Closing Bell - Closing Bell: Choppy Trade, Betting On Banks & ESG Hypocrisy? 12/7/22

Episode Date: December 7, 2022

Stocks struggling for direction on lingering recession fears. The CEO's of both Citigroup and JP Morgan raising fresh concerns about a recession. JP Morgan Chief U.S. Economist Michael Feroli says economic growth this quarter has been strong, but the odds of a recession next year are increasing. Bank stocks have been significant underperformers recent. Barclays' Jason Goldberg explains why he sees buying opportunities for the big banks, but Hennessy Funds' David Ellison is more cautious because he sees more headwinds for the banks. Cowen's Helane Becker discusses why she thinks airline stocks are oversold and reveals her top picks. Goldman Sachs' Jonny Fine weighs in on the recent decline in treasury yields and why he predicts we will never see the Federal Reserve raise interest rates by 75 basis points again. And Bluebell Capital Co-Founder Giuseppe Bivona explains why he is calling for Blackrock CEO Larry Fink to step down for what he says is "hypocrisy" over the asset manager's ESG messaging.

Stock struggling for direction today after an ugly start to the week as recession worries and the Fed's next move remain top of mind for investors. 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 right now in the market. The Dow is down about 31 points. Got as low as down 92 at the lows. But we were up sharply earlier, up almost 200 points. The S&P 500 down a third of 1%. You do have two sectors that are remaining green right now, healthcare and consumer staples. They're both defensive. We're seeing a big bond market rally, and that's certainly helping that group. Technology near the bottom of the list today, along with communication services, that sector down 1%. Look at the 10-year yield. That's what we're focused on today. 3.4%.

Lower yields, rising bond prices, on worries about an economic slowdown and falling inflation. Coming up on the show today, J.P. Morgan Chief U.S. Economist Michael Ferroli will join us with his expectations for the economy and what he's watching from the Fed with just one week to go until the final meeting of the year. Plus, taking aim at Larry Fink. We will talk to the co-founder of Bluebell Capital. That's the activist investor calling for BlackRock's CEO to step down over ESG policies. But first up, let's get to the market dashboard, as always, with Senior Markets Commentator Mike Santoli. Real estate just joining Consumer Staples and Healthcare in the green.

There's definitely a theme there. There is. There's definitely a little bit of a defensive tilt. The markets are certainly a bit on edge. We've had a rough start to December. Now, November and October also started on the weak side, so it doesn't mean it's how the whole month is going to go. But you've certainly broken this little mini uptrend we had going since mid-October and barely cracked below it as of yesterday's close.

A lot of the things people are looking for is, can it kind of create a bit of a shelf there around the 3,900 level? Technically, people would like to see that happen if you are bullish. But keep in mind, every other time you've rolled over from a lower low in this bear market, you did go on to make at least a marginal new low. So this is the seesaw that we're on. Take a look at this chart that maps out what the market historically has done after the final rate hike of a Fed tightening cycle. From Bank of America here, the middle line here shows the average. And this is months before and after the final hike. So there is the final rate hike at the zero line. 14% higher on average.

This is 13 hiking cycles. Nine of 13 were up. The best one, after 1980, there was a space between two recessions, essentially, and the market ripped higher. The weakest one, 1969, there was a ceasing of a Fed tightening cycle. It went quickly into a recession. CPI was also pretty high, above 5%. So take that as you will. The one thing I'll note is that we have sold off heavily into this final phase of a tightening cycle. If it's early next year, some people think it's December.

You're seeing markets typically have been flattish in the 12 months up to the final rate hike. We're already down. We went down as much as 27%. We're already down 15% at this point. So the point is, have we front loaded some of the pain? It's just a unique cycle that doesn't really follow history. We'll have to see. And the equity reaction to what's happening in the bond market today. For so long, tech stocks were allergic to higher bond yields. They're at the bottom of the list today and bond yields are moving south. Yeah.

Look, I mean, there's a limit to how much you can take heart in bond yields coming in, because if it means less Fed, if it means less inflation, that's great. If it means growth is in trouble, it's not good for any stocks. And by the way, earnings estimates have a lot more to say about where tech stocks are going than yields do, and they've all been pointing lower for the biggest ones. Be careful what you wish for. Now lower yields means recession. Mike, thank you. Mike Santoli. So we are, as Mike said, just a week away from the Fed's meeting.

