Closing Bell - Closing Bell: Earnings Season Strength… or Stumble? 7/23/24

Episode Date: July 23, 2024

Will this earnings season serve as a support or a stumbling block to a fully valued market? Solus’ Dan Greenhaus, Merrill and Bank of America Private Bank Marci McGregor and Crossmark’s Victoria Fernandez break down what they’re expecting. Shareholder Ayako Yoshioka and Big Technology’s Alex Kantrowitz explain what is at stake for Alphabet’s report and for the broader tech space. And, top analyst Dan Ives tells us what he is watching from Tesla’s numbers.  

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with the key indexes caught in earnings season cross currents while money continues to flow into small caps and bank stocks. Traders willing to bet the revival of first half laggards can persist a while longer. Let's get a check on the score score card with 60 minutes to go in regulation. The S&P 500 holding on to Monday's 1% gain. It had a modest further rally earlier today. It's not flattened out as earnings winners such as GE Aerospace and Sherwin-Williams helped to offset sharp drops in the likes of GM and UPS. GM, which had really rallied into the number and had good ones, but down 6% on the day. The Nasdaq flattish with some pressure on semis after that group strong bounce to start the week and the small cap

Russell 2000. Once again demanding attention now 1.4% second day in a row where. An indifferent open drew in some buyers and they started to ramp that index regional banks. Continue to track those smaller stocks the KRE ETF. Up another

2% today ahead by some 18% this month alone within the Russell 2000. It is also financials that are the strong area. That takes us to our talk of the tape. Will earnings season serve as a support or a stumbling block to a fully valued market working to digest a strong year-to-date rally? Here to kick that around is Dan Greenhouse, Solus Alternative Asset Management Chief Strategist. Dan, good to see you. Thank you, sir. So there's really a lot of, I guess, back and forth within this market right now, which actually seems kind of placid. The S&P, you know, 2% off its high, no big deal. What does earnings season hold for this fundamental story, which I think is really riding pretty high on soft landing confidence?

I think this is the point where I'm supposed to tell you it's not about earnings. It's about the guidance. Well, yes. Of course. I'm joking. I actually don't think there's much to this earnings season that I'm concerned with. I mean, normally the answer is it's about the guidance. And obviously in the case of large cap tech, you care about CapEx, you care about margins.

There's a lot. I don't mean to dismiss it entirely, but I think the issue right now, of course, is rates in the Federal Reserve. And I don't always feel that way, even as someone who invests and looks at markets from a top-down perspective. We have the Fed meeting in two weeks, and I think how they characterize the environment in front of what we assume will be a rate cut in September is every bit as important as what's going to happen in earnings season, with the caveat, again, that large cap tech, CapEx margins, et cetera, are going to be crucially important.

Well, what about the market behavior in the last couple of weeks indicates which way the market's leaning? In other words, have we basically priced in 100 percent September cut, 100 percent they're going to stick the soft landing and therefore the direction of surprise is in anything that deviates from that. You know, we have a cushion. That's probably right. Listen, it's hard to look at the level of credit spreads. It's hard to look at valuations and not assume that they're telling you the market thinks that we're more or less going to stick this landing. And I'll repeat my long held view that it is not a soft landing until the Fed has actually reduced interest rates and the economy and markets have been able to sustain that move. But I would also add, you look at the companies that have already reported,

and you alluded to it already, that GE is offsetting GM, let's say. And you see that in a number of places. I mean, again, getting back to my original point, I don't think that there's anything particularly to worry about in this particular earnings season. And you've heard from Pulte that, yeah, there's a little bit of wobbling in demand. But Lennar told you, I'm sorry, D.R. Horton said everything was fine. And Kimberly Clark said there was some trouble at the lower end. But Coca-Cola was able to raise price and have volume. So you have very much a continuation of the trend that we've seen for the better part of called six or nine months now. And again, my view is I just I'm not sure anything in this earnings season is going to change that.

Earnings season often does have that essentially, you know, kind of offsetting currents. And you have to just wait till the end of it to see how the aggregates come through and what the revisions are and all the rest of it. I do think that when you have S&P 500 PE pushing 22 times forward, you know, the market always runs ahead of the fundamentals. So it seems as if that has to kind of come in and fill in the blanks a little bit and say, OK, we can check that box off. And presumably we can. Sure. Earnings are running double digit annual growth right now. What else then, if anything, do you think might disturb things? I mean, if you think that the swing factor now is we need the Fed to do what everyone expects it to do, you know, what's it going to take?

