Closing Bell - Closing Bell: Musk’s Moment of Truth 4/19/23

Episode Date: April 19, 2023

Investors awaiting Tesla’s results – with a lot at stake for that stock and Elon Musk. Dan Ives of Wedbush breaks down what he is watching. Plus, NewEdge’s Cameron Dawson and Nicole Webb of Wealth Enhancement Group give their expert market forecasts. And, a rundown of all the key names reporting after the bell – including the likes of IBM, Las Vegas Sands and Lam Research. 

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the countdown to another marquee name getting set to report earnings. Tesla hitting it over time. The stock up nearly 50 percent year to date. You heard me right. So there's a lot riding on that report. We're going to walk you right up to the release as well. Here's your scorecard with 60 minutes to go. In regulation, stocks once again searching for some direction. I don't know, maybe they'll find it after these mega caps begin reporting earnings. We'll mean a lot to the Nasdaq, obviously, which has been moving between positive and negative territory for much of the day. You see, it's a fractional winner as we speak. Yields

higher for most of the session, too. That's capped action in equities a little bit as well. It brings us to our talk of the tape. Musk's moment in just about an hour's time. Dan Ives covers that company for Wedbush. He is here with me, as he always is, on set. It's good to have you here. Great to be here. On a big day.

They cut prices again. How many times? What, six? Six. What do you make of this? Look, it's the moment of truth. Because ultimately, they've cut prices. Demand's been stimulated.

We've seen that, especially in China. It's all about margins. I mean, margins is really going to be the story. Or can they maintain that 20 percent margins in the Senate? If they are, and we believe they will, it's a flex the muscles moment for Musk in terms of this EV arms race. How do you believe that they will? Now, granted, their margins are better than everybody else by leaps and bounds in this in the space. But why do you believe that margins are going to hold up as prices seemingly continue to come down?

It's really the scale that we see in China. I think that's important. Battery costs ultimately mean that's the golden goose, because if you're able to cut battery costs, not just in China, but just globally, that gives them more flexibility to cut costs. Logistics has come down. Look, we believe this is really the start of what's going to be a narrative where they're able to cut prices. That stabilizes margins stable. And then demand, we're looking at 35%, 40% growth in this macro. I know, but even though they're cutting prices and they're doing so with such regularity, it seems it's not like their delivery numbers have increased in kind.

So what does that say about the demand that you say is still so great? It's a great point. I think right now, obviously, we're going through a transition in the EV space. I think for Musk and Tesla, it's about putting really an iron fence around their install base. I believe this is really what's going to lead to the next phase, which is just a massive sort of tidal wave of EV adoption. But given what we see in the 313 area code and given what's happened in Europe, they need to ultimately be cost competitive, and that's what they're doing.

1.8 million vehicles is the guide for 23, right? How confident are you that they're going to at least meet that? I think for the first time now, there's more upside potential than downside. You know, as many of you have talked about for really the last year and a half, it was death by a thousand cuts continue to cut. Now, finally, it feels like that demand story is at the point where you actually start to see that ultimately tick up, not down, which is the narrative. Are you concerned that they'll cut prices again if they have to? I mean, you talk about China. The market in China right now is more competitive than it's ever been, arguably, and only getting more so, right? Yeah, it's a price war that's essentially happened, NIO, XPING and others. But I think for Tesla, I mean, this is a game of

thrones battle because you're seeing massive market share potential gains that they're ultimately looking to lock in. And it's not the time to sit there with hubris from a price perspective because they do, as you talk about, they have that flexibility because of the margin structure. And they're able to do this. And I view this as really a moment of truth quarter for Musk and Tesla. I know. But but at what point do you worry about those margins if they continue on the path of cutting prices? I mean, eventually something's got to give, right? I mean, what number to you from a margin standpoint would be worrisome? I think if you got into margins that were in the teens rather than what's really been the low to mid-20s, that's sort of the five alarm fire. I think right now we could maybe see more

price cuts called two, three, four percent type price cuts. But then that's it. I think they finally now sort of laid the ground for what's going to be the story. That's why this is a very important conference call, as you talk about in terms of must talk about the price cuts and what the margin trajectory looks like going forward. But you just said that you wouldn't be surprised if you saw even further price cuts, even if it was one or two more times. Did I hear you right? I think in China, we could still see one to two more cuts, given what we see from domestic

players. And that's why, look, but at the end of the day, Musk a lot of times is playing chess where others are playing checkers. And this is another moment. I mean, some wondering, I've been've been wondering yourself included what he's been playing over the last year whether it's been chess checkers backgammon or or something else all all together with the whole twitter thing which you were critical of several times as you sat in that same chair you're sitting in now i mean do you feel like his eye is back on the ball yeah i think that's i mean our view in terms of you know covering tessa for years

finally over the last three to four months you've seen a different mus view in terms of you know covering Tesla for years finally over the last three to four months you've seen a different musk in terms of strategically at Tesla I mean the price cuts was a was a major poker move and even though the Twitter situation continues to be in the background and that is a you know a broader cloud that will continue to come and go is it in the background for real I mean I feel like we hear Musk these days talking about everything but Tesla almost. It's like it's if it's not Twitter, it's AI, it's the rockets. And then, oh, yeah, no, yeah, that other that other thing I run.

