Closing Bell - Closing Bell Overtime: Chips Sink Nasdaq to Worst Day In 18 Months; Nvidia Falls Over 6% 7/17/24

Episode Date: July 17, 2024

Investors sold off foreign chip stocks on multiple potential headwinds, including Nvidia down over 6%. Bernstein’s Stacy Rasgon breaks down what you need to know. Plus, earnings from United, Alcoa, Discover, SL Green and more. BD8 Capital’s Barbara Doran and Vital Knowledge’s Adam Crisfulli on the key takeaways. Analyst reaction to United and Discover’s earnings and Zelman & Associates’ Alan Ratner on the homebuilders trade.

That's the end of regulation. Capital Group ringing the closing bell at the New York Stock Exchange, the financial women's association at the Nasdaq. It's a bifurcated market as the Dow closes at a record, crossing above 41,000 for the first time, while the Nasdaq turns in its worst day in more than a year and a half, down some 2.7 percent. Small caps also taking a breather after touching a new 52-week high earlier in the session. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. And we've got a big hour of earnings coming your way, including results from United Airlines, which are out.

We are going through them. Discover Financial, Alcoa, and more. We're going to bring you all those headlines as soon as they cross. Plus, chip stocks diverging today, either getting hit very hard or seeing a jump on China concerns and heated rhetoric from both presidential candidates. We're going to break down what that means for investors. And homebuilders have been building on gains during this market rotation. But one analyst will join us with a warning for that group heading into earnings. But first, we begin with the market. The 3.7 percent pullback for the tech sector, dragging the Nasdaq and the S&P 500 both lower. The Dow jumping to a record

close, as we just mentioned. That was boosted in large part by UnitedHealth. Let's bring in our market panel to break it all down. Joining us now, Barbara Duran from BD8 Capital Partners and Adam Crisafulli of Vital Knowledge. It's great to have you both on. Barbara, I'm going to start with you because we've talked about how in past conversations, you've got to stick with what's been working. And what's been working has basically been flipped on its head in a little less than a week here. Massive rotation, very violent move higher in the Russell 2000. Does this continue? I think it could for a little bit because we've had important developments. I mean, we know what's happening with inflation. It continues to decline. Earnings are just starting. They're looking positive. And the Fed is looking like it could

not only cut in September, but possibly in November and December. If you look at the Fed fund futures, they're at nearly 100 percent for all three months. So what this has changed is that we now have more, much more idea of the timing of the cuts. And that had not helped the rotational trade into cyclicals, into small caps, because you didn't know when. It's been expected for a long time, but hasn't happened. At the same time, with all the signs of economic slowing, we started to see just in the last few weeks a buildup of worries that it'd be too much. Well, the retail sales yesterday showed us that the consumer is still alive and well in spending and borrowing. So I think the trade into rotation, rotation to these things is still going to happen. But for the mega cap tax, I think it's setting up a nice buying opportunity in the not so distant future.

OK, because they're that look have not changed. Well, speaking of consumer facing companies, United Airlines down 5 percent right now. Those results are out. Contessa Brewer has the numbers for us. Contessa. Morgan, United earnings come in with a beat here at 414 a share adjusted versus the 393 the street had expected. Revenue is a slight miss, $14.99 billion, $14.99 billion with consensus at $15.06 billion. Revenue by segment, you have got domestic up 3% year-on-year, Latin America, transatlantic, that includes Africa and the Middle East, up low to mid-single digits, Pacific up 24.3% over last year. The premium segment revenue is higher by 8.5% over last year. Basic economy up 38% over last year, and up 14.4 percent. So why is the stock

plummeting? There is trouble in the air. Its revenue per available seat miles declined 2.4 percent from last year. Cost per seat mile, excluding fuel here, up 2.1 percent year on year. United's guidance, and here you go, this is the big one for the third quarter, is $2.75 to $3.25 at the high end, and consensus calling for $3.44 in earnings per share. So United is sticking with its full-year guidance previously issued. That was $9 to $11. But you can see that the guidance for next quarter is really causing the stock to plummet. We also have learned that United has planned to reduce capacity by three points in the fourth quarter. So that will be an impact there. We're diving through the rest of the details here. John, I'll send it back to you. All right, Contessa, thank you. Adam, Chris, this reminds me a little bit of Spirit Airlines yesterday having some

