Closing Bell - Closing Bell: Choppy session for stocks, Figuring out the Fed, Tesla’s terrible week 10/10/22

Episode Date: October 10, 2022

Stocks kicked off the week on shaky footing following a big selloff over the past few sessions, and ahead of key inflation data on Thursday. Markets moved on comments from Fed officials, including vice chair Lael Brainard, and on a warning from Jamie Dimon about the pain yet to come. Sahak Manuelian from Wedbush breaks down the latest signals from the central bank and how they factor into his strategy. Bernstein’s Toni Sacconaghi discusses more weakness for tech, and his outlook for Tesla after the company turned in its worst week in years. The president of Dow component Honeywell talks about how global macro concerns are impacting his business. Plus the latest on the pullback in chips, cloud stocks, GM, and Ford.

Stocks are starting the week on a shaky footing, though, making a decent comeback here. We took a hit midday when Jamie Dimon told CNBC how much more downside there could be for the market. It could be another easy 20 percent. And, you know, I think like the next 20 percent will be much more painful than the first. But then stocks gained some ground back after comments from Fed Vice Chair Lael Brainard. Moving forward deliberately and in a data-dependent manner will enable us to learn how economic activity, employment, and inflation are adjusting to the cumulative tightening

in order to inform our assessment of the path of the policy rate. We're going to have analysis for you of all of those headliner comments throughout the show. This is the Make or break hour for your money. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Coming up this hour, we will speak with the president of Dow Component, Honeywell, about how global slowdown fears are impacting his industrial business and about the company's new sustainable fuel efforts.

Big announcement there today. Let's get straight, though, to the market dashboard. Our senior markets commentator, Mike Santoli, where after that brutal sell-off we got on Friday, there are some pockets of strength today, mostly in the defensive areas, but materials I see are higher as well, and so are industrials. Yes, it is not an across-the-board new down leg in the market. In fact, it's really semiconductors and some of the other cyclical areas that are pressure points. But the market's apprehensive here, and, you know, that kind of to and fro based on various comments about how aggressive the Fed has to be and what the economy is going to do.

It very much encapsulates what we've been dealing with for a while now at the lows today. The S&P 500 was right above the prior low for this bear market, which was down September 30th. So you see we're kind of hanging around this area, not really breaking aggressively yet. And that's the down 25 percent from the peak threshold as well. That's where we did hit that low as of now, September 30th. The bond market is a story, even though the U.S. cash bond market is closed. Now, bond futures are open and the bond ETFs are open. But in Europe, you're seeing new highs in government yields.

And that's been something we have not yet seen here, at least in the 10-year benchmark treasury yields right here in the U.K., as well as in Germany. You're seeing new highs in yields. The ETFs of treasuries in the U.S. is suggesting that we would have kind of made a similar move, Sarah. So that really does kind of capture all we've been dealing with here in terms of, you know, exactly how aggressive central banks are going to be, what the effect is going to be. We can't wait very comfortably for inflation to cooperate. And here you see the U.K. at this new high level there, around 4.5 percent. And then Germany, which started negative, is 2.3, 2.4 at this point.

Even though the Bank of England did come out and extend its emergency bond buying program to try to stabilize the bond market. Extend it, but it's not indefinite. And so I think everyone's focused on it. You know, it's going to have an endpoint. And can the market absorb the supply beyond that? Also, there were some reminders from ECB officials over the weekend saying we're not sure the market understands exactly what inflation is going to look like and how much more we have to do. So whether it's, you know, perfectly, you know, connectable to exactly what's going on in terms of central banks, clearly the yields are, you know, having their way with that with the market. No, overseas yields up. The dollar is stronger. We know stocks don't like that combination and it's playing out. But everybody knows that stocks are

kind of getting oversold. And there's sort of this idea of a very potential violent fourth quarter rally waiting for us somewhere at some level. And that's why I think you have two sided frustration or at least anxiety in this market. Mike, thank you. We'll see you later for Market Zone. Lots of economic data coming up this week, but top of mind has got to be September CPI inflation number that's coming out on Thursday, which will be closely watched by investors and, of course, by the Federal Reserve. J.P. Morgan CEO Jamie Dimon was asked by CNBC Europe today about inflation and the whole macro landscape and just how much more downside there could be for the market. Listen.

