Closing Bell - Closing Bell: Easy Come, Easy Go, Affirm’s CEO On Consumer Spending & Just Do It? 9/29/22

Episode Date: September 29, 2022

Stocks selling off and giving back most of Wednesday’s big rally on renewed fears the Federal Reserve will continue to aggressively raise interest rates to fight inflation. Rosenberg Research President David Rosenberg says the Fed is trying to cause a recession to cool off red hot inflation. Canaccord Genuity’s Tony Dwyer has been calling for a market fall in the Fall. He discusses how much more pain the market could be facing. Truist’s Keith Lerner explains why he thinks the market is due for a short term bounce. Affirm CEO Max Levchin on whether he sees any signs consumer spending is slowing in this volatile economy and stock market. Charter Equity Research’s Ed Snyder on whether it’s time to buy Apple which has gotten crushed recently on concerns about iPhone 14 demand. And Barclays’ Adrienne Yih and RBC Capital Markets’ Piral Dadhania debate whether investors should buy shares of beaten down Nike ahead of its earnings report.

So much for a comeback. Stocks are falling hard. Giving back yesterday's gains as the Wall Street sell-off intensifies. As we speak, we're looking at session lows for the Nasdaq and the S&P. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the market. There's the Dow down 666 points. Hard to find a winner today. The S&P 500 down almost 3%. You've got every sector lower. The hardest hit is consumer discretionary. CarMax is a part of that story. Ugly results today.

That stock down 23%. But it's weakness across the board. Utilities are at the bottom of the list. So is information technology. Energy is faring the best as a group. It's down 1%. As you can see, yields are higher again. The two-year note yield almost at 4.2%.

Small caps down more than 3%. They rose more than 3% yesterday. Here's our chart of the day, though. It is Apple getting slammed as Bank of America cuts the stock to neutral from buy. We'll talk much more about the reason in just a bit. Also coming up on the show today, he's been calling for a fall in the fall for a long time. Now it is playing out. Canaccord's Tony Dwyer will join us with his latest thinking on how long this market pain will last.

Plus, we'll get key insights into the state of the consumer in these uncertain times. And we are joined by Max Levchin, the CEO of Buy Now, Pay Later Company, a firm whose stock is also getting slammed in this sell-off. Let's get straight, though, to the overall market with our first guest, David Rosenberg from Rosenberg Research. David, you've been negative for a long time on the market, on the economy. Is this how you expected it to play out? Well, broadly speaking, Sarah, the answer, you know, would be yes. And, you know, we have the Fed. I mean, really, what's happened in the past 24 hours, now that we've got the Bank of England behind us, is the Fed has just been relentless in its hawkish rhetoric into an inverted yield

curve, surging dollar, contraction in the monetary base, and the onset of recession. And so that just has precipitated this ongoing risk-off trade. And it's probably not going to end until the Fed, never mind pauses, until the Fed embarks on the next easing cycle, which is probably at least a year away. But here's what's not playing out exactly as you forecast. The economy is not weakening that much. I know you think there's a recession, and a lot of people at this point now are jumping on that bandwagon. But the data today mean did you see jobless claims well below consensus now and now in april low the the tightness in the labor market which i guess just gives fuel to the bears who say the fed has the green light to go even more aggressively yeah you know well well firstly sarah we we did have back

to back quarters of negative real g GDP, and then it looks like we have basically roughly flat for the third quarter. That condition, and remember that, you know, we can talk about GDI, that's income, but GDP is spending. And that's been flat to negative this year. So it's debatable as to whether or not the economy's in recession. That much is true. But when the conference board's leading economic indicator, leading, not coincident, is down six months in a

row, and that database is back to 1959, the die is cast for the recession. It's a matter as to whether it starts in the fourth quarter or the first quarter next year. Your point on jobless claims, 100% true. It is a very interesting labor market. And the claims numbers just tell you about firings. They tell you about pink slips. And the firing rate is coming down because companies are hoarding labor because we've come through these past couple of years of acute worker shortages. But when you look beneath the veneer, what's also happening is that the hiring rate is coming down.

So jobless claims don't tell you about hirings, they tell you about firings. But we know, for example, everybody loves to focus on the JOLTS data. Everybody just focuses on job openings. But people don't talk about the fact that since February, new hires in the JOLTS survey are negative 450,000. That's since February. So we're heading to a stage now where firing rates are low, but hiring rates are dropping and roughly matching now what firings you're doing. So I think we're going to head into a situation, Sarah, where we're not going to get probably maybe contractions in employment, but employment is probably going to flatten or stagnate. And if the participation rate continues to go up like it has this year, even with a flat

employment profile, the unemployment rate by this time next year is sitting above 6%. And that is going to be very much disinflationary as far as wage rates are concerned. So you think the Fed is making a big mistake, keeping up the hawkish rhetoric, continuing to hammer the markets with this higher rates holding it high for a longer time? Well, at one point, I thought the Fed was making a big mistake until it became very apparent to me in the past couple of months, and especially post-Jackson Hole, that they actually are intent on generating the conditions for a recession. So it's not a mistake. I think this is deliberate. You have Jay Powell is

comparing himself to Paul Volcker, and Paul Volcker deliberately created the conditions for back-to-back recessions to crush supply-side inflation. And all you ever hear from Jay Powell is comparisons not to Arthur Burns, not to McChesney Martin, not to Bernanke or Greenspan or anybody else except Paul Volcker. So I don't know if it's a mistake. I think this is exactly what they want to see happen. They want to see asset markets crack. That's happening. And that's part and parcel of weakening the economy sufficiently to get to their 2 percent holy grail inflation. So it might not be a mistake. This could be exactly what it is that they want. There is an argument, though, David, that we might have a recession. The Fed is trying to engineer that, but it would be shallow.

