Closing Bell - Closing Bell: Navigating Midsummer Turbulence 7/24/24

Episode Date: July 24, 2024

Charles Schwab’s Liz Ann Sonders, Hightower’s Stephanie Link and New York Life Investments’ Lauren Goodwin reveal how they view today’s big market move … and what they’re forecasting for the months ahead. Plus Yung-Yu Ma from BMO Wealth Management breaks down how he is viewing the tech trade amid today’s big slide in the mega caps. And, AT&T was a bright spot in a down tape today. Julia Boorstin explains what sent that name higher. 

All right, Kelly, whether you want it or not, welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with the giants of the Nasdaq stumbling and sending tremors through the rest of the tape. Another weak Tesla quarter, as well as imperfect results, I'd say, from Alphabet, taking its toll on no stocks and concerns about the staying power of the AI investment boom, toppling NVIDIA, taking the NASDAQ down more than 3% for its worst day since the fall of 2022. So essentially since the bull market began then. Throw in some consumer slowdown worries

and a revived debate over when and how much the Federal Reserve should cut rates, and it makes for some tricky cross-currents. Now, the beneficiaries of this recent rotation away from mega cap tech, that would be small caps, financials, down industrials. They've gamely tried to withstand the selling pressure with mixed results. They've been slipping over the past hour.

Here's your scorecard with 60 minutes to go in regulation. That is that NASDAQ composite down 3.4%. The S&P 500 has not closed with a 2% daily loss since early 2023. That's one of the longest stretches in history without a 2% down day. Russell 2000 mentioned earlier, it's been actually flirting with the flat line earlier, now down a full percent and a half after its huge run over the last two weeks. The volatility index taking notice here, flirting with the 18 level. That's good for about a three month high. It was from that 5% S&P pullback back in April. So that takes us to our talk of the tape.

How should investors view and react to this bout of midsummer turbulence? Charles Schwab's Lizanne Saunders will be here in just a moment to help put all these moves in perspective. But first, big moves in Alphabet. Tesla and the semis. Steve Kovach and Seema Modi are tracking all of that for us. And we begin with Steve on Alphabet. Hey there, Mike. Yeah, so these big headlines coming out of Alphabet earnings yesterday were slowing ad growth and more spending to build out AI cloud infrastructure.

That's putting pressure on the stock today. On the ad growth front, it was up 11% year on year, though slower than it was last quarter. And YouTube ad sales slightly missed expectations. As for CapEx, this is the big one. CFO Ruth Porat said Alphabet will continue to spend at least $12 billion a quarter while cutting expenses outside of AI. CEO Sundar Pichai said he'd rather overspend on CapEx than misread demand and underspend. That injected some more uncertainty and even less detail on AI Search, which just launched a couple months ago. Pichai talked about increased engagement with the product, but no details to show

it can actually drive search sales the way other verticals already do. And it's the questions around CapEx that will continue to plague Alphabet and expect that theme to continue, Mike, next week when cloud leaders Amazon and Microsoft report their earnings. Absolutely. A big emerging theme, Steve. Thank you. Let's send it over to Seema Modi for a look at the move in semis and in Tesla. Hi, Seema. Yeah. And Mike, if we take a step back, the semiconductor stocks on pace for their worst day since July 17th and now are responsible for nearly 40 percent of the Nasdaq 100's losses. Questions investors are trying to answer. What does Google's CapEx number tell us

about spending on chips? That's where the big semiconductor names are making most of their money right now. Separately, Tesla CEO Elon Musk on the earnings call voicing his frustration in procuring NVIDIA's chips to Power Dojo, that's its supercomputer, saying he does see a path to being competitive with NVIDIA.

Not an easy lift given NVIDIA's dominant role in producing graphic processing units for all the artificial intelligence players. AMD is trying with its M130 chip, which is the equivalent to NVIDIA's H100. But UBS channel checks suggest demand for NVIDIA's chips remain the strongest. And even with the sell-off, we're not seeing any price cuts or downgrades in the last 24 hours, although I would point out NVIDIA now down 6%. And tomorrow we do get earnings from SD and microelectronics, AMD and Intel next week. So that will be important too, Mike. All right, Seema, thank you.