It may have a ways to go. I mean, it really depends on that soft landing, hard landing thing. And since I don't know the answer to that, it's hard for me to answer that. But it could it could be another easy 20 percent. And, you know, I think like the next 20 percent will be much more painful than the first rates going up another 100 basis points. A lot more painful than the first hundred because people aren't used to it. And, you know, and I think negative rates when all is said and done will be have been a complete failure. That's quite a warning. Another 20 percent downside. Joining us now is Sahak Manuelian, head of equity trading at Wedbush. And Sahak, you also feel that the bear market is intact and any rallies should be sold, correct?

Yeah, that's correct. We've been in a very tough stance all year, really. The Fed pivot really started November of last year. So it's been almost 11, 12 months now. And any rally that we've seen has been met with a lot of supply. And I don't think that really changes anytime soon, so long as the Fed continues to tighten. And it's been on this very aggressive path of tightening. We're at about three and a quarter percent now on the Fed funds rate. The presumption at this point is for another 75 basis point hike baked in for the November 2nd. And coming off of the September, the very strong September jobs report last Friday, we think that that's where we're going to be on the 2nd of November.

What about what Diamond said? Rates going up another 100 basis points. We're a lot more painful than the first 100 because people aren't used to it. Is that something you feel as we try to grapple with whether we're going to get another 100 basis points of tightening from this Fed? Well, whether or not it's 100 basis points, I think that's pretty close to what our cycle peak is if we're taking a look at consensus measures right now we're at about 4.6 4.65% for a cycle peak in rates by early 2023. And as we've got PEs and multiples both under attack, you know, it's just very tough for stocks to make any kind of meaningful move higher in this environment. And this is all just up against really Q3 earnings coming up midweek here.

But here's how they could go meaningfully higher. or stock. And we've seen this before during the strong days. And that is when there's a feeling that the Fed is starting to calm down about raising interest rates. And just today, we heard from Vice Chair Lael Brainard. And while there was no pivot telegraphed or anything like that, the concerns and the awareness about the global risks, which she cited, about liquidity issues, about here, she says, monetary policy will be restricted for some time to ensure that inflation moves back to target. So clearly they're still singing the inflation tighter policy from the tighter policy hymn book. But they're also getting increasingly aware about the global risks. And if the market sniffs that out, couldn't that be a buy signal? Sarah, I think that's a great point.

We're getting very close towards the end of this tightening cycle. So as we're getting close to the end of it, we've probably got another 75 in November, and then we'll see what happens after that. But nonetheless, we're at or near the end of it. Once investors start to believe that we are in fact near the end of this cycle, that could certainly make for a great tailwind for equities. And I think that that's what can start to move markets higher. However, between here and then, there's a lot of work yet to be done. We've moved up in earnest 300 basis points in a very short period of time. There's a lag effect to that. Markets have been getting hit all year

and will probably continue to stay in a very tough spot. But as we start to come off of some of the hawkish rhetoric and get maybe a little bit more dovish, we can start to move higher. You can look, you know, the RBA, Australia's Reserve Bank, a week ago Monday raised by 25. They did less. Yeah, they did less. They raised by 25 basis points, which was versus a 50 percent basis point hike. Just that move on Monday, you saw the enormous rally on Monday and Tuesday. However, New Zealand's bank came out Tuesday and raised 75 basis points and was actually hawkish. And I think that just goes to show you, if we start, to your point,

if we start to sniff out any dovish sentiment from the Fed, there's a lot of pent up demand for equities to move higher. But, you know, what's going on in fixed income markets right now with bonds continuing to come under selling pressure, that has to abate at some point before equities can find some footing here. Yeah, you're not you're not seeing it yet. A lot of people looking for four point five on the two year, which we haven't gotten to yet. Thank you. We're very close. We're close. Four point three with the bond market close today. See what comes tomorrow. Thank you. Sahak Manuelian from Wedbush. Appreciate it. Dow component Honeywell announcing a new way to use ethanol in jet fuel. It's part of an effort to meet sustainable aviation fuel mandates. Up next, we're going to talk to the company's president about that news and how fears of a global recession

are impacting Honeywell's business. You're watching Closing Bell on CNBC. Dow is down 50 points. We'll be right back. Honeywell shares trading higher today. The company announcing a new process for creating aviation fuel using ethanol. This is part of an effort to meet these new targets laid out by the Biden administration and the European Council of increasing the percent of jet fuel supply that's made in a sustainable way. Joining me now for more is Honeywell president and COO Vimal Kapoor, the brand new COO.

