Closing Bell - Closing Bell Overtime: JPMorgan’s Best Day In Three Years; Looking At Next Week’s Regionals Reports; Fundstrat’s Tom Lee On Why The Bulls Are Winning 4/14/23

Episode Date: April 14, 2023

Averages closed negative today but ended the week in the green. Fundstrat’s Tom Lee gave his case for why the bulls are currently in control. Barclays’ Jason Goldberg breaks down the sharp move higher in JPMorgan shares while looking ahead to next week’s earnings reports from the regional banks. It was a busy week of economic macro data and Fedspeak. Ned Davis Research’s Alejandra Grindal on what it all means. Krispy Kreme CEO Michael Tattersfield on food and labor costs, plus the state of the consumer. Boeing shares slide after announcing a delivery slowdown and Cowen’s Cai Von Rumohr rates the stock impact. Our Pippa Stevens on why California’s solar boom may be ending and Meg Tirrell on Catalent’s major stock slide. Plus, Jon on the growing importance of technology in education and Morgan on SpaceX’s Starship. 

Well, off those lows, you got a scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I am John Fort with Morgan Brennan. And we are awaiting breaking news from the Fed on the bank balance sheets this hour. We are going to bring that to you, and we'll preview the key regional bank earnings that are coming next week, and there are many of them. Yeah, plus, talk about dollars to donuts. Shares of Krispy Kreme up more than 40 percent this year. We're going to talk to the company's CEO about a whole lot, including sweet returns and his outlook going forward. Well, let's get straight to the market action with our first guest. Joining us now is Fundstrat's Tom Lee.

Tom, great to have you on the show. It was a down day for the major averages, but we still managed to eke out gains here. I want to get your thoughts on the levels, especially given the fact that so many folks are bearish, but you are not. Yes. I mean, it's I would say this is a week where the bullish narrative succeeded because we had some decent inflation prints. You know, we've had some market sell off in the middle of the week because of Fed commentary and the FOMC minutes about a recession potentially. But the stock market actually ended up higher for the week. And I think it just shows that as much as sort of a logic and intuition tell people that we're going to have a recession, number one, earnings have actually delivered better. I mean, we had some good bank earnings today. In fact, if you look at two-year stacked, earnings have actually delivered better. I mean, we had some good bank earnings today.

In fact, if you look at two years stacked, earnings are still up over where they were two years ago. So part of this is what people call earnings recessions just because earnings were so good last year. And the market's up 8% year to date. So now we've had two consecutive quarters of gains. It's never happened in a bear market since 1950. So I know it doesn't feel like it, but I think it's really a bullish narrative that's driving markets right now. You did have Fed minutes this week, too.

And it was forecasted in those that the Fed is expecting this banking crisis to potentially lead to a mild recession. Does that give you any pause in terms of how you're thinking about the rest of the year? I mean, it does and it doesn't. I think, you know, investors may have overreacted to the Fed staffers saying there's a recession. Number one, you know, that's the staffers and that's not necessarily a revelation given how much the consensus view has been that we're entering a recession. And just keep in mind, these are the Fed staffers, not the voting members. And last year, there was a lot of talk that the Fed staffers could have had some sort of potential

clerical errors because of Haver analytics hacks. So I wouldn't say that these are the word of God coming. And more importantly, I think it's appropriate for the Fed to be cautious and to keep in mind that there's a recession, because at the end of the day, that's going to affect the way they actually affect monetary policy. So, I mean, I hate to say it, but it's not entirely bad news. This would put a ceiling on where rates end up peaking, and that's actually what's important to markets. I love having you on a day and a week like this, Tom. I believe your S&P target for end of year is 4750, which is up about 15 percent from here. And if I understand your argument correctly, you're saying that because so many people expect that stocks are going to drop and that we're going to have at least a

mild recession, that's armor against it happening? Yeah. I mean, at the end of the day, you know, a bear market ends when the market doesn't go down on bad news. I mean, we've had a string of bad news for the last six months and the stock market is almost 20 percent higher. And to get to something like 47,700 by year end, which is sort of knocking on the doors of all-time highs, keep in mind that in January 2022, when we're at all-time highs, a lot of sectors, including energy and some of the defensives, were 20% lower. So to get to the old highs, a lot of the cyclicals don't have to be at all-time highs. In fact, ex-fang, the market's still at 14.8 times forward earnings. I mean, that's not demanding when the 10-year has a three-handle on it. So I think that, again, a lot has to go right. But I'd say that the bearish

narrative that people are sort of using as I think is really the prevalent case isn't playing out because the market, again, has posted two consecutive quarters of gains and it's up eight percent year to date. So so riddle me this, though, Tom, because here's what I can't figure out about where you're leading us in this argument. Things the Fed is going to pull back if credit availability tightens, if we're getting this really slowing economy scenario that eventually would have to play out through earnings. How does that not happen? And yet inflation remains under control, employment stays high, and the Fed doesn't have to start hiking rates again. How do you get all of those things happening at once?