Joining me now is Charles Schwab's chief investment strategist, Lizanne Saunders. And Lizanne, great to have you today. I wonder what the market action is telling you here, whether it's about how high the bar is for earnings results or whether we're starting to doubt the soft landing scenario that pretty much had infused markets for months now. I do think that there is some doubt with regard to the soft landing scenario. And I think Dudley's comments reinforce that when you look at the lift off the lows and the unemployment rate and some other cracks that we're seeing, not just in the labor market and potentially a double dip in housing and manufacturing kind of heading slightly lower again after some hope that it was going to pick up. I think obviously the lift in small caps started with the more benign CPI report. But I think what's happening now is there's a bit of differentiation within the small cap universe. And our take has been you want to

fade the low quality part of that move because with this extreme outperformance on the part of small caps has come a huge drop in forward earnings estimates for that index. And I think that that just highlights that there's still a lot of zombie companies, non-profitable companies. And if you want to look for opportunities and lean into this rotation, you definitely want to stay up on quality. Yeah, it's an interesting point, Lizanna. One thing that I've been hitting on is normally when you see this huge surge in the Russell 2000, a lot of the lower quality laggard parts of the market, that signifies really, you know, an early cycle move or the end of a recession or something, you know, bad in the economy that's going away. It seems not to be the situation we're in right now. And I guess the other piece of it is we're starting to ask about the resilience of the underlying economy here to some degree. And we had

that, you know, op-ed by former New York Fed President Bill Dudley today saying Fed should cut rates in July. It feeds into a sort of a sub-narrative that's been going on right now. It feels like the market's at least sensitive to the downside risk at the moment. Yeah, you know, we had the Goldilocks moment in the aftermath of the CPI report, we do have GDP and the now cast kind of hanging in there. But I think that that hope for Goldilocks persisting may have dampened a little bit. And we're at that point where it's not just about monetary policy expectations, but the underlying health of the economy.

And now it's not just that bad news is good news from the perspective of what the Fed is going to do. But what does it mean for the for the economy and earnings? You know, we saw so much valuation expansion without a commensurate lift on the earnings front. And now that we've started earnings season, certainly with some of the mega cap misses, profit taking has kicked in. Now, that being said, I mean, even if you looked at the projections, the broader group of stocks outside of the real kind of secular growth areas weren't really supposed to start carrying their weight on the earnings growth side until later this year. So right now we sit with the S&P like four percent off a record high. Arguably, it came in fully valued into July. It's, you know, the sentiment was pretty optimistic, you could argue. And so we're

working some of that off. And I guess the question is, sure, the market's concerned with the possibility that the economy falters. Are you concerned about it or how would you navigate it through investing? Well, keep in mind that even before the CPI report, when the S&P and the Nasdaq were at all-time highs, and I think we talked about it on this program a couple of times, at the point where you had no more than a 7% maximum drawdown in the Nasdaq at the index level, the member has had a 40% maximum drawdown. So this idea that the market has been incredibly resilient in the face of all these uncertainties, be it monetary policy, the election, geopolitics, wars, et cetera, all you have to do is look under the surface of the cap-weighted indexes to see that

there has been a lot of churn and turmoil. That, in turn, bred opportunity because that valuation gap is so significant between the Magnificent Seven and the rest of the market. And I think there was that setup for convergence here. And that convergence is actually supported by the forward estimates, Mike, to your point, where by the third or fourth quarter this year, you will have seen the Mag Seven forward estimates come down and the rest of the market catch up. And I think that's been part of the basis, the fundamental basis for this rotation that we've seen.

Yeah. And actually, of course, that convergence, it's perhaps early, but it definitely has begun. Even today, the equal weighted S&P is down less than nine tenths of one percent. You have the market cap weighted down more than two percent. And in fact, that equal hits only down two and three quarters percent from its own record high. So therefore, obviously, the math works in both directions when you have a highly concentrated market. What about the the bond market moves? And I guess in response to sliding or shifting Fed expectations? You know, it's funny, we've We've had the steeping of the yield curve, particularly the tens twos. And I've gotten a lot of questions or maybe I should suggest that their comments about, well, now, based on what may be an inversion in the yield curve, we don't

have to worry about recession risk anymore. That's actually not what history shows. It's not the inversion that is sort of the trigger or some timing component of recession. It's when the steepening starts and actually you're back into positive territory. So it's just interesting if you were to look at a long term chart of the yield curve and then put recession bars in, it's the steepening back into positive territory that has been the precursor to recessions, not the initial inversion. Yeah, well, that definitely is what the record shows. We're not fully on inverted yet, I guess, on two year versus 10 year. We'll see how that goes. Meantime, let's bring in Lauren Goodwin of New York Life Investments and Stephanie Link of Hightower Advisors. Stephanie, of course, a CNBC contributor.

