Closing Bell - Closing Bell: China unrest spooks market, Cyber Monday sales outlook, The Fed’s latest signals 11/28/22

Episode Date: November 28, 2022

Civil unrest in China and hawkish commentary from the Fed sent global stocks tumbling in Monday trading. Anna Ashton from Eurasia Group and former Ambassador to China Max Baucus join to discuss the protests, and the potential impact on companies that do business there. Meantime early figures on holiday spending showed promise for retailers. The CEO of online sneaker and apparel platform GOAT joins to talk about his outlook for customers. Plus – venture capitalist Jihan Bowes-Little on Elon Musk’s leadership style, and the latest on Apple and Disney.

protests in China, some hawkish Fed signals sending a chill across markets today. The major averages firmly in the red here. We're near the lows of the day as we head toward the close. This is the make or break hour for your money. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand down almost 500 points now on the Dow Jones Industrial Average. It looks like taking the biggest chunk off the Dow is Goldman Sachs, Home Depot and Boeing. Though most Dow stocks are losers in today's sessions, the S&P 500 is down more than one It looks like taking the biggest chunk off the Dow is Goldman Sachs, Home Depot and Boeing. Though most Dow stocks are losers in today's sessions, the S&P 500 is down more than one and a half percent. Every sector is lower. The weakest links today, real estate, energy and materials.

The Nasdaq also down one and a half percent. Of course, this comes after a week where the S&P rose more than a percent. Take a look at Apple. It is near the bottom of the Dow again today amid concerns that protests in China will further limit iPhone production. More news on that for you straight ahead. Also coming up on the show this hour, we will discuss the rising tensions in China and how the widespread protests could how how widespread they could become when we are joined by former U.S. ambassador to China, also former Senator Max Baucus. Plus, David Zervos from Jeffries will break down the impact of the political unrest on the global markets and the economy. But first, let's get to the market dashboard with senior markets commentator Mike Santoli. Interesting staples and discretionary holding up the best. You've got a few retailers

doing well today. Tesla is to the upside, at least it was last I looked. That definitely helps the discretionary sector. But yeah, it's very hard actually to tease out a very clear storyline today because it started out with a bit of a shadow of global growth fears. You saw oil down, bond yields lower. Of course, the concerns about what was happening in China gave this very much a feel of we're worried about the growth story. And then oil picked up early afternoon. You also saw some of the Tesla China tweets got Apple to the downside. The net effect is it brought the S&P down a little bit less than a percent or about a percent and a half right now. It's essentially back to where it was a week ago. We've been in this very narrow range. The market has acted

pretty fatigued, I would say, after this rally. We've gotten off the mid-October lows, but still well-supported. So my point is, if you're above 3,900, it's not really breaking the short-term trend. But we are a little bit on alert for some catalysts this week. Jay Powell speaking, PCE data, as well as jobs on Friday. So you see they're kind of sideways for about 10 or 11 days at this point, 10 or 11 trading days. Take a look at the global market breadth figures here. This is compiled by Ned Davis Research.

This is a percentage of stocks above their 50-day average in the entire world, all-country world index, and then above the 50-day. This one here, it's not quite decisive, as you can see. It's topped out there a few times in the last year. So you haven't gotten escape velocity, but there has been better strength underneath the surface of the index

that shows you with this reset in valuations and with Europe actually breaking its downtrend to the upside, it seems as if some value is being created, but you can't yet say that you're, that you've kind of out of the woods on this breadth measure. S&P is still up about 2.4% for the month of November. Two more days of trading left after today. Mike, thank you. We'll see you for Market Zone. Let's go now live to China as protests flared over the weekend, sparked by the country's strict zero COVID policy. Our Eunice Yun joins us from Beijing with the latest. 4 a.m. there, Eunice. What was it like tonight? Were there more protests? There were not more protests. However, security is very, very tight. This is after the weekend protests, which were arguably the most open show of defiance against the Chinese Communist Party since the 1989 crackdown in Tiananmen Square. These protests erupted in multiple cities, including here in Beijing, and were triggered by a deadly building fire in the far western city of Urumqi, which many people believe was worsened by