Well, let me on the valuation front. I've been at this for some time now. And I don't as we've established, not quite as long as me, but not quite as long as you. That's right. But but listen, do you remember a time in the last 20 years, let's say, when the regular parade of those of us who come on the network regularly were saying the markets are screaming buy? Actually, I know, but I remember in the early 2010s, we were at 12, 13, 14 times earnings. People were like, that's fair. That's what it should be.

It's fair. Because there's a lot of uncertainty. Because we were waiting for the shoe to drop, and every rally was a fakeout, and certainly pre-2011 and around that time frame, new lows were always just around the corner. And so even at fair value, the market wasn't screamingly attractive. So I don't know that, listen, 21 times is obviously not as cheap as 15 times. But right now, I think the earnings in the market backdrop is justifying those high levels. Now, that said, to your point, if something changes narratively,

and in my forecast horizon, I do not have that. But if something were to go awry, the weakness we see in the labor market spreads out, or the weakness we see at the lower-income consumer starts to spread to the middle- or upper-income consumer, then sure, we can have a conversation that certain pockets of the market for sure are too richly valued, credit spreads too tight, et cetera, et cetera. But that's not what we're seeing right now. We're seeing a deceleration from unsustainably high levels of growth in the third and fourth quarters of last year back to something akin to normalization. The CRE troubles, which we were told were imminent,

have not come to pass. You had Fifth Third reported, I think it was. M&T Bank is back to pre-SVB levels. I'm sorry, it was Zion that reported. CRE is 3% of their loans, so not insignificant but not meaningful. But they're back to pre-SVB levels, and you mentioned in the intro the KRE. So all the things that you have worried about, justifiably so, have not come to worst case outcomes. So what you're left with is an economy that continues to grow, corporations that continue to manage the environment very, very well, and a market that's reflecting that,

again, in its elevated valuations. But again, as long as something doesn't change on that front, no great rocket scientist statement. But as long as nothing changes on that front, I don't know why I would be any more scared tomorrow or the next day than I've been over the previous, say, three months. It's interesting because just as we all got slotted into this thought that we are decelerating and, you know, you have had some weakening of activity across multiple fronts, the economic surprise index has bounced really hard in the last week or so. And all of a sudden, there's some firming in whether it was retail sales or some other of these indicators. And then we got PCE on Friday, which, of course, everyone, I think, has kind of put in the, we don't really have to worry too much about this. Well, because we know a lot of the inputs that go into it.

But it's supposed to come in at 2.5 percent year over year, I think. Listen, 2.5 is... And it's fine, right? 2.5 is in spitting distance of the it's fine, right? Two and a half is in spitting distance of the Fed's target, so to speak, of two percent. And I think if you're the Federal Reserve and forget my own opinion, let's just take them at their word. It doesn't sound like they're willing to sacrifice the market at the altar of that spread between two and two and a half percent. So if they can get a couple of rate cuts under their belt, so to speak, this year,

maybe a couple more next year, and inflation settles in at 2.3% or something like that, I don't know that this Fed, based on their statements, is going to be particularly unhappy with that outcome. And neither should the market. It's actually ahead of where they thought PC would get down to by this point in the year. All right, let's bring in Marcy McGregor of Merrill and Bank of America Private Bank and Victoria Fernandez of Crossmark Global Investments to the conversation. So, Marcy, you've kind of heard us talking here.

We seem like we're sort of setting aside a lot of the potential risks. How do you view things right now? Well, generally speaking, I think this bull has room to run. But we've been using the analogy that the summer months may lead us to a buffalo market. So buffaloes might roam and wander. They might pause after a strong run. So you may see some consolidation, some choppiness this summer. But I think the ingredients are in place for this bull market to continue.

You have ample liquidity and easy financial conditions. I'm optimistic about earnings I think the other four hundred ninety three. Companies are going to see their first quarter of earnings growth since second quarter of twenty fourth quarter twenty twenty two. I think you have rates that are making lower lows and lower highs so I think we're pretty range bound have a stable rate situation. And generated a I. is adding innovation I would argue with the beginning of the long day

to cap X cycle here so. I see the ingredients for a this positive uptrend to continue. Probably with some. Choppyness this summer but I would use any consolidation any you know healthy market pull back here as a buying opportunity.

You mentioned the other 493 stocks in the S&P 500, Marcy, outside the Magnificent Seven. What's fascinating on a day like today is the Russell 2000 is up 1.4 percent. The equal weighted S&P is dead flat. So it's not as if everything outside the seven are rallying. It is the Russell 2000 has become kind of its own species and its own trading instrument in the short term here. And, you know, the rest of the market kind of just sloshes around the flat line. I mean, what does it tell you, if anything, about the prospects for any rebalancing of this market? Yeah. So when I look and we've been positive on small caps for some time and maybe a little bit early.

