Closing Bell - Closing Bell Overtime: Are Investors Too Rosy On China? And Why Pfizer’s New Weight Loss Drug Could Unseat Ozempic 5/22/23

Episode Date: May 22, 2023

The Nasdaq closed higher while the Dow fell in today’s session. Wells Fargo’s Darrell Cronk and Baird’s Ross Mayfield break down the market action. Is China’s economic reality less rosier than the investment banks are forecasting? Rockefeller International’s Ruchir Sharma makes the case for why investor should be wary of the strong bounceback story. A new study shows a Pfizer oral weight loss drug is as effective or even quicker than Ozempic’s injection; BMO analyst Even Seigerman on the investment prospects. Apollo Global’s Torsten Slock on the debt ceiling negotiations and the economic impact that’s already occurring. TransUnion CEO Chris Cartwright on why the American consumer remains strong. Plus, Zoom popped initially on strong earnings numbers; Evercore’s Peter Levine discusses the latest quarter. Tiffany is reopening its flagship store and our Robert Frank gives us a tour and what it means for the share price.

Well, there's your scorecard on Wall Street, a mixed bag, but winners stay late. Welcome to Closing Down Overtime. I am John Fort with Morgan Brennan. And coming up this hour, Rockefeller International Chairman Rushir Sharma is going to join us with a warning on China as tensions ramp up with the U.S. after the country called Micron a major security risk. Plus, we're awaiting earnings results from Zoom Video, the poster child of pandemic stock gainers. Still down sharply from its COVID peak, but it has gained momentum in the past few weeks. But first, let's get right into the market action. Stocks somewhat range bound as investors wait for news on the debt ceiling.

Joining us now is Daryl Kronk, Wells Fargo CIO for Wealth and Investment Management, and Ross Mayfield, Baird Investment Strategy Analyst. Welcome, guys. Daryl, it looks like the market is pricing in the perfect scenario. Softish landing, 70% likelihood of rate cuts in Q4, though. Very little concern about this debt ceiling standoff that's kind of an oncoming train, but you're not quite so sanguine about it all. Yeah, I think that's right, John. I mean, when you look at the stock market, it's pricing in, you know, higher highs. So is the volatility market when you check out the VIX or the move index. But the bond market tells a very different story. And I think the data underneath tells a

real different story. We all know about how narrow the leadership's been in the tech space. So I won't replay that. But I think when you get under the surface and you look at the more cyclically sensitive areas of the market, so think places like retail, think energy, think manufacturing and industrials, they just haven't participated. In fact, they've been quite weak underneath the surface. And so it tells you that along with leading economic indicators and everything else, that things are still deteriorating as financial conditions and credit conditions tighten at paces we haven't seen in decades. Okay, so Ross, you're a strategist, so let's talk strategy. What is the kind of risk that investors can still afford to take in this environment, especially when you've got

a stock like Nvidia that's more than doubled this year? Right. And I think that's what you have to weigh, right? I mean, near term, we're trading at the top end of a range. There's an obvious near term headwind in the form of the debt ceiling. You still have a rolling banking crisis and a Fed that is continuing to talk rates higher in spite of inflation heading in the right direction. So where do you want to be? I think near term, you could position a little more defensively. I think, again, at the top end of a range, a narrow rally, it wouldn't be that crazy to be positioned in something like Staples,

which still have some pricing power in a difficult environment. But we don't want to be too defensive in the form of shifting asset class allocation altogether. You know, the market has been really, really resilient in the face of all these headwinds. I don't know that the new bull market is right around the corner, but we want to make sure we don't miss the beginning of it because they usually are pretty aggressive when they're it. Yeah. Darrell, NASDAQ highest since August 2022. The big caps that mainly tech that lead the NDX, highest since April of 2020 today. Meantime, another flurry of Fed speak. And it does seem like the message is higher for longer in interest rates. Just a short while ago, you even had Jamie Dimon talking about

this at J.P. Morgan's Investor Day. We're going to get into that a little bit more. But in the meantime, how do you position how do you position for that when there does seem to be this mismatch between the bond market, the equity market, and what the Fed is saying? Yeah, it's a really good point, Morgan. And we still actually have Fed hikes in our forecast for later this year. We don't think they hike here in June. We do think they pause and do this skip that people talk about, but we do think that they're going to have to come back to the table later this year and continue to probably raise rates. So on the bond market side, you've got to barbell your exposure today. We think you've got to be on the short side of the curve, harvest

those yields, particularly in the T-bill market where you now have, you know, the one-year T-bill is 175 basis points above the 10-year, which is almost unheard of. And then on the long side, you're going to play kind of the economic slowdown recession and rates there that are going to give you a decent return. The one interesting thing I'd point out here, Morgan, is if you go back to early February, the last time the market was at these levels. Credit spreads are now 100 basis points higher than they were at that time. High yield credit was 385 in early February. Today it's 480 basically. So credit spreads are leaking higher quietly. People aren't paying attention to that.

