Closing Bell - Closing Bell Overtime: BofA’s Savita Subramanian On Volatility, Best Ideas; Goldman’s Chief US Economist On The Fed 8/22/24

Episode Date: August 22, 2024

Stocks slid into the close as investors await Fed Chair Jerome Powell’s speech at Jackson Hole tomorrow; Goldman Sachs Chief US Economist David Mericle breaks down what’s at stake. BofA’s Savita Subramanian on top ideas. Plus, earnings from CAVA, Intuit, Ross Stores, Workday. 

That's the end of regulation. Old Navy ringing the closing bell at the New York Stock Exchange. Toyo Company doing the honors at the NASDAQ. The rally hitting pause and taking a half step back as attention turns to Wyoming and Fed Chair Powell's Jackson Hole speech tomorrow morning. The NASDAQ leading the declines down more than 1.7% on the day. That's the scorecard on Wall Street, but the action's just getting started. Welcome to Closing Bell Overtime.

I'm Mike Santoli. Morgan Brennan and John Ford are off today. A big hour of earnings is coming your way with results from Bill Holdings, Intuit, Ross Storrs, Workday, and Kava, which is up 140% so far this year. Plus, B of A's Savita Subramanian gives her take on the market's rapid

comeback from the early August lows and how to trade it. And the chief U.S. economist from Goldman Sachs joins us with the most important thing he's watching from Powell tomorrow morning at Jackson Hall. Let's get right to the market action. Joining us now is Paul Hickey, Bespoke Investment Group co-founder and Deepak Puri of Deutsche Bank Wealth Management. Welcome to you both. Paul, I'd love to have you frame out the market action in advance of what we're going to hear out in Jackson Hole tomorrow. I know you did a lot of work trying to quantify what Fed rhetoric looks like. And, of course, the market tendencies heading into this type of an event.

So how are we set up? Yeah, so I think coming into today, we have a sell off today, but it's a little bit of a reset in the market. We've come a long way. And I think it's pretty much a foregone conclusion that Powell is going to set the stage for rate cuts in September. And the reason we say that is this Fed speak monitor, which we have and we and for years now, we've been tracking every speech by Fed officials and then ranking them on a dovishness to hawkishness scale. And in the last quarter, this sum of speeches by Fed officials has been the most dovish on a net basis since the first quarter of 2021. So the Fed officials are coming out collectively and signaling that we're likely to see cuts going forward. So I think the market's taking a step

back here. A little bit of the Selma News reaction is we've come a long way. The 10-day AD line has reached one of the 99th percentile of historical readings. The seasonality is historically weak at this point. And then we have sentiment, which has been quick to rebound. So I think those factors in the short term make a sell-off like today perfectly understandable. And you could see some weakness in the coming days. Historically, the Jackson Hole Symposium has been surrounded by relative weakness in the market, especially when the market was looking forward to a rate cut at the meeting following the symposium. But that's that's a lot I just brought out there. So, yeah, I would just leave it there. No, sell the news before the news. That's exactly how this market tries to operate. And it totally fits with what we're seeing. We're going to take a

quick second to get Intuit earnings. They are out. Kate Rooney has the numbers. Hey, Mike, I do. So it looks like a beat here for Intuit. This was its fiscal fourth quarter EPS coming in 15 cents above estimates, $1.99. That was better than expected. And then that was on revenue of $3.1 billion. Also, beat revenue grew 17 percent or so year over year. And then credit carment revenue within that was up 14 percent. We're not going to compare the guidance numbers here, but it does look like there's a change in how they're recognizing revenue. And that appears to be weighing on the outlook. They're expecting revenue growth of 5 to 6 percent for the year and then expecting desktop ecosystem revenue to drop about 20% in the first fiscal quarter of this year.

But they do say here, return to growth in the second quarter. They're saying it reflects this transition to a recurring subscription model and then some product updates. Companies expecting those changes to lower revenue in the first quarter by about $160 million. Shares, though, up here after hours.