Vimal, it's great to see you. Welcome. Thanks, Sarah. I appreciate you having me in the show. So how big of a deal is this innovation? What type of market do you see for this product? So I think if you look at totality, the jet fuel is 10% of the transportation fuel. And the planes can't short-term run on electrification. So sustainable aviation fuel is the best way to do it. And displacing the 10% transportation pool in jet fuel to sustainable fuel is a size of the opportunity. And that will mean several refineries will have to be upgraded to put this technology

so they can take non-fossil fuel, ethanol being one of them. Our first generation fuels were like fats, greases, oils. So we are providing a range of options so that U.S. can hit its target of 3 billion gallons per day by 2030. And we feel that with all these options, there's a high probability that we can hit this target. So I went sort of deep in preparation on, I don't know if it's SAF or SAF, sustainable aviation fuel. So apparently it only accounts for 0.1% of all jet fuel. And the U.S. wants to go to 100% of U.S. aviation fuel demand by 2050.

Is that realistic? Yeah. So the goal has to be split. The first goal is 10% by 2030. So with the range of technology which exists today, we think that path is achievable, maybe slips by a year or two, but 10% by 2030 is the first goal. That's the number I talked about, 3 billion gallons per year. So that's the first goal. And then the goal ramps up to 2035, 2040, and 2050. Look, everything in energy transition is tough. Using EV cars at scale

is tough, and so is using sustainable aviation fuel. But certainly it's an achievable task with the technology innovation. So overall, Vimal, maybe tell us how big of a business, you said it's going to be a big market, how big of a business this is going to be for you and what the business is looking like at this point in time where the stock is down 17% or so in time where, you know, the stock is down 17 percent or so this year, pretty much in line with industrials. And there are a lot of concerns about slowing demand in a lot of the parts of your business. Yes, if we talk about this opportunity, we were in the business of creating, refining and petrochemical infrastructure

for the last several years. And now we're on the other side of the equation that we are repurposing our customer for sustainable infrastructure that is sustainable aviation fuel, hydrogen, carbon capture. And we believe that the part of our business which was serving refining petrochemicals will get equally well as we move towards sustainable

technologies. Your broader question, you know, we see two parts of Honeywell, long cycle and short Honeywell, long cycle and short cycle. The long cycle businesses like aerospace and performance materials and technologies are seeing less pressure of the current downturn. And there are businesses which are more closer to the short cycle, where we do see some of the economic activity right in front of us, like our e-commerce business, etc. So overall, we see on balance Honeywell will perform well even in a tough industrial cycle ahead of us in 2023.

And what about pricing, Vimal? It's been good for you, up I think eight and a half percent or so. Are you concerned, though, that that's going to start to come down as we see different parts of the economy at least deflate or disinflate? We don't see lack of inflation, at least in the goods we buy. I mean, maybe a few commodities have come down, but labor hasn't come down, for example. That has actually moved up compared to the first six months of the year. So as a discipline, we continue to look at pricing opportunities in a careful manner. There are pockets where we have to make sure that our volumes don't collapse. But at the same time, we want to make sure that we don't miss on, you know, pricing opportunities. The short answer is we continue to see inflation as we saw in the first

half of the year. And we have to be responsible to keep driving the price to offset that inflation. And very quickly, what about geographically? Obviously, there are differences in the economies right now, Europe dealing with the energy crisis. Can you talk a little bit about some of the relative performance in what you're seeing in demand across the globe? No, clearly, Europe is certainly seeing a lot more pressure in growth compared to America's, where I think you continue to see good performance. China continues to be also not as high growth as it used to be. Earlier couple of years, the news we see on COVID shutdowns are certainly playing down there. And then you see good performance in oil and gas-driven economies in the Middle East and also in India.

So overall, I think it's a mixed bag for us. There are, for every good news, there's a little bit of bad news. But on balance, I think we have a balanced portfolio to drive the performance ahead. Bimal, thank you for joining us for a snapshot and also on the news today. Yeah, appreciate it. Bimal Kapoor, the CEO and president of Honeywell. I'll show you what's happening in the markets because the Dow has just gone positive on the session. We've been all over the map. We started the day higher, dipped lower, got as low as 286 points down on

the Dow. And now we're marching up again here into the close. Amgen is the biggest contributor to the Dow gains. Merck, McDonald's, Boeing, Caterpillar, all fueling that rise. S&P 500 is down four-tenths of one percent, but again, improving. You've got four sectors now positive. The Nasdaq down a little more than half a percent, and small caps are also faring a bit better, down a quarter of one percent. Wall Street is buzzing about former Fed chair Ben Bernanke receiving the Nobel Prize for Economics. Coming up, why that timing is so interesting given the ongoing Fed interest rate hike debate. And later, Bernstein's Tony Sakonagi will weigh in on the renewed selling pressure that we're seeing in technology, with the Nasdaq now down just around half a percent for the day, but 34 percent or so for the year.