And it's an ultimate it's the golden jewel that fuels everything else. And I think for Musk right now, it's about that tightrope and navigating it because, you know, ultimately Tesla, the success in terms of units has been there. But all those things then start to come into the forefront if you see stumbles, which is why this is, Scott, in my opinion, it's probably, you know, if I look back the last few years, it's one of the most important conference calls that we've seen. OK, so you have an outperformed $225 is your price target. I said the stock's up near 50 percent year to date. What does that do to the bar as you go into this number, which is going to be in about an hour?

Yeah, bar continue. I think obviously the bar is higher. Haters continue to hate on this from a margin and the potential that they can't just continue to cut prices forever. Our view is that from a demand perspective, you're still looking at demand that could be closer to 1.9 million units rather than 1.8. And then you go in 2024 with Cybertruck, with battery technology coming down, with Austin, and with the further build out in China, which is also important because China, despite geopolitical, that's the hearts and lungs of Tesla and Musk or Cook are backing away from that. So you think the Nasdaq is able to keep up the momentum that it's had? Because if the broader Nasdaq goes down, do you think Tesla is just going to buck that trend and continue to go up?

Yeah, I think I mean, my view during earnings season overall, it's going to be not just better than feared, but I think stabilization that we're seeing on enterprise, on semis, on big cap tech, which is our view that tech still has another 8% to 12% upside for the rest of the year. All right, let's broaden the conversation. Dan Ives is going to stay with us. Let's bring in Cameron Dawson of New Edge Wealth and Nicole Webb of Wealth Enhancement Group. Ladies, good to have you here. Cameron, I looked at your notes. You think Tesla is still in a downtrend yeah not for the start of this year is not well certainly from a tactical standpoint it got incredibly oversold into the end of last year and that oversold nature really set you up for a huge rebound but it's still trading below its 200 day moving average which just means that the easy part in this move is likely done now's the burden

of proof to show the earnings to show the continued earnings and free cash flow growth. But the valuation multiple rebound is already behind us simply because we got so cheap, we got so oversold at the end of last year. Well, right, Dan. I mean, that's not doesn't sound like a hater. That sounds like somebody who's talking in reality. Cameron, as always, makes so much strategic sense, which he's saying, because the easy money was really when the stock got toward 100 and everyone thought it was going to the teens. We've seen a huge part of the easy money over. But I do believe coming quarter is still upside, even though ultimately the easy money is in the rearview mirror. All right. So, Nicole, the importance of this report.

I know that we asked this question when we were looking ahead to Netflix a day ago because it is one of the so-called fangs. It is one of the more marquee names that we asked this question when we were looking ahead to Netflix a day ago, because it is one of the so-called fangs. It is one of the more marquee names that we follow. But the market cap of Tesla just overwhelms the size of the market cap of a Netflix, for example. So we suggest it's much more important to the overall Nasdaq. How do you think about that question? Yeah, you know, to Cameron's point, we certainly believe that the easy part for Tesla is over. We, too, though, have the expectation that by lowering prices to the tune of $7,000 this year, you know, the expectation for kind of combating some of those rebate cuts, being able to broaden the consumer base. And then really what we're looking for

today above all else is that gross margin line and then the production target. So talking about Austin coming online, Berlin online, expansion in Mexico, China. So as we look to the future for delivery numbers and those production targets, this small fraction of EV today versus where it's going to go. And we believe Tesla is the premier provider on this trajectory of growth for EV overall. Cameron, you feel like the NASDAQ is vulnerable right here? It's trading at a very high valuation, mostly a very high valuation relative to the S&P. Now, some of that may be very well justified because Nasdaq has a lot of tech stocks in it, which have proven to have earnings durability to the downside,