It seems kind of impossible. That's right. John, I hear what you're saying. I think what it comes down to is, is the Fed going to tolerate financial conditions easing? And they're going to allow financial conditions to ease if they think that the risks are shifting from, as you know, today, a lot of Fed governors will say, oh, well, the risks of overtightening are low relative to not doing enough. I think that the shift in the conversation is now increasingly the risks of doing too much are

equal or now greater than doing too little, which means the Fed could tolerate inflation not getting down to 2% if they think that there's enough progress being made. That's actually a half-full argument. And if you look at the PPI and CPI, that's the message that's coming out. Inflation excluding shelter, okay? And there's, in fact, the Penn State researchers have this thing called the ACY Index, where they recalculate core CPI using real-time measures of housing and rent. It's actually negative month over month, and it's 0% year over year. So based on real-time, not statistically lagged CPI,

the Fed has achieved its target. So I think the key is, in that bullish view, is that inflation's actually going to undershoot faster. And we're seeing a lot of progress. And that's why Fed funds are coming down. And then the markets can rally. Yeah. I mean, we did see bond yields, treasury yields pop today, though. And we did get that Michigan sentiment survey for April that, yes, showed a rise in consumer sentiment, but also a sharp increase in inflation expectations. And we did get some hawkish commentary from the likes of Waller and Bostick, too, though. Yes, that's right. I mean, the Michigan survey is important because it's so widely used and it's been around since 1978.

But our data science team put together some analysis. Whenever you've seen a one month change of that one year inflation by more than 100 basis points, that's happened six times. For the six times, it was sort of an anomalous pop because it was either reversing something that declined or it's going to quickly reverse. And the only two times it was sort of signal was 2021 and 2020. So outside of this sort of inflation period, I'd say that that survey surge might be anomalous. And we might see, because it's a mid-month you know there's an there's been another 400 responses by in the next two weeks it may come down sharply after that okay tom lee thanks for kicking off the hour with us thank you right now let's get into bank earnings from today jp morgan the clear standout best day since november 2020 driven by a strong

rise in net interest income city City shareholders also seeing a sharp move higher. Investors cheering robust profit numbers. Wells Fargo falling slightly today, despite topping analyst estimates. Next week, we're getting the rest of the big banks, along with many more regionals, as investors monitor consequences of last month's banking crisis. Let's bring in Barclays senior equity analyst Jason Goldberg. And Jason, I actually want to start off with none of those. I want to talk about PNC because it's a regional that reported today it was down just before noon quite a bit, ended up in the green. But there were some concerns about their net interest income, their profitability and sort of what's happening with customers, I believe, wanting a better yield on their deposits. Why the turnaround? And what, if

anything, does this tell us about what we should expect for other regionals going forward? Yeah, no, good question. Now, certainly deposits are in focus this quarter. And if you look, right, J.P. Morgan, the standout today, it guided up net interest income. You know, then you had kind of Wells Fargo and Citi. They kind of reiterated net interest income expectations for the year. And then PNC guided net interest income lower for the year. And what you're seeing on the deposit front is deposit balances or deposit growth is under pressure as money is seeking higher yielding alternatives. Deposit betas or deposit rates of what banks are paying is going higher.

And then within banks, you're seeing a mixed shift away from non-interest-bearing to interest-bearing deposits. So all that, you know, will put pressure on interest margins looking out. You know, for the biggest banks, it's not, you know, the majority of what they do. But for PNC, and as you get on to some of the banks reporting next week, it is the majority of what they do. And thus will be a larger headwind. So tell me if I'm wrong here. I wasn't surprised that much by the big banks having some good results. But I was a little bit interested in how detailed PNC got about, let's give you real granularity on our commercial real estate exposure, lack thereof, the exact type of deposits that we've

got from companies and individuals and how many of those are insured. Is that going to be the new standard for regional banks? And are they going to have to sort of pass all of those new bars with flying colors? It is. I think, you know, given kind of recent events, certainly deposits, there's a lot more focus on deposits than ever before. And PNC, we thought, did a good job detailing its exposures there. And we look forward to other banks doing that next week. We think their customer base is a bit more resilient. They actually grew deposits ever so slightly in the quarter.