We don't have the kind of leverage that was built up during the great financial crisis or great recession. Household balance sheet, corporate balance sheets are in pretty decent shape. And we just need to take this medicine to bring inflation down, which is starting to happen. And on the other side, things will look all right. Do you disagree with that? I'm not going to. Yeah, I mean, that's I'm not going to dispute that. But I think that the big risk is that we went into this year, went into the spare market,

the bear market inequities, and now you're starting to see home prices go down. We've gone into this this year with households more naked long, long duration assets than they've ever been in the past. We went into this year with the household sector, you know, $45 trillion of naked long equity exposure, $45 trillion of so-called wealth, of course, built up into the housing market. So the question you have to ask is it's not about the liabilities. It's about what happens if we get asset deflation.

We get asset deflation because, you know, outside of the dot-coms in late 99, we did go into this with the biggest equity market bubble of all time. And this housing bubble, by the way, the price bubble, I'm not talking about leverage, but the price bubble in residential real estate was bigger than it was in 06 and 07 when I was patting my fist on the table when I was at Mother Merrill. What happens if you get double deflation in two critical assets in the household balance sheet that come to $90 trillion, equities in residential real estate, and then the flow through to the negative wealth effect on spending for 70% of GDP, that's the consumer. So that's what I'm talking about, is that the prospect for this to be a more deeply rooted recession could rely on the asset side of the

balance sheet and the implications that has on confidence and spending over the next 12 to 18 months. I knew that was going to be too rosy of a scenario for you. So, David, you have recommended bonds and that has not worked out on this view that inflation would come down quickly and we'll be in recession. And it's just not happening. Bond yields continue to rise. When does that turn? Well, so bond yields. So let's take a look and see why bond yields have gone up, because it's not been about about inflation we know that commodity prices have been coming down very sharply in the past several months we know now we're seeing some cracks emerge in the rental story the case of the home price index just came out for july it was negative that was a bit of a surprise uh and you're taking a look at these

market-based inflation expectations you're taking a look at the survey data on inflation expectations and um and even paula said that they've been remarkably stable and actually they've come well off their peaks. What's caused this run up in nominal yields has been the real rate and the term premium. And that all comes down to the Fed. And I'm with a lot of other folks, I'd say probably including yourself, who thought that this time last year, the Fed's dot plots are 0.25 for the end of this year, and all of a sudden everybody's at 4% plus.

And so the Fed has reset interest rates across the curve and across asset classes. The fact of the matter is that you're quite right. That's one of the things that Fed has done. That's what the Fed has done with the stock market to some extent, is they've taken the N out of TINA. There is now an alternative. And so, you know, you've got attractive yields after tax and munis, 4% front-end yields in the treasury market. Look, there's something that never gets talked about ever on business or financial media shows,

is the $10 trillion market called the market for corporate bonds, which have been reset, I think, very favorably here. If you're looking for an asset class, you're willing to put some toes in the risk pool. I mean, you've got, you know, you're not talking about high yield. You know, you're talking about single A corporate bonds right now are yielding five and a quarter percent. So without talking about what's already happened in the past 12 months, and it's not been about inflation expectations or the economy. You know, I'd be thoroughly embarrassed if I got the economy wrong and bond yields shot up.

This is really about the Fed. The Fed give it, the Fed take it away. They'll give again at some point. I'm very encouraged from the bond market standpoint as to how well-behaved inflation expectations have come. So on the day where the Fed stops taking the carry away and they pause and then they pivot and that day will happen, we're going to get a monster rally in the Treasury market. For the time being, though, there's lots of places to put money in the fixed income market, not just Treasuries, but munis and corporate bonds, especially in the investment grade

market, even in tranches like the BBBs, for people that want to focus on getting attracted to these yields, even in real terms, I've been focusing my attention there. All right. Got it. David, thank you for joining us today. David Rosenberg, always good to check in. We've got a more than 600, almost 30 point sell off here. And amid the market sell off, the best performing S&P sector right now is energy, despite being down nearly a percent. Joining us now is Paul Sankey of Sankey Research. Paul, with reports now that OPEC Plus is looking to cut production to WTI back at $90 a barrel. Where do you think we're headed? Yeah, it feels pretty good here. I mean, we've got the OPEC meeting next Wednesday, the 5th of October, and it looks like it could be a one million barrel a day cut that will be announced.