Plenty of talk of recession has bubbled up as we get closer to that decision. Earlier today, Citibank CEO Jane Frazier said she's expecting a U.S. recession next year. That follows, of course, comments from J.P. Morgan's Jamie Dimon here on CNBC yesterday saying inflation may derail the economy and consumer spending. Joining us now is J.P. Morgan's chief U.S. economist, Michael Ferroli. It's a little bit confusing, Michael, because the Atlanta Fed GDP tracker, which does real-time estimates on GDP, says we're going to get 3.4% growth this quarter. So is the economy accelerating or slowing? Well, I think the economy in the fourth quarter is doing quite well, led by consumer spending,

which looks like it's growing at over a 3% annualized rate, probably the strongest quarter of the year for the consumer. Obviously, on Friday, last Friday, we saw that the jobs market is looking pretty strong. So I think all this recession talk, if it's going to be sensible, is about a forecast for some time in the future. And I do think it's sensible, but it's not, you know, I don't think we're on the edge of a recession. Certainly that's not what the momentum and the data over the past few weeks would suggest. It's not what we're hearing from corporate America. Fourth quarter, you said, is going to be the best for the consumer of the year. Target came out and said that there was a big slowdown in consumer discretionary

spending in October and November. And now we're hearing from all the bank CEOs about time to be cautious about the economy. How do you square all that? So I do think profits are going to be challenged in this environment, even though growth this quarter and presumably next quarter, we think still should do pretty well. And I think that's just that we're seeing those labor cost pressures that were evident against again last last Friday, probably running stronger than price pricing power, which is kind of the opposite of what we've seen over the past couple of quarters. So I do think, you know, the picture from corporate America may be a little bit different

than the picture we're going to get from, you know, the government statistical agencies, at least for a little bit here. But, you know, again, I do think it's sensible to project a recession a couple quarters forward, just given the cumulative amount of tightening that has happened and will happen from the Federal Reserve. But the effect of that's going gonna take some time. So, you know, I think we wanna distinguish what's going on versus what's forecast to actually take place. So if we're in a really strong quarter right now for growth, that means what for inflation? Inflation, you know, look,

the linkage between growth and inflation quarter to quarter is not a particularly tight one. So we are seeing, at least so far, we only have one month's inflation number for this quarter. And you may recall, surprise to the downside, which was welcomed by financial markets. And we think we probably have a little bit more relief coming on inflation in the next few months. Certainly looks like some things, supply chains are generally speaking, getting, improving their performance. So I would expect those goods prices, which were really strong last year and earlier this year, there's

some scope for those to moderate. But, you know, we're not going to get close, I don't think, to 2% inflation for several quarters to come. But, you know, better is a start at least. So Mike just did a good chart showing what happens to the market after the Fed's last hike of the cycle. Next week, we're expecting 50 basis points, a double instead of a triple. And then what? How close are we to them stopping? So we think our expectation is then they downshift to 25 in the February meeting and then another 25 in March and then pause to see the labor market soften. That's our forecast. I think there is a risk that they could go 50 again in February. So, you know, I guess our expectation is that they get close to 5% on overnight interest rates.

Some risks they could go less, but I think probably a little bit more risk they go more than that. And you said it's sensible to price in a recession in a few quarters next year, which it feels like that is increasingly the consensus expectation. Are you in the shallow recession camp? How do we know what that's going to look like? Yeah, we are in a shallow recession camp. You know, if you had 500 basis points of tightening over the course of a year, historically, that tips the economy into a contraction. We do think there are some, that this economy is fundamentally healthy, so we don't think that a deep recession is the most likely outcome.

Of course that's a possibility, but I do think it's also a possibility that, to reiterate what Chair Powell said last week, that there is still a narrow path to a disinflation that doesn't involve a recession. That's not our baseline outlook, but I do think there are two-sided risks around the outlook for a mild recession. How bad is it going to have to get when it comes to jobs or the economy for the Fed to be more spooked about that than inflation, which is above target? Because they're going to have to make that decision at some point next year, right? Yeah, yeah. So I thought one of the more interesting things about Chair Powell's remarks last week was the emphasis he put on, you know, getting the

labor market back into balance as a precondition for being confident that inflation really is, you know, going to come down and stay down. So I think that means you need to get wage inflation probably from 5% to something closer to 3.5%. It's hard to see that without the unemployment rate moving up at least a percentage point or more. And that's likely going to involve a period we think of job loss lasting from 6 to 12 months. So we do think, again, we shouldn't rule out tail risks here, but we do think the most likely and the most reasonable expectation is that to get a lasting disinflation, you are regrettably going to need to lose a shed,

you know, significant amount of employment. In our forecast, it's a little over a million jobs that are shed before the Fed is comfortably in easing territory. We're going to lose more than a million jobs between now and, what, middle of next year? No, in our forecast, middle of 24. And let's keep in mind that that would be actually consistent with a modest, pretty shallow recession

in percent terms. So it sounds scary and it's, you know, it's- Sounds bad. It's regrettable, but that's, I think, what the Fed will need to see to really be sure that the labor market is in balance and not, you know, flaming inflation risks. And again, I don't want to rule out a more benign scenario. And I hope for a more benign scenario, but I don't think that's the most reasonable expectation. Yeah, it sounds a little perverse that the Fed is rooting for that. Michael Santoli,