And I think it's a little bit of an ominous sign of where we are in the cycle. Yeah, that's interesting and certainly one to watch. We've been talking about it so much and the fact that it hadn't been making those moves at least until recently. Ross, debt ceiling. This is a drama that is playing out. The market's moving on a daily, hourly basis right now. It's expected to sort of suck all the oxygen out of the room until we get a deal, if we get a deal. You're an investor. How do you position for this, especially when somebody like Roger Altman comes on CNBC earlier today and says, you know what, politicians are probably

going to need the market to spasm and spasm hard to be able to say, hey, look, see, we reached a deal because otherwise it's financially going to be terrible for America. I think there's a lot to that point. We've been saying that for quite a while, that a lot of times policymakers

need that equity market volatility or that push from the financial markets to get to the table. You know, we've seen it in short term treasuries. We've seen the chart of short term U.S. credit default swaps. But until it's in the equity market, until it's hitting 401ks, I don't think there's the same impetus for policymakers to get to the table and really start working. So in the near term, I mean, we're coming up on that X date that Treasury Secretary Yellen has laid out, but we still have several trading days before then. I would not be surprised to see equity markets start to wobble. I'm actually, I mean, quite frankly, surprised that we're trading so high with such a short time until

that X date. But I wouldn't be surprised if it gives it that push to get something done or at least give them the cover to say that they got something done. Yeah. And of course, we've got more earnings, including Zoom, which has just hit the tape. We're going through those results right now. And of course, more macro data as well this week. Ross Mayfield and Daryl Cronk, thanks for joining us. CNBC senior markets commentator Michael Santoli joins us now from the New York Stock Exchange. What's on your radar, Mike? Morgan, looking at some of the riskier stocks relative to lower volatility safe ones, and they outperformed today, actually been outperforming for some time right now.

Yes, a lot of it is technology, semiconductors, NVIDIA. I believe in the SPHB, the high beta S&P ETF. It is the largest holding, but it's mostly an equal weighted. So it's less than 2 percent. Very little energy, a lot of consumer in that high beta basket right here. And you see low volatility stocks are doing what they're supposed to do, which is not move a whole lot, holding their value when the rest of the market is having trouble, but also not really giving you much of an upside emphasis. So it's a decent risk appetite gain indicator right now, a gauge.

Although I would say, again, today was a lot of short covering. So it's a decent risk appetite gain indicator right now, a gauge. Although I would say, again, today was a lot of short covering, so maybe it also got an extra push from that today. Now, Apple also started the day getting a downgrade from Loop Capital, maybe looking for a revenue miss in the current quarter. You could also just be looking at the chart and saying, you know, the hurdle might be high for further gains right here. I pointed this out. This is a two year chart. So you're pretty much at the prior peak right here. In fact, if anything, you've sort of seen a little bit of lower highs. This latest one was was stretching it a little bit.

So 180 is the price target for loop. But it seems like we still have people recognizing Apple kind of did its job. It's mostly held its value over the last couple of years, even as we had this kind of mini crash in the broader Nasdaq. And, you know, the market's paying more for each dollar of Apple free cash flow than it has for most of the last decade or so. That's what the valuation is telling you, John. Mike, so tell me, given all this and given we're just talking about the debt ceiling negotiations and the likelihood of volatility over the next couple of weeks. What tends to happen to risk appetite in that sort of volatility, given that NVIDIA has more than doubled year to date? Apple, is it about the highs where it was?

And we're about to get possibly a headset announcement from them. Sometimes it's a sell the news event, at least at first. I mean, how should investors think about that? I mean, I hesitate to describe what typically happens. I mean, we don't have that many instances here. And also, the machine is self-aware right now. So that means everybody looks back to 2011. It says, yep, sure enough, the market really did have a sudden panic when it seemed like we were on the brink.

And sure enough, we got a 17 percent drop in the S&P, and people rushed into treasuries because they wanted safety. But looking back on that, most actual human actors say, well, that didn't seem smart to panic out at the last minute right there just to buy them back higher. So I don't know exactly what to expect. Right now, the market is doing a good job of compartmentalizing the concern in the treasury bill market. Some of the cyclicals, small caps have

perked up, but they've still been under pressure. So I feel like the market's trying to kind of have this kind of path in the middle here where we take account for the cyclical risks and maybe the event risk of the debt ceiling, but we're not going to have a wholesale liquidation to get out of the way of something that proves to be real scary. All right. Thank you, Mike Santoli, hardest working man on television. Started his day real early today. Zoom earnings are out. Pippa Stevens has the numbers.

