Closing Bell - Closing Bell: Market bottom, Focus on the Fed & FTX's CEO on crypto regulation 7/22/22

Episode Date: July 22, 2022

Stocks slipping after Snap's disappointing earnings weighed on tech stocks, but the major averages still posted solid gains for the week. BD8 Capital CEO Barbara Doran and Ironsides Macroeconomics Founder Barry Knapp both think the market has hit a bottom, but RBC Capital Markets' Lori Calvasina reveals why she just cut her year end price target on the S&P 500. Former Fed Vice Chairman Roger Ferguson explains why he expects the Fed to raise interest rates by 75 basis points next week and the impact that will have on inflation and the economy. And FTX CEO Sam Bankman-Fried discusses whether the recent cryptocurrency comeback can last and why he sees regulation ramping up. Plus, he weighs in on the first ever crypto insider trading case.

The Dow, S&P, and Nasdaq all under pressure, though still on track for weekly gains. The most important hour of the trading day starts right now. Welcome to The Closing Bell. I'm Melissa Lee, in today for Sarah Eisen. Let's take a check on where things stand in the markets right now. We're off session lows, but we've still got sizable losses in the S&P 500. We're down by 1.3%. The Nasdaq has seen the brunt of the pain, down 2.2%, with that wipeout across the board in social media stocks in the back of Snap yesterday.

Russell 2000 small caps down about 2%. Coming up, an exclusive interview with FTX CEO Sam Bankman-Fried on the outlook for cryptocurrencies, FTX's option to buy BlockFi, and his big stake in Robinhood. Let's get more on the markets now. Bringing in Lori Calvacina from RBC Capital Markets, who just lowered her S&P 500 price target to 4,200. Lori, you've joined some of your counterparts here on the street in terms of lowering your estimates for the S&P for the year and for next year and lowering your targets. What was behind the move, finally? So, look, you know, I think that we were surprised at how far markets broke to the

downside earlier. We thought we were going to really be able to stick in this growth scare range. But unfortunately, this last batch of Fed actions just took the market down a notch lower and brought recession onto the table. So we needed to reflect that. But we wanted to do some hard thinking about what the earnings outlook would look like. And so we did, in addition to changing our price target, we did make a pretty sizable move on our earnings forecast for next year. And I would say, you know, we're actually significantly below consensus right now in terms of those earnings forecasts. But we do think that, you know, the stocks are still a buy in here. We think the bottoming process has started. You know, I will say, Melissa, I don't have absolute conviction that we've already seen it in June.

I think it's possible. But I'll be honest, I like seeing a little bit of red on the screen today, because as we looked back over the last week or so, we heard a lot of investors saying, well, let's just rip off the Band-Aid, reset earnings expectations, and then markets can rally back. And we had a pretty good start to this reporting season and stocks were rallying. I think if you really want to rip the Band-Aid off, we've got to get some of these earnings numbers down and we do need to get a little bit more pain in the share prices. You mentioned that this is sort of an average of the various scenarios that you had been thinking about that could happen this year, Lori. And so I'm wondering what the range of scenarios are from really bad to the best case. So, you know, we have a number of scenarios that point us to the 4100, 4200 type area. And that's really where our target came in.

We have one number, one of our sentiment recovery scenarios that can get you pretty close to kind of the 4,900 type level. That's an outlier in the forecast. We also have some that are sort of stuck down around 3,800, 3,900. And I think that just underscores that there is a rather binary range of outcomes in here. One of the things that we said, Melissa, and you're just even sort of putting our targets aside for a moment, which I think are in the more optimistic camp, if we really want to be able to find a market bottom in here sometime before the, you know, kind of end of the third quarter, it's really going to hinge on the idea that we're getting this short, shallow, relatively quick recession that I hear a lot of investors talk about. If we're looking at a recession, if we're looking at an economic downturn that really drags

deep into next year, I think it is going to be tough for stocks to find the bottom. And here in our target, you know, may not be achievable. But we are taking that optimistic scenario. We do think the consumers and corporations are starting from a position of strength here. We think companies will be able to manage through to some extent on the earnings side. And so we do see a positive setup. But I'd be lying to you if I didn't tell you that there is a binary range of outcomes that could be in front of us. It sure does seem like it on the street, Laurie, in terms of the binary outlooks that exist out there. How closely are you following Europe and what's going on there in terms of how deep that recession could be, the pain that could be felt across Europe? We are following it. But I'll tell you, Melissa, my job is to call the U.S. equity market. And

