Closing Bell - Closing Bell: Meta meltdown, Amazon and Apple on deck, Can the rally last without tech? 10/27/22

Episode Date: October 27, 2022

The major averages were mixed in Thursday trading as a stronger-than-expected GDP report and solid blue chip earnings offset Meta’s share meltdown. Lerer Hippeau managing partner Eric Hippeau and LightShed’s Brandon Ross join to discuss Mark Zuckerberg’s big bet on the metaverse, and if it will ever pay off. Matthew Ball, who founded the metaverse ETF, weighs in on the future use cases for the technology. Cantor’s Eric Johnston discusses if the broader equity comeback can last in the face of disappointing tech results. Plus Lazard’s Peter Orszag on the midterm impact on the market, DA Davidson’s Tom Forte on Apple and Amazon, and the buzz on why Credit Suisse just took a major leg lower.

A strong GDP print, solid blue chip earnings helping offset the drag from Meta's meltdown. This is the make or break hour for your money. Welcome everyone to Closing Bell. I'm Sarah Eisen. Take a look at where we stand in the market. Big divergence here. Look at the Dow. It's up right now 276 points. And then you've got the Nasdaq, which is down one and a half percent. The story there is big tech and Meta in particular, which is down at the moment about 25 percent. Just ugly, dragging all of tech with it. Apple and Amazon right at the bottom of the list out of earnings tonight. Alphabet is sinking again, though there is some strength in some of the semi names. NVIDIA is bucking the trend. And you've got groups like industrials, financials and utilities

having a really strong day. Check out the earnings movers of the day. Tells the story. Meta getting absolutely crushed on weak earnings andvers of the day. Tells the story. Meta getting absolutely crushed on weak earnings and that downbeat forecast. Big time spending. Much more on that straight ahead. Caterpillar, though, is surging after beating on earnings and revenue. Our parent company Comcast getting a boost as well. And McDonald's in the green after a beat up three and a half percent. Coming up on the show today, we're going to talk to Lazard CEO of Financial Advisory, Peter Orszag, about his outlook for deals and the state of investment banking. Lots more on the Fed and midterms as well. Plus, we'll talk to Metaverse expert and MetaETF

founder, Matthew Ball, about Mark Zuckerberg's huge bet on the Metaverse and whether it'll ever pay off. Let's get more on the tech fallout in today's Market Dashboard. Senior Markets commentator, Mike Santoli. And for the first time in a while, it really feels like we've got a growth versus value split in the trade today. That's absolutely one way it's working today, Sarah, for sure. And just the market's ability to set aside the problem children and to focus on things that's working. So market money is moving within the market, not out of the market. Meta is responsible for about half of the S&P's net decline today. In other words, if Meta shares were flat instead of down 24%, you'd have half as much of a decline in the S&P.

Not a tremendous change, but it shows you we're managing to hold above these levels, 3,800. It's up 7% this month. So October has actually lived up to that reputation of being when you often have a bottom created and a little bit of a reversal to the upside. So, so far, so good. Still has some tests. Been pointing this out, right? We kind of tentatively have broken above that little slide that's been in place since mid-August, but not yet. Credit markets are doing fine. The soft landing story is not totally out of the question. So that's all supportive at the moment. Take a look here at a split between Apple and other versions of the technology sector right here. So this is a three-year chart. Apple holding the vast majority of what it had put together in terms of gains over this three-year period.

And what has fallen away? Well, RYT is the equal-weighted technology sector. So the median technology stock has really been left behind by Apple. Apple is, of course, a huge percentage of the tech sector market cap wise. Then you have the semiconductor index. They were neck and neck in November of 2021 from this starting point. That's now buckled. And then, of course, FDN is basically Internet stocks.

The Dow Jones Internet ETF, it's FANG mostly. And that is flat on that span. So it shows you that Apple's been considered not really a tech stock. It's not representative of other stuff going on in the industry, not really a bellwether for the direction of the overall S&P. It's kind of its own species of asset at this point. Which is why it matters so much to pay attention to what treasuries and currencies are doing as always. Partially, yeah. Yields are lower. The 10-year is below 4%. And the euro is weakening. And it's important because the other big story of the day moving markets was the ECB.

They raised 75 basis points as expected. But the emphasis from President Christine Lagarde on the downshift of growth, I think, got people hoping, hey, maybe the next ECB move is going to be a smaller one. That pivot, hey, maybe the Fed is going to pivot, too. And it just all feeds into that bullish narrative, which has really, I think, been the main driver. Slowing to a pause is becoming a gathering theme. There's no doubt about that. And I agree with you that's at work. But what's fascinating is we can now say lower yields in themselves are not a reason to buy the NASDAQ.

