Closing Bell - Closing Bell: Dramatic Reversal, Oil Slides & Emerging Opportunity 7/5/22

Episode Date: July 5, 2022

Stocks staging a late day comeback after the Dow fell 742 points earlier in the session on recession fears. Tech stocks leading the rebound amid a drop in bond yields. Leuthold's Jim Paulsen discusses why he is turning bullish on tech and growth stocks, but Richard Bernstein Advisors' Richard Bernstein says investors should be defensive right now because rising interest rates and decelerating profits are historically a bad combination for stocks. Ariel Head of Investment Group Charlie Bobrinskoy reveals why he thinks the banks are attractive despite falling treasury yields. Oil plunging below $100 a barrel on economic concerns. RBC Capital Markets Head of Global Commodity Strategy Helima Croft says the fundamental backdrop behind oil remains bullish. Rockefeller International Chairman Ruchir Sharma explains why he is so bullish on emerging markets in the second half of the year.

Stocks making a big comeback in today's session. What's leading the way? Here's something we haven't said too often lately. It's the Nasdaq and beaten down tech stocks. The most important hour of trading starts now. Welcome everyone to Closing Bell. I'm Sarah Eisen. The broader market seeing a late day rally. Here's where we stand in the market right now. Nasdaq Composite has turned green and it's up substantially up 1.2 percent or so. The S&P 500 only down a third of 1%. At the lows, it was down 83 points. So you can see it's been a strong recovery. Dow's still down about a percent. It's the cyclical groups that are still getting hurt the hardest in today's session. Energy, utilities, materials, and industrials, they're all down. Financials aren't having a great day. It's communication services, consumer discretionary and technology. That is all green in the S&P. The low of the day for the Dow is down 742. We're down just about 200, a little more than 200 points right now. We've got a big lineup of guests for you to help break down today's action and how you should be playing it. Richard Bernstein of

Richard Bernstein Advisors, Luthold Group's Jim Paulson, Ariel's Charlie Bergrinskoy, RBC Capital Markets' Halima Croft with a plunge in oil prices, and Rockefeller's Rushir Sharma on some interesting international opportunities. We'll start, though, with today's market dashboard. Senior markets commentator Mike Santoli is here looking at what the credit market is telling us, Mike, amid all these recession worries. Yeah, Sarah. I mean, it's a pretty consistent story, no matter what markets you look at. This kind of wave of economic anxiety washing in overnight, mostly from Europe, really pressured our markets. We kind of absorbed it and have recovered after the European markets closed.

But still, dollar up, credit markets not looking great. Here's the S&P 500 still holding above these lows. Remember, 36.66, the closing low, 36.36. It's nothing to get excited about, but it's still okay if we're holding, let's say, 4% or 5% above the lows. Remember, 36.66, the closing low, 36.36. It's nothing to get excited about, but it's still OK for holding, let's say, 4% or 5% above the lows. This is, however you slice it, a pretty well-defined downtrend there. So until it rallies above that, you're not really talking about much. But it's still probably encouraging to see some traction in the non-cyclical parts of the market, in the growth areas, which still have a tremendous

amount of market cap. It feeds into that idea of exactly how much has been priced. And here is a look at high yield credit spread. So basically, junk bond risk spreads. This is in basis points above treasuries. So this is, you know, going back about a dozen years. The reason is, if I just showed you two years of this, that looks really scary, the level it's gotten out to. When this goes up, it means there's much more anxiety about creditworthiness, default risk. This obviously was the flash recession in 2020 with COVID. Now here, no recession, but an industrial recession globally and an earnings recession. That was 2015 into 2016 when oil crashed.

So clearly we didn't get an across-the-board recession. But similarly here, we had another growth scare. So we're up at these levels that's kind of on the border of a normal financial tightening that the Fed wants and something that gets a little bit out of hand, Sarah. So that kind of puts it in context. You'd like to see that calm down before equities have a high conviction effort at really bottoming. But we'll see if it gets that way. So we're gearing up for earnings season. And the big question is how much has been discounted into stocks in terms of the weakness we're going to get. Dan, I was just writing from Wedbush. Look at the reactions of Micron, which was a disaster, and Tesla, which were also pretty weak numbers. Both stocks are up today.

I've been talking about Micron since last Thursday when we got those numbers because it was a very kind of a clanging revenue guidance mess. I mean, it really was dramatic. It's a couple of billion dollars and it's gotten some traction on the way up. I don't want to extrapolate from two stocks. There's probably plenty of adjustment to the downside that has to happen in the official numbers. But the fact that the equal weighted S&P is trading below 14 times earnings tells me the market doesn't believe the published numbers. If it did, it probably would not be trading at those levels.