one of the things we talked about in the report we put out this morning is we still like U.S. equities as a safe haven trade. One of the things we have noticed that keeps really kind of limiting some of the downside on U.S. equities this year, and I know it's been a rough year, but frankly, a lot of people thought they would go down a bit more than they already have. And I think one of the reasons that has happened is because when you gauge recession odds, when you gauge economic impacts from what's coming, it really does seem to be worse in Europe than the U.S. And so I think that it does matter, but from an equity markets perspective, I'm going to be a little bit self-centered here and say what's bad for Europe ends up being good for the U.S. I get the relative value here in terms of, like, you know, the U.S. being the safety trade, Laurie,

but in terms of Europe and Germany specifically being a major export market for some industries, I mean, technology and specifically software seems like it would have more exposure to that. That's not concerning in terms of how it impacts earnings? It is. It absolutely is. And, you know, one of the things we have talked about, not so much in the report we put out today, but a piece we put out a week ago, was areas of the market that are most sensitive in terms of their earnings revision trends to that international exposure and to the stronger dollar. And so we've highlighted things like consumer staples, which is a sector we went underweight recently. It has very, very high sensitivity to the stronger U.S. dollar. And so we'd be definitely

picking our spots and have some of that in mind. And frankly, Melissa, you know, one of the things we said this morning is we don't think we've seen quite enough downward revisions yet. If you look at the downward revisions in the market, the upward revision ratio rather is about 37 percent of revisions to the upside right now. In downward revision cycles, that stat typically falls to about 10 to 30 percent. And so we do think things like the stronger dollar, things like that international weakness are things that will contribute to kind of a further ratcheting down of those earnings expectations. All right, Lori, great to see you. Thanks. Thanks for having me.

Lori, Lori Calacina, RBC. Let's get to Christina Partsenevelis at the NASDAQ with a closer look at the fallout from Snap's disappointing quarter. Christina. Yeah, it's a Snap bloodbath yesterday and today with Twitter adding to the ugliness that is weighing on tech across the board. Both companies are triggering declines in social media and ad tech firms. So Snap, for example, is down, I checked, over 35%. Oh, look at that, 38%, driven by a slowdown in advertising and a lack of financial guidance for the current quarter because, quote,

visibility remains incredibly challenging. Meta platforms and Alphabet are falling in sympathy right now. Investors are worried these companies could be hurt by slowing online ad sales. Both are set to post earnings next week, along with mega cap peers like Microsoft, Amazon and Apple, whose shares right now are down 15 percent year to date. The biggest laggards on the Nasdaq right now are EV maker Lucid Group, Align Technologies, Meta, which we talked about, software firm Datadog and Intuitive Surgical after missing on the top and bottom line with their earnings report. Next week's Fed meeting and cyclical fears are weighing on chip stocks today. You've got Marvell, NVIDIA, which was actually up six days in a row, but down today.

AMD, Intel, Micron, all hovering. Look at that. Almost all 4% lower today. And when we get fearful, the defensive names come back into play. American Electric, Exelon, consumer staple firm Mondelez, Xcel Energy, all the top gainers on the Nasdaq today. And next week is a huge week for tech earnings and should give investors some clarity on the overall demand environment as the sector is already slowing hiring across the board. Mel? Christina, thanks. Christina Partsenevelis. Coming up next, former Fed Vice Chair Roger Ferguson on whether he expects the central bank to raise interest rates by 100 basis points next week in order to curb inflation.

And later, an exclusive interview with FTX CEO Sam Bankman-Fried. It's his first CNBC appearance since taking a big stake in Robinhood and reaching a deal giving FTX an option to buy crypto lender BlockFi. You're watching Closing Bell on CNBC. Let's check out today's stealth mover PPG Industries, which is a top performer in the S&P 500 after beating Wall Street's estimates. Here's some color from the report. The company benefiting from a jump in selling prices, record quarter revenue in its automotive refinish business and soaring aerospace coding sales volumes. Stock is up almost 4% right now. Well, the wild card in the market next week, of course, is Wednesday's Fed decision.

While many investors are expecting a 75 basis point hike, they're also preparing for some potential surprises during Chair Powell's news conference. Joining us now, former Fed Vice Chair Roger Ferguson, also Distinguished Fellow for International Economics at the Council on Foreign Relations. Roger, great to have you back. Thanks, nice to be here. You're expecting 75. Why 75 and not 100 as some other Fed officials have said? I'm expecting 75 for a couple of reasons. One is there are some mixed signals about the economy. Some of them are qualitative, some more quantitative.