We'll be right back. What is Wall Street buzzing about? The former Federal Reserve Chair, Ben Bernanke, receiving the Nobel Prize for Economics. It's for the work that he's done looking at banks during a financial crisis. He shares the award with two other economists that came up with a model on banks, actually, their role in society, their vulnerabilities. Bernanke led research himself on the role of failing banks in the Great Depression, basically how they exacerbated it. Then he got to put it into practice in the 2008 financial crisis when he led the Fed, cutting rates to zero, doing QE, an unprecedented bond buying program by the central bank, and working with governments to bail out banks, preventing

an all-out collapse of the financial system. It's interesting timing now because of the situation we're in, the unwind of all that. Powell's Fed is raising interest rates at the fastest pace in decades and trimming the balance sheet in an unprecedented way, all that QE at the fastest pace ever to fight inflation. Here's Bernanke just this afternoon discussing interest rates and inflation, where we are right now. Listen. A really good question is, you know, where will interest rates be in the very long run? I don't pretend to know, but I think that inflation will come down over time, that the economy will rebalance over time. And when that happens, I think we'll see lower interest rates,

perhaps not as low as before the pandemic, but I think we'll see interest rates that are, again, relatively low going forward. And while there are cracks in the markets right now, banks this time are considered in better shape, at least here in the U.S. Bernanke said as much, perhaps not as much in Europe. And that next time around, saying the system could prove difficult because of politics, the politics of bailouts, not to mention the rampant inflation we're dealing with and the massive debt loads. As Chris Ruppke, an economist, warned today,

Washington is becoming more gun-shy about allocating credit to any particular sector, even one as important as finance and banking, which could someday turn the next financial crisis into a doozy. Politicians around the world would be wise to read the papers of these three Nobel laureates and heed their warnings. Let's bring in our senior economics reporter, Steve Leisman, who's been following Bernanke's address, the speech from the former Fed chair, for the current Fed vice chair, Lael Brainard. Steve, I'm curious what you made of Bernanke's remarks and where we are today. You know, as you say, it's very apropos right now that Bernanke should be brought to the forefront of the work he did. And the question as to how much should be

done for the banks, I think if the government's going to do less, I think that's probably a good idea in terms of credit allocation, given the kind of mess we're in right now. Bernanke was asked about the issue regarding fragility in the markets. He says there is some fragility out there, but he said there's a very big difference between right now and the great financial crisis, which is the great financial crisis was caused by problems in the financial system. Here, problems in the financial system are a fallout of that, but if left to fester too long, they could add to the problem.

Vice Chair Lael Brainard talked about the idea, and she said, we have a quote here from her regarding that, where she talks about being a little fragility in some of the markets right here. We also recognize that liquidity is a little fragile in core markets, and so we're carefully monitoring liquidity conditions in those markets. Some people, Sarah, as you might imagine, raised their eyebrows at that remark there. We do know there is some fragility out there. But how much in our widespread is a question that worries a lot of people right now. Right. Because any time that anybody on the Fed, and especially her as the vice chair, makes a comment, Steve, where they're cautious and not just job number was and is inflation.

And we've got a lot more work to do on that. I think it makes people wonder whether whether they really are starting to think about, OK, let's let's see what the damage that's that's being done here, especially her. You know, you know, she was she's she was an international policymaker at the Treasury. But but, Sarah, if I could go back to where you started this segment or at least one point, you had the Dow rising. It may be that the Dow is up on Brainerd's comments, in part because she started to make a case for caution in raising rates. I guess we're back to negative again. We do have this volatility out there. But if you look at the tail of the tape, there was certainly a pop, Sarah, on Brainerd's remarks. And she talked about some of the reasons to be cautious and also the idea that all of the tightening the Fed has done has not yet shown up in the economy. And you can hear that along with the comments about concerns about fragility as a reason for the Fed to maybe do something less than it's doing. Yes, a change. I would say

a change in tone, a more cautious tone, for sure. Steve, thank you. Steve Leisman. Up next, we've got a top analyst on the outlook for tech stocks and whether Tesla looks attractive following last week's big sell-off. Remember, it was down almost 16%. We'll be right back. We're following tech stocks. Another rough day here for the Nasdaq after that big downturn we saw at the end of last week. Tesla was one of the names hit hard in the sell-off, turning in its worst week since March 2020. But the company is making inroads, we learned today, in China, just setting a record for monthly deliveries for September. Joining us now is Bernstein's Tony Saganagi. Tony, your market performance, I know you're not particularly excited about Tesla.