You know, we're concerned that some of the regionals next week will see contraction. And then with respect to commercial real estate, a lot of emphasis there, particularly on the office sector. You know, for the biggest banks, it's not necessarily as big of an exposure. But, you know, we do expect losses to go up. But as you kind of go down the size of the banks and go to some of these regionals, it is a much bigger concentration risk and something I think investors have to be mindful of. And we, you know, push companies to give more disclosure there, because if you look at the kind of the 10Ks, it's been lacking over the last several quarters. We got a lot of reassuring commentary across the bank conference calls today about the state of the consumer. You could even argue that the provisions for loan losses were

better than expected or modest, depending on which bank you looked at. Is this the calm before the storm, meaning that, yes, this bank turmoil that we saw play out in March did happen in the last quarter, but have we seen the full effects of it actually ripple out into the sector overall? Yeah, so two points there. If you think about, you know, banks work on average balance sheets, and for 10 weeks of this 13-week quarter, everything was fine, and then three weeks was kind of the post-SVB world. So you will feel the full brunt of that in the second quarter. With respect to credit quality, you're right. I mean, loan losses have been historic lows for a while now. We fully expect them to normalize, but this normalization process kind of continues to get pushed out.

And quite frankly, as this kind of recession continues to get pushed out, I mean, unemployment rate is still like 3.5%, so you're approximating like 50-year lows. You know, I think most banks who have kind of provided loan loss guidance have losses going up as the year progresses, but at a measured pace. The banks are trying to get in front of some of that. You know, they built reserves last year, continue to build loan loss reserves in the early part of this year. But, you know, loan losses will go up. Our expectation is it'll be manageable. And, you know, the banks enter this period of uncertainty in fairly strong positions. Jason, very quickly, as we go into another busy week of bank earnings, what would you be buying right now? What's your top pick? Yeah, no, I mean, listen, we liked,

you know, JP Morgan kind of going into this earnings season. We think, you know, they did a good job today. You we think about next week, we think the trust banks are standouts. State Street Bank in New York are early in the week and maybe a bit more cautious than some of these regionals. All right. Jason, thank you. Jason Goldberg from Barclays. Speaking of banks, next week, don't miss an interview with the CEO of PNC, William Demchak, on the 11 a.m. hour of Squawk on the Street. A number of economic data points moving in the right direction this week,

but Fed members are still split on the central bank's next move. We're going to discuss the odds of a pause or a pivot next. Overtime's back in two. Welcome back. welcome back investors were hit with a barrage of economic data this week and tons of fed speak so let's break it down on wednesday we got march cpi numbers showing inflation continued to cool thanks to a drop in energy costs and flat food prices yesterday the producer price index came in cooler than expected dropping 0.5 percent for the month. This morning, we saw consumer sentiment rising in April, but anxiety over inflation remains. That's according to a survey by the University of Michigan. And then, of course, retail sales for March. Those dropped

by 1 percent, making March the worst month since November. That report making the case for a dovish stance on rate hikes. That's according to Chicago Fed President Austin Goolsbee, who spoke on CNBC earlier today. Let's just be mindful that we've raised a lot. It takes time for that to work its way through the system. And with this retail sales number, you may be seeing a little bit of that lag. And if you add financial stress on top of that, let's not be too aggressive. Notable. This was his first television interview since taking on that role. But other Fed members weren't as dovish in their commentary this week. The strength of the economy and the elevated readings on inflation

suggest that there is more work to do. Demand is cooling and I'm seeing that cool and I'm waiting for inflation to crack. And you're not seeing evidence of that yet? Not yet. Because financial conditions have significantly tightened, the labor market continues to be strong and quite tight. And inflation is far above target. Monetary policy needs to be tightened further. Joining us now is Alejandra Grindel from Ned Davis Research.

