Closing Bell - Closing Bell Overtime: Prologis CEO On Rent Demand Slowdown; Microsoft Closes At Record High 7/18/23

Episode Date: July 18, 2023

All three major averages closed higher. The Dow notched its seventh straight positive session—the longest streak since March 2021. Edward Jones’ Mona Mahajan and Wells Fargo’s Sameer Samana break down the market action. Earnings from Interactive Brokers, JB Hunt and regional bank Western Alliance. CFRA’s Ken Leon looks ahead to Goldman earnings. Prologis CEO Hamid Moghadam on the latest quarter and rent demand. UBS analyst John Hodulik previews Netflix earnings. Microsoft closed at a record high; Citi’s Tyler Radke on where it goes from here. 

Well, the rally continues. The S&P and NASDAQ hitting their highest levels today since April of 2022. A fresh 52-week high for the transports, too. That is the scorecard on Wall Street. The action, though, is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Fortz. The Dow extending its winning streak to a seventh day thanks to Microsoft closing at a new high

after pricing its AI tools. Strong earnings for Bank of America. Morgan Stanley also helping this broad market rally. Plus, we are awaiting earnings from interactive brokers, J.B. Hunt and Western Alliance. We will bring you those results as soon as they cross. All right, well, we will take the pulse of the industrial real estate business when we are joined by the CEO of Prologis, which reported mixed results today.

Meantime, stocks extending their recent strength, seven straight positive sessions for the Dow, longest streak since March of 2021, while the S&P 500 touched a fresh 52-week high. Meanwhile, Microsoft closing at an all-time high, the market cap standing at nearly $2.7 trillion. Joining us now is Mona Mahajan, Edward Jones Senior Investment Strategist, and Samir Samana, Wells Fargo Investment Institute Senior Global Market Strategist. Guys, welcome to the show. Samir, I'll start with you. We closed at 45.55 on the S&P 500. A number of traders noting that 45.50 is really this technical level of key resistance. Want to get your thoughts on the rally and whether it continues to have legs here? Sure. We saw those levels last

spring and, you know, that didn't turn out too well. I mean, what we would say, you know, look, one, we're not surprised at all. You just have these episodes where things kind of align for the markets, either to the upside or to the downside. So this would be one of these overshoots. You know, our year-end target range is 4,000 to 4,200. So this is, you know, kind of a visit to the upper end of the range. You know, just recently, whether it's March of this year or October of last year, we were below the range. So I think probably the next move lower is going to probably transpire into the end of the year. And so it's probably a pretty good idea for investors to kind of act accordingly, right? Go ahead and rebalance those portfolios, maybe get a little bit higher up in market cap, higher up in quality,

because we probably will see kind of the inverse of this into the second half. Mona, do you see it the same way, especially when you do have this soft landing consensus taking shape, including among some of the bigger bears on Wall Street in recent months, disinflation traction, peak Fed expectations, and oh, by the way, so far some better than expected earnings reports from some of the biggest names so far. Yeah, absolutely. Look, we actually think there's a little bit of a more bullish case to be made here. In fact, it's a triple whammy, as you alluded to. We not only got the better inflation data last week, that's coming even as the economy is holding up. And in fact, there was a bit of nerves heading into earnings season. But thus far, in early days, 7.5% of the S&P 500

has reported. Amongst those, 84% have beaten. And in fact, they've beaten by 8% or so. So coming into the quarter, we're looking at about negative 7% earnings growth. We're now looking at about negative 4%. Now, we still have some ways to go. But the good news is earnings revisions are moving higher. We think that could drive market returns as well. Now, keep in mind, we would be cautious on extrapolating, you know, the 17 percent return we've seen year to date to a straight line higher in the second half. Of course, bouts of volatility are normal, are probably likely. But keep in mind, there's a lot of money sitting in CDs right now. Over the next six to 12 months months as that CD money comes due.

