Closing Bell - Closing Bell: Geopolitical fears ramp up, Chipotle CEO on inflation, Planet Fitness CEO talks growth targets 11/15/22

Episode Date: November 15, 2022

Stocks saw a major rally in early trading following weaker-than-expected inflation data and key retail earnings. But reports of Russian missiles hitting Poland put a pause on the rally. Fred Kempe from The Atlantic Council discusses the geopolitical implications of the reports. Lori Calvasina from RBC shares her outlook for the market in this uncertain environment. Chipotle’s CEO gives his read on food inflation, along with thoughts on advertising on Twitter after Musk’s takeover. Plus, the CEO of Planet Fitness talks growth, and the latest on FTX, Tesla, and the pop for Chinese tech stocks.

Thanks, Morgan and Brian. Yes, stocks pulling back from their highs in afternoon trading after those reports saying Russian missiles had crossed into Poland, killing two people. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. We are still hanging on to a gain. The Dow is up about 90 points, but again, well off the highs, and you can see that dip into the red. On this breaking news, out of Poland, treasuries also were bid up all day long. They get a little bit of a stronger bid on this news, those safe haven bonds. With us now is Atlantic Council President Fred Kemp. He's a CNBC contributor. We turn to him on geopolitical news like this one, Fred. We don't know a lot, whether it was an accident or whether it was purposeful, but we do know that it is going to

cause a reaction. What do you make of the news? So first of all, on the question of accidental or purposeful, at the moment, it looks as though it was accidental. What Polish media have reported, and we have an office in Poland tracking this as well, is that two people died Tuesday afternoon, Poland time, after a projectile struck, apparently a Russian projectile, where grain was drying in a Polish village near the border of Ukraine, village of Shezhodo, P-R-Z-E-W-O-D-O-W. This was a day where Zelensky, President Zelensky says that there were 85 missiles launched on Ukraine.

The New York Times is reporting 100 missiles. In any case, it's the biggest set of attacks since the beginning of the war. And clearly what Putin is responding to is the fact that the Ukrainians took Kherson, a very key city that he had seized. The Ukrainians are on the march. And on top of that, President Zelensky delivered a peace plan to the G20. And so this is his attack. It does seem as though this was accidental. But whether it was accidental or whether it was intentional, this is going to warrant some response from NATO, because if you strike into NATO territory, that will trigger at least an Article 5 conversation among the NATO Council, because an attack on one is an attack on all. If it's accidental, obviously, proportionate response would be different than if it were intentional. In any case, I think you're going to see a lot more discussion about more and better air defense systems and ground defense systems against these kinds of missiles for Ukraine.

So you may see calls for even speedier arms deliveries to Ukraine to defend against this kind of thing. Talk more about the significance of NATO, because this is the first time, right, if it is confirmed since the war, that Russia has launched a full, since the full-scale invasion of Ukraine back in February, that they have fired into a NATO country.

So what is the significance of that? What follows? Well, Sarah, it's hugely significant. President Bush has said that they will defend every inch What follows? Well, Sarah, it's hugely significant. President Bush has said that they will defend every inch of NATO territory. This is obviously part of NATO territory in Poland, right across the border. Biden. Biden, not Bush. Oh, I'm sorry. Please forgive me. That's OK. President Biden just got off a 23-hour plane ride from Bali to Washington, D.C.

So anyway, yes, President Biden said every inch of NATO territory will be defended. There were fears at different times that Poland would be hit because so many of the arms deliveries come from Poland to Ukraine and that Russia may at some point intentionally hit Poland to kind of shut off those arms deliveries. But that would be such a big risk for Putin to do. So this does look accidental. Accidental or not, I think you have to respond. That, you know, NATO, we now have, you know, 40 countries, 30 or 40 countries that undero article 5 are compelled to respond uh nato article 5 has only ever been triggered once in history and that was after the 9-11 attacks in new york uh by nato countries uh offering to defend and to help the united states so if this

happened this would be the second time with an accidental hit maybe it doesn't go that far but i think you can expect nato to meet tomorrow, if not this evening. And the Polish security, all the top officials in Poland's security have been meeting in an emergency session this afternoon about what they're going to do. And one also has to see what Poland does. Because one thing is what does NATO do and what the U.S. do. But if Poland responds as a NATO country and this escalates or expands, and this, of course, has been the worry all along, is that this war does not expand into a war between NATO and Russia. So I think all sides will be careful, including Russia, and certainly the United States will be careful to do whatever

it takes to stop the war from expanding while reinforcing Ukraine's defenses. So you were in Bali. So the world leaders are meeting right now for G20. And it raises a bigger question about what the strategy is from here when it comes to dealing with Russia. I know there was some drama whether Putin would come, whether Zelensky would come. Either way, here we are several months into this war. Whether this is a purposeful escalation or not, it still is ongoing and Ukraine is still being hit with barrage of missiles, which has wiped out its electricity today. So what is the strategy? What are the topics of discussion now from the world leaders as far as fighting back and helping Ukraine?

