Closing Bell - Closing Bell Overtime: Dow, S&P 500 Set Fresh Records; IBKR CEO Thomas Peterffy On Retail Traders 7/16/24

Episode Date: July 16, 2024

The Dow posts its best day in a year after a pop from UnitedHealth. G Squared’s Victoria Greene and Hennion & Walsh’s Kevin Mahn break down the market action. Earnings from JB Hunt and Interactive Brokers. Interactive Brokers CEO Thomas Peterffy breaks on the latest results, retail trading trends, and if he sees a Trump trade emerging yet. Former Toys R Us CEO Gerald Storch on the disappointing numbers from high-end retail so far, plus the breaking news Five Below is replacing its CEO. Our Kate Roger's has an exclusive first look at San Francisco mayoral candidate Mark Farrellâ’s plans to revitalize San Francisco’s downtown financial district.

That bell marks the end of regulation. Blue Owl Capital Corporation ringing the closing bell for New York Stock Exchange. Pioneer Bancorp doing the honors at the NASDAQ and the Dow. Zooming to another record close, S&P 500 joining the party with a record of its own. While small caps, they are the bells of the ball today. Another huge boost. That is a scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort. Morgan Brennan is off today, and we're just moments away from earnings results from Interactive Brokers and J.B. Hunt giving key reads on financial services and the transports, and we'll bring you

those results as soon as they cross. First on CNBC, interview with Interactive Brokers Chairman Thomas Pederphy before the call with analysts as well. Plus, regional banks really soaring today. The regional bank ETF now up double digits since just the start of the month. We're going to discuss if that rally has more room to run. Let's begin with the market. Record closes for the Dow and the S&P 500, led by names like UnitedHealth, Caterpillar, and Boeing, but the small caps. Once again, still in the spotlight, Russell 2000 climbing another three and a half percent. Let's bring in our market panel, G Squared, Private Wealth, CIO and CNBC contributor Victoria Green,

and Hennon and Walsh, Asset Management President and CIO Kevin Munn. Guys, good afternoon. So Victoria, Russell up three and a half percent today. KRE, Regional Bank Index up, I think, four and a half percent. Is this all about rates. Why now, right? We've known for a while that the rates are coming down. Well, I think there's a couple of factors, but it's just risk on. The junkier you are, the better you're rallying now. And we've been waiting for this. Those small caps, a little late to the party, not even fashionably late,

but very, very late to this bull market rally. But it's fantastic. They're up 10% or so in the last five trading days. Absolutely huge move up. A little more worried about the KRE. Regional banks still have a few hurdles this week with earnings that we forget about. You know, the whole CRE potential issue in there. Everything's being swept under the rug because it's rally. Everybody's thrown in on the Trump trade. They're saying this is going to happen. We're going to have lower regulations. We're going to have lower taxes. We're going to have this stimulus. We're going to have rates come down. And suddenly it's

everything rally party. And finally, finally, after about 18 months of lagging almost, finally, the Russell 2000 is really, oh, it's a bull market. Maybe I should participate. I should mention Interactive Brokers results are out. That stock is bouncing around a little bit in overtime. We'll get you the details as soon as we get them all together. And Kevin, you said don't chase market returns in this rally, but what if you're reconsidering your strategy because you thought that small caps were trash? Has the data shifted where you should be thinking?

I think it's a reminder of two things, John. One, the importance of diversification, not just to concentrate your portfolio on hypothetically seven large cap growth technology names. The second thing is to not try and time the market. Now, what we've known looking back over the last 31 years is that 95 percent of the market returns take place on about one percent of the trading days. Today could be one of those days. Now, I don't know when those days are going to be, but I can rest assured if you're not invested in

the market on those good days, you're going to miss out on the upside. My fear right now, though, is that investors see that the market was up over 15 percent during the first two quarters of this year, up 26 percent last year. They think they've missed out on the bull market run and they're going to come in now when the market is trading at high, go into those concentrated names and be let down. This is why they need to work like with financial advisors to build portfolios, to give them the diversification they need to provide them with upside in the months and years going forward. That does tend to happen. Well, I mentioned those interactive brokers results.