Hi, Pippa. Hey, Morgan. That stock is higher in extended trading after Zoom beat estimates on the top and bottom line during the first quarter. The company earning $1.16 per share on an adjusted basis.

That was 17 cents ahead of estimates. Revenue coming in at $1.11 billion, slightly ahead of the $1.08 billion 17 cents ahead of estimates. Revenue coming in at 1.11 billion, slightly ahead of the 1.08 billion that analysts were looking for. Q2 guidance was largely in line with estimates, although the company did raise its full year outlook for 2024. They said that enterprise revenue was up 13 percent year over year. That is a key metric to watch after fears around weakness in that market. And they also said their online revenue is driving greater efficiencies and stabilizing. So that stock up about five and a half percent right now. Morgan, back to you. All right. Don't miss. Thank you, Pippa Stevens. Don't miss a first on CNBC interview with Zoom's CFO. That's tomorrow morning on Squawk Box.

Particularly important about that 13 percent growth in enterprise there for them. Microsoft can't have it all. Up next, Rockefeller International Chairman Rushir Sharma says it's time to expose the charade of China's booming economy. He will tell us why he says that, why Wall Street is getting the growth story wrong. Overtime is back in two. Welcome back. Micron closing the day down almost 3% today after China called the company a major security risk following a national security review and barred the sale of some

of Micron's products in the country. Christina Partsenevelos has the details. Christina. Yeah, this was a review that took only two months, but it's not a complete ban. Like you said, some of Micron's products, only those network and infrastructure-related memory chips, which is a smaller business compared to the smartphone and PC memory chip market that Micron also sells into China. Management says those chips should not be affected right now. So that's mitigating the revenue impact to a certain extent. So last year, 11% of its total revenue came from China. Since the ban pertains to only the, quote, critical information infrastructure chips, that 11% actually shrinks down to about 2% of total

revenue. Is this according to Bernstein analysts? Earlier today, Micron CFO said they found out about the complete ban just yesterday and are, quote, assessing their next steps. An overhang, though, remains. Chinese customers could start to pivot their supply chains completely away from Micron for fear of further restrictions, benefiting South Korean competitors like Samsung and SK Hynix. But the U.S. does have some leverage, given Samsung and Hynix are currently relying on U.S. licenses to maintain normal operations given they have foundries in China currently relying on U.S. licenses to maintain normal operations, given they have foundries in China amid all of these export restrictions.

Sentiment right now, though, on the street remains bullish on the notion that the memory market may be bottoming, offsetting any drop in revenue or potential drop, I should say, in revenue from this ban. All right. And of course, we have seen semi stocks moving pretty dramatically higher in recent days. Christina Parts and Avalos, thanks for putting some context around this story for us. Let's bring in Rashir Sharma, Rockefeller International Chairman. He's out with a new piece in the FT titled, When We Talk About the Chinese Economy is a Charade. Rashir, great to have you back on the show. One of the things you write in this column is that there's never been a bigger disconnect in your experience between some of the rosier investment views or investment bank views on China and the dim reality on the ground. Why is that? What are you seeing?

Well, I think we're all feeling it as investors that if you look at Chinese stocks, they're down 15 percent from the highs they hit this year. Some of the more consumer-oriented stocks are down 25%. And I know people will say that the stock market is not always the economy. But if you really look at the historical relationship, what we find is that if the Chinese economy was indeed growing at even 5%, which is the official growth target, and you've got Wall Street investment banks talking about 5%, 6% economic growth. Then in the first quarter of this year, we should have seen corporate revenues of Chinese companies increase by about 8% or so. Instead, what the results showed was that the revenues of Chinese

companies grew by 1.5%. That's a huge disconnect. And I think that that's what we're finding in commentary after commentary from Chinese companies, which is that they're just not showing the kind of revenue or profit growth that would be in sync with an economy that is being described by some Wall Street economists as feeling boomy based on the macro data that the government is releasing there. Yeah. I mean, you can say, you can point to copper prices, too, which are at a five-month-plus low right now, as we have seen this choppiness to this reopening in that country. How much of this is domestically fueled, the weakness in this reopening and what it's doing to economic growth in China,

and how much of it is geopolitically fueled, given this disentangling, at least to a certain extent, between the U.S. and China, where things like trade are concerned? I think that the story is mainly domestic, which is that the Chinese economy is really facing many structural headwinds. The two most prominent of those are demographics and debt. As we well know, this is the first year now that the Chinese population is actually shrinking. The labor force has been declining for a while. There is no country in economic history that has grown rapidly with a shrinking labor force. It's just never happened. So, in fact, our research shows that no economy has grown above 2% when the labor force has been shrinking.

