Closing Bell - Closing Bell Overtime: Exclusive Interview With UMW CEO And New Phoenix Suns Owner Mat Ishbia; Why Global Chip Giant Taiwan Semi Fell 5% Today 7/20/23

Episode Date: July 20, 2023

The Dow closed higher for its ninth straight session, but Tesla and Netflix dragged down the Nasdaq over 2%. Richard Bernstein Advisers CEO Rich Bernstein and BD8 Capital’s Barbara Doran break down the market action, including earnings from CSX, Knight-Swift and Capital One. Morgan talks exclusively with UWM CEO and Phoenix Suns owner Mat Ishbia on the state of the housing market, lending standards and his first months in charge of the Phoenix Suns and Mercury. Unlimited CEO Bob Elliott on regional bank earnings post-SVB collapse. Barclays analyst Brandon Oglenski on the transports sector and Wells Fargo analyst Aaron Rakers talks Taiwan Semi and the health of the broader chip names. 

Mixed day for stocks. The Dow hitting a fresh 52-week high, but the S&P and the Nasdaq could not escape the big losses in Tesla and Netflix today. That's a scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Fort. As I just mentioned, the Dow closing higher for the ninth straight day, but the post-earning sell-offs from Tesla and Netflix really dragged down. The Nasdaq had its worst day of trading since early March. Speaking of earnings, we are about to get a trio of them. CSX, Knight Swift Transportation, and Capital One. We're going to bring you all the results as soon as they cross the wires.

Plus, we will discuss the mortgage market and the future of sports gambling as well. An exclusive interview with United Wholesale Mortgage CEO and Phoenix Suns owner Matt Ishbia. Now let's get started with our market panel. Joining us, Barb Duran from BD8 Capital Partners and Richard Bernstein from Richard Bernstein Advisors. Guys, welcome. Rich, the NASDAQ, WCLD and SOX had particularly bad sessions. The NASdaq was down 2 percent, that cloud index and semiconductor index down three and a half percent. Is this a signal maybe that there's been too much focus on a certain kind of stock? So, John, you know, I think you guys are pretty well aware that we have described the stock market as a seesaw, right? And on one side of the seesaw, you had tech, innovation, disruption, cryptocurrencies,

all the sexy stuff. And on the other side of the seesaw, you had virtually everything else in the world. And I think today is a perfect example of that, where the seesaw kind of sawed instead of seed. I'm not quite sure what the right way to say that is. And we saw it go in the other direction. So you had a lot of stocks up, but NASDAQ was down. So, Barb, we had utilities, energy, health care doing pretty well today in the S&P. Is that a signal maybe that some are selling winners and rotating? Would you be

doing the same? There's two questions there. Yes, I think that is what's happening because when you've had such a monster run, I mean, the NASDAQ is up now 35 plus percent year to date, and it's been driven by the names we're all very familiar with and the high tech, the big growth names. So I think it's pretty normal to take some profit taking here and then look for the laggers, look for the value names, small cap. And that's why I think you've had the Dow up nine days in a row. But do I think the tech trade and the growth trade is over? No. But I do think there's going to be a bit of a pullback here. So I'm not chasing it. I own names like Walmart or the MasterCards of the world already. But I'm sticking with my growth

trade on any pullbacks where, for instance, Netflix this morning, I think there's a buying opportunity over the next day or two. So I think we're going to continue to get opportunities and names like that. OK, Morgan, we got double duty right now. So we've got some freight names reporting earnings here after the bell. The first one is out. That is CSX, the Eastern Railroad. It looks like earnings are in line here. Forty nine cents per share, which is what the street had expected. But a slight risk miss on the top line, three point seven oh billion for the second quarter versus street expectations of three point seven three five billion dollars. CSX saying here that the merchandise and coal businesses continue to demonstrate significant volume gains.

Intermodal activity remains challenged. Quote, our strong service performance distinguishes us in the marketplace. That's something analysts have been calling out ahead of this report and is attracting shippers to the network. The earnings call starts at 430 Eastern. The other metric, John, that I would just pull out here is the fact that operating income of $1.48 billion, that was down 13% year on year. But the operating ratio looks like is largely in line with street expectations, 59.9%. Lower is always better where the railroads are concerned. I'm going to be particularly curious about the overall cost picture,

given the Canadian port labor issues that have been affecting... And West Coast ports last quarter, too. Yeah, right, that have been affecting West Coast ports last quarter, too. Yeah. Right. That have been affecting, you know, all of transport. Maybe we'll see that showing up in several places, but it's like labor strife throughout so many different areas of the economy. Yeah. And I think calling out intermodal here in the report sort of speaks to what you've seen in terms of these inventory adjustments in general. You've seen some of those freight volumes and those rates associated with shipping. Containers full of consumer-facing goods, retail goods, largely from places like China to the U.S., have plummeted dramatically in recent months.