COVID controls. The bulk of the public anger has been directed at the zero-COVID policies. However, there are indications that there are more wider-spread grievances. Many people were holding up blank sheets of white paper to indicate their frustration with censorship. Also in Shanghai, people were calling for the resignation of President Xi Jinping. Now, Beijing has so far indicated that it is going to stick by its zero COVID policy, mitigating some of the most excessive curbs. But also interesting tonight, Sarah, is that Shanghai police have now been — Shanghai residents have now been saying that police have been conducting random checks of their phones, looking for VPNs and foreign apps, including Twitter, Instagram and Telegram,

and searching for the term Urumqi. So obviously very sensitive, looking for anybody who could be involved with the protests. Yeah, this is the clampdown, I guess. Eunice Yun, thank you so much for that live report staying up late for us tonight in Beijing. Let's bring in Eurasia Group's Anna Ashton. She's their director of China Corporate Affairs. Clearly, Anna, investors are watching this very closely. What are you telling your investor clients as far as how big this could get? Well, you know, Sarah, we've mainly been telling them not to get overly excited that this means there will be a more precipitous lifting of zero-COVID measures and not to embrace sort of overblown initial takes on these protests that liken them to Tiananmen Square or even the 2019 protests in Hong Kong. And it's sort of a confirmation of that, that Eunice reported that, indeed,

the protests seem to be quieting down. That's pretty much what we were anticipating, although that's actually faster than we first expected. And to be clear, you think they will quiet down because Beijing will completely clamp down on them and send the police out? So we actually think that there is there's other evidence that the central government would like to loosen the zero COVID policies. The trouble is exactly how to do that without ending up in a situation where there's a super disruptive outbreak, because there just aren't enough people vaccinated right now for the population to be able to withstand

an opening up that doesn't create a serious outbreak. But we have seen signs, the release of 20 measures earlier this month, indicating that crackdowns or lockdowns should be more targeted. And also, Xi Jinping's appearance at the G20 where he wasn't wearing a mask, and that was pretty high profile. That being said, we know, we don't expect that there can be any immediate lifting. And I guess our speculation about the protests is that they may be allowed to continue to some extent, especially if they're focused on the COVID measures themselves. It's a little bit different matter when they're overtly political and criticizing the central government and Xi Jinping himself, as we've

been seeing in Shanghai. And there may be pressure on local governments to further limit the lockdowns. So ultimately, you do think this leads to more relaxing of policies, which is, I think, the way the market is interpreting it, because some of the biggest winners in today's session are the China-linked stocks. Pinduoduo, for instance, is zooming. A lot of these, the KWeb China ETF is actually up today in a down market. So, Anna, my question has to do with U.S. companies that operate there, Nike, Apple, which is under pressure because of supply chain. They've been dealing with the zero COVID lockdown, rolling lockdowns. Now, the protests. Do you think that American companies will get dragged in here, not just from a supply chain perspective, but a political one, if the protests do indeed grow? Doesn't it make it harder for them to explain being in that country?

I mean, certainly it does create reputational risk, as do many things between business and China right now for U.S. companies, but probably in most cases no more so than has been the case over the course of the COVID pandemic. I think that the greater concern is not reputational risk, even though we do have the example of the Foxconn protests as a big high-profile one. The bigger concern is really, you know, the disruptions to business operations. Right, which they're dealing with and figuring out. Anna, thank you for shedding some light on this for us. Thank you.

Appreciate it. And Ashton from Eurasia. Adobe says online spending on Black Friday did hit a record, but will Cyber Monday see the same type of strength? We'll ask the CEO of apparel platform, GOAT. And later, David Zervos from Jeffries here to break down some new hawkish commentary today from the Federal Reserve ahead of Fed Chair Powell's speech on Wednesday. You're watching Closing Bell down about 500 points at the lows of the day here into the close. We'll be right back. Welcome back.

Stocks under pressure on Wall Street today, losing steam throughout the session. Here's a live look at the S&P 500 sector heat map this hour. And you can see every sector is under pressure right now. Who's getting hit the hardest? Well, it's real estate, energy, materials, and technology. Consumer staples and consumer discretionary are faring the best, but they're both down. Names like Altria, Church & Dwight, J.M. Smucker, Coke, and Walmart remaining higher. And then in discretionary, as Mike said, you've got Amazon and Tesla both higher,

so that helps that group. But Target, Advanced Auto Parts, and Wynn are also helping out. Meantime, it is Cyber Monday, and the early results for the holiday shopping weekend looking promising for retailers. Adobe says a record $9.12 billion was spent online on Black Friday, and that was up 2.3% from last year. Our Frank Holland joining us now from a Best Buy fulfillment center in New Jersey. How's the action there, Frank? Yeah, it's pretty busy here, Sari. I don't know if you can hear the noise, but behind me, a lot of picking and packing going on, a lot of people shipping out online orders. Today, however, we're getting data that the top retailers searched for on this Cyber Monday

are Walmart, Target, Home Depot, with the top pick being Amazon, as estimates for spending on this Cyber Monday have increased since just this morning, and as estimates for spending on this type of money have increased since just this morning and as Black Friday spending accelerated over the Black Friday weekend. So take a look at this. On Friday alone, the average spend per online checkout, it was $101. Then if you count the whole weekend, that's Friday to Sunday, the total was $113 on average, showing a strengthening consumer over the weekend. Discretionary spending, that was also on the rise. Luxury spending up 26% year over year during the Black Friday weekend. Other categories like toys and games, also shoes, seeing even bigger gains. Also, this was a bit of a techier Cyber Monday, if you will. Mobile spending on Cyber Monday, excuse me, over the Black Friday weekend, that reached a record record up to 52% of all spending.