Well, and that a lot of that bad news is already in the price. And again, second quarter is not going to be make or break, right? We want to see the guidance. We want to see how much pain was felt. But it really is. I mean, next year's numbers, I'm on board with the idea they're too high, $250 for S&P earnings next year. That seems like it's too high.

But, you know, again, it's an art, not a science to figure out what's in the price. Mike, thank you. See you later. Mike Santoli. Let's bring in Richard Bernstein from Richard Bernstein Advisors and Jim Paulson from Lujold Group. Welcome to both of you. Rich, you have been pretty negative for a while, even last fall on tech. I've been right about that.

Is the tide turning, though? Are we now going into an environment where it's recessionary or slowdown and you want higher growth stocks? So, Sarah, it's interesting to watch what's going on today. I don't think that the action you're seeing with Nasdaq up is a recession call. I think it's rather a call that we're going back to 2018. The Fed doesn't have to put the brakes in the economy. And we get all speculate again right we should all go back to be looking what's

there it's the bubble stocks. That are leading the charge again today. So you know you mentioned the dollar it's pretty ironic the most foreign exposed sector is technology. We all know that the dollar has been strong but yet.

Technology is leading- we know that they had, you know, technology doesn't tend to, a lot of technology doesn't do well during a recession. So I think, you know, yes, cyclicals are underperforming. But again, you're getting this notion that it's either got to be cyclicals or growth. Nobody's talking about defensives, which is really the group that works the best if you were worried that there was going to be a recession. Utilities, which ones do you like the best? Utilities, staples, health care? I would say, yes, staples would be number one, right? No matter what goes on, we all still eat. Number two would be health care. Number three would be utilities. They're not performing very

well today. It's really the bubble stocks that are leading the charge. Jim, do you agree or do you think it's time for a rethink of tech, given a lot of the bad news has already been factored in? And you see it in some of the reactions here. We've gotten early to earnings and numbers. I just recently turned positive again with growth in tech in general, Sarah. You know, I think we're going to avoid recession. I think this is more of a mid-cycle slowdown that we're experiencing. And the key here is in order for the market to rally, it seems likely to me the market has to get an inkling here or a feeling that the Fed is about done raising the funds rate.

And I think we're getting closer to that than we think. The Fed, you know, takes its messages from the economy and the bond market, and inflation is saying the Fed needs to wind it up. Real growth is saying the Fed needs to maybe take a pause. And the bond market, anything from two years to 30 years, just gave a 60 basis point rate cut, suggesting that bond vigilantes thinks the Fed has also done enough. So I could see another 50 basis point rise, maybe 75. But we could be done with that for a while. And if that's the case, market sniffs that out. I think we could have an early cycle stock run. You get back to

early cycle growth stocks, some early cycle cyclicals, and you dump things like the defensive stocks that Rich is talking about, which have really done well this year i think their their relative values are pretty high i'd start switching away from them if you've been there like rich has but that's that's been great and i i pat myself on the back and take some profits wow he's going he went completely the other way as you rich why do you disagree well i i say, Sarah, I think we're too focused on an economic recession. I love Jim. Jim and I have known each other for a bazillion years, and we're great friends and everything. But, you know, as many a senator says, my good friend from Minnesota, I have to disagree with him.

And I think, look— Why not? What if we do manage to escape? What if we do manage to avoid a recession and there's been enough pain that the Fed takes a pause? So I think what people are missing, though, is that it's going to be that it's pretty much baked in. We're going to see a profits recession, not an economic recession, but a profits recession as we head towards the end of 22 into 23. I think that's pretty inevitable. And I don't think we're going to skirt that. I think it's very difficult to skirt that profits recession. But look if we do and everything's

fine and inflation really does go away and then it's 2018 all over again. And I agree with Jim that you would be you'd want to be in tech. I just don't think we're going back to 2018. I think the world has changed and portfolio has been very slow to change, that if we do a mild recession, inflation is not going to go away. We need something that's really going to stymie demand so that we really kill inflation. If we don't, it's just going to be an iterative process. Every time the economy comes back, you're going to see a little more inflation, a little more inflation, a little more inflation. I think that's a very different world than what people are used to. Jim, that is the counterargument, that we aren't sure whether inflation's peaked and we don't know how fast it can come down.