So that's exhibit A. The second point has to do with debt. And this is where I think that all these expectations that the Chinese economy will grow rapidly and there'll be a lot of stimulus that the government will do. I think the Chinese government knows that it is heavily indebted, that its local governments are running out of cash. And therefore, it's been quite reluctant to roll out any big stimulus even through the pandemic. And I think that both those factors are combining to depress economic growth.

So therefore, I estimate that the potential growth rate of the Chinese economy, which is the long-term underlying growth rate from this point, is closer to 2.5% based on the trends of debt and demographics. And the bolder prediction that I've made late last year is I don't think the Chinese economy ever, or at least in our lifetime, overtakes the U.S. economy because the trend growth rate has moved so much lower, and it is still a third smaller than the U.S. economy as per the official data. Interesting, Rishir. So give me, give us the market implications when you've got the U.S. economy slowing down and questions about with the U.S. consumer taking on so much debt, if the consumer might be getting tapped out.

And then what you say is happening in China and kind of include in that how much of this is about the Chinese consumer tilting towards services away from products as well, because European luxury is getting some benefit from the reopening, if not as much as some hoped. Yeah, so that's correct that, you know, the Chinese still have spending power and they're spending on the on the very luxurious things. But I think luxury in general is doing well. And we know that in the U.S. or other places, you know, with stories about airlines expanding their first class cabins and hotels charging all sorts of exorbitant rates at the luxury properties. But I think that the broader story here is that the Chinese consumer, by some metrics, as I quote in the

article, is three times more indebted than the U.S. consumer. If you just look at the debt burden as a share of their disposable income. So both the Chinese consumer and the government there is quite heavily indebted, even compared to the United States, where you point out that the consumer is slowing down a bit, but the consumer finances in the U.S. are in a better shape than the Chinese consumer finances. Okay. A sobering look there at China. Perspective anyway. Rushir Sharma, thank you. Thanks. Closer to home, we got breaking news out of Washington. Let's get to Kayla Tausche with the details. Kayla. John, Treasury Secretary Janet Yellen has sent a new letter to congressional leadership, which she had promised to do,

updating them as new data became available on the earliest potential date for a debt default in this country. That date, according to Secretary Yellen, is not changed. It is still as early as June 1st, according to this recent letter. And she says that she notes from prior debt ceiling impasses that the longer and more last minute these negotiations go, the more harm is done to consumers and businesses. This update comes just before President Biden is set to host House Speaker Kevin McCarthy this evening for an update on those talks. After the president returned from the G7 summit in Japan, McCarthy earlier today sounded bullish on a deal, but I spoke to a White House official just a few moments ago who said here expectations are low. John and Morgan, back to you. All right. Kayla Tausche, thank you.

Look out, Ozempic. There's a new weight loss drug in town. Maybe. Up next, we'll discuss the results of a study on Pfizer's new oral pill and what it could mean for the company's bottom line. Take a look. We're up more than 5 percent today after a peer reviewed study showed Pfizer's oral weight loss drug might be as effective as injections from Novo Nordisk's Ozempic. Joining us now is Evan Segerman of BMO Capital Markets. He has a buy rating, a $49 price target on Pfizer. Evan, thanks for being with us. So, I mean, here's my question about this. This is a stock that was at about 50 bucks at the beginning of the year, down about 20 percent. People worried about life after COVID for Pfizer. Is this too much of a positive reaction, given just how many contenders there seem to be in weight loss drugs? So there's a few things to unpack there. First, there are a lot of weight loss drugs out there. You hear about Ozempic, Ligovie, Manjaro. Nova also had data for their oral drug, Ritevell's is out today. There's a lot going on. In terms of

is this enough to kind of reverse peak pessimism for Pfizer? It helps. I do want to remind folks that this data was initially presented back in September. Now that's in a peer-reviewed journal, it's back in the headlines. I would say that this is pretty important. It could help, you know, by mid to late in the decade, contribute at least $5 billion to their top line. Could be even more if we see better data from this asset or their follow-up asset. Okay, so you have Pfizer regaining all of the losses since the beginning of the year, pretty much, a $49 price target. What gets it there? What gets it there? More data from this asset. So they have additional data coming later this year.

