to consider some of the mid caps, counting on a broadening of the breadth of the market. And also, I would even start to consider some of the mid-caps and small caps. And the reason I say that is that I think a lot of the small caps are still priced for, particularly small cap value, is still priced for a recession at this point, and a reasonably decent recession. So I would argue that these sectors in the markets are not yet priced for the mild recession scenario. And you get to, particularly in the fixed income space and the high yield space, you get to get paid to wait, meaning that you get the positive carry and get to collect the income as you wait for this potential slowdown. And it's not so much of a question of when the recession is going to occur.

There is going to be a recession. The question is mainly how deep is that recession going to be and does it create all of these deleterious effects across other assets? And if the view is a softer landing, then you maybe have less negative side effects. Yeah. And you can play the lag time along the way, I guess, getting the yield. Jim, great to speak with you. Thanks very much. Jim Caron from Morgan Stanley Investment Management. Up next, we're tracking the biggest movers as we head into the close, plus the setup on Apple ahead of earnings. We'll break down the key themes and metrics to watch. Closing Bells will be right back.

Just about 18 minutes until the closing bell. You see the Dow down about 45 modest losses across the board. Let's get back to Seema Modi for a look at the key stocks to watch. Hi, Seema. Hey, Mike. As we wait for Apple, take a look at Qualcomm shares falling after earnings disappointed yesterday. The chipmaker came up just short of revenue estimates, but investors mostly focused on the company's softer-than-expected guidance.

With the smartphone business in a slump, Qualcomm, as we know, makes the chips and processors at the heart of a number of phones, including the most high-end Android devices. Deutsche Bank downgrading the stock to hold from buy currently down nearly 9%. Let's pivot and talk Etsy shares under pressure after the company delivered a softer than expected outlook for the third quarter. Though CEO Josh Silverman noting improving trends and active buyer growth accelerating, driven in part by international customers. Morgan Stanley cutting its price target on Etsy stock from 74 to 72. It's currently trading at 82 bucks a share.

Mike. Seema, thank you very much. Last chance now to weigh in on our question of the day. We asked what is the best tech stock to own right now? Apple, Amazon, Al alphabet or microsoft head to at cnbc closing bell on x to vote we'll be right back let's get the results of our x question we asked what's the best tech stock to own right now the choices were apple amazon alphabet or microsoft apple winner and still champion 40 of percent of the vote, the least loved for Amazon.

That's the other big name reporting after the close. Up next, we have your full earnings rundown, all the key reports you need to watch in overtime, plus expert analysis from star analyst Dan Ives just ahead of Apple earnings. Closing bell will be right back. Let's get back to Eamon Javers as former President Trump is just about 10 minutes away from his arraignment. Eamon. Mike, that's correct. We've seen the president's motorcade now arrive at the Barrett-Purdueman Federal Courthouse in downtown Washington, D.C. Take a live look at the pictures there of the media scrum outside.

Obviously, this is getting quite a bit of attention from global media. We were just down there walking through taking a gander at all the reporters who are there from all the way around the world broadcasting in all kinds of different languages. This is a historic occasion because it's the first time we've seen a president under indictment as he is now this week under these four charges relating to attempting to overturn the 2020 presidential elections. Nothing like this has happened in U.S. history before. We do expect that the former president will make an appearance in response to the summons inside this courthouse in just about 10 minutes time. Not entirely clear how long this process will take, but I want to

just draw your attention to this live shot, Mike, because what you're looking at is sort of the present modern day. But also you can see at the upper right hand side of your screen there, you can see the Capitol Dome, right, where the insurrection took place on January 6th. The stairs where many of the police officers were injured are almost visible in this live shot from the courthouse where the former president will be arraigned under this indictment now related to his attempt to overturn the election results in 2020, which led to that January 6th insurrection. And in the indictment, the special counsel says that the former president sought to take

advantage of the violence on that day, on those steps that are visible in that shot or nearly visible in that shot, in order to continue his efforts to overturn the federal election. All of this taking place just blocks away from the scene of the crime, so to speak, at least allegedly. So we'll wait and see what happens and what transpires inside this courthouse, but it's expected to get underway at the top of the hour at 4 p.m. Eastern. Mike, back with you. Eamon, thank you.

Talk to you again once that does happen. We are now in the closing bell market zone. Star Wedbush analyst Dan Ives is here to break down what's at stake when apple results hit the tape in overtime plus we're watching a number of other big earnings after the bell dear jibosa is standing by ahead of this make or break moment for amazon and kate rooney has the setup on block and coinbase welcome to you all first take a look at the broad market setup here. The S&P 500 down about half a percent earlier in the morning. It did find buyers once it cracked below 4,500. You see here where it sits relative to its 50-day moving average.

We had also another minor pullback in June. You can barely see it on the chart. It's about 2% to 3% over a few days. That's what we've had since the highs of last week, about 2% to 3% maximum downside. But if we did just get a routine pullback to that 50-day average, that's around 4,400. Probably put a pretty good scare into the market, even though it would still be in that uptrend. Treasury yields, big part of the story. All week, you're seeing the 10-year yield threaten those fall highs.

That was back new when the market bottomed in October, above 4.2%. So that's challenging a lot of the asset allocators out there maybe make evaluation a little bit tougher we'll see if this proves to be the top end of the range once again finally markets rotating it's not just backing off energy relative to tech actually it's been outperforming on a one month basis of course you go back any farther and tech is really built up a lot of, so far, the market is finding things to actually support it, even as some of the best-performing areas of the market do back away, which does bring us to Apple, biggest part of the tech sector, biggest part of the stock market as a whole. Dan, what are the one or two things you'd be looking for in the report that's going to determine whether this is considered to be a pleasant surprise or maybe a disappointment?

