Closing Bell - Closing Bell: Hot inflation print sends stocks on wild ride 07/13/22

Episode Date: July 13, 2022

Stocks closed mostly lower – but off their worst levels – after another red hot inflation print showed prices rose by more than 9% in June – the biggest jump in 40 years. Deputy Treasury Secretary Wally Adeyemo weighs in with the White House plan to combat higher energy costs. Meantime Netflix popped on news of a partnership with Microsoft for its ad-supported subscription tier. Analyst Mark Mahaney discusses the prospects for the stock, and the outlook for tech more broadly ahead of earnings. And Chevron CEO Mike Wirth tells Sara whether or not he thinks oil prices are heading for a renewed surge.

Thank you, Dom and Kelly. Another red-hot inflation print sending stocks on a wild ride today with the Dow trading in nearly 500-point range, currently near the higher end right now. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand in the market right now. S&P positive. The Nasdaq also leading a few U-turns we've seen in today's session, up four-tenths of one percent. It's consumer discretionary stocks that are leading the charge. Tesla, Domino's, Bath & Body Works, the winners there. The losers on the day, industrials, financials, and communications services, seeing that yield curve invert. That's hurting the banks.

Here's a live look at the lagging sectors that I just mentioned. I said the financials, but look what else is there. Some of the defensive groups like healthcare and real estate near the bottom of the pack today. We've got the big banks starting to report earnings tomorrow. We're going to have more on that

for you straight ahead. Also coming up on today's show, we're going to talk about today's hotter than expected inflation print and the White House response with the Deputy Treasury Secretary, Wally Adeyemo,

later on in the hour. Let's get straight, though, to the market reaction. Mike Santoli here with the dashboard. Mike, what are you watching as far as this kind of crazy reaction all over the place? Equity market obviously had the quick reflex move lower. Now trying to play it off like, well, we kind of saw this coming or perhaps there's nothing incompatible as rough as the CPI report was, with it being the peak month for inflation, plus a lot of damage done. So here we are, clearly kind of indecisive

on a couple levels. We've been playing out for a couple of weeks. It does not, this rally, reach the threshold where we'd say we'd reverse this trend. On the other hand, you have this. You know, we've kind of managed to hold above those mid-June lows. Also, where we're trading right now

is a level that was first seen intraday right in here, May 20th. So it's not as if we're unfamiliar, kind of chopping around the growth areas of the market, carrying things right now. Longer term yields are going down. Now, a lot of attention on the two versus 10 year Treasury yield curve today. It is very deeply negative. Take a look at the three month 10 year. This is the one the Fed sort of points to as the more perhaps reliable precursor to a recession. This is a 20 year look at this. So here's zero. When have we gone below zero? Right here. Oh, six year and a half before the recession officially started. And right here in summer of 2019, I'm going to put an asterisk there. I'm not saying it foresaw the covid recession coming, at least not in that timely way. The point is you have room to go, but it's a function of just the months passing as well

as the Fed doing what we expect it now to do. A three month yield is going to adjust higher pretty rapidly. So therefore, it's kind of on a collision course with zero if the Fed does what we expect it to do. That in itself, though, doesn't necessarily start the clock beating too loudly for a recession. We'll have to see. Right. And so now we get, thank you, Mike, stick around to Steve Leisman on what that inflation rate does mean for the Fed. And we're seeing expectations, Steve, change here. Yeah, pretty dramatically, Sarah. There's a huge surge, by the way, in the outlook for a hundred basis point hike after Atlanta Fed President Rafael Bostic saying that everything is in play when asked if the Fed could do more than 75 basis points.

This contrasts with his comments on Monday where he said it was not his base case to do more than 75. But of course, the hot CPI number changed his view and seems to have also changed the market's view. Take a look. We were at a 3% probability of a 100% hike before the CPI. After the CPI, it went to 38%. After the base book came out and Bostick spoke, it's now the odds-on choice. That is to say, the probability now, by the way, of a 75% hike in September, now 51%. So put it all together, the odds-on bet of the market is for an astonishing 175 basis points of tightening over the next two months. The move also coincides with a decidedly

stagflationary base book. Two points start out to me. Substantial price increases reported across all districts and five districts reporting increased risk of recession. Meanwhile, just moments ago, Richmond Fed President Thomas Barkin on the wire saying that the June CPI report strengthens the case of the Fed to be resolute on inflation and the Fed should focus on inflation, not growth. Sarah, that appears to be the case of what's happening right now. Steve Leisman, thank you. Keep us posted. We'll continue the conversation now with Neil Dutta from Renaissance Macro Research.