Because the NASDAQ has done nothing but underperform this week with yields coming down. It was never as simple a story as that, but it shows you that it's supportive in general of equities, but not necessarily just growth stocks. And we have specific catalysts for earnings. So next week it might be watch yields for the NASDAQ's direction. Mike, thank you. We'll always fight about that.

Mike Santoli, let's get more on the big story of the day. Meta gets crushed after missing expectations for Q3, giving light guidance. But what investors really seem disappointed with? Growing costs. Meta saying its expense outlook for next year will be almost $100 billion, an increase of about 12% over this year. And operating losses and its metaverse division will, quote, grow significantly. Let's bring in two guests for two different takes on this.

Joining us is Laird Hippo, managing partner and co-founder Eric Hippo. will, quote, grow significantly. Let's bring in two guests for two different takes on this. Joining us is Laird Hippo, managing partner and co-founder Eric Hippo, and LightShed partner Brandon Ross. Eric, do you think Zuckerberg's making a big mistake here? I do. I do. I think that his view of the metaverse is not a view that is espoused by the majority of people in technology. It's a journey that we don't know what the outcome is going to be. The killer application for metaverse today exists, and it's games. And it exists on platforms like Roblox.

So what killer application is he proposing to us? He's proposing that we live our lives in this kind of immersive world that doesn't exist. But what are we going to do in that world? He's not explaining that. So I think that he's way ahead of his time. And if he was spending a tenth of what he's spending, you might say, OK, you know, good bet. You know, he's betting something relatively small. But the bet that he's making, which is about $10 billion this year and another $10 billion next year, and who knows how much later, is completely out of sync with the reality of the MedBus.

Brandon, do you disagree? Are you buying it? No, I actually agree very much with what Eric said. I mean, there's two components to this cost increase. On the one side, it's the costs are going up to maintain the status quo, to compete with TikTok and to really advance the discovery engine in that way. And that spend is necessary. It's a wake-up call to investors, which is one of the big reasons the stock is down today. But it's necessary spend on the metaverse side. Look, we believe that the Internet is going to continue to evolve.

AR, VR and interacting in 3D space is going to be a part of it. But the amount of spend that Zuck is putting forth here is too much for something that is not proven. Yeah, it reminds me a little bit about the British government and the market is just like totally rejecting. And I wonder if they'll force him to not spend as much. Eric, the pushback, though, is that Zuckerberg, and he used the word patience last night on the conference call, those that stick with him and have patience will be rewarded it's happened before when he bought whatsapp and messenger and Instagram and and none of those were monetized at the time and and didn't have huge user bases and and all of them actually grew so I guess the question is on the track record and the

trust front. Well, in this case, he's not buying something. He's developing it himself. This is something that, by the way, the industry should be developing together because you can't end up with 10 different metaverses that are not interoperable. You need to have industry standards, which he's completely not doing. So, you know, WhatsApp had quite a few users in those days, and there is no evidence that there are real users in his metaverse. There's about 200,000 active daily users right now on his platform, which is nothing. It's a drop in the bucket, given how much he's spending on. But you guys are invested in some of these companies, aren't you, Eric?

I'm looking at the list. Nifty League, Genies, Danvis. Aren't these metaverse plays? They are. And our investments are concentrated on applications that work, such as gaming. We are also investors in digital art, NFTs and digital arts, which we believe have, you know, have a great possibility. And so we're kind of nibbling on the outside of the metaverse, looking for areas where there is activity. And our investments are already stage investments. They have nothing compared to what Zuckerberg is doing.

But, you know, to me, it's a little bit akin to self-driving cars, right? The industry predicted that by 2025, there would be self-driving cars. Self-driving cars, except for, you know, limited geofenced applications, are probably not going to be with us for another 5, 10 years. And yet the industry has sunk $100 billion to develop self-driving cars. Most of those investments, and you saw Ford and Volkswagen shutting down their own operation, most of that investment is going to go out the window. And I'm afraid that this is what's happening with Meta, that the money that they're putting in today will not be relevant when the metaverse goes up.