We are ready with them. Let's get to our Kate Rooney with those results. Kate. Hey, John. Yes, it was a beat for the second quarter for interactive brokers. Also looks like they saw a pretty strong customer account growth as well. Let's start with that adjusted EPS number, $1.76. That was a two cent beat. Revenue of $1.29 billion. That was better than expected. Customer accounts up 28% to $2.92 million in the quarter. Darts, daily active

revenue trades, sort of a metric of trading volume. That was up about 28%. Commission revenue up 26%. And fees as well were higher. Net interest income, this was especially of interest after Schwab this morning. That increased 14 percent. You can see shares here down slightly, kind of flat here after hours. John, back for you. Victoria, last. Thanks, Kate. Victoria, last quarter, Thomas Petterfie, who's coming up, by the way, I should mention, he's going to join us before the analyst call. He did the same thing last quarter, and he mentioned that as retail traders, if they're trading a lot more on margin, that can be the sign of a market top. So I'm really interested in hearing what he says about that particular metric this time around. Are there any indications in this rally that to you feel toppy? I mean, yeah, the concentration was a

huge problem, which I love the fact the market's broadening out. This is a fantastic thing that we're getting more breadth. We're getting the small caps. We're getting value. Value works. It's not dead. The death of value was greatly exaggerated. It's fantastic. It's not just about those seven stocks anymore. I don't think there's anything wrong with those seven. I think they're going to crush it when it comes to earnings. But it's good to see other parts of the market working because that makes this rally sustainable. But the one thing I always point out, we still have so much money on the sidelines with money market. And as rates come down, that money might start having the FOMO, kind of talked about the FOMO trade and people feeling left out, and they're making less in

their money market. Perhaps that's also going to add in more capital to the market. So I don't think we're at a top. Obviously, the fall is typically a seasonally weak time period. So you can see that happen at the end of August. September is the ugly month. And then November, you know, we should get the year on lift. But I don't see any problems with this bull market. I think the bull market is intact. I think there's plenty of clients trading. I think margin is not as stretched as you've seen it in like the 07 or the 2000s. And one of the things I think is fascinating is just the dynamic shift in the market. The number of clients now using options that weren't using options before, even two years ago, the amount that retail now matters to the market can make it a little bit more jerky, I would assume,

you know, because they're kind of playing so much short term. And I think, as Kevin pointed out, some of this is investing technically is better off in the long term rather than jumping in, jumping out. But then they follow Roaring Kitty and everybody else. And now it's all about how much money can you make in 48 hours? Well, value, though, it was mostly dead. But there's a difference between mostly dead and all dead. You got to remember that. J.B. Hunt, earnings are out. We are going through those, and we'll bring them to you as soon as they're ready. Kevin, you were mentioning before diversification. Yes.

I wonder, what does diversification mean in this market? Because you used to be able to buy the S&P 500 and get that. But the concentration, even within the S&P, we're talking all the time about the difference between the S&P and the equal weight S&P. And now we've got to think more about the Russell, right? So how do you do that diversification short of picking just individual stocks? I think we start by looking at the first two quarters of this year when the S&P was up 15 percent, back out the MAG 7, it was up roughly 4 percent. Seems like a so-so year. But do you know what? That's been the average return for the stock market for the first six months over the year. It's going back to 1990. So not so bad after all.

Then we look at earnings concentration growth. Over the last 12 months, the MAG-7 has accounted for 83% of the earnings growth. For this rally to really expand, we need to see that earnings also expand to those other areas of the market beyond the MAG-7. And fortunately, I believe that's going to start taking place during the second half this year. And likely by the first quarter of 2025, I think those 493 other stocks catch up to the MAG7 in terms of earnings growth. So how do you play this? You build a portfolio that's consistent with your risk tolerance, that's consistent with your investment timeframe, and that's consistent with your goals and objectives. Just because the market's moving up doesn't mean you get more aggressive. Just as much as just because the market's moving down doesn't mean you become

more conservative. Build a portfolio strategy that's consistent with who you are and what your goals are. And then use that willpower. All right, got it. Kevin, Victoria, thank you. And J.B. Hunt, earnings, as I mentioned, are out. Let's get the numbers with Kate Rogers. Kate? Hey there, John. That's right. A miss on the top and bottom lines for the transportation and logistics company. And as you can see, the stock down 2.2 percent after hours. EPS a miss here, $1.32 lower than the $1.52 analysts were looking for. And revenues also a miss, $2.93 billion lower than the $3.04 billion that analysts were looking for for the quarter, second quarter, that is. And as you can see, the stock falling a bit more, now down over 3%.

Back over to you. All right. Yeah. Watch that one throughout overtime. Kate, thank you. For now, let's bring in senior markets commentator Mike Santoli for a look under the surface at this market rotation playing out in a big way today. Mike? Yeah, John, a big way, a sudden way. I mean, for months and months, we've talked about how lopsided this market is.