There's some reinvestment risk there. Do they want to take a lower rate of return reinvesting in CDs or think about the markets which have returned much higher thus far than that 5 percent that they could be getting in cash like instruments. So I do think there is some momentum behind markets and then some catalysts that we could see down the road as well. Samir, what should investors be doing with that CD money or maybe some of that equity money that they should be reallocating? I mean, fixed income, longer dated, what? Yes, we would be using a little bit of a barbell on the short end and on the longer end. We like the fact that the Fed's probably going to continue to raise rates here. Again, inflation is not under control in our opinion. If anything, this 3 percent fact that the Fed's probably going to continue to raise rates here. Again, inflation is not under control in our opinion.

If anything, this 3% print that you just got was largely built off of base effects. Remember, oil was about $120 in June of last year. So that makes the comps very easy. But we would also be locking in kind of the long end, especially at rates above 4%. We think once inflation does get under control, those 4% plus yields will look pretty good in that type of inflation environment. Mona, let's talk about the financials. I mean, we talk a lot about the big banks, but I can't help but notice today the KRE, the regionals, closed up 4.25% back at levels from late March. They've been stubbornly below there for all this time. Is that a read

through on the bigger bank earnings? Is this still worth playing as we continue to get more regional bank numbers tomorrow and through the next several days? Yeah, you know, we think this talks to a bigger theme of the broadening of market participation. So that's one area that we are seeing some interest in going forward. And we think that could be a theme throughout the second half of the year and into 2024. The market may not be led by just a narrow set of technology AI-based companies,

but we could get some broadening into cyclical sectors like financials. Now to your point on the regionals, it is interesting. The big bank readings we've gotten so far have indicated that one, the higher yields have helped. Despite the inverted yield curves, they are seeing better net income margins, net income interest margins. And secondly, there is this opportunity that we see in front of large banks and even some of the regional banks in that the IPO market and capital markets broadly

may start coming back in, if you think about the next 6, 12, 18 months. It's really been quiet in terms of capital market activity, M&A, IPOs, et cetera. There is a real catalyst there that we may start seeing more activity there that benefits largely the large banks that have exposure, but also certain regional banks that can take advantage of supporting M&A deals in particular. So we certainly think that there are opportunities to get involved in the banking and financial sector. And thus far, the yield environment has actually been a positive rather than a negative.

All right, Mona, Samir, thank you. Looks like Interactive Brokers earnings numbers are out. Kate Rooney has them. Kate. Hey, John. So a mixed picture here for Interactive Brokers. Let's start with EPS. This is the adjusted number, $1.32. That was a miss by 8 cents.

Street was looking for $1.40 adjusted. Revenue number, $1.06 billion. We don't have a comparable number there. Also looking here at trading volumes. It looks like trading volumes is mixed. Customer accounts, meanwhile, increasing about 19%. And darts, that's daily active revenue trades, a key metric here for the brokerage companies. That was down about 14%.

Commission revenue pretty much flat. And then net interest income, guys, as rates are rising here, that increased 99%. So almost doubling there as benchmark rates rose. Looks like the stock here has moved around a little bit, slightly lower here in the after hours. Back to you, John. All right. Okay, thank you. Let's get now to CNBC senior markets commentator Michael Santoli at the New York Stock Exchange. Mike, what's on your mind? Well, we're looking at the New York Stock Exchange composite index, a very old, very broad index of the overall stock market. It's pretty much

stocks of all sizes, about 2400 of them, I think. And it made a new one year high today. So we've been waiting for, you know, things to look a little bit stronger under the surface of the mega cap driven indexes. And that is definitely happening right here now, still well below the all time highs. And if you went back a couple of years, I think we're still more than a thousand points below. So very similar to the S&P 500. We're at one-year highs, maybe like 15, 16-month highs, but still looking up at the early 2022 record high. Still an encouraging sign. A lot of folks like the New York Composite for a lot of reasons, including the sector makeup. Speaking of sectors, semis versus energy is a relationship that I've monitored from time to time,

shown it here. There really have been like two ends of the spectrum here. There's the digital economy growth story within semis, and then the real asset trade and maybe global instability trade with energy. This goes back to April, end of April of 2020. It's right after the initial burst off of the COVID lows for the overall stock market and for energy in particular. You see, it's kind of a dead heat just about right now.