But we've now seen this sharp rotation, which tells me we're right to be really well diversified here. I don't think this is just short covering. I think this is reflecting a view of lower refinancing costs for small cap companies. I would stay up in quality here, but with the first rate cut that now seems like it's going to be sooner rather than later, I think small caps can continue this run. So I like small caps. I would stick with higher quality for now. But once the Fed starts cutting, I get a little more optimistic. That's funny.

Victoria, talk to us here about how, whether the PCE report coming in or the early run of earnings have filled in any of the blanks for you in terms of where you think we might be headed? Well, you know, I think we have to be a little bit cautious going into the second half of this year because of some of the elements that you all have been talking about. I mean, we have seen a little bit of weakness in the labor market, and that is going to give us some decelerating wage growth, which we know is the driver for consumption. So we could see some weakness there. Seasonality is changing. You know, as we go into August and September, it starts to be a little bit weaker. We're seeing credit card and auto delinquencies rise. So I think there are some areas where we need to be a little bit cautious. But I think you do want to take advantage of some of the momentum that we're seeing.

You know, Mike, we've been so concerned about breadth for this whole year, but we're starting to see some of that come out a little bit, and not just in the Russell 2000, but small caps I would be a little bit concerned on because 90% of the return we're seeing in the Russell 2000 right now is from PE expansion. It's not being supported by earnings yet. So I would wait until I saw the earnings support come in. We're seeing that in the large cap.

So I think that's where you would put some money to work. But really start to spread it out. Financials, health care. You're seeing some of those sectors that have been so down at the beginning of the year start to come back. I think that's where you would put some money to work, focusing on that quality factor. Yeah, quality, interestingly, is where money has been coming out of at the moment, I guess, Victoria, in favor of some of those, you know, less financially strong companies in the small cap. Dan, I mean, I guess the question from here is we came into

this phase when we started talking about this rotation, when, by the way, when the CPI really came in convincingly in retreat a couple of weeks ago, we came into it with not just a narrow rally in the S&P, but with this idea that we were due for some kind of seasonal break. You mentioned early July. Things were looking a little bit stretched technically. You did see sentiment start to get a little happy. Positioning, we now know, was very crowded in those areas. So what are we looking for to figure out if a lot of that has been sorted?

I think when you listen to the when you talk to the desks around the street, it does. Their opinion is a lot of this has been sorted. And what are we talking about? In early July, a bunch of us on the desk would talk about it in a very simplistic fashion. The spread between how far the indices had gotten from the 200-day moving average, let's say, was probably suggestive that some digestion was in order. My argument was in front of the Fed meeting at the end of the month, you'd probably digest for the entirety of the month.

That appears to be bearing out now. And the data that I think the street would advance is you had incredibly off-size positioning. Everybody was only long one sector of the market, not another. And what you've seen since that is retail inflows have been enormous. Some of the positioning has been corrected, if not entirely corrected. And so there's a view here, both historically in terms of when the IWM outperforms the SPY by X percentage over Y dates. Going forward, you have a little bit of a digestion. And then in conjunction with how those positioning figures have adjusted themselves, the argument is in the next, call it, month or two, you'll probably reverse some of this because it's been such a dramatic outperformance. But I would add, from an investor standpoint, and this has been phenomenal for funds like Solus's, because we don't do large cap tech investing, more or less. We're not sort of benchmarked into the S&P in that way. So when you see the IWM, when you see

the other sectors of the market outperforming, it's terrific for us because we can do better, to put it over simply. And when you go back to that July 11th CPI report, what's done best since then? Well, we've talked about the financials, but it's been REITs. It's been home builders. It's been a couple of interest rate sensitive areas of the market. That allows managers to perform much, much better because it's not only four, five, six, seven, ten stocks that are driving all the gains. So we can stop weeping for the active managers. That's what you're saying.

Some active managers. Please weep for us and send us your flows. But besides that. Marcy, you know, Dan mentions just, you know, the rate sensitive parts of this market and just really the general fact that the whole interest rate complex has cooperated here in sort of, you mentioned the lower lows in yields and all the rest of it. What does that assume in terms of what the Fed does and how quickly inflation continues lower from here? Yeah, our view is that inflation is going to drift lower,

but still stay somewhere above the Fed's 2% target. I would point out, though, the sweet spot for equities is actually to have inflation somewhere between 2% target. I would point out, though, the sweet spot for equities is actually to have inflation somewhere between 2% and 4%. So with a really resilient economy, and Dan used the term earlier of normalization, I think that's what's going on here. I'm fading the conversation about soft landing, hard landing. This is about an economy that's still normalizing from the COVID era. The labor market, I would argue, is normalizing. The consumer is normalizing, and it's still really resilient in our data. So I think, you know, the market is pricing in, you know, call it three cuts between now and February. It seems like the data is unfolding just as Powell hoped, which is really raising the likelihood of a September cut here.