And especially if we manage to avoid recession, the Fed is squarely focused on inflation right now. Well, I think that the evidence of inflation's becoming, rolling over is becoming pretty strong in my view. We have lost the entire thrust of commodity prices. Industrials are down to the lowest levels in over a year. Ag prices have rolled over, now energy prices. So the entire commodity thrust is now in reverse. Core CPI, PPI, PCE have all rolled over year on year

for two months, some even more. Core PCE is under a 4% rate in the last four months. Wage inflation is at three and three quarters in the last four months. Retail inventories are going to bring discounts. Freight shipping has fallen in half from its recent highs. To me, it's pretty compelling. The biggest thing is break even rates in the bond market, Sarah. The one year break even rate hit four percent today. That's down from six percent just three months ago. That could be back to two percent by the end of summer. I think the economy is slowing, inflation slowing. The bond market's already

telling you this. And I think the Fed's going to stop pretty soon. And if they do, if we just take a pause, there's a lot of revaluation that looks pretty attractive here to own in the next several months after a Fed pause. Rich, that final word. You can't deny the fact that we have seen these commodity prices weaken. WTI is now below 100. It just dipped at 99.68 and down 20 percent off the highs. We've seen it across the commodity space. So, Sarah, my response to that would be we have to remember inflation is a lagging indicator. China's been in lockdown for the past, you know, three to six months, and it may be premature to count inflation out. If China comes back and they come out of their hazmat suits and commodity prices stay weak,

yeah, the worst inflation is probably behind us. I think it's a little premature to make that judgment, given that they're just coming out of their hazmat suits. Well, they don't have an inflation problem. You can say that for them. I'm rich, Jim. We'll leave it there. Two completely different sides of the debate,

which is very much playing out in the markets today as well. Jim Paulson, Richard Bernstein still ahead. RBC Capital Markets head of global commodity strategy Halima Croft on whether recession fears will continue to put pressure on oil and commodity prices. Plus, Rockefeller's Rushir Sharma explains why he sees a big overseas opportunity right now for investors. Dow is, I say, only down 227. We were down more than 700 this morning. You're watching Closing Bell here on CNBC. Check out today's stealth mover. It's Crocs. Look at that, up 11 percent, one of the few bright spots on Wall Street today. Loop Capital upgrading the casual shoemaker to buy from hold,

citing upbeat channel checks and valuation. Crocs shares have plunged more than 60% this year after being one of the biggest winners during the pandemic. The analyst, Laura Champagne, noting brand heat is still there with younger consumers. She's bullish on the gibbets, those little attachments that people put into their Crocs. Meantime, that is a theme today, gig and pandemic stock winners. They're actually big winners today after being trashed over the past year or so. Deirdre Bosa looks at how these stocks are holding up. Deirdre,

Etsy's at the top of the S&P. Names like Zoom Video and DocuSign up big. Yeah, what you just said is key. They've been trashed this year. So it is the most oversold growth names that are catching a bid in today's session. Leading the NASDAQ 100, it's Zoom, DocuSign, Datadong. They've session. Leading the Nasdaq 100 at Zoom, DocuSign, Datadog. They've been hit hard since the start of the year. Now investors are dipping back in just ahead of the earnings parade. They're also less sensitive to U.S. dollar strength compared to, say, the big multinationals that make up the Dow. You mentioned gig economy as well. Check out DoorDash. It was surging last I looked more than 10 percent after a very rough first

half where it shed some 50% of its market value. Other big names also doing quite well today. And then there's Coinbase down 80% year to date. That's also up more than 10% or almost 10% in today's session. And maybe the cherry on top is that 10-year yield, which we watched so closely. Briefly dipping below 2.8 today. Higher rates hitting higher valuations based on future profits. So an easing of yields that may be helping to ease the selling in these names. Take note of

Bitcoin, though. I just want to point that out, Sarah. It has acted, of course, like a risk asset and it is up less today than some of the other risk names, peaking above 20,000 just in the last hour or so. Back to you. So you've studied and covered a lot of these names during the pandemic, the Pelotons and DocuSigns, the ones that had such a big surge. Who has taken the opportunity of the market downturn to really reposition the business in a way that investors can like? Because so many of those names are thought of now to be one-hit wonders. It's such a good point, Sarah. And I would say that what they pride themselves on is being so-called best of breed. So they do something specific very, very well, like a snowflake. It does data analytics. And it's tried to broaden it out. But you've got a name like Zoom, which tried to acquire

Five9 during the pandemic. It wasn't able to do so. And that's really seen as a missed opportunity. These names are left kind of being one trick ponies at a time when some argue that companies, enterprises want to go with suites, a more complete picture, like a Microsoft or an Alphabet. So they haven't transitioned now. How are they going to be able to? You take a DocuSign. It's CEO Dan Springer recently stepping down. Let someone else try and figure that out. But that is the big question for them going forward. Are they platforms or are they simply products that could maybe be absorbed and better used in a bigger company? The ARK Innovation ETF, which has a lot of these in there, it's up 7% right now. It turned positive earlier this morning. Deirdre, thank you. On the day, that is. Let's check on the markets right now broadly.