So you've seen that softness. But the fact that you're seeing things like coal continue to show some signs of strength. Keep in mind, coal is in a secular decline as a business and has been for quite a number of years. But given what we're seeing in Ukraine, what we're seeing with steelmaking, it has seen somewhat of a resurgence. Nonetheless, that miss on the top line has shares of CSX down 2 percent right now. Also, don't miss an exclusive interview with CSX CEO. This is not the CEO that is on your screen. It's Joe Henricks.

He's going to be joining me exclusively tomorrow on Squawk on the Street, which kicks off at 10 a.m. Eastern. All right. Rich, let's go back out to you on this one. So whether you're looking at transportation or maybe you're looking at other areas farther afield, like Europe, where do you see opportunities outside of these seven stocks that everybody keeps talking about over and over again? Right. So, John, you know, if you think about 2022, 2022, you saw the seesaw go in the other direction, right? 2021, we see tech innovation disruption, all the sexy stuff outperforms. 2022, seesaw goes back in the other direction. But what most people don't realize is that in 2022, 70 percent, 7-0, 70 percent of non-U.S. markets outperform the United States.

So when I said before that everything else in the world is on the other side of that seesaw, I think that's true. And when you invest in Europe, you have to realize that the United States is very much alone and that we are so dominated by tech, by consumer discretionary, by communications that other developed markets are not so similarly concentrated. So if these other sectors start to balance out, you should expect non-U.S. probably to do better than the U.S. simply because of the sector concentrations. That being said, European earnings growth as you go 2023 towards 2024 is actually supposed to be superior than the U.S. tech sectors. So my guess is nobody knows that one, but that's actually true. Interesting. Barbara, I do want to get your thoughts. We just reported the CSX results. We've got Night Swift, which is one of the largest truckers in the U.S., expected to have those results cross here any moment, too. When you

see the transports hitting fresh 52-week highs in recent trading sessions, is it still an economic barometer the way it once was? I think it probably is. I think everybody's, you watched J.B. Hunt two days ago, you know, they missed earnings and they missed revenue. You know, the management talked about starting to see some green shoots in terms of it possibly being a cycle low. And that's the question for them, for CSX, for Nightswift. Is this the trough? Is this the turn in terms of cyclicality? So when each of these companies report, it's not even going to be so much about, you know, what they've reported, because that is the past, but what the managers are seeing in terms of green shoots,

because that's the question. Is this trough earnings for that? In which case, you could see the cycle turning and it could bode well for cyclical stocks in general. But that is a that's a big question. We're not seeing a lot of those green shoots. So we'll be watching and listening closely. Yeah. Rich, I just want to pick up on what you had to say about investing in Europe right now. I feel like we've heard this type of take in the past. And the U.S. does tend to historically, typically, at least in recent years, outperform Europe, no matter what the fundamentals might suggest. Why do you think this is different? So, Morgan, you're right. I mean, people have been saying that Europe is cheap forever and a day. And I don't think there's any value added in saying that Europe's cheap. It

is cheap, but I don't think there's anything insightful to say about that. But what you've got now for the first time in recent memory is you've got earnings growth that is starting to accelerate relative to other parts of the world and certainly relative to the big leadership here in the united states i think that's something different so having something that's cheap is fine but you want the fundamentals to be to improve and if the fundamentals don't improve the asset just gets cheaper and cheaper and cheaper what you've got in europe now is that cheap valuation with some as you like to say green shoots that the earnings growth is actually starting to turn up and will be superior. Not a narrative we expected a year plus ago. Rich, Barbara, thank you.

Now let's bring in senior markets commentator Michael Santoli from the New York Stock Exchange. Mike? Yeah, John, just take a look here at the S&P 500 trend. We had a little bit of a turn lower from a 15 month high. But the trend is is quite strong, if anything, getting a little bit extended beyond the 50 day average on the S&P 500. So everything here is working really well, like that kind of line that you see right there. We've turned higher, but in a fairly orderly, tight pattern. So if you cared about the cadence of this move, it has been impressive. But that spread between the 50 day average and the index level is five, six percent right now. It's on the higher end of what you tend to see. What would probably be pretty healthy is any kind of a pullback within that zone. I would just sort of kind of reload the market a little bit. And that's kind of one of the reasons coming into the week. A lot of folks were saying maybe time for a breather, even though strength typically begets strength in the early parts of a bull market, if that's what we're in. Now, another way of

representing this real split in characteristics of what's working and what's not in the market, high beta stocks relative to low volatility defensive ones. That's, again, an extreme spread between those two categories. And that would be just, you know, stocks that move faster, that are more levered to the overall market movements, as you can see right there, pretty much toward a high from the early part of that post-COVID rally that we got, John. Mike, a lot of comparisons of this market to a couple of years ago, which is kind of uncomfortable if you're not selling. Well, it is somewhat uncomfortable in the sense that that's perhaps how overheated things could get. I don't think that we still have those conditions.

I mean, remember, that stuff rolled along for, you know, a year and a half from the lows in March. You've got options trading volumes that were just even much more speculative and crazy than we're seeing right now. So it's a process. It's not a moment when you're talking about a market that's, you know, kind of coming to some level where it might be at risk of topping. I think it's a little early to be talking in those terms. All right. Mike, we'll see you later this hour. Thank you.