as well as provide you growth to the upside. So unlike other defensive parts of the market, you actually get to participate in the upside. So valuation should trade at a premium, but should it trade at an even higher premium than what we reached during the peak pandemic, post-pandemic bubble? That's the question that I think raises the issue of vulnerability if the Fed does deliver on more interest rate hike. So if that's the question, then Ives, what's the answer? I think scarcity of growth. And in my opinion, tech, I mean, numbers, they already ripped the bandaid off in terms of guidance. It's the new safety sector, in our opinion, given what we've seen in the macro. And I still view green light for tech, especially given the setup going to rest. Undeterred by the fact that most of these mega caps are up by minimum of 20 percent year

to date. Well, I think FANG could still be up another 15 to 20 percent because I think we're going to sit here two weeks now looking at earnings being like, wow, stabilization happened. And ultimately, from an institutional perspective, still underinvested, even though we went into the year where the New York City cab drive was bearish in tech stocks. Nicole, do you look at the Nasdaq as being vulnerable or not? Yeah, very much so, in that it seems to us that investors are looking through earnings contractions in 2023, looking for this really strong recovery in 24 and are willing to pay really high multiples on kind of these bottom earnings numbers. To us, we're a bit skittish in that territory and instead are starting to look at some of these more

defensive and cyclical names where we think there's a bit more opportunity as we head through the rest of 2023. So, Cameron, what about the overall market? You know, it's been resilient. It's hard to argue with that. And it seems to be waiting for something to decide whether it's going to break out of this range. What gets us out of the range? To the downside, it's earnings. It's earnings actually materializing lower, meaning that if you look at the full year of estimates for 2023, there is a huge rebound baked into the second half of the year, which is precisely when people think a recession is going to hit. So if we have a recession, earnings will move us lower in this market. from here. It has to come from earnings not falling off the cliff and actually seeing revisions moving much higher at the same time that you'd have to

see inflation move much lower in order for the Fed to really back off on its hawkish commentary because we're already trading at 19 times earnings. That's where we've peaked out in evaluation back earlier this year in February back during the rally

that we had back in June and July and so that's where we've seen the most pressure from an earnings standpoint and evaluation standpoint. And if we hit that 19 times, we think that's where you get into more dangerous territory. Nicole, the market, do we feel, I mean, I'm looking at S&P right now, so it's 41.57, let's call it. How much more upside do you think we have? You know, we expected a bit of an earnings pop just on these adjustments to the growth perspective on the back of Q1. To us, where this really falls into balance is the strength of the labor market. It does continue to be strong. Look, the market looked through the Fed's meeting minutes where

they pointed to the prospect of a recession in the back half of this year. But at the same time, with the labor market strong, consumption is likely to remain strong as well. And so that's twofold. It keeps some of that stickiness on inflation. It also wards off the immediate nature of a recession, and it probably holds the Fed higher for longer. What that moves towards is earnings revisions to the downside. But with the stickiness of the consumer, if the labor market proves resilient, we think there's still opportunity there for the market to perform through the year. I mean, Beige Book, which came out just a short time ago, Cameron, said an economy that's still doing pretty well.

Consumers are still holding up. Yeah, there's been some tightening of credit conditions and things of the like. And, you know, lending is is tightening a bit. But nothing in there suggests that we're about to fall off a cliff. Which means that nothing in there suggests that the Fed's going to start cutting interest rates rapidly in the back half of the year, meaning that if you don't see credit conditions tighten significantly, if you don't see a sharp tightening or, sorry, loosening in the labor market, then why would the Fed be cutting interest rates? Because they are concerned that if they ease liquidity, inflation could come back. And so when we think about what the bond market is already pricing in, it means that it's just not consistent at all with the current economic data.

What if the Fed just does one more and then leaves it there, like Bostik on this network suggested yesterday? Does that make you feel any better, if that's the right word, about where you think the trajectory of rates and Fed policy goes? That's still more hawkish than what the bond market is pricing in. There's about 80 basis points of cuts priced in by the time we get to January. And then it's a question of if they pause, will financial conditions ease even further? Financial conditions have retraced 90% of the tightening post-SVB. So that just says that we're in easy territory. If we see a higher inflation print,

the Fed's going to push back really hard against this easy market pricing. So you believe the Fed over what the bond market is saying? It's been the right thing to do ever since the start of this tightening cycle. I know, but you know what they say about the bond market. Nicole, quickly to you before we go, and I do have to go because I have got some breaking news coming up in just a second. This idea of the Fed, how are you thinking about it based on what you've heard from Fed speak lately? The idea that, OK, maybe May is one more and then we're done. Yeah, I mean, there's a lot of balance in bad, bad information and good information. And so looking most recently at some of these pockets of of positive, meaning we're starting to see the real estate market move again. You're starting to see the real estate market move again.