non-ticketing revenue issues. And I wonder to what degree that and the overcapacity issues that the airlines have been expressing might be reflected in these United results as well. Yeah, I mean, it's almost verbatim to what Delta had out last week. So decent Q2 numbers, guidance for Q3 is weak, and the full year guidance is left unchanged. That's exactly what Delta did. Also, RASM is an issue. That was an issue with Delta. We saw that in the CPI. That's a big reason why we're seeing, you know, disinflation pressures moderate. And that kind of speaks to, I think, the real dilemma for investors right now, where we are seeing disinflation and that's a macro positive, but it's a micro negative for some of these companies. So the airlines in particular, retailers are also, you know, implementing price discounts in an attempt to recapture customer flow. So I think that's one

aspect that investors are really grappling with on the macro and micro front with inflation. And then on capacity, they're going to curve capacity in an effort to bolster pricing in the back half of the year. And that's also what Delta is doing as well. So, you know, definitely underwhelming. These stocks trade at the lowest multiples in the entire market. So expectations are already pretty low. You know, but certainly the airlines are going through a tough environment right now. Barb, I want to get your reaction to what we just heard from United, especially given the fact that, yes, we've been we've been seeing a lot of weakness across the airline industry in general. And that's actually been translating to the industrials, yes, we've been seeing a lot of weakness across the airline industry in general.

And that's actually been translating to the industrials, too, as our Robert Hum here at CNBC has pointed out. When you look at earnings declines expected for the quarters, it's just three S&P 500 sectors. One of them is industrials in large part because of the profitability plummets we're seeing for the airlines for the quarter. Yeah, well, I think, you know, Adam has nailed it pretty well. I think capacity is an issue. I think going into this, the expectation was United has one of the best mixes in terms of international travel, which is obviously a higher ticket price and also the business. And that's businesses continue to recover and has not yet been a pre-pandemic, but getting closer. So I'd like to hear more about that, you know, what their plans are there. The real question is, you know, what is happening?

It sounded like their economy was up very strongly over 35 percent. But what's happening to the middle market customer and spending? Because we are seeing a retrenching of some sort through all the retail numbers and what's happening with spending. So I want to know more about that. Barb, I'm curious for your take on the market more broadly. How do you know if we're entering into a period when valuation multiples are going to normalize? And even if some of these high flying names that have done well up to this point continue to do well, maybe their stocks don't do as well. Well, I think that's always a question is, you know, what's happening

now in terms of what the rotation is. I mean, there's obviously money coming out of these high flyers. But if you look at their earnings trajectories in the next week or the next two weeks, we're going to have some important earnings, whether it's Meta, you know, or Alphabet or Amazon at the end of August, you're going to have NVIDIA and Broadcom. And all these companies should be raising their forward guidance. They are doing very well. Their PEs, yes, are actually probably at the high end of their historical range. But you're also going to have PE multiple expansion as interest rates come down. So I think they still have a bit of a positive. I think in the short run, people are going to be repositioning. And obviously, we've seen some very violent moves in the market the last few days that should not continue with that kind of pace.

OK, well, we got Kinder Morgan earnings out. Steve Kovac has those results for us. Steve. Hey there, Morgan. Yeah, it's a miss on the top and bottom lines here for Kinder Morgan. The EPS coming in at 25 cents adjusted. Street wanted 26 cents. And then revenues was also in this year at $3.57 billion. Street was looking for $4.13 billion. Shares barely moving here, down about two-tenths of a percent, Morgan. Okay, Steve, thank you. Adam, I want to get your response to this, in part because some of these names, MLPs being one of them, these infrastructure, these midstream energy players, have had pretty good runs as of late, perhaps in anticipation of interest rates cut, interest rate cuts coming, or that look for

dividend darlings. Just want to get your thought on what we're seeing there. And also on a day where, yes, we saw cyclicals take a pause, we saw small caps take a pause, we saw defensive stocks actually lead the pack here. Where we're at in terms of this rotation, because we haven't gotten your thoughts. So I think the rotation has a little bit further to run in the near term. But the bar for some of these cyclical names will be high as we go through the earnings season, just given how aggressively they have bounced off the lows. We're not going to hear from some of the more prominent ones until the next few weeks. But, you know, you have some of these names that are up 10, 20 percent in just the last couple of days

since this rotation has kicked off. And so, you know, investors are going to want to hear about a second half rebound, which has kind of been one of the theses for this group. You know, we saw J.B. Hunt last night. You know, we've been waiting now several quarters for a rebound in freight volumes and intermodal volumes. We're still waiting for that to happen. You know, it sounds like retail is very, you know, they've drawn down inventory. So it's a matter of time. It's a matter of when, not if. But we're kind of still waiting for that to happen. So, you know, I think investors will be scouring the cyclical names over the coming weeks, you know, for a sense of are we going to see some type of a second half rebound. But I do think the rotation does have a little bit further to run for a lot of the same.