And Lauren, I mean, I guess we can kind of gauge this on a spectrum of pure seasonal noise, regular old pullback in an overbought market to a bit of a warning shot about the macro picture. How do you think about it? I'm taking a lesson from the activity we're seeing in tech today, but not a trading signal. And that's because though we are seeing a little bit of uncertainty around the path of the economy ahead and really the concentration risk that these large cap tech names provide, overall, earnings so far have been pretty good. It's only 10% of companies reporting in, but outside of the sectors like industrials or materials where you expect to see a little bit of weakness, things look fine. And it's our expectation that the equity market rally can look through days like this,

as long as that's the case and as long as employment remains in good shape. Now, what this type of uncertainty does tell us is that when there is a transition point, it's going to happen quickly. And so rather than, to Lizanne's point, moving into small caps or lower quality segments of the markets, we're taking gains and putting them into work in fixed income where we can lock in higher rates. I particularly like short duration, high yield bonds in this context. OK. How close would you say we might be to that point where employment is no longer OK? Our expectation, it's the magic question, actually.

It's, you know, our expectation is that we start to see that weakness in employment looking much clearer, jobless claims ticking higher by the end of the year. But looking at the leading indicators of employment, all of which have been slowing, they've been slowing for two years. So it's incredibly difficult to call. And it's an environment where with cross- cross currents like what's happening with the Fed, with earnings, with politics, portfolio construction, as boring as that sounds, is so important. Most investors, if they haven't made meaningful changes or if they've been excited about what they've seen in the equity side of their portfolio, are probably

overweight equity relative to where they should be heading into this late stage of the cycle. And probably overweight the largest ones, I would assume, if you're in the index. Steph, give us your read on earnings season to date and the reactions. Obviously, a lot has to do with the setup, people reading between the lines. What did Visa say about the consumer? What did it really mean? So what's your initial takeaway? I think the earnings are coming in OK, around 8% in total. Just a small fraction have reported, though, so we still have ways to go. But the expectations are really high.

I mean, I think that's classic. I think you have to separate Alphabet and Tesla. They're two totally different stories. Alphabet was up about 32% since March. The quarter needed to be perfect, and a lot was very good in terms of search and cloud. YouTube, not so much. And higher CapEx and higher marketing, so that means margins aren't going to be as explosive as they were. But generally speaking, a good quarter, just an expensive stock for what you're getting.

You're getting 15% total revenue growth growth and you're paying 23 times forward. Now, fast forward to Tesla, terrible quarter against very high expectations, up 53% since April. And the quarter was really disappointing. And not only was it disappointing, but the gross margins continue to fall rapidly down 180 basis points sequentially. That's just not something that is good for the bottom line. You're getting deleverage, right? We want operating leverage, positive operating leverage. That's absolutely the opposite against high expectations. So I wouldn't touch Tesla. I'm not involved in Alphabet. But I don't think we want to extrapolate that these two quarters all of a sudden mean the game is over. I think you want to be very careful. The expectations are very high, but they're not

very high. They weren't very high for financials, and financials are acting quite well. There are pockets of industrials. Look at GE. Look at GE, Vernova. Some of these companies are doing quite well. There are pockets within industrials like aviation, like power, like electrification. So those are areas where I think are OK. Look at D.R. Horton last week.

Yeah, only 1% order growth, but margins expanded. And if they can do that in a down recession in housing, they certainly are going to do better as interest rates fall. So I think this is a stock picker's market. There are a lot of companies that reported good numbers, like Schlumberger, Koch, GE, as I mentioned. Look at Seagate today, Texas Instruments. These are names that you want to put on your list

if the market continues to be volatile. And the reason it's volatile, the market's volatile, is because we have a whole bunch of things that the ladies just talked about. Political environment, Fed, economic growth, and now earnings against very high expectations. Just sit back for half a minute and wait for opportunities. It is absolutely noisy, Steph. Although, you know, one thing that you mentioned in terms of Alphabet's numbers, there's no doubt. I mean, this is not a bad quarter. This is just relative to pretty elevated expectations. But if there were one thing that you could say, what would really scare people out of the biggest market cap weights? It's actually AI is malinvestment here. We're not getting a payback.