Thanks for being on with us. Want to get your reaction to that flurry of data that we got this week and all of that different commentary that perhaps maybe is going to signal a little more discord or debate, shall I say, at the next Fed meeting and what it means in terms of another rate hike. Great. Yeah. A lot. Thanks for having me. A lot of data out this week. That's like Christmas for economists. Right. And I think ultimately the bottom line is the economy is slowing, but still remains relatively resilient. The inflation rate. Yes, it's slowing. We're seeing positive developments, but it has been sticky to the

downside. And we anticipate that to be the case, especially by the end of the year. So ultimately, how this translates into Fed policy, I think we're going to see one more hike by the Fed in May, and then they're going to spend some time to assess the impact of the tighter financial conditions, past tightening, and take a pause for quite some time, at least until the end of the year, at least based on our base case scenario. Okay. So how do you weigh that out against what we're seeing in other economies across the globe right now? Singapore, Canada, Australia, India, Philippines, just to name a few, where you've seen central banks go on pause this week or last? Yeah. I mean, we're definitely starting to see global central banks pause. Keep in mind, a lot of those central banks did start a bit before the Fed did. So you could

just argue, hey, the Fed's maybe one or two meetings behind. So the fact that the Fed would stop in May, which again, is our base case scenario, you know, would imply that the pause is sort of, you're seeing this rolling pause across the board, again, based on the order in which people started their tightening policies. And, you know, for the most part, our analysis has found that that's actually equities tend to like that. They like that pause coming forward. But usually we tend to be really happy in markets whenever the majority of the central banks are in easing mode. And that's really where the difference lies is we're not to that point yet. We're not even close. Alejandra, rate hikes historically take a while to work their way through the Python. And I mean, when's the last time we had 75 basis point hikes, three

of them in a row to worry about? So at what point do we really feel the full effect of those? And are the regional bank earnings that we're going to get over the next couple of weeks really going to give us a sense of that tightening credit to add to that color? Or are they just going to work so hard to assure everybody that they've got things under control? Now, it's a great question. Now, one thing to keep in mind is, yes, the Fed has hiked quite aggressively, but it's coming from very, very low levels. And when you adjust it for real rates, so take away the inflation portion, actually, the rates aren't quite as high. So things aren't quite as hawkish as maybe people thought. And then in terms of the impact, I think we've already started seeing it. We've seen sort of

a rolling impact. I mean, clearly, last year year we saw it in residential real estate. We're seeing in office commercial real estate right now. Within households, it may take a little longer because of the tight labor market and starting from a high cushion of savings. But yeah, I mean, over time, we are going to see more impact from the Fed. And again, to the point that I mentioned earlier, yes, the Fed is likely to hike in May, but they're likely to pause for quite some time. Our base case. Oh, pardon. Go ahead. Are we seeing it in real estate yet? I still hear about bidding wars and all kinds of major metro areas. And I hear about all of these loans that are coming up to be refinanced and commercial. That really hasn't even started in mass yet, has it?

Well, on a year-to-year basis, for sure. I mean, if you look at how things have happened since 2022, mortgage applications aren't quite as strong as they were before. Sales aren't quite as strong as they were before. Now, there has been a little bit of a stabilization, partly because mortgage rates have stabilized a little bit. And a lot of those people that were sitting on the sidelines have come back in. And then we've also seen resiliency in the real estate market to some extent because, you know, there's still ongoing demand from baby boomers, from millennials that want to engage in household formation. There hasn't been a whole lot of supply built since the global financial crisis. So I think that's sort of creating a little bit of that upside going forward. But when you actually look at construction spending over

the past year since interest rates started rising and you look at overall sales, they're not nearly as strong as they were, say, in late 2020 and 2021. All right. Alejandra, thank you. Thanks for having me. We've got breaking news from the Fed. Seema Modi has right. Alejandra, thank you. Thanks for having me. We've got breaking news from the Fed. Seema Modi has the details. Hi, Seema. Hey, Morgan. We have new numbers on deposits from the Fed

across the financial sector. Let's start with commercial banks, which saw deposits rise by $60 billion compared to last week. Deposits at domestic banks up $45 billion versus last week. Now, this is significant because last week was the first time in a month that we saw deposits rise at major banks, the first time

in a month following the Silicon Valley bank collapse. Now, speaking of other banks, we also saw large bank deposits rise by $21 billion. It follows JP Morgan's better than expected earnings report today, which we saw deposits rise higher than expected, really defying analyst expectations. Lastly, I would point out the Fed pointing out here that deposits at small banks up $23.5 billion versus last week. We know the small banks are particularly have been particularly challenged by higher interest rates and this broader rotation following Silicon Valley Bank from the small to large banks. But perhaps you could say, given this read here, signs of stabilization. John? All right, Seema Modi, thank you. Now, if the economy does turn down, one area that tends to do well is actually higher education. People tend to go back to school for more skills. To get you ahead of that trend, we're going to hear from the CEOs of Coursera and Chegg right here on Overtime on Monday. There's also deal activity in this

space. Yesterday, I spoke with Jesse Woolley-Wilson, CEO of Dreambox Learning, a K-12 education technology startup that's majority owned by Elliott Management. She told me that with budgets strained, there's a shakeout coming in ed tech as districts cut down the number of products that they pay for. It is that since 2017, there's been almost a three X increase in the number of technologies that are present in districts. And so district leaders are trying to figure out what's what should they continue and what should they stop. So I believe that the next phase in this progression, this ed tech progression, is going to be toward solutions that work. I asked if that makes the sector ripe for M&A. You're exactly right. And we're seeing that consolidation that began in the pandemic and it accelerated last year.