We are seeing the Dow still lower by about 252 points or so. It's cyclical names that are getting hit the hardest, those that are tied to the economy. That's why the Dow is down more. It's also the multinationals that are hit by a stronger dollar, which is a big theme. The S&P down a third of a percent, though. The Nasdaq is positive. The Russell Index is also positive. Small cap's doing better. Commodities getting crushed today on recession fears. Up next, RBC Capital Markets,

Halima Croft, on whether this sell-off is a buying opportunity for investors. And as we had to break, check out some of today's top search tickers on CNBC.com. Ten-year yield taking the top spot, and it is lower today. There's buying of treasuries on worries about the economy, certainly over in Europe and in the U.S. as well. That's putting pressure on yields. Tesla's up there. It's turned around. It's up 1.5 percent despite disappointing numbers on deliveries. The S&P, the Dow and WTI crude, which is now down 8 percent and below $100 a barrel. We'll talk about it next. Recession fears mounting as oil trades below $100 a barrel, lowest level since May 11th. The energy sector is falling hard on the back of these oil prices.

The XLE, which is the ETF that tracks those stocks, nearly 5% lower today. Joining us now is Halima Croft from RBC Capital Markets. Retail gas prices, Halima, have fallen for 21 consecutive days. And it's not just oil, right? Copper prices are also at, I think, 19-month lows. So talk to us about what's happening, these recession fears starting to really overcome the tight supply, which had been driven oil prices most of the year. I mean, absolutely, Sarah. I mean, this was a brutal macro-driven sell-off. Entire commodity complex was hit today except for European natural gas. I mean, clearly

they're pricing in concerns about recession, about demand destruction. We are seeing consumers starting to change behaviors, using public transportation more, driving to cheaper gas stations, putting off discretionary travel. But we're not really seeing a major hit to demand yet. The fundamental backup for oil remains strong. But again, macro sell-offs can be very brutal. Has it made you change your mind about where prices are headed? Because you've been pretty bullish on this idea that with Russia out, that it's going to be very tight supply and very high prices. I mean, Sarah, we haven't changed our fundamental story on the market. I mean, we look out for the back half of the year. We do see a market within spare capacity shock

absorbers. I mean, we will be clearly watching for signs of demand destruction, but demand destruction events are relatively rare. If we look at 2008, there was far less discretionary spending that consumers had when that actually hit. And so we think the consumer is in a better position. But again, this macro story can overwhelm fundamentals. And that's what's happening right now. How bad is it getting in Europe as far as gas and lack of access? And what do you expect to see here? I mean, Sarah, this is a really serious economic story for Europe. And we already have the Russians slashing flows through the all-important Nord Stream 1 pipeline. There had been a Norwegian gas strike today, which was

causing a lot of concern about what would happen if Norwegian supplies came off the market. They're the second largest supplier into Europe. That strike has seemingly been settled. But this Russia story is going to continue to weigh on markets in Europe. There are real concerns that Nord Stream 1 will not restart, that Europe may have to brace for potentially a full Russian gas cutoff this winter. And so when we look at Europe, we say basically they are the front lines in terms of the economic fallout from this war. What do you think is going to happen there? Are they going to have to seriously ration gas? Is there any other source they can get it from? No, I mean, this is the

problem. There's no SPR for natural gas at this point, Sarah. And so basically, you know, there really is not another supplier that can backfill Russian losses on a significant scale. And so, yes, we're going to potentially have to look at rationing, industrial curtailments. That's why you have European governments coming out and talking to consumers about ratcheting down consumption. We're not really having that conversation on the scale in the United States. It's happening in Europe at this point. But again, for both Europe and the United States, it's going to be demand that really balances this market. No, I think it's why the European recession worries are sort of

at a fever pitch today in the market. The euro is plunging. Finally, I just wanted to ask you about this tweet from President Biden and then the counter tweet from Jeff Bezos, because he continues to put political pressure on oil companies, the president, that is saying my message to them running gas stations, to companies running gas stations and setting prices at the pump is simple. This is a time of war and global peril. Bring down the price you are charging at the pump to reflect the cost you're paying for the product and do it now. And then Bezos calls him out for saying it's either straight ahead misdirection or deep misunderstanding of the basic market dynamics.

I assume, Malima, you agree with Jeff Bezos, but I do wonder what you think the president is after here and what that relationship is going to look like. I mean, I think for President Biden, I mean, the challenge that he has faced is there is no easy supply fix to this market. Again, we keep saying it's going to have to be demand that balances this market because we really have a shortage of spare capacity. And so I do think if we look out into the midterms, the president is trying to find a way to show voters that he is sensitive to the concerns about inflation. But again, going after oil companies or talking about gas stations, that's not going to fix the fundamental issue in the oil market of a shortage of spare capacity.