Well, the other problem, Brandon, is it's coming at a time where the economy is weakening and we're seeing ad revenue weaken, Alphabet, Facebook. I guess the question is, is the core product, the legacy Facebook application, going to remain profitable enough to generate the ad revenue that it needs

to fund this whole metaverse vision? Well, you see that free cash flow, I think last Q3 was $9.5 billion. I think this Q3, it's $173 million. There is enough cash creation to fund it, and there's certainly ways of raising further cash, which is actually mind-boggling when you think about the sort of cash flow machine that the company formerly known as Facebook has been throughout its history. I think it will be there. I just think that the cost is too high, both in terms of dollars, and you're also messing with the engineering talent by moving them around. We've talked to several people at Meta who are unhappy with their new roles and the culture is changing. And that's a big risk as well. It's not just the dollars. And when the stock price

goes down, that also affects the human side of the business. And that can't be forgotten. No, now no longer in the 20 most valuable companies. Eric, I know you're an investor in private companies. Is there a level where Facebook gets too cheap you would be interested in it or you think it's just overdone? No, I also believe that there's a fundamental issue with Meta, the traditional Facebook product and Instagram. Instagram, he's also spending a lot of money on Instagram simply because TikTok is eating his lunch. And so rather than really defend his core business, which still has, what, 3.7 billion active users, he's being distracted completely with his

vision of the metaverse. And so he's not doing, you know, a favor to people who love his products because he's kind of abandoning them of sorts. Yeah. So you're not happy with that. Down 72.75% for the year. Eric and Brandon, thank you both for joining me today. Thank you.

Appreciate it. We're going to talk much more about Ma in just a bit when we are joined by Matt Ball. He's the founder of the Metaverse ETF, used to have the ticker Meta until Mark Zuckerberg went all in. Also ahead, shares of advisor and asset manager Lazard getting a boost today on the back of strong earnings. We'll talk to the firm's head of financial advisory, Peter Orszag, about the quarter, his outlook for deals in these uncertain times, and much more about the economic environment. Dow's up 243 or so, definitely 245. Not the full story, though, because the Nasdaq is down 1.6 percent and the S&P down half a percent. You're watching Closing Bell on CNBC. Welcome back. Dow's up more than 250, but the Nasdaq and the S&P right now are near session lows. Of course, that meta plunge is dragging on the overall index, and it's also

taking down other big cap tech players like Apple and Amazon ahead of results. Microsoft, Alphabet, all lower today. Meantime, financial advisory firm Lazard is getting a boost after the company beat earnings estimates. Financial advisory segment seeing record revenues for the third quarter. And joining us now is Lazard CEO of Financial Advisory, Peter Orszag. Peter, welcome back. Nice to see you. Great to be with you, Sarah. So besides your leadership, what else is working here in the financial?

Obviously. It's all you. Deals have felt a little slow. Are restructurings, bankruptcies piling up? Is that what it is? No, these results actually reflected a variety of things, but especially strength in Europe where we outperformed the market. The market overall year to date in Europe was down. We've been significantly up.

And I think it just reflects being in the right place at the right time with the right bankers. So that's what we're aiming to continue. What does it look like from here, especially in Europe, where there are some serious growth worries? There are definitely serious growth worries. And last time I was on with you, I was concerned about the pace of ECB tightening. I remain concerned about that with the move today. I think the European growth outlook is quite challenged. And a lot of that has to do with energy prices for which there are you know, we may have additional shocks coming, not with regard to natural gas prices in Europe, but with regard

to oil prices, because as you know, there is a significant additional set of restrictions coming at the beginning of December. And without the so-called price cap idea that the administration here has put forward, you could see significant additional movement on oil prices in that case. But back to your point, yes, the outlook for Europe right now is somewhat challenged. There's no way to kind of sugarcoat that. No, I remember last time you were on, you were saying that the ECB you thought was making a big mistake, and it did another one today. I still do. So you still do. And honestly, the same thing for the yeah, the same thing for the Fed. I think, again, the central banks that are the leading central banks now have the conviction of the converted.

They are probably overdoing things. They're going to it seems like they're going to continue tightening until they see actual inflation in the range that they want. The problem with that is, as we know, monetary policy has a really long lead time. So there is a ton of tightening that's already in the pipeline that will be hitting the economy in 2023. And there's a real risk of overdoing things. And that's all the more so because, at least for the United States, the dollar strengthening is also going to have a cooling effect. A lot of what happened in the GDP report this morning was very strong net exports. That's a temporary phenomenon because normally what you'd expect is as the dollar appreciates, that will start to flip in the other direction.