And I think we're going to continue to see that. So the smart capital is going to stay in. And I think it's going to grow more, as I said, in the next couple of years. And I think the rubric that they're going to use for that consolidation is going to be around buying talent, maybe around AI, buying customers as a roll-up, and buying innovations. Meantime, ed tech companies are scrambling to adopt artificial intelligence to boost efficiency. Coursera yesterday announced an AI-based chatbot that'll let online students ask questions when they don't understand lectures, and an AI-based course building tool for professors, Morgan. So when are we going to see the prices of, for example, secondary education come down with all of these new innovations and the advent of something like AI? Well, I think

when you've got players like Coursera and others, that non-traditional student who's not 18 to 21 but is really in her 30s, maybe a single mom working at the same time, they're offering more affordable education. And what they're trying to do is add that granularity so that they can learn more quickly using AI-based technologies. And if they succeed, they're going to disrupt especially some community colleges, which are under some strain, and state schools. It's such a fascinating topic and conversation, and it affects so many people, and looking forward to having it in an even bigger, more robust way come Monday. Very important to talk about. All right, well, up next, putting the dough in donuts. Krispy Kreme shares have been on a hot streak this year, climbing more than, look at that, 44 percent.

The company's CEO will give his read on the consumer and the appetite for higher prices next. Welcome back to Overtime. It is time now for a CNBC News update with Bertha Coombs. Hi, Bertha. Hi, Morgan. Here's what's happening at this hour. Supreme Court Justice Clarence Thomas under fire. The nonprofit organization CREW, Citizens for Responsibility and Ethics in Washington, filing a civil and criminal complaint against Thomas for failing to disclose gifts and property sales to and from billionaire donor Harlan Crowe. This comes after Senate Democrats

called for an investigation into Justice Thomas earlier this week. Best Buy reportedly laying off hundreds of retail workers at more than 900 stores across the country. According to a report in the Wall Street Journal, the move is part of an effort to shift its business and to move sales online. The reported cuts include consultants that specialized in selling computers and smartphones. And construction has begun on the main stage of the 2023 NFL draft in Kansas City, which begins in just two weeks. Larger than a football field, it's expected to be the largest structure ever built for the event. Talk about a really big show. Gets bigger and bigger all the time. Back to you. All right. Yeah, big athletes going to be there, so I guess it makes sense, Bertha. Thanks.

Meanwhile, today's retail sales report showing spending at restaurants was about flat in March after a decline in February. Earlier this week, we saw food prices at the grocery store and restaurants still up more than 8% year over year. But a number of restaurant stocks are surging, including McDonald's and Yum! Brands hitting 52-week highs, and Krispy Kreme, near the top of the pack, up more than 40% so far this year. Joining us now is Krispy Kreme's CEO, Mike Tattersfield. Mike, here's what I want to understand. You've got this omni-channel strategy. When most people say omni-channel, they mean selling online and selling in store. But you mean selling through all kinds of people's stores. You're opening up your own as well. How are you dealing with workers no longer going to the same locations,

yet somehow they're still managing to find your donuts? Yeah. So again, good afternoon, John Morgan. Thank you for having me on. You know, I think the question that you're getting at, it's we've transformed the business over the past six years. It's about 400 producing donut shops that deliver fresh donuts across the world in 31 countries to 12,000 locations. The biggest challenge that we've had at Krispy Kreme has been about getting access. If you only have 400 producing donut shops and you're trying to get to customers, it's about getting access to them. So this logistics program, primarily in grocery and convenience shops, where you really take the flow of the 400 producing shops and get to customers where they are. That's been the biggest transformation of the model. And it's really, when you think about it, we're a dozens

business. We really maximize the gifting and opportunities that exist there. And it really does help when we bring in world-class merchant ideas, et cetera, and just really keep the business very vibrant. So how many of these locations do you expect you're going to have to close because of the way consumer habits and travel patterns might have changed over the past couple of years. Is this going to be a quickly iterative process? I mean, I know you got trucks driving around, too. How are you going to deal with the change in consumer habits? We've been transforming this over the past six, seven years. So we're pretty comfortable. We're

our basis with only 400 producing shops, 300 in the U.S., 100 outside of the U.S. We'll end up building somewhere between 10 and either up to 20 hubs, what we call our theater production shops. And then they start on day one with this hub and spoke model. Really, the omni-channel model is what we've been shifting the business to. And it's really about getting fresh donuts as a donut company to where customers are. How meaningful is this partnership with McDonald's that you're now expanding? Well, I think it's really interesting. We talked about our goal is to get to about 75,000 points of access over a long term.