Right. And Sarah, whether or not it was purposeful to hit Poland, it certainly was a purposeful escalation of, you know, 8,500 missiles on Ukrainian territory, the biggest escalation since the beginning of the war. And so everyone has to answer that too. Foreign Minister Lavrov is in the G20 meetings. Putin is not there. Obviously, there could well be some conversations with Lavrov around this. The meeting with Chinese leader President Xi Jinping and Biden earlier this week was a demonstration by the White House, by President Biden, that the Chinese, they could get the Chinese to warn Putin, even if not so directly around nuclear missiles. Of course, there are two kinds of escalation. One of them would be to other NATO

countries. The other is using a tactical nuke. The worry there was primarily on Ukrainian territory. So the whole conversation around the Ukraine war is what's taking place there. We did a global forum on food security in Bali. That's why I was there. And we wouldn't be talking about food security right now if Putin hadn't weaponized food, he's weaponized energy. And so we're on the edge of a war nobody wants. And at G20, I think there's a lot of talk behind the scenes about how to stop it from escalating

and over a period of time, move it into a peace process that defends Ukraine's sovereignty, democracy, and independence. Yeah, one can hope. Fred, we certainly appreciate you coming on with us on this breaking news. Thank you very much. Thanks for your expertise. Fred Kemp from the Atlantic Council. We've also got a news alert right now on a supplemental budget request from the White House. Kayla Tausche with those details. Kayla. Sarah, the White House is requesting nearly $50 billion in a forthcoming government spending package to fund COVID-19 and the ongoing war

in Ukraine. That includes $10 billion for COVID to combat that and other infectious diseases, which is notably less than half of its $22 billion request earlier in the year. The new total includes $5 billion for an Operation Warp Speed-like program to develop new vaccines and $2.5 billion for existing vaccines and treatments. The White House is also asking for $37.7 billion to fund the war in Ukraine. That request includes nearly $22 billion for equipment and intelligence and about $15 billion in direct budget support. Senior administration officials tell me these requests would cover the current fiscal year,

which ends in September 2023, with hopes lawmakers can include the funding in a comprehensive deal to keep the government open beyond mid-December. Of course, the new support for Ukraine or the request comes amid those reports of rockets landing in nearby Poland. The Pentagon, the National Security Council, and the State Department, which is currently holding a briefing at this moment, have all said that they're looking into the reports. They're working alongside the Polish government to assess the situation

and determine what the next appropriate response would be. Sarah? Keep us posted if you get anything. Kayla, thank you. Kayla Tausche. We'll turn now to the market reaction. CNBC's senior market commentator Mike Santoli here with the dashboard. As always, we're still green, Mike, across the Dow, S&P and Nasdaq, but we have lost a lot of steam from this morning. Yeah, it was a pretty immediate wobble on those unconfirmed reports we got this afternoon. Regained most of it, not quite all of it, not back to the highs of the morning. The S&P 500, keep in mind, is about 14 percent higher than it was a month and two days ago at the intraday low for this bear market, October 13th. So it actually has been on a pretty good run for the past three days.

It's been flirting with the 4000 mark, kind of traded above good run for the past three days. It's been flirting with the 4,000 mark, kind of traded above in each of the past three trading days. And now we're sitting just below there. I do think it's relevant to keep pointing out we're basically where we were six months ago. So a lot has happened. A lot has struck this market, getting just very slightly overbought in the short term. But strong rallies usually can power through that.

We'll see if it has what it takes there. Take a look here. We got results from Walmart, of course, this morning, as well as Home Depot. Both stocks have responded fairly well to it. This is a four year look. Home Depot, Walmart against Amazon. And then this here is the broader I buy. That's the e-commerce ETF, basically online retail. And you'll see over this span of time, it's the traditional big box firms that have nosed ahead of both Amazon and, of course, leaving behind the e-commerce name. So clearly, you know, powering through as business as usual, as you see Amazon struggle in this particular

moment of its middle age, I guess you can say, or maturity. I was also just noticing Bitcoin is higher. Yeah. For a change. We have gotten a bounce there. I was also just noticing Bitcoin is higher for a change. We have gotten a bounce there. I'm not sure there's any stability in the FTX situation. It doesn't seem so. It's funny how it seems as if it basically is an absence of additional bad news and just the fact that the broader market today, when we got that lighter PPI number, did get a little bit of a jolt higher, especially in some of the tech names. Yeah, adding to the CPI number last week. Mike, thank you. We'll see you soon.