Now, that's not actually going to come through because of the total mess that is OPEC production levels versus quota. But the other thing, Sarah, is the Strategic Petroleum Reserve cool down is is temp is is tapering now. and that's also getting people excited as we head into winter. Sorry, I should have mentioned it's Brent that hit 90 earlier. WTI is still about $81 a barrel, which is key, right, because we're monitoring this hurricane. It looks like the oil facilities and production is OK, Paul, not as disruptive in past hurricanes. Yeah, there's been some talk about fertilizer imports into Tampa. But as you know, Florida doesn't really have any oil and gas. And the Gulf Coast stuff, which is obviously offshore Louisiana and Texas, seems unaffected, absolutely. So what do you do with these oil companies right

now? The sector is still up 31 percent year to date. It's the only sector that's still in the green. Is that a good place to hide in market turmoil? It worked early in the year. Now, with these recession concerns and lower oil prices, hard to know. Yeah, it is hard to know. I mean, we worry about it because it's a high beta, high volatility sector. So that means that in a bad market, typically it's going to underperform. But, you know, as I've said and you said, we're heading into winter. We've got the OPEC cut coming up. We've got the SPR. The SPR at the margin has been an enormous pressure on oil markets. And as you said, whether you look at Brent or WTI, it's still remarkable given how weak

China demand has been this year, given how Russia hasn't come out of the market from an oil supply point of view, it's quite remarkable that we're arguably looking here at a floor of 80 that's been established because this year it's kind of been bearish. And that's important because if the floor is 80, then the mid-cycle is 100 and the peak is 120. You want to buy all these stocks. And so I think the timing into winter is getting exciting for some people in the face of a market that's terrible for a high base, the high volatility

group. So it is tricky. But I think on a one year, five year view type thing, this is a great group to be in. Got it. Paul, thank you. Paul, thank you very much. Appreciate it. With the Dow down about 568 points, we've got about 46 minutes left of trading. The S&P 500 is down 2.5%. The NASDAQ down 3.4%. Just a few minutes ago, we were down about 3.75%. That was just about the low of the session. But everything in tech is getting hit right now, except for Okta, basically. Everything else, the biggies are weighing on the index. Apple, Tesla, Amazon, NVIDIA, Microsoft, Meta, Alphabet, all falling hard today. Is this the Apple buying opportunity you've been waiting for? We're going to ask an analyst where he stands in the debate as Bank of America cuts its rating on the stock today, which is falling almost 6%,

while Rosenblatt upgrades the stock. Kind of a battleground right now. And up next, Ken Accord's Tony Dwyer joins us with his latest message on the market. He had been calling for a fall in the fall for some time. Certainly feels like that's what we're seeing right now. We'll be right back. Check out today's stealth mover, Miller Knoll. And you may want to have to take a seat if you're an investor in this stock. The office furniture maker missing Wall Street's revenue estimates, issuing weaker second quarter guidance, citing the tough macro environment. The company says it is taking steps to improve profits and cash flow by reducing spending and initiating a voluntary retirement program. Stock obviously been hit. It had a good run during COVID when everybody was buying office

chairs for their for their homes and apartments. Giving back some of that now. Let's get to the broader market, the weakness we are seeing here across the board. Another sharp down day. With us now is Canaccord Genuity Chief Market Strategist Tony Dwyer. It's just brutal days like today. Barely any winners. We're now 34 percent off the highs in the Nasdaq. David Rosenberg, who's pretty negative, said we have to wait another year until the Fed starts cutting for this to be over. What do you think? I don't, you know, as you know, we've been kind of cautious throughout the year, but I think it's going to be quicker than that. You know, Sarah, we've done

this a long time. The Fed always, before they cut, is the most aggressive in terms of tightening. So the fall-fall that we've been talking about is wrapped around the two-year note yield. And the question that I'm most frequently getting is, what bottoms, how do you create the low versus a low? And what I've found is since 1960, I looked at since it's been a 500 stock index, there has never been a time where the two-year note yield made a new high for the cycle and the S&P bottomed before it or simultaneous to it. The median delay is about 37 weeks. The shortest is two. So in other words, what the data is telling us is that, you know, we were going to go make new lows. And at some point, you know, I'm sure I'm sure the UK and the Bank of England didn't think that they were going to do quantitative

easing a week ago. You know, things unravel quickly. And when they do, the central banks tend to capitulate. And I think that'll be the case as we move into the end of the year. But to be clear, the Bank of England had to step in because they were dealing with some market dysfunction and trying to bail out the pension funds that were going to face margin calls. What we're talking about here is potentially the Fed. You're saying the Fed is going to have to blink because why? Because of the market turmoil or because of the economy? There's always two reasons.

They break something through their tightening or you get into a severe economic weakness. Now, David was talking about hiring plans. If you look at the National Federation of Independent Hiring Plans Index, it leads the unemployment rate by four months. It's been deteriorating significantly, suggesting by the end of the year, you're going to have a pretty nice bump up in the unemployment rate, while inflation is already, especially durable goods and non-durable goods, inflation is already coming down. So you're going to be in a situation with a tumultuous market at the fall, weakening inflation, the one-year, two-year, five-year, ten-year break-evens are coming down, and the unemployment

rate is spiking. That's hard for the Fed to not at least make what I would call a neutral pivot. But just to be clear, Sarah, there's two reasons that the Fed capitulated. Remember the Christmas Eve massacre in 2018? Orange County declaring bankruptcy in 1994. Long-term capital in 1998. Asian economic crisis in 1997. European debt crisis 2011, et cetera, et cetera. It always comes from somewhere. When they tighten like this, they break something.