So we've got all these things kind of in the pipeline that are making the outlook for 2023 more challenging. And the central banks, both the Fed and the ECB, are sort of ignoring that and just saying, well, we don't see inflation coming down enough yet, so let's just keep tightening. So what then will be the result? You think we're headed for what, a deeper recession than consensus expects in the U.S. next year? Well, in Europe, I think what's going to happen is the ECB is likely going to have to reverse its monetary policy at some point next year as the economic situation there deteriorates in the face of ongoing high energy prices. In the United States, it's a little bit less clear. Again, the report out this morning

showed some strength, but a lot of that came from net exports less clear. Again, the report out this morning showed some strength, but a lot of that came from net exports. We should also note the report also, there had been this debate earlier this year about whether we were in recession. The United States is not currently in recession. We're talking about whether there will be one. Right. Whether there will be one. And, you know, I think, as I said last time I was on with you, if the Fed wants to create a recession, it can. And so we are on a path where with continued tightening, that is very likely where we're going to wind up. The question becomes whether there is an alternative path where we just kind of wait and see what the impact of the tightening that's already again in the pipeline that hasn't yet hit the economy. You saw residential investment and also non-residential investment decline materially in the numbers out this

morning. Also, there's a lot more of that to come. The alternative approach here is there's been a lot of tightening done. We can kind of wait and see how it plays out. And then the Fed and the ECB can always do more if things turn out to look really great next year. I don't think that's the most likely scenario. But they were so late to get a hold of inflation. Don't you think for credibility's sake, they need to do everything they can to show they're on top of it? And we really have not seen those inflation rates come down as much as the market had expected. So first, on inflation rates, there was a little bit of good news this morning in that the price indices contained in the GDP report came

down a bit. But yes, your point is right that they inflation in general just has not come down as much as one would hope. But again, that's because you'd expect monetary policy tightening to take a while. And so, yeah, there is a lag. I think you're right, though. What they're doing right now is they are playing for credibility because it is, again, the conviction of the converted. They're going to overplay the hand. The problem with that is swinging from one, you know, having the pendulum swing too far in the other direction, having made the mistake of waiting too long, is also itself a mistake. You're sort of doubling down on being wrong on both sides of the equation. And we could well wind up in 2023 looking back and

realizing that it was a mistake to have over-tightened. And then the Fed will start reversing itself. And again, the worst thing for credibility is to do things just because of how they look as opposed to doing the right thing. Well, we've also got the midterms, Peter, in less than two weeks. And I wanted to ask you about that because the narrative seems to be with Republicans getting a swing here in voter sentiment in the polls and the betting odds that ultimately will be good for the markets to have gridlocked government and a check on some of President Biden's policies. Do you agree? Well, here's the ticking bomb. Let's just assume that one or both the House and Senate flip Republican,

which is, I think, a very likely outcome at this point. There is a ticking time bomb that arises as a result, and that is the debt limit limit where, again, the hardest thing when I was back in Washington was negotiating the debt limit increase. That has only become more difficult. And so what I think the Democrats need to do, should they lose one or both of these houses, is during the lame duck later this year, they need to either eliminate or raise the debt limit by a massive amount, because if not, this is going to become a dominating feature of 2023 with a ton of instability that comes as a result. So it may be painful to do later this year, but frankly, I really think that again, you think they're going to do that? They're going to own that raising the debt limit indefinitely? They don't want to. But again, if they don't, they're going to have that, raising the debt limit indefinitely? They don't want to.

But again, if they don't, they're going to have a president of their own party who will be held hostage throughout 2023 as a result. So it's not pleasant. Frankly, the whole thing doesn't make any sense. It's not a logical construct anyway. It is, thank you, stupid. But your two choices are to allow that to play out during 2023 or do a very, I'm not diminishing the difficulty, but you've got bad choices as a result. And the least bad choice is to clear the pathway and kind of take the bullet later this year. Peter Orszag, thank you very much.

It's always good to catch up with you. Thanks for having me, Sarah. It's good to see you. All right. CEO of Financial Advisory at Lazard, formerly of the Obama administration. Let's check in on where we are right now. Down about a third of a percent in the S&P 500. So maybe some slight improvement. Dow's up 300 points. NASDAQ down 1.4 percent. It really is isolated to some of the trouble spots, namely meta, which is down still 25 percent. Align Technologies also down 19 percent, weighing on the Nasdaq, some of the pharmaceutical companies as well. But there's a lot of strength today. Industrials, financials, utility, energy, staples, materials and real estate. All those sectors are green right now. After the break,

we're going to talk about the stock disaster of the day that is named Meta. We'll bring you the buzz on why Credit Suisse is taking a major leg lower as well. And as we head to break, check out some of today's top search tickers on CNBC.com. Meta unseats the 10-year note yield because it's that big of a disaster, down 25 percent. The 10-year, there's buying today with yield slipping below 4 percent. Apple down 3% in sympathy with some of these big tech names ahead of earnings. Amazon also down four,

but Tesla remains solid up about four-tenths of 1%. We'll be right back. What is Wall Street buzzing about? Credit Suisse, shares are plummeting after the Swiss bank announced a third quarter loss of $4 billion. That's approximately seven times the amount that analysts were expecting. But that's not all.