Mike Santoli. After the break, Chipotle CEO Brian Nickel joins us exclusively with his read on food inflation and the latest look at the labor market. Dow's up 68 points or so. Again, high of the day was up 450, but the low of the day was down 216. We'll be right back here on Closing Bell on CNBC. Stocks remain higher today, though it's been a pretty volatile intraday session. This morning, we got some good news showing that inflation continues to cool. Chipotle prices rose 13% in the third quarter year over year. Transactions saw a decline of 1%. So the question is, are those higher prices starting to eat away at consumer demand? And are those prices really starting to slow? Joining us now is Chipotle CEO

Brian Nickel. Brian, it's great to have you back on. Welcome. Yeah, thanks. Thanks for having me. So we're seeing some good evidence that inflation super high rates are starting to slow. But on food, they do remain stubbornly high. What are you seeing? Yeah, that's what we are seeing. You know, we anticipate probably roughly still 10 percent inflation in the fourth quarter. And, you know, we continue to see elevated pricing as it relates to, you know, beef, dairy, tortillas, oil. So the good news is it's plateaued, but it's still at a fairly elevated level. And, you know, that's going to continue to put pressure throughout our supply

chain. Why is it? How much is due to the war in Ukraine, do you think? You know, I mean, for us, we purchase a lot of these items domestically. So we're not seeing the war in Ukraine have a lot of impact on this. It does have some impact on tortillas and oil, specifically sunflower oil. But for the most part, it's just been and continues to be just a really tight market. And, you know, we continue to see these price pressures, which I think is predominantly driven by all the labor inflation that people have experienced over the last 18, 24 months. And what about the consumer? I mentioned that transaction number, but mostly your consumer with an upper income has been willing to pay those higher prices that you're passed on.

Has anything changed? You know, look, obviously the consumer from the data we track is still very much worried about the inflationary environment, that impact on their budget. You know, it obviously influences how often they go out and buy things. Fortunately for us, we've got a great value proposition and, you know, we continue to see strength in that higher income consumer, you know, the household that earns over $100,000, $150,000. I think we've talked about this in the past. We definitely have seen some weakness in that $75,000 household income cohort.

And we continue to see kind of the same trend. So we look like we're picking up experiences with the higher income consumer. And we've definitely seen a little bit of a step back in the lower income. I know you have some news today on the drive-thrus, the Chipotle lanes and how you have been growing this. What can you share? Yeah, we're pretty excited about this. You know, we opened our first Chipotle lane in 2018. And for everybody, that's where you order ahead in our app or the website and then you just literally pull up to our restaurant say your name and they hand it out to you through the window and off you go and we're gonna be

opening our 500th Chipotle in really short order and we're pretty proud of that you know it went through our stage gate process we demonstrated that it drove you know incremental sales incremental digital sales and we really responded to consumers requests to have more convenience and drove, you know, incremental sales, incremental digital sales, and we really responded to consumers' requests to have more convenience and access. And, you know, we're getting rewarded with the business, and we're pretty excited to be opening our 500th Chipotle. 500th. So that's the news. Does it impact, Brian, labor and how much you have to hire, I know, at these higher wages that you and everyone else has had to pay? No, you know, fortunately for us, the way our restaurants are built, you know, we've got these two lines.

We've got our front line when you traditionally come into the dining room and you walk down the line and build your burrito. And then we have a digital make line that now we either put the food after we build it for you on the mobile pickup shelves, or you can now just pull up and they hand it out the window to you. So we'll have a pretty good idea of where you plan on getting your food so that we know whether to put it in the dining room for you to come and grab it, or we'll wait for you to come to the window and we hand it out the window. But it works within our existing operating room. I wanted to ask you what you've thought about the labor market, because I know in the past, you know, your CFO has talked about the quiet quitters and the challenges of retaining people, frontline workers in this kind of tight labor market. Any change there as we have started to see some layoffs, particularly from the tech sector?

I know it's different, different skill set, but is the labor market changing for you in any way? You know, look, it's still really tight and it's still really tough. You know, we're fortunate we have our restaurant staffed back to our pre-COVID levels. But I would say, you know, our business looks very different than it did in 2019 or 2020. You know, we now 40 percent digital, 60 percent in the restaurant and both now multibillion dollar businesses. And it continues to be a really difficult environment. We're investing a lot on retaining, training, developing these individuals that join our company because we've got so much growth in front of us.