You're starting to see kind of empire state manufacturing information come positive. So to us, the Fed certainly is hiking 25 basis points. We are expecting to enter a low growth environment. That doesn't mean a no growth environment to us. And so we think it's a tale of two narratives, what the market is looking to and what the Fed is looking to. And we are hoping that inflation can come down faster than economic conditions erode and that we can truly kind of play into a slow growth environment where we see some adjustments up like we're seeing from companies like Johnson & Johnson just this week. OK, good stuff, everybody. Thank you on the walk up to Tesla and markets at large. I appreciate it, Nicole and Cameron. And of course, Dan Ives. Quickly to our Twitter question. We want to know, will Tesla rally or sell off after earnings? You can head to at CNBC closing bell on Twitter to vote.

We got the results coming up a little bit later on in the hour. We do have breaking news, though, regarding the Supreme Court. Our Bertha Coombs has that for us. Bertha? That's right, Scott. This is a ruling on the stay that was issued last week by Justice Alito on Mifeprestone. He is extending that stay until Friday at midnight, April 21st. First saying, upon further consideration, it is ordered that the stay is hereby extended until Friday. Now, this case is one where a Texas judge ruled that Mifepristone, this is the abortion drugs, should be limited. You had another judge in Washington saying that it should not be limited. And the parties all went to the Supreme Court to ask for some clarification on this. The Fifth Circuit in

New Orleans is scheduled to have a hearing on that Texas judge ruling on May 17th. So we've got a lot of dates still ahead. But at the moment, everything is on hold until Friday at midnight. Scott. All right. All right, Bertha, we appreciate that update. Bertha Coombs, thank you. We're just getting started here on Closing Bell. Up next, EMJ's Eric Jackson is back. He is long Tesla. Got some other tech stocks, too. We'll find out what he is watching ahead of that report, where he sees that sector heading as well. We also have a check on the regional banks. We're going to break down the names making big moves in the final hour of trade. Many, as you see on your screen today, are up and up nicely. We're live from the New York Stock Exchange. As always, you're watching Closing Bell on CNBC. Let's get another check on

some top stocks to watch as we head into the close. Pippa Stevens is with us today with that. Hey, Scott. We'll start here with travelers off the best levels of the day, but still the top performing Dow component by a wide margin. That comes after the insurance giant beat top and bottom line estimates during the first quarter. Travelers also raised its dividend by 8 percent and boosted its buyback program by 5 billion dollars, though shares up 7 percent. Then turning to United also getting a boost after earnings despite the airline posting a net loss for the first quarter. Today's strength is all about the guidance. CEO Scott Kirby said United expects a second quarter profit thanks to strong bookings for the start of the peak travel

season. And that does echo what we heard from rival Delta. United's Kirby also told Squawk Box this morning that business travel bookings were down double digits, quote, literally overnight following the collapse of Silicon Valley Bank, but that those bookings, Scott, quickly rebounded. Back to you. Yeah, pretty bullish forecast. Pippa, thank you. Pippa Stevens, Tesla shares trading lower as that company gears up to report earnings after the bell. So what should investors be looking for in today's report? You heard from an analyst. You heard from the strategist. Now you'll hear from a shareholder. EMJ Capital's Eric Jackson is with us. So how are you feeling here going in? I know you're feeling good because

the stock's up a lot this year. But now what? Well, most people are saying that these price cuts are coming from a position of weakness. I see it as coming from a position of strength. I agree with Dan on the last segment that China's a special case market. It's very competitive. The rest of the world, though, Tesla's way ahead of everyone else in terms of EVs. And even though more EVs are coming, I sense no palpable interest in kind of, you know, the regular Joe in, you know, who's holding off purchasing an EV because they can't wait to get their hands on an EV from GM or Ford, whereas Tesla is a known brand. It's well known. And so I think Musk sees cutting prices as a way to keep ahead of the game, to keep the boot on the throats of these

competitors to the point where they just will not be able to compete and they're going to lose a lot of money in the process. So I know, but positive. But six times and counting, I mean, even Ives himself, who you say you agree with, says they may not be done and they likely aren't. Well, one interesting thing is if you look at, you know, the big major price cut that they did in January, January 13th. There was a huge spike in app downloads for Tesla as well as Google searches for Tesla on that day. And anytime they've done a price cut, the searches or the downloads have increased. And all this quarter, Q1, basically the average app downloads and searches are about double of what they were for all of 2022. It's about triple of what it was in 2020. So to me, that says, you know, the more time goes on,

the more deliveries there are, the more interest there is in Tesla. And so and there's still pent up demand if people are spiking to go check out, you know, what what what they can buy the latest Tesla for now with these price cuts. So that's a positive. Well, why aren't deliveries going up as prices continue to come down? Well, Q1 deliveries were a record. I'm talking about forecasts for the entire year. It's not like, OK, we're cutting prices.