Ferroli, Michael Ferroli from J.P. Morgan, thank you very much. Appreciate it. We're going to have much more on the economy tomorrow when we are joined exclusively by the Commerce Secretary, Gina Raimondo, right here, 3 p.m. exclusive, closing bell. Bank stocks, check it out, having a rough start to December, with the financial sector down more than 4%. Names like Bank of America and Wells Fargo down even more than that. Up next, we'll debate whether it's a buying opportunity for the banks. You're watching Closing Bell.

Dow's down about 59 points, kind of in the middle of the range of where we've been. Got some strength in the S&P and staples in health care, but overall lower, dragged down by financials, banks and materials. We'll be right back. Citigroup CEO Jane Frazier making headlines today saying U.S. consumer spending is robust and that she's comfortable with the quality of the bank's credit portfolio. This, of course, comes as financials have lagged to start the month with some pretty stark drops this week. So should you buy the dip in the bank stocks? Joining us now is Barclays Senior Analyst Jason Goldberg and Hennessy Funds Portfolio Manager David Ellison. David, what did we hear from the

bank CEOs this week that spooked investors so much? Well, I think we generally heard that sort of the basic fundamentals, whether it be margins, whether it be loan growth, whether it be spreads, lending spreads or expenses are all in flux. And there is a risk that they could turn more negative next year, which would obviously put pressure on on earnings. And I think you see a lot of the analysts out there responding to that and lowering estimates or pushing out numbers a little bit into 24 versus 23. So I think the issue is the longer this goes on, the more this is going to be a grind and the more we're going to have to battle the risk of credit, the risk of lower margins because of what's happened to rates and the economy. So we'll see what happens. But a lot of the basic fundamentals are now in flux to the downside,

not the upside. So, Jason, as these earnings estimates come down, do you see buying opportunities? You know, as we think about the course of next year, we do. I mean, we're entering, you know, David used the term in flux, which I agree with, but you're entering this period with strength. You know, so in the third quarter, you know, the companies we look at, so let's say the top 25 banks by market cap hosted record pre-provision net revenue. That figure should grow in the fourth quarter and actually grow into the first quarter. So you're entering a period of uncertainty with, you know, really strong pre-provision net revenues, you know, strong capital. And we think you'll see positive operating leverage next year. So revenue goes to the seed expense growth, something you hadn't really seen over the prior couple of years.

And you like, it looks like a lot of the big ones, Bank of America, JP Morgan, Morgan Stanley, Goldman Sachs, and regionals as well, Jason, even with the worries about loan and credit growth? I think you have to be a little bit more selective on the regionals. You know, they are kind of overexposed in net interest income, which certainly benefited this year from higher interest rates. You know, we'll benefit early parts of next year, but, you know, that benefit should fade looking out. And then as credit losses rise, you know, one area we're kind of becoming particularly more concerned about is commercial real estate lending, where some of the regional banks tend to be bigger players. So that's probably a segment

you want to be a little bit more cautious on because you don't have the same level of diversity in those franchises. What about you, David? Are you picking up stocks in this environment, bank stocks, or what? Not really. I think I agree with everything that Jason has just said. The struggle I have is that we're at the beginning of more earnings problems as opposed to earnings tailwinds. And I think that's the issue. We have to fight through what's happened to rates, what's happened to potential credit, if it will happen. So I just think we're in a we're in this period now where you just have to be patient and wait for the cycle to play itself out. I'd love to have a recession now. I'd love to have high non-performers. I'd love to have a more wacky yield curve so that we could get better. And the problem is nothing has gone wrong yet. And I think Jason says, look,

earnings are going to be fine. And I think everybody agrees with that. And that's the problem. Everything's fine. There's nothing wrong. So there's nothing to get better. If there's nothing to get better, why is the incremental guy going to buy financials right now? So I'm hoping for tougher times ahead so that we can have a good buying opportunity into, let's say, the middle to the end of this year and then really rip the following year. Jason, how do you respond to that? Why would now be the time? Yeah, I think, you know, we're not making calls early in the month, more over the course of next year. But I think one thing to keep in mind is just where valuations are. Feel good kind of, you know, PE multiples on, you know, 2023 estimates. You know, they're trading under