Again, demand will balance this market. Do the companies have any ability to affect the price of the pump? I mean, here's the issue, Sarah, is that most gas stations, the vast majority, are independently operated. I mean, what President Biden has been trying to do is trying to get, you know, oil companies to basically produce more. But that's not going to be an immediate fix, as we all know. You can't just turn this on quickly. He's going to Saudi Arabia, trying to get more oil from Saudi Arabia. The Saudis have, you know, potentially, you know, between around OPEC, maybe two million barrels. Not a lot if this market remains tight

and we do not see a major fall off in demand. Halima Croft. Halima, thank you. Good to talk to you as always from RBC. Up next, the big picture on the stocks that could be most impacted by the plunge in the euro. Two decade low today against the dollar. We'll be right back. Well, earlier, it looked like it was going to be one of those ugly days, but it has been a big reversal intraday and we are coming back. The Dow down only 192. It was down 742 at the low. You've had a number of stocks turn green today. Nike has been an outperformer all day, but now you've got names like Salesforce, Apple, Home Depot, Walmart, Microsoft, Disney, all on the list and some other winners as well. Following a lot of these consumer communication services and technology stocks higher today with the Nasdaq of one and a half percent. Perhaps it's the reversal in Treasury yields, which are under pressure today on worries about the economy.

Bitcoin is higher. A lot of the seemingly riskier parts of the market doing better today. Today's big picture, it is, of course, the euro dollar inching closer and closer to parity. One dollar to one euro. It hasn't happened since 2002, back early in the whole euro experiment. The euro has weakened more than 9 percent in the last six months. It's now at a 20-year low. Why? Because European economy is in worse shape than the in the last six months. It's now at a 20-year low. Why? Because European economy is in worse shape than the U.S. economy. It's more dependent on Russian oil and gas, as we just heard from Halima. French factory numbers overnight were a sign of the pain that could be to come. And like the Fed, the ECB is tightening into this slowdown because inflation there has been soaring as well.

That's a bad mix. So the Fed has more room to tighten because inflation there has been soaring as well. That's a bad mix. So the Fed has more room to tighten. It already has done so. And that makes the dollar a much better bet. But that strong dollar is bad news for U.S. stocks that do business in Europe, from tech to pharma to consumer. Think Mondelez, Estee Lauder, Microsoft, NVIDIA, Pfizer, J&J, just to name a few, with heavy European exposure. Now, most investors do tend to give these companies a pass on earnings on days like this because the dollar usually does eventually go the other way. But it will be a big problem as earnings season gets underway, and it is only getting worse with moves like today.

We'll keep an eye out for parity. Up next, Rockefeller International Chairman Rushir Sharma explains why he is so bullish on the emerging markets despite facing several headwinds. We'll be right back. Emerging markets underperforming the S&P over the past 12 months or so, but it's now the time to jump in. Rockefeller International Chairman Rushir Sharma writing in the Financial Times, emerging markets are in better shape than you think. And Rushir joins us now. I don't know, Rushir, if Europe and maybe the U.S. go into recession, that typically does not bode well for the emerging world. Well, that's correct,

Sarah. But I think that if you look at what's happened this year, I'm already very intrigued by how emerging markets are proving to be quite resilient. Had you told me at the beginning of this year that the U.S. stock market is going to be down 20 percent, how much do you think emerging markets are going to be down? I think most people would have answered by saying they'll be down 30 percent because that's the relationship. Instead, this year, at least, emerging markets are outperforming. And if you look at the world's 10 best performing markets in general, all 10 are emerging markets. So I think that it is very difficult for any asset class to generate positive returns, particularly in the equity space where the U.S. stock market is behaving this way. But the relative resilience of emerging markets

at a time when you expect, as you said, emerging markets to do poorly is, I think, something worthy of note and worth asking the question that why is this happening? And my answer is that the fundamentals of emerging markets have improved significantly compared to the last few years. Well, let's get into that. But why isn't it that that they're more tied to China now than they ever have been than they are maybe with the U.S. and that China doesn't have the same inflation

problems and they do have a sort of pent up demand story to get to once they get rid of all the lockdowns from COVID? Yes, that's correct. But I think that the links with China have been weakening a lot. Despite the price action that we have seen today with the carnage in the commodity markets, a lot of these emerging markets are dependent on commodity exports. And even as China has been quite soft demand wise over the last few months, many commodity prices and even commodity exporting countries have done much better. So I think the link with China is weakening because what's happening here is that just how supply constrained the commodity markets have been. So the few nations that have

been able to produce commodities have done quite well. And those currencies have also done relatively well to this carnage not withstanding so I think that the link of China to many of these emerging markets has been weakening as China has turned much more inward so what which countries do you like the best right now and what what is a good way for investors to play them should they buy the ETFs for instance the track those markets well I think the ETF is a very wrong way to do it because the ETF is very concentrated in three countries, which is basically China, Korea and Taiwan. That's nearly 60 percent.