Mike, back for you. All right, Kate, thanks. Maybe something similar to what a lot of software companies are doing in terms of their sales practices. Workday earnings also out. Julia Boorstin has those numbers. Julia. Mike, Workday beating expectations on the top and bottom lines. Earnings of $1.75 adjusted, beating estimates of

$1.65, so beating estimates by 10 cents per share. Revenues of $2.09 billion, just a hair ahead of the $2.07 billion estimated. And then looking at guidance, third quarter subscription revenue guidance is pretty much in line at $1.96 billion versus the $1.97 billion, which is the estimate you see shares are down about two percent now and after hours trading. Back over to you. All right. Yeah, it actually has been something of a tough stock down 16 percent year to date. Thank you, Julia. Paul, just a quick take on a couple of software companies and how it fits into just in general, how at this point with most earnings in for the second quarter, the market has received them in terms of rewarding beats and punishing misses? Yeah, so I think overall it was, you know, the market was essentially flat this earnings season.

So, you know, it wasn't quite a straight line. But I think overall we've gotten through this earnings season relatively well. And we saw some more exaggerated moves for beats and for misses. You know, the Workday news today, that's been a tough stock this year. They marginally beat sales, but that's not enough for a stock like this. The stocks never miss sales estimates as a public company. So you have to do a little more than marginally beat. And still aggressively valued, for sure. We do have to get to another bit of breaking news on Uber.

Deirdre Bosa has the details. Hey, Mike. So Uber is announcing that it has signed a multi-year strategic partnership with Cruise. That's GM's autonomous driving unit. No financial details in this release, but this is just the latest in a string of autonomous deals that Uber has signed over the last few years. It also has a partnership with Waymo. That's Alphabet's robo-taxi unit. Also partnerships in delivery and freight.

Now, the partnership with Cruise is expected to launch next year. How it works is that when you book an Uber through the app and the app sees a driverless cruise nearby, it'll give the rider the option to book it instead of a human driver. That's how Waymo works with Uber and Phoenix. Cruze, of course, has had its share of challenges. Today, it agreed to recall nearly 1,200 robo-taxis over hard braking issues. It is also facing ongoing investigations by the DOJ and SEC following that incident here in San Francisco last year when it dragged a pedestrian. Back to you, Mike. All right, Deirdre. Interesting. Self-driving was always part of the Uber story. Eventually, we'll see how that is going to fit in. Thanks, Dee.

Deepak, in terms of how investors ought to be thinking about not just Jackson Hole, but how the market itself has digested that sharp pullback comeback. It seems as if we've rebuilt some confidence that we have an economic soft landing ahead of us. But how are you thinking about that and how the markets have priced it? Yeah, thank you, Michael. So I think what we have seen recently might be a preview for things to come. If you think back for the last couple of years, we've had pretty stable macro environment. Inflation, yes, very high, but coming down nicely with a very stable growth and consumption backdrop. I think we might be entering a stage where this backdrop is going to be changing quite frequently within the growth fears and then oscillating between the growth fears and the relief of a soft landing.

And in that kind of a scenario, you want to start making some changes in your portfolio, especially with regards to the high beta names that you might be carrying. You know, there's also seasonality at play over the next couple of months. It tends to be the low mark in the equity markets for the year. So September, October would be challenging from that perspective. And I think last but not the least, the Fed needs to align itself with what the market expects with regards to the rate cuts. There's still a little bit of a misalignment. And I think

tomorrow's Jay Powell speech is going to give us some light in terms of whether, you know, 25 basis point, which is the base case for us, is the way the Fed intends to go come September 18th. So quite a lot of moving pieces with regards to the macro developments, which I think is going to make things a little bit more challenging for equity investors going forward. All right. We'll see if the Fed moves or the market moves in the other direction to bring that gap a little bit closer together. We do also have Ross Storrs earnings. Now, Julia Boorstin has those as well. Rossor is beating expectations when it comes to earnings, reporting $1.59 in terms of earnings per share. That's $0.09 better than the $1.50 estimate.

Revenues of $5.25 billion right in line with estimates. And the company's third quarter guidance also right in line with estimates, guiding to third quarter earnings per share between 135 to 141. And the estimate is at 138. Same store sales are guiding to between 2 and 3 percent growth. The street account estimate is 2.6 percent. So, again, pretty much right in line with estimates. But that earnings beat driving the stock higher.

And after hours trading is now more than 6 percent. Back over to you. Yeah. And after I was actually sending that stock to what looks like a new high, Julia. Thank you. Bill Holdings next on the earnings parade. Kate Rooney has those. Bottom line for Bill, and then the company is also announcing a $300 million buyback.