nine times, you know, relative to the S&P 500. It's almost half. So that's kind of the bottom decile that we've seen historically, which is typically kind of a valuation only seen in kind of deep recessions. And I think while certainly next year may bring a recession, most forecasts call for it to be a shallow one. So it seems like the group is already pricing in a lot of negativity, you know, at the same time that you have, you know, fairly strong fundamentals. And Dave, you see more pain to come. I don't want to make this a bull bear debate, but this was turning into. But I think that it's better to have a debate. And I would agree that I would agree. Jason's numbers are correct. The problem I have is that stocks don't go up because

they're cheap and they don't go down because they're expensive. They move around because there's a change in the underlying fundamentals. And so if he can tell me that margins are going to expand, credit isn't going to be a problem, loan growth is going to be decent the next 18 months, and the Fed doesn't create a recession But if we're going to have a Fed that wants to generate, you know, a million jobless like your last guest talked about, that's going to create a problem for these fundamentals. And I don't think valuation is going to hold them up. So, again, I've been I remember in the early 80s buying stocks at half a book and two times earnings. And so I hope we don't go back there. But, boy, I'd love to be there now because, boy, we'd have some great opportunities the next couple of years. So we'll see what happens. Yeah. In other words, I can always get cheaper. Jason, David, thank you very much. It was a good debate. Appreciate it. Thanks, Sarah.

Giving investors a lot to think through. We're down 66 or so points on the Dow. S&P 500 down a little less than half a percent. They're minor declines, but we're adding to the losses for the week. The S&P now is down 3.6 percent for the week as a whole. The Nasdaq is down 4.6 percent, again, bearing the brunt of the selling today, down three quarters. It's Apple, Tesla, Alphabet, Microsoft, all at the bottom of the list today. Still ahead, we'll talk to Johnny Fine from Goldman Sachs, get his outlook on the credit markets into year end. He's the head of investment grade syndicate. The 10-year, it's really year end. He's the head of investment grade syndicate. The 10-year, it's really rallying. That's the story today.

Big bond market rally, also the 30-year. And as we head to break, take a look at shares of MongoDB near the top of the NASDAQ today after the database company reported a surprise quarterly profit. Also some upbeat guidance. Stock's up 22% almost. We'll be right back. Check out our stealth mover today. It is Brown Foreman. The stock is on the rocks today. The maker of Jack Daniels missing Wall Street's profit estimates because higher input costs, supply chain disruptions,

and also foreign exchange, a strong dollar pressuring margins. The stock had been up pretty sharply over the past two months, but these results proven to be a big buzzkill, down 7.5%. Up next, Goldman Sachs' Johnny Fine here to explain why we may never see the Federal Reserve raise interest rates by 75 basis points again. Just one of his calls. We'll be right back. Stocks are under a little pressure, but bonds are the story today. A big rally. Look at the 10-year Treasury yield, down to 3.4%. It's down substantially this week as investors continue to worry about the fate of the economy. The 30-year yield, below 3.5%.

That has really rallied in the last, I don't know, month or so. Joining us now to talk about opportunities in the credit market and what all of this means, Johnny Fine, head of investment grade syndicate at Goldman Sachs. It's a really good day to have you explain some of these moves we're seeing in the bond market. Is this a bet on falling inflation that we're starting to see or rising recession risks? Well, firstly, Sarah, thanks for having me on again. It's great to see you, especially live and in person. I think the answer is a little bit of both. I think clearly the market is getting religion around inflation expectations coming down, the Fed winning the battle. But I think

also at the same time, we're starting to see the market price in a much greater degree of recessionary fear, maybe some of that coming out of the financials conference this week, the bank CEOs speaking. We're certainly seeing a little bit more of that bleed through into markets. I agree with you. The 30-year has been on a tear. It's now down almost 100 basis points in yield from where it was just in late October. Which was the high. Yes, exactly. And so with that, we've seen an inverted yield curve and it got even more inverted to the most we've seen in decades. What is that telling you? So the curve has remained pretty inverted. The 10s, 30s curve

has now moved back to flat. 2s, 10s, 5s, 30s, et cetera, remain heavily inverted. But at the same time, the front end of the yield curve has come down as well. So I said the 30 has been down 100 basis points off of the wides. The two-year note's down about 50 basis points off the highs. The three-year note's down around 60 basis points off the highs as well. So that's also implying less monetary tightening in the future as well. Market, I think, getting much more comfortable with the Fed's own target of maybe 5, 5.25% there or thereabouts for terminal funds rate early next year. So what are the conversations you're having with your clients about next year? How would you characterize sentiment, positioning around some of these risks? So I think overall, there's a general view that financial markets have predicted a weaker economic outlook for 2023.