We want to be more competitive. Demand hasn't waned whatsoever. But yet we're not taking our overall estimates up for how many cars we're actually going to deliver this year. Is there a disconnect somewhere? That's all I want to know. Well, I think the disconnect is that, you know, we were supposed to do one point eight this year, up from one point three last year. I don't think a lot of analysts buy that that we're going to see that big an increase. So I think the surprise could be actually coming in at that number or even beating that number.

It's going to be a pleasant surprise. I think deliveries is the key, Scott. And the gross margins is a bit of a sideshow. Just like for Netflix, it's all about paid subs. It's not about ARPU or it's not about free cash flow. I mean, there's lots of metrics you can point to. But if they get the delivery numbers, you know, whether it's at a 20 percent gross margin, a 22 percent or 17 percent, you know, it's cars and driveways. It's lifetime customers signed up. It's upselling a bunch of those folks to things like FSD, full self-driving, and where they're going to make it back up. What about broader tech? Because it all plays into a similar story of this sector has just run so much to start the year. How are you thinking about it now?

Well, I can't think of a time in the past when the Nasdaq's been up 15 percent. And I hear so many people that are downright bears. It's been it's been a crazy year. Even now, we've had this run and, you know, people say that's an excuse to get out of it. This is going to be the third tech season in a row, starting yesterday with Netflix, where people are thinking that, you thinking that tech earnings are going to be absolutely awful. They weren't for the last two. And we'll see about this year. I think tech is going to continue to show resilience.

The US dollar is weakened. That's going to be a major tailwind for the big tech names like Microsoft, Apple, Meta. Amazon's coming off two bad quarters in a row. I doubt that they're going to do it three times in a row. So I think it's more likely they're going to be successful there. So, you know, you had a little stat on in the Halftime Report today about how, you know, all the big tech accounted for almost like 50 percent of the Nasdaq 100. So if these names deliver, that's going to be a huge shot in the arm to the Nasdaq. Yeah. All right. I appreciate

you watching. Eric, thanks. We'll talk to you soon. That's Eric Jackson of EMJ joining us once again. Up next, a major Macau bounce back. Las Vegas Sands also reporting after the bell. Don't sleep on that one. It's going to give investors a key look at the China recovery. We're going to give you the rundown of the key themes and metrics you need to watch before that report hits. We'll do it next on Closing Bell. You know by now it's a big afternoon for earnings. We do have full team coverage of the key names reporting in OT. We're going to get to IBM shortly.

But first, Christina Partsinevolos is standing by with a look at Lamb Research. Christina, and we're looking at what to expect from Las Vegas Sands. Contessa Brewer is going to start us off. Oh, that was a swap right there. We thought we were going to Christina, Sands. Contessa Brewer is going to start us off. Oh, that was a swap right there. We thought we were going to Christina, but no, Contessa beat her to the punch. I messed that up. That's fine.

Full disclosure. Thanks for noticing. Well, you know what? I just call it like I see it. First quarterly look here at Macau's recovery. Government data shows that gaming revenue was 65% of pre-COVID levels in the first quarter. In March alone, up nearly 250% over last year, a vast improvement. Now, when Sands reports, the focus will be on profit margins, on operating expenses and market share. Mass market tourists have replaced a huge chunk of the junket and VIP business. So does LVS get a competitive edge with that shift to

mass market and away from the other business? On the earnings call, we'll get some insight into the challenges in the recovery, especially labor shortages. Singapore results will also be in focus and possibly Sands bid for a New York casino, which, of course, Scott, would reestablish the company domestically after it sold off Las Vegas. Yeah, no doubt. These stocks had done quite well. So we're going to see what happens. Contessa, we'll be following that, obviously, with you.

Christina, now Lamb Research. I'm going to get it right this time. Over to you. Yeah, my turn. Wall Street largely expects Lamb to hit quarterly expectations. But I want to focus on two areas. Firstly, we're going to be looking for any weakness in foundry spending. In other words, less spending from chip manufacturing hubs. LAM makes way for fab equipment, and the big spenders like Samsung and Intel have made

comments about CapEx cuts. TSMC is an integral LAM customer, and it's rumored to cut CapEx, but we won't know that until tomorrow morning, very early. Secondly, further weakness for memory chip makers. Prices have dropped dramatically this year, as emphasized by Micron's worst and most recent quarter in history. You can see shares over the past three months are only up 8%. But investors will want to know if the memory cycle is finally turning around, given LAM is a pretty good proxy for the memory market. It provides the equipment to memory makers.