We'll start with that EPS number, 57 cents. That was an 11-cent beat on revenue of $344 million. Stronger than expected there. It looks like Q1 EPS guidance is a little bit light here. And then on revenue guidance for the first quarter, it is stronger than expected. So sort of mixed there on guidance. But again, that $300 million buyback, a headline as well as shares here up more than almost 2% or so, Mike. Yeah, a little bit of relief for a stock that's had a kind of rough

Kate, thank you very much. Paul, just headed back to you here. The earnings piece of the story for the bull thesis has started to kick in or at least broaden out. Many people talking about the fact that you do have the majority of companies now clicking back to earnings growth and yet we still have an S&P 500 at, you know, 21 times earnings. It seems like it's priced for that kind of a growth. So going into the last few months of the year, what's the next thing do you think that would have to kick in to bring that bullish thesis about? Well, I think what you're seeing is you're seeing the consumer, which there has been concerns over in the last few months.

The consumer is showing strength here. We saw it in Walmart. We saw it in Target. And now we're seeing it in Ross stores today. We saw it in the retail sales report last week. And then we also saw it from Brian Moynihan when he made comments about a week and a half ago suggesting that consumers still have higher checking balances than they did prior to COVID on an inflation adjusted basis. So they don't they're not as flush as they were, you know, when the government was just handing out stimulus checks every quarter, but they're still doing better than they were prior to COVID. And that's a good thing. So I

think that could set the stage for a better market or for a continued strength towards the end of the year. And as Deepak was mentioning, seasonality in the short term is negative. It's one of the worst one month periods of the market here. But if you shift out to three months, it's one of the best three months period. So you got to take, you know, get through that little valley here, the late August, early September period. And then towards the end of the year, you can finish off strong. Right. That is the tendency. And I guess if the consumer is good, good news is good news, seemingly,

when the Fed has already told you it's going to cut. We'll see if that does play out this way. Thank you very much, Paul and Deepak. Kava earnings are out. Kate Rogers has those numbers. Hi, Kate. Hey, Mike. So strong quarter here for Kava Q2. Beat on the top and bottom lines. EPS, 17 cents. That is a four cent beat. Revenues, 233 million. Higher than the 220 million estimated by analysts. Same store sales, a huge beat. Up 14.4 percent versus estimates of up 7.9 percent. Another rarity in growing traffic in this environment. That traffic number up nearly 10%.

Prices up almost 5%. Profit margin of 26.5%, roughly in line with analysts' estimates, and suggests the big's earnings beat here was more tied to the restaurant's strong traffic and sales performance. Kavas adjusted EBITDA 34.3 million versus 29.6 million estimates. The company also raising guidance for full year same store sales, profit margin and EBITDA. CEO Brett Schulman said steak, which is this new menu edition, is doing well, saying in a statement, quote, grilled steak is significantly outperforming our expectations and giving guests another reason to visit Kava and come back more often. The stock, as you can see,

higher by just under 8 percent. It's also among the sector's best performers this year, up more than 140%. You're to date, Mike. Back over to you. Yeah, Kate, high expectations, and they seem to have been exceeded, and they're in hyper-growth mode, I guess. All right, thank you, Kate. Don't miss the CEO of Kava, Brett Shulman, tomorrow morning on Squawk Box at 6.50 a.m. ET. All right, now let's turn to CNBC senior economics reporter Steve Leisman, who joins us from Jackson Hole, where he spoke with a number of Fed officials today ahead of Powell's main event tomorrow.

So, Steve, how have they sort of set the scene? And I guess where do you think the suspense lies in terms of what what Powell might have to say? How much and how fast? That's where the suspense lies. Market attention focused on that speech tomorrow coming at 10 a.m. Eastern time here in Jackson Hole. Hopes are high, Mike, that he will lay out a dovish path for rates. And Philly Fed President Patrick Harker speaking with us today, affirming that sentiment, telling us that he thinks that the Fed needs to start cutting rates in September and begin a series of what he called methodical cuts if supported by the data. I think we're appropriate right now for our policy stance. But again, what matters is we start to bring rates down. That sets the expectation because this is all an expectation

game, as you know, monetary policy. It's not about the rate today. It's about what the rate's going to be in the future. I think we need to let the data speak to this. So right now, I'm not in the camp of 25 or 50. So a big part of that debate mentioned by Mike about how fast the Fed moves down rate centers on how restrictive the Fed views itself to be. And here, opinions do appear to differ on the committee. I think rates are restrictive, but they're not overly restrictive. I think there is some room to consider where we go from here, but I frankly think we've got time and it's not an over-restrictiveness to the economy, in my opinion, at this stage. So Powell is expected to lay out a case for cuts. He will be held back somewhat.