We want to promote within so that people can go from crew to manager to field leader to team director but we think we've got a special proposition for people if you believe in the purpose of food with integrity and then you want to grow a restaurant career we think we're one of the best places to to have that experience and uh with that all said though it's still a really tough environment yeah no i also wanted to ask you brian about about your strategy around advertising, because you, as well as a number of other companies like General Mills and Pfizer, have decided to pause advertising on Twitter. And I am just curious as to why you made that decision. Yeah, look, we just wanted to see where everything lands with that platform. You know,

we were not a huge advertiser on that platform. And, you know, we continued, obviously, evaluate all the different ways that we can communicate with our customers and our employees. And so we just said, let's hit the pause button. Let's see how this platform evolves with the new leadership. And then we'll reassess and figure out the best way to communicate with our guests and our employees going forward. What would worry you? What would make you go off Twitter? And let me ask you also, because I know you are a CMO, so this is right up your alley of Taco Bell. It's your background.

What about the brand itself communicating on Twitter, which Chipotle and everybody really needs to do? You know, we've already seen with this new blue checkmark rule, a fake Eli Lilly account, for instance, wondering if there are concerns there as well. Yeah, look, I think it's the same principles we use in how we evaluate, frankly, any media tool. We want to understand who's going there. We want to understand how we'll be presented and the way that we can present our message. And once we understand those aspects, we make a decision of whether or not is that platform the right platform for us to use. And I think we've done a pretty good job of experimenting with new platforms, whether it's Roblox or Snapchat.

I mean, it's crazy now. You know, Snapchat's, I guess, not that new anymore. But we were willing to experiment. And as we learn, we evolve with the platforms. And in some cases, that means we walk away from it. In other cases, we choose to invest more. So it's so similar here. We're just assessing, frankly, the media landscape. And we'll figure out where it's the best place to present our brand

with the message that resonates with our customers and our employees. You know, we've got 100,000 employees that we use these tools to communicate with as well. Is it what Elon Musk says or does? Is it, are you monitoring hate speech? Like what are the things you're looking at there? I mean, look, we're definitely monitoring. I think the primary thing for us to focus on is who's actually using the platform, right? Is it the guests that we need to communicate with through the platform? That's where this all begins. And then obviously you evaluate, you know, what are other things showing up? You know, there are places we choose not to advertise because, you know, a myriad of reasons, right?

And, you know, we want to show up in places where it best aligns with our brand's purpose, which is around, you know, this idea of cultivating a better world through food with integrity. So if it aligns with our brand purpose, the guests are there for us to communicate with. And then it presents the opportunity for us to communicate in a way that's effective. We'll use the platform. Brian, I really appreciate you taking the questions on a number of hot topics right now. Yeah, sure. 500 Chipotle-ans. Appreciate it. Brian Nichols, CEO of Chipotle. Let's show you what's happening overall in the markets. We're hanging on to a rally. The Dow's up 115 points. Again, off the highs of the day, we were up 450, but still going strong. You've got most sectors higher in the S&P 500, which is up 1%. Actually, every sector now

is higher. We've just added a little strength from where we were a few moments ago. Consumer staples, though, are your best performing sector. Industrials are strong, though. Technology, the Nasdaq's up 1.8% today, and so are small caps. When we come back, we'll talk to the CEO of Planet Fitness here at the New York Stock Exchange for the company's first ever investor day. We're going to talk about the plan to strengthen the business and expand overseas next on Closing Bell. Take a look at Planet Fitness shares. They got a pop today.

The company hosting its investor day this morning. Plans include doubling the membership base with annual revenue growth in the low to mid teens by 2025. This, of course, comes on the heels of a strong third quarter, record membership, and expanded full-year guidance. Joining us now here at Post 9 is Planet Fitness CEO Chris Rondeau. Thank you very much for joining us. Thanks for having me. Chris, so where is the expansion opportunity, first of all, here in the U.S.? It feels like people who go to the gym already have gym memberships. Yeah, so our unit potential in the U.S. was 4,000.

We've been saying that since the IPO seven years ago. And we've added 1,300 stores since the IPO. And even now, coming out of COVID, with the heightened awareness of wellness, 25% of the industry is permanently closed. So 10,000 gyms have closed. We didn't lose a single store during COVID. So even more opportunity, we feel, in the U.S. of more than 4,000.

All the mom-and-pop gyms closed? A lot of mom-and-pop. Some national chains, 24-Hour Fitness did close some, and some other national brands. But so there's more opportunity here for us in the U.S., and on top of that, international now, too. We're in Mexico, we're in Panama, Australia, Canada. We just entered New Zealand here later next year.

So there's more opportunity internationally as well. But domestically, we don't want to take our eye off the ball because there's so much opportunity here in the U.S. At home fitness. Remember Peloton was going to destroy your business. Mirror. Yeah, Tonal, you name it. Tonal. Was that just a fad?