Everyone's going to throttle back just as fast as they ramped up. You are seeing Microsoft and Meta. They're all kind of down in sympathy with Alphabet. So I just wonder if that's something you would at least kind of keep out there in your peripheral vision as something that might come to bite. I think AI is the real deal, and I think we're in the second or third inning. The problem is the stocks, the hyperscalers, they're all up a tremendous amount in the last year on this. So it's all about relative to expectations. There's no question in my mind. AI and cybersecurity are one trillion dollar investment spends and total addressable markets by the end of the decade. You just want to pick your spots. Lizanne, you mentioned earlier about kind of the the way that small caps have ripped so dramatically against the rest of the market.

And what that seems to suggest and whether that's an overshoot in terms of people just grabbing for the higher beta, lower quality stuff. I do think it's worth a reminder that in periods when small caps have really outperformed in a big way, let's say if you go back 20 plus years, it was largely because big caps had a struggle. I mean, they were down in absolute terms. Right. So I wonder how you think about the relationship right now and whether the fact that so many stocks didn't participate on the upside has insulated them from from any further bumps or how that plays out. So, again, I would expect to continue to see convergence where you persist with this profit taking up the cap spectrum and there's money looking for opportunities down the cap spectrum. It was somewhat indiscriminate in the early stages coming off the CPI report, pretty much everything within small caps.

But one way to think about the differential in terms of that quality spread is just look at the forward earnings estimates for the Russell 2000, which have imploded versus the S&P 600, which have not, because the S&P uses a profitability filter when constructing that small cap index. It's not used as much as a benchmark. But for the stock pickers out there, if you use indexes as a source for opportunity, the S&P 600 index is much higher quality because it's got that higher quality denominator in the equation and in turn doesn't look as lofty from a valuation perspective. And I guess, Lizanne, you know, do you have a sort of a settled view on when the Fed

should move and how much it's likely to have to do and whether, in fact, any cuts that come are going to be of the sort of optional insurance variety or if they're going to have to be helping out a weakening economy? Yeah, you know, we were not in the camp that the market was at the beginning of the year with a March start and six or seven cuts. We were very vocal in saying the market had gotten way over its skis. Now, with a 90 percent expectation of a September cut, that feels right. Now, what I wouldn't anticipate is a formal

telegraphing of that at next week's FOMC meeting. Inevitably, Powell is going to have to touch on it, particularly in the press conference. But to get that actual telegraph, that's more likely. We think it's more likely to be at the Jackson Hole speech versus at the July meeting. But we think September is likely. And then, you know, one or two cuts. But obviously, they're they're still going to be data dependent. And we do have some key inflation reports between now and the September meeting. But I think September is a pretty good call at this point. We do. And Lauren, we have one Friday, of course, PCE. Has that been kind of de-risked,

so to speak, just because people seem so secure in the inflation side of the equation? Yeah, I think what we expect from the PCE data is to come right in line. And that's because we have evidence from CPI, right? You get clues leading up to data like that that help to relieve some of the market stress. What I think is really important for investors, and you said it right at the top of the program, is that after so long of talking about the Fed, the Fed is not the only game in town for this market. And to be honest with you, that surprises me a bit, even in an election year, that there are so many powerful cross-currents. I want to reiterate that something that Stephanie talked about, which is AI being the real deal.

Another way investors can think about this mix of cross-currents, especially with the market action we're seeing today, is that the very nature of concern around Alphabet is around CapEx. This is an incredibly capital-intensive phase of artificial intelligence. So let's follow that thread. Let's look at the infrastructure, the energy access, the undercurrents, the foundational layer of technology that can be harvested in the meantime, while the cyclical factors around AI large cap stocks play out. And you don't necessarily have to worry about that, I guess, immediately. Steph, before we go, love your thoughts ahead of IBM's results today. Stock is kind of hanging in there. And, of course, it's never really been in the exact same category as the trillion dollar club.

Yeah, no, I mean, it's trading at 17 times and it trades with the value index, right? So that's why it's hanging in a little bit less, a little lower beta. I think it's going to be mixed, Mike. I really do. I think you're going to see acceleration in software driven by Red Hat should be 9 percent constant currency growth there. That's encouraging. But consulting, we've gotten a ton of channel checks on consulting and Accenture reported, and we got some field there too. I think that consulting is going to come in worse than expected. The big thing, though, is it's only about 34% of total revenue. The other piece, the most important piece is that software services component, because that carries the most, the highest margins. I do think free cash flow is going to be the bright spot.

But 17 times, I mean, I was buying this thing at 13, 14 times a couple of years ago. So it's not exactly as cheap. But I think they should, it should hang in. And the story, the restructuring story is still very well intact as they are leaving the other, the laggard part of their business, the servers. And they're going more towards the growthier part, software and services. I think that's still intact. Yeah. Cheap for tech, not as cheap for IBM.