Yeah, I think first, China. Ultimately, when Cook talks about China, are they seeing an uptick there? We believe they are gaining market share. That's important, going through the drum roll iPhone 15 cycle. That is the hearts and lungs of Cupertino from a growth story. Second, it's margins.

Are they able to expand margins more and more? Because what you see on the chip, as well as just on the global scale, that's just giving them more and more of a talent. You combine that, I believe. This is really one going into September and December. It's a mini super cycle that continues to play out despite the macro. I expect good news from Cupertino and Cook. So you've obviously liked the stock for a long time. It's up 47% this year. You're looking at like a 220 price target, right? So even if you kind of like it, everything's falling into place. We're talking about

10-ish percent upside from here. Is that just tell us where the valuation is right now or is there something else that you're concerned with? Yeah, and that's base case. I think really it's all as we go into next year, if services uptick, and we believe you're getting back to double digits on services, we could be looking at 1.3, 1.4, potentially 1.5 trillion just in that services valuation, double digit growth, and what I believe ultimately be 100 billion from an annual revenue perspective. And then you look at the install base. I think the thing that most investors are not talking about, it's 25% of the $1.2 billion have not upgraded their iPhone in four-plus years. The pent-up demand continues to be the story.

And that's why, as we know with Cook, he's playing chess. Others are playing checkers. That's why when he speaks, everyone listens. That's what's going to come out tonight. I think it's the one-two punch between them and Jassy and Amazon. Granting you've got the install base, is there any reason to sort of rethink people's willingness to upgrade on time based on, I mean, Qualcomm's numbers doing what they're doing. The phones don't, they don't wear out. So I just wonder if there's anything structural that we should be worried about. I think

Qualcomm is really speaking to their share gain from Android to Apple. I think that's going to be a flexing muscle, but it all comes down to China. And that's where I think they're gaining share. And ultimately, I think for Apple, that's really putting fuel in the engine of this growth, despite many that continue to yell fire in a crowded theater on the valuation. Dan, thanks very much. We'll see the numbers pretty soon. Deirdre, what are we looking for for Amazon? Lots of different things, but perhaps most importantly, that AWS, that cloud business

number, it has come down significantly over the past six quarters. It's expected to come in at 10%, and that would be kind of in line with what the company told us last quarter. If it's lower than that, though, we could see the stock make some larger moves to the downside. If it's lower than that, though, we could see the stock make some larger moves to the downside. If it's higher than that, it could be to the upside. But really, it's a cloud business that makes up less than 20% of overall revenue, but is the profit engine of this company. Essentially allows Amazon to do all of the other things it does. We'll also be watching, of course, the North American retail online sales business. Investors are going to look for more efficiency after that huge build outout over the pandemic.

But in terms of spending, that's been a big topic for the other mega caps that we've already heard of. So we're going to want to listen to Amazon and their CapEx plans because while they spent on logistics during the pandemic, now they're going to have to be spending on cloud infrastructure to serve the generative AI boom. Mike?

Yeah, it seems like part of the bull case that people are trying to make on Amazon is that they can finally rationalize some things on the expense side, on the e-commerce business, just because they did make such heavy investments. Yeah, huge investments. They essentially doubled their logistics network over the pandemic and lost a lot of the profitability doing so. So yes, better efficiencies there, which we have seen. But then you have this whole other question that we saw from Microsoft and Google, and that is spending on cloud infrastructure, different kind of cloud infrastructure, GPUs to pay for the generative AI boom. So I don't know how investors are going to take that. But sure,

more efficiency on the core business that they've already spent on. Are they going to have to raise CapEx costs even further for this cloud story? Yep. We'll be watching, D. Thanks so much. Let's get to Kate Rooney on Coinbase and Block. Kate. Hey, Mike. So Block, the bar here for Block, we'll start with that one, is particularly high. This has been one of the strongest fintech growth stories over the last five years. It's seen about 40 percent annual growth in that time period. Cash app, that has really been the crown jewel for Block. Consistently has been surprising to the upside with 49 percent year-over-year growth earlier in the year, strong user growth and engagement. So that's a key area again this quarter. The app has also become an alternative to bank accounts. It does skew to more of a subprime consumer. So there are some concerns

about discretionary spending. Wall Street is expecting a deceleration of volume growth there. Also watch the square seller side of the business and then gross payment volume. That's a key metric. And KPI, Wall Street also looking for updated July trends. On to Coinbase, trading volume is expected to slow. You can pretty much see that forecasted in real time. So Wall Street very much anticipating that they're expecting spot volume down 35 percent quarter over quarter. That would be at a multi-year low. And then the take rate is also a key part of that expense discipline could surprise to the upside. And the call will likely focus on profitability progress over their recent regulatory developments and then any of the legal rulings. Stock is up 150 percent or more at this point this year. Also, one of the most highly shorted names out there.

So it's been quite a volatile one stock. Back to you. Exactly. And no coincidence there, Kate. Thank you very much. As we hit the close, 30 seconds left. The index is up from the morning lows. The S&P 500 was down about half a percent.

It's now hovering just above the 4,500 level. Breath is basically even. Market kind of hesitating ahead of those big earnings reports. Apple and Amazon together. They're more than 10% of the S&P 500. $4.3 trillion in market cap. We're going to get those numbers coming up next ahead of that jobs report tomorrow. That's going to do it for Cozy Bell.