And you have so many other emerging markets out there. So it has to be much more specific. Talking about country examples, I like Indonesia quite a bit. I like Southeast Asia in general. I think Indonesia, Philippines, Vietnam all look quite interesting to me. I think some of the commodity exporting markets of Latin America, such as Brazil, especially with the currency where it is now, and even Mexico, I think look interesting. And there's always India, you know, which is a country that consistently disappoints the optimists and the pessimists. But I think that foreigners have been selling India quite aggressively over the last few months.

But very interestingly, the domestic investors in India have been buying that market. And usually the domestic investors in general across emerging markets have a better track record of what's going to happen in their country than foreigners do. So I would back the domestic over foreign investors any day in terms of their price behavior and their buying in these emerging markets. Roshir, we've got to leave it there. And there are individual country ETFs. For instance, EIDO is Indonesia. And you're right, it's been outperforming. It's only down 5% this year. Roshir Sharma, thank you on emerging markets. And we are seeing a recession highs right now. The Dow is only down 175 or so. Big comeback. Look at Micron up 6 percent. Also a big comeback after last week's disappointment on guidance. We will dive

into what is driving that rebound straight ahead. That story plus a rough day for the banks. And Bitcoin also makes a comeback when we take you inside the market zone next. We are now in the closing bell market zone. Ariel, head of investment group, Charlie Verbinskoy, back to break down these crucial moments of the trading day. Plus, Christina Partsenevelos on Micron and Leslie Picker on the banks. Weaker today. The major averages, though, rebounding from their worst levels of the session. The Nasdaq, the clear outperformer for a change. Charlie, it's not your kind of day. It's the kind of day where Datadog and Bitcoin look better than some of the industrials and the banks and the materials that you favor. What do you think is driving it? Yeah, I almost called you to reschedule today because this is not my kind of day. Clearly, this is a day where the market

got more confident that we're going into recession. I obviously acknowledge the possibility of a recession, but don't think it's anywhere near 100 percent. Paul Samuelson famously said the market has predicted nine of the last five recessions. I think that's about right. I think in this case, the market is just excessively confident of a recession. But if it's right and we go into a recession, then some of the consumer discretionary names, some of the banks, some of the financials that I own are not going to do so well. And some of the growth stocks have a chance of outperforming. There's just no way to deny that. Are there any growth, any value stocks in that growth stock basket that would do well that you might be interested in? Sure. We have lots of names that are growing at very nice

rates. But by definition, value stocks and growth stocks tend to get separated by valuation, that our names tend to trade at a low multiple of book, low multiple of earnings. We're having lots of opportunities in that world. I always talk to you about Mohawk carpets trading at eight times earnings. I talk to you about Mosaic trading at four times earnings. So our names are very cheap. The one thing you do pay is there's sometimes short term headwinds. And what Ariel is all about is trying to look past those short term headwinds to long term opportunity. Right now, the market is extremely focused on short term headwinds. Well, let's hit the automakers, Charlie. A trio of them making headlines today. J.P. Morgan cutting its price target and earnings estimate

for Tesla after the EV company announced disappointing second quarter deliveries. The stock turned around, though. It's up 2 percent. Ford announcing second quarter sales increased by just 1.8 percent. That was a miss as well. And according to a published report, Stellantis could slash production by more than 200,000 vehicles this year because of the global ship shortage. Phil Abou joins us. Phil, Tesla and Ford deliveries, all about the EV demand. What about production and their ability to increase how many EVs they can build? Well, that's the big question.

And I think that's one reason why you don't see a whole lot of love for the auto stocks right now. Everybody knows EVs are coming, and yet at the same time we know it's going to be a longer and bumpier road than many were hoping for. As you take a look at Ford and Tesla and Stellantis, keep in mind a couple of things here. When you look at the Tesla deliveries, 254,000 vehicles, yeah, a little bit light of some of the analyst expectations, but not dramatically so. And we knew what was happening in China. In fact, many believe the second half of this year they're going to ramp production. The four June sales, that's a year over year comparison. But a year ago in June, they had a drop of 27 percent because of the chip crisis. So people look at it and they say, OK, you had an easy comparison there. And then finally, Stellantis, there is a report out of Europe that year-to-date production