Secondly, the most recent inflation expectations report from the University of Michigan for consumers suggested that maybe inflation expectations are coming down just a little bit. And finally, while there have been some voices that we've heard suggesting 100 basis points, I've also heard a number of voices, including President Bostic from Atlanta, mentioning 75 and his argumentation about not needing to rile the markets unnecessarily, et cetera, I think is more likely to be the consensus point of view. So while it's a close call and there'll be some discussion of 100 basis points, I think 75 is on balance the more likely outcome. What's your take on treasury

yields and where they stand right now, Roger? Because it's been a roller coaster ride. We certainly had a lot of volatility in the fixed income market when it comes to U.S. treasury specifically. The 10-year yield today is at 2.77 percent, which sort of makes the Fed's job a little bit harder. I mean, if borrowing costs come down, the Fed is trying to dampen demand here, so it's sort of working against the Fed. The Fed doesn't have the tool to fight the 10-year yield, though, does it? Does it? So what does it do? Well, three points to make.

One, it has been extremely volatile. I think the volatility has reflected a variety of uncertainties about incoming data. You know, one moment we see very strong labor report. Inflation continues to be an issue. On the other hand, there's some softening that starts to emerge here and there. We see different commentary from Fed officials. I think there's an uncertainty about future guidance, so to speak. We'll see what Chair Powell has to say about what the future is likely to hold in terms of Fed rates. And so I think all that is feeding into a sense of uncertainty in the markets looking for

you know clarity of direction. I think markets know the Fed is going to continue to raise rates but people also starting to talk about some softening. You've seen stories of slowing down in hiring, etc. And so there are these cross-currents that I think are being reflected in the fixed income markets right now. What's your take on where the economy stands at this moment, Roger, given all the sort of conflicting data that we've gotten, some might say confusing at times? The treasury market is telling us with the inversion that's happening that we're on the path or maybe in a recession currently. So what's your take?

My take is as follows. We've got many different things, as you point out. Consumers are still relatively strong. We continue to see in the most recent retail sales reports positive overall numbers. When adjusted for inflation, things do appear to be slowing a little bit. And so I think that's the other part of the story. Obviously the labor force is still very strong and wage growth is strong. So we have those things that are driving forward momentum in the markets.

Having said that, one has to take in the fact that the so-called wealth effect, the value particularly of equities under pressure as you and your colleagues are reporting. And so I think that leans the other way. And I think we're seeing CEOs through some of their words and actions indicating perhaps a little bit of concern about the future, slowing back on their hiring a little bit. So there are these cross-currents. And then finally, a point that one has to understand is the United States is not an island by itself,

though it is the most important economy in the world. We still are suffering from supply chain issues emerging out of China, and questions about other parts of the world, like Europe going into recession, weigh on us a little bit as well. So there are a lot of cross currents here right now, some elements of strength and some headwinds, all of which create this kind of

uncertainty and indeed confusion, as you use the word. You know, Roger, you just sort of painted a picture. You put together a lot of different sort of anecdotes that we've all been focusing on here on CNBC, whether it comes to, you know, hiring freezes that may not yet show up in employment numbers, you know, CEOs feeling a little bit more cautious. And I'm wondering how closely the Fed follows these sorts of anecdotes. Eventually they become data, but the Fed is data dependent. So when we're hearing all of these stories that seem to point to a slowdown that's going on and perhaps a recession, how in tuned is the Fed with that versus the data that they're seeing, you know, a month behind in the rear view mirror? Well, I think it's a both and. Certainly the hard data are very important. But as you point out, that is a reflection of recent history. So often when you get to the table, some of the presidents will report on what their contacts are telling them.

There's a whole survey that the Fed has historically undertaken known as the Beige Book. So both things play in as they're trying to get a feel for a situation that is evolving relatively rapidly. At the end of the day, are data dependent so the hard data really matter but they also know that those anecdotes may become the data of tomorrow and so they will certainly be attuned to it. That might be another reason why on the hundred basis points versus 75 some might err on the side of the move to the side of the 75, hearing these anecdotes that may suggest things really are slowing just a little bit already. All right. Roger, great to speak with you and get your take.

Appreciate your time. Thank you. Roger Ferguson. And coming up on Fast Money, Carter Worth says a big rate breakdown is coming. What he's seeing in the charts, that's ahead, top of the hour at five o'clock. Excuse me, next hour, 5 o'clock. Let's get a check on the markets here. I'm getting too excited about my own show. Take a check on the Dow here. We're down by just about six-tenths of a point. S&P 500 is down by 1.15%.

Bitcoin, that's lower today, but it has rallied roughly 15% over the last month. Up next, FTX CEO Sam Bankman-Fried joins us exclusively to discuss the crypto comeback and whether he thinks the Bitcoin rally can last. Welcome back. Check out some of today's top search tickers on CNBC.com. Snap taking the top spot today, followed by the 10-year Treasury yields, Tesla, Verizon and Twitter. Well, a pair of hospital stocks delivering very healthy returns for investors today. Find out what's behind these big moves straight ahead. And later, FTX CEO Sam Bankman-Fried reacts to the first ever crypto insider trading case and whether more cases could be on the horizon.