Is it the fundamentals or do you think it's the broader market backdrop? Sarah, we've been a little bit more cautious on Tesla for a couple of reasons. One is we still think its valuation is very high, particularly relative to other automotive stocks. And secondly, we do worry fundamentally that it may be difficult for Tesla to continue to sustain this 50 percent growth rate that it's promised going forward. And I think, quite frankly, despite the good data from China today, China is probably the one area of the world that we and I think more broadly investors are increasingly worried about. I should correct myself. You're underperform rating on Tesla,

$150 price target. So why do you think China's a worry if we got those good delivery numbers today? What happened, Sarah, over the last several months is the best leading indicator of Tesla's demand in a given region is how long you have to wait to get a car. And in China, that was 14 to 22 weeks, three to six months ago. It's now one to four weeks. And so Tesla had a very large backlog in China. It has a very limited backlog in China right now. And we've seen that happen also in the U. S. we think there are. There are more plausible explanations for why that's happening in the U. S. but in in China it does feel

as though- we are- potentially starting to see- some incremental softness in demand and that and that's. You know for a growth stock like Tesla it's all about growth and top line growth. And so I do think this is a an issue that we all need to pay attention to going forward.

Yeah, you think it's going down to 150. You think Apple is a market perform in 170, which is interesting because Apple has held up relatively well against the market. Even even when it gets hit pretty hard, it's still, it hasn't been making new lows. Why? Apple has really been viewed as sort of this stable consumer franchise. They did very well during the pandemic. They've done quite well this year. And so folks view Apple as this great consumer franchise and brand that is relatively steady. I think, you know, the big question is, like many other companies, is Apple impervious to potentially weakening consumer spend going forward and shifting spend? So one is consumers will be increasingly, their purse strings will be tightened because of higher rates. But the second is this potential concern that we're

seeing in the PC world, where folks were spending a lot on electronics during the pandemic. Now that the world's opened up, they've shifted those dollars spend away from electronics and home furnishings to other things like experiences, travel, entertainment, et cetera.

And so that's really the trillion dollar question for Apple, particularly over the next eight weeks or so, when we get more data points on the true strength of the iPhone cycle is can Apple continue to plow through, despite the fact that it did very well during COVID and despite the fact that we have an incrementally weakening consumer? Yeah. And the latest IDC data was actually quite positive for Apple, showing that while global PC shipments fell across the board, Lenovo, HP, Dell, Apple was the exception. And they actually rose 44%. You cover a lot of these companies, Tony. I saw you put out a new note on IBM today.

You're also pretty cautious there. Are there any companies within your sector that you cover that you like right now and that you would say represent a really good buying opportunity? Just the Apple and the IDC question, Sarah, because IDC collects data largely submitted by PC OEMs. Apple does not participate in submitting or sharing its data with services like IDC or Gartner. And so historically, IDC and Gartner's track record for predicting Apple on a quarterly basis has not been great. So certainly the numbers look very good. I would just be a little cautious about extrapolating that. To your question about broader tech, look, we think tech is fairly to slightly overvalued. So we're not particularly bullish on tech. We are a little bit worried that we may have earnings estimates go down.

There may be a little more downside to the market. And as a result, we prefer really inexpensive, more defensive technology names. So companies that I follow, like Dell and Hewlett Packard Enterprise, that are trading at literally five to seven times earnings, we think have relatively less downside in the near to medium term. And so that defensive posturing leads us to those names. Got it. Tony, thank you. It's good to check in with you. Tony Saganagi. Appreciate it from Bernstein. Take a look at where we stand right now in the markets. We are higher again on the Dow back and forth around the flat line, but have recovered nicely ever since that that speech from Fed Vice Chair Lael Brainard, perhaps with a little bit more caution than some of her colleagues at the Fed on raising rates, talked about global risk, talked about liquidity risk, didn't make a case for a pivot or anything like that, but perhaps some sensing of caution in those remarks. The S&P 500 is down a half a percent right now. You've got some strength in materials,

industrial staples and utilities. The Nasdaq is down about three quarters of one percent. Some speed bumps for a number of automakers today, including Rivian. Look at that, down sharply on news of a huge recall of nearly all of its vehicles. We're going to talk to an analyst about how much that could cost the company. And a reminder, you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. We'll be right back. Check out today's stealth mover.