You still have an inflation and employment report between now and the next meeting. And you also have some of these disagreements around the edges on this committee about those two issues, how much and how fast. Tomorrow, we're going to get more opinions from Fed President, Atlanta Fed President Raphael Bostic. And that's ahead of Jay Powell's speech at 10 a.m. And then we're going to talk to Chicago's Austin Goolsbee in the afternoon on halftime. So we should walk away from here, Mike, with a pretty good feel for a cross-section of the committee. Yeah, I mean, Steve, it feels as if maybe the market and the average investor might be sort of tiring of the data dependency line. And, of course, this topic of the symposium in general is about the efficacy of monetary policy and how it works through the economy. So you do wonder if not that he's going to take a victory lap on inflation and say,

we did it, now it's on to make sure we support growth, but essentially having some clarity of how they might react under different scenarios as the data come in. You know, Mike, I think that's a really good point. It's something I've been thinking a lot about, which I think what you're getting at is tolerance for reports that are not precisely as expected. But let's say you get, instead of a 0.2, a 0.3 on inflation. Is that something that's going to completely alter either the expected path of the Fed or the expected path that the market believes the Fed is on? And I think what we might get tomorrow

is some kind of sense that, hey, this notion that Powell brought up at the last meeting, that we're not necessarily data point dependent, we're just data dependent. The idea that there is some range here. We do believe broadly in the efficacy of our policy of the transmission mechanism. You do see that in some of the indicators that are out there. You see some softening in jobs. You see that, by the way, interestingly, in a rebound in the

mortgage market and perhaps in the housing market. So those are interesting things to follow and whether or not we don't have to be on the edge of our seat for every hundredth or tenth of a decimal point in every piece of data that comes out. Yeah, that'd be nice, I guess, even if it gives us plenty to talk about. Steve, thanks very much. We'll catch you again in the morning. Thank you. All right, after the break, B of A's Savita Subramanian says investors should get used to the volatility. She will join us with the strategies she's recommending now to navigate this market. And much more on all of today's after hours action, including analysis of Kava and Ross stores and the signals they give us about the health of the consumer. Overtime back in two minutes.

Welcome back. Check out Uber and GM both on the move in overtime. Uber had been higher, but now the share's down 3.5%. That's after the company's announced just a few minutes ago a multi-year strategic partnership to bring cruise self-driving vehicles to Uber with plans to launch next year with a dedicated number of Chevy Bolt-based autonomous vehicles. No specific financial details were revealed. You see GM actually up about 1.2 percent after that news. Meantime, the rally was not on autopilot today. Stocks pulling back as investors await Fed Chair Powell's speech tomorrow at the Jackson Hole Conference. Joining us now is B of A Securities

head of U.S. equity and quantitativeies, Savita Subramanian. Savita, so great to catch up with you. I mean, I guess if I just look at a chart of this year and the S&P 500, it says, wow, it's a strong uptrend. We had a normal seeming correction, a partial comeback from that correction. Maybe we got a fourth quarter rally. But there's plenty going on below the surface. And I know you've been very focused on what's been winning and what ought to start to win and what should be rewarded in this market. So how should we be playing it right now in terms of looking for fresh opportunities? Yeah, it's a great question. And I think this is a market environment that is a little bit trickier

than, you know, even where we were at the beginning of the year, because sentiment is no longer as bearish on equities. You've got a lot of buyers of stocks that have done well this year. So, you know, it's kind of the idea that we've averted the disastrous hard landing. But, you know, on the flip side, it's hard to say sentiment is super bullish when you look at valuations of the average company in the S&P 500. And, you know, the equal weighted S&P is trading at almost a record discount to the cap weighted S&P. So there's a lot of a lot of different things going on, as you mentioned. I think what's interesting right now is if you look at just the trends that we've seen since maybe mid-year, we've seen a broadening of the market. And I think that is likely to continue. We're in an environment where the two sectors with the strongest earnings revisions are financials and technology. So two sectors that are very different. One is growth, one is value.