Much stronger than expected, earnings helping to drive hospital stocks sharply higher today. Bertha Coombs has got the details. Bertha. Melissa, HCA posted a big earnings beat with strong outpatient volumes offsetting admissions that missed estimates for some analysts. But the big driver on the bottom line was lower labor costs. CEO Sam Hazen telling analysts on the call that contract costs in June were 22 percent lower than they were at the start of the quarter, with staff recruitment and retention improving. Tenant also seeing stabilizing labor and supply costs, making for a big relief rally in hospitals today. The group had been under pressure after Universal Health warned on lower inpatient volumes last month. On the flip side, though, the staffing firms are really

getting crushed on the prospect of tougher contracting with hospitals. Cross-country coming off just a new high yesterday, Melissa, today down like 17 percent there. All right, Bertha, thank you. Bertha Combs, take another check on where we stand in the markets. Just about 34 minutes left to go in the trading session. S&P 500 down by 44 points, 1.1%. NASDAQ down by 1.9%. Up next, FTX CEO Sam Bankman-Fried will join us exclusively for his first CNBC interview since revealing his nearly 8% stake in the online brokerage Robinhood.

And tonight, don't miss a CNBC special, Politics and Profit, featuring Council of Economic Advisors Chair Cecilia Rouse and business leaders in solar, EVs, oil and semis. That's tonight, 6 p.m. Eastern Time. Bitcoin may be up this week, but its price has plunged in the last several weeks, losing nearly a quarter of its value. Two victims of this volatility have been crypto firms Voyager and BlockFi. Earlier this month, Voyager filed for Chapter 11 bankruptcy. And last month, BlockFi announced it was cutting 20 percent of its staff. But as some fled the crypto market, FTX CEO Sam Bankman-Fried swooped in to bail out the two firms. FTX agreed to provide BlockFi with a $250 million revolving credit facility. and Voyager is getting $500 million in financing

from Alameda, Bankman Freed's trading firm. Joining us now for a closing bell exclusive is FTX CEO Sam Bankman Freed. Sam, great to have you with us. Thanks for having me. You've been a little bit busy, huh? Yeah, it's been a crazy month. Yeah, to say the least. You've been on a buying spree. In a very, very short amount of time, you deployed billions of dollars in assets across the industry, scooping up troubled firms, Sam. And because of that buying spree, a lot of people called you

the savior of crypto, the patron saint of crypto. But they've also called you John Pierpoint Morgan and a robber baron. I'm wondering if you agree with any of those names. You know, I think there are some similarities, there are some differences. But in the end, I think that there weren't very many people who were really going to be positioned and willing to step in during the crisis, and particularly, you know, during the credit crunch and credit crisis part of this downturn. And, you know And we felt like the most important thing that we could do was to help stop contagion from spreading and backstop customer assets. Is there any sort of master plan that you have when you're bailing out firms, buying firms, extending credit to firms, buying stakes in firms? I mean, do these pieces all fit together in some way?

Not necessarily. And, you know, I think that obviously we'll figure out if there are sort of like value-creative things that we can do in ways that we can grow our business. But that really wasn't the primary perspective on this. You know, we were willing to lose a little bit on, you know, these if that's what it took. And the primary criteria was just like where are their customer-facing businesses in the credit sector that are positioned where we really could help them get through this crisis. That was the primary criteria. Anything else strategic there for us was sort of secondary. I was wondering, Sam, if you think we're going to look back on this summer, summer 22, and think that's when the industry changed, that a lot of

the excesses that happened that caused a lot of the damage across the industry that we've seen will change. Will lending, for instance, get a lot tighter? I mean, will there be certain controls put in place, maybe regulation? What do you think? Yeah, I think this is going to be one of the turning points. I mean, I think there are going to be a number in different ways, but I do think this will be part of it. You know, I hope it will. I'm optimistic that it will, because I think that, you know, we do need to have, you know, a safer industry. And I think that, you know, already some strides have been made just in the last month in that direction, but that more generally, you know, we need to be moving towards a world in which, you know, there is transparency,

especially around customer assets. And, you know, in which the credit sector is able to manage risk appropriately and responsibly. You know, I think that we've done a lot of work on risk engines for FTX and our exchange. I think we might see some of that start to seep into the OTC lending space as well. Do you think that what has happened is in part due to individual firms' lack of, I don't know, lending standards and compliance, or was it an industry-wide problem? Was it just a number of firms making the same sorts of mistakes? It really depends. And different cases were different here. I think we had some examples that were very much sort of really poor risk management policies, and maybe even worse,