It was only 48% the year before. And then also a higher conversion of social media to mobile checkout. 22% rise on that as more and more people look to shop on their phones. Back over to you. Frank Collins, some healthy numbers there. Thank you very much. Even though higher prices for everything as well. For more on what the consumer is buying this season, let's bring in Eddie Liu.

He is the CEO of The Goat Group, which sells items from brands like Balenciaga, Nike, and Supreme on its online platforms. Everybody knows you as a sneaker reseller, but you've expanded, I know, into apparel and other things. How's the online shopping season this year relative to where it was last year and previous? Sarah, it's our favorite time of year, of course, Black Friday. And this year was bigger and better than ever. So excited to announce that on both sales and engagement, we had an amazing Black Friday season. We had almost 2 million members attend our event.

And they shared over 56 million times on their social media platforms for our raffles, our drops, and our auctions. So is that a reflection of a consumer, a U.S. consumer, that's in good shape financially, or just more action in the sneaker market? Well, a common misconception with GOAT is that we only sell high-priced sneakers, but we actually sell the whole gamut. A big percentage of our sales are actually under retail price,

and so we have something for every single consumer on our platform today. Under retail price, what do you mean? So under the MSRP of a sneaker because given that we're a marketplace, sellers can choose to sell at whatever price points they want and if they want liquidity like in this market they will sell for under retail price so that the buyer benefits. How are the prices of Yeezys right now? Yeezys have gone down,

but, sorry, prices of Yeezys have gone up, but sales have come down a little bit. And what we're seeing with the consumer is that they're choosing with their wallet. They're saying, hey, I might not support this sneaker, but I'm still a fashion and sneaker enthusiast, so I'm going to buy other styles, other brands, other silhouettes. So we're seeing a big surge into brands like New Balance, for example. New Balance has gone up 90% year over year on our platform because people like comfortable, chunky styles now, and New Balance has really helped that. So prices up, sales down. Just wondering, were you conflicted at all when it came to the decision of whether to keep letting Yeezys be sold on your platform after what he said?

Well, first and foremost, GOAT does not condone hate speech of any kind. Kanye is not a seller on our platform. He does not have a direct relationship with us. Our job as a platform is to connect our buyers and sellers in a safe and authentic manner. And what we're seeing is that customers are choosing with their wallets to buy other brands as well. Really interesting. What about, I'm just thinking the protests in China are front and center. A majority of sneakers in this country are still made there. Do you worry about the supply chain issues as the zero COVID policy continues here?

Well, international is a big focus of ours. And what we're seeing with the strong dollar especially is that internationally, there are a lot of sales into the U.S. from outside of the country. So it's not just China, but we're seeing sales from Europe, from Japan, Singapore, etc. selling into the U.S. consumer because of the strong dollar. But what about supply chain in China and access to sneakers? We haven't seen that disrupt our supply chain because we are mostly single parcel versus container load. So for us, we're still seeing strong exports from our Chinese sellers into the U.S.

Interesting. Eddie, thank you very much for the snapshot of the business. Thank you. I'm good to see you in person. Eddie Liu is the CEO of Goat. Show you where we stand right now on the market. We've got a sell off and it's actually accelerated in this final hour. We're now down 525 on the Dow, 1.7 percent on the S&P 500 and one and three quarters percent on the Nasdaq as well. Nasdaq getting hit in particular hard by Apple, Microsoft, NVIDIA,

Meta and Alphabet. Amazon and Tesla remain higher, just barely. Still ahead, venture capitalists has had some, Gian Boas Little has had some successful exits in companies like Airbnb, SoFi, Coinbase and Palantir. We're going to ask him where he's putting his money to work in this uncertain tape as tech gets hit hard today. As we head to break, check out some of today's top search tickers on CNBC.com. The 10-year yield gets the most interest as usual. We're seeing 3.7% on the 10-year. So there's buying today. Yields are under a little bit of pressure. That's a bit of a reversal than what we saw earlier in the session. Actually, the yield's a little bit