One is all about kind of the future long- term growth. And the other one is more about just kind of the call for, you know, for most of this year. I thought the market would broaden out earlier. And I think where we are now is an environment where we're starting to see that happen. The S&P Equal Weighted Index hit an all time high. I think it was last couple of weeks ago. So we're seeing those trends start to play through. and I would stick with that. I still think it's too early to buy the Russell 2000. So when I think about mega cab tech and I think about small caps, both of those tails of the distribution look a little bit maybe not as fruitful as, you know, kind of cyclicals, industrials, companies that are kind of GDP sensitive and might not fare as poorly as folks were expecting at the beginning of the year, given the hard

landing scenarios that were painted. Yeah, I mean, obviously, a very good distinction between sort of the average or median large cap stock relative to the small caps. Your point about a record discount of the equal weighted S&P versus the cap weighted S&P driven by the mega caps. Is that just not another way of saying, boy, those mega caps are really big and expensive? In other words, on an absolute basis, are they cheap? That's probably an easier way to say it. Yeah. Yeah, that's absolutely right.

I mean, mega cap tech is pretty expensive. But then the average company in the S&P that's not mega cap tech is actually pretty fairly valued. So, you know, it's kind of a good environment to buy the average company in the S&P 500, because think about it. Earnings are moving higher. We just heard a few companies report most companies are beating on bottom line and at least meeting on top line. The Fed is probably more likely to cut than raise rates. I mean, who knows when and who knows how much, but the direction is bullish for risk assets. So we're in a pretty healthy spot for your average equity. I just worry about the equities that are maybe too expensive and too crowded, i.e. tech and AI and all of these themes that have been running hot for, you know, multiple years. But I think it's a good time to buy,

you know, kind of a, you know, the average company looks pretty healthy. And this doesn't seem like a setup where you really want to sell stocks. I do worry about this big binary event coming up in November, the election. So I think that's a, you know, yeah, we're heading into a seasonally weak month, but it could be a seasonally weak couple of months into November if we stay in this sort of very close race. And there are some pretty big swing factors that could be outcomes on either side of the aisle. So those are other factors I would watch. Listen, if I were going to stick with one theme right now for let's say the next couple of months,

I would be buying large cap value, dividend yield, quality. I still think we're going to be in a volatile market environment for the next few months, maybe for the next few years. And your returns aren't necessarily going to come as greatly from price appreciation as they are from total return. So I think we're moving back to a good old fashioned total return type of market. And in that market,

you want to look for income. All right. And just quickly, you retain a 5400 S&P target. I guess that's that's sort of based on the idea that the huge cap stocks maybe haven't given you what they're going to give you. Yeah, exactly. I mean, point in time, estimates are fraught with peril. But, yeah, the idea is buy the broader index, not the biggies. Understood. Savita, thanks so much. Thank you.

Talk to you soon. All right, up next, we'll take another bite out of Kava's earnings results after a massive run for the stock so far this year. We'll look at what foot traffic data is saying about the popularity of its restaurants. And later, Goldman's chief U.S. economist is forecasting three consecutive Fed cuts starting in September. We'll ask him what Jerome Powell could say tomorrow that changes his prediction. Welcome back. KavaShare is moving higher right now after topping analyst estimates on the top and bottom line,

along with strong comparable store sales. Stock up 5.25%. Let's bring in RJ Hadevi, head of analytical research at datafirmplacer.ai, a company that tracks foot traffic as a tool for informing clients. And he's also a former senior restaurant analyst at Morningstar. R.J., great to have you here. I mean, I tell you what a moonshot stock this is. When the market gets hold of a specialty restaurant chain that's kind of growing stores fast and comps have huge momentum, it's basically hard to say, well, it's a little bit too expensive here. It's 200 plus times earnings. But what are the actual fundamental customer trends tell you and can it be sustained? Yeah, I think it can. And what's some really

impressive numbers out of the print tonight. Our foot traffic data had been showing some really strong momentum in terms of visitation trends from April, May, and particularly in June when they launched the new steak product. Dip back a little bit in July, but really generally pretty strong, at least compared to the rest of the fast casual industry. The new stores performing very well. Our data on the new store openings right now are tracking right in line with the company average. You'd like to see that they're on track to hit their AUV targets on that. You're right. You know, these growth stories are hard to deny, particularly when there is a lot of white space for a high growth concept that's really working in a lot of markets right now. And all that being said, does it mean that they can be virtually immune to any value sensitivity among consumers or any other you know competition

from from other chains that are deciding to lead with with lower prices. You're right it's all it's been all about the value wars this summer we've seen that across Q. S. R. McDonald's Burger King Wendy's all doing bundled