And when we think about the channels that we first went after, whether it's the grocery that we first went after, whether it's the grocery channel or the convenience channel, we need to really be an expert at that first so we can deliver fresh on time to their demand and the size and the pack. McDonald's and the restaurant is an opportunity we saw, but it still has to work with exactly the same model of how we do our delivered fresh daily program, right? So can we deliver on time? Can we deliver the fresh product? Can we deliver the pack size they want? And then how does that work in a restaurant throughout the day? And it's got to still fit exactly what we do,

whether we're serving a Walmart or Target on the route. So that's what's pretty interesting about us. We got our expertise there, and then we talked with McDonald's and have moved from a nine-store test in Kentucky. It's up to almost 270 locations. Okay. So in a week that was chock full of macro data, including a lot of inflation readings, what are you seeing in terms of food costs?

Do you have enough workers? And is the consumer remaining resilient? Yeah, I'll start backwards first. The consumer's just been really resilient for us. We've seen it, and I even talked about it as we had our earnings call in February. Start of the year, started out really really well when you start to have 31 countries aligned on a valentine's day program um and we probably had our most successful valentine's day program around the world so we see the health and the consumer we are we do sell in dozens so it's again it's an affordable indulgent treat and in terms of uh costs from uh you know we've had will be low double digit inflation um We're hedged on that.

We can price appropriately. So we're comfortable on that in that, you know, when we're pricing, we can, we're still roughly around a little bit of a dollar per donut in a dozens basis. And our ability of having those 400 shops and then the logistic routes, yes, we're 20,000 people all over the world, but it's not a significant challenge for us to continue to attract. In fact, it's really about how do we make sure we can find the appropriate people who continue to want to come and work with Krispy Kreme. So we're not seeing that today. Okay. Mike Tattersfield, we appreciate your time today. Thanks for joining us. I just want to say thank you to all my Krispy Kremers around the world and have a great weekend. Thank you for having me on.

All right. I'm going to request, by the way, a donut burger situation. You know, I'll let the partners figure that one out, right? You know, they'll figure it out. You know, I want to make sure we can deliver them fresh donuts. Okay. Sounds good. Thanks for joining us. All right. Take care. There could be a dark cloud forming over the country's largest solar market. sure we can deliver them fresh donuts okay sounds good thanks for joining us all right take care there could be a dark cloud forming over the country's largest solar market we're going to tell you about a rule change in california that could throw some serious shade on demand stay with

us welcome back we are tracking a number of big moves in the alternative energy space today. EV makers are sinking after Lucid's first quarter deliveries missed estimates. You saw a cautious note on Rivian today, too, which sent that stock lower. We're keeping an eye on solar stocks as well ahead of key change, rule change in California. Pippa Stevens has that story for us. Hi, Pippa. Hello, Morgan. And this is a big change coming for California. Pippa Stevens has that story for us. Hi, Pippa. Hello, Morgan. And this is a big change coming for California. And it all comes down to how much residents are credited for the power they send back to the grid. And that's the key metric for rooftop solar, since it's those savings

on your electric bill that ultimately pay for your roof panels. And the vast majority of people go solar for economic reasons. So under the current policy known as NEM 2.0, the payback period for rooftop solar is between four and six years, according to Wood Mackenzie. When the new policy, NEM 3.0, kicks in tomorrow, that rises to between nine and 11 years. Now, as the deadline approached, people in California rushed to go solar with January's installations 30 percent higher than last year. But Sunrun's CEO said last quarter they do expect lower sales activity immediately following the new policy. So overall, Wood Mackenzie sees installations dropping 38 percent next year, although they do expect battery sales to increase since storing power during the day

and then tapping into it in the evening during peak demand hours can actually then lower your utility bills. So less standalone storage, standalone solar, more solar plus storage is the bottom line. And that's where I was going to go with this, is that this is mostly an accounting problem in a way, isn't it? And the people who are buying solar are just going to have to pay more to get a battery and just not add it back to the grid, just use as much of it as possible themselves? Exactly. So California has time of use policies in place. So during the day, there's an abundance of power because you do have so many solar systems generating power. But then at night, you know, say it's 7 p.m., everyone's at home, you're running your dishwasher, your washing machine, and that's when power increases just