And it feels as if in multiple days it's trying to rebalance all at once. This is the S&P 500 over two years against. This is everything in the U.S. stock market aside from the S&P 500. It's called the Vanguard Completion Index ETF. And essentially, you see how they were pretty close for much of the last couple of years. And then you had that divergence, did nothing for months, and then took the sharp left turn higher. So this is all small and mid-caps, plus very large stocks that have not yet been placed inside the S&P 500. Another relationship we always watch, homebuilders and semiconductors.

Bellwether Groups, you like to see when these groups are leading. They diverged recently. Again, this is a two-year chart. Homebuilders struggled as yields had that pop. People worried about maybe we weren't going to get that perfect soft landing. And, of course, NVIDIA kept going up. Well, NVIDIA has paused, and you have homebuilders, again, veering higher as yields have come in. So, so far, it seems like this market wants to kind of, you know, get back in a little bit of a firmer footing

in terms of not just a handful of stocks working. We'll see if this is just kind of a reflex, snapback kind of thing over the course of a couple weeks or more, John. I don't know if we can go back to that first chart again, Mike, but I'm looking at that leg higher on that second one. And now I don't see another period where there's been that kind of a dramatic catch-up. It's like the anchor leg of a relay race. Exactly. I mean, certainly not over this time span. And because you hadn't had that much of a divergence up until this point. So mathematically, as you can kind of envision, once you get, you know, three stocks worth 21 percent of the S&P 500,

top 10 stocks worth almost 40 percent of the S&P 500. Mathematically, it becomes a lot easier for that S&P to diverge from the rest of the market. So it's really the quickness of this reconvergence that is remarkable. And it shows you that this is a market that tends to just kind of stampede in the other direction once everyone's decided that's the trade. You have the instruments where you can implement any trade you want in a hurry. And, you know, in the short term, this market is prone to overshooting. So we'll see if that's what it's doing at the moment. Any kinds of stuff that tends to get shaken loose when something like this happens? I mean, people are trading differently now than they used to. A lot more options. People

are betting on movements, not just investing in individual stocks. So to what degree might there be aftershocks that are uncommon? What's interesting, John, is the starting position for all this was one where there was a very heavy bet on what's known as the dispersion trade, which means we think volatility at the index level is going to be lower than the average volatility of the component stocks. You can actually own that trade. So far, that hasn't really been upended because as much as we've seen all this reshuffling below the surface, it's been largely offset by the big stocks cooling off. But that could be a mechanical

vulnerability if you start to see more corrective moves. I will note, as the market's been rallying here and as it's kind of gained energy on the smaller cap side of things, the cyclical stocks, the volatility index is not going down. It's actually higher than energy on the smaller cap side of things, the cyclical stocks. The volatility index is not going down. It's actually higher than its recent lows by more than a point. That suggests that there's some people bracing for the fact this becomes a little more of a choppy, slippery market. Okay. Well, it would be time for it in the last 100 days before a presidential election, Mike Santoli. That too, yeah.

Thank you. See you again in just a bit. Meanwhile, we've got a news alert on Five Below. Let's get back to Kate Rogers for that. Kate? Hey there, John. That's right. The company announcing that its CEO will be stepping down effective immediately.

Kenneth Bull, interim president and CEO of Five Below, is stepping down, as mentioned. And Joel, excuse me, I'm so sorry—the appointment of Kenneth Bull as interim president and CEO effective immediately. Joel Anderson, who's the current CEO of Five Below, is stepping down from his roles as president and CEO and from the board of directors, the company says, to pursue other interests. And in this same release, John Five Below also announcing—pre-announcing some guidance here for the second quarter. It sees revenues in the range of $820 to $826 million. That's a little lower than the $837 million estimated. And it sees Q2 same-store sales down between 6% and 7%.

Also says it sees Q2 EPS of between $0.53 to $0.56. That is also lower than the $0.63 estimated by analysts. And as you can see, the stock is falling now by more than 10%. Back over to you. All right. Kate Rogers, thank you. And that is a dramatic move for that discounter, which we've had talked to recently on overtime. We'll follow up on that for sure. Meantime, after the break, Interactive Brokers chairman Thomas Pederphy is going to break down his company's earnings before the call with Wall Street analysts. We'll get his take on the corner, the market at record highs, how the election might impact stocks, all that when Overtime returns.