Mike Santoli still with us. I think they'll go 100 basis points. Anything's possible. Maybe there'll be a Wall Street Journal article coming out the weekend before and we'll find out. Right. Because the last time Fed Chair Powell said it's reasonable to expect 50 or 75 at the next meeting, although the time before that, he said it's we're only looking at 50. So I guess they're recalibrating as they get this inflation data. Yeah, I mean, I think, you know, to me, the issue isn't so much that it's that they sort of find these data points and it's kind of like ex post justification for stuff they've already decided they wanted to do. So Powell one one time looks at ECI and that's why we're starting the tapering clock sooner. Then it's you, Mish, and five to 10year inflation expectations.

I don't think they really have a coherent strategy. But I do think the— Wait a second. That's not fair. They told us that it's all about inflation right now. Well, I mean— And now we're getting a hotter number. They haven't told us exactly how expeditiously they want to move up to neutral. I think the more important point, really, for investors is that the Fed basically has two options, two doors they can walk through. Behind door number

one is recession. And behind door number two is let inflation expectations drift higher. They've told us pretty clearly that they would prefer if you have to make a mistake, number one, you'd go through door number one. And that, to me, is the most relevant thing for investors. So, you know, I mean, for example, I think the economy could be, frankly, on a glide path towards contraction. And really the only thing left to go at this point is the labor market. We know that initial claims are picking up modestly. I think some increase in the unemployment rate at this point is inevitable. And we know that hiring intentions are declining.

So I think there's reason to think that employment begins to contract outright at some point later this year. And again, the Fed is still in an aggressive posture against inflation. That's not exactly a good recipe for risk appetite. Mike, is it already in the market, though? I doubt all of that is fully in the market at this point. If you had to kind of psychoanalyze the market reaction today, I think part of it is a let's get this over with attitude. So there's still this clinging to this idea that if we go 100 basis points in July, that it represents a front loading of what ultimately is going to be done

in total by the Fed. I'm not saying that's the case. I'm saying this is the way you can kind of plot the story out. And it makes it seem like we do it in July. We kind of get free a little bit of the macro whipsaw because we're through the CPI number. There's no meeting in August. Who knows what can happen after that? September's far enough away for the purposes of equity traders to say, let's focus on earnings and see if that's priced in for the moment. The way I interpret the market action today is we went from the inflation high rates sort of fear off that hotter CPI number to the recession fear, right? Treasury yields turned around at least at the long end. The dollar was stronger off the inflation number. It's now weaker. So everything became about the recession, Neil. What are we looking at?

You said a contraction. How deep now? Maybe that's the question. We go from what kind of recession? Well, I think a modest recession is likely. I mean, there's no significant macro imbalance in the economy outside of like household spending on durable goods. But, you know, I mean, there's no significant macro imbalance in the economy outside of like household spending on durable goods. But, you know, I mean, look, the euro dollar futures market is pricing in, I think, I mean, Mike can correct me if I'm wrong, I think 425 basis point rate cuts next year at this point. So to me, I don't know if they do that.

I mean, I think the Fed probably won't be cutting that much in 2023. And there could be two reasons why that is. Maybe I'm wrong about the growth outlook and growth is holding up a little bit better. Or what I think is more likely is that the Fed has a more hawkish reaction function than people believe. Or that inflation just stays high and sticky. I think they need to be really sure about inflation coming off the boil before they come before they give the market a pivot of any kind, because they have been so far off sides the inflation story that, you know, they have to compensate for that big miss. Right. In a way. And that means to me holding on to a more hawkish posture for longer, probably past the expiration date.

And that's why I say to me, it's it's a reason to be cautious on the outlook for equities. Tech stocks are interesting today, Mike, in light of all of this. There's kind of a split. Communication services are getting hit, but some of these consumer discretionary names, including Tesla, are higher on the day. Amazon has also turned around and is now higher. These are ones that tend to get hit on the rate, the rate rise concerns. Well, yeah. What rate are we going to talk about? So if they're long duration, if we want to say that they really trade off of bond yields, which yield matters, I try to say that that's a much looser connection than is popularly, you know, kind of put out there that it's just about the rate story. It's also about they're not really as cyclical as the rest

of the market. So if all of a sudden the technology's somewhat defensive qualities are starting to matter more, that's part of the story as well. But they're just down the most. They let us into this thing. And we'll see if that's where the money flows in. Today, we got these Microsoft Netflix headlines. They may not be hurting sentiment toward those couple of stocks as well. Yeah. And there's also this idea that we've seen the worst of it today. Today's number. We've said that before and been fooled. But if you look at some of these commodity prices, they really have rolled over from oil to copper to wheat prices. Sure. I mean, the market has admittedly priced in a lot of downside, but we haven't actually seen the weakness in the real

economy yet. I mean, the labor markets have been holding up. You have to kind of really peel back the onion to see some weakness in the job market. So, and I think that's part of the challenge. That's the tension right now is that the economy isn't slowing as much as, you know, people just wanting to get it over with, as Mike was putting out. That's a difficult situation because the growth numbers haven't actually cracked as far as the labor markets are concerned. Not yet, according to you. Neil Dutta, thank you.