LAM Research, for now, is up 16% year-to-date and slightly underperforming the SOX ETF, which is a great barometer for the chip sector. Those are the two things I'll be looking for. Scott? No, you laid out perfectly because there is a debate right now. I've read notes this week, and I think we talked about it earlier in the week, if not late last, about the question over whether the worst is over for chips. Again, we can't put everything into one bucket.

I know you and I have talked about this many times before, but with memory, it seems like it might be the worst is over, given what we saw with specifically with Samsung's latest quarter and Micron. And that could bode well for lamb, but we may have to go through the pain first. All right. We will see. Christina, thank you. Contessa, thank you as well. Up next, we're tracking the biggest movers as we head into the close.

Pippa Stevens back with that. Hey, Pipps. Hey, Scott. Well, banks are the story of the day. Who's winning so far and what to watch after the bell. Coming up next. We have about 20 minutes to go before the closing bell. Let's get back to Pippa Stevens now with a look at the key stocks we are watching, Pippa. Hey, Scott. Well, it is all about the banks here. Western Alliance and other regional names like First Republic up today, despite some earnings misses.

Now, Western Alliance's net income declining by more than 50 percent from the previous quarter. But investors are heartened to see signs that deposits are rebounding. In April, the bank said it added two2 billion in deposits between March 31st and April 14th, with the CEO saying that waters are calmer. That comes after deposits did decline 11% in the first quarter versus Q4. Now, this morning, Wedbush upgrading the stock to an outperformed rating and adding it to its best ideas list based on that rebounding deposits metric. Now, another regional bank, Zions Bancorp, is riding the wave up more than 7 percent today. Now, Zions does report earnings after the bell and investors will be focused on deposit trends, which has really, Scott,

become the all important metric to watch. Back to you. All right. Pippa Stevens, thank you very much. Last chance to weigh in on our Twitter question of the day. We asked, will Tesla rally or sell off after its earnings? Head to at CNBC closing bell on Twitter. We'll bring you those results after this break. The results of our Twitter question, we asked, will Tesla rally or sell off after earnings? The majority of you said sell off. Pretty close, though. Fifty five point three. Forty four point seven on the other side and we're going to see an overtime. In just a little bit up next we have your earnings rundown we said Tesla IBM also gearing up to report the key metrics every investor needs to watch just ahead that and much more. Well you know what's coming the market zone is next. We're now in the closing bell market zone. CNBC senior markets commentator Mike Santoli with us now to break down the crucial moments of the trading day. Phil LeBeau, of course, on Tesla. Christina Parts and Nevelos on IBM ahead of those earnings reports. After the bell today,

Mr. Santoli, we're selling a little bit as we approach the close here. It's been obviously narrow range, volume light, volatility kind of sleepy. Regional banks as a group of 4% is probably the story and maybe an answer to the if, you know, if big growth stocks sit still for a while or pull back, what happens? So it seems as if the market is saying we're moving on from expectations of further banking stress. We've probably had to build back a little bit of Fed hawkishness into the storyline, but not really nearly where we were in early March. And we're dealing with a market that is, by everybody's observation, bumping up against what's been the ceiling, both in absolute price and valuation.

But what I'm seeing is a lot of people not only saying that the volatility is too low, but buying calls on the VIX index because they want to bet that this is going to be a low. And I think that that's almost a good sign because people are not extrapolating the recent strength. We've been digesting an 8 percent rally over the last four or five weeks. And, you know, that's that seems to be more normal and healthy than it is worrisome. VIX could get a 15 handle on it while we're having this conversation. Not at all. You mentioned building back some of this hawkish Fed speak. You're alluding to the fact that yields were up throughout much of the day and that really capped the action as it was going to be anyway.

It seemed like it did. At least it caused a little bit of reason for reflection on exactly what we're talking about in terms of the story. I still think we're in a decent zone where you don't have to get too uncomfortable about yield levels. And also, if you look at the six-month, the one-year yields, they've perked up, but they're still well below where they were in early March. Again, back then it was 6% is the terminal rate. Now it's maybe we're getting one more. And if we're getting more than the one more rate hike in a couple of weeks, it'll be mid-June, right? So two months from today, you might get half a point. I know that sounds incremental. You're going to be around debt ceiling worry back at that point. Are we really going to hike into that?