So what is your advice to people? Just sit it out, wait it out and wait for some sort of signal change from the Fed to put more money to work. What do you do? So I'm sure this story is annoying to you by now, Sarah. But each time I talk about my dad coming down into the basement, looking at my brother and I saying, hey, you know, don't just sit there, do something. And our input this year has been the opposite. Don't just do something, sit there. You really need to have a high conviction level to withstand the volatility. Hell, you can buy at any given point. But will you stay with that buy when it goes against you? And that's where our core fundamental thesis comes into play. It is, of course, we use technical analysis and market analysis. You know that. But when you have it, if you don't have it rooted in a core fundamental thesis, you get whipsawed. And the core fundamental thesis here is, historically,

let's get the emotion out of it. It always comes with a Fed pivot in this kind of environment. And that is preceded by a peak in the two-year note yield, which we only saw a couple of days ago. I guess some assurance from Bank of England on that front this week that they were there. They were still in the game to bail out, I guess, investors in some way or another, even if something has to break. It's the playbook that they know that works. You know, the global central banks have done this and the Fed won't do it again. Because when you, listen, channeling your inner Volcker was bad enough when you were at a generational low in debt to GDP, which we were at the time. And I've been talking about, you got to be careful you get what you wish for, Mr. Powell, when you're channeling

your inner Volcker, because you're shutting down economic activity with a generational, right near a generational high in debt to GDP with rising inventories and slackening demand, especially globally. You know, there's a lot of risk that comes with that that's beyond, you know, especially in the private credit market that's been the driver throughout this entire last 10 years. Tony, thank you for joining us. Good to have you on a day like today, of course. Great to see you. Tony Dwyer from Canaccord. Look at Nike shares plunging more than 40 percent this year.

Up next, a bull bear debate on whether investors should buy this beaten down stock before the company reports earnings after the bell today. We'll be all over that. And later, we will discuss the outlook for the IPO market, among other things, with Affirm CEO Max Levchin, who knows a thing or two about taking companies public. We're down on the Dow about 535. We are off the lows at this point, but still a broad-based sell-off. Only two Dow stocks higher, Travelers and Visa. We'll be right back. Nike reporting earnings after the bell. A lot of bearish sentiment on Wall Street. At least eight brokerages have cut their price targets on the stock in the last two weeks. So time to sell or is it a buying opportunity? We've got two sides of that debate right now. Joining us is Adrian Yee of Barclays, who recently downgraded the stock to equal weight,

and Peral Dadania of RBC Capital, who initiated coverage last week with an outperform. So, Adrian, what is the big problem here? And is it already in the stock? So there's two big issues here. The first and foremost, which is the uncertainty of the China market. That is in the stock. So the straight consensus is expecting China to be down again, down about 15 percent. Everything we're sharing after their quarter end is that China is improving. So this could be the quarter. This coming up quarter could be the one where they inflect positively or approach flat. So that is in the stock. The second piece of it is, you know, future demand,

potential recession, particularly in the North American market, where we're starting to see a lot of inventory in North America growing about 40 percent, 38 percent faster than sales. Those are the two big ones. Haral, why are you not as concerned about those issues? Yeah, so we've had the opportunity to look at this with a fresh pair of eyes. And we're looking through some of the noise, right? As you've alluded to, some of the negativities already in the share price. The stock is down 40% year-to-date. It's on a P multiple that's in line with this 10-year historical average. And as far as we're concerned, the fundamental reasons to own a stock like this haven't changed. If you're a medium to long-term investor, you're buying into an attractive

sportswear industry that has, you know, long run fundamental growth support behind it. There are stock specific drivers at Nike related to margin opportunity. It's obviously the sector bellwether, but also arguably the consumer discretionary bellwether. And yes, there's a lot of negativity out there in the short term. But if you're willing to take a slightly longer term approach, then we're probably getting closer to points or levels where it's starting to look attractive. Interestingly, you guys aren't that far apart on your price comparison, on your price targets. Adrienne, you're at 110 equal weight, and Peral, you're outperform at 125. So when would you step in, Adrienne, to buy this?

When you've heard that the inventory problems are worked through, or are you longer- term worried about demand here? So I would say our price target is fiscal year end at the end of calendar next year. So it's really kind of a 15-mile price target. I'd say we've kind of pressured the downside. We've done a downside analysis case study on kind of what EPS could be. I think the over-under heading into this print for fiscal 23 ending May is probably about 350. The company can guide above 350. Street's at about 364 right now.

There are some estimates that are kind of negative estimates that are sort of below that around 330. But it's really the out year, right, the fiscal 24 year that I think the over-under there is about $4 EPS. If we have constant pressure from uncertainty from the demand and promos coming back, which we are starting to see some of that in the North American market, and earnings can't go up, right? Stocks go up when earnings are consistently revised upwards. That's going to be a pressure point on the stock. So what we're looking for is an easing of that kind of inventory spread that I just mentioned. So if the inventory spread starts to contract, then they are moving through inventory and demand line is flatlining.

And that's what we're looking for. Haral, is Nike in worse shape than others on the inventory problem in North America? So, yes, we cover Nike, Adidas, Puma in the sports brand sector. I would say given its size and scale, yes, we cover Nike, Adidas, Puma in the sports brand sector. I would say given its size and scale, obviously, there is in absolute volume terms, we have to take that into account. So there's clearly, you know, a market level problem here. But I think that a lot of the concerns that relate to inventory are more focused on apparel and broad-based apparel, not just within sportswear. When we look at Nike's business, 60% or two-thirds of it almost relates to footwear. And footwear arguably has less competition. It has less, you know, brand in the space, so to speak.