you know, on their part. And I think what other cases were, it was mostly an industry thing. And I think, you know, when you look at sort of BlockFi as BlockFi as one example, that was a case where they had reasonable risk management policies in place to be able to minimize any losses from the crash. Despite having troubled firms on their credit side, they had enough collateral to really minimize the downside from that. And so I think that that is one example. But I think there are other examples where firms were much less reasonable and responsible going into the crash so that they were going to be exposed, you know, in almost any situation. Do you see regulation ramping up because of what's happened? Yeah, I think so.

And I think that we're already in a position where regulation was going to be ramping up. But I think, if anything, this is going to accelerate that process. And this, you know, underscores the need to have federal oversight of the crypto industry. I'm wondering what your outlook is. I know you're a long-term believer, but in terms of your portfolio, for instance, BlockFi, it was valued, you know, at its peak, $3 billion, something like that. And you, you know, got penn peak, $3 billion, something like that. And you, you know, got it pennies on the dollar. And so I'm curious, do you think that a firm like a BlockFi, I'm just using that as an example, ever returns to that peak valuation, given that there are certain things in the

industry that might change going forward, especially lending criteria? If that changes, doesn't that change the profit profile of a block fi? Yeah, I think it absolutely could change that. And, you know, I don't know for sure what level it will return to in terms of value and valuation. This sort of wasn't, you know, wasn't the primary criteria that mattered to us during this. But yeah, and I do think that that's going to have impact on some of these businesses. And at the very least, there's going to be some sort of capital and margin cost to requiring a reasonable amount of collateral. I think some of these businesses already work. I think others very much were not.

I think the ones that were not are going to have to find a way to run a more sustainable business ultimately. How many more opportunities do you see in this industry, Sam? I'm wondering if you have a dollar amount in mind in terms of how much you're willing, you're planning to deploy, or is that sort of just an open-ended and an amount and you'll buy what you think is worth it? You know, it is somewhat open-ended. And in the end, this is going to be an adaptive process, and it's going to have to depend on the details.

But, you know, we do have some sort of sense of what a ballpark here could be and you know i think that that we have some sense of you know what we would be expecting to do what would be more of a stretch we'll have to see exactly what happens what comes of all this um but you know we could certainly see ourselves you know spending some number of you know of of hundreds of millions beyond what we have thus far. And in some cases, more than that. Although, obviously, eventually there is a limit to how much spare cash we have at the ready. So hundreds of millions or maybe more than that.

I'm wondering, Sam, you know, a lot of people who love crypto love it because it's free market, love it because it's decentralized. And they see an irony in you, Sam Bankman-Fried, stepping up and having so many tentacles in so many firms and maybe even more firms. As you had said, you might spend even more money on various opportunities here. How do you answer those critics? I mean, is there some truth to the notion that SBF is centralizing in some way the crypto industry? So I think what I'd say is like, look, I think that what we can do here is healthy for the industry. I think it helps it get, you know, get on its feet and charge forward confidently. We would love other people to be doing this,

right? Like we would love other people to be coming in, you know, providing capital to those in need, bailing them out. We tried. Like, we talked to a lot of potential partners about getting them involved in some of these things. You know, ultimately, I think we found that there weren't that many people who were excited to jump in in messy circumstances. And, you know, frankly, to be able to do this effectively, you have to be willing to take the risk of some amount of loss. You have to be willing to do deals that you might lose money on. I think that was a sticking point for a lot of people here, but I don't think there's any value provided if you're not willing to do that. But we're not trying to have a monopoly on this or anything like that.

We would love other people to be splitting this work. I totally get that maybe other people don't have the fortitude, either emotionally or financially, to take the same sorts of risks as you, Sam, but that doesn't change the end result, and that is that your firm, through FTX US, FTX, andameda Research, you know, your firm has has tentacles in so many parts of the industry right now and that you are a major player or you're becoming an even bigger player. So is there any risk in, you know, you being the center or becoming more of a center of the crypto industry?