down 14%. Bottom line is this, for the automakers, Ford, GM, Stellantis, Honda, they all hit 52-week lows today. And that, Sarah, is primarily because there's not a whole lot of optimism in this group, despite the record pricing that they have right now. Yeah, this is typically pretty cyclical and also tied to those loans. Phil, thank you. Anything you like here, Charlie, in the auto space? We love BorgWarner. We love BorgWarner. I have never seen shortages like this. If you drive around and look at lots, dealer lots, there is just nothing for sale. That is going to get fixed. The chip problem is going to get fixed. When it does, there is tremendous backup. There's tremendous demand

that's going to get filled eventually. We're going to go back to 17 million cars a year, and names like BorgWarner, the powertrain maker, are going to do very well. It's been ugly. BorgWarner down 30 percent or so in the last 12 months. Micron plunged last week, remember, after issuing disappointing guidance. But the stock is rebounding today after the chipmaker CEO gave investors some reasons to be bullish about the long-term outlook. Listen. Near-term headwinds related to consumer demand and inventory adjustments by our customers are impacting our outlook. But the long-term trend of AI, of 5G, of electric vehicles, and of course, cloud computing, all of these trends really need more memory, more storage. Christina Partsenevelis joins us. China,

maybe an improving lockdown situation there could also be helpful, Christina. And also, I think it shows you just the positioning around these stocks into earnings and just how bearish the streak got. Yeah, how bearish. But I think we are a lot of investors underestimated how much of an impact China does have. Micron, for example, they said overall sales in China dropped 33 percent, but that created a 10 percent impact on overall revenue for the company. That is a substantial number. So even if there is a slowdown in China and then they eventually get back online, fewer lockdowns, to answer your question, yes, it will be a tailwind. And one other point, too, is talking about the over-reliance on China. Just today, there was a new report from Bloomberg saying

that the United States is asking the Netherlands to ban chip equipment maker ASML from sharing its data and technology with China because they don't want China to be the leader in chip making. So we have an email out to the Commerce Department. And ASML is an example. The stock is down over 4% today. So it's a lot of moving parts over here. But, of course, the United States, with the chips act going nowhere, is trying its best to maintain its footing on the global stage.

I learned a lot about that in Aspen last week, talking to Intel CEO Pat Gelsinger. It's pretty scary stuff if we don't pass that act. Thank you, Christina Partsenevelos. The CHIPS have had a rough go here as there are concerns about the economy, Charlie. Is that a sector you should continue to steer clear from because they are very cyclically oriented? And we saw from Micron, although the bounce today shows it might have already been in the stock. So chips are to the U.S. what oil and gas is to Europe. We both Europe let itself get too reliant on an undependable supplier in Russia. And we let ourselves get too reliant on undependable suppliers throughout Asia.

And it was just a strategic mistake. I think we now realize it. Frankly, I didn't think it would take two years to fix. But it has and it continues to be a problem. And everybody you talk to in the space says that it is not going to get fixed in the next six months. So this is a tough industry. It's a competitive industry. It's a capital-intensive industry.

It's one where it costs billions of dollars to open up a new plant. But we need to bring this technology back home. Relying on these unpredictable suppliers is just devastating. Well, the national security impact here also pretty looms large. And the money is going to go elsewhere. Even Europe is subsidizing its chip makers and others. Let's hit Bitcoin because it made a late day bounce back. The cryptocurrency now back, look, above $20,000.

It's hovered around there for much of the past three weeks. We're also seeing more consolidation talks in the crypto universe. Yesterday, Singapore-based crypto lender Vauld suspending all withdrawals, trading and deposits on its platform. And now today, competitor Nexo said it offered to buy Vauld, signing a deal, giving the two companies 60 days for exclusive talks. Charlie, I know you're not a fan, right? But it is interesting to see how this industry is sort of lifting itself up. FTX, Sam Bankman Freed also bailing out some of the competitors. And there's a question about what the future looks like of Bitcoin because it is being stress tested.

Look, you have to invest based on underlying value and use case. And what we have found is that Bitcoin and cryptocurrencies, and I'm gonna get lots of angry letters at me. Hate, yes. Yeah, this is not a currency. It's not a value, a safe haven for value. There is a wonderful currency if you're trying to engage in the illegal behavior,

but just as the US government cut down on gold transactions because people were evading taxes in the 30s and 40s, they are going to continue to regulate this space and make it harder for people trying to do illicit activity. I think this is, frankly, an area that has a lot farther to go down. There are going to be a lot of these companies that are going to have liquidity problems. There is no underlying value. Do you think we need to see more pain in the price and as all these skeletons come out of the closet before we see a real bottom for the stock market? Well, we've already had one hell of a crash, Sarah. I mean, these names, the underlying currency is down 75 percent in some of the currencies. Some of the underlying NFTs obviously are down 95