You know, I always looked at home fitness. It's not new. It's been around since Billy Blanks and Jane Fonda. You go down the list, right? And I look at it as though it's always been second fiddle to bricks and mortar experience. You know, when you have a 20,000 square foot box with the best equipment money can buy and for plan of fitness of 10 bucks a month, that experience just can't be beat. You know, and I mean, whether it's Peloton or whatever, have apparatus for your house, you can be a member for 10 years and not spend 10 bucks a month. You know, so I mean, whether Peloton or whatever have apparatus for your house, you can be a member for 10 years and not spend 10 bucks a month.

You know, so it's just a great value. Just sits in my house. So what about recession has to be a headwind though for your business, especially the lower income consumer starting to pull back here on high inflation.

Yeah, so leading into COVID, we had 53 straight quarters of positive comps. And the sheer average of those over 13 years was 12%. Even through 08 and 09, we had some great same-source sales, some of our best. And we feel a lot of it was trade downs from higher-priced gyms. People are not—they're going to still work out.

You're not going to stop. But I don't use a rock wall. I don't need the Eucalyptus towels, right? And they come to attend all the membership clubs because we have great equipment. So I feel anything we might lose in the lower end, we gain from the top end of people trading down from higher price. What's the cost of Planet Fitness membership right now? Right now it's $10 a month. Has that gone up?

We haven't changed that in years, decades. We've been, this is our 30-year anniversary, and we're still $10 a month. Why doesn't that go up with inflation? So the way I look at that, we have our Blackheart membership, which is $24.99. A lot of perks, reciprocity, you bring a guest to work out for free with you every time use of our massage beds and so on and we look at the black card membership if we get you to trade up even though you see it's advertised 10 bucks a month mostly 60% of our members choose the black card membership paying $24.99 and believe it or not around our existing fleet of stores right 23 locations there's 140 million Americans

over 15 that don't have a gym membership at any gym. And the way I look at it is raising prices is not going to get them off the couch, and that's really who we're going after is a first-time gym user. When it comes to opening new store units, that has been a little bit slower than you wanted, right? The HVAC problem. The HVAC. You can't open gyms because you can't get HVAC? No air conditioning.

Why? Believe it or not. The supply chain? Yeah, supply chain. You can't open gyms because you can't get HVAC? No air conditioning. Why? Believe it or not. Supply chain? Yeah, supply chain. You believe it out of all things. It's not treadmills. It's not strength equipment. It's not the rubber flooring.

It's HVAC. And so we've had to slow down a little bit this year from openings because of that. But the future is still great. On top of the 2,300 stores open, we have over 1,000 commitments and area development agreements with the franchisees. They're scheduled to open over the next few years. So there's already commitments baked in, but HVAC has slowed that down some. But we'll still open somewhere about 150 to 160 stores this year. Is it still hard to get an HVAC?

Yes. It's not getting better? It hasn't gotten better yet, no. Oh, my God. Yeah. What about higher rates? Doesn't that also hurt the franchisees' ability to borrow and open new stores? So not necessarily.

We have a very sophisticated group of franchisees. We don't bring any new franchisees' ability to borrow and open new stores? So not necessarily. We have a very sophisticated group of franchisees. We don't bring any new franchisees any longer. We grow with the existing group of franchisees, very sophisticated, been with us for many years, all multi-store operators for the most part. So they might own 10, 20, or 100 locations. So a lot of times the cash flow of this business, they just grow with a lot of the cash flow.

So they don't need financing necessarily. Inflationary costs affect us more on build-out and construction. That has definitely gone up. But on the full wall situation with the gyms, we don't have cost of goods like a normal QSR would or most retailers. We don't have daily deliveries of products

that go up with inflation. So once the store is built, we have 12 to 15 employees and that's it. And then the rest of it just runs like a top. Chris, thank you for joining us. Spock is up almost 6% today on the investor day. Really appreciate it. Chris Rondeau, CEO of Planet Fitness. After the break, analyst days are fairly common occurrences, but Wall Street is buzzing about one in particular today that's not so common. We'll tell you why when Closing Bell comes right back. What is Wall Street buzzing about today? Fanatics and Michael Rubin, literally.

I'm told from people who are inside the room, Fanatics hosted a sort of analyst day today here in New York. It's pretty unusual because Fanatics is a private company. I'm told this was more of a meet Michael Rubin event for sell side analysts. There were more than 90 folks there, sell side research analysts from all the top investment banks, a mix of Internet, retail, and gaming specialists. CEO and founder Michael Rubin did a long fireside chat with his CFO, Glenn Schiffman, where he spoke about the growth plans for the company. Meeting Wall Street could be a sign Fanatics is gearing up for an IPO. The company has said previously it is looking to IPO in the medium term.