Capital One earnings are out. Leslie Picker has the numbers. Hi, Leslie. Hey, Morgan. Shares of Capital One down slightly on the second quarter numbers. It was a miss on the top line, reporting $9 billion for Q2 compared to $9.12 billion that analysts were expecting on the top line. On the bottom line, it was a beat, reporting $3.52 a share compared to $3.23 on an adjusted basis that analysts were expecting. Those EPS numbers declining about 20% year over year. Also, the margin for loanmaking, known as net interest margin,

that declined about 12 basis points during the quarter to 648. Deposits also decreasing here, about 2% to $343.7 billion. So kind of similar to that trend that we've seen across the regionals and that maybe a slight tick down in terms of deposits and it's shifting the balance of the deposits becoming more expensive, which is why you're seeing that cut into margins a little bit more as investors look for maybe CDs or areas that they can earn a little bit more on the deposits that they have at these banks. But you can see shares now down about over 2 percent on the second quarter numbers. A beat on the bottom line, but a miss on the top.

Morgan. All right. Leslie Picker, thank you. Earnings are out for Knight Swift as well. Adjusted earnings coming in at 49 cents per share versus a 55 cent estimate. Revenue also a miss coming in at $1.55 billion. That was versus an estimate of 1.6 billion. CEO Dave Jackson, stating in the release

that absolute demand fell to its lowest point yet for their truckload businesses in April before stabilizing at modestly better levels for the balance of the quarter. I think the question there is green shoots. What else are they gonna say on the call? We'll see. Also worth noting, John, where Knight Swift is concerned, they closed their acquisition of U.S. Express a couple of weeks ago, or I guess earlier this month, and had already trimmed the guidance and the implied earnings for the quarter at the time to 46 to 53 cents

per share range. And yet the street was still expecting something better than that. Shares are down 3%. It's a head scratcher, though. Looking at CSX, looking at this, looking at Philly Fed, right? Things have been rough in certain segments of the economy where they're moving stuff around. They expect stuff to be better in some regions at the end of the year. But will it? Well, and I think what both of these results tell you is that consumer-facing,

goods-focused part of the economy is where the softness and the weakness is playing out, which we've talked about, right? As people have been spending more money on things like services and not as much money on things like retail and apparel, et cetera. So, all right, well, is the bottom in for the housing market? Up next, United Wholesale Mortgage CEO and Phoenix Suns owner Matt Ishbia weighs in on that and the revenue opportunities from the fast-growing sports gambling business. Overtime, back in two. Welcome back to Overtime. D.R. Horton giving back its early morning pop. That despite reporting earnings and revenue that handily beat Wall Street estimates, stock ended down almost 2%. The homebuilders, they've been on a tear over

the past month despite rising mortgage rates. The XHB down today, but up more than 7% in a month. Mortgage provider stocks also rallying with names like Rocket Companies up 17% in the past month and UWM Holdings up 11%. United Wholesale Mortgage, speaking of UWM, it's the largest home lender in the U.S. And I spoke exclusively with UWM chairman and CEO Matt Ishbia about the housing market, lending standards and the NBA's Phoenix Suns, which he purchased just earlier this year. I started by asking him if housing has, in fact, already seen a bottom. You know, I don't know if the bottom's in, but I guess I don't think it's really hitting the bottom. I think we've actually been fine.

I don't think it's gone on this huge tank. People think values are going down. Values aren't going down. People are still bidding on properties. There's still supply and demand issues. So bottom, I don't know if we're actually hit a bottom. I think we're actually in a good market. I think people are buying houses, and I think it's going to continue even through the winter. What do you think is more impactful in terms of the state of housing right now? Is it the affordability issue, or is it the availability issue? And I guess as long as those two things exist, do we see anything different than the dynamic that exists currently? Yeah, you know, obviously there's less houses for sale.

Everyone wants to talk about that. But the reality is people are buying houses, and more and more, it's hard to move out of a house. If you have a 4% rate or 3% rate, people don't want to move as quickly so there's less house on the market as well a lot of people say but the honest truth is we've seen consistent growth in people buying homes more than you'd expect in the last six months when people are thinking it's gonna be a down year and everything's like we set our all-time record purchase quarter in the second quarter like all-time record it's in the second quarter, like all-time record. It's never been done. Like, it's still happening out there. Business is moving and people are buying homes. So what does that mean for the trajectory, not only of the Fed, where the expectation in the

market right now is that we get one more rate hike next week and then maybe we're done. But what does it also mean for mortgage rates? You know, mortgage rates are where they're at. Like, I think they're going to be between 6% and 7%. That's what we've all been talking about, maybe 7.25%. But they will drop at some point. The way I tell people, if you're buying a house, 30-year fixed rate, like, that's the highest your payment will ever be. Yeah, I mean, the spread between the bond and mortgage market remains pretty wide. It's, what, almost double its historical average. What do you attribute that to, and is that a dynamic that is going to, I guess, fix itself anytime, too?