Mike Santoli, I'll see you later for the Market Zone. I mentioned tech stocks. They are well off their lows today after initially sinking on that CPI report. Netflix also getting a late session rally on news of a new partnership with Microsoft. We're going to talk to analyst Mark Mahaney about his latest read on the stocks in that sector, winning bets into earnings season. You're

watching Closing Bell on CNBC, Dow down 100 points. Again, we were down 466 at the low, so some nice recovery here. Check out today's stealth mover. It's SeaWorld, KeyBank, downgrading that stock to sector weight from overweight, citing the impact of economic concerns. The stock is down about one and a half percent. Check out shares of Netflix getting a late session pop here after the company said it is partnering with Microsoft for its new ad supported service. Joining us now, Mark Mahaney from Evercore ISI to talk Netflix and other stocks. It also reports that Comcast and our parent company and Alphabet were in the running here. What do you think about the Microsoft partnership on Netflix ads? I was surprised. I wouldn't have expected, and I think most people are, that they would have

picked Microsoft as their global advertising partner. Now, Microsoft does have a global advertising presence, but it's probably fair to say it pales in comparison to Google. So they must have gotten some really great terms from Microsoft. That's my guess. Everybody wanted to partner with Netflix. I think Netflix is going to be successful rolling out an offering, but I don't think it's going to be material to the story and therefore not an investable part of the story for another year or two. I think about Netflix as a 2024 long, not now and not next year. So Netflix in the statement says it's very early days, to your point. But our long term goal is clear, more choice for consumers and a premium better than linear TV

brand experiment experience for advertisers. Mark, so what what does that look like even in the long run for Netflix in terms of revenue? Hey, Sarah, I think this is great. I'm a huge fan of Netflix's management team. I think they've been phenomenally visionary. I think they missed this one. I think they should have entered into the advertising market maybe a year or two ago, but that's okay. They've got a large platform of 220 million users, and you bring in a lower-priced plan that's ad-supported,

there's so many wins in here for Netflix if they execute well. And this is going to take time, but there's so many wins here. You're going to reduce churn. You're going to be able to bring in more subscribers that are very price sensitive. And we've seen price sensitivity rise in our surveys that we've done on Netflix over the years in North America and in international markets. And you're going to help them grow in parts of the world where AVOD offerings, you know, advertising video on demand offerings are much stronger than in North America. And I'm talking about Asia Pacific,

which has been a growth challenge for Netflix. So I see a lot of wins here. I think there's plenty of evidence here that they can generate really nice ad revenue per user. A lot of wins. It's going to take some time, but my guess is that it will work out for Netflix. I just don't think you can invest in that yet. Yeah, I mean, the stock is

down 70 percent. So visionary management is great until, you know, something like this has happened where they've seen their first subscriber loss and the market's totally turned. Mark, of all of your of all of your tech picks, and I know you've liked Amazon, you've liked Spotify, a lot of these companies, which which one do you think just has a ridiculous valuation right now where you would buy? Well, if I was going to pick one right now to buy, it would be Amazon. It's not just because of Prime Day, although I think that helps. This is kind of a less worse call. So look, you had your commentators earlier talking about we're starting to see some cost inflation come down. And I'm talking about fuel costs, shipping costs. As those come down, that was the big whammy

against Amazon in the first half of the year. So there's a less worse thesis that will play out on Amazon. You're not going to be moving beyond the tough COVID comps. So you've got a revenue acceleration story in the back half of the year as they start going after all that overstaffing and overbuilding that they've had. You're going to get better capacity utilization. So I think you get margin recovery, revenue growth acceleration on a stock that's 30 to 40 percent below its average forward multiple. Like to me, this is classic DHQ, dislocated high quality company. If you're going to buy one stock and be willing to weather, you know, the near term potential recession risk. To me, it's Amazon. It's the most successfully diversified consumer tech company out there.

OK, but I just want to say you've said you've said that before and it's still it's now trading at a post-COVID low. So something is not clicking. I'm worried about the economy, IT spend, retail. Is Amazon recession proof? Yeah, no, it's not. It's not recession proof. And so, look, we just lowered our, I thought broadly, what you need to have is one or two rounds of estimates cuts. You know, we did our best shot at cutting estimates aggressively across the Internet space last week. And then you also need real signs of inflation, moderation or interest rate expectations peaking. We're not there yet.