The debate will continue to rage as to whether or not we'll get soft landing or we'll really tip into recession perhaps in the second half of next year. I tend to agree with Jan Hatzier's point of view, roughly a one in three chance that I think that we get a recession. So I'm still optimistic that the Fed's going to land the plane towards the soft landing scenario that I think that we're all hoping for. I don't know. Your boss, David Solomon, sounds a little more bearish. I don't like to disagree with David. I also don't like to disagree with Jan. I'm generally a glass half full guy, as you know, Sarah. So I'm going to go with an optimistic scenario of soft landing. How is the credit market behaving? Pretty well. I think that over the course of the year, of course, credit spreads have widened. That's largely been driven by more

technical factors. This time a year ago, we had almost $300 billion of flows into investment-grade bond funds. Now we have around about $160 billion of outflows year-to-date. That's a swing of almost half a trillion dollars. That's pretty meaningful in the grand scheme of what we see in investment-grade credit. Now, as you move into 23, I think the fundamentals are going to catch up a little bit. What I think we'll need to look for is that if earnings estimates start to come down, projected earnings, forward earnings, et cetera, then we'll move into the concept of passive leveraging, where ultimately the denominator in the debt over EBITDA ratio will start to decrease. And as a result, the leverage ratio will start to increase. A little bit complicated. So for those wondering if they should buy the

high yield ETF, if you think there's going to be a soft landing and you're relatively optimistic, they're pretty high yields there getting paid. Is that a good bet? So I think fixed income itself is likely to attract more capital flows in 23. And I think that we'll see the rest of the capital outflows that have marked 2022. You're able to get a pretty chunky yield by investing in fixed income today compared to where you were 2016. If you listen to the BlackRock Q3 earnings report, Rob Capito, their president, talked about how in 2016 to get a 7.5% yield, you needed to have a portfolio that was something like 25% bonds, 50% equities, 25% alternatives. I'm paraphrasing.

Whereas today, you can get that same yield by being more like 80% in bonds and 20% in stocks. And I think that should be pretty supportive for flows overall being attracted into fixed income. Is that how people are positioning? 80% bonds, 20% stocks? I think people are all over the place. I think there's probably still some people that will look at the inflationary expectations, still see there being a downdraft in bonds at some point in 2023. There are some that are going to look at things like the front end of the investment grade market,

where you can get mid to high fours for high quality credit as being a very attractive entry point. I think the market's all over the place. I think we'll see more consensus build as we get towards the end of the Fed tightening cycle early next year. There's also, I mean, I don't think it helps today that you have President Putin on the wire saying that the odds of a nuclear standoff have gone up, right? There's still geopolitical risk here,

and that, I mean, bonds offer protection there. For sure. So I think naturally people will want to amulize portfolios. They'll want to have a good balance between fixed income and equities overall. The risks I think that we see out there are the no-knowns, things happening on the geopolitical front, still concerns with respect to tensions between the U.S. and China, et cetera, et cetera. Overall, I think the market's poised for a more robust year of capital committing, risk taking and broader capital markets activity in 2023. Johnny Fine, thank you very much. Thank you.

Good day to have you. Goldman Sachs, head of investment grade here at the New York Stock Exchange. Up next, we will be joined by the activist investor who is calling for BlackRock CEO Larry Fink to step down for what he says is hypocrisy over the asset manager's ESG messaging. And a reminder, you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. It does down about 16 points. Again, earlier, we were as high as 177, down almost 100. We'll be right back. What is Wall Street buzzing about today? Activist investor Bluebell Capital, they're demanding BlackRock rethink its approach to ESG and calling for CEO Larry Fink to step down.

In a letter to the firm, Bluebell writing, it's concerned with BlackRock's, quote, contradictions and inconsistencies on ESG investing and the politicization of the ESG debate. And Bluebell Capital co-founder Giuseppe Bivona joins us now. Giuseppe, thank you so much for your time. First, if you could just tell us how big of a stake you hold in BlackRock. Thank you for having me. Our stake is undisclosed. We don't disclose the stake we own. But I can tell you two things. A, that we manage approximately $250 million at firm level in a portfolio already concentrated between 12, 13, 14 stocks. And secondly, that we fully disclose

our stake to BlackRock. Okay. So it has to be a small stake, though. We're talking about a $100 billion company. What I'm trying to understand from your letter, which I read and some of the reports around it, are you criticizing BlackRock for doing too little on ESG or not doing too much on ESG? Because it seems like there's a little bit of both in there. Well, I would say that we are criticizing neither for doing too little nor for doing too much.