as the sun is setting. And so then the systems aren't producing as much. So then if you store that power during the day and then tap into that in the evening and not rely on your utility, then your bill can come down. So just really quickly, then, so your bill comes down, and the reason this rule change is happening is because it's benefited higher net worth individuals in the state who maybe haven't been, based on, you know, the state, paying their fair share into the power grid. If you're just switching to a battery, how are they going to make more money on those residents? Well, so it's still, you know, you can't just rely solely on your battery. So they're still hoping that then you will be tapping into the grid and you will still be participating. But that's the argument from the utilities.

It's that people who originally went solar typically were those higher net worth individuals. And then the grid in California, as we've seen time and again, is very much faltering. And so they need, you know, big, big upgrades across the state. And so they say the people who have rooftop solar aren't paying their fair share since they are still benefiting from that grid. And then that unfairly shifts costs onto the lower income residents. That's the utilities argument. The solar industry say this policy is just a really terrible idea. It's going to curtail demand in a big way. We'll see. Pippa, thank you. Now, a new production problem is plaguing shares of Boeing and Spirit Aerosystems today. Up next, a top analyst on whether this pullback is a buying opportunity.

We'll be right back. Welcome back to Overtime. Shares of Boeing falling sharply today and weighing heavily on the Dow after the company warned that it had to reduce some deliveries of its 737 MAX jets. The issue surrounds a non-standard manufacturing process used to install certain parts that are built by supplier Spirit Aerosystems. Spirit had a very rough day. You can see right there, finished down 21 percent. Boeing informed the Federal Aviation Administration that there is

no immediate safety issue. But let's bring in Cowan Managing Director Kai von Rumer, who has an outperformed rating on both Boeing and Spirit Aerosystems. Kai, it's great to have you on the show. I want to get your thoughts on this news today, the move we've seen in both of these stocks and just how meaningful it could be, especially when we do get Boeing earnings in the next couple of weeks. Right. Well, I think both Boeing and Spirit will kind of provide more guidance in terms of what this means when they report. You know, I think it's important to know Spirit has a fix for the problem so that they will have disruption in terms of fixing the units that are on the line that have the improperly installed fittings. But for planes going onto their assembly line, and this is the aft fuselage, that should work relatively well once they get through the disruptions.

For Boeing, they're going to have to, they probably will continue their production. The problem is going to be completed planes cannot be delivered until this problem is fixed. And fixing the problem for a completed plane is really pretty complicated because you have to detach the vertical stabilizer to get at the section where you can fix the affected fitting. So that's going to be more complicated. So when you see Boeing down 5.5% today or Spirit down 21%, do you keep your outperform ratings? Is this an opportunity to buy into these names at cheaper levels? Well, I would say I think it is for Boeing just because, you know, we're going to get beyond this. Certainly, I think deliveries are going to be lower for a couple of for a couple of months. I think their ambitious plan to boost 737 production looked a little bit aggressive even before this.

So I think you will see some slip in deliveries out to next year. But really, everybody who's playing this is playing it for 2024-25, and those prospects look intact. The problem for Spirit is a little more complicated because they're the ones who theoretically are going to be responsible for fixing the planes that have been completed. And if you count the planes that are in the fleet that ultimately will need to be completed, depending on what the FAA says, it's really, it's a whole lot more planes. So the cost for them is bigger, plus the fact the 737 is more important for them. It's like 42 percent of their sales. It's 26 percent for Boeing. All right. Kaivon Rumor, thanks for breaking it down for us. Thank you. Appreciate it. Up next, starships are meant to

fly, and the highly anticipated debut ofx's mega spacecraft could be a game changer for the space industry we're going to preview next week's potential launch and overtime comes right back the countdown to countdown is on as spacex readies a starship for its maiden orbital test flight. Long-awaited, highly anticipated. The new mega space system, which stands 394 feet tall, fully stacked, is on its pad at Starbase in Boca Chica, Texas. You're seeing those images right there, waiting only for the FAA license to launch. Starship is Elon Musk's vehicle to carry people and cargo to Mars. It's contracted with NASA to land astronauts on the moon, and it is poised to become the most powerful