Anytime when you think about quantitative tightening or you think about banks rethinking their investment portfolios. Yeah, it's a great point. A lot of people don't talk about what you just referenced. It's at all-time highs right now, that spread. And so with rates being high and that being an all-time high, that's why mortgage rates are so high, right, tying that. So one of those two things drops. Mortgage rates will drop. There will be a lot of refinancing, and the mortgage market will really pick up, and people can save money on their mortgages.

Right now, it's been two years of rates basically between six and seven percent. So that's three, four trillion dollars worth of mortgages. Those people are ready and willing to refinance and lower their payment and save money, which then spurs economic development across the country. If you save $100 on your mortgage, I save $100 on my mortgage. What do I use that money for? That helps the whole economy. So I think a lot of that stuff comes. I just don't know when. The last time you were on CNBC was actually early March. So it was before everything that happened with SVB and all the regional bank turmoil. Has the lending market and I guess has credit, has it contracted? Has it contracted enough?

You know, I think there were some weird things going on with those banks and a lot of things that were anomalies, one-off things. I don't think much has changedoff things. I don't think much has changed from that. I don't think there's, you know, are there controls in place? Like, I think the mortgage market, people like to reference 2008, the big crash. Nothing like that's happening anymore. Like, the market, the CFPB, give them credit. The markets are stable and strong. The mortgage market's strong. Are there going to be blips and random things that happen? Absolutely, just like in any industry. But I feel like the housing in America, the mortgage market in America is really strong right now, and it's only going to get stronger for the next 12, 24 months.

So have you seen banks pull back in lending? And I ask that question because if so, what does that mean for UWM? Yeah, we are like everyone else. Wells Fargo, Chase, all these great big companies. We're the same. We're just bigger than all of them right now, and those are great companies. But lending standards, we all meet Fannie Mae, Freddie Mac, and FHA slash VA guidelines, which is Ginnie Mae. And everyone kind of does the same type of mortgages. Who can do it fastest, easiest, cheapest? And that's what the game is. And when

you only focus on one thing, like we do mortgages, just like our mortgage brokers do, that's why we tend to win because we can do it faster, easier, cheaper. And people like it. I'm in an interesting industry. No one likes mortgages. No one wants a mortgage. They want the house. And so we tend to win because we can do it faster, easier, cheaper, and people like it. I'm in an interesting industry. No one likes mortgages. No one wants a mortgage. They want the house. And so we want to make the mortgage fast, easy, and cheap. And that's what we focus on. And you've been taking market share. You've been growing market share. Does that continue? It's going to continue. You know, we've become the number one overall lender. Mortgage brokers are growing. We're growing. And we're focused on it because once again, faster, easier, cheaper. If you do that for people, they'll work with you and they'll work with you again and again.

And that's really been our success over the last 35 years, but really the last 10 years that we've been building this business. Are guidelines going to tighten again? I don't think so. I don't think guidelines are going to get tighter than they are right now. I think the mortgage market's in a solid foundation, solid place right now. People aren't getting houses that can't afford them. People aren't getting like special deal, like the old 2006, 7, 8.

That stuff's not happening anymore. It's all, can you document your income? Are you the type of bar? Do you have reserves? Do you have good credit? Have you paid people back? And so I feel pretty good about where it's at in the market right now. And I think it's going to basically stay where it's at. I think it's gotten a little loose and I don't think it's going to get any looser and I don't think it's really getting tighter. I think it's kind of like in a steady state right now. When I hear you talk about the company specifically, it doesn't sound like layoffs are pending like we've seen at other companies. No, we've never done layoffs in 35 years, never will do layoffs. We actually hired 200 people last month. We're the opposite of everyone else in the mortgage business. We're leaning in,

we're winning, we're growing. You'll see our second quarter earnings numbers soon. We're winning right now. The rest of the market is kind of scrambling. We're 88% purchase business. So rates being 8% or 4% doesn't impact us. If they go to 4%, we'll do more refis, but we're winning right now. I do have to ask about the Bloomberg report that came out back in the spring. Employees calling out locker room culture at the company, saying that you built one of the largest mortgage origination firms, but that some current and former employees say they encountered racial disparities,

sexism, and bullying. Your response? It's just not true. When you have 7,000 people, there's going to be someone that says something about this. This happened when I used to work there eight years. The reality is, I'd love to have you come to our office. And if you ever walk through our doors, you'd be like, this place is amazing. It's a great place. People are happy. People are enjoying it. People are working hard. And we're a team. And I always challenge people, come in our office and talk to us and

see what we got. No one would write something bad about us if you've ever been in my office. I want to shift gears because you did earlier this year become the majority owner of the Suns. How's it going? I love it. Phoenix Suns, Phoenix Mercury. I'm having the best time. All right. Some of the media stuff's kind of interesting because you moved to great television from Bally's. You made watching games locally more accessible or free in some cases. Is this a trend that continues to happen and continues to happen in other markets? How are you thinking about it? Absolutely, I think so. I mean, first off, our vision at the Phoenix Suns and Mercury is take care of the fan experience, take care of our clients.

I own it, but it's really, I'm a steward. I work for all the fans. My job is to deliver championships, try to win, but also let them watch the games. And for people to have to pay to watch the games, that's not how I grew up. And so we're going to make those changes. And will others follow?