All right, Steph, Lizanne, Lauren, thank you so much. Great conversation. Appreciate it. We are hitting session lows, by the way, on the S&P 500, down 2.1%. NASDAQ composite off 3.4%. Let's send it over to Pippa Stevens for a look at the biggest names moving into the close. Pippa. Hey, Michael. Lamb Weston is having its worst day ever. Those shares are plunging 27 percent after disappointing Q4 results with potato and french fry company saying that frozen potato demand has softened due to menu price inflation negatively impacting restaurant traffic. The company expects the slowdown to continue in

fiscal 2025. Insurers of Bausch Health are also tanking on a report from reorg.com that the company is considering filing for Chapter 11 bankruptcy protection. Now, Bausch has denied the report. The stock was halted several times today for volatility and is now down 25 percent. Mike. All right, Pippa, thank you. We are just getting started and we are all over this sell-off. Up next, navigating the tech turbulence. The mega caps getting slammed in today's session. So how should investors be playing this move? We'll discuss that after this break. We are live from the New York Stock Exchange. You're watching Closing Bell on CNBC.

Welcome back. Stocks selling off today with the S&P and Nasdaq both having their worst day of the year. You see the Dow also now down 1%. They're being dragged down by post-earnings drops from Alphabet and Tesla, hitting the mega cap trade. Joining me now is Young-Yu Ma, Chief Investment Officer at BMO Wealth Management. It's great to have you. So, you know, a couple of weeks ago, everyone said it'd be great if this market broadened out away from, you know, mega cap tech and gave other stocks a chance to perform. It happened, you know, pretty painlessly for a little while. Now it feels like it's a bit messier. How are you thinking about this idea of a broadening market and whether, you know, it's still one that can hold up in general?

Thanks, Mike. Great to be here. Yes, it is a bit messy. Be careful what you wish for, I guess. We do have a lot of uncertainty right now. There's high political uncertainty, high economic uncertainty, and also I would call it an air of skepticism in terms of what AI can deliver in terms of profitability and productivity, at least in the near term. And the market right now is very much in a prove-it-to-me state or a show-me state and wants to see this happen or see proof on a more accelerated time frame. So I think right now we have to stick with themes that are working and that continue to work over the medium term where the money's going. We think there are areas that continue to be stable and hold up well, such as U.S. infrastructure should do well. We think areas

where spending is healthy in terms of some of the trends for things such as cruise lines, there's a lot of money in the space that's still continuing to flow into there. So we think they're healthy areas of the market. But right now, the mega caps, which have done so well and led the market, are going to struggle for a while until they can gain their footing and have more of that proof come forward. You know, on the one hand, you can tell the market is getting just a little bit uncertain about whether there's staying power in the economy and the consumer can hang in there. You get some stories about credit losses and and lower spending in certain areas. On the other hand, you have banks leading the way this month to the upside. You like cruise lines.

It would seem as if, you know, that would suggest that the economy is still plugging along OK, and maybe the market is just having a little bit of a hiccup. Well, we are going to see mixed economic data. We are expecting that. We think it would be a mistake, however, to interpret mixed economic data as a downturn that's gathering momentum to the downside. We think that the underlying fundamentals are healthy. We think that the labor market is relatively healthy and can use some support from the Fed. And we think that support is just around the corner. But overall, we think that earnings growth, economic growth and

what will eventually be benefits from trends such as AI will start to kick in in the coming quarters. So we do think it'd be a mistake to read too much into some of the soft data numbers that might come out in the coming months. That being said, you don't think it's out of the question that the Fed might cut by a half percentage point in September. That's a little more maybe than the market has priced in. Why do you think that might be appropriate at that point? Yeah, we've been talking about that for a couple of weeks now, about this possibility. We don't think it's the most likely scenario, but we don't think it would take that much right now.

Given how much inflation has come down and even all the forward-looking indicators for inflation to continue coming down, we think the Fed has a lot of latitude to cut rates. And the one rate cut right now that the market is pricing in is really based on what the Fed had been messaging as a balanced labor market. But if you look under the hood, we're seeing signs that the labor market could actually use a little bit of support here. Weekly initial unemployment claims are starting to climb. Even if we look at June's labor report or jobs report, under the hood, you see that prior months revisions were pretty large to the downside. You see that almost all the job growth came from the government sector and the health care sector. So it does look like a labor market that could use support and would only take a few more data points. It would probably shift the Fed's thinking to cut rates potentially by 50 basis points

in September. And we think the market is underpricing that potential right here. So if the bond market is underpricing that potential and it happens, what is the likely or proper response from the stock market? Should it say, uh-oh, things are worse than we thought, or this is going to be a needed easing of policy that we can capitalize on? Most likely the latter, although there could be a knee-jerk reaction in the market or the market thinks the economy could be weaker.