But when you get that, and Sarah, it's like three months out, it's six months out. Timing it is almost impossible. I've just got a high quality asset. When all this is said and done, it's going to be the leading global online retailer. It's going to be the leading cloud computing company and one of the largest advertising assets in the world. And they still have new growth initiatives out there. And I'm particularly interested in this shipping elasticity concept. So, yeah, I'm sticking with Amazon. It hasn't worked yet year to date. But, you know, this is the opportunities when these companies are most dislocated. You make money buying high quality companies when they're dislocated. I think that's Amazon. All right, Mark, thank you. We'll

have you back soon. Want to talk more tech earnings as we gear up for that. Mark Mahaney, let's check in on the markets right now. Down 74 points here on the Dow. Again, with the S&P 500, we're positive. And that is thanks to consumer discretionary energy, which is working today. Staples, utility, and now technology is higher. Industrials and financials bringing up the rear in the market. The Nasdaq comp, it's up about a third of 1%. Still ahead, Deputy Treasury Secretary Wally Adiemo with the administration's response to today's hotter inflation read. Plus, why the CEO of Chevron told me inflation could be around for longer than you may think.

We'll be right back. S&P goes negative as we continue this up and down day on Wall Street. CNBC's list of the top states for business is out. North Carolina taking the crown this year. And in today's big picture, we are looking at the surprising financial strength that states are seeing across the board. Scott Cohn here with that for a change. Scott, how does it look? It's really something, Sarah, and it's pretty much every state. North Carolina's strongest category is its economy, and that includes really, really strong state finances.

In fact, they just passed a bipartisan state budget that had room for a 4% teacher pay raise, adding to the state rainy day fund, a new billion-dollar inflation reserve fund, and money for state infrastructure projects to prepare more sites for development. This last budget that I signed, there's more investment to develop more because we're running out of them, because we have so many businesses that are interested in coming to North Carolina and expanding here. North Carolina is not the only state that's rolling in dough. The National Association of State Budget Officers says 49 states have beaten their revenue forecast for this fiscal year. Wyoming might have as well, but its forecasts were

made before COVID. Nationwide, state spending up 13.6 percent this fiscal year. That is the biggest jump in more than 40 years. COVID relief money, a big reason, but also more sales tax and corporate tax money. Some of that, of course, is due to inflation. This year's most improved state is Oregon. It jumped 17 spots to number 18 overall, also largely because of its economy, including 400 million extra dollars from tax payments. But state economist Josh Lehner says don't get too comfy with all of this. He wrote last month, some of these really strong gains are clearly temporary and will either fall or more likely crash back to earth. So it's something that we're going to keep watching as we do these top states for business study. This, by the way, is not just a day at the

beach. There is a huge crew of people behind the scenes that work on all of this here in North Carolina, back in Englewood Cliffs. I would love to be able to thank every one of them. Special shout out, though, to our producers this year, Harriet Taylor and Katie Young, who put up with me for all these many weeks. You can see all of the handiwork and see where your state ranks. Read how we come up with all of this at topstates.cnbc.com. That's Top States for 2022, guys.

No, it's a great effort, Scott. Thank you very much. And good to hear the good news on the on the surpluses as well. Scott Cohn, another hot inflation report this morning. Up next, the deputy treasury secretary of the U.S., Wally Adiemo, on what else the White House can do, if anything, to fight these soaring consumer prices. We'll be right back. Some breaking news out of Washington. Let's get to Kayla Tausche. Kayla. Well, Sarah, the Biden administration has ruled out for now waiving the Jones Act to allow more ships to transport refined products up the East Coast. That's according to my sources. And it comes as the administration weighs policy actions to lower gas prices and increase domestic supply.

Executives requested that waiver last month during a meeting at the Department of Energy, but according to attendees, when pressed by the White House, they acknowledged the change would only shave off at most eight cents per gallon in gas prices at the pump and may not immediately result in rerouting of shipments to the Northeast from Central and South America. For that reason, the White House remains open to possibly curbing exports of refined products. That's according to two people familiar with the matter. Especially if domestic supply becomes challenged, going into the winter is a time when this could potentially happen. Of course, any urgency to take any action here has decreased in recent

weeks as the price of oil has fallen on recession fears. But it is worth noting what domestic options are being studied as President Biden meets with Gulf leaders later this week. A Department of Energy spokesperson said it remains focused on bringing more refining capacity online, especially ahead of hurricane season. Sarah? Kayla Tausche. Kayla, thank you. And we'll stick with that story because earlier today at CNBC's Evolve Global Summit, I did have a chance to sit down with Chevron CEO Mike Wirth. I asked him whether he thinks we've seen a peak in oil prices. Here's what he said.