Yeah. You know, the thing is, it's a bad short-term money decision for the Phoenix Suns, but it's a great long-term fan decision. And usually what happens is money follows success. It's not the other way around. So let's do the right thing. We'll make money down the road. How are you thinking about sports gambling? I mean, how do you think that's going? There's a sense out there that this big revenue opportunity, do you see it that way? Or do you see that there are reasons to be concerned or that it could undermine integrity in any way? You know, I don't think it's going to undermine integrity.

I think there's a lot of controls and things in place. I don't think it's like this huge, massive revenue thing. I think it's good and I think it creates engagement. People love watching the games because they care about, you know, a game in the middle of the season maybe or a football game, like fantasy football, those things that have joined. But I don't think it's a huge win or a huge loss. I think it's just part of life.

People bet on things. People have been doing it for years. Now that it's legalized in certain states and certain areas, I don't think it's changing the whole dynamic. I think a lot of people are bullish on it. I believe in it. It's not that bullish on that it's going to change the whole dynamic of everything. And I don't think it's going to ever influence integrity, at least in the NBA.

I know how Adam Silver runs a shop and how he holds everyone accountable doing things the right way. I don't think it's going to ever impact integrity. Bushby has been investing heavily in the team, which it bought alongside the WNBA's Mercury in a deal that was valued at $4 billion. Phoenix certainly seems excited to have somebody who's investing heavily into the team and bringing in some very celebrated players. But in terms of UWM specifically and that stock, it's up 90 percent so far this year, John. And I think that really speaks to the comments he made in that interview about the mortgage market being strong and getting stronger over the next 12 to 24 months. And the fact that this is a company that relies on the independent mortgage

broker network, relies a lot on technology and has been able to gain market share, even as we have seen some banks perhaps beginning to tighten their standards and pull back from certain types of lending. Really interesting stuff, especially on the outlook for refis eventually and the difference from 2008. Speaking of the Phoenix Suns, Kevin Durant now on that team. He's going to be joining us live from CNBC's event July 25th. The biggest athletes, owners and innovators in the sports world will discuss the future of that industry when CNBC and Boardroom host Game Plan. You can scan that QR code down there in the right hand of the screen to learn more or visit CNBC events dot com slash Game Plan. Now, regional banks have been roaring up more than 9% so far this

week, at least before today. Up next, Unlimited CEO Bob Elliott on whether regional bank earnings are calming concerns about the health of the financials. We'll be right back. Shares of Capital One fractionally in the red after reporting results, beating earnings estimates, missing on revenue, on deck with earnings tomorrow. We will hear from American Express, Regions Financial, Comerica and Huntington. Joining us now, Unlimited Funds, Bob Elliott. Bob, we talked about regionals before in more strained times back in March. Western Alliance reported sort of looking at that as a proxy for how the regionals are doing overall. What do you see? Well, I see the basic picture that they've mostly weathered the storm.

The difficult environment that happened really in the late first quarter and early second quarter is mostly starting to subside. You're starting to see those deposits rise. You're starting to actually see the financing costs and the deposit costs, which did elevate right after SVB. Those are now coming down actually late in the quarter. You see their endpoint deposit rate is actually lower than what the average was over the quarter. And what you're seeing is basically the credit situation is not so bad, right? Reasonable NIMS, decent credit situation, growing deposits. If we hadn't been talking about SVB a few months ago, you'd say, yeah, pretty good quarter for these guys. But it's been a mixed picture for the regionals overall, even though I will note the KRE is above 45, which has struggled to a little bit of a rough day at some points today.

But it's still, I think, like in the 46 range, which is great for the past three or four months or so. Is it safe to still get in here? How do you feel about that index overall? Well, I think you're still at a price level that was not that much different than that Friday when SVB failed, right? In fact, we were just talking a few minutes ago about how the move up just now this week has put us just a bit above how bad it was right after SVB. But still, in that circumstance, there was real concerns about a bank run, a broad bank run. There were real concerns about credit problems. There were questions about whether the Fed would provide the liquidity that was necessary at that time. And so we're seeing pricing that's in line with that circumstance in an environment

where the Fed has shown what they're going to do, the FDIC has shown what they're going to do, and the deposit flight has, by and large, meaningfully reversed. About 60 percent of that deposit flight is now back into those banks. And so the pricing doesn't really align with the risk that actually exists on the fundamental side of those banks right now. I mean, we've been talking about a tightening credit. Just earlier this week, you had the New York Fed credit access survey showed a big spike in credit declines for things like auto loans. And then you just think about some of the other like slews, things like that. I mean, have we seen the full impact of tightening lending standards, tightening credit, not only in the banks themselves with the earnings we've gotten so far,

but in the economy more broadly? Well, I think one of the key things to look at for credit is that a lot of that slowing that came from the rising interest rates actually happened in the second half of 2022. And so banks have been moderately extending credit over the course of 2023, but it hasn't been a big source of financing for many people through the course of this year. Yet, you see nominal growth continues to chug along. You see real growth. We're probably going to get another quarter of above 2% real GDP growth. And so that highlights the fact that it's not about a credit. This is not a credit-driven cycle the way we saw back in 2008 and previous cycles. This is an income-driven cycle. When you have an income-driven cycle, that's what matters.