So I think inflation, you know, is likely going to continue on this slide path lower. But I think going forward, we still might have a higher resting heartbeat for inflation. But I don't think that's a bad thing for equities. Victoria, you mentioned you're kind of paying attention to some of the areas of the economy that might look like they're faltering or at risk of doing so. Do you think that that's the front edge of a new trend? In other words, are we actually late cycle? Do you have a fear that, in fact, we're not going to be able to extend this expansion at this point? Yeah, I do have a fear of that.

And a lot of it just has to do with the fact that we think earnings are not going to be as strong as a lot of people anticipate in the second half of this year. We haven't seen earnings expectations come down tremendously for the second quarter. But expectations for third quarter are down to 7% you take out those top four five names. And earnings growth is only about four or 5%. So I

think you have to be a little bit concerned especially if you think the consumer is going to pull back you're going to get margin compression. And that's going to lead to or you pull back, you're going to get margin compression and that's going to lead to or you're going to get lower revenues. You're going to get margin compression and that's going to cause some concern for these corporations. So I'm not saying we go into some large recession, but I do think we get a slowdown. I think we get a pullback. And so I think you have to be a little bit

cautious in the names that you're choosing here to make sure they can withstand any volatility, throw in an election and possibly new policy elements coming in at the end of the year. And I think that's a recipe to stay a little bit more conservative in where you're putting your money to work. All right. We'll see if it's going to be, you know, time to play defense again soon. Appreciate the time, Victoria, Marcy and Dan. Thank you. All right, let's send her over to Pippa Stevens for a look at the biggest names moving into the close. Hi, Pippa. Hey, Michael. GE Aerospace hitting a 16-year high after second quarter earnings came in above expectations. The company also lifted its full-year outlook amid a jump in orders, which were up 18 percent. It's the company's first report since spinning off its power business. But UPS down more than 12% on track for the worst day on record after the company missed earnings estimates

and cut its guidance amid weak freight demand and soft pricing in the shipping sector. UPS also saying expenses increased 3.2% during Q2, the stock at a four-year low. And Danaher rising 6% following upbeat earnings from the medical company, which also reaffirmed its guidance. Danaher's CEO pointed to sustained positive momentum in the company's bioprocessing business. The stock at its highest level in two and a half years. Mike? Pippa, thank you. All right, we're just getting started. Up next, the mega cap earnings parade is kicking off with Alphabet results set to hit in under an hour. We'll hear from an Alphabet shareholder, Ayako Yershiyoka, and tech expert Alice Kantrowitz about what's at stake for that stock when it reports in overtime.

That's after this break. Plus, what to expect from Tesla's report after the bell today. We are live from New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back. We're less than an hour away from Alphabet earnings, kicking off a critical two weeks for the mega caps. Those results coming on the heels of its rejected attempt to acquire cybersecurity company, Wiz. Joining me now for what's at stake is Alphabet shareholder Ayaka Yoshioka of Wealth Enhancement Group and CNBC contributor Alex Kantrowitz of Big Technology. Welcome to you both. And, you know, Alex, it's remarkable. Alphabet stock over the last two years has outperformed the S&P and the Nasdaq 100.

And that's even with that kind of initial scare after ChatGPT came out and people thought Google was going to be a net loser in that. What does that tell us in terms of where the company sits right now? Yeah, you're right. 32% increase year to date. The company is rolling and it shows you that it's really survived this first era of generative AI. You know, a year ago, the conversation was all about how search was disrupted and we weren't going to see Google survive this era. And we just haven't seen the migration of consumers to generative AI applications the way we expected in the beginning.