It is PPG Industries. Investors painting the stock red. The maker of paints and industrial coatings, slashing its third quarter earnings outlook because of currency headwinds, softening demand as well in Europe and China. But the company is brushing off concerns about rising inflation, saying raw materials costs are moderating in some regions. The stock is down only 2.6 percent. Semiconductor stocks are falling to a one-year low today. Up next, a top analyst on whether chips are starting to look cheap.

That story plus a rough ride for GM, Ford and Rivian when we take you inside the market zone. We're back negative, down 10 points on the Dow. We are now in the closing bell market zone. CNBC Senior Markets commentator Mike Santoli is here to break down these crucial moments of the trading day. Plus, we've got Phil LeBeau on GM and Ford and Bernstein's Stacey Raskin on the chip stocks. We'll kick it off with the broader markets right now because we're negative again. Can't decide, Mike, which side we want to be on today. But the important thing is we're off the lows, which were down 285 points earlier on the Dow. Got some warnings from Jamie Dimon, who's still sounding very bearish on CNBC

Europe, talking about potentially another 20 percent slide in the S&P recession in six to nine months. They got some Fed speak to chew on and maybe a little more cautious than the super hawkish commentary we've gotten lately. But the bottom line on the Fed, Mike, is that the market is pricing in. Where are we on the terminal rate or the peak Fed funds rate, like 4.65? Is it starting to get ahead of itself? Even a little above that this morning anyway. And I think the Fed funds market was taking its cue from what was happening globally. So, yeah, arguably, that's right in the zone that most Fed officials seem to be targeting. Now, obviously, every time the investors have felt comfortable that they had their arms around exactly what the policy destination was, it gets pushed out farther and the time clock restarts because we haven't gotten enough good data on inflation,

which is why we can talk about the market being oversold. I can talk about investors fleeing into cash in tremendous volumes last week. Also, the market kind of hovering at these minus 25 percent levels. Seasonal factors start to look better. Unless the CPI number gives you something to latch on to, to say that we're starting to have an effect on the inflation picture, it might not matter that much, even though all those things are atmospheric conditions that say we've already priced in a fair amount of Fed risk as well as economic softening. Higher again on the Dow.

Cloud stocks, though, take a look under some serious pressure today, including Snowflake. It's down nearly 10 percent. Let's bring in Frank Collin for more. Frank, what's driving the action here? Well, Sarah, the broader group of cloud stocks are trading lower on interest rate pressure. For example, the WCLD cloud computing ETF now just about 1% off of its 52-week low. The other two, the SKYY and CLOU, less than 1% from their low. Today, Snowflake, one of the hardest hit, as you mentioned, largely due to its sky-high valuation.

You see it down here about 9%, 10% throughout the day. But I hate to really be a broken record about this, but these stocks, they really almost move exclusively in an inverse relationship to rates, especially when it comes to the 10-year. The rates go higher. These cloud and enterprise names, they move lower. I think we're showing you a chart right now. You can see over the past three months that happening consistently, except for a brief period in August that many thought could be the bottom for these cloud stocks. The question is, where is the bottom? Of course, when it comes to that cloud transition, that's a very stable and consistent global trend, more than 20 percent increase in cloud spending year over year in 2022. But it just seems these stocks, they can't seem to find footing. The real question is, especially in a recessionary environment, which one of these

stocks will survive? We know the hyperscalers like Amazon, Microsoft, Azure and Google, they'll survive. But the question is, the top of the stack, those other names, which one of those will survive? Wow, that's an existential one. Frank Holland. Frank, thank you very much. In the meantime, Mike, what are earnings expectations looking like for this group, which does get so battered around on rate fears? Well, earnings expectations have absolutely been moderating, but so have valuations. Morgan Stanley had some work today showing that software companies as a group, now cloud is going to be probably the biggest chunk of that aside from Microsoft, are back down to, call it price to sales ratios that we saw in the late 2010s. So in other words, well before the pandemic, well before the pre-pandemic melt up.

And that means it's all really about whether the earnings growth rates can come through. I think you have too many companies that came public in the software area, all promising to be the next big platform, the next big thing that they were going to have the sustainable advantage. And that's what's been questioned here. Names like Snowflake going down 9 percent in a day. Well, it's one of the more expensive ones. It's got a very distant sort of moment when it's going to be proven whether it's a huge success or not. And it also was way up off its lows. So I think in the days like this, market goal is hunting for stocks that are not yet trading toward their lows and take some of that value. Frank mentioned that there's like a real existential question here about who survives this cycle. Who is the market

most worried about? I mean, I think the market is more worried about some of the narrower kind of just, you know, one app type names that have one messaging app. But we have, you know, one type of customer relations software that, you know, hit it big. And it was all about how we were going to take over a lot of the market share from somebody else. That's where I think you've already seen a lot of the carnage. That's a lot of the stocks that came public in the last three years that have been set aside. And it's not really as much about the ones that seem to have something of an advantage, like a Snowflake or Palantir. It's just a matter of what you want to pay for it, not really whether they're going to survive.