So, you know, we understand and we recognize the concerns on the inventory side. And we're not saying footwear will be immune. But so far, what we've seen is very much apparel related. And I'd just like to also add, right, that one of the key debates, as my colleague rightly mentioned, is on China. China is certainly a negative sentiment driver for now. But Nike has clearly guided to what the headwinds for China are going to be. And by the end of the second fiscal quarter, that should be in better shape. Some of the indicators we look at do point to an improving backdrop in the China market. And actually, we take a slightly more positive view going into 23. Assuming that China recovers,

then I think that that can be a significant inflection point for the market and investors' view towards sporting goods stocks, which at the moment sentiment is very low. We're seeing this big sell-off, Adrian, and that's kind of my other question, which is to what extent is Nike a bellwether here? Because we're going into an earnings season. Nike's always out of sync. It reports first. And it's dealing with the FX issues. It's dealing with the macro headwinds. It's got the China exposure, the inventory problems. Earnings expectations overall for the market are a little bit of a wild card in a debate right now. And I'm wondering what we can glean from Nike

and how much of it is Nike specific. Yeah, they're the latest, right? They're gonna be the most recent touch point that we have on the overall consumer and the global consumer at that. I think, you know, just generally speaking, global macro, not looking that great, right? FedEx, Ford, a lot of these big company global numbers are coming out and they're not looking really great. So I would say that what we're going to get from them, I think the two critical points are what are they saying about sort of global demand?

What we saw during the quarter from the retailers is strength, right? So whenever we're looking at inventory, I always remind people that they point on the balance sheet for future demand, three, six, nine months down the road. That's what we're worried about, right? The demand destruction that comes after, right, in the coming months and so forth. So I think the two key things here are any commentary on kind of what they're seeing. We would expect them to say that things are good today from their retail partners. But the key thing that will tell you, and it will trigger kind of whether or not we have an inventory issue, we did notice that they pulled a minimum advertised pricing during the quarter, their map pricing. So you could always mark down their product behind the scenes, but you could not advertise it. And so that's a sign that things may be a

little bit over their feet in inventory. Got it. Adrienne Peral, thank you very much. We'll be watching for that number after the bell. I'll be covering that. Here's where we stand right now in the markets. We've come back a little bit off the lows. When we started the hour, we were down more than 600. We're now down 471 on the Dow. S&P is lower by about two and a quarter percent. It was two and a half moments ago. And the Nasdaq is still down 3%. We've still got every sector down, broad-based weakness, especially in tech, but all over this market again. Up next, an exclusive interview with the firm CEO, Max Levchin, on whether he's starting to see any signs of slower consumer spending. And a reminder, you can listen to Closing Bell on the go by following the Closing Bell podcast

on your favorite podcast app. We'll be right back with the S&P down 2.2 percent. As the Fed keeps raising rates and talking about it to combat inflation, fears of a hard landing are growing and investors are not looking kindly on the payment players like Affirm. Check out that stock. It's down 80% year to date. Joining us now in an exclusive interview is Affirm CEO Max Lepchin. Max, thank you for joining us. It's always good to talk to you. Thanks for having me. It's been brutal for your stock and others like that. Newly listed companies. You went public January last year. Do you regret taking this company public? No, I cannot say I do.

I think part of the calculation was making sure we're well capitalized to weather any sort of storm. We were lucky enough to have our investors' trust then, and we intend to deliver on the promises we made. So, no, I think the current turbulence notwithstanding, I'm excited to continue delivering on the promises we made. Yeah, I ask because you've taken companies public before, obviously, and we're in this period right now, this bear market where investors are wondering if these new industries like buy now, pay later, newly listed stocks, certainly the unprofitable ones are going to be around during the next recession and they're

going to come out of this cycle. And who's going to come out as a winner? How are you talking to investors about those tough questions right now? I think proof's always in the pudding. So we intend to show much more than tell. But we are extraordinarily well capitalized. We have our eyes on the most important metric that matters to us, and that is credit performance. We obviously have partners that rely on us to deliver yield. So we want to make sure we keep those partners very happy. We have a lot of merchants that rely on us for incremental sales, and we intend to make good on that. And consumers, probably one of our most important constituents, rely on us

for incremental purchasing power, especially in an inflationary environment where that power disappears right before their eyes as prices go up. And so we have a lot of people who depend on us, our shareholders included, and we are very excited to do exactly right by them. We are quite confident we'll emerge as victors from the current downturn. Well, the credit cycle, I think, is what also has investors really worried right now, and everyone wants to know about delinquencies. What can you tell us about how they're trending?

Why shouldn't investors be worried? I think the real answer here is because we are firmly in control of our fate there. Our average life of loan is just north of four months. So we have quite a lot of structural flexibility and control. We never have to go back many years and sort of regret decisions made then. We also underwrite everything alone precisely to the current economic condition and what the forward rate curve tells us. So we're able to control our destiny there quite precisely. We never have to commit to lines of credit and then regret the choices we've made. So in terms of ability to control for credit outcomes, in terms of ability to manage credit delinquencies, we feel extraordinarily good. And we absolutely have been keeping our eyes very much on the road ahead and hands firmly on the steering wheel.