Just as we saw this time, you know, who would have thought that that the collapse of Luna was going to be a trigger for so many different firms, you know, who would have thought that the collapse of Luna was going to be a trigger for so many different firms' troubles? Yeah, I mean, you know, it's possible that we'll become more central in the industry, that we'll become a bigger player there. I think, you know, the way we see it, the biggest factor here is just stopping contagion and backstopping customer balance sheets. And, you know, we can't force other people to, you know, to come in and provide this capital. We would love them to. I think that's what it would take. It's not in our power to make other people play their role in this industry. We'll do what has to be done. But and I think that is the right thing to do. And I think it's way better to be trying to protect customers here and stop contagion

than to be taking a step back here. But the best would be if other people joined us in that. And we'd love them to. All right. I want to get to political donations. You're very active in the political scene. You've said in the past that you were going to spend a billion dollars or more in the 2024 elections. I'm not sure how active you are in the midterms. I wonder, you know, how you pick which

candidates you're donating to and is regulation of the crypto industry a major part of how you decide who gets what? So, you know, first thing I'll say is I think that that quote ended up getting a little bit taken out of context. I think, you know, billion was more of the maximum that I could see and, you know, likely substantially less. But, you know, the other thing that I would say is, you know, most of the political contributions that I've made, they don't have anything to do with crypto or, you know, with my day job, they're looking at people who might be champions at helping to prevent the next pandemic, at getting us prepared for what could come in a way we were not for COVID and still are not today. Okay. And one more political sort of question. Would you like, do you like what the SEC is doing these days? And I'm asking you because, you know, with the announcement of the first ever crypto insider trading case, part of this was the SEC said that nine of the 25 tokens allegedly traded in this alleged scheme were securities. And Coinbase has said in a statement, we don't trade, we don't list securities.

So there might be some confusion in the part of the SEC in terms of what it should be regulating and what it shouldn't be regulating. I wonder what you think of the SEC. When Gary Gensler was first appointed, you know, the crypto industry was quite happy. This guy taught a blockchain course at MIT. He's got to be a friend of the industry. And I'm not sure what you guys think now. Yeah. So, you know, I haven't looked at sort of those nine coins, you know, in question in depth.

So I don't have, you know, detailed thoughts on those. There certainly are some tokens in the crypto industry that are securities or some that are not. You know, in the end, I think that what this is all going to depend on is coming out with really comprehensive regulatory frameworks for crypto that can provide that federal oversight. I'm optimistic that we'll see that from the SEC, CFTC or both, you know, over the latter half of this year. I think that would be great and really healthy for the industry. I think that's ultimately what my judgment is going to rest on the most, is them getting to a point where there is a framework that they have released for crypto.

I think if they can get there, I would be excited for them to be providing that oversight, so long as it is a reasonable, workable framework that does successfully protect customers. I think as of now, the answer is, look workable framework that does successfully protect customers. I think, you know, as of now, the answer is, look, we'll have to see what happens. Okay. Sam, thanks for joining us. We appreciate it. Thank you. Sam Bankman-Fried of FTX. Well, Snap slammed, but it's not the only stock getting dragged down by ad spending fears. The latest on the fallout straight ahead. That story plus American Express charging higher and investors hanging up on Verizon

when we take you inside the Market Zone. Welcome back. We're now in the closing bell Market Zone. BD8 Capital CEO Barbara Doran is here to break down these crucial moments of the trading day plus Leslie Picker and American Express and Julia Borsten on rising ad spending concerns. Barb, I want to kick it off with you and get your take on the market day and the market week. We're still on pace for a positive week, even though we're seeing selling today. Yeah, I have to say I'm a little disappointed in today's action, but not surprised.

I think the market continues to be fragile, you know, given all the uncertainty when inflation peaks, how we're seeing economic growth slowing in so many categories, whether it's housing, commodity prices off, wages, you know, are moderating, job postings are down. There's more pauses in hiring in the all-important tech sector. So I think there's a lot of nervousness out there. But people are waiting to see, you know, what happens. We've now got about 20 percent of the S. and P. 500 reporting 70% of the earnings. And the misses have not

exception of a few notable misses they have not been bad. And the looks like a lot of the mark the market is just counting an awful lot of bad news already. So this is not unexpected because I think we're going to continue to have

volatility. But I my guess is we put the low end in the markets, that this 9 percent rise since the low levels in June, you know, is going to be is putting some good, good work in. Lows in the markets. All right. Let's get to American Express. That is the best performer in the Dow today after beating Wall Street's profit and revenue estimates, thanks to record spending on entertainment and travel, including a big increase in business travel. The company also raising its full year revenue forecast. Leslie Picker joins us now. So, Leslie, you know, recession fears.

We heard all the fears from the big bank CEOs. The tone from Amex seems a lot more positive. Well, it really comes down to the type of consumer we're talking about here, Melissa. Stephen Squary, who's the CEO of Amex, was asked about this on the call, and he basically said it's as simple as just our customers have more money to spend. So the impact of things like inflation, of other concerns surrounding the economy, not so big of a factor for the people who were using Amex cards for spending. Additionally, they got this massive tailwind from the big boon in travel and entertainment spending.