The Fed's perhaps seeing things that the market isn't seeing, but we think the underlying fundamentals are healthy and that the Fed is about to start on a campaign of cutting rates for the next year. And we think that's going to provide a nice tailwind. So if we take a step back and look at the big picture where we have earnings growth, we have a Fed that's about to begin on a year long rate cutting campaign, along with underlying fundamentals that remain relatively healthy. We think we're in a decent place here. And right now, the market is just at a crossroads where it's expecting more proof than can really

be delivered by companies in the short term about some of these benefits to the AI and other technology trends. Yeah. Well, yeah, the market, you know, gets ahead of itself at times and needs to be reassured. We'll see how it goes. Young Yuma, BMO, thank you very much. We are still making fresh new lows on the day the S&P 500 down about 2.2 percent right now. It takes it back to late June levels. Up next, one top firm is downgrading beauty retailer Ulta. The analyst behind that call is here with her first take and the other names she's betting on right now instead. That's after this break.

Shares of Ulta Beauty sinking today after getting a downgrade from Piper Sandler. Analyst Corrine Wolfmeyer cites increasing competition in the space as making for a less compelling case for Ulta. Corrine joins me now to discuss the call. It's great to have you here. I assume that given the struggle in this stock for the last few months, you might have gone and taken a fresh look to see if there was anything that maybe suggested there could be a turnaround or things firming up a bit and maybe didn't find it. So what are the main elements of this call today? The main thing is, as you said it, that the competition is really heating up.

We've seen Sephora really ramp up its store count with its partnership with Kohl's at a much faster rate than Ulta has been ramping up its partnership with Coles in a much faster rate than- all has been. Ramping up its partnership with target we've also seen the rise of Amazon and digital players capturing share and it's really led all to to. On a number of traffic drivers such as heavier promotions. And marketing spend

to get those consumers back in the stores. And what we're seeing and what we're we're fearful of it's it's going to become a much bigger margin- margin hits spent than were originally anticipating. So you have this difficult competitive situation. Is there also a macro consumer component to it, do you think?

Are you able to see whether for the category at large, there's been a deceleration in spending? There are definitely pockets of softness in beauty. But overall, beauty is a very strong, resilient category, which is why we're still very bullish on the broader space. What we're seeing, though, is some softness in areas like mask cosmetics, some softness in hair care. Unfortunately, these are areas where Ulta has some exposure, but also Ulta has exposure to some of the categories that are still performing very well, such as fragrance. So we're not as much that much worried about the overall end consumer in beauty. It's more so this competition aspect. You know, you have a new price target of 404. And I mean, the stock is down enough, I guess, that that you actually have upside to that target from here. But even at that, it's a much more modest valuation than this stock used to

carry. Is it in its sort of post-growth phase at this point? We believe so. This is turning much more into a margin story than a top-line growth story. The comparables are getting a lot more challenging. The store growth is slowing. We are a little bit worried about pricing being less of a tailwind. So you have less of those top line drivers and the focus is shifting more towards that margin and bottom line. And what we're seeing is with these traffic drivers that Ulta has to pull on and then you factor in pressures such as shrink, which is still very much present, wage inflation, which is still present. And there's a number of things that are going to be pressuring their ability to really have stronger earnings going forward and then quickly

you mentioned there were others in the group that you prefer which would those be we appoint you to several of the beauty brands and beauty manufacturers. Our number one would be e.l.f. Beauty. It is at a very high valuation right now. It is seeing very unprecedented growth. I mean, the growth is extreme that it's delivering, but we still think there's a lot of upside to be had, particularly as they roll out in international markets. Another one I'd point you to is Interparfum. This has 100% exposure to the fragrance category, which I pointed to you earlier, is still outperforming in beauty. This is one we want to play in as we still think that

fragrance category is going to hold strong for the next year or so. All right. Interesting. When we talk about too much. Corrine, thanks a lot. I appreciate the time. Thank you. All right. Up next, we're tracking about too much. Corrine, thanks a lot. I appreciate the time. Thank you. All right. Up next, we're tracking the biggest movers as we head into the close. Pippa Stevens standing by. Hi, Pippa. Hey, Michael. Amid the sell off, one industry is shining bright. We've got all the details coming up next. A little over 17 minutes until the closing bell. Let's get back to Pippa Stevens for a look at the key stocks to watch. Hey, Mike. Enphase is popping 13%, making it the biggest gainer by far in the S&P 500.