Shares of Interactive Brokers rising after the company posted a top and bottom line beat in its earnings print just minutes ago. And joining us now, the first on CNBC interview is Interactive Brokers founder and chairman Thomas Pederfy. Thomas great to see you first give me your take on this quarter where it looks like your customer accounts grew at a healthy clip. Yes customer accounts were up 28 percent so that was good actually the quarter the entire quarter was very good. We announced $1.76 a share that compares favorably with last year's $1.32. It's up 33%. And we generally aim to grow by 20% to 30% a year. And 33%, of course, is above that. So it's a good quarter.

Commission revenue is well up 26%. Option volumes have increased by very substantial 35% for a year ago. Stocks were up 26% and futures were up by 10%. And as you previously were wondering about our margin loans. Yeah, I was going to go there. So margin loans were up 32% to $55 billion. That sounds concerning to me based on what you told us last quarter when you joined. You said that you're a nervous Nelly. And when margin loans shoot up, it's followed by a quick collapse in the market. Yes, but it didn't happen.

OK. So, you know, margin loans were great. And the entire quarter was fantastic because we had a 73 percent pre-tax profit margin, which is unparalleled in the industry. So you're telling me margin loans increasing 32 percent is on pace. It's not shooting up any higher. Well, look, it looks like it looks like we are going to go into continue to go and have a lot of deficit spending. As a result, the dollar will deteriorate and the market will keep going up. So it's because Trump is an easy money person and so is Biden. So that's what we're looking at. OK. You mentioned the politics. But before we go there, I want to talk about the small caps and the action that we certainly saw last Thursday and that we continue to see this week with this strength,

not only in the Russell 2000 overall, but in the KRE, the regional bank, some reaction to the expectation that rates are coming down. What are you seeing your customers do here and what does it remind you of if there's any historical context you can give? Well, from the point of view of our customers, it doesn't really make much of a dent. They are still holding the Magnificent 7 and other technology stocks. And, well, maybe some of the smaller technology stocks are moving up a little faster now, but generally still technology is the name of the game. And how do you see the recent political winds shifting affecting what your customers are doing. And I'm talking about not only the presidential debate where the betting markets started saying, well, Biden's chances have gone way down, but then this really awful assassination attempt on former President Trump

over the weekend that seems to also have shifted things? Well, you know, Trump is the same person. But the fact that his ear was hurt has given him at least 10 points in the poll. So it's very interesting. But as far as the market is concerned, yes. I mean, it appears now that Trump is going to be the next president. So everybody is trying to figure out how that impacts which stocks. And I don't think that I mean, I do think that that oil and gas stocks are going to do better. Okay. Somebody was just telling us yesterday, I believe, they think energy stocks will be negatively impacted because of increased drilling, increased supply. We'll see which way that goes.

But what about regulation in the financial industry and whether you want to take that as the safety of trading in securities and other things or the over-regulation of it, what do you expect to happen? Well, I assume that generally regulations are going to be less restraining and that is going to be good for business. And that includes, of course, Wall Street. Less regulation can be good until it's really bad though right the wheels come off the bus as you tend to say so um do you think it's straight across good for business short term good for business how would you read into that because we've seen some cases where uh we wish

that some companies or industries had been uh a more eye kept on them. I'll put it that way. So I'm a libertarian. So I obviously believe that the less regulation, the better. Right. I was thinking of Boeing, though. Somebody needs to keep an eye on how those bolts are getting put in. So let me ask you about where you expect the consumer to go from here, just the overall economy. And when I say the consumer, I'm reading into the retail trader who's doing a lot more trading of options, as you mentioned last time, and how healthy that can be for the different types of options that it gives them. So I think options volume is just going to keep on growing. This is a very, very long-term trend. It's been going on for basically 50 years.

So there is no reason why it wouldn't continue entirely independent of the political background. All right. Thomas Pederfy, thank you for joining us. We'll let you get to that analyst call. Appreciate you joining us first on Overtime. Thank you very much. Well, U.S. retail sales smashing expectations today, but the global picture hasn't been so rosy after warnings from a number of high-end brands. Up next, longtime retail executive Jerry Storch is going to give his read on the consumer and the four companies that are best positioned to cash in right now. And as we head to break, check out the big winner in the Dow today. That's United Health turning its best day in more than a year after topping second quarter estimates on both lines.

Overtime will be right back. Welcome back to overtime. A whole lot of signals on the consumer and retail coming in today. Moments ago, Five Below announcing a CEO change and giving guidance that fell short of estimates. The stock is sinking down about 9.5% right now in overtime. Joining us now is Gerald Storch, CEO of Storch Advisors and former CEO of Toys R Us. Gerald, what happened here at Five Below? A few weeks ago, we saw that comp store sales had dropped off dramatically, even as they were trying to expand. Things had seemed to be going OK for a while.