percent. This is that there is no there there. And and so I think there is still a lot of pain to be had here. I know, again, there are a lot of true believers in this space, but there's just no underlying value to the currency itself. Well, you're in good company, at least Warren Buffett and Charlie Munger agree with you. Let's talk about which which I know doesn't surprise you. They agree with you on a lot. Let's talk about the banks, because recession fears and those falling bond yields are proving to be a double whammy for bank stocks today. Leslie Picker joins us. Two forces putting a lot of pressure and we've got the yield curve about to invert again. Not good for banks. That's right, Sarah. So recession fears have really been the bulk of the concerns surrounding banks for much of the year,

probably dating back to when Russia first invaded Ukraine. But they've had this countervailing force of rising yields. And that's true because banks do become more profitable by charging more interest than they pay out to depositors. However, now that yields are sliding as well, creating, as you mentioned, a double whammy for banks, that's creating some pressure on the sector, although it's bounced back a little bit with the broader market today, well off their lows of the session. There were also a few price cuts, price target cuts on Friday before the holiday weekend, and investors may be doing some repositioning ahead of bank earnings, which, believe it or not, kick off next week. Leslie, thank you. Charlie,

we're going to get bank earnings, as Leslie mentioned. Can these stocks work if the yield curve is inverted? New lows for the year today. Yeah, this has not been good for those stocks. Some of them are so cheap, Sarah, that I think there's real opportunity here. I mean, my grandfather taught me a lot of things when I was a boy. And one of the things he taught me was buy banks at less than one times book. He had some strange fairy tales that he told, but that was one of the ones he told. Goldman Sachs at less than book. Citi at 50% of book.

JP Morgan is getting now down close to book. These stocks are very cheap. And frankly, the credit situation is very good. We may be going into a recession, but individual investors have very strong balance sheets. Corporate America is in very good shape. I'm actually pretty bullish on the outlook for banks over the next 12 months. Which one? Which one's your favorite? Which who looks the cheapest? Goldman at Underbook is such a spectacular franchise. Trading revenue is spectacular. Investment banking revenue is going to be a little softer with the IPO market being so soft.

But trading revenue is going to be excellent. And just to value the company at less than the value of the securities that it holds, which is what is happening when it's at less than book, just means you're giving no value to the franchise, which makes no sense. Turning out to be a better close than certainly expected earlier. We're actually at session highs, Charlie, down 157 on the Dow. S&P 500 has gone positive just for the first time today. It was sharply lower this morning. The Nasdaq's been positive for much of the afternoon now. Look at the comeback we've seen, down more than 740 at the low of the day. You know, when I came in this morning, I actually thought it was going to be an up day because there was a high-level discussion between Treasury Secretary Yellen

and the vice premier in China and some reports that the Biden administration is looking at getting rid of the tariffs on more than $300 billion worth of Chinese goods. Isn't that something that the market would like? Isn't that bullish? And then the European recession concerns seem to overshadow everything. Yeah, this is something where the market has evolved a little bit, Sarah. I would have said eight years ago, the market was table pounding free traders. They really hated the tariffs that were being put on China. And then that view evolved over the Trump administration to the point where there are now people who buy the argument that we, using the semiconductor example, need to defend and need to bring some

business back to the U.S. So I would agree with you that reducing tariffs should be good for reducing inflation, which should be good for the market. But there's more of a mixed feelings about tariffs today than there would have been eight years ago. Fair, Charlie. A final thought as we as we head into the close with this comeback. Stick with stick with value. Stick with cyclical. Value stocks are extremely cheap. You can get lots of names that are assuming a recession for less than 10 times earnings. We calculate the value of our stocks, compare the intrinsic value, and they're now close to 40 percent discount, one of the highest we've seen in the last 15 years. Now's a great time to buy value stocks.

Charlie Berbrinskoy, consistent at Ariel. Appreciate it. As we head into the close, take a look at where we are in the market. I mentioned the Dow's only down about, I don't know, 150, 156 points right now. Earlier this morning, there was only one Dow stock higher, and that was Nike. Now there are a bunch. And you've got even some of the cyclical names that were under pressure doing well. Salesforce, Apple, Home Depot, Walmart, Microsoft, Disney is doing okay. Intel has turned positive.

3M and Merck. The S&P 500 has gone positive on the session. Again, at the low of the day, we were down about 29 points, excuse me, 83 points on the S&P 500. We're now up three and a half. And the Nasdaq is the leader, up 1.7 percent. It was the first to turn lower treasury yields, increasing concerns about recession. But that has led to a bid in some of the cheapest, most beaten down, I don't know cheapest, but certainly beaten down growth in names in technology at the close, up almost 2%. That's it for me. Now into overtime with Mike Santoli.