The main critiques is that they are not doing what they are saying they are doing. And if you ask me, it's a much worse position than I think it came up in the public debate. So we went to BlackRock, of course, and asked for a statement on this campaign that you have launched. Here's what BlackRock spokesperson tells us. In the past 18 months, Bluebell has waged a number of campaigns to promote their climate and governance agenda. BlackRock Investment Stewardship

did not support their campaigns, as we did not consider them to be in the best economic interests of our clients. So you have been pushing BlackRock to join you in some of these ESG fights. Richemont, I know, is one of them. And BlackRock does not. How do you respond? Well, I don't think they've been trying to convince them to do anything. What I really did over the last almost two years, 18 months period, is documenting that BlackRock got all the relevant information to make the

best decision in the interest of the clients. And in my view, they did it. And I can make some example. You know, when you, as a, you know, a leading asset manager who champion on social responsibility, vote to support the CEO of a public company which has been in increment which has been convicted for it to six year in jail for fraud in the account in a different company I wonder to what extent this is in the best interest of shareholder and clients when you as a leading asset manager, do not endorse a request for companies to stop a significant environmental issue,

then I don't think you have the right to claim the input environment on the top of the agenda. And I can go on and on and on. But is it really hurting the performance of BlackRock? I know the stock is down 20% or so for the year, but that's pretty much on par with the industry. And BlackRock has seen inflows this year, whereas some of its competitors in the broader industry has seen outflows.

Look, I think that if you are in any business like selling mutual funds or selling cars or shoes or whatever, and you are constantly under the limelight and being criticized on this issue. I think you have a problem. I mean, 23 states in the United States send a very tough letter to BlackRock. And what took you

23 states, which include 150 millions of America. Clients, potential clients, could be clients. So this is obviously not healthy. I don't think we can discuss here the existence of a problem. The problem exists. You know, it's a question of what remedy can we adopt. Well, Giuseppe, thank you very much. It's attracted a lot of interest. I know you've had some success at Danone and other companies pushing them on ESG. We appreciate it.

Definitely getting some buzz today. Tesla, when we come back, selling off after another round of price cuts in China. Up next, we'll discuss whether that will be enough to jumpstart demand. Stock down almost 4%. That story plus new concerns. Carvana is on the road to bankruptcy and the airline stocks getting grounded today when we take you inside the market zone next. 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, we've got Cowan's Helene Becker on the airlines and Filabo on Tesla. We'll kick it off broad because, Mike, the Dow's down about 32 points.

S&P down a third of 1%, just adding to the losses that we've seen so far this week. For the Nasdaq overall, it's down almost 4.5% for the week, which is notable because it comes on the back of falling treasury yields, which should be good for tech stocks, as we mentioned, as they've suffered a valuation concern. But now it becomes about recession and reduced earnings estimates. So where is this sell off taking us? Well, exactly. And look, NASDAQ has been just downside leadership the entire bear market. You know, the group that really had the outsized outperformance on the upside usually hurts more in the downside. That's all happening.

I mean, I was looking, you know, next year's earnings estimates for an Amazon, I mean, they've just vaporized. Same with Meta. So and, you know, even Alphabet down 20 percent. So to me, that accounts for most of what we're seeing with these stocks in a market where the average company is able to have double digit revenue growth because inflation is where it is. So I think that explains a lot of it. In general, I do think there's a chance that the decline in yields is creating a little bit more economic anxiety among equity investors than it is helping on relative valuation and the idea that it's going to support the consumer and bring mortgage rates lower. You're seeing gasoline prices come down. So it's a little bit of good news turning into worrisome news because of the extent of these declines.

You know what else is coming down? Used car prices. Mannheim used vehicle index down again, 0.3 percent for the month and more than 14 percent for the year in November, which has been a pretty good leading indicator of inflation. It's what got us into this mess. And to begin with, that spike. Absolutely. And it's one of the reasons why investors almost have moved past the peak inflation story. And they're like, look, that's in the bag. We see where it's going. Maybe it won't. But that's what they're saying,

aside from services and wage inflation. And it's really much more on to, you know, what damage has been done? How strong is the economy right now? Can we absorb what's happened already on the rate side without a recession? That is a big story today. Certainly they rally across the Treasury curve. Let's hit the airlines, though. They're sliding today in a broad move lower for the travel stocks. American Airlines, United, Southwest, Delta, JetBlue, all selling off. Southwest saying earlier in the day it would reinstate its quarterly dividend after suspending it at the beginning of the pandemic. And the CEO just last hour said on CNBC the demand looks strong. Let's bring in Helene Becker, senior research analyst for the airlines at Cowen.