You know, we still have these macro forces playing out. We do have, you know, the June data so far has been very Goldilocks in nature. We are seeing disinflation. You're seeing employment come back into balance. But retail sales and deltas are production. We're both decent. You know, you're seeing anticipation of monetary easing. Right. And then, you know, continued anticipation for changes on the political front as Trump and Republican momentum continues as we head into November. So, yeah, all those factors are going to kind of continue to help the group.

Indeed. And Kendrick Morgan now down about three percent. Adam, Barbara, thank you both. Now let's bring in senior market commentator Mike Santoli for a look at how the biggest stocks and the smallest stocks have been performing during this market reshuffle. Mike. Yeah, John, sort of the extreme ends of the spectrum here. And you can frame that out by looking at the XLG, the extra large top 50 stocks in the overall market ETF. And this, of course, is on a year to date basis. And then IWC's micro caps. So even smaller than the Russell 2000 names. Same type of dynamic, though, in the snapback in the micro caps has been historic and vertical

just about and just that little curling lower in the in the largest stocks to come and meet in the middle. What I think is most significant about this is just exactly how wide the divergence was and the fact that even after this huge week of gains that the smallest stocks have not really even come close to fully closing that performance gap. So it's about the initial conditions before this rotation being really, really extreme and just a partial snapback on that. Now, there's another chart we've kind of highlighted a couple of times in the past few months, the implied correlation among large stocks and the S&P 500 itself. It basically means how much are stocks moving independently relative to the index? How much are they moving together? When

it's high, everything's moving together. Usually that means it's a stressed market or a sell off something macro. And then when it's low and this is moving together. Usually that means it's a stressed market or a sell-off, something macro. And then when it's low, and this is historically low, it means really an unusual amount of divergence below the surface. And you can actually bet on this. People have bet on this. So we've seen this slight comeback in implied correlation. So basically, stocks moving a little more in sync.

We saw that today. Small caps down, S&P down, NASDAQ down. If it really does ramp, though, the correlations, it probably will mean you have the room for a broader market pullback because you're not going to have those offsetting moves. And you saw also the volatility index ticking higher. That's been suppressed by the fact that all these different stocks have been mostly going their own way in these opposing currents, John. All right, Mike, that being said, the Russell was down less than the Nasdaq and the S&P today, which struck me as somewhat unusual. I wonder

if anything struck you as unusual about it. Yes, obviously, it meant that the largest stocks were the main downside drivers today, and even the equated S&P held up OK. So this is not by any means a game over for the rotation type of a day, but it does show you that you can't always count on that perfect offsetting action where it's the rotation is is really harmonious as opposed to maybe a little bumpier. Markets are seldom perfect, as you tell us all the time. Thanks, Antoli. Thank you. We've got some news just coming in on Petco, a familiar name, taking the CEO job at that company. Joel Anderson, who we told you yesterday was stepping down as the CEO of Five Below, is going to take the top job at Petco, effective July 29th, right in the dog days of summer. Anderson saying in a release, yes, many opportunities to improve

performance. Those are opportunities at Five Below as well. Five Below lost a quarter of its value today on news of the CEO transition and after the company cut its Q2 outlook, which results in a number of analyst downgrades today. All right. Well, we've got more earnings to bring you. Alcoa results are out, and it looks like a beat on both the top and bottom lines. Alcoa Q2 earnings coming in at $ cents per share, X items adjusted. That was versus the estimate of nine cents per share. And it was better than the company's own pre-announced forecast just a week ago. Revenue sequentially increasing 12 percent to two point nine one billion dollars. That's versus estimates of two point eight84 billion. Higher Illumina and Illuminum prices contributing to the beat here that we saw versus what the street expected.

Also expects the Illumina acquisition to close on August 1st. You can see those shares are popping 2% right now. Okay, and the menagerie of earnings results keeps getting bigger. Equifax results are out. Steve Kovach has those. Hey there, John. Yeah, and it is a beat here on EPS. $1.82 is what the reporting adjusted. $1.73 the street was looking for. And revenues, let's just call it in line with expectations, $1.3 billion versus the $1.42 billion the street was looking for. You see shares down about 3.5 percent now, John.