So far, incidentally, U.S. consumer is not exactly stressed out. The employment is still nearly full. People are, generally speaking, paying their bills just on time and and thereabouts and we are seeing tiny signs of stress uh at the most vulnerable demographics people that are traditionally kind of in the uh having a harder time holding down a job even in the best of times but generally speaking us consumers still quite healthy really so so tiny signs of stress where are you seeing that and i wonder what you're seeing on the inflation front as well and their purchasing power. The inflation front is very predictable. There is more demand

for credit than ever. I think you can see that in our stats and stats for large folks are still shopping. They're still buying things. They are having slightly harder time buying as much as they could a year ago for the same price. And therefore, they're asking themselves, is there some way to pay for this over time, ideally without interest and certainly without hidden fees or tricky gotchas, which is what the credit card industry is famous for. BNPL and Affirm in particular is the answer to that. And so I think we're delivering on that squarely for all of our consumer constituents. In terms of just to answer the stress question, like I said, just the lower credit tiers are seeing some degree of deterioration, which is easy for us to control for. But again, very broadly speaking,

US consumer is healthy and paying their bills on time. Do you have any issues yourself getting money from banks or the market? On the equity side of the house, we are very capitalized. As you can see in our cash position is extremely healthy. In terms of our funding of the loan volume, we have a very wide and largely diversified set of sources of funding and something on the order of 20 plus. Most of these folks have very longstanding relationships with us and commitments that make us feel very good

about our source of funds. We are well funded for all of the growth that we expect for this year and beyond. And so, no, I think so long as we continue delivering on the credit quality

that we've promised our investors, we have nothing to worry about there as well. Well, we certainly appreciate you coming on and sharing all the information, all the color. Max, thank you very much. In good times and in bad. Max Lepchin, CEO of Affirm. Look at the travel stocks among the names getting hit pretty hard in today's session as well. Seema Modi here with some of the names and some of the details. Seema. Hey, Sarah, consumer facing names,

including travel and hospitality stocks are trading down at this hour. Names with an international tilt, like booking holdings, you'll see, trading down more than its counterparts. Expedia also down as well. The cruise lines are off sharply at this hour. Carnival down about 7.4% ahead of its Q3 earnings report, which is out tomorrow morning, where analysts are expecting the cruise line to report its first rise in quarterly revenue. This will also be the first report under new CEO Josh Weinstein after Arnold Donald stepped down earlier this summer.

All these cruise stocks are trading down right now. But I would point out for the month, Royal Caribbean and Norwegian Cruise Line are among the few gainers in the month of September after Royal Caribbean released some data, Sarah, last week saying that bookings are starting to accelerate as COVID restrictions ease, now allowing unvaccinated passengers on board. So that has provided some relief for these stocks. We'll see if those gains can hold on as we wait for Carnival's report tomorrow. Seema Modi. Seema, thank you. Watching the chip stocks as well among the big losers on Wall Street today.

Christina Partsinevolo is here with a closer look at those names, and especially the Apple suppliers, Christina, getting hit off that rare downgrade. You know I'm going to talk about it. So semiconductors right now the biggest losers on the NASDAQ 100. AMD, let's talk about that. That's share price right now. We're going to show it on your screen in a bit. Down was down about 8%, followed by NVIDIA on Semi, NXP, Microchip.

Big names like Qualcomm, even Broadcom aren't too far behind as well. A sea of red, and it's a lot of the semiconductors that are the reason why you're seeing the NASDAQ 100 down. AMD and NVIDIA, though, those are the two names the farthest from their 52-week highs, down over 60 percent. And we have a few drivers. Sarah, like you mentioned, Apple's weakness, worrying chip investors is companies like Qualcomm, you've got Micron that are chip suppliers, so when Apple's not doing well, it has a ripple effect.

And then you also had this Bloomberg report stating that South Korean manufacturers saw inventory rise at the fastest pace in a decade as of this September. So that fast pace, the pace of the drop, could have a ripple effect down the supply chain, and it raises the question for American companies, is it going to get worse?

And that's exactly a question we want to ask when it comes to Micron's earnings, which are out, look at that, coincidentally, in 15 minutes. Wedbush writing, their guide likely proves not conservative enough after shares right now have dropped, what, by 50 percent just this year alone? Worse than the S&P 500, worse than the S&P IT index and worse than the semiconductor SOX index. Several themes, though, that I want to pay attention to for Micron specifically, you've got memory pricing that has been decreasing NAND and DRAND.

And that's we want to see how long that's going to go on any comments about that. And that's not only because of weaker PC and smartphone sales, but now we're starting to see that slowdown in auto industrial and data center chips and what that means for respective inventory levels. So these are all themes we're going to be paying close attention to in 14 minutes. Sarah. All right. We will see you then. Christina Partsillan-Evillos, Micron coming after the bell. We are going to skip a commercial break here and go straight into the closing bell market zone because we've got 14 minutes left of trading. And we are monitoring this pretty broad and deep sell-off again here on Wall Street. The S&P 500 down 2.2 percent right now. The Nasdaq Comp is off 3 percent. We are off the

worst levels of the session, but it's still a pretty ugly day. Truist Keith Lerner is here to break down all these crucial moments of the trading day. Plus, Charter Equity Research's Ed Snyder is here to talk more Apple. And Diana Olick on mortgage REITs. We'll kick it off, Keith, with the broader market. Energy actually about to go positive in the S&P 500. Everybody else is down. It's another ugly day. Now, if you're keeping score at home, the S&P is almost 25 percent off the highs. How much more pain are we in for? Yeah. Well, great to be with you, Sarah. Another challenging day. After a really good day yesterday, we continue to think we have this very complex global backdrop and that, you know,

it makes sense to continue to be up in quality and defensive. But I will say, really, on more of a short term perspective, we're actually a little bit more positive short term. And even today, I know it looks ugly today, but we're watching a couple of kind of small positive divergences. Yes, you know, Apple is down a lot. Utilities are down. And towards the end of at least a market decline, you bring down the winners as well. And we're seeing that today. And then you're seeing, like, as you mentioned, energy, a little bit of a bid there as well. And most of our technical indicators are the most stressed to the downside that we've seen since the mid-June lows and also before the pandemic lows.