Fanatics was last valued at $27 billion in March of this year when it raised $1.5 billion in the last round. It launches its own sports betting platform in January. And it really sits at the heart of some cyclical and secular trends. Remember, Rubens sold his e-commerce business, GSI, to eBay for $2.4 billion in 2011, then bought back parts of it on the cheap and fanatics and grew it into a behemoth with exclusive licensing deals with the NFL, NHL, NBA, MLB, and colleges to make jerseys, caps, and other merchandise. Earlier this year, the company acquired Topps Trading Cards for half a billion dollars. Bottom line, it's a somewhat complicated business, more so than a straight up apparel or bedding company. So perhaps this is a first step in introducing the business

and the man behind it to Wall Street. When we come back, RBC Capital Markets, head of U.S. equity strategy, Lori Calvacino, on how investors should be positioning their portfolios following the latest sign that inflation may be finally slowing. And a reminder, you can listen to The Closing Bell on the go by following The Closing Bell podcast on your favorite podcast app. We are hanging on to a gain here of 54 points on the Dow. More than that for the S&P and the Nasdaq going strong up one and a half percent.

We'll be right back. The collapse of FTX may soon result in the bankruptcy of another major crypto company. Kate Rooney with the details on this developing story. Now what, Kate? Hey, Sarah, that's right. So BlockFi, this is another crypto company reportedly preparing for bankruptcy. This is a lending company that Sam Bankman reads FTX had agreed to buy earlier this year, and it's the latest collateral damage we're seeing from FTX's collapse. This report today coming from The Wall Street Journal. No comment from BlockFi.

We did reach out, but it comes as the company halts customer withdrawals. And in a blog post yesterday, BlockFi said that rumors that a majority of assets are custodied at FTX are false, but they do say we have significant exposure to FTX. If you flash back to the summer, Sarah, Bankman Freed was supposed to bail this company out after a lot of other major crypto companies ran into issues with lending counterparties and saw cascading liquidations. FTX had agreed to buy BlockFi at a maximum price of $240 million.

The New Jersey-based company was worth about $4.8 billion earlier this year and had also gotten a $400 million credit facility from FTX. Sam Beckman-Fried, now the former CEO of FTX, also just tweeting. We've heard a couple tweets from him today. He says his goal is to do right by customers and says he's contributing what he can to do so. He also says he's meeting in person with regulators and working with teams to do what they can for customers, after that investors, but first customers. So we've gotten some responses from him out there, Sarah, but it seems to be a slow trickle when it comes to these tweets and his responses. Yeah, it's like one letter every, I don't know, few hours or so.

But there's reports that he's trying to still raise money to make his customers whole. Drew also reporting that. I had heard ahead of the bankruptcy, which was just last Friday, that he had been scrambling for emergency funding. The idea that he would be able to get an investor with either a balance sheet big enough at this point or the risk appetite is hard to believe, but we're working on it, and it's interesting to see the latest developments if he is able to get some emergency funding, even at this stage in the game when they've already gone through bankruptcy and we're seeing filings overnight and talking about they're really in this process right now. So that does seem to be quite the Hail Mary.

One million customers, unbelievable number could be affected by this bankruptcy. Kate Rooney, Kate, thank you. Chinese technology stocks are soaring for a fourth day in a row. Up next, we will discuss whether investors should believe in the bounce. That story, plus Tesla takes off and the Dow's up 123 when we take you inside the market zone. Investors should believe in the bounce. That story, plus Tesla takes off. And the Dow's up 123 when we take you inside the Market Zone. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day, plus Seema Modi on the China tech bounce and RBC Capital's Lori Calvacina on the market. We'll kick it off broad, Mike, because the Dow

is up 100 points. The S&P is hanging on to a 1% gain. Not bad. We're certainly off the highs of the day. We did get more evidence that inflation is cooling. But isn't a bigger question what the Fed makes of this? Because as long as they are still hell bent on getting to 2 percent, that's going to mean higher rates and more economic pain, isn't it? Without a doubt. There's probably some room between now and when we know exactly how aggressive the Fed might respond. Now, producer price index, which we got this morning, not typically the biggest market mover, but it simply fed into a developing storyline that we are seeing perhaps some downside momentum in inflation.

Clearly, we don't know what level it might settle out at or any of the rest. But, yeah, the Fed will definitely not love to see the market prematurely celebrate. I'm not sure it yet has done that. We're up 14% from the lows. You're still short of those levels we reached back in August when there was some excitement about a Fed pivot. You've seen semiconductors come back very nicely. Industrials lead. There's a sense out there that the economy is holding together OK. Whether that's good or bad for the overall Fed outlook is probably remains to be seen. But credit is cooperating.