All right. I'll take it, Steve. Thank you. Coming up, much more on all of today's after hours action, including a closer look at United's pullback and the read through for the rest of the airlines. And when we come back, longtime chips analyst Stacey Raskin is going to talk about the big divergence playing out today for semiconductor stocks as names like ASML, Marvell, and NVIDIA sync, while manufacturers like Global Foundries and Intel get a boost. Overtime's back in two. Welcome back to Overtime. Big moves in the semiconductor space today. Shares of NVIDIA, AMD, and Broadcom all closing sharply lower, as well as equipment makers such as ASML Holding and Lam Research. The moves come after two Bloomberg reports, one that says President Biden is considering harsher trade restrictions on the chips industry with selling to China. And the second, an interview with former President Donald

Trump where he implied that Taiwan isn't paying enough for U.S. military protection. Taiwan semiconductor falling sharply, too, on that news. But a couple of U.S. chip players actually popped on the reports, including Global Foundries and Intel, both recipients of funding from the CHIPS Act, both domestic chip makers. Joining us to break all of that down is Bernstein Managing Director Stacey Raskin. Stacey, welcome. How much of this has to do with former President Trump's comments? And how much is partly reflected in the fact that Global Foundries and Intel really have not been performing as well as some of those other names? Yeah, probably a lot of it is the Trump comments.

And, you know, if you read that interview, your first like blind take away would be, well, he doesn't sound like he's as concerned about protecting Taiwan from China. Although if you read it, it doesn't really say that. It kind of says he doesn't want to do it for free. All right. This is not like atypical. You know, I'm kind of having flashbacks, you know, to when he was president and we'd be waking up and sort of seeing what the latest sort of policy by tweet was that day. And we're having a little bit of flashbacks to that.

But it's not an atypical kind of statement from him. And I don't think he was saying, like, protecting Taiwan is not important. I mean, it clearly is important. But it certainly did impact all of the semi-companies that still depend on Taiwan for manufacturing. And we did, as you noted, see relative strength in more of the companies that have more of a U.S. focus, Intel Global Foundries, even companies like Texas Instruments, I think, today that have a bigger U.S. footprint, I think, on a relative basis outperform. So that's kind of the dynamic that you saw with this. Yeah, Taiwan getting the NATO treatment here. But

it makes me wonder, given the run that we've seen in AI stocks and what a geopolitical issue that is, whether you're talking about China or you're talking about regulation and policy, how much volatility we have to be prepared for both overall and in the chips as President Trump's comments by the polling get more and more relevant. Yeah, we'll probably have more volatility. We have that. During the four years when he was the president, look, look, from a sell side standpoint, it was a target rich environment. Like there was always something to write about. There was always something that was going on that was moving stocks one way or the other. And yeah, we may be getting back into that again, for sure. So is this a buying opportunity for any of the

names across your coverage universe? You know, one thing I would note is is on, you know, to the semi caps. Right. And you ASML reported last night. But a lot of the U.S. names came down today. I think that was more on on the Biden administration comments around potential tightening of the export controls. And what the Biden administration, at least from the news stories, was potentially suggesting is implementing something called the foreign direct product rule. Currently, they've already got export restrictions on the U.S. companies. They would like the foreign semi-cap companies to also participate, and they've been somewhat hesitant. And I won't go into what it is, but the foreign direct product rule would effectively enable the U.S. to apply similar kinds of constraints on the non-U.S. semi-cap companies.

The thing is, that news does not really impact the U.S. guys. The U.S. guys are already impacted by this. They're already in China with one arm behind their back. What it would kind of do is kind of like level out the playing field between the U.S. players and the non-U.S. players. And so I didn't think there was any incremental bad news for the U.S. semi-cap players from at least the reports from the Biden administration. Got to thank ASML coming out with stronger than expected guidance, but like Q3, I mean, stronger than expected results, but like Q3 guidance is also factoring in here, too. Stacey, a colleague of mine covers it, so I'll refrain from I won't step on their toes.

All right, Stacey, thanks for joining us. Yeah, you bet. Discover earnings are out. Kate Rooney has the numbers. Kate. Hey, Morgan. A massive beat here for Discover Financial, at least on EPS. It was a beat on that adjusted number by $3.

$6.06. Street was looking for $3.07 there. Revenue of $4.54 billion. That was better than expected. It looks like provision for credit losses did decrease. And then total loans in the quarter were up about 8% year over year. Got credit card loans up 7%, personal loans up 13%. Private student loans were down, but earlier in the day, they announced they were selling that business to KKR and Carlyle. Net interest income was up 11% or so for the quarter, guys, and shares up

slightly here. We should also mention Discover has agreed to be bought by Capital One. That deal is expected to close at the end of this year or the beginning of next year. $35 billion deal, so the stock has been up about 25% since that was announced, and shares higher here after hours. Back with you. All right. Kate Rooney, thank you. Up next, we will break down earnings from United Airlines and talk about spirits revenue warning that sent a chill across the low-cost carriers today. And check out the names that helped boost the Dow to a record close, including UnitedHealth, Johnson & Johnson, Intel, and Chevron.