That's why you've got to focus on the labor market instead of solely focusing on the credit market. So soft landing thesis makes sense here. Well, I think the idea that we're going to continue to have economic momentum, absolutely. Now, the question is, can we get economic momentum and get that inflation to durably come down with a tight labor market? It's possible. But right now it's priced, particularly when you look at the bond market, priced in a way that is expecting that soft landing to happen. And that seems like a low possibility if you look through all history. You know, it's very, very rare to get one of those soft landings. And so priced at a high probability of it relative to low likelihood seems like,

you know, those short rate positions, you know, selling short rates right now still look like a pretty good opportunity. Got it. More will be revealed. Bob Elliott, great to have you back on. Thanks for joining us today. Thanks for having me. All right. Well, it's time now for a CNBC News update. And for that, we turn to Seema Modi. Hi, Seema. Hey, Morgan. Here's what's happening at this hour. More fallout from a Wall Street Journal investigation into the use of lead covered cables by AT&T and other telecom companies. New York Governor Kathy Hochul directing state officials today to

immediately investigate whether any cables laid by companies pose a risk to public health. AT&T says it still believes the cables do not pose a health risk, but that the company's working with regulators and other stakeholders on risk assessment. The Senate Judiciary Committee advancing legislation that would implement a new Supreme Court code of conduct backed by Democrats, the Supreme Court Ethics, Recusal and Transparency Act would require justices to explain recusal decisions and disclose any gifts, travel or income they receive. But the bill faces an uphill battle climb with Republican Senator Lindsey Graham, for one, calling it a partisan effort to destroy the conservative courts. And the House Oversight Committee announcing today it will hold a hearing on UFOs next week.

The committee is set to hear testimony from three witnesses, including a former U.S. intelligence official who claims the U.S. has retrieved intact and partially intact vehicles of non-human origin. Morgan, given your coverage of space, I have a feeling this is going to be on your radar. C-SPAN, here we come, baby. Incredible. Oh, my gosh. Sima Modi, thank you. Are have a feeling this is going to be on your radar. C-SPAN, here we come, baby. Incredible. Oh my gosh. Sima Modi, thank you. Are you a UFO believer or a believer in something that is not us? Yes, in a way, but I

think it's as likely that they're the size of a housefly, so how would we know they were here anyway? All right. We're going to have to tune in next week. All right. Well, up next, a top analyst reacts to disappointing results from CSX and Night Swift and what those results mean for the rest of the transports industry and particularly freight. That word recession getting tossed around a lot.

Stay with us. Welcome back to Overtime. Check out shares of CSX and Night Swift, both down about 4% right now after reporting earnings. Joining us now to break down the numbers, Brandon Oglenski of Barclays, who has a buy rating on both companies. Brandon, thanks for joining us today. Yeah, thanks, Morgan, and thanks for calling out the buy rating on stocks that are down today. But sure, we'll talk about that. Well, I mean, the fact that they're down, is it a buying opportunity?

You know, we actually think so. Look, transports are very cyclical. And I know you were talking about a recession right before going into the break. You know, I would argue we've actually been in a freight recession now probably since the third quarter of 2022. That's when retailers really started to slow orders coming in from Asia. We saw import activity in this country. So think of the freight volumes coming through the ports, declined like 15 to 20 percent in the last three quarters. And we think the bottom was actually sometime around April or May. We've actually seen sequential improvement in import activity. You know, we heard that echoed

last night from J.B. Hunt. We actually heard it in night results today saying, look, you know, April was the slowest. And we see signs that retailers are actually stopping their destocking and need to get some more volume here in the country. So I get it. I know people are worried about high inflation, higher interest rates. But I do think from a freight perspective, we've already been at the bottom and most likely going to climb out here in the back half of the year. What's more important right now in terms of trajectory for these stocks? Is it is it hitting the bottom and seeing stabilization or is it more meaningful signs of actual recovery and upward pressure, I guess, then or a recovery of pricing? Yeah, great question, Morgan. I mean, look at Knight. This is a Smidt cap stock, right?

They're the largest truckload carrier in the U.S., but it's so disaggregated. They're only 2 percent of the market. So start there. But, you know, they preannounced maybe a week or two weeks, and the stock's only underperformed by about 3% since then, because I think the market realizes we are close to a bottom, and we're seeing some stabilization in market pricing for our truckload. You know, on the flip side, CSX, obviously, much larger market cap here, going to have a much wider investor audience. You know, railroads in general, and even CSX, they've all lagged the market this year, you know, even worse than trucking because trucking is generally viewed as early cycle. Rails are generally mid-cycle. I think what people want to see for railroads is some stabilization in volumes.