higher. So the red actually reflects the price. Yields higher. Hawkish Fed speaks strong dollar. We've got Apple in there, WTI crude, which has reversed higher now, Tesla and Amazon. We'll be right back. Check out today's stealth mover. It is Anheuser-Busch InBev, up 2.7%. Investors are brewing up a rally for the stock after J.P. Morgan double upgraded it to overweight from underweight. The firm says they see scope for earnings outperformance and an improving balance sheet for the company. Drivers include a rebound of domestic light beer here in the U.S. and sustainable momentum in Latin America. The stock went beer-zerk on the upgrade.S. and sustainable momentum in Latin America. The stock

went beer-zerk on the upgrade. It's up a stellar 2 percent. Thank you to my brilliant producers. After the break, former U.S. ambassador to China Max Baucus says China's Xi Jinping has put power and politics ahead of science and facts when it comes to the country's COVID response. He's going to join us next with his take on the civil unrest in that country. We'll be right back. Frustration over China's zero COVID policy has boiled over into protests across the country, a rare showing of nationwide civil unrest this weekend as a rise in infections prompts lockdowns in many cities and regions in China. Joining us now is former U.S. ambassador to China under President Obama, Max Baucus. He's also a former senator from Montana. Mr. Ambassador,

Mr. Senator, I guess ambassador for this conversation. It's good to have you. Welcome. Thank you. How big of a deal, how big of a problem is this for President Xi? It's a huge problem. He's in a big, big box. On the one hand, his strategy to curtail COVID has worked. Let's not forget that we in America have had 100 million cases of COVID and 1 million deaths, whereas in China, a population of four times the size of the U.S., there had only been one million cases of COVID and only 5,000 deaths. So COVID policy, the zero COVID, has really worked really well in China, but at a huge cost to the people of China and also to the Chinese economy. And because the lockdown has caused, is continuing so long, and because a lot of people are wondering why in the world do we keep this lockdown? Look, they watch TV over in Qatar, they see the World Cup and nobody's wearing masks.

Other countries, people aren't wearing masks. And so that's really bothering them. But to be honest about this, to some degree, President Xi knows that if he opens up too much, because so much of the country has not been exposed to COVID or any new variants, there's probably an explosion of cases. And there's not the beds in China. There's not the vaccines in China. He's too proud to take Pfizer or Moderna vaccines. He's in a real, real box.

It's a real problem. It's facing him. You said the zero COVID policy worked, I guess, if you thought that COVID was sort of one and done, but it's not. It's going to be with us for a long time. So I don't understand what the plan is there for opening up an economy and not exposing their population, largely unvaccinated to Western vaccines, to COVID. So as an investor trying to figure out whether more lockdowns or less lockdowns, which is it? Well, you put your finger on the problem. I think the lockdowns are going to

essentially continue for a while. I think the rise in COVID cases do in part in China, do in part to the relaxation that's caused President Xi to get locked down where he was in the past. My sense is you have to kind of think the long term. You've got to have a real stomach for all this. You've got to invest in China. I think they'll start to open up a little bit, but it might not be until the second quarter, probably, of next year. He has to moderately do this.

That is open up. He also has to find ways to get vaccines, figure out a way to vaccinate his people, especially the elderly who are not vaccinated. He's got to do what needs to be done so they can open up so the economy can start to percolate back where it was before. How does this affect the U.S. and the U.S. relationship and dealing with China now with Xi facing his own domestic crisis? Well, it's hurting the relationship a bit. First of all, American business likes to do business in China, if it can. China has been tidying up a little bit, but not a lot.

A lot of American businesses are doing okay in China, not great. But this has a dampening effect probably on the relationship. The real tragedy here is that several years ago, when COVID came on the scene, there was opportunity for the United States to work with China. We had vaccines and we're using vaccines. Some of them are European. We're going to help China develop their own immunity, that is vaccinate their own people. We didn't do that. But basically, it's really tragic because.

Why don't they just buy Moderna or Pfizer vaccines? Why don't they just suck that up given what is at stake here? They bought some for foreigners, but I think a lot of it's just pride. They want to develop their own vaccine. And if they feel they've got to give it and buy other countries' vaccine, then that shows that they in China are in some way inferior. I think it's most of it, I think it's pride. Well, thank you very much for weighing in. Appreciate your perspective here. Former U.S. Ambassador to China, Max Baucus. Take a look at where we stand right now, heading into the close, continuing to move lower, down 535 right now. The S&P 500

is down about 1.7 percent. We're sort of resting at this level right now. Again, every sector is weaker. Real estate energy materials getting hit the hardest, even though weaker oil prices earlier, weaker on the Chinese stock sell off and concerns about the global economy have turned around. Oil prices are now a little bit firmer. Seventy six ninety six on WTI crude. Up next, we're going to talk to venture capitalist Jihan Bose Little, who has had successful exits in companies like Airbnb, Lyft, Coinbase. We'll ask him where he's investing now amid this year's big IPO drought. As we head to break, check for you on Bitcoin taking another leg lower to start the week as another crypto firm goes bankrupt. BlockFi says it has filed for Chapter 11 bankruptcy in the

wake of the collapse of FTX. BlockFi says it has more than 100,000 creditors. We'll be right back. Losses in the Nasdaq really picking up this hour. We're sitting near session lows down 1.8%. Christina Partsenevelos is at the Nasdaq market site. With a look at some of the mover, it's not like we're seeing a big spike up in interest rates or yields, which would usually signal a lot of the tech pain.