We'll be right back. Welcome back. We have a news alert on Olive Garden parent Darden Restaurants. Kate Rogers has the details. Kate. Hi, Morgan. That's right. An acquisition here. News between Darden, as you said, Olive Garden parent company, and Chewy's Holdings jointly announcing today they've entered into an agreement for Darden to acquire all outstanding shares of Chewy's for $37.50 per share. All cash transaction here, the two companies say,

with a value of approximately $605 million. Chewy's will join Darden's portfolio here, which you said, Olive Garden, Longhorn Steakhouse, Ruth's Chris, and more. Chewy's has about 100 locations of its Tex-Mex restaurant chain across the country here. And this transaction is expected, the companies say, to close in Darden's fiscal second quarter. As you can see, though, the stock is down by just about a quarter of a percent right now. Back over to you.

OK, Kate Rogers, thank you. Let's get a check on United Airlines. Those shares are falling after reporting mixed results for the second quarter. You can see down about 2 percent. So pairing the worst of the losses we saw when the prints initially crossed. Joining us now, Connor Cunningham from Milius Research. guidance, that's reaffirmed. And the management comments in this report are that mid-August is going to be an inflection point with oversupply easing and the company saying that United is best positioned to benefit. It's not that different than what we heard from Delta and a turn later this quarter as well. Yeah, it's a story of two companies right now within the airline industry. You're seeing basically Delta and United Command most attention from investors,

most of the overall profits in general. They're doing quite well. Obviously, we would like to see things better. Yes, we do agree that the third quarter guy was a little light, but expectations were brought down. To United's credit, they continued to manage through the second quarter and ended up being a little bit better. If you look at just the geography of revenue performance, you're seeing strength in some of the domestic market, but there is some oversupply that's starting to hurt them in June and July. Like they mentioned, August is the expectation that that capacity starts to step down as well as into September. The hope, though, is that a lot of these capacity cuts from the industry will continue through the whole year

rather than just being these one-off reductions and then capacity starts to ramp again. So hopefully that continues to be the message from the group in general. I mean, we've seen a flurry of preannouncements over the last couple weeks weeks, couple of months, call it from airlines, from the low cost carriers to the Deltas and Uniteds and Americans, et cetera. Who's best position in this environment as disinflation continues to take root and as capacity needs to be adjusted? And how does it speak to what consumers are willing to spend on and what they aren't? Yeah. So I think, again, the story here is that Delta and United remain top tier. They have opportunities to continue to outperform with premium products, as well as our international networks and loyalty and so on.

The rest of the industry continues to struggle. Again, they're adding seats and discounting at pretty massive levels. They need to change that. They also have margins that are well below where they were historically Delta. The United remain among the top tier. So if the industry does fix itself, we see that creating up the chain scale to Delta United for the years to come.

So they should be continued outperformers going forward. We'll see if the industry does act rationally from here. We're hopeful that they do. There's something needs to change though at this point. I mean, we have other airlines that are, continue to mark huge losses despite having a record environment in terms of travel demand. So, again, things need to change at this point. How quick does that fix need to be and how much of a concern is there about, there's been some strength, it seems, in better

healed travelers spending on upgrades. If that goes away, does it put names like United or maybe others in more of a tenuous position? Yeah, yes. But there is a secular growth story, I would say, from that standpoint. So I'm not actually quite worried about the premium side of the equation. Delta and United just continue to do a very good job of actually selling those products. There's history where they used to just kind of give them away to their highest loyalty members. So, again, from our standpoint, you have to touch premium. You have to have loyalty. You have to have a vast network at this point.

The two that continue to scream the best remain Delta and United. Next, we were going to hear from Southwest and American. They're going to, in our view, they will continue to struggle until they make some sort of adjustment. So from our standpoint, there are too many seats. Delta and United don't necessarily need to make those adjustments. From our standpoint, again, like the industry margin structure is flipped. It used to be that the ultra low cost carriers led the whole, led the industry in margin performance. Now it's the opposite.

So why should Delta United be forced into making those adjustments when others really should? Okay, so we'll see. Cunningham, we'll leave it there. Let's go to Kate Rogers with a news update. Kate. Hey there, John. Special Counsel Jack Smith is appealing the dismissal of the classified documents case against Donald Trump. Federal Judge Aileen Cannon dismissed the case earlier this week, ruling that Smith's appointment to prosecute cases against former presidents violated the appointments clause in the Constitution. The Secret Service director has been subpoenaed to testify in front of Congress on the assassination attempt on Donald Trump. House Oversight Committee Chairman James Comer said while Director Kimberly Cheadle initially agreed to appear, the subpoena is needed to make sure that she keeps to her commitment.