The tightness in supply hasn't gone away. And so to the extent that we were to see China reopen fully, and we're still seeing some COVID restrictions there, see air travel return fully, there are some uplegs in demand that could start to really pull hard on that supply again. And then, of course, there's the risks around the situation in Ukraine, the sanctions and how all of these things play out. And so I would say I think it's good for the economy that prices have moderated, but I also see the risks remaining skewed towards the upside.

I also asked him about this morning's hotter than expected inflation report and how long he expects these kind of high consumer prices to last. We work around the world and and we see these pressures here in the US. Certainly we see them in other parts of the world as well. And we talked earlier about the supply response to the strong demand we've seen coming out of the pandemic. I think this is a structural element of the economy, at least here in the short to medium term, that is very real across many,

many different industries. I think monetary policy and fiscal policy in some ways may have contributed to some of the things that we're seeing, and I don't think these things unwind immediately. I think they do unwind over time. But I think, you know, we're certainly anticipating a higher level of inflation than what we've seen historically in our planning process. And I think it's something that all companies should be, you know, I'm sure all companies are rethinking, you know, their plans for rethinking their plans for the next few years. But it's more entrenched here to stay, that inflation. I think it's proven durable to this point.

And I think we need to prepare for it to have, you know, some additional runtime. Additional runtime. Mike Wirth of Chevron joining us now for more on today's inflation is Deputy Treasury Secretary Wally Adeyemo. Secretary Adeyemo, it's great to have you back on the show. Earlier this morning, Brian Deese, economic advisor to President Biden at the White House, called today's number backward looking. Do you agree? Well, Sarah, it's great to be here with you. And I think the way this data works, as you know well, is that it's for the previous month. And since that month, we've seen some of the prices indicators coming down. As Mike indicated in the last segment, the way this data works, as you know well, is that it's for the previous month. And since that month,

we've seen some of the prices indicators coming down. As Mike indicated in the last segment you had, we've seen oil prices come down slightly, as well as other commodities. And I think the truth is that we want them to come down further, because what we know, as Mike also stated, is this is a global phenomenon, but we need American solutions, which the president has proposed, including giving the Fed the room to do what the Fed needs to do. They have primary responsibility here for dealing with inflation. We're going to do everything we can on supply chains and also calling on Congress to take steps to reduce our deficits in order to address this challenge head on. I guess my question on if it is backward looking, as you say, it is last month's data and we've

seen oil prices come down since then. We've seen other commodities price come down since then. Should the Fed really pay too close attention to this report? Should it go even stronger on hiking rates as the market is now expecting them to do and potentially crush our economy into recession? If we're starting to see evidence that inflation is thawing? So, Sarah, I'm not going to talk about what the Fed should do, but what I'm going to say is that, what the President has said, that prices remain too high in the United States of America, and that's why we've got to do everything we can to bring them down.

And as you know well, it's not an American phenomenon at all. It's a global phenomenon, and that's why we want to give the Fed the room to do what they're going to do. But it's not only something that the Fed can take action on even though they have primary responsibility. We've got to take steps to deal with the supply issues in our economy as well. That's why the President released a historic amount of money from the Strategic Petroleum Reserve. That's why Secretary Yellen today is in Asia working to implement the price cap, which would allow Russian energy to flow but reduce the amount of money that they make from it. And that's why the president's calling on Congress

to approve a package that reduces our deficit and helps to bring down pressure on the economy and on high prices. How does that price cap really work? I know Secretary Yellen is trying to sell that overseas to try to hurt Russia. Don't China and India have to be on board with that as buyers of Russian oil? So, Sarah, the basic thing that China and India and other economies need to be on board with is paying as little as possible for Russian energy. And that's what we're seeing happen today. What we know in the marketplace is that Russian energy, or Urals as they're called, is being sold at a massive discount to those who are buying them.

What Secretary Yellen is advocating for is making sure that Russia is not able to benefit from the risk premium they've introduced into the market by reducing the amount of revenue they make while allowing their Russian oil to flow. And we think that countries that buy that oil should be very interested in this because it reduces the cost of energy for each one of them. What ultimately does the White House hope to accomplish here? Because we've seen also, I know you've been working on sanctions packages. They've been extreme.

And yet still, you know, the ruble has come back, the Russian economy. It's obviously taken a huge hit, but we really haven't seen a let up in this war. So, Sarah, our goal remains the same. We want to reduce Russia's revenue while mitigating the risks to our economies. But we want to reduce that revenue so they have less money to prop up their economy and to also pay for their war machine, which is conducting this unjustifiable war in Ukraine. The next step is implementing the price cap.