And by the way, as this was happening, there's this thing that everybody ignored, which is that we were in this moment of looking for efficiency. And search advertising provides that efficiency. You spend with search, you have a really good way of tracking where your dollars went. And so for Google, it's been a moment where it survived a massive threat

and its main product is doing great for advertisers. And so it's complete narrative reversal for Google and the company's performing extremely well. Aya, what are the key themes you might be looking for clues about in the results today? You know, it seems as if the way Alex presents it, the way the market seems to be treating it is, you know, they're able to defend the franchise that they have. I wonder what else it means for the future, though. Sure. And I think in this environment in which we've seen some

softening in terms of, you know of economic growth or some moderation here, I think people expect that some of the ad revenue would follow in terms of moderation. But we are seeing that some advertisers are actually picking up and dialing up some of the advertisement in order to spur the consumer demand in this softer environment. So we'd like to see that come to fruition. And then cloud growth, I think, is the other area that we would like to see additional detail on and how generative AI is really impacting that growth. And Aya, you know, CapEx or general expense management sometimes becomes a bit of a concern when it comes to this company. I mean, you know,

CapEx, I guess, is set to go from 32 billion to around 45 billion year over year in 2024 and then higher still. You think the market is going to embrace that idea and be happy to reward Alphabet for these investments? Well, you know, they talked about having CapEx being at least $12 billion per quarter in 2024. And I think if it's going in the right direction, if they're getting that return on the investment, and I think this is why the attention will be paid in terms of the impact of generative AI on the cloud growth. So we need to see that spend come through and generate revenues. Are we nearing a point, Alex, where it seems like you're going to want to have better visibility into what the payback is going to look like for these investments? Yeah, that's the key question, right? So Google has beat earnings expectations and revenue

expectations for five straight quarters. And they've had pullbacks in some of those quarters, except when they start talking about AI. When they've talked about AI, all of a sudden, spending $12 billion in a quarter or $45 billion in the year isn't so bad. But that's been until now. And over the past few weeks, we've started to see companies, including Goldman Sachs and Sequoia, start to say, hey, where's the cream filling here? Like, where is the ROI on this AI spend? And of course, we're real early. We're starting to get better compute. We're starting to get bigger models. So we are going to see a more exponential improvement in the models the AI industry hopes over the next few months. But that being said, it has to start translating directly into revenue for these companies.

Otherwise, telling the market you're going to spend $45 billion this year, it's about AI. Oh, and by the way, that revenue might return an investment in $25, $26. That's going to be a lot tougher to sell, and it might actually cause some problems for these companies. Sure. And then when it comes to this potential acquisition that seems now is not going to happen of Wiz, I mean, it wasn't going to be big ever relative to the size of Google, but tell us anything about the freedom to move and the freedom to expand by acquisition for this company right now.

So, I mean, they've got the cash on their balance sheet in order to, you know, acquire something like Wizz. I mean, they've got a net cash position of $80 billion. I think perhaps some of the regulatory scrutiny that Google has been under for several years may have played into this as well. And so we'll have to see, you know, exactly what type of acquisitions they can make and actually close upon in the future. Alex, you think that there's broader implications of this squandered deal here? Well, I don't know 100 percent that this is because of antitrust. Like they were in negotiation. Are they throwing this out there to try to get a better deal from Google? of this squandered deal here? Well, I don't know 100% that this is because of antitrust.

Like, they were in negotiation. Are they throwing this out there to try to get a better deal from Google? That's always a possibility. But I will say, right, there's two theories of this. VCs want big tech companies to be able to acquire startups because they get their return faster. What the government said recently is like, look, let's let this breathe a little bit.

Maybe we push a company like Wiz to IPO where they can get more than $23 billion. And this is the philosophical divide and debate that we've started to have around these companies. And honestly, I think it's not a terrible idea to test out the second option, which is to say, okay, you don't have to decide that your exit is going to be with an acquisition.

Why don't you see how far you can get and go public? And it's honestly worked in a few cases so far. So let's see what happens. Well, especially if the deal would have taken a long enough time to actually get the payout and close, you know, you know, you can probably execute this IPO relatively quickly. And maybe we see a change in regulatory regime in a few months and then they try again. Exactly. It's happened before.

Alex, I appreciate it. Thank you. All right. Up next, gearing up for Tesla, the EV maker preparing to report results. Top analyst Dan Ives is with us revealing what he's expecting and how to play the print. He'll join me at Post 9 after this break. And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. We'll be right back.

We'll be right back. Welcome back. Shares of Tesla sliding as the company prepares to report results after the bell. The EV maker experiencing a rocky start to the year in which it cut more than 10 percent of its headcount. And so its second quarter deliveries declined. Here with me at Post 9 to discuss what investors are focusing on and what lies ahead for the company is Wedbush's Dan Ives. You see there, Tesla down 1 percent. So, Dan, year to date, it's actually kind of flat. It's been quite a ride. You know, it goes down to 175 and pops back up to current levels. Over the course of the year so far, also because earnings estimates for the year have gone down, it's, you know, stated PEs from like 65 above 80 now. So where does that leave us? I mean,

what does the company have to show in order to convey that there's some progress on the important stuff? I think two dynamics going on. One is the demand story, specifically in China. It's that turnaround. I think we saw it so far in 2Q. The big focus will be must talk about that second half of the year. And then the biggest thing, too, is pricing. I mean, you're talking about coming up, as we've talked about a lot, cut prices a lot the last year. Now you've seen a stabilization on prices. That's important in terms of the gross margin, call it 16.5%, 17%. But then the big reason the stock's up, it's about that AI robotics play. Robotaxi Day, I'd expect Musk to actually give a date, we'll call it early to mid-October. And these are the important things right now that have really been, I'll call it a bit of a date. We'll call it early to mid-October. And these are the important things right now that have really been, I'll call it a bit of a renaissance of growth for the comeback kid, Tesla.