Got it. Let's look at the automakers, because GM and Ford are among the biggest decliners on Wall Street today. UBS downgrading GM to neutral from buy, slashing its price target to 38 from 56. Firm also cutting its rating on Ford to sell from neutral. The analysts say inflationary pressures and recession risks will likely lead to rapidly deteriorating demand for autos. Jim Cramer called it a late call on Ford. Doesn't agree with that. Phil LeBeau joins us. Phil, how tight is the supply right now and how quickly is inventory growing? It's very tight, Sarah, and it's not growing as fast as perhaps this projection in the UBS note. Let me give you some perspective. J.D. Power, which tracks this every single day,

says the current day supply, this is at dealerships, in transit, across the nation, it's 31 days. To put that into some perspective, normal for the auto industry is 65 to 70 days. By the way, the low point was 25 days supply a couple of months ago. So it brings up the question, Sarah, will we get to oversupply? One of two things would have to happen. You'd have to see a rapid increase in production from the automakers. And remember what they've said about curtailing production because of chip and supply chain issues.

That's not changing anytime soon. OK, so what about a big drop in demand? You would have to see a huge, a massive drop in demand, Sarah, to the point where you've got about a million vehicles in inventory right now. You'd need to see that go up well, well over two million in inventory. J.D. Power doesn't expect the market to get to normal until the end of next year. And that's normal. So there are a number of people in the industry who are scratching their heads at this call. Yes, right. It's so confusing to figure out demand when you're still so supply constrained, I guess, is the bottom line, right, Phil? Yes, exactly. That is exactly it. Still

more demand than supply. Doesn't mean that we're seeing what we saw this summer, but it's still, we're not close to seeing supply get to a point where you see dealers immediately slashing prices because nobody's coming in the door. They still see a ton of demand. Bill Abou, Phil, thank you. We will stick with autos and hit Rivian because that stock is tumbling today after recalling nearly all vehicles delivered, 13,000 cars in total. The electric vehicle company looking to fix a potential steering issue. Let's bring in Ivan Feinseth to discuss. He's chief investment officer at Tigris Financial Partners. How big of a deal is this for the longer term trajectory for Rivian? Long term, I don't think it's that big a deal. And if you want to say every opportunity, every problem is an opportunity. This gives Rivian the opportunity to demonstrate their

customer service and their ability to handle mechanical issues that do happen. And so far, this is the first reported significant issue since the car has been in production, and they have produced and sold almost 14,000 cars. So you see this as a normal problem, recalling all of their vehicles that they sold? Well, we have seen significantly larger recalls from almost every other automaker. And this, luckily, is not really a major mechanical issue. We haven't seen any accidents or heard about any major issues. And they say they can get this repaired across the delivered fleet within 30 days. Yeah, I mean, I guess it doesn't help the brand and the credibility issue.

So you're a buyer of the stock on this weakness today. I mean, this is a long-term play. First, I believe we are going to see more happen in the auto industry in the next three years than took place in the entire 120-year combined of the auto industry. We're going to see this major shift of introduction of electric vehicles and incredible technology. All of these automakers, including Rivian, are evolving software companies. It's all about connectivity, about the ability to manage, maintain, and build the relationship with the customer through connectivity and constant upgrades of features in the cars. So there's going to be a big shift as, you know, GM has over 30 electric vehicles coming to market by 2025. This is all going to drive increased traffic into the showroom as people, as consumers check out the EVs. And we're going to see a

tremendous upgrade cycle because still the average car on the road in the U.S. is close to 12 years old. So we still have a potential. But everybody's doing it now. Everybody's doing it now. Rivian is just one of the many players. Now there's competition and a setback like this does seem pretty notable. I guess I'll let you respond, Ivan, but also tell me, does it impact the 2022 deliveries at all? It may. And they may or may not get to twenty five000 for this year as projected. But I don't think that is important as getting any issues fixed. And getting close to that, I think, would be acceptable. But first of all, the more electric vehicles that are on the market,

the more electric vehicles the industry will sell. The competition for electric vehicles is not electric vehicles, it's gas cars. And the sweet spot of the auto industry is trucks and pickup trucks. Pickup trucks are the number one selling vehicle in the industry, and Rivian has a tremendous first mover advantage. I mean, Chevy has a EV Silverado that's coming out. That's incredible, but it's still not coming until late next year. Ford has the F-150 Lightning just starting to be available right now. But Rivian does have a first mover advantage. They have about a 90,000 backlog for the RT and the RT1 and the S1. And they also have a 100,000 vehicle commitment for EV vans from Amazon.