We know that today Russia earns the vast majority of their revenues from selling oil around the world. We want to allow that oil to flow because we want to see oil prices come down so that our consumers pay less. But we also want to reduce the amount of revenue that Russia earns from selling that oil in order to make sure they have less money to prop up their economy. Accomplishing that will put them in a position where they have to make stark choices about propping up their economy or continuing to pay for their war in Ukraine. So, Mr. Secretary, now that we have another hot read on inflation, we're set to get a negative print, at least if you trust the Atlanta Fed GDP model on growth. So negative growth and sky high inflation. How much are you guys talking and worried about stagflation

at the Treasury? So, Sarah, I'm not worried about it because I spend my time talking to CEOs and small business owners. And what they tell me is that demand for their services and goods remain strong. Last month, you saw that we closed the gap in terms of the number of jobs that were lost in the private sector from the from the covid crisis. And now we've created more jobs since President Biden has been in office than have been created in a number of years, in over 40 years. And the economy has continued to grow. Industrial production is still strong. So underlying, we see momentum in the American economy and that momentum is going to carry us forward. And I think it puts us in a stronger position than any economy around the world to deal with the high inflation that we face today. You look at inflation prints in

other parts of the world. They're also high, but they don't start out from the place that we start out from, which is a place of strength. Our goal is to make sure that we take steps to keep playing upon that strength to make sure the economy continues to grow and we continue to create good paying jobs. So President Biden tweeted out just in the last hour or so, Mr. Secretary, the chart that you sent us, I think we have it for you, of the price of oil and retail gasoline prices, both of which are declining, but there's obviously a big gap there. And he says in his tweet, time for gas retailers to pass the cost declines they're feeling in the markets onto American families at the pump. It's something that Jeff Bezos has gone after the president about. And I actually asked Mike Wirth about

it at Chevron today. He said most of these gas stations are owned by small businesses, independent family-run businesses. They own about 5 percent of them. And it doesn't work that way. They do track the market. So what is the president after here? So I think what the president is after is what we're all focused on, which is doing everything we can to bring down costs for the American people. That includes making sure that the market responds in the way it should when you see fundamental price changes. It includes advocating for Congress to pass things like prescription drug price reform

in order to bring down the price of prescription jobs, prescription drugs. It includes releasing energy from the Satyagin Petroleum Reserve. And what the American people should know, what business owners and CEOs should know, is the president's going to continue to advocate for taking steps to bring down costs because we want to make sure that we continue to have a strong, robust American economy going forward. Wally Adeyemo, thank you for joining me today in reaction to those numbers. Deputy Treasury Secretary, take a look at Twitter shares taking off today after filing a lawsuit against Elon Musk for ending his $44 billion takeover of the company and accusing him of driving its stock lower. We'll share the details when we come back.

We've gone negative now, even the Nasdaq giving up about a third of gains up next a rough day for the airlines and the legal drama between twitter and elon musk heats up twitter the top performer on the s&p we'll take you inside the market zone next we are now in the closing bell market zone cnBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Steve Kovac is here on Twitter. And Phil LeBeau covering the airlines, not having a great session. Stocks have bounced around today. We've seen some dramatic swings.

The Nasdaq is currently the outperformer, but it's given up its gains since the beginning of the hour. And we're heading south again now, down 200, Mike. Kind of a mixed reaction to the CPI report, which did come in hotter than expected at 9.1 percent. Absolutely. On the one hand, there really was nothing within the report that was going to give you much relief on the inflation data front. It's still consistent with the idea, given what's gone on in energy markets, that maybe it was a peak and then we might just be kind of front-loading a lot of what the Fed's going to do in reaction. But I don't know that we want to draw out real significant conclusions from the intraday action, except to say the S&P went back

toward last week's lows, didn't find a whole lot of sellers right there. We have earning season coming up, and there's been perhaps enough kind of nervousness built in to the market here that it can live with these kind of numbers for now. Bond market volatility is way too high for any sustainable kind of advance in equities. I think that's what has to probably calm down as a first step. Right. So we have seen increasing odds throughout the session of a 100 basis point hike from the Federal Reserve and certainly higher odds that we'll see more tightening. We're seeing Treasury yields, mixed picture, higher two-year, weaker 10-year, lots of inversion. That's why the banks are underperforming. JPMorgan Chase

and Morgan Stanley kicking off earnings for the big banks tomorrow. Those results could be a catalyst, Leslie, for the market's next move. The market's been dominated so far by these moves in interest rates. What do you expect? Yeah, that's right. So analysts, the street is expecting pretty muted numbers tomorrow, the rest of the week for these banks, lower earnings per share relative to a year ago, lower on the top line as well. But perhaps even more important than the actual quantitative part of what we're seeing is going to be the qualitative part. What's the color? What's the tone that the executives are going to set with regard to a recession? Because as you mentioned, you know, right now things are pretty challenging for the banks, but you could see kind of a double