There's also a $3 billion restructuring costs and a dilutive capital raise with the Saudi National Bank serving as an anchor investor. CEO Ulrich Kohner spoke earlier on CNBC International about what he sees as the most significant points of the bank's transformation. Listen. Number one, you know, a radical restructuring of the investment bank. Number two, a significant reduction of costs.

And number three, and further strengthening of our capital base. And I think with that, we have all the necessary ingredients, so to say, together to go where we want to go. Let's bring in Leslie Picker, who's been following this story closely. So they're going to split the bank and do this big capital raise. Investors aren't exactly enthusiastic. They are not. The shares are trading at a record low now, a 20 percent drop is one that analysts were actually expecting following this news. It's a retrenchment of the investment bank by about 40%. You've also got the capital raise, which was kind of

uncertain going into today's announcement. There were some reports that it was happening, some reports that it wasn't happening. And the potential for further dilution down the road, given all the expenses tied to this restructuring, makes investors a little bit uneasy here. There's also this financial target that they laid out for 2025, a pretty low 6% return at that point in time. They say things will accelerate from there, but 6% is nothing to get too excited about

in terms of a return on tangible equity. So all of that put together, shares are basically reacting to that by slumping 20% on tangible equity. So all of that put together, shares are basically reacting to that by slumping 20% on this news. Right, and the question is what is left of this bank as they are now breaking off pieces, doing some sales and splitting the investment bank? Basically what they're going to be doing

is managing money for wealthy people. So they'll devote about 80% of their capital to wealth management, asset management, the Swiss bank. And that's something that's been emulated by their peers. UBS has done something similar. Deutsche Bank has done something similar. They've retreated a bit from investment banking and focused a lot more on this business, which tends to be perhaps less volatile, a little stickier, and something that European investors are now comfortable with in terms of a kind of reorg of that business. They've been in the U.S.

for quite some time, made a lot of inroads here, although in recent years they've lost market share in certain areas. And then, of course, with all the macro concerns as of late, it's been a big overhang for them. Leslie Picker, Leslie, thank you very much. When we come back, Cantor Fitzgerald's Eric Johnston, who has nailed it with his market prediction earlier this year on whether stocks can keep rallying without big tech. Remember, he was super bearish and then turned bullish lately. We'll talk to him about it when we come back. Big tech earnings have largely disappointed this week. Meta is just the latest example, but the market has pretty much shaken off that for the most part, with the Dow 4% and the S&P up 2%

since Monday's open. Our next guest says the rally will extend through year end. He's been right so far this year, turning bearish on stocks back in early January and then bullish early October. Markets rallied since then. But do this week's disappointing tech results change the thesis? Let's bring in Cantor Fitzgerald, head of equity derivatives and cross asset strategy, Eric Johnson. Eric, welcome back. Pretty brutal reaction to some of these results. Does it make you think twice about the bullish call? So I think there's a change going on in the marketplace. The big cap tech names are still very important to the market. They make up the top five names in the S&P 500, account for about 20 percent of the S&P. So just mathematically, they are very important. But I think what's happened is that in the past, the other 494 stocks were sort of used as a source of funds to buy these five or six behemoths that were putting up great numbers.

You could count on. They were seen as very, you know, almost defensive where you can count on them beating numbers each time. I think now we could be in a process where the reverse is happening, where you actually use some of these larger cap names as somewhat of a source of funds to buy the other 494 stocks or buy small cap, et cetera. So I think as long as all five names are not disasters, which I don't think we're going to see from Amazon and Apple, as long as they're not disasters, yes, the market can rally without mega cap tech, which is a big change from the past couple of years. Even the cyclical parts of the market, which are working really well today,

industrials, Caterpillar had good earnings. Financials are doing well today. Is that where you'd want to be as everyone predicts that 2023 is going to see economic pain? So in the short term, I think so. So part of our thesis has been and is still that the market is going to be repricing the chances of a soft landing, say the chances are actually higher, because our view is that inflation is currently real world inflation is falling, not CPI, but real world inflation is falling and that the Fed is very close to the end. And so I think the market is going to say, OK, the Fed's almost done. Inflation is coming down. And you have the unemployment rate that's still three and a half percent. Consumers are still very strong. Spending is up 10 percent year over year. So I'm not saying that I believe that we're going to have a soft landing, but I think the odds of a