So a lot of things are coming into the mix, but I don't think any of it is really causing a lot of acute stress at the moment. Tesla is so emblematic of what has worked to start this year, right? To a fair degree, it has. And it's really been more rebuilding some of the optimism. It's been capped not far above $200 a share. That's basically, if you look back a couple of years, that looks like it's going to be formidable as a bit of a shelf on the chart. I remember, though, at the beginning of the year when we were saying, wow, Tesla's back. It's 100 bucks. Yeah, no, exactly. And it's up 20 percent since the last time it reported earnings in late January.

So in theory, the bar ought to be a little bit higher here for what they have to deliver. How about that, Phil LeBeau, the bar being higher now? It is higher. But but that, Phil LeBeau, the bar being higher now? It is higher, but look, let's be honest, and I know you had a guest on earlier who said, oh, come on, it's not just about the margins. It's about deliveries. No, I'm sorry. It is about the margins. That is what the street is looking for. So whether you like it or not, the automotive gross margins, excluding zero emission vehicle credits, that's what people are focused on. The expectation is 20 percent, 20.5 to be exact. Look, if it comes in at 20.9, I wouldn't call it a huge beat. Comes in at 20.1, I wouldn't call that a disappointment. But if it's in the teens, as Dan Ives has said,

then you've got a different story. The pricing outlook and obviously what's happening in China, both in terms of production and sales, that's what we're going to be watching for when they report. And obviously, what Elon Musk has to say a little bit later on during the conference call. He always drives the stock after hours. Scott? You'll pardon the pun. I know you will. Price cuts.

They might not be done, according to Mr. Ives, who was on, as you said, at the top of our program. They've already cut six, so it's six and counting. Yep. Six and counting. And look, in China, don't be surprised if there are more. I don't think we can fully appreciate just how competitive the market has become in China. It's already the world's largest EV market. The number of EV players there, far greater than here in the U.S. or in Europe. And the Chinese automakers are becoming extremely aggressive. Look, BYD is out with an $11,000 entry-level EV. Is it the same as a Model 3? No. Is it attracting attention and likely will attract attention in buyers? You bet. And so

that's going to be what the pressure is that people are going to be focused on, not just with this conference call, but this year. What is happening in that EV market in China? You know, the other thing is whether Musk himself is going to be on the call. Do you expect that? And it goes just back to that issue that's been the overhang for the last year, which is eye on the ball. It's seemingly talking about everything these days, but what's happening at Tesla? Having said that, Scott, first of all, I do expect him on the call. And if you listen to these calls, even going back to the when he first started saying he was interested in buying Twitter, these calls have been about Tesla. He has he has gone away from some of the kooky off the reservation comments that we would hear a year and a half,

two years ago. He's much more about here's the business. Frankly, the calls are kind of boring relative to what they used to be a couple of years ago. So I do expect him on the call and he's been all about Tesla on these calls. So I think it'll be interesting to see what he has to say today about the business of Tesla. Yeah, I wasn't necessarily referencing

what he says on the Tesla calls. It's about what he says seemingly everywhere else. Phil, thank you. We'll see you after the bell, of course, with those results. You have a comment on that? No, I mean, I think that boring is good if you own Tesla. He has the boring company, too. That's true. What you can't get around, though, is the fact that in the last six months, earnings estimates for this year for Tesla are down two bucks from six dollars to under four. And for next year, down two bucks from 750 to 550. So maybe that is a hurdle that's easy to clear at this point in terms of those earnings.

But it doesn't help the valuation. So what I do think really for the stock to get moving again is to have people decide that the excitement is back, that there is a big new long-term story that we can start betting feverishly on again, as opposed to, hey, what multiple do you want to put on six bucks in earnings for next year? Because that's not going to be the thing that really gets things running. You hear from Christina Parsonevelos from shareholders on IBM who say the excitement's back there. I mean, the stock was one of the best performing tech stocks of last year, if not the

best. Now, it's a bit muted this year, but there's a lot riding on this report, too. I know. That's what I was just going to say. This is a legacy name, but I'm expecting it to be a little bit more exciting. And that's because a lot of people are not sure about what to expect. The bread and butter is their software segment. It's high margins, profitable, contributes 40 percent to total revenue. And that's expected to have the slowest rate of growth within revenues and profit just in the last two years or so. So we're starting to see that slowdown. Why? Competitions ramping up. The macro environment, there's still questions about IT budgets from all over.

And then you also have a small little point, too, is the exposure to financials. IBM is on fifth or works with 50 largest banks in the United States. So will any of those deals be pushed back to the second half of this year? In general, that's something that we keep in mind. And then there's another little point, too, Scott. There's these costs, these costs that are coming in this quarter, costs associated with the spinoff of Kindrel, with the divestiture of Watson Healthcare. So these are possibly $300 million in costs. And then the other one is the cost associated with, unfortunately, laying off employees.