whammy if you get both a recession and declining interest rates in light of that recession in 2023, which is something the market is looking ahead to, if there is that kind of recession-related concern from the bank CEOs this quarter looking ahead to the following year, that would not be a good scenario for the banks. So, Leslie, also it comes to, like, not all banks are created equal, obviously. So which ones, the investment banks probably won't be as great because the capital markets have been so shut down. Which ones could see outperformance? For instance, regionals, the traders should do a little bit better. What do you think? Yeah, most of the street says regionals versus the Wall Street banks will do better. Interestingly, among the six big Wall Street

banks that we tend to track closely here, there's only one that's outperforming the S&P 500, and that's Wells Fargo, which of course has it acts much more like a regional bank than the others, given its exposure to net interest income, which benefits from a rising interest rate environment because they're able to charge more in terms of interest on their loan making, at least as interest rates are rising. So that's what you saw during the quarter. Since the quarter ended, however, it's been a little bit more volatile in the fixed income markets. So that's, you know, maybe shifted a bit. But that is the one outperformer. Everything else, pretty dramatically

in some cases, underperforming the S&P 500. Leslie, thank you. Leslie Picker. Look at Twitter. It's a big winner today for change after filing a lawsuit against Elon Musk for terminating his $44 billion takeover of the social media company. The lawsuit contends Musk, quote, refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests. Steve Kovach joins us. Steve, why is Twitter also accusing Musk of driving its stock lower? Yeah, that's just another excuse for Elon to kind of get out of this deal that he doesn't want to do. So basically, it's really interesting, Sarah,

to kind of compare and contrast that letter we got late Friday from Elon Musk's side saying he wants out of the deal and claiming with really no evidence about this spam bot problem and then looking at the dozens of pages in Twitter's lawsuits where they lay out point by point all the evidence, including Elon Musk's own tweets and some really nasty emojis he sent the CEO of Twitter just as an example of him just trying to cause as much chaos as possible and paint a picture of this kind of buffoon who doesn't really take this whole deal seriously.

And then, but to that point, though, Sarah, there's some irony kind of baked in here, too. They spend so much effort and time in this lawsuit calling Musk unserious, a hypocrite, and so on and so forth. But at the end of the day, they conclude he's the best person to take over the company. So I don't know how they square that. Either way, the stock's up 8 percent, but still a long way from that original deal price it's at 36.77 steve kovac steve thank you also want to highlight the airline stocks because they are under pressure after this morning delta bq2 revenue estimates but did miss on the bottom

line due to higher fuel costs rising wages service disruption ceo ed bastion did speak to our own phil laboe on squawk box he vowed to fix these operational issues in the third quarter. Listen. We had a rough six weeks. No question about that. We're sorry for our customers. We've issued compensation and the appropriate level of apology. That said, we're going to get back because we already were there.

We're there over the last decade. We're going to get back. We're already back. And you've got to prove it. Got to prove it, Phil LeBeau. How confident should we travelers feel at this point? Well, they've kept their schedule for the third quarter at the same level as the second quarter, Sarah. So it's not as though they're adding more flights. And that was really at the heart of the issues, not just with Delta, but with the other airlines as well. They had added so

many flights. And Ed Bastian talked about that this morning with me. They just got too ambitious in what they thought they could handle, like so many of the other airlines, and as a result, they've dialed it back. Look, the proof is in the pudding. We'll see how they handle the rest of this summer and as well as post-Labor Day because they expect strong demand to last beyond Labor Day. Bill DeBow, Phil, thank you. Airlines a little bit weaker, down 1.65 percent.

Mike, you also got oil prices, which are a little firmer. And the airlines had rallied when oil prices have been weaker in recent weeks. What was the takeaway from Delta? Yeah, that's been the main driver. The general idea that maybe the airlines can bring supply and demand back into balance, maybe they're going to be a little bit less kind of whipsawed by all the staff shortages. That's good news. I still don't see the group as really being kind of sustainable leadership at all.