What are you hearing? We did see the yields climb after 10, 11 a.m., but they've come down a little bit. But often the Nasdaq can be seen as a proxy for China, given the number of listed companies who have exposure to the country. And the current protests right now represent uncertainty. And we know markets don't like uncertainty. So speaking of China, Apple down almost 3% right now on problems at factories in China, as well as lower demand for the iPhone 14. Other names with exposure to China, semiconductors, and also contributing to some of the biggest laggards right now on the NASDAQ 100.

You've got NXPI on your screen, Micron, both of those down almost 5%. Qualcomm as well, almost 3.5% at the moment. Wolfspeed is another name down about 7% right now. But running contrary to that China narrative right now is Pinduoduo, a Chinese e-commerce firm. That company is up 13% and the biggest winner on the Nasdaq 100 right now after a strong Q3 profit and revenue beat. It just hit a one-year high. You can see it climbing on your screen right now. And JD.com, another Chinese tech firm, rising in sympathy as well. And we do have some names, not many, but some names in the green on the Nasdaq 100. That would be Ross Stores, could be some bleed over from Cyber Monday, Black Friday, and then you got Lululemon in the mix,

as well as Amazon. But none of those names are even half a percent higher. Thank you, Christina. Christina Parsonevalos. Well, it has been a positive month so far for the tech sector, but you can't say the same for the IPO market, which is down 7 percent. And with rising rates and Fed tightening, what's next for IPOs? Joining us now is Jihan Bozlittle, co-founder and managing partner of Bracket Capital. And I feel like, Jihan, you're a perfect guest to talk about the interplay between the public market and the private market because of your time at Goldman Sachs, because of your time on a credit desk. What's happening in the private market as we continue to see the nervousness, especially in tech stocks and IPOs in the public markets? Yeah. Thanks, Sarah. You know, it's very similar to what we're seeing in the public markets as well. I would say the IPO window is effectively closed. You know,

it's closed for the great companies, the category leaders, because they're well capitalized enough and have enough leverage to wait out the volatility in the current markets. And so choose to chart their own course. And it's effectively shut for all the second and third tier businesses for obvious reasons that you mentioned earlier. And so this is much more of a time of deployment for the venture capital industry. I think the period for harvesting was the last 24 months. These things flow in cycles. And so we're focused here on acquiring businesses, acquiring shares in companies where we feel like there's been an overreaction. But certainly, we expect the IPO window to be shut for the foreseeable future.

And we don't expect that to change until there's some more stability in the rates markets with respect to that expectations. So like what? Where are the opportunities? Where are the overreactions? You know, one of the interesting things about venture capital is companies raise money so infrequently that the valuations are punctuated by infrequent primary rounds that happen every 12 to 24 months. We tend to focus a lot of time on the secondary markets. So there could be overreactions in any space or any sector because the sellers that you're looking for are either early employees or early investors. Companies that are well capitalized are not going to raise money into this downturn. You know, high quality CFOs, high quality C-suite teams understood the era of easy money they were in over the past 24 months. Most of them are very well capitalized and now they're

in a race where they're hoping that their growth outpaces the inflation, you know, and the volatility in the markets. Companies that need to come to market are going to have to take serious haircuts to their last rounds. And we've already seen some of that happening over the last six to nine months. So what are we talking about, serious haircuts? Does it match up with NASDAQ's down 30 percent this year? Absolutely. You know, high to low, I would say the moves are actually more commensurate with things like the Renaissance IPO index and even the SPAC market. Some of the higher growth, unprofitable names on the private side in the secondary market are down anywhere from 50 to 90 percent.