Traction with some of their new launches, including Nurtek. Remember, they acquired this asset from Biohaven last year, Oxbrita, also from their acquisition of GBT, and potentially the closing of the Cgen deal, or more progress there, given the FTC concern raised last week with Amgen Horizon. So, Evan, what I want to know is, with all these contenders either on the market or going through their trials to come onto the market, is there room for everyone? Is this a rising tide that lifts all boats? So, the way I think about the market is you have the injectables. So think Manjaro, Ozempic, Wago. That's for a certain type of patient. They're seeing an endocrinologist, likely more severe. And then you're going to have the orals. Think the Pfizer drug that we're

talking about. That's going to be given by a PCP where you need 5 to 10 percent weight loss. So they're kind of different segments of the market you know my modeling we have a hundred billion hundred with a B billion sales in this broader class fifty fifty or so billion for Lily's Manjaro but there's still room for other assets to clearly take share okay I'm gonna ask the tacky question we talk about, you know, weight loss for diabetes and health-related reasons, but we've seen something like Ozempic as well used maybe for more cosmetic purposes too. Is there a market there? I mean, is it

realistic to think that you're going to see an expansion, a more meaningful expansion into that? So I really try to shy away from the fads. I know it's really in vogue right now. But when I look at the potential for Manjaro or Wagobe, that's for patients who have BMIs of 30 plus or 27 plus with comorbidities. That's where you're getting a decent part of the market. I think for some of these oral patients who are somewhat overweight, you know, I try to kind of stay away from Ozempic at the Oscars. I know that's a great kind of headline right now, but that's not really what we're looking at here. How concerned should investors be that this pill you got to take twice a day, which is different from an injection once a week, and also the issue of marketing? I mean,

when you got so many different companies in the space, it's going to affect margins, no? A few things. One, yes, this is a twice daily, but Pfizer actually has a backup asset that's once daily. And they've told me that they could reformulate this in later phases to be once daily. So that's not an issue. In terms of marketing, Pfizer is a marketing machine. Clearly, they would need to put some investment behind it. But that's not like any other drug launch, nothing that they couldn't handle. And remember, this is a small molecule. That's the best type of drug to produce in terms of growth margin versus a peptide or a biologic. So you're getting a margin benefit right there.

All right. Evan, thanks for joining us. Shares of Pfizer ending the day up 5 percent. Time for a CNBC News update with Bertha Coombs. Hi, Bertha. Hi, Morgan. Here's what's happening at this hour. Michigan Governor Gretchen Whitmer gave final approval today to a new red flag gun law, which is aimed at keeping firearms away from people at risk of harming themselves or others. It allows family members, police, mental health professionals and others to petition a judge to remove firearms from those they see as a threat. Minnesota just instituted a similar law

last week. Michigan's goes into effect next spring. Portuguese police have resumed searching for Madeleine McCann, the British toddler who disappeared from her bed in a resort in 2007. Police were seen searching an area today about 30 miles away from where the three-year-old was last seen alive. A German man is under suspicion of murder in the case, but he has not yet been charged. And the TSA will now allow teenagers to go through the faster pre-check line with their parents or guardian without enrolling in the program. That previously was only allowed for kids 12 and under. The agency also announced today all TSA workers will now be paid at the same scale as federal workers, which is expected to bring a significant raise to a large number of employees. And they're

going to be awfully busy this summer, it looks like, John. Looks that way, Bertha. Thank you. And we are just about an hour away from the next high-level debt ceiling meeting as Treasury Secretary Janet Yellen reiterates that June 1st deadline. Up next, economist Torsten Slocke on what could happen to the economy if an agreement isn't reached on time. We'll be right back. Welcome back to Overtime. We're just about an hour away from the latest round of debt ceiling talks in Washington as House Speaker Kevin McCarthy and President Biden prepare to meet at 5.30 p.m. Eastern at the White House.

Here's Kevin McCarthy earlier when asked about the timeline for a deal. Do you need to have a deal tonight? I thought deal. You need to have a deal tonight. I thought it would be better to have a deal sooner. I think we could we can get a deal tonight. We could deal tomorrow. But we've got to get something done this week to be able to pass it and move it to the center. So joining us now is Torsten Slott, chief economist at Apollo Global Management. Torsten, great to have you back on the show right now. And we keep hearing about how cataclysmic a default would be, not only for the U.S. economy, but for the world writ large, and how even if we do get a deal, the uncertainty is not particularly good for confidence and good for growth. How are you factoring it in? How are you modeling it right now?