promotions we've seen that across casual dining chilies and before wildlings doing different promotions but there is a special class of. Names on the limited service space I mean it's basically coverage of all a sweet green a lot of these chains that have doing different promotions. But there is a special class of names in the limited service space. I mean, it's basically Kava, Chipotle, Sweetgreen. A lot of these chains that have avoided price

sensitivity, they do skew to a higher income audience. The trade areas that we look at, they generally are well above in terms of the household income on that front. So I think they are a bit immune to that. But the other thing, too, is they're innovating. And we're seeing that consumers are willing to pay for innovation. So the steak launch for Cava, the chicken out past store for Chipotle, things like that, steak even for Sweetgreen. People are willing to pay for innovation, new products and particularly the places that they are visiting frequently. So I think there is some economic immunity just given the household income. But it's also a fact a lot of things the companies are doing in terms of innovation right now. Yeah, I guess, I mean, certainly a different category,

but Wingstop is something that looks exactly like Kava's stock price in terms of, let's at least this year right now. And again, a fast-growing concept. So right now, I mean, the growing store, the store base pretty quickly, like 50-plus stores a year, it's like 15% growth for 2024 for Kava. That'll get them to 370 or thereabouts. I mean, do you have any sense of just exactly what the runway looks like in terms of how big the chain can get, how thick on the ground? It's one of those ones that's got a ton of potential growth on there. I mean, I think you're talking about double digit growth for at least the next five years. Ultimate store base depends on a

number of variables, but we certainly see something in the 3,000, 4,000 range based on some of our data. Again, there's some room to play with that. Really big opportunity in smaller markets. We've started to see some of the fast casual players move into the smaller markets. Chipotle's done a great job with this, some others. But I think there's a big opportunity as we've seen people migrate away from urban to more suburban and rural markets. I think there's a huge, tremendous opportunity in some of those spaces as well. You know, I think that given the model and given its success going into new markets, and that has really been one of the big stories for ACAVA this year,

I think there's tremendous white space ahead. Yeah, well, 3,000 to 4,000 would get them to where Chipotle is now. So obviously, that's what some investors have in mind in terms of the upside, if all goes right. RJ, thanks a lot. Appreciate the time today. Absolutely. Thank you. All right. Time for a CNBC News Update with Bertha Coombs. RJ, thanks a lot. Appreciate the time today. Absolutely. Thank you. All right. Time for a CNBC News update with Bertha Coombs. Hi, Bertha. Hi, Mike. The Supreme Court rejected today's GOP push to block 41,000 Arizona voters, but allowed some regulations that would bar people from registering to vote if they did not provide proof of citizenship. The court acted on an emergency

appeal filed by state and national Republicans that would give full effect to the voting measures put in place in 2022. The District of Columbia can move ahead with its antitrust lawsuit against Amazon. A federal appeals court ruled today that a local court judge set the bar too high for the district's complaint. The 2021 lawsuit accuses Amazon of being anti-competitive with its third-party sellers. Amazon says it looks forward to disproving the accusations in court. And the Chinese government is protesting after Biden administration officials met with the Dalai Lama in New York yesterday. China calls the Tibetan spiritual leader a political exile and engaged in anti-China separatist activities. He has long sought independence for Tibet. Officials who met

with him say they delivered a message of unwavering support for the Tibetan community. Mike. All right, Bertha, thank you. When we come back, is a tidal shift taking place under our noses in the market? We've got to look at why this year's big leadership sector could be losing some of its luster. And as we head to a break, check out shares of Peloton, one of the biggest winners on Wall Street today after the company returned to sales growth for the first time in nine quarters, though the stock is still down more than 90 percent from its pandemic highs. The stock up 35 percent. And at last count, more than 20 percent of the shares had been sold short.

Overtime will be right back. Shares of raw stores popping in overtime after posting a beat on the top and bottom lines in its earnings release just moments ago. Joining us now is CFRA equity research analyst Zachary Warring. So, Zach, anything in the numbers either jump out to you in a positive or negative way? Obviously, the market likes it. I know the guidance may be not as aggressive on the comp line as you might have liked to see, but what are your takeaways? Yeah, it was a really good quarter. It was what we expected.