Those are typically concentrated in businesses where the path to profitability is less clear, where the unit economics haven't been proven out. Essentially, investors are less willing now to value future cash flows at the same level they're willing to value present cash flows. The flip side is that, you know, you're thinking of some of the category leaders, SpaceX, names in the defense sector like Amiro, ESG levered names, and solar technology, etc. Businesses where previously there were very well-funded second and third tier players coming in with easy money from essentially very large mega cap funds, creating pricing wars, forcing them to price down. You know, we're seeing a lot less of that now. So we actually feel like the second and

third order effects of this will be a consolidation of capital around some of the incumbents, which will actually probably benefit some of these market leaders in the next, you know, 12 to 24 months. But currently, you know, I think the correlation is actually relatively one for one on the private side. You mentioned SpaceX, and I know you're an investor there, a longtime investor there. I was curious if you had any insight into the leadership style of Elon Musk, given we're trying to figure out what he's going to do with Twitter, how he's managing, you know, all of the companies that he's the CEO of, if you could shed some light on that. Yeah, I don't have any insight per se into the leadership style. But what I will say is that, you know, he's proven many naysayers wrong with Tesla. You know, SpaceX is the most highly valued

public company, private company, certainly in the U.S. And, you know, the leadership is very broad based there. So, you know, we continue to think that SpaceX is probably the most idiosyncratic name in private markets. A Fed fund rate of 3.75%, 4.75% is not really going to affect the long-term implications of that. It's much more down to the execution and the technological innovation, which they've thankfully been very effective at doing over the past 20 years. Gian, we appreciate you joining me. Thank you very much. Thank you. Gian Bozlittle.

After the break, the talk of the town hall. We'll bring you the highlights from Bob Iger's first gathering of employees since taking back the top job. That story, plus Apple's exposure to China and David Zervos on the Fed when we take you inside the Market Zone. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Steve Kovac on Apple's exposure to China and Julia Borsten with the highlights of Bob Iger's town hall at Disney. We'll go back on Apple's exposure to China and Julia Boorstin with the highlights of Bob Iger's town hall at Disney. We'll kick it off broad, Mike. The Dow is down more than 500 points. The Nasdaq is down 1.7 percent.

And the S&P 500 is also down almost 1.7 percent. Sure, we've got China out there. We've got hawkish Fed speak. The market kind of is aware of those issues. I guess the China unrest is a bit of a new wrinkle. We're also coming off of a strong period where the market has rallied on hopes, Mike, that the Fed might be ending sooner rather than later. Yeah, I mean, last week you did get just a little bit of a levitation, as sometimes happens during a Thanksgiving week. I don't think today's action

completely undoes the basis for the lift we've gotten in the last several weeks, at least since the last CPI number. So it's not as if the market is in a Fed-induced panic. You're not seeing yields react in a way that would say that's what's going on. But the market has been really unable to build on the gains for more than two weeks right now. And you had semis very overbought coming into today. They're backing off. Apple is a big weight on the indexes. That does seem more specifically China related and iPhone demand related. So a lot of those issues coming together in a market that has really just been churning around these levels for quite several days. But let's talk about Apple then, because it is

falling today on reports that disruptions at its Foxconn factory in China might lead to a production shortfall of six million iPhone Pro units. That factory has been the site of worker protests triggered by those strict COVID restrictions in the country. Steve Kovach joins us. Steve, is this proof that Apple is too reliant on China? Where do those numbers come from? Yeah. Yes and no, Sarah. It's kind of hard. It's it's either way you look at it. Yes. In the sense that, look, when these zero covid policies take place, we saw the reaction to that from the employees there. They protested those images coming out of China over the last several days have just been harrowing to look at and really kind of highlights the the human cost

that goes into building these phones. At the same time, China's the only place with the infrastructure where they can spin up factories when they need to and dial things back when they need to based on supply and demand pressures. For example, just a few days ago, they needed to hire 100,000 more people at that factory to make up for those COVID lockdowns. Some people were running out and escaping,

and they were able to do that very quickly. And then the protests happened because they weren't getting those bonus paid. So it's a PR nightmare for Apple to have the people making these phones and assembling these phones in their most important quarter ever. It looks bad on that sense. And then from the investor standpoint, they might miss revenue growth targets for the iPhone business, especially in China, which accounts for about 15 percent of all their sales. So it's kind of yes and no. But at the same time, especially in China, which accounts for about 15% of all their sales. So it's kind of yes and no. But at the same time, Sarah, they are making efforts to

take away their reliance on China. We see them creating more iPhone 14s in India, for example. But none of those extra production facilities can make up for just the behemoth that their China operation is. While we're talking about Apple, Steve, I want to ask you about... I know what's coming. Elon Musk, Twitter, picking a fight with Apple, accusing them of censorship, threatening to take Twitter off the App Store, calling them out for pulling advertising. Where did this come from?