soft landing are going to have they have gone up in the last couple of days. And I think they're going to go up over the next month or so. And so if you think there's a higher chance gone, I'm sorry to cut you off, but the Fed has not changed its tune at all. And I know the market always anticipates the move before the Fed, but we've been here before and it's been a bunch of fake outs because this Fed is really serious about inflation and inflation as they measure it is not coming down all that much. So I think the story in The Wall Street Journal on Friday, I think, was important. And, you know, it happened exactly at the time that the 10 year yield was getting somewhat out of control. So I think that that was not a not a coincidence. And all it suggested was they are not just going to go on with blinders doing 75 bps

every meeting until the CPI is down to 3% or 4%. I think that was my takeaway from what they said. But if you look at inflation and you don't look at, you know, I think the Fed has all the data that we have. And what we can see is rents are actually, new rents are actually falling right now. You're seeing multiple data points from Zillow, Redfin, ApartmentList. And what we can see is rents are actually new rents are actually falling right now. You're seeing multiple data points from Zillow, Redfin, Apartment List. You had the largest rental owner in one of the largest in the country today saying that

the occupancy rate is falling. And that's why they were lowering numbers. So it's clear as day that home prices are clearly falling. Rents are now falling. And then, of course, used cars and DRAM prices and container prices, they're all commodities. They've all they're well, well, well off their highs. And so I think it's an easy message from the Fed to say, look, number one, there is a six to 12 month delay hitting the economy. And number two, we're seeing plenty of signs now that inflation in pockets of the economy are falling. And hence, we're going to

slow down. And the market, I think, will take that as they're pretty much close to the end. It's a really interesting case. Eric, thank you for joining me. Absolutely. Thanks for having me. Eric Johnston, Kenner Fitzgerald. When we come back, a company you wouldn't normally associate with chips is issuing a nightmare outlook because of semiconductor supply chain issues. We're going to reveal that stealth mover straight ahead. Check out today's stealth mover, Sleep Number. Investors definitely in for a rough night of sleep tonight in this stock. The smart bed maker beating earnings estimates, but issuing a nightmare outlook,

slashing its full year guidance, citing slower demand, but also semiconductor supply chain issues. Stock down 22 percent, now down more than 60 percent for the year. Up next, metaverse expert Matt Ball on whether investors are making a mistake by souring on meta CEO Mark Zuckerberg's whole metaverse spending strategy. That story plus a top analyst on how to trade Amazon and Apple ahead of results when we take you inside the market zone. Dow is up 287 points, the S&P down a third of 1% and the Nasdaq down 1.4%. We'll be right back. We are now in the closing bell market zone.

CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Seema Modi is here on Caterpillar's big move up and D.A. Davidson's Tom Forte on Apple and Amazon reporting after the close. We'll kick it off broad, Mike, because the Dow's up 238 points, which means we are going for five days in a row of gains for the Dow. Clearly, that's not the whole story here because the S&P is down and the Nasdaq is sharply lower off of meta and some of the negative earnings. But the rest of the market able to shake it off. Why? Yeah, well, first of all, it's a relatively routine earnings season so far, despite the huge, very prominent blowups. You've got three quarters of all companies beating estimates. It's up a couple of percent in aggregate for the S&P. X energy, I think you're down 4 percent.

No worse than expected. So that part of it is pretty much on plan. And then, of course, the relief from yields. We have a relief also from Fed speak this week. So all of it together shows you, again, an underinvested street needed to ramp exposure if the market wasn't going to fall apart and the news wasn't going to be universally bad. So it's rotation as opposed to retreat overall for the market. Well, one place they're going today is Caterpillar, big driver right now behind the Dow's rally. Shares on pace, actually, for their best day in more than two years. The heavy equipment maker easily beating Wall Street's earnings estimates thanks to strong pricing and an increase in sales volumes.