And it's like you said, they're pretty conservative when they give guidance. So, you know, 2% to 3% for the rest of the year. Yeah, you know, we really think this was a great quarter. We kind of expected it. You know, they tend to guide low and be pretty well. So, yeah, 159 compared to 149 consensus, which to us is a good quarter. It feels like, you know, the collective opinion about where to go in retail stocks has been consistent for quite a while, which is that the net winners are the raw stores, the TJXs, where they have, you know, value offering. They're kind of able to still grow their store footprint.

Shoppers like to do the shopping there in person. All the things that you might list as their virtues, and yet the valuations also seem to reflect that, right? They traded, you know, two and three times what a department store would. So is all that sustainable? Does that story remain intact? Yeah, we do have some issues with valuations. You know, TJ Maxx reported, you know, just a few days ago, and their shares are obviously trading at like 26 times forward earnings,

which is pretty high even for them. And Ross Stores and After Hours is almost in the same boat. So, you know, 25 times next year earnings, which is steep to us. And we think, you know, analysts have priced in pretty much perfection here. You know, they're pricing in about 10% EPS growth over the next three or four years, you know, which they can achieve. But usually it's pretty bumpy along the way. You don't see a straight line, you know, 10% growth year over year every year. So, you know, we think right now shares are kind of priced to perfection.

And then where within retail then might be better set up in terms of risk reward? I mean, you see various chains going in different directions, but just, you know, Urban Outfitters today stock was down nine and a half percent, you know, Williams-Sonoma, some other areas. Are there are there, you know, names that you would focus on as alternatives to these? Yeah, we kind of like the stalwart. So, you know, we like upgraded Nike just a few weeks ago. We thought Nike was trading at a pretty, you know, decent valuation. And we think a lot of the stories there are overblown. We think they'll figure it out. They do have competition. We're not downplaying that, but valuation for them is pretty much at a historic low or was. And then Lululemon is kind of in the same boat. Lululemon

traded at 17 times forward earnings just last week, which we thought we were kind of pounding the table on. They're a great company. Estimates for Lululemon still, you know, considerable growth, 10 percent growth, EPS revenues and then 30 percent EPS growth for this year. And shares are trading at 17 times forward earnings, which we think is pretty ridiculous. The historical playbook would suggest that, you know, chain retail might be one area that could get a bit of a lift if we're going into a Fed rate cutting cycle. Of course, we never really had the outright consumer downturn that the Fed might be helping out with here. But do you see the Fed policy change as being something that's going to be a swing factor for this sector? Yeah, we think it is until it's, you know, until, you know, the Fed first moves. So you see a lot of these companies with maybe a lot of debt or

their balance sheets aren't great. You know, they typically have been moving as rates move. So you'll see, you know, companies like Vans or VF Corp, they'll move 7 percent a day strictly because they have a pretty heavy debt load. And you'll see that move. But we think that'll kind of end once the rate cycle starts. Gotcha. Yeah, no, it's it's often the case. Market sort of anticipates it and gets the gets the repricing out of the way beforehand. Zachary Warren, appreciate the time this evening. Thank you. Ross Storrs isn't the only name on the move in overtime. It's been a busy hour of earnings. We've got a full recap next. And

will Fed Chair Powell change the market narrative when he speaks in less than 18 hours at Jackson Hole? We'll ask Goldman's chief U.S. economist what he's expecting when overtime comes back. Welcome back. Let's get you caught up on the overtime movers and plenty of top and bottom line beats with Intuit, Workday, Bill Holdings, and Kava all topping estimates on earnings and revenue. Bill Holdings also announcing a new $300 million share buyback. Workday, the loan name in the red on the board after third quarter subscription guidance came in a bit light of estimates. Kava, the big winner so far, up 6.4 percent. After the break, will Jerome Powell strike the right tone in his Jackson Hole remarks tomorrow? We will ask Goldman's chief U.S. economist what he wants to hear from the Fed chair. And don't forget, you can catch us on the

go by following the Closing Bell Overtime podcast on your favorite podcast app. We'll be right back. A big day shaping up tomorrow on the economic calendar with new home sales out in the morning. But the main event is Fed Chair Powell's speech at Jackson Hole at 10 a.m. Eastern time, where investors will look for confirmation of a September rate cut. Joining us now is David Merrickle. He is Goldman Sachs chief U.S. economist. David, good to have you here. I mean, it's probably not about if. Obviously, a lot of the data and the Fed's own framework and rhetoric have gotten us to this point where it seems like the logical thing is they will be previewing a change in policy toward the easing side. But I guess the question is, you know, exactly how specific or how aggressive he might be in trying to lay out what that path looks like. I agree with that. I think after yesterday's minutes, it seems that everybody on the committee is reasonably on board with a cut. The question is now 25 basis points or 50 basis points. I suspect what we will get from Powell tomorrow is a more