Even though we're two and a half years into this pandemic or since the start of the pandemic, there's been a massive ramp up in that type of spending during the second quarter. They saw the effects of this. Now, during the analyst call, a lot of analysts were asking whether this is kind of a pull forward that would normalize throughout the rest of the year. But he said, basically, we don't see that happening. We see continued strength and we don't see a recession for the next few quarters. So somewhat different than what we heard from with the big CEOs of the big banks last week, because and earlier this week, because they look at more of an aggregated picture of spending in the economy. That's, you know, it's amazing that he said that he doesn't see slowdown. I mean,

if you look, spending rose to a record up 50 percent, surpassing pre-pandemic levels. Barbara, I don't know if you buy that, if you buy what the CEO is saying, and not to disparage the CEO in his own forecasting, but to think that the consumer is in a better place right now and will keep up spending as they are potentially facing the headwinds of a recession, that seems extremely optimistic. Yeah, well, Anna-Melissa, it is the question all investors are trying to answer through the cerns report you mean you had the bank's report last week jp morgan even though jamie diamonds you know trying to prepare everybody for what may lie ahead because when you raise interest rates you know as quickly as the fed is it usually does not mean good things for the consumer

but the consumer is very very strong and what you're seeing i think is not only because of jobs and wages but also tremendous savings and you look at even housing. You know, there's the vast majority are 3 percent fixed rate mortgages. There's huge leverage potential there. And so the fact that American Express, what intrigued me was that they raised their estimates of revenue growth going forward a full five percentage points. That is huge. They went to 23 to 25 percent. That is because they're looking at their book. They know that they are not new to this business. They know what these trends mean. So to go out there and do that so aggressively tells me a lot that they are pretty confident the consumer is going to keep spending.

And one other point, too, which I found interesting on the business spending was both international and business was up hugely. You know, business spending was up. Business travel, I'm talking about, was up probably over 200 percent, but it's still only 60 percent of pre-pandemic levels. That is a lot of room for growth. And as we know, businesses are trying to find their way back. Do we do how do we do a hybrid work week? What do we do? So I think that still has a lot of potential, you know, to continue to power things higher, at least for American Express. All right. AXP up 2.1 percent right now. Leslie, thank you. Let's move on to ad spending concerns.

A big focus on Wall Street today. Snap plunging after missing on both the top and the bottom line due to slowing demand from its online ad platform. Twitter missing earnings estimates, partially blaming its revenue decline on ad industry headwinds, and Moffitt Nathanson downgrading Paramount Global to underperform from neutral, slashing its price target on the stock to 18 from 30 on the outlook for ad spending in the face of growing economic fears. Julia Borsten joins us. Julia, it seems like at least investors are taking all of these things as red flags for the entire ad sector, particularly the heavyweights.

Lots of red flags, but it's unclear, Melissa, how many of these issues are worse for the three companies you just mentioned than they will be for the likes of Meta and Google Alphabet, which both report next week. I would just point out that both Snap and Twitter, they're in the same boat in a couple of ways. One is that they're smaller than Google and Meta. And so they might be the sort of the first digital ad spend that companies cut. So the question is whether they are the first cut. Maybe the Googles and Meta's of the world are more insulated because they're larger and more diversified. In terms of Paramount, one reason Moffat Nathanson cut Paramount is because he said that TV advertising has not collapsed as fast as digital advertising, but he anticipates TV advertising will face more struggles. One thing that's interesting is with digital advertising,

it's really easy to start and stop spending. TV advertising tends to be baked in and locked in months and months in advance. So we might see that be more of a lagging indicator. And of course, remember, Paramount owns CBS. The other factor to keep in mind with Paramount, Melissa, of course, is the streaming wars. And though Paramount does have some ad-supported streaming platforms, which are either free or less expensive, the question is, how many different streaming services will consumers want to pay for when they're under more inflationary pressure? All right, Julia, thank you. Let's get to Verizon now, the biggest Dow loser today on pace for its worst day since 2008 after missing Wall Street's profit estimates,

cutting its full year earnings outlook. This just a day after AT&T lowered its free cash flow guidance in part because customers are taking longer to pay their bills. So, Julia, what's the reason for this guidance cut? Verizon did not have the same problem that AT&T had with customers taking longer to pay their bills. The issue with Verizon is that they're really having a hard time adding more customers. It's an incredibly competitive landscape. They added only 12,000 monthly wireless phone subs in Q2. Analysts expected 167,000. So the business is just not growing the way that both they and investors had hoped. And they're competing. Their margins are under pressure as they're offering free phones and trying to get

people to sign up. All right, Julia, thanks. By the way, Twitter, interestingly, in the positive right now. A major average is still positive for the week and the month. Our next guest says the lows are in. Joining us now, Barry Knapp, director of research at Ironsides Macroeconomics. Barb Duran, who's with us today, too. Barry also says the lows have been put in. Why? We didn't see any sort of big capitulation that gives us the all-clear sign.