So, again, I want to be clear. We don't think this is time to be an offense. We thought, you know, when the market was closer to 44,200, $4,300, we were recommending to reduce risk. But we're down 15 percent off those August highs. We don't think this is the time to press to the downside, at least not short term. So but everything you're mentioning is sort of technical or positioning or sentiment related. So you think we're due for a short-term bounce here? Nothing fundamentally has changed as far as the inflation and central bank and global economic environment, has it? I mean,

is that what it's going to take to really find a bottom? Yeah, well, part of the market is all about where things are relative to expectations. And we just think on a short-term basis that things are getting a little bit one-sided here. And again, I mean, the negativity is pretty wide. But you're right. Fundamentally, I mean, the global economy is weakening. We think it's going to continue to weaken into next year. I mean, we have not only supersized rate hikes in the U.S., but we have the tightest global central bank policy that we've seen in decades as well. So, yes, I think overall that the fundamentals are still relatively weak. The global economy is still relatively weak. But again, you know, markets don't move in a straight line and we are in a more tactical environment.

So therefore, again, I mean, at this point, we would be a little bit less, you know, defensive or pushing against them when we just got down 15 percent. A lot of bad news in there, I guess, is the point. Let's talk Apple, Keith, because down five and a quarter percent today, unusual move for the biggest stock. Bank of America downgraded it this morning to neutral from buy. The concern there, weaker consumer demand. But another firm disagreed. Rosenblatt actually upgraded the stock to buy from neutral and raised its price target to 189. Joining us for more is Ed Snyder, Charter Equity Research Analyst. Where do you come down, Ed, between the two on what to do with Apple? I'd be quite bearish here.

We've been predicting this since January, the increased down cycle on the recession. We've only just hit the beginning of it. It hit retail. We saw that in spades last quarter. It's now moving to industrial and automotive. But as far as Apple's concerned, it was inevitably going to get to them sooner or later. The shocking thing here is that the last time that Apple fell short of unit sales,

you didn't see it until the faithful bought all their phones. So they launched in September. The faithful finished buying their phones probably around December. They told their suppliers, the second week of December after iPhone 6S, back off with the management we expect. Now they're already, two weeks after launch, they're already saying it. So it's a bit more acute than even iPhone 6S, and I think it's

going to get in the chair of the rules. The thing is, when it comes to demand, it seems all very speculative. It comes from a report. It comes from hearsay. It comes from monitoring. And, you know, sometimes that's right. But how do we know what's actually going on with these new units? I wouldn't consider it to be speculative. There's been lots of indication that demand is weakening. Last year at this time, several of the semiconductor suppliers into the China food chain, especially Corvo, ran into a huge inventory problem. Sales slowed down.

All the Chinese thought they'd sell a lot. They didn't. They're still sitting on that inventory. They're going to have a rough time with it coming up here. And then you started seeing ripples of bad start to get Samsung. You heard TI report retail chain was getting weak. So there's been lots of quantitative information that suggests this is all happening. Apple's kind of in a weak group, right? They're a completely different animal. They're very high premium phone. They've got a lot of people who really love Apple. But sales haven't been spectacular in the last couple of years. Now you're facing a recession,

and you're, in my opinion, getting the natural consequence of that. The premium side is going to get hurt, too. And that's what's happening. So, OK, so the stock is about 20 percent down now year to date. It's fallen. It's still trading about 23 times next year's earnings. How do you value it? How should it be valued? More like a staple stock or more vulnerable discretionary? It's very, obviously, they're very strong. Balance sheet's excellent. They've done a lot of cash. It is a staple stock, but I agree, expectations are everything. Right now, expectations remain too high, especially to get an upgrade in Apple at this point, which I think is comical. So you're going to get an element of the investors who still believe,

hey, we'll shake this off and things will get better. But if you're talking about too little demand two weeks after they launch, then you're looking at probably one of the worst iPhone selling seasons in the history of iPhone. I don't know how bad it will get. I mean, I'd be super acute, but it's going to last for quite some time. And I expect you're going to hear a lot about this in the October report from the semiconductor companies that supply that. So I would not be getting bullish on Apple or actually most anywhere in tech at this point because the other shoe of the recession is starting to hit, industrial and automotive.

Mike Lund said that in a preannouncement earlier this year, earlier in August, I did. And so you're going to hear it again when they report the quarter in a few minutes or so. So there's a lot more bad news that's got to inform the tech valuations, and I just wait for that. And then when we get on the bottom side of it, then I start looking at getting bullish. Well, it's hitting all the...

Everything's hit right now, as Christina said, in the chip world. But a lot of these Apple suppliers have especially hard Skyworks, Cirrus, NXP. Thank you, Ed, for joining us. Ed Snyder. My pleasure. Bears are coming out around Apple. The worst performer right now on the S&P 500 right there. It's CarMax. Look at that. Slamming the brakes on this one down 25 percent. The used car retailer badly missing Wall Street's earnings estimates,

blaming softening consumer demand, vehicle affordability, rising interest rates, and a jump in operating expenses. Phil LeBeau joins us. Phil, do these results mean consumers have hit their limit on just how much they're willing to borrow to pay for a used car as rates are increasing? Potentially, Sarah, but let's be clear here. There are some specific issues specific to CarMax that are part of the earnings miss for today. But with regard to them saying, hey, perhaps we're seeing a softening in the consumer, and they noticed definite softening in the second half of the quarter. Keep in mind, when you look at the monthly payment for a used

vehicle, it has gone up about 18 percent in the last year. Look where it is right now. The amount borrowed, almost $30,000, just under $29,000. The monthly payment, now over $500. And look, we're going to get the Q3 numbers on loans and monthly payments over the next couple of weeks. I wouldn't be surprised if that monthly payment, Sarah, is going to be up in the 530, 540 range. And you really have to ask yourself, is that the limit? Is that where people say with higher auto loan interest rates, it's too rich for my blood? Right. And Keith Lerner, the question is, what does it mean for some of the auto, the other auto makers, which are getting hit very hard today in this session? Because demand hasn't been the problem here. It's been supply, right? Phil, when did we talk to Mary