It was right at the center of what happened in the pandemic. The balance sheets are, in general, not in great shape because of all the capital they had to raise. So they will just be trading stocks, you know, based on whether it's energy prices or really the feelings about the consumer in the latter half of the year. No, but on the demand side, it was pretty strong. Some of those stocks getting hit four or five percent. Let's turn back to the broader market. We've got Crossmark Global's Victoria Fernandez with us to go into the close. Victoria, your takeaway on the CPI report, the inflation report, and whether it dictates a direction for stocks here in the next few weeks. Yeah, so, Sarah, I think obviously it confirms what most people are thinking,

that we're going to see these hikes for the July meeting. We're going to see hikes at the September meeting. It really comes down to what those expectations are now for that exact number. Obviously, Steve Leisman was on earlier in the show talking about how we've seen those futures expectations really rise, that 7,500 basis points for July. I'm not sure that there is a, I guess, a concrete answer in regards to these, because I think when you look at the September meeting. You've got two months between those two meetings we don't have an August meeting. And I really

feel like you're gonna have some counter trend things come in in regards to some disinflation. We've already seen commodity prices start to come down you have a labor market that continues to hold its own. Service demand you

were just talking about airlines. I traveled this past weekend airports were crazy. Service demand is there so I think you're gonna be able to see something in that two-month span that maybe this September meeting allows the Fed to pull back a little bit if it so chooses so are you buying are you adding to positions on the on that on that idea which can be interpreted as bullish if you think inflation is gonna come the other way and they're gonna change their tune yeah i mean we think inflation is going to come down is it

going to get to the two percent target you know anytime soon no but what is the fed going to be comfortable with are they going to be comfortable with four percent well if so then we probably will reach that later this year and so we are in buying a little bit we're not buying full positions we're just kind of nibbling in there but using some of those more defensive names like General Dynamics, you look at Anthem for insurance and health care. And we also like a name like Waste Management. I mean, trash is going to be there regardless of what's happening in the economy. And they've got strong balance sheets. So that's what you've got to look for as earnings comes in right now. Look for the companies with quality earnings and solid balance sheets. Those will hold

you over through the volatility. You also like American Express, which I point out because it's actually one of the brighter spots in today's financials trade, which all the banks are under pressure on this inverted yield curve. Amex is higher and has generally outperformed. It's still down 15 percent this year. Aren't they vulnerable if we see a consumer slowdown or recession? They are vulnerable. But when you look at the consumer base for American Express, they tend to have a higher wealth consumer base. They've been raising their dividend. They focus a lot on travel and on service demand.

And we see that that's continuing to be strong. So I think when you compare it with other names within that broader financial sector, there are some positives that they can continue to lean on through volatile markets, even if we start to go into a little bit of a recession. So from that financial sector, American Express is a good name that you can have in your portfolio. Mike, I also wanted to bring up Tesla today because it also made some turns on CPI and is higher and is helping the overall market, the Nasdaq actually going positive again. Is Tesla trading on Twitter news prospects, on deal prospects or something else? I think there was an initiation today of the stock with some favorable kind of fundamental views on it. So that might have been one catalyst. I do think it would be a net beneficiary,

at least psychologically, if in fact Elon Musk were not going to be buying Twitter. But it's not to me trading mostly day to day on all that stuff. There's been some revival in the large secular growth stocks, and I think that got a boost from the analysts. Yeah, helping the Nasdaq, helping the consumer discretionary basket. Victoria, thank you. We'll leave it there. Two minutes to go in the trading session. Mike Dowdown, 155, sort of in the middle of this wide range we've been in all day. What are you seeing in the internals? Yeah, kind of mixed on the inside.

Really not much of a washout day, even at the lows. And you have slightly more advancing than declining volume. Then we want to take a look at the dynamic between one of the big gasoline refiners, Valero, and Dollar Tree. A very gasoline-sensitive consumer name. You see they've come right back together. That's a six month chart. You see gasoline margins coming down and a little bit of relief on the low end consumers. That dynamic is well in play.

The volatility index kind of muted. Twenty six. It's still kind of uneasy but not panicky as we watch again that bond market volatility and the wide swinging expectations for what the Fed might do, Sarah. Right. And we watch the Treasury yields come down at least the 10 volatility and the wide swinging expectations for what the Fed might do, Sarah. Right. And we watched the Treasury yields come down at least the 10 year and the 30 year. The dollar come down, alleviating maybe two pressure points for the market. As we head into the close here, take a look at the Dow Jones Industrial Average down 179 right now. As far as what's working and what's holding up better, you do have some of the defensive groups working a little bit better today, but not all of them, actually.

You have consumer discretionary and staples as the best performing sectors in the S&P. So there you go. It's kind of a mixed picture there. Everybody else is lower right now. Energy just turned negative. It had been positive today. The NASDAQ outperforming all day long today, perhaps in the fact that we are seeing treasury yields at the longer end come down. More recessionary fears.

You see that with the inverted yield curve. That's hurting the banks today. NASDAQ comps going to close down in the red. Fourth day in a row, we're lower for the Dow and the S&P 500, which is going out

with a decline of about four-tenths of one percent. That's going to do it for me on Closing Bell. Have a great evening. Now I'll send it into overtime with Scott.