So for now, it's a it's a comfortable spot, even though you can't necessarily call anything like all clear to the upside. No. And we have this rally in bonds, which is also constructive for stocks to see lower yields, dollars weaker. That's also helpful. 3.785 is the year on the yield, excuse me, on the 10-year. We were well above 4% last week. Take a look at the China Internet ETF. It's up again today, up 10% or so, extending its winning streak to a fourth day in a row on signs China's COVID policy could relax. We've got Tencent Music, Alibaba among some of the big winners today. Seema Modi joins us. Seema, do investors believe this bounce is sustainable? It's really time to be buying after these stocks have sold off on a

number of factors, including COVID over the last year or so. Well, Sarah, what is clear is there are positive developments over the last 48 hours. First, Tenio Intelligence calling that meeting between China's leader Xi Jinping and President Biden a modest success. And then you had China also stepping in to prop up its real estate sector, plus some evidence of Beijing starting to relax its COVID policies. For the first time in two years, Bank of America this morning turning, quote, tactically constructive on China, citing those easing COVID policies, which strategists there say will help energy, industrial and consumer stocks in China. What's interesting, Sarah, is that the latest 13F

filing showed that hedge funds have been reducing their exposure. Ray Dalio's Bridgewater trimming his position in Baidu by 20 percent. David Tepper's Appaloosa Management reducing its Alibaba stake by 10 percent. These are filings that, of course, ended on September 30th. So their position may have changed. But the takeaway from the investors we spoke to today is they still need more evidence of this China reopening to call this a turnaround. But clearly hard to overlook these big moves we're seeing today, Sarah. Right. And there are geopolitical concerns. I know we had talks between Biden and Xi. That's a good thing. But where that relationship is going, where ultimately how

Xi Jinping is going to proceed with regulation of the tech sector and others, whether these companies are at risk of being delisted in the U.S., whether the property bubble has seen the worst of the of the damage. It feels like there's a long list of concerns around China still, besides what's happening with covid. A laundry list of these longer term challenges. In fact, Tiger Global, one of the reasons they decided to halt new investments in China is because of the risk of a Taiwan invasion. Now, yesterday in that meeting between President Biden and Xi Jinping, Biden's takeaway was that the invasion does not seem imminent. So that was seen as a positive takeaway. But overall, clearly some longer term risks, longer term risks, including the possible delisting of Alibaba and some of these other

companies. But that we haven't seen any developments on that front. So for now, investors seem to be focused on the near term positive developments. And that's sending shares of Alibaba up 25 percent so far this month, Sarah. It's best month in six years. Seema, thank you. Seema Modi. Tesla's also higher today after moving up four spots in Consumer Reports' latest reliability rankings. Meanwhile, Morgan Stanley's Adam Jonas says any weakness in Tesla resulting from negative sentiment of Elon Musk's purchase of Twitter could create a buying opportunity for the shares of the EV maker. Phil Abode joins us. Phil, Tesla did move up on those

reliability rankings, which I know you keep track of. Still near the bottom of auto brands, though. So how much does this survey matter? I don't think a whole lot. It really doesn't hurt Tesla, Sarah, when you take a look at the potential impact here. Why? For years, we have seen these reliability reports, whether it's from J.D. Power, Consumer Reports, other auto magazines or industry newsletters. And almost all the time we hear people say the reliabilities of Tesla are not great, but it still has great brand value. It still is incredibly popular. And look, it still has more production of EVs and availability of EVs than any other automaker in the U.S. So I'm not sure the fact that it ranks towards the bottom of the CR reliability list is going to have a huge impact on demand.

What about Jonas saying buying opportunity off Twitter with Tesla? Who is running Tesla when Elon Musk is consumed with Twitter? He's still running it. He has a strong bench. I think it's a mistake to assume that just because he is consumed or appears to be consumed with Twitter, that there's nobody minding the shop, if you will, at Tesla. Look, does he go through his bench? Has he gone through his bench quite a bit at Tesla over the years? You bet. But he always has had a number of people who have moved up and have assumed leadership positions within the company who are strong performers. And there's no indication at this point that he's dropped the

ball at Tesla. It's a fear that people have, but there's no indication that's actually happened at this point. Right, because you can monitor in real time. He's tweeting like 24 hours a day. So I understand that view, Phil. Mike, how about you on the stock? It's down now 45% year to date, about 51% off its highs. Where has that brought Tesla to? You know, it's interesting because you can see it trade in line with the general sense of concern, either A, that Musk was for a while thought to be continuing to sell the stock, and that obviously was leaning on it. And then just the sort of, you know, having the sort of absorption in Twitter in a lot of the details of what's going on at that company

completely out in the public, perhaps sap some confidence in Tesla using the some engineers from that company. On the other hand, if I look at a year to date chart of Tesla against NVIDIA, they're kind of in line with each other, not in the same beat for me, but on total losses. So it's sort of traded along with a lot of the other very highly valued, crowded names. People owned sort of the high octane versions of this. So I get the concerns. It's just very hard to figure out exactly what is filtering into the recent bout of weakness in Tesla, which has basically made just about a two year round trip from that late 2020 burst higher.