Oh, it's a very important question. I mean, we already have a backdrop of the Fed is trying to slow the economy down to try to get inflation back to 2%. So it's just an event risk in the short term that comes on the back of an already slowing employment picture, slowing in consumption, slowing down in capex spending. So the broader macroeconomic picture is certainly moving towards a recession. So, with that backdrop, this debate is certainly very important and, of course, something that's very critical as we think about where markets are heading. So, when you talk about towards a recession, just looking at your notes here, you talk

about a non-recession recession. What does that mean? Yeah. So, that means that for 15 years after 2008, we basically had that the Fed and monetary policy globally was printing a lot of money that basically inflated asset prices. But unfortunately for the Fed and for central banks globally, that increase in asset prices really didn't do much to global GDP growth. So what we should expect now when the Fed is raising rates and the Fed is trying to withdraw

liquidity is that the main correction will probably mainly be in asset prices. There is probably going to be a very limited correction in the real economy. So that's also why we should expect that the economic impact of the Fed hiking rates is taking quite some time, partly because of high savings, but also because it's going to take some time before we need that correction in asset markets first. So the short answer to your question, Morgan, is that given that QE had such a significant impact on asset prices, we should also expect that QT and liquidity withdrawal is mainly going to have an impact on asset prices in the opposite direction. Torsten, I'm concerned that this is taking a long time, as you said, but then it could happen all at once, a kind of unraveling in the slowdown, because we have historically high employment levels supporting what seems to't maintain that level of indebtedness, what happens?

Have you modeled that at all? Where are the employment levels and what could possibly happen if that starts to unravel? Yeah, no, that's very important. I mean, it's just stepping back. The whole reason why where we are at the moment is for the following, namely that we during COVID spent $5 trillion on the fiscal side and on the monetary side, there was also about $5 trillion spent. That means that the economy got so much of a tailwind with $10 trillion in stimulus. And in very plain words, what's being done at the moment is that the Fed is trying to withdraw that $10 trillion because that $10 trillion created a lot of inflation. And that's a challenge as we look at it today. I mean, it's apparently taking longer time to get that 10 trillion dollars back out of the economy. So the consequence of that is that employment is still strong. Inflation is still elevated.

Wage growth is still relatively strong. And all that means that we probably still have, according to some Fed working papers, a few more quarters of savings left before we will get the economy to ultimately begin to slow down. And that's what a non-recession recession means, that it's going to take quite some time before all the stimulus that was thrown at the economy is going to be out of the system again. So that's why the Fed will keep rates elevated. Is a non-recession recession actually more difficult to come by because this is like a big domino setup where if you knock one, I mean, that's my question anyway, because the high employment is supporting these high levels of indebtedness and you have higher rates that are putting pressure right on that consumer all at the same time.

How does it unravel slowly and safely? Yeah, no, you're exactly spot on. I mean, the whole problem is that so much money was thrown at the economy during the pandemic and getting that out now is taking time. So as you're saying, even if debt levels are higher, even if interest rates are going up, the reason why consumption is still doing well is because people still have jobs. Wage growth is still relatively high. And all that means that therefore it's just simply taking longer time than one really anyone expected. Over the last six months, the consensus has been saying, oh, the wolf is coming, the wolf is coming, we'll have a recession. And we still haven't had that recession.

And even now, it looks like the recession is being pushed out further, not even in Q3 now. It may be only in Q4. So the conclusion now is that taking all that money away is going to take some time. And it does, therefore, when we go through that time, make sense that markets have been trading relatively well. So that's why markets are taking its cue from earnings that still are holding up quite nicely because it's taking so much time to get all the money out of the system. Indeed. Torsten, thank you. Thank you. That warning from Roshir earlier, though, who knows? OK, up next, the CEO of credit reporting agency TransUnion on the state of consumer spending once again, as Americans rack up a record amount of debt,

as we were just discussing. Yeah. And take another look at Zoom as we head to break coming off its highs in the after hours session. Now, just up fractionally, that's despite beating estimates. We're going to talk more about that name in just a bit. Overtime, we'll be right back. Despite Fed rate hikes, concerns about inflation, the consumer has remained resilient, at least from a credit rating perspective. The average credit score, according to Transusion, is 701 as of March. That's up from 697 the same time last year, but are cracks starting to form. Joining us now to give us his read on the consumer, TransUnion CEO Chris Cartwright. Chris, thanks for being with us. I want to start on this credit score issue because it seems to me higher credit scores don't necessarily mean what you'd think. I mean, is this an indication of

consumer health or does it just mean consumers are taking on more debt and paying the bill because they're highly employed? Well, good afternoon, John, and thanks for having me on the show. And the credit score, in essence, is a way for lenders to rank order credit risk. And surprisingly, credit scores increased during the pandemic in part, and this is consistent with what your guest on the prior segment was saying, in part because of the enormous government stimulus that was injected into the economy, combined with the fact that consumers were allowed to defer debt payments under the CARES Act, and of course it was just difficult to spend.