Semi's just nosing up against them. But what I find interesting is the way they were just completely opposite for these periods of time. So last year, it was energy throwing a shutout against tech. This year, it's the reverse. Nothing says they have to continue to move inversely. If you do have a pretty good growth story with the secular tech trade going, they can hold up. But I think it's also a good reminder that energy's held on to most of those gains from last year, when, by the way, it outperformed the S&P by like 80 percentage points, Morgan.

I love that you have just drawn attention to that. You've certainly talked about it in months past on the show. I'm curious, though, Mike, about what we saw with the Russell 2000 today. 1.3% gain. The transport's also a fresh 52-week high, up 2%. I realize that we've seen both of those averages rallying a little more meaningfully in recent days. But does it just speak to the rotation that's afoot more broadly and the widening out of this rally? Or is there something more afoot? I think all that's going on, Morgan, I think we're at that phase where the headline indexes have moved far enough. If you feel underinvested, maybe it's not the most comfortable thing to grab at the most overheated part of the market. You also, of course, have yields backing off macroeconomic risk, at least

perceived to be receding in the immediate term. And the banks are doing better. So financial stocks, credit conditions, all the stuff that was working against small caps. You also do have and you hear a lot of our guests come on and say, look, if you want to look at long term mean reversion possibilities, small caps look cheaper. They look less loved, more under owned. And so maybe that's a destination for some fresh capital. Not to say that it's going to you know, it's going to work seamlessly. But I think all that stuff's been been going on right here as people have grown a little more comfortable with the macro backdrop. All right. Mike Santoli. Good to see you. We'll see you again later this hour. Speaking of transports, J.B. Hunt, those earnings are out. Pippa Stevens has the numbers. Hi, Pippa.

Hey, Morgan. J.B. Hunt missing expectations of both the top and bottom line for the second quarter. EPS coming in at 181 per share. That was against estimates of 192. Revenue at 3.13 billion versus expectations of 3.3 billion. Revenue was down 18 percent, with revenue falling across all the business segments. Intermodal volumes down 7 percent year over year. And the company said that there was weaker overall freight activity, particularly import-related freight. And those shares down about 44 percent here right now. Morgan, back to you. All right. Pippa Stevens, thank you.

Yeah, it sort of speaks to this idea of rolling recessions, right? And that there's been a freight recession afoot. And here it is showing up in J.B. Hunt, which tends to be one of the early reporters within the transportation and freight group. Yeah, down more than three and a half percent, at least initially. Well, bank stocks, big bank stocks have been rallying after big earnings beats from Bank of America and Morgan Stanley. Up next, we're going to hear from the CEO of those two companies and discuss what investors should expect from Goldman Sachs when it reports tomorrow. Overtime's back in two. All right. Welcome back to Overtime.

Bank of America and Morgan Stanley leading the bank's hire after beating Wall Street's earning estimates. Leslie Picker spoke to the CEOs of both companies. She's been very busy today. She joins us now with the highlights. Hi, Leslie. Hey, Morgan. Yeah, both Morgan Stanley and Bank of America beating analyst estimates for the top and bottom lines in Q2, continuing the trend of better than expected bank earnings this quarter. One big question mark throughout the whole earnings season has been just this idea that investment banking and sales and trading across the street, that business has been notoriously quiet during the second quarter. But optimistic outlooks from both executives helped propel their stocks higher today.