And I think that Amazon from the beginning has been a big seal of approval for the company. Agree with that. For sure. The bulls like that fact. Ivan, thank you. Ivan Feinseth from Tigris. We've got two major semiconductor ETFs touching 52-week lows today. The SMH and the SOX, the S-O-X-X, off around 3% today, led lower by names like Lam Research and Marvell. The move coming after the U.S. announced new export controls on certain advanced computing shipment being sold into China. We also got new data today on PC shipments. Those numbers continue to decline, down 15% year over year in the most recent quarter. Let's bring in Bernstein's senior analyst, Stacey Raskin. The China export control is just compounding the worries around the sector already on the cycle slowing down. So what do you do with

these stocks, Stacey? Yeah, but the China export restrictions were not helpful. We knew they were coming. We've been waiting for it for quite a while. There've already been some incremental sort of piecemeal sanctions. What this does is sort of codifies them and kind of expands them. I'd actually say the incremental from this, in terms of what was already sort of put forth, was not that big. The big incremental is memory capex, wafer fabrication equipment, which is why a lot of the semi-caps are down today. The other is supercomputers. So anything sort of related to supercomputers into China, I think, is going to be a no-go. Beyond that, though, I think everything else is mostly okay. I don't think

it applies to things like, say, general-purpose CPUs, things like PCs or x86 servers or smartphones, that kind of thing. So I think that is safe. That being said, though, it does sort of represent a larger escalation of people wondering if there's going to be retaliation or that sort of thing coming from China, which I think is why a lot of the other names, Qualcomm or Broadcom or anything else that's not directly impacted, but obviously does a lot of business in China. Those are getting impacted today as well. What about the positioning of the sector into earnings after we got that warning that was preliminary results from AMD, which was one of the strongest in the group. Yeah, so everybody knows PCs are weak.

And frankly, I think people were expecting AMD, if not to pre-nose, at least to miss. I would say that the miss, though, was bigger than people thought it would be. PCs do not look great. You mentioned some of the PC data that came out. They're still falling. I almost feel like they're getting worse by the day. It's not like they're low and then stable. They are continuing to get worse as we move into year end.

And so that's what happened with AMD. I'd say broadly for the space, though, people are worried that numbers in general need to come down. The valuations are starting to reflect that. The thing with SEVIs is you need to sort of know when the bottom is before people can buy. And actually, cuts in that sense are OK if you can be certain that that's sort of the last cut and we can go off of it. I don't know that we're there yet, though, for a wide 12th in the space. All right. Well, there's your headline. Don't think we're there yet. Stacey Raskin, thank you very much from Bernstein. We've got less than two minutes to go in the trading day. What do you see in the internals here, Mike, as the Dow is now negative and is falling 90 points? So we've lost some air

here. Yeah, and about a fourth straight down day after that big two-day rally early last week. It's negative under the surface, although not too dramatically. You're looking at a, you know, three to four to one downside to upside volume. It was more than 90 on Friday. Take a look at the small versus large. So the small cap 600 index relative to the top 50 stocks, the biggest 50 stocks in the index, that's a year to date. That shows you pretty widespread. And in fact, the small caps are not near their recent lows, either the September or the June lows. They're a little bit above that. So some distinguishing there. They've already taken their medicine. The volatility index is kind of juiced here. It's above 30, 32. We have the CPI numbered a few days. I doubt it'll be able to

relax very much before we get through that. All right. We got four down days here in a row, and it looks like we're going to get a down close across the board. We're looking at the Dow down 84 points. Amgen is the most positive impact on the Dow. The biggest drag is UnitedHealth. The S&P 500 looks like it's down about seven tenths of one percent. Apple is actually holding up. That's the most positive there. Microsoft, though, is the biggest drag. The Nasdaq down a little less than one percent and small caps down about half a percent. A lot of back and forth on Fed language. Again, concerns from Jamie Dimon on the markets and the economy. A lot factoring in. Looks like another down day. That's it for me. I'm closing now. See you tomorrow.