The company's Q2 results did miss on the top and bottom line, but the high end of its Q3 revenue guidance was in line with estimates, and margins showed improvement. CEO Bhaji Kathandaraman telling me the company has finished its aggressive measures to correct excess product, meaning revenue recovery is on the horizon. He also told me demand is improving, up 7 percent in the U.S. quarter over quarter. SolarEdge is also rising on the heels of Enphase's report. Meantime, renewable energy developer NextEra, also in the green after reporting its second best origination quarter, which includes agreements with Google to meet its data center power demand.

NextEra is saying they expect renewable demand to triple over the next seven years, the stock up nearly 5%. Mike? All right, a little bit of green there. Pippa, thank you. Still ahead, a bright spot in a down tape. Shares of AT&T popping thanks to a key piece of data. We'll drill down on that number and what it might mean for the telecom space more broadly. Closing bell. We'll be right back. Coming up on 12 minutes to the closing bell. S&P still down 2.1%.

Let's send it over to Bertha Coombs for a check on the biggest movers in the health care space. Bertha. You know, Mike, health care has been bucking the trend all day. The sector up now for the third session in the last four, led by Bristol-Myers and Tenant Health, which posted an earnings beat as hospitals continue to show stronger inpatient volumes. Thermo Fisher also beating on the top and bottom lines, while Gilead posted positive late-stage data on a new

HIV treatment. Elevance leads health insurers meantime. It's set to get one of the biggest so-called risk adjustment payments for its Obamacare plans, along with Centene. Peers United Health and Cigna are being assessed for having paid out less than 85 percent of premiums on medical care in 2023 as required under that ACA program. Mike. Yeah. Wide assortment of health care working today. Thank you, Bertha. Up next, we're setting you up for earnings and overtime.

Chipotle among the big names reporting at the top of the hour. Plus, Edgar Denny standing by to break down the final moments of today's session. That and more when we take you inside the Market Zone. We are now in the closing bell Market Zone. Julia Borsten on how AT&T is rallying in spite of today's broad market sell-off, plus TD Callen's Andrew Charles looks ahead to Chipotle earnings out in overtime today. And your Denny Research's Edgar Denny breaks down the final minutes in this brutal trading session. Julia, AT&T being well-received today.

Well-received indeed. AT&T shares shooting 5% higher after reporting earnings this morning. The company reported wireless subscriber additions that far exceeded expectations, AT&T adding 419,000 monthly bill-paying subscribers, soaring past expectations of about 285,000. This shows the company's higher-tier unlimited plans drawing customers and also minimizing churn. The stocks move higher despite the fact that AT&T's earnings per share were just in line with expectations and revenue fell short. Revenue was hampered by slower phone

upgrades in the U.S., which did also weigh on Verizon. Back over to you. Julia, thank you. Andrew, when it comes to Chipotle, it feels like the stakes are pretty high. The stock's in at 25 percent pullback after a great few years. What's the main worry point here or what does the street need to be persuaded of in these results? Hey, Mike, a lot of angst right now around how 3Q has started. We're pretty in line for 2Q. We think there's going to be about a 9 percent same store sales increase and 32 cents VPS. But alternative data is concerning investors. There might be a slowdown from mid single-single-digit same-store sales for the July timeframe. So we're looking

for a better understanding of this and how management's going to posture this. We think this is a company with a lot of drivers in the back half of the year. They've been spot on with their focus on operations to speed service. We think there's some menu innovation coming with stake in the fourth quarter as well, or perhaps as early as the 3Q timeframe. Great marketing war chest here for $340 million. So really looking to better understand how trends are performing in July, as well as the tactics they have to sustain the strong performance they've seen so far this year. If I look at essentially when the stock peaked back in June,

it was almost exactly when McDonald's and others started to get aggressive on the value meal pricing. Is there a concern out there that Chipotle can hold its sort of premium place in the business? The concern from investors is really around the portion sizing and the negative publicity around that. We think the issue, though, is really the industry's had a very challenging July. From our checks in the field, we're not seeing that these value promotions have materially moved the needle. So we don't think this is the issue that Chipotle is seeing. We think it's a little bit more macro if there was to be slowness that they're talking about for July. I guess the Lamb Weston commentary today, you know, the French fry company saying that the consumer seems to be, you know,

really have kind of pushed back against these higher prices. So I guess that means, you know, when does Chipotle, based on what you're expecting them to deliver, you know, enter into a more compelling valuation zone? I mean, it's always been an expensive stock. But at this point, obviously, a pretty significant pullback without the earnings estimates really coming down. Yeah, look, we continue to like this stock over our 12-month investment horizon. You know, we think that they have levers at their disposal to really help reaccelerate sales. They've been very spot on with this focus on operations, really improved service. We know a stake limit time offering is coming.