They're important things definitely for the stock and Howard Trades. I mean, how important, at least anytime soon, is that going to be for the company itself in a tangible way? Yeah, I think from a stabilization, it's about EV demand. Demand clearly has started to stabilize. And you saw GM clearly pulling back a bit from an EV strategy. Tesla's doubling down. Do they talk about that sub $30,000 vehicle, call it in 2025? Do they give the roadmap to where you could look at $500,000 per quarter, get on that run rate to, we'll see, $2 million into 2025. Then investors,

that stabilizes the story. And then really the cherry on top of the sundae, or really what could be the sundae, is the AI story, the robotics play, FSD, autonomous. That's really ultimately how you get to a trillion, $2 trillion valuation. $500,000 per quarter is like up 10% or so from here, we'll call it, right? Yeah, and up better than down, right? I mean, that's the most important thing in terms of that trend that we're heading toward. And what are the assumptions about overall EV demand, right?

Because the whole story has been, sure, market share of Tesla is going to go from near 100% down to something else as everybody else rolls out EVs. But what's the overall pie growing at at this point, or is it growing anymore? Yeah, clearly slowed. I mean, you saw the boom come off the rose, and we've seen Detroit, in terms of GM, Ford pull back. Others have pulled back. A lot of the startups have really fallen off the cliff.

And that has led to Tesla gaining share. But China's really the story. I mean, China's the hearts and lungs of the Tesla story. off the cliff, and that has led to Tesla gaining share, but China's really the story. I mean, China's the hearts and lungs of the Tesla story. Stabilization there, despite what we see BYD and NIO and others, that's gonna be the key, showing that we're seeing strength in terms of the second half, but also stabilization from a gross margin.

I'm sure LeBow will talk about that in terms of where you feel like the worst is behind you. If that happens, that's also why right now a lot of bears, they're in those caves not understanding what's happened in Tesla over the last three months.

It's really now about that stabilization happening from Musk and Tesla. When it comes to the policy piece of this, of course, Musk obviously very provocatively is out backing Donald Trump for president again. Kind of doesn't mind or maybe thinks he'd be OK with getting rid of EV credits or whatever might happen in that scenario. How would that play through with Tesla's business?

Yeah. So if you think about the Trump trade, so if Trump ultimately got into the White House, the view is negative for EVs because the $7,500, the rebate would go away. Yeah. Negative for GM, Ford, Detroit. The reason bullish for Tesla, that would give them a price and scale advantage. The other thing it's viewed is that if Trump got in the White House, could that fast track FSD autonomous relative to what we're seeing in terms of playing out versus China?

On the other hand, if you look at a Harris ticket, could that be pro-EV for Detroit, maybe anti-Tesla, just because it goes back to the view that Musk has really been a background noise under the Biden administration and the Trump administration? Is that something that would be more front and center? And that's why I'd say Tesla's part of that Trump trade to some extent. And when you say, you know, the potential for fast-tracking full self-driving, is that because you feel as if, or the company feels as if, you know, currently regulators are just very skeptical about permitting any of these, you know, further rollouts?

Yeah, well, clearly a lot of noise around Tesla's store and a lot of it, you know, warranted. But the regulatory environment is viewed, if a Trump White House, you maybe have less regulation, potentially could fast track, you know, some of that FSD autonomous, depending on where that goes for Tesla. But then it also speaks to what's happened in China. China is the opposite, where you're really seeing that kind of fifth gear in terms on the FSD autonomous side. And that's why I'd expect Musk to talk about the political race going to November tonight

in the call. But no doubt, even though bullish Trump, where he is, ironically negative for EVs. And that's all part of this Rubik's Cube that investors are trying to figure out. Yeah, of how the competitive setup plays out. All right, Dan, good to see you. Thank you. Talk to you later. All right, up next, we're tracking the biggest movers as we head into the close.