But you look at a one year chart or five below, it's ugly. Yeah, it's pretty. I mean, the stock is down more than 50 percent year to date. So it's pretty tough for any management in that environment. It's a it's a good team there. And they've done a great job. Look just how much it's grown over the years. But keep in mind that they primarily sell discretionary items. And this is an environment where even though the consumer's been hanging in there, they're still very stressed by all accounts. And so discretionary items haven't done quite as well. Also, inflation has mounted, if has mounted if you add up, you know, what's happened over so many years to the point where it's pretty hard to offer tremendous value like they might have done in the past. A lot of the items are sourced from overseas. And you look at what's happened to the price of those or the cost. It's been hard to operate a dollar store. If you look

at other dollar stores like Dollar General or Family Dollar, this hasn't been the kind of go-go years for them you might have expected, given the stress that's on the consumer. So is this potentially a canary in the coal mine moment, given that the second half of the year tends to lean pretty heavily on some discretionary spending from consumers, and we're getting more and more signs of weakness in luxury spending as well? Look, you know, I'm never one to bet against the American consumer. Americans will spend every penny they have and then more some, as is evidenced by the mounting credit card debt that we have. And today's retail sales report, for example, which shows sales for June, showed a nice beat by a couple of decimal points versus what was expected. But when you really

look at these numbers year over year and you take out restaurants and sales of things by retailers, you saw an increase of 2%. Well, we saw last week in the CPI report, inflation grew by 3%. Even though that's been coming down in terms of rate of increase, it's still underwater 3% and 2%. So what it means is even though retail sales are rising, that number is not adjusted for inflation. And so it's actually underwater. Consumers are spending more and

getting less. And not only was that true for last month, but in fact, it's been true for 17 out of the last 18 months, where in fact, even though retail sales have risen, not as much as inflation. So the consumer is still struggling just to stay flat. So you say that strong value-based players, Walmart, Costco, TJX, Amazon, are winners in these conditions. Who's especially vulnerable? Well, anyone that sells discretion items, as we're discussing, particularly bigger ticket discretion items. Furniture stores, you saw pretty poor numbers from the automotive industry today as well. Home improvement stores, people had really stocked up on that stuff during the pandemic when they're stuck at home. And the numbers have been increasingly negative or

consistently negative ever since. So I think that's troubled. I was really pleased to see, by the way, a little uptick in apparel sales in this most recent report. Apparel has a discretionary component to it. It looks like people are willing to spend a little bit more. Maybe their clothes finally wore out after not replacing them so many years ago. Apparel sales were looking good, and departments are better than they used to, but I still wouldn't bank on that. So I would stick with the diehards that have done fantastic. Walmart, Costco, TJX is worth $130 billion. Think about that. And Amazon. What about inventory risk as we get closer to Q4?

I mean, a lot of retailers had already, I think, put their orders in. Are we going to see a lot of discounting? And should we expect some profit margins to get hit either within those strong value-based players or especially outside them? Well, you never know. But I will say that most retailers learned a lesson over the last few years. And they're running pretty lean. If anything, they're too out of stock when you see what's going on. As far as discounting, that's been the name of the game for quite some time.

Today is Amazon Prime Day. Yay! It's going to be great. Why? Because there's great value being offered. And every retailer rushed to try to beat Amazon to the punch and put all their products on sale, too, in the weeks leading up to this. So we're going to see a lot of goods sold on discount, but that is expected and already built into the numbers. So I don't think we're going to have

some kind of a terrible situation this fall. I think it's going to be OK, just not spectacular. Usually leading into election. Retail sales are just fine. Thank you. And I expect the same today. But I'm not expecting it to be some kind of gung ho season. Yeah. I don't know if it's a usual election either. Gerald Storch, thank you. Well, now it's time for a CNBC News update with Julia Boorstin. Julia. John, a group of House Democrats is pushing to delay President Biden's nomination. In a letter obtained by NBC News, more than 20 Democrats said the virtual roll call to nominate the president before the convention would end any chance to change the top of the ticket. The letter, which comes just days after the shooting at a Trump rally in Pennsylvania, shows some Democrats have not given up on pushing the president out