The Secret Service has said it will participate in congressional investigations looking into the shooting. And John Deere will end its sponsorships at LGBTQ social events, including pride parades. That's following an online right-wing pressure campaign, but it said it wasn't ending its diversity efforts completely. Rural lifestyle retailer Tractor Supply announced a similar move last month. Back over to you. All right. Okay, thank you. Now SL Green Realty earnings are out. Let's go to our Diana Olick with those numbers. Diana? Well, John, kind of a mixed bag. SL Green's Q2 reporting a loss per share of four cents versus estimates of a loss of 13 cents per share. So that's a little better than estimated. They are reporting revenues of 136 million, but it's unclear if that's

comparable to the estimate of 149.3 million. Of course, SL Green is New York City's largest office operator, landlord. They did report an increase in occupancy to 89.6 percent, barely up from 89.2 percent in the previous quarter. And they are reaffirming full year earnings guidance. So that's what we got. Thanks. All right, Diana, thank you. Meanwhile, Treasury yields taking a turn lower this month, and that could put money in the pockets of one particular group of consumers. Mike Santoli is going to explain next. And as we head to break, take a look at Swiss drug maker Roche jumping today on positive early stage trial data for its obesity drug candidate. That news hitting shares of Novo Nordisk and Eli Lilly. Let's see the moves right there on your screen.

Over time, we'll be right back. We're not done with earnings yet. Steel Dynamics results are out, and it was a beat on both the top and bottom lines for the steelmaker. Earnings per share of $2.72. That was five cents better than street expectations. Revenue also a beat, $4.6 billion, which was better than the $4.4 billion estimated by analysts here. The company is talking about underlying steel demand being, quote, stable in the second quarter. In terms of outlook, saying, we remain confident that market conditions are in place for domestic steel consumption to be solid in the second half of 2024. They believe automotive, non-residential construction, and industrial sectors will remain steady this year. You can see those shares are up 1.5% right now. Meantime, Mike Santoli returns with a look at the uptick in mortgage refinancing activity

and what it could mean for the consumer. Mike? Yeah, Morgan, pretty direct response, of course, from the decline in yields. Longer-term Treasury yields like the 10- year pretty much drive listed mortgage rates and obviously encourage a little more refi activity. Here's a two year chart of the 10 year Treasury down to 416. What I find kind of interesting about that level is it takes you back to the December 2023 Fed pivot. pivot, if you remember. That was right there. December 13th, the yield went from 420 down to like 402 on that one day when J-PAL indicated that they'd be likely cutting rates in 2024. So we're right back in that zone when the market started pricing in multiple cuts. Take a look at the NBA refinance index. Shows you just released this morning, this move higher in the volume of refinance applications,

basically tells you it's not at historic highs, but the direction is very clear that it's showing that there's an ability for a lot of homeowners to essentially get a little bit more of a cash buffer by refinancing those mortgages and essentially lowering their payments, even if so many people continue to be locked in while below 5% on their mortgages, guys. Very interesting. Mike Santoli, thank you. Meantime, we've got a news alert on Beyond Meat getting slammed here in overtime. Let's get back to Kate Rogers. Kate. Hey there, John. That's right. Take a look here at shares of Beyond Meat.

Down more than 20% right now in the after-hours trade. This is on news. The Wall Street Journal is reporting that the plant-based meat company has engaged with a group of bondholders, it says, to initiate discussions about a balance sheet restructuring. And they are citing people rather familiar with the matter. The company's liquidity, this journal says, has diminished here over the past several quarters. It's continuing to burn cash. That's been an ongoing issue that has come up on every earnings conference call we've had with Beyond in recent memory here. And it says the group of bondholders has interest in Beyond's $1.1 billion worth of convertible notes. We should note, you know, this stock has been extremely challenged, particularly post-pandemic. It saw quite a nice boom as people pantry loaded, tried new products. But the entire plant-based meat

sector has been challenged beyond obviously being a one-time darling of that sector here. And the company's market cap is now under $500 million. So quite a fall from grace here. And we will bring you any updates as we get them. Back over to you. Ouch, yeah, 17% down. It's a lot of red for a plant-based stock. Kate, thanks.

Up next, a top analyst on whether you should be buying homebuilder stocks with falling interest rates and improving housing starts. Overtime, we will be right back. Welcome back to Overtime. New data out today on housing. June, housing starts stronger than expected, driven by multifamily activities. Single-family starts and permits pulled back, though. Home builders have been on a tear lately after June's CPI report showed inflation cooling and boosted the odds of a Fed cut. So joining us now, Zellman & Associates Managing Director Alan Ratner. Alan, it's great to have you back on.