Well, we did in some ways, certainly. I respect Mike Hartnett's survey. We have a very similar situation to what happened in 2011 in as much as investors became so defensively positioned that the demand for portfolio protection, the premium you pay for out- the money put, so-called skew, just went to very low levels because people just raised cash. You saw the same sort of thing with correlation getting high, meaning people were closet indexing

and hugging the benchmark. So there was a significant de-risking of portfolios for sure. But for me, the real reason to think that the low is in, first of all, we expected the first half to be difficult. We converged to fundamentals. Last year was really the aberration, not the first half of this year. But we've reached what I call twin peaks. We've had peak inflation- I realize the C. P. I. was higher than it was the

previous month on a year on year basis but- when you look through the components of. Inflation service sector inflation. Is. Primarily driven by housing and wages those both. Clearly look like they've peaked- food price inflation.

Commodity or energy price inflation. And then its price inflation has come downity or energy price inflation and then goods price inflation has come down sharply in the strength of the volumes. Contributing to that so I'm pretty confident inflation is coming off it's just a question of how much and how fast. But

the markets will ride that downtrend if you will in CPI. And then we've reached peak hawkishness. People you know focus on a Fed pivot. If you go back to ninety four the actual pivot was in June of ninety And then we've reached peak hawkishness. People focus on a Fed pivot. If you go back to 1994, the actual pivot was in June of 1995. But peak hawkishness came after the 75 basis point rate hike in November of 1995.

The markets took off. We've passed that point. If you look at September 23 Fed fund futures as a proxy for how they were three and a quarter back in April when the curve first inverted, two tens that is. Barry, thanks for your time. We're having audio issues with your mic, so appreciate your time on this Friday. Barry Knapp of Ironside. Let's get back to Barbara Duran a BD eight who is still here Barbara what struck me is that Barry agrees with you that we've seen the low so given that scenario let's say that scenario is right what do the markets look like from here to the end of the year which sectors do you want to be in well it's

interesting because I think the short in the short term this kind of volatility is going to continue where we just had a great recovery week and then today. It all fell apart again. Next week we're gonna start to see very some very important areas but we got a number of things next week we got the Fed. It looks like seventy five

bits is- you know what looks likely you've got even GDP number. We've got some of the big thing names reporting. So people are gonna want to see what are they seeing about demand because we've certainly have some high-profile analysis like apple

saying let's you know we're not gonna hire for now so what does that mean people want to know how deep do they see you know their demand i think so but i i you know i've been saying and i still think despite their run this month to date similar discretionary because a lot of great things have got crushed. And also the mega cap tech names, which we always talk about. Now they've had, they're up 12% this month alone, consumer discretionary 15%. And so there's

likely, given this market, agitation and nervousness, a little bit of a pullback there, but on any pullback, I would be buying. And that goes for Apple's reporting next week, and a lot's being talked about there, but on any pullback, you know, I would be buying. And that goes for like Apple's reporting next week and a lot's being talked about there. But on any pullback, I'd be buying there because we're buying long term growth franchises. Right. It seems like a high stakes week next week when it comes to I mean, big cap tech is the market effectively, Barbara, as you know, and we have, you know, the likes of of a of an alphabet, excuse me. And we've got Apple. And so it represents the slowdown, the concerns over the ad spending and the concerns about the consumer. So it's really high stakes here.

Which one are you looking at most closely? Well, I really want to see more on the ad spending. I mean, my reaction to the snap earnings is that it's, yes, there's a broader slowdown. A sell-side analyst did a great survey of the big ad agencies that it looks like ad growth could slow 1% to 3% this year. It could be more. It depends on your macro view in terms of recession. You know, but Snap has very particular issues. They're small.

Julia Borson was making that point earlier. You know, I think they have a couple hundred thousand advertisers versus Meta's 10 million or google's 10 million and so they're much more vulnerable and i think they're losing share probably to tick tock and the big guys so i want to see meta i want to see google i want to see what they're seeing in the ad spending slow down what that says all right barbara thank you pleasure talking to you barbara doran of b8 capital um let's take a check in the markets as we got 20 minutes left to this closing bell on a Friday. NASDAQ is looking to be down 1.9 percent. S&P finishing down by less than a percent. So rising into the close.