IBM was said to lay off, what, roughly 4,000 employees. So, of course, there's going to be some labor expenses with that mix. But I've laid out the negatives. The positives, though, is the company has a bread and butter of consulting business, which is still expected to do quite well. And they have already reiterated that the second half of this year is going to be even more profitable. So maybe we might see a little bit of weakness in this quarter, you know, wrapping us up like we saw we were talking about with lamb for the second half of this year. Yeah. But the bulls are like red hat, red hat, red hat. It's all about that going in.

It all it always seems to be these days, right? Yeah, of course, with the exposure within just the cloud and that entire segment. That's what we care about, right? When IBM's numbers come out. All right. And we'll see them from you. Thank you very much. That's Christina Partsenevelos there. Again, legacy name. Yeah. Huge winner last year. It was a good winner last year. Very defensive. I mean, it's still kind of in a long-term sense in the penalty box. You don't get a 5% plus dividend yield and trade at 12, 13 times earnings if people really believe that you have financial momentum. But it's, you know, the execution has been, I think, better by most accounts, even if you can quibble with the earnings quality almost every single quarter.

If you want to actually turn a negative into a positive, it is IBM has been retrenching for decades in some fashion or another. So the idea that you have to be more careful about costs and can't assume huge top line growth, that's not new for this company. So we'll see how they come through. What's also interesting is other kind of left aside legacy names like GE. Has anybody watched GE recently? It's just been up to the right.

I'm going to go closely because it's been an amazing looking chart. It finally got under-owned. It's kind of capital goods in oligopolistic industries, whatever the reason. It's working right now. It's a cleaner story, I think, is probably the idea and just got, you know, essentially underloved enough that it's at least working now. I mean, she's an IBM also. If only Intel could feel a little bit of that. Yeah, you can go in turn if you wanted to. I mean, Oracle's been a decent stock. That's

not quite as old and legacy as those. So you're right. I mean, you know, Intel, things like Broadcom, which I think has inside of it a lot of the kind of just nuts and bolts type of legacy tech businesses. So some of that stuff is working. I was looking recently, you know, the overall index got valuation challenges, but I think it's still mostly at the very top mega cap level. A third of the S&P 500-ish trades at under 15 times this year's

number. So people who think that it's a stock picking moment have a lot to do, even if it doesn't feel like there's anything you can be comfortable with, because it's, oh, what, I got to buy insurance companies? I got to think that energy earnings can stay strong? Or it's these kind of consumer cyclicals where it's just unclear as to whether you can believe the story. I think we were asking similar questions about whether we could own the banks right now. Yes, that's right. And they have answered the call, I think, in some respects.

We've gotten through the major ones. And as you said at the outset of our conversation, as we've headed towards the close here, the regional banks have had one hell of a day. They have had a good day. It doesn't look like much if you look at a longer term chart. So you're still kind of bumping along and they are not far off their lows. Maybe that does mean more catch up potential. It's very much a story of the the select giants in banking, which seem relatively bulletproof right now and whether you want to pay up for them. There's a chart I love to look at, which is JP Morgan relative to the community banks index. And it's just absolutely

shot vertical to the sky because everyone has felt as if that those are only a handful of banks that you can comfortably own. I know a lot of people are concerned that banks have not outperformed since the October low. That's a valid point. Usually you want to see banks, if not lead, then participate in the upside. So, you know, there's something to prove there. I think in general that the banks can get a little bit of a lift. Morgan Stanley on target numbers today. And, you know, stock has responded relatively in a comfortable way, I'd say, even though no real new fresh reasons to bid it up.

Unless you think that the capital markets are improving. Why do I say that? Because it relates to Morgan Stanley. It relates to Goldman Sachs. And the information has a report that just moved a little bit ago. SeatGeek filing confidentially for an IPO this month. It just makes me think, OK, the thaw. Sure. Is the thaw here? Look, there's absolutely a backlog of companies that in 2021 would have been public already for six months. So there are real businesses out there. I would have expected, yes, some venture backed and maybe even some private equity owned companies will break that, you know, kind of break that log jam perhaps at some point. And once one gets through, others are going to try it. So, yeah, that's a that's a bright spot. If we can trade up here at the top end of the range, a niche e-commerce company like like SeatGeek might be, you know, the thing to do because there is a sort of a longer term story and people know similar businesses. We'll see if that comes through. Yeah, the SBB collapse and all the drama around that certainly didn't help, you know,

what's going on in terms of the private markets and companies trying to go public. But there's the bell, and we got those earnings awaiting. Tesla, IBM, Las Vegas, Sands, even more. Morgan and John pick up the story in overtime right now.