That's exactly where I'm going to start because we've seen this stagnation, stagflation, if you will, in the housing market. What shifts it and what's contributing to the run recently we have seen in the homebuilder stocks? Hey, Morgan, thanks for having me. Yeah, you know, the last several months, I would say the new home market has been pretty stagnant. The spring selling season got off to a good start earlier in the year. And right around March, April, we started to see things hit a little bit of a wall, not falling off of a cliff. But I think what we're seeing is the consumer is just struggling from an affordability perspective with rates, you know, albeit down more recently, still hovering in the high sixes. Prices are up a lot. And, you know, at least from an employment perspective, things have kind of slowed down a little bit. So a little bit of a digestion period.

What the market is showing right now, though, is a lot of optimism that the tamer inflation metrics are going to translate to much lower mortgage rates in the back half of the year and kind of solve that affordability problem. And that might be a little bit of an optimistic view. Why is that optimistic? Because at most, maybe you get 50 basis points and it doesn't really change the equation that much? Well, you know, not to get too technical, but the bond market's already pricing in rate cuts. So the simple act of the Fed cutting is not necessarily going to have a direct impact on mortgage rates. Right now, the bond market is already pricing in that outlook. So, you know, we'll see how far rates actually move lower. But our view is it's going to be a fairly gradual decline over the next several years as opposed to a step function lower.

Alan, we talked a lot about supply lately, lack of it and how that's affected keeping prices higher. But how does a weakening consumer potentially affect home builders? What about demand? Yeah, it's a great point, John, because, you know, the one thing that trumps lower rates is a recession. So what we've seen historically is a slowing economy, a slowing job market. That's going to overwhelm any relief we might see in mortgage rates, at least as far as fundamentals are concerned. The stocks might react in advance of that and kind of with the anticipation that the recession might be short lived and ultimately Fed stimulus and lower rates will kind of spur demand and spur the economy. But, you know, we are concerned about the direction of the economy and the consumer. And right now, if we can orchestrate a soft landing and lower rate

environment, that is the Goldilocks scenario for housing. But it's definitely threading a needle. Yeah. So far, so good, I guess. Alan Ratner, thanks for sharing your perspective there. Thanks for having me. Up next, we're going to get analysts' reaction to Discover's results and what they mean for other credit card stocks and the outlook for consumer spending when Overtime returns. Welcome back to Overtime. Discover financial hire after a strong beat on the bottom line. More than $6 per share in earnings versus estimates of about $3 per share. Let's bring in Vincent Kantik, specialty finance analyst at BTIG. Vincent, this stock is a little bit of a special case because it's in the process of getting acquired.

But I think important here to look through the data and get some sense of how the space overall is doing higher, but not for all the best reasons reflecting on the consumer. It seems like net interest income was higher because of higher loan receivables, margin expansion, loan fee income was up from higher late fees, etc. What does this tell us? Great. Well, glad to be on. Yeah, to your point, loans grew 8% year-over-year, 1% quarter-to-quarter. The net interest margin climbed about 14 basis points quarter-to-quarter, and that's because they're charging more to their customers and the yield is up. Losses are down, encouragingly, so down 11 basis points quarter-to-quarter. And delinquencies, which is a forward look, is down 14 basis points quarter-to-quarter.

So those things about Discover are encouraging. When you look at the consumer broadly, though, Discover's network volume was down 3% year over year, and that's due to a slower sales volume on the card. So the consumer is spending less on their credit card. I think that's something we've seen across the industry, and it does pertain to some of the tightening that these credit cards have had and less credit availability that they're therefore giving to their customers. So when we saw some of the bigger banks report, the ones that had more consumer exposure versus investment bank exposure seem to be under more

pressure. What sorts of questions does this raise about other companies in your coverage universe that have consumer exposure and how they might perform here? Right. It's a fair point. It's something consistently we've been seeing, losses increasing for our customers. Many of our covered companies, many of these companies are saying that there's going to be a positive inflection by later this year. But we're really paying attention to the delinquency data to see that. It does seem like these companies have to tighten their underwriting further. So that would mean that the loan growth would slow down. That would mean that the spending capacity that these card companies are giving to their customers is going to slow down. And so we

just expect a slowdown to the top line growth for any of the other credit card companies and the broader lending group for consumer finance. Okay, so let's go back to this acquisition by Capital One of Discover. Capital One basically just saying, hey, $265 billion we're committing over five years in lending and philanthropy to help get this deal done. We saw it in the Discover results today. Acquisition on track to happen either the end of this year or beginning of next year. How likely is it that that does in fact happen and regulators don't challenge this? Right. I think they're doing what they can in order to tilt it in their favor. So we saw that Capital One, $265 billion that they're investing in communities in order to support the deal.