dovish version of the remarks that he gave after the July FOMC meeting, a little bit more dovish, a little more confident on inflation, a little bit more concerned about the labor market, because, since July, we have had softer employment data and softer inflation data. I don't think he's going to answer the question for us of 25 vs. 50, because that's a question that should really come down to the next employment report, the August report in early September. So if we hear from him something like what I just laid out, then, you know, I would think it comes down to that August employment report. My best guess is that the August report will look better than the July report.

And in that scenario, I would guess that we're on track for a 25 basis point cut in September. A dovish risk would be if he comes out and expresses more concern, more urgency about the downside risks to the labor market, or if he says that the level of the funds rate is simply inappropriately high at this point. Either of those kinds of comments would hint at a faster pace of cutting. A hawkish risk would be if he instead emphasizes that the stance of broad financial conditions is actually still pretty easy, which might imply that even if the funds rate is too high, it's not an urgent problem. So you don't need to address it as

quickly. Isn't the Fed's own work, its own projections, and really what Powell has said before, pretty clear on the idea that the Fed funds rate at its current level is quite restrictive and probably well above what neutral is and certainly is well above where inflation has been coming in. So therefore, it would seem as if that wouldn't be a remarkable statement for him to say, you know, we have room to cut to get anywhere toward neutral. I agree with that. I suspect the Fed leadership agrees with that. But there has been a range of opinions on the FOMC.

Some people have been more concerned about inflation, a little bit more reluctant to cut as a result. And, you know, I think up until now, that that range of views has probably held them back. My guess is that we're moving beyond that, that we have now had a long enough string of encouraging inflation data that the people who were more concerned will kind of move toward where the rest of the committee is and say, you know, we are kind of over this problem and be more ready to cut. So I agree it wouldn't be remarkable if he said it, but maybe it would be a little bit of an evolution from where they are. I think, again, the bigger question is, how much downside risk do they perceive in the labor market? And does that justify, in their minds, moving more

aggressively? So far, comments from Fed officials since the July employment report suggest, no, they're not yet thinking in terms of a 50-basis point cut, that, in their minds, that seems to be a little bit more of a crisis-type setting where you really need to solve a big problem quickly. And I think they think fairly enough that we don't yet have a big problem. My guess is it's really the data more than Fed commentary that will resolve that. Now, you mentioned you would expect that the September jobs report, well, for the month of August, is going to be a bit stronger than we saw last month, which would suggest, I guess, that there's not as much urgency. Now, you also think, though, in that context, the Fed could cut three times by a quarter point each by the end of the year, correct?

That's right. You know, the original plan, if you look at the dot plot, seems to have been to cut once a quarter. And I would think of that as sort of a normalization path, where the only reason that you're cutting is to get back to a more neutral funds rate, not because you're trying to solve any urgent problem. I think, since the July employment report, you know, we now have an unemployment rate that is a little bit above where it was before the pandemic. Our jobs-workers gap is a little bit below. So there's a little bit more of a motive creeping in to support the pandemic. Our jobs workers gap is a little bit below. So there's a little bit more of a motive creeping in to support the economy. So far, I think it's enough to kind of turn up the

notch by one dial from quarterly cuts to consecutive 25 basis point cuts, at least at the outset. I don't think it's yet enough to crank up the notch by two dials all the way up to a 50 basis point cut. WILLIAM BRANGHAMS, And then, just very quickly, where do you think, ultimately, they cut to? DAVID BROOKS, We have them cutting to 3.25 to 3.5. You know, that's 200 basis points below where we are now, but it is 100 basis points above where the funds rate peaked last cycle. And a big part of the reason for that is that our longstanding House view here has been that neutral is not and never was quite as low as it was widely

perceived to be last cycle. Gotcha. David Maracle, chief U.S. economist at Goldman Sachs. Appreciate it. We will be listening along with you tomorrow for what Chair Powell has to say. All right. On a day when the S&P 500 was down 0.9 percent and we await the Fed at Jackson Hole, that's going to do it for overtime. Fast money begins right now with my friend Sarah Eisen.