Pippa, standing by with those. Hi. Hey, Michael. Two consumer stocks are moving in different directions after earnings. We've got all the details coming up next. 18 minutes till the closing bell. Let's get back to Pippa Stevens for a look at the key stocks to watch. Hey, Michael Lockheed Martin is jumping 5% after the company beat Q2 numbers on the top and bottom line, while also raising its full-year earnings and revenue guidance.

The defense giant said demand remains robust and that it has a backlog of nearly $160 billion. Sherwin-Williams adding 7% after topping earnings estimates, although revenue did come up short. The paintmaker also raised its full-year earnings guidance. But still, the company noted a choppy demand environment, adding that general industrial demand was lower in all regions, with heavy equipment and transportation down most significantly. And Kimberly-Clark, in the red, as a revenue miss is offsetting higher-than-expected earnings, the Huggies and Kleenex parent said it's navigating a dynamic consumer and retail environment, including value sensitivity more broadly across Staples. The stock down five and a half percent. Mike? Pippa, thank you. Procter & Gamble down almost one percent,

it seems, on that Kimberly-Clark news as well. Up next, a media stock triple play. We are tracking some major movements in key media names. Spotify shares popping with the likes of Comcast and Disney dropping. We'll tell you what's driving those moves and what it could signal for the broader space. That's right ahead. Closing bell. Be right back. We're tracking some big moves in the media space. Julia Boorstin here with those. Hi, Julia. Well, three media stocks. Julia Boorstin here with those. Hi, Julia. Well, three media stocks on the move. Let's start with Spotify. That went up 12 percent on better than expected earnings this morning.

Record profit, record gross margin and record free cash flow as the company's focus on efficiency pays off. Now, Spotify reporting about a million more subscribers than anticipated, despite raising prices back in June, which was less than a year after the company's prior price hikes. Meanwhile, Comcast shares down about 2%, dragged down by a big miss in its theme park division, where revenue fell about 10%. Meanwhile, revenue at Universal Pictures was down 27% on tough comparisons to the year-ago quarter,

though Peacock was a bright spot and continued to narrow losses on higher revenue. Of course, Comcast is CNBC's parent company. And Disney shares falling more than Comcast, down about 3%, perhaps suffering from concerns that its parks division will suffer just like Comcast did. Disney also hit by news that Ike Perlmutter, formerly chairman of Marvel Entertainment and one of Disney's largest shareholders, has sold his entire position of 25.6 million shares. This according to a report in the Wall Street Journal saying that this sales came in the wake of the defeat of Nelson Peltz's activist campaign against Disney. Mike?

Julia, the Disney move seemingly, as you mentioned, after the Comcast Universal theme park numbers is interesting. Obviously, theme parks kind of the biggest source of cash flow for Disney. Did see some analyst notes suggesting even before this that while both were probably down, Disney probably outperformed Universal in attendance in the last month. I wonder if there's anybody who's feeling as if this might be an overreaction to Disney. Well, look, we'll learn everything when Disney reports its quarterly results, which is coming up on August 7th. But we have to remember that the theme parks have been so strong for Disney in the wake of the pandemic, when there was this revenge travel and this pent up demand. Disney did see a massive surge in attendance and spending at the

parks. And the question now is really how much that continues to hold up. This quarter is interesting because it gives us a window into what's going on in the summer. Q3 will tell us a little bit more about that. But the summer is, of course, the all-important season for the theme parks. And Disney is really doubling down, continuing to invest in the parks. They committed an additional $10 billion to invest in the parks and the cruise ships. And the question really here is, is Disney faring better than the Universal parks? Or are we seeing an overall challenge here of maybe some consumers who might have gone this summer to a theme park, already went last summer? So a little bit of a pull forward effect.

No, that's exactly right. Of course, Disney also a little more global with the parks business, too. We'll see how that all plays out. Thank you, Julia. Up next, your earnings rundown. Alphabet, Tesla and Texas Instruments all reporting after the bell today. We'll run you through the key themes and metrics every investor needs to be watching. That and much more when we take you inside the Market Zone.

We are now in the closing bell Market Zone. We are on Earnings Watch for three big reports out in overtime today. Seema Modi on what to expect from Texas Instruments. Phil LeBeau on Tesla. And Steve Kovach on Alphabet. So, Seema, Texas Instruments coming kind of early in the semi-reporting season here. And not a great read from NXP Semiconductor. Better than expected earnings from that company, but weak guidance.

And the stock is responding. Concerns about its customers in the automotive space. Working through inventory levels. That's what the CEO said. That does raise some concerns about analog chip makers like Texas Instruments. Analysts expecting a year-over-year decline in earnings in the second quarter. The stock has underperformed the semiconductor sector this year. Activist investor Elliott Management taking a $2.5 billion stake in May.