as the nominee. Federal prosecutors have begun the move to drop charges that accuse some of the January 6th defendants of obstructing the confirmation of the 2020 election results by Congress. That's according to court filings reviewed by The Washington Post. It comes after the Supreme Court ruling last month that restricted the use of that charge. And after performing at Major League Baseball's home run derby last night, country artist Ingrid Andres confessed she was drunk while singing the national anthem. After the shaky performance went viral, the Grammy-nominated artist wrote in a social media post today that she was seeking help at a rehab facility and apologized to fans,

the league and the country. Back over to you. Julia Vorsten, thank you. Up next, Mike Santoli breaks down the big run for the regional banks, which soared again today. And while there still might be plenty of value left in that trade and later chip earnings get underway tomorrow when Dutch based semiconductor equipment giant ASML reports results. We will discuss if the results could set the tone for the rest of the group. We'll be right back. Welcome back to Overtime. Regional banks flying higher again today, adding to big gains in the past month.

And now that big bank earnings are in the rearview mirror. Regionals take center stage with Citizens First Horizon and U.S. Bank Corp reporting before the bell. Mike Santoli is back with a closer look at that group. Mike. Yeah, John, if you had any questions about what specifically has been driving the regional bank stocks as a group, this will tell you. This is the office REITs subsector of the S&P 1500. So it's basically commercial office real estate, and that's the regional bank ETF. So you see since the end of 2022, very, very similar rhythms here in terms of how they're moving and reacting to things like yields and expectations for financial conditions. So clearly, regionals are viewed as being essentially either burdened by office real

estate as a sector. And then, of course, when it seems like the pressure is going to lift, they get the benefit of it, maybe with a Fed rate cut. So take a look at the valuation set up here for the regional banks. This is price to book value for that KRE, so for the whole sector. And you see it's nosed back above one. So it's a little bit above liquidation value, as you might say. And obviously, since the Silicon Valley bank debacle, it has traded below book value at times. But longer term, you know, one point three, one point four times book is somewhat more the recent norm. So you would seem as as if if the fundamentals are firming up, they might be able to trade back there, at least in isolated cases. You know, Mike, I was looking at this and it's dangerous because I'm doing some back of the envelope math, but it looks to me like the low recent low for the KRE

back in October was around 40. And now it's up around 56. The S&P in October was around 4,100. And now it's about 5,600. So in a way there, since that low, both the overall S&P 500 and the KRE are up about the same amount, but just at different times. That's right. And that group was so washed out at the market lows that they really did spring back higher. Now, the difference is the KRE is not at a record high. So it's obviously still working below those levels from from before that. And that's going to show if you if you did like a two year, you would see that it kind of fell off the shelf around Silicon Valley Bank. So but you're right that in the recent kind of last nine months or so, as we've rebounded, it has participated there. That's what you that's

what you'll see. If you're bullish about banks, you think the economy is going to hold up. You look at this more than you would look at the performance since we made that low in October. And I guess I wonder to what extent is the KRE undervalued after making a move like that? If it's if it's sort of echoed in a way by the move that the S&P overall has made. I would say what it really is trading with is the non-mega cap tech parts of this market pretty closely, actually. If you looked at small caps, if you looked at some other cyclical areas, that's pretty much the same kind of cadence that it's been in sticking with. All right. And we're definitely looking at the small caps today, thanks to you in no small part. Mike

Santoli, thank you. Up next, the top analyst reacts to J.B. Hunt's earnings and what he wants to hear from management on the call, which kicks off at the top of the hour as that stock pulls back about 3%. And check out shares of Shopify. It was a big winner today. Bank of America Securities upgrading the stock from neutral to buy, hiking the price target on the e-commerce platform from $78 to $82, citing revenue growth and expectations of improving margins. It rose 8.5%. We'll be right back. Got a news alert on Spirit Airlines. Phil LeBeau has it. Phil? John, take a look at shares of Spirit, which are under pressure after the company dropped an 8K,

where it gave guidance on total revenue for the second quarter that is below the company's previous guidance. For the second quarter, the company expects total revenue to be $1.28 billion. Its previous guidance was for revenue to be in the range of $1.32 to $1.34 billion. Their operating margins for the second quarter, they now expect to be negative 12.5% to negative 13.5%. That's the reason you see pressure on Spirit. We'll get those results sometime in August in terms of what they did for the second quarter when they post those full quarter results in August.

We're also seeing pressure on JetBlue and Southwest. Why, John? It's because that lower end of the market, that main cabin part of the market where so much capacity has been added in, that's where the revenue pressure is right now. By the way, Spirit says they are not seeing any greater pressure in terms of revenue for seats being sold in that part of the market. What they're noticing is lower than expected ancillary revenue. You know what you pay for after you've bought your ticket when you go on Spirit?