Seema Modi joins us. Seema, all the worries about China, about the housing market, about recession. Here's a company that's one of the most cyclical companies. And forget it. It was a good quarter, right? And no signs of a recession. The outperformance for Caterpillar, Sarah, really tells us two things. One, as Europe imports more LNG from the U.S., Caterpillar is betting that its equipment used in fracking, drilling, extracting oil will be in higher demand. It is the market leader right now, and its energy business saw revenue sales of up 22 percent year over year. CEO Jim Opelby also said that while supply chain issues are still ongoing, some parts are improving, which analysts say was a positive sign for a CEO who tends to be a bit more conservative. But again, no signs of recession in this report. Strong pricing, as you pointed out, Sarah. A bullish sign, I would say, for the global economy and what's

been a sea of doom. Thank you, Seema Modi. And real assets. With Caterpillar's big move up. Up 8%. Seema, thank you. To the big earnings loser of the day, that's Meta. It's down more than 20% right now into the close. 24, more than 24%.

A miss on earnings, revenue falling for a second quarter in a row. The forecast really was the thing. Projecting another drop this quarter and investors balking at how much the company is planning to spend and invest in the metaverse. Joining us now is Matt Ball, founder of Metaverse ETF. Matt, wanted to talk to you today because you're the most expert that we know on the metaverse. And the question of the day is, is Zuckerberg making a mistake spending so much and going all in in this kind of environment. What do you think? Well, I think it's interesting when you go back to October of last year, Zuckerberg was very clear that $10 billion was the foreseeable floor in losses,

setting the expectation for $12, $13 and potentially as much as $15 in the years to come. Since that time, we hit a macroeconomic pullback. We've seen the impact of Apple's privacy changes in AT&T were more severe than expected. And TikTok became a fierce competitor. With that context and with a view to 40 percent increases in headcount year over year, I think investors are right to say we need to see more control or at least more progress before that investment continues. What about the idea of the metaverse? I know you've been a big believer and you've written a lot of research on this, but is it necessary to spend that much? And what is he actually chasing here? I think part of the challenge here comes from expectation setting. Look, if you consider Microsoft, NVIDIA, Apple, and others, their investments are also in the 5 to 10 or sometimes more billion in R&D and CapEx per year.

The forecast for the value of the metaverse sit within the trillions. The challenge is those companies have very healthy core businesses. They're graduating into the metaverse, and they didn't set the expectation with investors that this was going to be an extraordinary opportunity within this first half of the decade. By changing the name of the company, by shifting its most prioritized resources to the initiative, and certainly by spending as much as they are when under attack from Apple and TikTok and others, they set themselves up for a very tight rope. And it seems to be one that's circling. But it sounds like that you're not questioning the strategy. You're questioning the strategy right now in this economic environment and with

the core business seeing some weakness. But the idea of the metaverse, Eric Hippo was on with us at the top of the hour, Matt, and he was saying it's a gaming play, and that's not exactly what Zuckerberg is after here. So it's really hard for investors to grasp just what that is. MATTHEW MCDONALD, Well, the challenge is we see two primary areas of attack. One is on the gaming side. You see this with Roblox, with Unity, with Epic Games and Niantic. And the other is what Microsoft and Nvidia call digital twins or the industrial metaverse. It's taking a look at a

much, much larger TAM than consumer discretionary, digital, or certainly gaming, with much, much more staple customers and a much longer progressive ramp. Going from a new vertical in both virtual reality devices and enterprise productivity software, where you need to pioneer the tech, pioneer the understanding, pioneer the software, and then drive enterprise adaptation. That's the timing issue. Many believe in this opportunity, but they're giving it more time to unfold. Do you do anything with Meta, with Zuckerberg on this front? Are you working with them at all?

You don't? No, never have. Because I think the criticism, besides all the spending and what it's going to take, is just trying to envision just what that is. Is it commerce? Is it social? Is it all of the above? I know you've been on many times to remind us about that, but does Zuckerberg's vision line up with the analysis that you do? It does broadly, but it correlates to what I just mentioned. When you take a look at the centerpiece of their strategy, it's very much focused on virtual reality headsets and the transformation of enterprise productivity through those devices.

I tend to hold the opinion that these devices are farther off than many have expected before and Meta seems to today. And that's going to be a challenge. You're going to get your ticker symbol back, Meta, before they took it? I'm just an index provider to Roundup, which operates the ETF and security. Right, right. But it used to be Meta until Facebook went all in. Thank you, Matt. It's very valuable to hear your perspective on this. Matt Ball, appreciate it.

A metaverse ETF. Let's check out Apple and Amazon, both out with earnings after the bell. The latest mega caps to report in a week of disappointing results from these major tech players. Tom Forte of DA Davidson joins us to share what he's watching.