I mean, volumes this quarter were down 5%. We do think that they could actually turn positive maybe by the end of 3Q, if not into 4Q, because, again, we're going to be lapping the declines in imports by then. But look at CSX. I mean, we'd argue there's an opportunity there. Now it's trading about 15 times. Pretty big discount to the market. And they're outperforming, you know, with volumes down 3% versus a market down 5%. I wonder about cost pressures, not only from labor unrest that we've seen, but also safety regulations. And then, you know, these volume issues potentially continuing as the economy slows.

Yeah, John, great question. So, you know, on labor inflation, CSX has actually been the first one out there to try to resolve these sick day issues with their labor unions. I really like what new CEO Joe Hendricks is doing with his one CSX initiative, really engaging his employee base to get everyone, you know, rowing in the same direction. I think that's showing some results because they do have industry-leading service right now. I know safety is at the forefront, especially given the tragic accident in Ohio, you know, back in February. But what we've seen is collectively the industry come together to deliver better results, really focusing on getting more headcount on the system and being prepared for the next upside. And we just think CSX is that much further along compared to some of their competitors. All right.

Brandon Oglenski, thanks for joining us. We appreciate it. Thank you both. Coming up tomorrow, I'll be interviewing CSX CEO Joe Hinrichs on Squawk on the Street exclusively in the 10 a.m. Eastern hour. All right. Looking forward to that. Bullish sentiment hitting the highest level in over two years in the market. Up next, Mike Santoli is going to look at what that might mean for your investment. Welcome back to Overtime.

The investor sentiment survey from the American Association of Individual Investors showing more than 50 percent bullishness for the first time in more than two years. But what does history really show? Let's bring back Mike Santoli. Mike. Yeah, John. So nine months after the low in the market as this rally has rolled to a 25 percent gain, finally more than half of the weekly respondents in that AI poll are bulls. Now, the instinct is to say, OK, everybody is on one side of the boat. It's time for this market to actually back off. But history is not exactly that clear. What I'm focused on here is the times in the past when bullishness has gone above 50 percent after having been depressed for a while. So this right here, very late 2016, very early 2017.

So that was after a tough patch in the market during 2016, a tentative recovery. Markets started to roll after the election. We know 2017, one of the strongest years actually in a while, culminating in a short-term peak in early 2018. And the other time, of course, was right here. That was 2021 when, again, the post-COVID rally had lasted long enough that retail investors got more comfortable with it. So it definitely means that it's no longer a contrarian position to be bullish. It no longer means that the crowd is deeply skeptical of this market. But I would argue that the slow-moving money, big institutional money, perhaps is still somewhat more cautious than usual and might have more cash that it's sitting on

on any pullbacks, Morgan. You know, it's interesting because I would have thought that the shift we saw in sentiment, it felt so dramatic and changed the narrative in the market so quickly. I would have thought that that would have been a little bit more unusual. And then I look at this chart and it seems like, no, this is how it goes. You see these very fast swings. Yes, you very often do. It sort of gets to a certain pressure point where the crowd is sort of fighting, psychologically anyway, fighting the move in the market. And then either a news headline or just the market sort of shows enough momentum that there is a bit of capitulation. I should say this particular survey, it's relatively small sample. It does jump around a little bit, which is why it's only when you get to a significant threshold or a real extreme that

I think it's worth paying attention to in a vacuum. But also it links up with what we're seeing from things like hedge fund exposures, put-call ratios, the heavily shorted stocks rallying a lot. There has been a lot of capitulation by previously bearish investors. So to me, it makes a more balanced market, meaning that it's no longer obvious that we have a lot of skepticism to feed off of to send prices higher. How often is this kind of a tell, though, that the market has peaked? Well, it sort of coincides with market peaks. You will often have a condition like this when you eventually get a peak. But as I said, once you've just kind of gotten into the swing mode where people are more optimistic, that in

itself is usually not something. You know, there's often a belief phase in the market where good news is good news. The market can go up even as people get warm to it with, of course, some pullbacks along the way just to keep people on their toes. We're very pun-tastic here today, by the way. They like what they heard. H-E-R-D. Always. I try, you know, at least once a day. Bullpen. Mike Santoli. All right. Thank you. Up next, we will discuss whether Taiwan Semi's profit plunge is a warning sign for investors ahead of earnings from Intel and AMD. Stay with us. Welcome back to Overtime.

The world's largest chip manufacturer, Taiwan Semiconductor, reported its first quarterly profit drop in four years as demand for consumer electronics continues to plunge. Let's bring in Wells Fargo analyst Aaron Rakers to discuss whether those results could be a warning sign for earnings from others. Aaron, I'm thinking about AMD. I'm thinking about Intel. I'm thinking about Qualcomm. Qualcomm was down 3% on these headlines. What's the right way to read through? Yeah, I think one of the things from TSMC was that clearly they're seeing the insertion of demand for AI, but they did allude to the fact that they've seen weakness in other end markets, smartphones, PCs. Even I think the question going into results next week is, again, this idea of whether or not AI spend is kind of consuming some of the spend that would be on the traditional side of the server or data center market.