That is where they're seeing the pressure. And again, Spirit dropping at 8K, and that's why the stock is down, what, more than 7% on lower than expected revenue for the second quarter. Phil, especially after we got this news from Five Below about their results coming in lower than expected, CEO swap out. We're just talking to Jerry Storch about consumer discretionary spending at the lower end. In a way, Spirit's the five below of airlines, right? And it's like when baggage fees, other things, people are spending less. Is this a combination signal that we're getting. Maybe. I mean, clearly, the discretionary spending is something that hits Spirit more than other airlines, because you know that when you buy the ticket, you are getting a really low fare. But with that really low fare comes a lot of add-on

fees, ancillary fees. And the fact that they're seeing lower than expected ancillary fees is a clear indication that their customer is saying, you know what, I'll figure out some way to get on this flight, but not have to pay as much as perhaps I might have in the past. All right. Phil LeBeau, thank you for bringing that to us. Well, from planes now to trucks, J.B. Hunt falling more than 3% right now after missing on the top and bottom lines for its second quarter, citing higher wages and insurance expenses as two areas that are pressuring profits. Let's bring in Barclays Senior Equity Analyst Brandon Oglenski. He's got a neutral rating on J.B. Hunt. Is this what you expected, Brandon? And what do you want to hear from management on

the call for color? Yeah. Hey, John, and thanks for having us on. Look, transport's really underperformed in the last three or four months. I know we've had like a cyclical rally here the last couple of days, and J.B. Hunt is, you know, off the bottom. So I think expectations got a little bit higher here in the near term. But the reality is in the U.S. freight market, we've added so much trucking capacity during the pandemic, and it's just not going away. And I think we're still seeing the tail end here of what is still a pretty soft freight market. It's really manifesting in lower margins and pricing in their core intermodal business, whereas I think consensus just wants to take that and say, hey, look, they're going to get back to prior double-digit profitability. I mean,

for their intermodal business, and that's actually moving freight on trains, this was one of the lowest quarterly profit margins we've seen in the past 20 years for the company. At the risk, again, of drawing too many parallels, we're just talking about Spirit Airlines and how the airlines have added a bunch of capacity to deal with a surge in demand. A couple of years ago, we dealt with a different sort of logistics issue with a lot of capacity getting built out and then demand shifting. Is there anything reminiscent of that going on here

or is this likely just a speed bump? Well, I think this is really the tail end of what we saw during the pandemic because we incentivized so many new trucking firms to come online and that capacity just hasn't gone away. You know, there's even some estimates out there that government small business loans are helping, you know, improve the cash flow of these companies, even though trucking pricing and, you know, J.B. Hunt margins, industry margins are near all-time lows right now. So we're just not seeing the capacity exit the market and demand has been

relatively flat. I think the good thing to think about here, and you asked about, you know, what are we going to hear from the management team on the call later tonight? We are seeing some initial indication that we're actually going to see a pretty solid peak season. If you look at Shanghai port activity in June, it was actually up about 10 points versus normal seasonality. And we're actually seeing spot ocean shipping rates from China to the U.S. West Coast, exceeding pandemic highs as we sit here today. I mean, those are levels that we never thought we'd see again. So I think that is indicative of retailers getting more bullish on orders and trying to get volume in ahead of the

holiday season. So I think if J.B. Hunt can talk to potentially an inflection in volume later this year, that could help support the shares. But obviously, people need to revisit what is the long-term profitability of this business. All right. We will listen for it. That stock down about 3.5% so far in overtime. Brandon Oglenski, thank you. Thanks. Up next, the key names to watch on tomorrow's earnings calendar featuring more big names in the financial sector. And speaking of financials, Kate Rogers has a look at how one San Francisco mayoral candidate plans to revitalize that city's financial district. Kate.