Got it. Philobo, thank you. We'll turn now to the broader market with just a few minutes to go here in the session. RBC Capital's Lori Calvacina is with us. So, Lori, what is the strategy now that we are starting to see these inflation numbers coming in a bit better? So, look, I think that at this point in time, it makes sense for investors to start thinking about recovery trades. That's really been the big fear in the markets that even if you think a recession is coming that the longer the Fed stays aggressive the deeper that recession the longer it will go. And I think at this point even though it's premature to say all clear and of course we know there's more tightening coming. I do think investors have as much defensive positioning as they need. So I think at this point in time, we've got a little bit of relief in markets. I think it's well deserved. And I think it's time to start looking at things like small caps, tech, financials,

things that typically do well when you're in a recovery trade in the market. I'm not saying abandon all your defensive. Things are going to be choppy for a while. But that is really the work investors need to start thinking about doing. A recovery trade, but some say we haven't even fully priced in a recession, Lori, as far as earnings and the economy with all the tightening that we have and still more coming. So, look, I think that we're in a period. It's a messy, long normalization process. This is something we saw in 2002, 2003. We also saw it in twenty ten twenty eleven where it took the market a while to really cement that bottom. And I do agree that we've got to see earnings expectations come

down I'm at two oh eight for next year that's well below the consensus. But it's important to keep in mind that typically stocks bottom three to six months before earnings estimate revision stop going down. So I will tell you frankly Sarah

also every buy side or I talk to. Kn knows the sell side numbers are too high. So we do need to get through that process. We need some certainty on valuations. But I think that we are well, we do have that bottoming process well underway at this point. What about tech? Because I don't hear a lot of calls to buy tech here, even those that are looking for a recovery, say stick with value, stick with the cyclical stocks, because tech is undergoing sort of a long-term process where it is being reset by higher interest rates, built up all this capacity during COVID. What in tech do you like, since it is so out of consensus right now? Yeah, so I think you have to define what you mean by tech. Tech proper is things like semi-software,

IT services, hardware. And I am actually overweight. The technology sector has a longer-term play. We're more cautious on other sectors that have the Internet names in them. Technology itself tends to be very high quality. Again, it's typically a rebound play coming out of a recession. And things like semiconductors, there's no one taking numbers up right now. Typically, when the rate of upward revisions in semiconductors is sitting down at historical lows, that is a very good buy signal for 12-month investors. So I think you can look at some of those areas where the earnings sentiment is already pretty much at rock bottom

and poke around. Lori Calvacina, appreciate you joining us with the call from RBC on the recovery trade. Two minutes to go in the trading day. Speaking of, 52-week high for IBM. Haven't seen levels like this since February 2020. Mike, what are you seeing in the market internals? Actually pretty strong, Sarah. Even though we did get that little fade in the middle of the day, recovered most of it. It's about 3 to 1, better than 3 to 1, advancing to declining volume. We have small caps outperforming. You have the equal weight indexes outperforming the market cap weight at 1. So it shows you a relatively broad lift we're getting. Take a look at the Eurozone equity ETF.

This would be a European ETF that continued to trade here in the U.S. That's a five-day chart. You see in the middle of the day today, it did get that little jolt lower, recovered about half of it. So it kind of shows you trading in line with those headlines unconfirmed out of that missile landing in Poland. Take a look at the volatility index. Also did get a pop above 25 briefly, but has receded from there. It's still kind of, you know, very, very slowly and grudgingly coming down off of that mid-30s level. We're settling here in the 24s.

Probably equities might actually have to get up toward that 200-day average to have it truly relax, Sarah. As we head into the close, take a look. Dow's up 35 points. Did go negative just a few moments ago. Lost most of the rally. We were up 450 at the highs of the day in reaction to that inflation read. We got earlier this morning wholesale inflation coming in a little better or under expectations. Biggest contributor to the Dow gains would be Walmart, adding 60 points.

After Walmart's 3Q comps rose 8.2%. The company raised guidance and also added a $20 billion buyback authorization. S&P 500 is up about eight-tenths of 1%. You've only got two sectors lower in the close here. Healthcare and materials, everybody else is having a pretty decent day. The best performing sector right now is communication services along with real estate and technology. The NASDAQ rises 1.4 percent. We are now positive on the NASDAQ for the week, only Tuesday. The S&P 500 goes out with a gain of almost 1 percent. That's it for me on Closing Bell. See you tomorrow into overtime with Scott.