Barra like a week or two ago? And she said, it's not a demand problem. It's a supply problem. So, Keith, do we have to start worrying about demand with with these rates rising for autos? Yeah, 100 percent. I mean, you know, this what we're seeing in this overall market is this rate shock. And it's going throughout the entire market. So we would still say underweight the sickle areas of the market. We don't think you want to be in things that are leveraged to the economy at this point. We're still more focused on things like health care, utilities, staples. And as we mentioned earlier on, energy because of the geopolitical side. And also, you know, I think that's a good hedge overall for what's happening in the supply side of things. But yeah, this is not the time in the cycle where you want to lean on cyclicality. You want to be

more defensive. And that's where we're still positioned today. Well, speaking of cyclicality, mortgage rates have been rising fast. Phil LeBeau, thank you, by the way. Let's hit the mortgage REITs, because they are among the hardest hit names today. Diana Olick joins us. Diana, reaction to rising rates or something else going on? Well, Sarah, first and foremost, it is rising rates. Of course, the 30-year fix crossed over the 7% line on Tuesday, according to Mortgage News Daily. And that made some headlines, of course. But even before that, last week's mortgage demand was pretty pitiful. Applications to refinance down 84% year over year and applications to buy a home down nearly 30%. At 7%, just 150,000 borrowers could actually

benefit from a refinance. And that's according to Black Knight. We also got some pending home sales numbers this week, showing another drop for the sixth straight month. And while sales of newly built homes had this kind of weird bounce higher in August, it was likely due to a brief drop in rates, which, of course, again, are now higher. And if it's any consolation, though, rates did come back just below 7% today, 6.82%. But always a reminder, we started this year, Sarah, at three. Oh, yes. Painful reminder for those who are trying to buy

a house. Diana Olick. Diana, thank you. Keith Lerner. So you think stocks are oversold. You think a lot of the bad news is in. How would you be positioning right now in the market with it doesn't see, you you know a lot of people want to see yields peak before they get back into the stock market we really have we continue to see this rise yeah and just to be clear i mean this is again as you mentioned earlier this is more of a short-term position sentiment view our broader view for the next six to twelve months is that we're in choppy waters that's likely to continue We're just saying if we have a little bit of strength, use that to reposition towards more defensive bend. So stay with the defensive areas. The fixed income markets are looking more attractive, especially with high

quality fixed income. We wouldn't be in the credit side. I will say going back to the interest rates you just mentioned, you know, rates hit 4 percent earlier this year on the 10 year. Right now they're at 375. The two years do well below the low earlier in the week. And the U.S. dollar is also. So those are all, again, incrementally. Maybe that gives us a little bit of relief and stabilization. But ultimately, we think any balance should be used to reposition to be more defensive. And that's what we've been doing most of this year. And we'll continue to look to do so. Because the economy, all these rate hikes are going to weigh on the economy as we look forward. Yeah. OK, so we're not we're not making new highs in treasuries and the dollar today, but we saw the highs earlier in the week. So they're fresh in investors mind. We've got two

minutes to go here in the trading day. We're seeing the volatility spike. Interestingly, the dollar is a little bit weaker on the day. You know, we had this big rally yesterday, Keith, off the Bank of England, stepping in, intervening in the bond market to calm things down. Is that a hopeful sign or is that a problematic sign as we go forward and we debate what the Fed is ultimately going to do and whether it's going to stop? I think it's actually somewhat problematic because it tells you that the old medicine, you know, for the market is no longer there, right? On one side, we have monetary policy that's restrictive. And now we're seeing, historically, if the Bank of England or we had a big fiscal stimulus package, the market would

rally on that. Right now, instead, the market's sold off because they're worried about inflation. So we don't have very loose monetary policy. We have restrictive policy there. And the market is embedding fitting from stimulus from the fiscal side. So overall, I think that leads to a more problematic market as we look forward again for the next six to 12 months. You know, the Fed's not coming to the rescue and the fiscal policy isn't coming to the rescue. So we have to kind of go through this, you know, a little bit of economic pain, as Powell has said recently. Yeah, it feels painful for investors now. Don't have to remind them about the rescue. Thank you, Keith Lerner. It's good to have you from Truist Securities. As we head into the close,

the tenure is at 375, to Keith's point. It's off the high of the week, which was above 4%, but still elevated yields. You've got every sector lower in the S&P 500. Energy is faring the best. It's barely down. The worst performing sector is actually utilities, along with consumer discretionary. CarMax is a big part of that story. Some of the travel stocks as well. The auto stocks are getting hit hard, as we had earlier. And tech is right in the firing line. Apple, the biggest drag on the NASDAQ and on the Dow right now, which is down 1.5 percent.

Rallied off the lows, but still an ugly day. That's it for me on Closing Bell. See you tomorrow.