Texas Instruments' gross margins did contract last quarter, so investors will be looking to see whether margins have bottomed and if its CapEx budget will be tweaked. Plus, its plans to further expand in the U.S. As it stands, 75% of its business is in the U.S. and it just broke ground on a wafer fabrication plant in Utah last year. And last week, when the narrative was really around China and Taiwan, this was one of the stocks that actually outperformed, given its sizable exposure to the U.S. and less so to Asia. Gotcha. All right. We'll see what we

get in a little while. Seema, thank you. Phil, Tesla, a lot to kind of keep straight here with what they're going to give us. It is basically what we want to focus on is what they tell us about what to expect either in the second half of this year or going into next year. In terms of what to watch for during this earnings report, Mike, the China pricing impact, has that stabilized? If that has stabilized, and we'll notice that in the margins, that could give a boost to shares after they come out. RoboTaxi hints, we think that maybe sometime in October, we might get a view of what they plan for a RoboTaxi. And the lower priced model plans. Remember, after the last quarter, they had really bad numbers and they came out and they said, hey, look, we're going to come out with a lower priced model. People started saying, OK, maybe it's going to come in at around thirty five thousand.

Do they give us any more details about that as you take a look at their total deliveries, annual deliveries? Keep in mind that the expectation is just a little above where they came in last year at 1.8 million. The estimate right now on the street is 1.82 million. Do they talk about deliveries heading into the second half of this year? I'm not expecting that, but that's always a possibility. Remember, the conference call is where it's at. Starts at 530. You take a look at shares of Tesla. Mike, during that call, how much of will Elon Musk be focusing on Tesla, true Tesla news versus perhaps some political commentary, which obviously could help Tesla in terms of how he positions the company, depending on how the election goes. That's going to be really interesting on that call. There's no doubt about it. He's absolutely

out front on a lot of those issues. Phil, I wonder whether GM's results today gave us any indication of any clues for what Tesla might have to say, whether it's an overall EV demand or anything else. I don't think so, because I think when you look at GM, Ford, and the other legacy automakers as they try to ramp up production. What we're in right now is the cycle of dialing back the expectations that they ramped up three, four years ago. Remember when they first started making these investments, Mike, and they said, we're expecting to sell X hundred thousand or maybe a million vehicles. They're all bringing back those estimates now. And that's separate from what Tesla is dealing with. And Tesla is really much more of a China story in terms of what's happening with demand for their vehicles.

Yeah. All right. We will see what they have to say about all that. Thank you, Phil. Steve, Alphabet going in in a position of strength, it seems, and maybe high expectations. Yeah, Mike, let me give you three things to watch here on this report, which we're going to get in about two minutes. Google Cloud revenue and sales, we've been showing healthy profits in that division for a while now, but we also know that division failed to buy cybersecurity company Wiz for $23 billion. Look, growth there is tied to artificial intelligence demand. And speaking of AI demand, listen for comments on how Google's meeting that demand. They've been spending a ton on CapEx to build out their cloud capabilities. But the question is,

when does that investment pay off and how much impatience investors will have? Finally, I'm always interested in this YouTube ad revenue, especially as smaller streamers like our own Peacock and so many others experiment with their ad supported plans. This seems to be the way streaming is going. And YouTube, of course, is the leader, Mike. Yeah, Steve, it's a great point. I mean, YouTube is obviously so well positioned in this area, and yet it's tough sometimes to get a fix on how much the valuation overall of Alphabet even reflects it. Yeah, that's right.

And we're looking at, I think, estimates of just under nine billion in ad sales. Of course, a good chunk of that goes right back to the creators. But that's not nothing. And it is, along with Netflix, the most watched streamer right up there with Netflix. So it is it is a huge chunk of that market. It certainly is. All right. We'll see see what we get there, Steve. Appreciate it. All right. As we head into all those earnings, it seems the big cap indexes are fighting to a near stalemate. Actually, the S&P 500 has sagged a little bit going into the close, now down about 0.2

percent. The NASDAQ just about flat as semis give up some of yesterday's bounce. The Russell 2000 had a very furious rally intraday, was up almost 1.5 percent, now up just 1%. Overall market breadth solid today, but mostly about 50-50 on the volume front. So we still have this rotation toward financials, toward small caps, very much intact. As the bond market continues to also hold the bid with the 10-year treasury yield hanging below 4.25%. As we wait for the start of mega cap earnings season, Tesla, Alphabet on the way. That's going to be over the course of the bell.

We'll send it to overtime with Morgan Brennan and John Ford.