Yeah, I would look at what started this conversation, Sarah. So Apple has not responded any requests for comment on this. But, you know, Elon is claiming here that Apple told him, you know, they're going to yank his app off the App Store and didn't give him a reason why. I do know that's not how the app review process works. They don't just, you know, they will highlight problems with the app. They'll send it back for fixes before they yank it down. Just look at what happened with Epic and the Fortnite removal a couple years ago. They didn't just pull the app for no reason. They waited until Fortnite or Epic Games came out and said deliberately rebroke the rules, and that's when they took it down. So especially for a major app

like this, especially with Elon Musk saying over the last few weeks, too, they want to moderate. They want to keep things brand safe for advertisers. And that's the kind of stuff that Apple likes to see when going through the app review process. So the chances of them actually yanking the app, unless something drastically, drastically changes on the way they moderate the content, if they kind of remove some more of their safeguards, if they remove the human moderators or any kind of ability to block people who are harassing you, then maybe it could be at risk of being removed.

But right now, there hasn't been anything that I've seen, at least, that would make Apple want to remove it. So it seems to be a lot of bluster, maybe perhaps because he's upset about the drop in ad spend. Exactly. I was going to say, it's almost more interesting just to watch the relationship and the tension there between Apple and Tesla. It's all one-sided right now. Apple's kind of staying out of it.

I was going to say, let us know if Apple weighs in. I feel like it was a fraught relationship a while ago when Musk went after Apple for the 30 percent charge on its app store, which is, of course, something that other companies have accused it of violating antitrust laws. I just want to point out we're at the word. Thank you, Steve Kovach. We're down 540 or so on the Dow. We are at new session lows. Home Depot and Goldman Sachs and Boeing are taking the biggest chunk off the Dow. But you've got most Dow stocks lower. The only two bright spots right now are Walmart and Merck. Disney is one of those stocks weighing on the Dow.

It's down more than 3%. It's underperformed the Dow and the S&P 500 in the weeks since Bob Iger's return as CEO. Iger holding his first employee town hall this afternoon. Julia Boorstin here with more. What did we learn about Iger's plans? Well, he said that he was going to stick with the plans that Bob Chapek, his predecessor, laid out in terms of doing a hiring freeze. And he said they, quote, we have to take a very, very hard look at our cost structure across our businesses.

So very much laying out, laying the groundwork for some sort of cutbacks, but also talking about this restructuring that he wants to implement, saying that he doesn't have a specific timeline, but he knows they want to move forward with this restructuring quickly. But the other thing I just have to point out, Sarah, as he said, when it comes to the all important streaming business, that they are no longer going to be chasing subscriber growth at any cost. Now they're going to be focused on profitability. So that is a key thing to keep in mind as we watch some of these content decisions, which films they may be sending to theatrical first and what kind of investments they're going to be making into that streaming content. Good intel, Julia. Thank you. Mike, Disney could be a China angle as well. Obviously, Shanghai Disney is really important to them.

How's that? How's Disney been trading since the Eiger news? Is it with the media stocks and the streamers or sort of its own animal? Roughly, yes. I mean, there was an initial pop on the day after the news broke, their sense of relief that there was some sense of urgency on the board. On the other hand, I think pretty much the street was clear-eyed about the fact that there was no particular switch that Bob Iger could flip, and it was all of a sudden going to overcome a lot of the challenges that's facing Disney and the entire industry. So it has been a tough road, yet a pretty rough box office weekend in general, including for a Disney release.

And just a broader sense out there that it's not the best time to be reliant on advertising growth. So all those things mixed together. I mean, the stock's basically trading right in that same range above 90, where it has hit the recent lows. Well, my kid, I guess, was one of the few that saw Strange World this weekend at the movie theater. Did your part. Harrison Levine loved it.

Thank you, Mike. New York Fed President John Williams today calling on higher rates to tame inflation, forecasting no cuts until at least 2024. Listen. We need to keep a restrictive policy in place for some time. I would expect that to continue through at least through next year. So I think, you know, when I think about the future path, I do see a point probably in 2024 that we'll start bringing down nominal interest rates because inflation is coming down. Meantime, St. Louis Fed President James Bullard out with hawkish comments as well, saying the Fed will need to keep raising rates into 2023, may need to go higher than 5 percent. All of this ahead of the closely watched speech by

the Fed chair, Jay Powell, at Brookings on Wednesday. Let's bring in David Zervos, Jeffrey's chief market strategist. Any of this Fed speak come as a surprise, David? I don't think so, Sarah. And I think, you know, you pointed it out in some of your remarks a little bit earlier on the show, just saying that the fixed income markets have really not been in focus much at all today. I think the 10-year note's moved a few 30 seconds and the two-year note's hardly budged, although we are at some of the most inverted levels in two tens that we've seen since the late 70s, early 80s. This is really, I think, a pullback in equities after a pretty hectic run up toward the, not the top, top end of the range, but toward the upper half of the range we've been in since June.