Discover also in its press release said that it's continuing with its merger plans and regulatory approval process. What really matters is what the Fed and OCC, the bank regulators, view this as. And we're going to get a flavor of that this Friday when the Fed board and the OCC are hosting public comments about this. You know, perhaps more likely the deal gets done than not. But what's really important for this deal, things like the investments of $265 billion helped. But what the Fed has been looking at this in terms of the size of the bank that this

is creating. So this is going to become a $630 billion bank, $250 billion just in credit card alone. So the largest things there and the regulators have been less capable about these big acquisitions. So we're going to pay attention to Friday. All right. So Affirm's CEO and co-founder, Mac Levchin, was on CNBC earlier today. And one of the things he pointed out was that last quarter, the company grew at four times the rate of e-commerce. We've seen the dynamics between the more traditional credit card companies and the buy now, pay later, or I guess I should say the lenders and the buy now, pay later companies. Can we actually say that the firms of the world are taking market share? And if so, is that where you'd be investing and buying stock? I think Affirm has been doing a good job, another company I cover.

And as these credit cards are tightening, they're underwriting as their delinquencies and losses are increasing. I think those consumers are still looking for credit somewhere. They're still looking for their payments utilities somewhere. And when you have these other players who are able to underwrite better and provide that credit, I think they are able to take share. And those customers are fairly sticky. So when you go from a traditional credit card to another form of payment, if you serve that customer well, you are able to take that share long term. And I think the firm is a share winner here. All right. Vincent, thank you. Vincent Kantek. Thanks for having me. Well, the increased pressure on the consumer comes as companies continue to shift the way they structure their operations for the data and AI era.

This morning, I spoke with Techion founder and CEO Jay Vijayan after the startup yesterday announced a $200 million equity investment from Dragoneer at a valuation over $4 billion. Now, Techion does cloud-based software for the automobile sales industry. So think about the website for Cadillac or the systems that would unite the pricing, inventory, and customer relationship management process on a dealer's showroom floor and its website. Vijayan told me that the money would partly go to boosting Techion's go-to-market capabilities and partly to fuel innovations like AI for customer service, which will be an important way for dealers to keep costs under control in any slowdown. The biggest feature is that, like having a sales agent interact with the consumer in the most efficient way. And we've got, you know, results from our dealers, even in

early stages, that per sales sales agent we could save 45 minutes to an hour per day so that's a good example because customer communication ai really assists them to respond quickly automatically templatize the email replies with context whatever vehicle make model the consumer is looking for giving the context instantly and as you know it's a competitive world whoever responds first back to the consumer is looking for, giving the context instantly. And as you know, it's a competitive world. Whoever responds first back to the consumer have the higher probability of closing the sale. So big on those comments from Vijay. And some AI forward software companies might benefit if demand continues to cool overall and if businesses need to cut labor costs to preserve margins. And also speaks to some of the areas of the market that are actually seeing

investment flows right now in the private markets. Sure. All right to some of the areas of the market that are actually seeing investment flows right now in the private markets. Sure. All right. Well, the countdown is on for Netflix earnings after the bell tomorrow. But that's not the only big stock that could move the market. Your Wall Street look ahead. That's next. Welcome back. We'll get ready to overtime and chill because Netflix is the big name on tomorrow's earnings calendar. We'll have instant analysis of those numbers right here. But there are a ton of other results happening before the bell, including Taiwan Semi, Novartis, Abbott, Blackstone, M&T Bank, DR Horton, and Domino's, Morgan. Yeah, it's the calendar, the earnings calendar starting to ramp up here.

John, interesting moves in the market again today. The S&P finishing down about 1.4% here. This is the first time we've seen a more than 1% drop in the S&P, or a drop of 1% or more in the S&P since late April. It really speaks to the grind higher we saw, two record highs for the S&P up until, what, just earlier this week. Yeah, I can't help but think that Netflix might have an impact on how people think about and look at this market. Take a look at a one-year chart of Netflix. It has been one of the strong, not really a mega cap, but it's been one of those growthy performers, right? Even though it's been a little iffy over the past few weeks, that chart

says a lot, especially a standout among other media stocks. So does that tech-driven story continue? Yeah, that is a key question. Of course, you know, the media stocks are down double-digit percentages, so we continue to watch that as well. Russell 2000 taking a little bit of a breather here, actually ending the day down one percent. But we're up nine percent on the past week. So we continue to watch this rotation, see how all that shakes out. Tom Lee told us earlier he thinks it could go up 30, 40 percent this year. I mean, and he's not alone. Yeah. Well, that's going to do it for us here at Overtime. Yeah. Fast money starts now.