Consumers have held up pretty well, though, in this period of inflation, the last five or six quarters, as the prices of goods have increased and debt service costs have increased. It's not so much that consumers are taking on additional debt. It's that consumers remain highly employed. And an employed consumer is one who typically pays their debt obligations and remains lendable. And so what you see with the increase in scores is that consumer health with regard to just their credit worthiness remains high. And lending activity, although it is somewhat diminished over the past year, still remains at historically high levels. Now, if I understand your report correctly, prime and what you call super prime, the people with really high credit scores are still either taking on more debt or just, I guess, the

higher rates mean there's more to pay, whereas subprime and near prime, maybe they're not getting extended as much credit. But how much should investors think about the fact that even if they fair point um look if you look at the metrics across you know the different categories of consumer lending whether it be credit cards mortgages personal loans or or auto loans um cumulative loan balances are at historic highs. That's not surprising given that we have an increasing population in the U.S. and a growing economy. I think what's important to be aware of is that the ratio of consumer debt service to income is at near historic lows. And that really underscores the point that the consumer is in better shape at this point in time than is often reported. I think that we have to acknowledge

though that the longer that we have a combination of higher interest rates, which to your earlier point increases the cost of servicing debt, as well as inflation, which is driving up the cost of goods and services, that'll continue to squeeze consumer and household finances. And at a certain point in time, you know, you may see some further cracks. Thus far, we have seen somewhat of a tightening in lender standards around lower income and subprime consumers. And for certain categories, there's been an increase in loan delinquencies, like credit cards. Delinquency rates there have risen above 2%. That's just a little bit above the pandemic. But again, I think the key point is that with what we're seeing now, the consumer remains resilient and they are, you know, they're working their way through.

They're persevering through what is a slower economy and a bit more difficult times. Forty three million Americans haven't had to repay student loans for the last couple of years. That's supposed to start back up in the fall. How does that change this discussion? Do we know yet? Well, look, it's going to be an increasing drain on consumer finances for those that have debt who have been in this kind of state of forbearance. And, you know, the fact that when a consumer doesn't have to pay a debt obligation, it's another form of stimulus provided by the government. And the economy's enjoyed that for some time now. If indeed students are going to or student debt holders are going to have to begin resuming those payments, it is going to be a detraction on consumer finances and their ability to spend.

OK. Chris Cartwright, the TransUnion CEO, thanks for joining us. Great to be here. Thank you. Zoom's earnings call is just set to kick off in the next few minutes. And up next, a top analyst tells us what he wants to hear on the call. Stay with us. Welcome back to Overtime. Let's get another check on Zoom. The stock is still higher, but off its best levels. It had been up as much as 6%. It's now up about 1, 1.5%. Zoom beating on the top and bottom lines is driven by a 13% boost in enterprise revenue. The earnings call kicks off at the top of the hour, but joining us now is Evercore ISI analyst Peter Levine. Peter, great to have you on.

The fact that we did see churn among casual online users, that seemed to stabilize. We did see this big jump, this double-digit jump among the largest paying enterprise customers. Your takeaways? Yeah, so thanks for having me. Yes, we saw a share jump 5%, but that gave a lot of it back. It was a better than expected quarter. I think revenue margins and cash flow came in better than expected. And they slightly raised the full year guide versus fears that the macro headwinds would force them to kind of revise numbers lower. But we didn't see that. The online business is stabilizing. We saw a churn kind of improve. But I think an

important metric, which was dollar-based net retention, fell to 112%, which is, I think, an important metric. But it's also showing that they're having a tougher time upselling some of these larger enterprise customers. Peter, looking at the multiple and what the stock has done over the past year, what are the chances that Zoom has been de-risked, that it's showing that it can grow in the enterprise versus Microsoft and RingCentral and everybody else? And is it priced for relatively slow and steady at this point? Yeah, I mean, it's I think from that perspective, it's there's no real near term catalyst. I think what the investments they're making in phone contact center, everything with AI, I think is commensurate with, I think, the potential TAM opportunity.

But we're still in the very early innings. Coupled with an uncertain macro environment, again, there's no real-term catalyst, I think, that would act as a potential rebate for shares. But, again, to your point, I think numbers are at risk here. There's just no real catalyst, I think, to kind of rebate shares. Okay. So what do you want to know from the call? What are you going to ask? I think it's important to see

what they're doing on the AI side. I think this market has become a duopoly between Microsoft Teams and Zoom. So I think what Zoom came out with, with Zoom IQ, is kind of a competitor to what Microsoft is doing with Copilot. So I think the AI investments

and the product enhancements they're making, I think is an important match for them to show us, but it's also, it's a good retention tool, right? So for that net retention to go up, to retain those enterprise customers, to expand that ARPU, it's important to see what they're doing in the AI side. And then contact center. I think that's definitely a new narrative for Zoom.