And I think people are rightly a little bit nervous going into Jay's speech at 1.30 on Wednesday. He hasn't been very friendly for the market lately. So I think it makes some sense to be a little bit nervous going into Jay's speech at 1.30 on Wednesday. He hasn't been very friendly for the market lately. So I think it makes some sense to be a little bit cautious. And I think what might be a little more nerve-wracking is that there's a Q&A portion, at least according to the agenda on Brookings in that speech, which means that he can take questions and he'll have the opportunity to talk about that last news conference where he put a really hawkish spin on what was a dovish statement. What do you expect?

He did. I think the audience at Brookings will be very similar to the audience that he gets in a typical press conference. There won't be that much difference in the types of questions he's going to get. So nothing's going to throw him off. It's really an opportunity, I think, for Jay to set the stage and tell us, you know, is he leaning more toward a Jim Bullard type view? Is it something a little more mainstream? I think one of the concerns for the market, David, is that the Fed is not seeing enough progress on inflation and not open enough toward pausing or potentially cutting if we really start to see the damage come through as that monetary policy lags. And they have done a lot on tightening.

Yeah, look, they put those new words in the statement last time, which everybody got excited about before the press conference. They're looking at the lags, they're looking at the cumulative amount of tightening. So they had the ability to kind of fall back on that if they want to pivot toward much lower rate hikes or even toward a period of waiting and seeing at some point in early or mid 2023, which I think is probably what they're going to do. But again, I think they're hedging their bets. They're waiting and seeing what inflation does, how quickly it comes down. And I think they're also looking at expectations. They're looking at what happens in break-evens. They're looking at the strength of the dollar. They're looking at the inversion of the curve. They're looking at the price of precious metals. They're looking at all indications of their credibility

and their credibility in fighting inflation. What are expectations showing? Because we know that's something that they're most nervous about is getting a hold of inflation expectations. Haven't they been relatively tame lately? Yeah, we've been, you know, we've talked about that a lot this year on the show, as well as been writing about it at Jefferies. Look, five-year, five-year break-evens, which is what they look at, haven't budged for two years. They've been in a range of 2% to 2.5%, and I just looked at them before the show. They're at 2.17%.

So inflation expectations are anchored. They've done what they wanted to do. The dollar is strong. The curve is inverted. Gold hasn't been able to get out of its own way for two years as inflation ripped, you know, 7% last year and over seven percent this year so i don't think the fed has an unanchored inflation expectation problem what they have is a speed with which they will get back to two percent issue and how to calibrate the rate structure to get it back there in a way that doesn't disturb the anchoring that they have in place and i think

that's really that's the art, not the science, the art of what they're going to try to do in 2023. And it'll be, I think it's going to be more of a fine exercise, but there's certainly some potential for mistakes and missteps. Right. David Zervos, David, thank you very much. Jeffries, always a pleasure, Mike. And there's also the recession question. A lot of the strategists like Morgan Stanley, equities, Goldman Sachs today, equities, bearish on the view that we haven't seen the bottom because the market hasn't priced recession.

Right, or at least hasn't priced in a somewhat higher probability for recession than they perceive is out there in the world. It's pretty much the whole decisive answer. The only reason a Fed pivot would be bullish is if it's because you're avoiding a recession or making it an extremely technical, shallow one. Yes. What do you see in the internals? Pretty negative, as you might expect. It's kind of wound down across the day in terms of the breadth. You've gotten about five to one declining to advancing volume. Take a look at financials as a whole relative to the real estate sector. They were mapping each other pretty well until recently. And you see this outperformance by financials, commercial real estate, plus some cell phone towers and things like that in the real estate sector. Really, they're leveraged. They obviously don't have quite the pricing power

as many thought they would. And they're lagging behind pretty significantly. The volatility index has perked up. We're now above 22, got down to the year's low end of the range, near 20. And now you have those catalysts that we know are coming with Jay Powell's speech, PCE jobs number. So it's just rebuilding a little bit too soon to say that it's bottomed and is rebounding for good. Mike, thank you. As we head into the close, where's the pain today? Well, across a number of sectors, the real estate market in particular, some of these industrial and retail REITs are at the very bottom of the market today. Construction and engineering, luxury apparel also getting hit hard, gold, semiconductors, and a lot of these technology areas are hit. That's why the NASDAQ is down so much. NASDAQ 100 down 1.4%. It's Apple, Microsoft, NVIDIA, Meta, Alphabet.

You have some winners, though. Amazon remains higher at the close. So do the Chinese stocks. It's not just Pinduoduo on results. JD.com and Baidu, despite the protests we saw over the weekend, are going to close higher. S&P 500, though, down 1.5% at the close. That's going to do it for me on Closing Bell. See you tomorrow, everyone.

Now I will send it into overtime with Scott Wapner.