They have a robust CRM program of roughly 40 million people that they can tap into as well. So we're very bullish on the prospects here. One idea we've also put out there as well is that we know that Chipotle does digital-only quesadillas. They are delicious. And we think that there's an opportunity as well to use that same digital-only experience to do nachos as well.

So something that hasn't been tested yet that we'd really love to see put through in the need that Chipotle really does need to re-accelerate traffic. All right, well, I've never tried a digital quesadilla, so I'll see how that goes. Andrew, thanks a lot. I appreciate it. And coming up on Overtime,

don't miss an exclusive interview with Chipotle CEO Brian Nicol. Now to Ed Yardeni. Ed, we are hitting new lows here, you know, down 2.4% or so in the S&P 500. Kind of easy to say, well, we were entering a tough seasonal period. The biggest stocks in the market were crowded and expensive. We needed this pullback. But is there anything else going on that would concern you? I think you covered it all, Michael. But look, I think that usually in a bull market, you do every now and then get up, get some sell-offs. And this one is a nasty one. I think it's going to turn out to be an official correction in the Magnificent Seven. But I think you're also saying, as you pointed out, that some money is going into the rest of the market.

Not everything is down today, but the big decline is in the Magnificent Seven. I think that when you look at the underlying fundamentals of the economy, I don't think we're going to get an economy-wide or S&P 500-wide correction of 10% to 20% because I don't see a recession out there, and I don't think investors are actually worrying about a recession, given that the Fed has basically promised that they'll lower interest rates if that's necessary. And I don't see a bear market. So I think this is a sell-off. They happen from time to time.

This one is nasty because it is a correction in the Magnificent Seven. Yeah, and in fact, just now the NASDAQ 100, which basically tracks the Magnificent Seven, has clicked to an 8% pullback from its record high. So pretty far along the way to that 10% move. Now, you seem pretty confident that the economy in general is chugging through pretty well here. It seems, though, that given what the bond market is acting like and given the new rhetoric on, hey, what's the Fed going to do? Maybe it has to get more aggressive on the easing side.

It seems like that worry is going to hang with us for a little while. Well, let's see tomorrow. Tomorrow we're going to get GDP and it'll probably be up two and a half to two point eight percent. So suddenly people realize the economy is still doing well. And then on Friday, we're going to get the consumption deflator inflation rate and that should be up two point4 percent down from 2.6 percent so the the fundamentals are actually looking uh what other words that i cannot can i come up with but wonderful they really do look good and i think uh you know even the earnings numbers on balance uh we're getting upside surprises not downside surprises i think you know maybe people just recently concluded that tesla is actually a car

company instead of a technology company until Elon Musk will come up with something new to excite us about for the company. But all in all, I think this is a short term sell off. Yeah. And in fact, you know, we all have been through earnings seasons where they come in these phases where it seems like a big downside surprises and sets the next big companies up for an easy hurdle to clear. Just quickly, just remind us, you know, where you sit in terms of your your formal targets for the S&P at this point now that we've tipped back below 5500. Yeah, well, I managed to pick the top in this particular move because near the top is we had crossed 5400 a while ago and got to something like over 5,600. And I said, look, by year end, I would raise that to 5,800. I still think that's the case because I think the economy is going to prove to be resilient. I think we are going to get one rate cut. And I think

we'll have less political uncertainty after the November election, and the market will learn to live with whoever's in the White House. So 5,800, 6,500 over the next year, year and a half. Okay. All right. Yeah, well, we got to the doorstep of 5,700 just a couple of weeks ago, I guess. So it's not necessarily a huge leap. Ed, thanks so much. Really appreciate the time as we head into the close. The S&P 500 is set up for about a 2.3% decline, and that will bring its overall pullback from its high to around 4%. The NASDAQ down 3.6%. That is its worst day since late in 2022. Russell 2000 now also giving back a lot of its relative performance, down 2%. That is going to do it. The closing bell will send it to overtime with Morgan and John.