And so definitely positive on AI. They talked about expanding their co-op capacity by 2x looking into next year. That, I think, is an indicator for the AI side and particularly NVIDIA and AMD's next generation GPUs. But certainly there's some questions around still this kind of tepid demand we're seeing in other end markets yet for semis. Now, especially for AMD and Intel, they have been dealing with a situation where there was inventory oversupply. And they were saying in the back half of this year that would sort of balance out. And so the numbers would be better in a way. Does that help them regardless of what TSMC is talking about? Does this refer more to the outlook

into 2024? Yeah, John, I think you're bringing up a great point, right? So like the end demand is obviously a little bit removed from what TSMC is talking about here this morning or overnight. You know, we definitely feel like the PC market's bottoming. We're clearing out inventory. We saw PC preliminary shipment numbers up about 8% sequentially in the calendar second quarter. The rate of decline year over year is starting to decelerate. And so we do think that, you know, consistent with what AMD and Intel have said, on the PC side, we're clearing out or finding the bottom. The server market on the data center side is still probably a little bit choppy. We think that probably clears itself out maybe coming out of the third quarter of this year. And again,

the AI demand that we're seeing vis-a-vis in NVIDIA and certainly AMD with their what they call MI300 GPUs coming in the fourth quarter, it continues to be a key focal point as far as positive demand side. I feel like inventory destocking is one of the themes of this hour. Aaron, one of the things that got my attention the most from TSMC is the fact that they're going to delay mass production of the new plant, Arizona, to 2025, at least reportedly due to labor shortages. How does it speak to, even as the U.S. looks to stand up a semiconductor supply chain here, how challenging that prospect actually is? Yeah, I think it's definitely a difficult task, right?

I mean, these things are long processes. There's obviously, as they mentioned, labor challenges. You know, it should be noted, though, that TSNC also said that they now expect their revenue to decline by about 10 percent this year versus previously saying it would decline low to mid-single digits. So they definitely are seeing, you know, some demand, you know, becoming a bit more tepid than maybe what they would have thought of three or so months ago. And so, you know, I don't think it's a big change or shift. I do think, though, it speaks to the fact that, you know, these efforts are not, you know,

without, you know, a lot are not, you know, without, you know, a lot of difficult things to be put in place. And so, you know, we still think that'll happen. You know, we've got a colleague of mine that covers the capital equipment guys, and maybe some of those may be some of the demand shift in the next year. But I don't think it's going to necessarily go away. All right. Aaron Rakers, thanks for joining us. Shares of Taiwan Semi ending the day down 5 percent. Well, American Express is one of the best performing stocks in the Dow this year. Up next, we will break down the key numbers to watch when MX reports earnings tomorrow morning. Welcome back to Overtime. The earnings parade showing no signs of slowing down tomorrow.

American Express, AutoNation, Regions Financial, Huntington Bank Shares and SLB, the company formerly known as Schlumberger, will all be reporting results in the morning. Kate Rooney, though, joins us for a look at what to expect from Amex. Hi, Kate. Hey, Morgan. So American Express numbers out before the bell tomorrow will give us a pulse on that higher end consumer. Some key metrics to watch for Amex's second quarter. First, something called build business. That's essentially payments volume for American Express. It was strong in the first quarter. And Lisa Ellis from Moffett Nathanson expects about 15 to 16 percent growth in that category by year end. And a big reason for that optimism is soaring

travel and entertainment spending. That's also known as T&E. It's another line item to keep an eye on. Think about those Taylor Swift tickets and high end restaurants. Things like that are expected to show up in T&E for Amex. Also watch credit metrics. Any sign of an uptick in delinquencies and charge offs. We saw that with some of the banks. Card growth as well, another key metric. Amex has been driving mid-teens fee growth as well. That is expected to continue. Finally, always important, guidance from any Amex executives on the call. The stock is up 20% or so this year, outperforming Visa and MasterCard. We'll hear from both of those companies next week. Back to you guys. All right. Kate, thank you. Amex, Morgan, was sounding very confident last quarter about the state of the high-end consumer.

And I don't know how much has happened to dent that, but maybe we'll get to see how much daylight there is between the mainstream consumer and those who are well-heeled enough to have one of those special Amex cards. Yeah, it's also worth remembering that these are names that have seen their growth mainstream consumer and those who are well-heeled enough to have one of those special Amex cards. Yeah, it's also worth remembering that these are names that have seen their growth fueled by the rebound in travel. And we had American Airlines this morning and United last night upping their full year forecast. I would imagine you're going to see some of that commentary to travel and doing stuff right. As Kate mentioned, those, you know, Beyonce, she didn't say Beyonce. I don't throw Beyonce in there with Taylor Swift. Taylor Swift doing a lot better than Night Swift after hours. Oh, wow. Before we go, queue up the QR code. On the other hand, newsletter time. Sign up at the

link cnbc.com slash OTOH. The latest installment of the On the Other Hand newsletter is going to have this week's debate. Who is in the right with the Hollywood strikes, creators or executives? Bob Iger says that they're being unreasonable, but Fran Drescher begs to differ. All right. I can't wait to see that debate tomorrow morning. The Dow finishing the day higher, everything else lower today. They'll do it for overtime, yeah. Fast money begins right now.