Morgan Stanley CEO James Gorman said he's recently seen a tonality shift when talking to clients. I think we've bottomed. I think we've bottomed. Yeah, I think we've bottomed in this business, you know, four or six weeks ago. Now, how much it improves from that for the rest of the year is unknown. Next year, definitely a pickup. So I think, you know, and I'm seeing it with the conversations I'm having with other CEOs. We just felt like, you know, April was was weak and first half of May also weak. And then it started picking up second half in June where it's, you know, it's not gangbusters, but we're off the bottom. Bank of America CEO Brian Moynihan said a more stable macro backdrop is helping drive more appetite for dealmaking as well. As the markets are stabilized, as the view is that the Fed is closer being done, if not done, on rate raises,

as the market settles, we're seeing more activity. Saw some deals get done this quarter. You're seeing more discussion, a lot of pipeline, a lot of activity. And so we feel that if the stability continues to hold in the market, you'll see that activity come in as you move out of the summer into the fall. And that's important because that capital formation is what will lessen the probability of a recession out in the future because that capital formation, capital spending is part of the drill that makes America great.

Lots of green shoots out there. Tomorrow, we'll get another big read, though, on this market when Goldman Sachs reports before the opening bell, guys. Yeah, I guess that's going to be especially important for Goldman Sachs. But the investment banking doesn't help the regionals. There have been talk that the rising rates and the impact on margins was maybe going to hurt them. But they had a big day today and have been on the upswing. Any take on how they're weathering this earnings season and things like signal from commercial real estate chatter from the bigger banks? Yeah, there's been a lot of pessimism surrounding this space for the last three months.

Part of that has to do with regulation, the anticipation that greater capital rules will put a dent into margins. Part of it has to do with just this deposit flight that people are concerned about, this idea that there's a migration either to higher funding costs, things like CDs, money market funds, or the big banks. And that's impacting the ability for regionals also to kind of maintain those margins. But we saw PNC report today, which helped send some of the regionals also to kind of maintain those margins. But we saw PNC report today, which helped send some of the regionals higher. And even though they kind of revised their outlook for net interest income, that's that profitability metric for loan making, they revised that actually downward. But to the extent that wasn't so concerning to the market, you can see their PNC closed up two

and a half percent higher just because they expect things to kind of stabilize from here. And that's really what the market is looking for, is kind of that stability at this point in time, especially as they're anticipating all that uncertainty on the regulatory front, all that uncertainty on the economic front. Just kind of seeing things kind of normalize, stabilize is a little bit of comfort for the market. Okay. We'll see if Western Alliance results continue that narrative. We're awaiting those as well. Leslie, thanks. So what all these numbers mean for Goldman? That stock closing higher today ahead of its Q2 results tomorrow. Joining us now is CFRA Director of Equity

Research, Ken Leon. Ken, some of the bank CEOs saying investment banking has bottomed, maybe, but you downgraded Goldman to a hold. Not enough of an upswing on the horizon for Goldman? Yeah, there's a world of difference. So we do think the second quarter was the bottom, but we're not going to see a v-shaped recovery in the capital markets uh particularly investment banking uh it's probably going to be well into 2024 and earnings estimates for the street have come down substantially for goldman sachs and the outlook for their traditional businesses still is moderate growth It's going to be really hard to really put in a quarter where they're firing on oil cylinders in 2023. And of course, tomorrow, David Solomon is going to be under the spotlight in terms of whether we see some significant write-offs of the diversification

into Green Sky, Marcus, and their whole consumer strategy, which has been noted to be pulled back. Yeah, which is exactly where I was going to go with my question to you, Ken, was how noisy do you expect this report to be in terms of those write downs? And I guess just how sweeping could strategy communication be from Solomon as the bank shifts away from that? Well, you even go back earlier this year to Invest Rebate. So they kind of laid out all the pluses and minuses. But what the investors are looking at is essentially Goldman Sachs with a core business over the last couple of years, which is strong and should gain wallet share like Morgan Stanley on a global basis over the next 12 to 18 months. But it's the what if.