So how much of the boom that we are seeing in this industry is already reflected in the price? Hi, Sarah. I think that none of it is, frankly, because the stocks are back to March 2020 levels for the most part. And yet, to Bob's point earlier today, at Investor Day, he talked about the strong demand and the fact that they think they'll get back to 2019 revenues in 2023. And our forecast for most airlines is to get most of the way back, at least 90% or more back. So the fact that the stocks are trading the way they are is disappointing, number one.

But number two, I think it really reflects concerns about a recession and that demand turning down. Airline traffic is always good until it's bad. You don't really see it coming that much. You don't see the downturn coming. And, you know, I thought with the dividend reinstatement today, which we expected them to announce today, that that would get the stock up. But no, all the stocks, to your point, are under a lot of pressure. And I think it's a capacity concern. It's the second worst performing subsector of the S&P right now today, just behind metal and glass containers. That's at the very bottom of the list.

So, Helene, it sounds like you think the sell-off is overdone. So which ones would you be buying? I do. I think they are. United UAL is our best idea for 2022, and we repeated it for 2023. We think that there's a shift in mix that's going to take place in the industry, shifting away from so much domestic leisure to more international and some business resumption, not 100% of the way back.

But UAL is probably our best idea. And then we have Delta as a buy, Southwest as a buy, Alaska Air are all buys. And those would be our top four choices in here, each one for specific reasons. But all across the board, just continued strong demand. I think we're going to see okay cost control. Pilot costs are the ones that are going up a lot. But it's only a 2023 increase. And then the increases for 24, 5 and 6 are going to be smaller

than those 30 percent, that 30 percent increase that we saw Delta give their employee, their pilots earlier this week. Helene, thank you very much for joining us. Helene Becker from Cowan. Let's hit Tesla because shares are under pressure after the EV maker announced more price cuts on some models in China. That news prompting longtime Tesla bear Tony Sakonagi to slash his earnings estimate for the fourth quarter and next year because of increasing concerns about demand. Phil LeBeau joins us. Phil, how much could the price cut in China actually spur demand for Tesla? What does it say overall about demand this year and next? It's a much more competitive market in China when it comes to electric vehicles, Sarah. There's no question about that. And yet, if you look at

the EV sales in China, Tesla topped 100,000 in the month of November for the first time ever. So they have sales. They have strong demand. The problem is you've got increased competition there. And because of that, these reports are out that they're going to be slashing their prices. And to Tony Sakonagi's point, that's going to put pressure on their gross auto margins, which has really been the driver of the stock in the past. So it'll be interesting to see how much of that pressure comes through when they report their Q4 results in January. Stock is, Mike, 57 percent now off the highs. It's taken a beating now this year.

It was holding up relatively well earlier in the tech sell-off, but not so much anymore. It was. And basically, that looks like a bit of a busted chart right here. You were able to say for a while that it was holding together. Look, I think it's, again, the unwind of the extremes we got into the highs, not just in valuation, but in terms of everybody embracing the idea. The premise was unmatched demand. And basically, you couldn't feed all the demand.

It was a supply-constrained story. And combined with a visionary leader who could figure out the next moves, looking ahead and was dedicated to creating the demand. It was a supply-constrained story. And combined with a visionary leader who could figure out the next moves, looking ahead, and was dedicated to creating the future. And now the Twitter stuff is a distraction. He sold a bunch of stuff. All the elements of the story have kind of gone in reverse. That being said, I mean, earnings are still looking like they're relatively healthy. Maybe that means there's downside to estimates. But they're up over the last several months, down in the last two months, earnings estimates for next year. So it's a more fundamental story. It's a matter of what valuation you put on real earnings as opposed to what it used to be, where you had to just have faith that they were eventually going to get to scale.