rocket ever flown. Chad Anderson, CEO of VC Fund Space Capital and an early investor in SpaceX, says this will unleash a new wave of innovation in the space sector as Starship makes access to space even more affordable. It is hands down absolutely a game changer. It is a massive vehicle, fully reusable, 1100 cubic meters, enormous space payload capacity, 150 tons to low earth orbit, and it can do all of this for essentially the price of fuel. Musk has ambitiously said he's targeting $10 million per launch. Anderson thinks that this could be more like $50 million, which just to put this in context would still be less than the $67 million price tag

for SpaceX's smaller workhorse rocket, Falcon 9. The history-making launch could happen as soon as Monday morning, pending regulatory approval. But all signs are pointing to the possibility, planning a full orbit of Earth before splashing down off the coast of Hawaii. For more on the business case for SpaceX's Starship and how it will impact the space economy and the investing landscape. Tune into my latest episode of Manifest Space, which is available wherever you get your podcasts. So this is the first spaceship, really, because in science fiction, they take off and then they come back. And we really haven't had that until potentially now.

So this is when when Musk talks about colonizing Mars. This is the system that is going to do it. All right. So we'll see. This is very, very anticipated, to say the least. Well, up next, find out what is behind drug manufacturer Catalan's profit warning, just crushing that stock. Plus, while all eyes, at least in this business, are going to be on Moderna on Monday, overtime is going to be right back.

Welcome back. Contract drug manufacturer Catalan, the worst performer in the S&P 500 today after issuing a profit warning, finishing the day down almost 27 percent. Meg Terrell is here. She has the details. Hi, Meg. Hey, guys. So this was a pretty striking press release out from Catalan this morning. The company warned that it is having productivity issues and higher than expected costs at three of its facilities, two of which are its largest. It said this will adversely impact the quarter that just closed in March and the outlook for the rest of the year. And to top it off, the CFO abruptly departed as of yesterday. So they have an interim finance chief in the spot right now. Now, Catalan does some manufacturing for a lot of companies we've heard

of. It helps make the Moderna COVID vaccine at one of its plants at its new gene therapy plan. It also is working on Sarepta's new gene therapy for Duchenne muscular dystrophy. So you actually saw that stock get hit a little bit today as people were worried that could affect the company's upcoming FDA review process. I reached out to Sarepta. They said the news today has no impact on our production and launch plans. But, of course, this hitting Catalan especially hard right now. OK, you mentioned Moderna. It has some important cancer vaccine data on Monday.

How important for investors? This is very important because it helps bring Moderna beyond the COVID vaccine and into cancer. And so we think of vaccines as things that are preventive, but this is actually a treatment for cancer, specifically for melanoma. And the way it works is they sequence a person's cancer, in this case melanoma, and then they make a personalized mRNA vaccine that then trains their immune system to better fight their cancer. And they showed that when they combine this with Keytruda, the drug from Merck, that they could reduce the risk of recurrence or death from melanoma by 44 percent versus just using Keytruda alone. So we're going to get more details on Sunday about

this. What investors are looking for is, you know, what does the durability of this look like? Do the data continue to hold up? And are there no major safety issues? So that's going to be a really huge update. How long have those tests been going on in terms of seeing the effectiveness of this MRNA technology in this capacity? Yeah, I mean, they've been working on this. This is a phase 2B trial. So this is a mid-stage study. So how long they've actually looked out, I'd have to check on how long the results hold up. But so far, it's been looking pretty good. What would bad news look like on Monday if we're bracing ourselves? Well, specifically, there's something known as the Kaplan-Meier curve,

where you really want to see the lines separate to show that there's a real benefit from the treatment. If those lines are not separating substantially or, you know, if the benefit does not look like it's holding up or if there are any safety issues, of course, those would all be bad things. Well, Meg, this is your last day with us. And I am heartbroken at that because you are the best. You've brought us such great insight through the pandemic before and after into this really important sector in the economy. We are going to miss you. I'm going to miss you guys. You are. You are. You are the maven of all things medical.

We certainly could not have navigated the pandemic and bringing the coverage that we did to our audience in real time and in a smart way and in an apolitical way without you. And, of course, even before that. But we wish you all the best and a big congratulations in the next chapter of your life. And we will miss you. We'll miss you terribly. The feeling is so mutual. Thank you. You guys are a family, and I hope I'll stay a part of it.

Of course. You can tell us now. Who's your favorite anchor here? It's both of you. Well, Meg, thanks. We're going to finish this conversation off right. Got a big week coming up, Morgan. Lots more bank earnings, including the regionals.

That's right. And a lot of macro data as well, including those U.S. regional Fed surveys and flash PMIs. That's going to do it for us here at Overtime. Fast Money begins right now.