The what if for a smart investor is how do you get the stock up or a higher multiple when they haven't diversified into the right areas or extended investment and wealth management as Morgan Stanley did. So it's going to be a really tough narrative to explain, but they got to put the diversification behind them before investors look cleanly at the outlook for Goldman Sachs. How long is that going to take? What do you need to hear to be convinced? Well, unlike Citigroup, which is a multi-year transformation or what was wells fargo i think um what would change probably is first they're going to clean the deck by doing

these large write-offs and then they need to probably make a substantial uh acquisition in acid or wealth management uh to bolster their scale there. That will be another day, another story. But directionally, they're going to make better decisions in the future. All right. Ken, thanks for joining us. Ken Leon. Shares of industrial real estate giant Prologis getting pummeled despite beating Wall Street's profit estimates and raising its full year guidance. Up next, the company's CEO breaks down the quarter and discusses the outlook for warehouse demand. Plus, Netflix hitting a 52 week high today ahead of earnings. A top analyst explains why he thinks the stock

has a lot more room to run. That's coming up on Overtime. We've got breaking news on AT&T. Julia Boorstin has the details. Julia. John, big news from AT&T after the company's stock hit a three-decade low on concerns about its legacy lead-wrapped cables, concerns which were raised by a Wall Street Journal story. Now, in a letter filed with federal court,

AT&T's attorney saying that AT&T believes it is now in the public interest to leave the cables in place to permit further analysis by interested parties. Now, the company's saying that its lead clad cables pose no danger in that in 2021, AT&T agreed to remove them simply to avoid the expense of litigation. They're now saying that based on, quote, a repeated testing of these cables, data and methods we have made publicly available, we have serious concerns with the journal's testing methods and the reliability of its results and reporting. This letter goes on to question the validity of the Wall Street Journal's investigation

and its results. AT&T also saying in this filing that less than 10 percent of the cable in AT&T's national system is lead clad cable. So, Morgan, the company coming out swinging here. Back over to you. All right, Julia. I mean, what's amazing to me is that the Wall Street Journal first released its investigation on July 9th, and we really didn't see this pick up momentum in terms of the impact on the stocks and reaction from AT&T and others in terms of public comment until just now? I mean, why did this take so long? Do we know? I mean, I can't really answer that question, Morgan. That's something that only AT&T would

probably be able to answer. But it's interesting to read in this letter the cost benefit analysis the company made of whether or not they were going to fight this issue. They decided to remove the cables because from litigation standpoint, it was simply easier. And now they're saying it's not that they were removing the cables because there was actually anything wrong with them. And now they believe it's in the best interest of the company as well as of the public to have a more thorough investigation from disinterested third parties, from objective parties. And they're really indicating here that they believe that the journal was not being objective in its reporting

because they were relying exclusively on environmental testing that was commissioned by the journal. All right. Morgan. Yeah, Julia, thank you. Mike Santoli back with us. Mike, this stock, AT&T, is down 32 percent over the last three months. And it's just really the last couple bucks that's happened in July. So even if it's not the lead issue, there are other problems with this, right? Well, there certainly would be, although I do think this last phase lower in the stock, this flush, especially yesterday, did come among gathering concerns or at least uncertainty about how to quantify any potential exposure related to the lead sheath cables. Yesterday, I looked back at the Citigroup downgrade of the stock yesterday

morning, which did seem to drive a lot of yesterday's decline. What was it, 5 or 6 percent yesterday? And the analysts said they were relatively unaware of this issue until the journal report. They did some of their own legwork on it, trying to quantify it. But they sort of granted that there's no way to put firm numbers on what this might mean down the road. But it did see and they even said if it turns out to be just sort of, you know, a multi month overhang on the stock and then we can get it sorted out, maybe the stock's going to look like a buying opportunity. The point being, I don't think AT&T has that has had the last word on what this is going to mean. I doubt the Journal's report is the last word on it either.