Bill, while we have you, we've got to ask you about Carvana because another day, another plunge here. Look at the shares, increasing bankruptcy fears. The online used car dealerships' largest creditors are now reportedly agreeing to negotiate any debt restructuring together. What do we know about this situation? We don't know a whole lot, in part because Carvana is not saying a whole lot. Look, this report of Apollo as well as PIMCO getting together and saying, look, let's work together in case we see this go into a bankruptcy, which would be a Chapter 11. It would be a prepackaged bankruptcy,

most likely. And again, there's no indication at this point that Carvana is going bankrupt. But when the creditors start talking to each other, it's a sign that because this company is so overleveraged, they're making plans in case that is ultimately what's going to happen. And now you're seeing the results with shareholders. The stock is down under four dollars a share. Because remember, if it does go into bankruptcy with the shareholders are going to have very little, if anything, left. Ouch. Bill, Bill, Phil, thank you very much. Wanted to hit Campbell's Soup as well because strong earnings. Look at the stock. It's rallying today, actually trading at levels we haven't seen since March 2020, up 6%, quite a move there for a consumer staple. The company beats quarterly estimates, also raised its full year outlook, saying it has

been able to pass on higher costs to the consumers, especially as consumers eat out less and at home more. Mike, 15% organic revenue growth, higher outlook. I talked to Mark Klaus, the CEO, just before the show and asked him how he's able to pass on 15, 16 points of pricing in this economic environment. And he says it's because our portfolio still offers value, value against eating away from home, value against other meals that you can buy at home. As I asked him if he was seeing any recessionary signals of consumers trading down to away from home, value against other meals that you can buy at home. As I asked him if he was seeing any recessionary signals of consumers trading down to private label, and he said, not really, maybe a little bit on condensed soup. They're losing a little share, but they have 85 percent share there.

And look, the consumer, the younger consumer came to these brands and these products during the pandemic, and they have stayed and they are better able to cook at home, he says, more confident and capable of cooking at home. It's not me, but it is a whole new generation of consumers. He also said Thanksgiving was strong, that people sacrificed on protein. In other words, they bought smaller turkeys and they spent more to have side dishes. And that was good for Campbell's, green bean casserole, mashed potatoes with their soup mixes and that sort of thing. It's interesting color because it reflects a lot of this kind of post-pandemic mentality and behavior shifts that we're seeing from consumers that is impacting these stocks and keeping them very strong and keeping them in a place where they're able to pass on higher prices. Yeah. I mean, there's no doubt. I mean,

in addition to whatever behavior changes have been in place since the pandemic, I mean, there's been never a more classic recession or consumer stress play than Campbell's because of all the things you mentioned in terms of when it stands up against other options. It's usually the value choice. I do think there could be a concern that there's very little volume growth next year. Just exactly how much follow on pricing are you going to be able to put through. So the familiar concerns are probably going to be there. I would also say that the stock isn't as expensive as some other consumer food companies like, let's say, Hormel and some others that do have the premium and are out in somewhat different categories. But I do think that's why the market's responding positively as it is right here.

Also, I asked him whether food inflation was coming down. He expects it to moderate, but not all-out deflation, which just shows you that people are still paying high prices. We've got much more on the state of consumer spending and food inflation tomorrow. An exclusive interview with the CEO of Unilever, huge consumer package good and food giant. Alan Joke, it's on Squawk on the Street with me, 10 a.m. Eastern. Mike, what do you see in the market internals? Two minutes to go.

It's been pretty weak underneath the surface there. I mean, really modest index moves, but it's about 2 to 1 to the downside in terms of New York Stock Exchange declining to advancing volume. So it shows you there's a little bit of wear and tear. We've been mostly in a range around just above 3,900, 3,930 on the S&P all day. Take a look at the dollar index, telling a similar story to yields. Yields in the dollar have been very tightly correlated. It's all about how much Fed is left to be done. You see there, the low for this run, lower on the dollar index is a little above 104. So today we're just sliding to 105. Volatility index

just perking up slightly. It's still pretty contained in the low 20s, but obviously up off the lows below 19. Pretty much on alert to see if this pullback deepens into anything more than just a few percent off the rally highs. I'm so glad you brought up the dollar. It's almost 8.5% off the highs, which really tells you the shift in mood about recession, lower inflation, less Fed action. Mike, thank you. As we head into the close, let's check out the Dow. It's actually just gone positive. Earlier today, we were up as much as 177. There's the intraday chart. Very choppy action today. We got down as low as down almost 100. Looks like we're going to close out just about flat. Mention a few lows. Salesforce is at the lowest level since about 2020 right now. And an all-time high for Ulta Beauty, which continues to gain traction. S&P 500 is going

to close with a loss of two-tenths of 1%. So not as extreme as the selling we saw earlier in the week, but it does add to the losses. But now that gets hit the hardest again, down half a percent. The story today is really in the bond market, where we saw a big rally in the 10-year and in the 30-year, bringing down those yields. That's it for me on Closing Bell and Overtime with Scott.