Hey, John, part of that plan is getting people back to work in person. More coming up on Closing Bell Overtime after the break. Welcome back to Overtime. One San Francisco mayoral candidate is unveiling plans for a revitalized downtown in one of the cities that's the hardest hit and slowest to bounce back from the pandemic. Our Kate Rogers got a first look at the proposal. Kate. Hey there, John. Leading mayoral candidate Mark Farrell is re-envisioning downtown San Francisco, and that means getting workers back in the office. He gave CNBC a first look at proposals that include tax incentives for businesses that relocate downtown and those that get workers in the office four days a week. Now, this comes as data from Cushman and Wakefield showed just last week that San Francisco office

vacancies are at a record near 35 percent, while Manhattan stands at just under 24 percent. Farrell's plan includes cutting that number in half by the end of his first term. We don't have people working here, and it is a ghost town. And what that translates into is a loss of sales tax revenue, property tax revenue that is decreasing in major ways. When buildings are selling for 10 or 20 cents on the dollar. Now, another piece of the plan, a downtown park on the Embarcadero. You can see that photo there. That's right in our backyard here at CNBC. Also, aggressive tax increment financing and local incentives for faster production of housing and conversion of commercial buildings to residential housing in places like Union Square,

which, of course, has lost anchor stores and malls. And, John, another notable exit just happening this afternoon from San Francisco. Elon Musk saying he'll move X's headquarters to Austin in response to laws enacted in the state. He, in a second tweet, cited issues like drugs and street safety, which have come up with multiple mayoral candidates that we've spoken to here at the network. Back over to you. Well, Kate, great reporting. One problem that I see with this plan or any plan like it is Salesforce. Mark Benioff,

he doesn't want to bring the workers back. And San Francisco made a big bet on Salesforce. They're probably the anchor tenant in the financial district, right? Absolutely true. And I did ask about that. And so interesting to hear from Mark Farrell, who, of course, comes from a VC and technology background, saying that we've over-indexed on technology, not talking specifically about any one technology background, saying that we've over-indexed on technology, not talking specifically about any one company, but saying that we really need to be more diversified here, and that means all types of industries outside of technology.

Notably, he mentioned hospitality, tourism, restaurants, and more. So rebuilding it to bring people back will hopefully revitalize those industries outside of technology. Wow. Sounds like public markets investors right now, perhaps rotating out of the mega caps and perhaps into other things. And we saw that action in the market today. Kate Rogers, thank you. Well, up next, the big names on tomorrow's earnings calendar

that could move the market, including one report that could give insight into upcoming results from chip makers. Plus, check out shares of Match Group, the top performer in the S&P 500 as activist investor Starboard Value, which now has a more than 6% stake in Match, is pushing the online dating company to explore a sale that's unable to turn around its business. We'll be right back. Welcome back to Overtime. The earnings parade marches on tomorrow. In the

morning, we'll get results from Johnson & Johnson, U.S. Bank Corp., Citizens Financial, and chip equipment maker ASML. And in Overtime, we'll have numbers from United Airlines, Alcoa, Discover Financial, and Equifax. And on the economic front, investors will closely watch the Fed's beige book, as well as the latest reports on housing starts and building permits and industrial production and capacity utilization. Now let's get a little deeper into what to expect from ASML's results. Our Seema Modi joins us with a preview. Seema. And John, ASML's lithography equipment are used in manufacturing of advanced chips,

therefore seen as a key read for the entire semiconductor sector. Europe's largest technology company has been, though, under pressure from Washington to ban sales of its most advanced lithography equipment to China, which the company has said will hit its earnings this year. So investors will want ASML to quantify the impact. And even with the China headwind, John, analysts are expecting ASML to beat estimates, raise third quarter guidance with orders expected to top $5 billion. CapEx will also be watched closely as the hyperscalers put

billions towards artificial intelligence. J.B. Morgan says it's laser focused on ASML's new orders from Taiwan Semi, a key customer. Wall Street has been growing more bullish on the stock, and that's reflected in shares up about 41% this year. It's trading in record high territory. J.B. Morgan's price target is €1,100. The stock is trading at €1,069, John. All right, Sammy. ASML's an interesting one because its biggest customers are the likes,

as you said, of TSMC, Samsung, Intel for making chips. So it's more of a long-term play than short-term. We might see some orders delayed if demand is slacking, but investors should be careful, right, to read too much into what's happening near-term versus the long-term bets that they're making on having to buy this really, really expensive equipment. Yeah, it's a great point. Just one piece of data that investors can use as we await for the likes of Lam Research, AMD, and NVIDIA to report earnings over the next four to eight weeks.

This, along with Taiwan Semi's full earnings report, that report comes out on Thursday, will, of course, be two important data points that investors have as we try to justify the valuations that these semiconductor stocks are trading at right now, John. Yeah. AI questions abound. How much are people going to be buying of NVIDIA? And besides NVIDIA for sure, Seema Modi, thank you. Looking forward to all of that tomorrow and beyond. Meantime, that's going to do it for overtime.