So to see what they're doing there would be important. Okay. Maybe some partnerships too. Peter Levine, thank you. Thank you. Up next, we're going to take the pulse of the high-end consumer as Tiffany, which recently reopened its flagship store in New York, experiences a profit boom. We'll be right back. Welcome back. Tiffany has been a major profit driver for LVMH since being acquired less than two years ago. And now the luxury retailer is hoping a major expansion of its flagship store in New York will drive sales even higher. Robert Frank has the details. Morgan, China is a big part of LVMH's bet on turning around Tiffany. The new flagship store that you just mentioned, that's expected to bring tourists back and stores

within China expected to benefit from the company's reopening. Now, in its latest quarter, LVMH said it is, quote, extremely hopeful and should benefit from a strong push from mainland China in fashion, leather and jewelry. Tiffany's CEO telling me Tiffany has huge potential in China and around the world. Europe for us will be an incredible source of growth in the coming years. More to come in Japan, China. We're repositioning the brand with renovation. In a way, we're looking at Tiffany building amazing embassies rather than consulates in the future. repositioning the brand with renovation. In a way, we're looking at Tiffany building amazing embassies rather than consulates in the future. Now, the landmark store in New York costs hundreds of millions of dollars. It is the most expensive

store in LVMH history. Right now, you're looking at pictures of the new VIP sales room for its biggest spenders. And guys, those spenders helping to double Tiffany's profits in just the two years after LVMH acquired the company for $16 billion. Guys? Listen, I would love to go check out that room if they ever need another journalist in addition to yourself to do it.

It's amazing to me the turnaround story that's been Tiffany. And in spite of the pandemic, in spite of what's been a strong dollar, which we know historically has had impact on jewelry sales as well to its foreign buyers. I mean, I guess just walk me through the fact that we have seen this major rebound for the brand under LVMH. It is surprising, as you say, Morgan, you know, when they paid that $16 billion, many people say they overpaid. Of course, during the pandemic, it was perceived to be a terrible time to be buying a jewelry, very discretionary company. But they ramped up the marketing.

Remember, Jay-Z and Beyonce did that famous ad with the Basquiat painting. They have created a lot of new pieces, including the new lock bracelet. That's like a $10,000 or $15,000 bracelet. And they're improving many of its stores, as you've seen with this store in Manhattan, which some say cost over $500 million. Just the art in that store is probably over $100 million. So they've kind of restored the shine to Tiffany, a brand that many people thought was already doing quite well. And that's just the LVMH playbook. They take these brands and then they increase sales and take them global. Robert, parse for us, if you can, real quick, the two messages on the Chinese consumer. Rushir Sharma was just telling us that the Chinese

economy isn't growing as some might have hoped. But at the same time, it sounds like the luxury traveler is spending. It's a good point, John. We're seeing very mixed messages and it also depends on which segment you're talking about. You know, the high end of the Chinese consumer seems right now to have jumped right back into spending after those lockdowns were open at the end of last year. Now, the big question going forward is, will they shop in Europe this summer as they have in the past? A lot of shareholders betting with the LVMH share price that they will. But I think it's still too early to tell just how far this consumer run in China is going to go and how strong it will be.

Important for investors to watch. Robert, thank you. Speaking of retail, investors are getting set for a barrage of earnings from the industry. Tomorrow, we're going to get results from Lowe's, Dick's Sporting Goods, AutoZone, Williams-Sonoma, and VF Corp., which, of course, has Vans, North Face, and Timberland. Wednesday brings Abercrombie & Fitch, Kohl's, Petco, and American Eagle. Thursday features Best Buy, Gap, Costco, Ulta, and Dollar Tree. And then Big Lots closes out the week on Friday, Morgan. Yeah, and tomorrow you get the U.S. Flash PMIs, which is going to be a key one to watch. You get Fed Minutes on Wednesday, PCE Inflation Reading on Friday as well.

And then, of course, debt ceiling, debt ceiling, debt ceiling. And I really got to emphasize NVIDIA this week because it has been on a tear, right? And so if you believe in the future and AI and all the wonderful things that could happen, it's that Tesla-like stock. Can Jensen Huang and the team tell a story and deliver results that deliver there? Also on Tap for Tomorrow,

Overtime's exclusive interview with Adobe CEO Shantanu Narayan on the outlook for software and a bit more. And that'll do it for Overtime. Fast money begins right now.