Just last week, reiterated a buy rating on Apple and on Amazon. So Tom, which one do you prefer? The show After the Test Money likes to play, would you rather? Which one would you rather? Yeah, I prefer Apple. I think the challenge for Amazon is consumers are clearly spending their money. The retail sales data is good. They're just not spending it on e-commerce. They're spending it on travel. So of the two, I do worry for both that they have a high proportion of their sales coming in the U.S. dollar. So I think two, I do worry for both that they have a high proportion of their sales coming

in the U.S. dollar. So I think there's a possibility one or both would miss on the top line, given the strength you see in the U.S. dollar. The benefit for Apple is with the supply chain improvements we've seen this year versus last year, they should be able to have more and better sales of iPhone 14 than they had of iPhone 13. And then for Amazon, the good news is that their cloud computing business is doing well. Their advertising business is growing. Those are higher margin. But I'm very concerned that they decided to have a second Prime Day in one calendar year. I think that's a reminder of how weak e-commerce sales are. So of the two, I would lean toward Apple. The stocks have sold off in reaction to Alphabet, in reaction here to Meta.

Is there any real correlation besides maybe just ownership, hedge fund positioning, that sort of thing, where you can extrapolate what those reports mean? I think there's correlation to the extent that what you're seeing is a lot of weakness in digital advertising. And that has, you know, some of it's because of Apple's influence. But Apple and Amazon generate revenue from digital advertising. And that has, you know, some of it's because of Apple's influence, but Apple and Amazon generate revenue from digital advertising. But really what you're seeing is weakness in kind of mega cap tech. I think of Google, Alphabet, Meta, Microsoft.

And I think that is very worrisome for both Amazon and Apple. Mike Santoli, how do you see the two positioned? Well, what's interesting is you have a investor base right now because of everything going on in the other companies that is very acutely focused on return on investment, let's run a tighter ship. Amazon has kind of been moving in that direction in recent quarters of trying to essentially say we overinvested, we're taking a little bit more of a sharp pencil to expense.

So we'll see if that theme runs through here in addition to all the obvious concerns about whether cloud demand is flagging and how the consumer is behaving, the fact that Apple numbers have not really changed very much, the forecast in months, I think is kind of interesting. People assume it's going to be stable. We'll see if that comes through. It's probably good that it's down 3 percent, the stock heading into that number. Well, yeah, I was just going to ask, Tom, where expectations are mismatched in terms of reality? Because the expectations around Amazon is that the e-commerce business would slow and maybe some slowdown as well in cloud and advertising. But not I don't know if they've moved as much for Apple. No, it's a great question. If you look at the multiples for both companies that come down quite a bit, you think about some

investors who believe that we're kind of at peak hawkishness right now. that come down quite a bit. You think about some investors who believe that we're kind of at peak hawkishness right now. So we'd expect a rally. If either of them can say anything that's anything good. But I do think that the weaker e-commerce for Amazon heading into what is its biggest e-commerce quarter, the fourth quarter, that should have a dampening impact on their profitability in general. So I think it's a little more challenging for Amazon right now. Got it. Tom Forte. Tom, thank you very much. Apple and Amazon both lower two minutes to go in the trading day. Mike, what do you see in the internals? Kind of mixed today, given the fact the market was up all day. You still have positive breath in the New York Stock Exchange for most of

the day, but not as strong as the last couple. You see it's actually just about 50-50. You know, with this pullback in longer term bond yields, take a look at the three month versus ten year treasury yield curve. It's now been dipping slightly negative. That typically has been a precursor to recession in past cycles although that one in late 2019 I always have think needs an asterisk because I don't think it predicted COVID. But there you have it. This is one of those things lining up toward inflation, even though the economy is performing OK at the moment. The volatility index is backing off. A lot of back and forth, stock by stock, sector by sector action is compressing volatility at the index level. But we do have the PCE number.

And, of course, the Fed meeting next week is probably going to keep it elevated for another few days. A few 52-week highs and lows to talk about here as we go into the close. The highs are in staples and energy. Names like Hess and Exxon are trading at record highs right now. Hershey is also on that list. We're also seeing highs in Campbell Soup and Smucker, talking at least 52-week highs there. And the lows, of course, are in technology. Alphabet trading at a 52-week low. Meta, no surprise, aligned technology as well. There's the Dow, 181 points higher. So that'll be the fifth day in a row of gains.

It comes on the back of non-tech earnings being strong. Seema told you about Caterpillar. McDonald's also adding 56 points to the Dow. Honeywell, Boeing, Goldman Sachs, they're all higher today. It is technology, though, that is suffering. The Nasdaq closing out with a loss of 1.6%. A lot of that, though, is meta and the fallout effect. Amazon and Apple coming next.

That's it for me. I'm closing now.