So it'll get hashed out. But to your point, yes, this is an out of favor area beforehand. You know, people were just not enamored of the longer term story, the high fixed cost. I mean, you could kind of run down the list of reasons why it seemed like it was not necessarily in a good spot. But there's no doubt in my mind in the last month or so, investors with, you know, a lot of these big legacy liabilities on their mind from other companies just decided to to ditch rather than stick around and figure it out. All right. Mike Santoli, thank you. And of course, the stock AT&T is down 13% since that journal story was first released earlier in the month. Industrial REIT Prologis Meantime reporting earnings this morning, raising its full year earnings outlook after posting record profits and sales. Despite the strong report, though, the stock selling off, finishing

the day down 3%. Joining us now is Prologis CEO Hamid Moghadam. Hamid, it's great to have you on the show. Thanks for being here. Thank you, Morgan. Good to be here. So a really strong report, and yet analysts pointing to a number of metrics, things like reduced global rent growth forecast, lower lease proposals, occupancy decline, suggesting that there's signs of slowing in the market more broadly, and perhaps that's pressuring the stock. What do you think of that?

Well, I think our business has had the good fortune of being on steroids in the last two to three years, way beyond anything in the normal range. And the business is moderating, as we've been talking about for a couple of quarters. But it's actually moderating at a we've been talking about for a couple of quarters, but it's actually moderating at a slower pace than we thought. And if you look at it in the context of 30, 40 years that I've been doing this, it's probably in the top 10 percent of markets that we've operated in. So I think the market is getting too excited about virtually nothing. Okay. I mean, we do have higher interest rates.

I know you've made some acquisitions, including a deal recently with Blackstone as well. Why do you feel, if it is moderating, albeit at maybe a slower pace than you had previously anticipated, why do you feel confident to make more investments in this market right now? Sure. Because rents that are in industrial portfolios, for example, ours and the deal that we recently acquired are 50 to 65 percent higher than what the rents are today. So rental growth and therefore earnings growth is not in any way dependent on marginal rental growth from here. Just capturing that upside will drive earnings into the foreseeable future at double-digit levels.

So that's what the market is, I think, missing. So, Hamid, yeah, I was struck by the net effective rent change that you guys talked about on your earnings call. Up 87 percent. Especially strong in Phoenix, up 137 percent. North Jersey, up 150 percent. Southern California, 181 percent. Why, in particularly those markets where it's strong, why is it up so much? How can those tenants afford to pay that much more? Well, as I mentioned at the beginning of this conversation, the last two to three years have been exceptional in terms of demand for our product

and therefore pricing of our product. At the same time, generally long-term supply in these really great markets is limited because nobody really wants warehouses built near them. And as a result, there are all kinds of moratoria and other difficulties in terms of bringing on supply. That demand has moderated. Of course, it would moderate. They can't go at double its normal level forever. But the embedded rental growth in this portfolio is not going to go away. And once we realize it, I think we will have substantially higher earnings as a result of that, particularly because of these markets. A big part of your narrative also seems to be that the

construction of new industrial property is going to slow down into 24. So there won't be so much supply on the market that'll help keep prices higher. Are there particular markets where you see the build out slowing particularly quickly? I would say the supply is slowing down in pretty much every market that we operate in. Very few exceptions. And last year was there was a surge in supply because rents had gone up so much but we know everything that's going to be delivered in 2024 because you would have had to have started the construction today so we know with almost certainty what this supply is going to be in 2024 and we think it's going to be moderate and in in the normal range let me also add that, you know, most observers have been asking me about the year

in which supply will finally exceed demand since 2011. And I'm not kidding you, since 2011. So yes, it finally is gonna happen in 2023, but I think it's a temporary pause in what is a very good fundamental picture long term. I do want to talk about some of your other businesses that you're building out and diversifying with. The essentials business, which is focused on solar production and storage. Prologis Mobility, which is the EV business as well.

How are you thinking about the secular opportunities in something like green tech infrastructure? And what does that mean in terms of investments for the company? Sure. First of all, we've been at the solar and energy game for about a decade. We're now the second largest producer of rooftop solar energy in the United States and expect to be number one by the end of this year. So this has been going on for some time. but the concept is actually pretty simple. We have other surfaces in addition to our floors to rent, our roofs, our sidewalls, and our parking areas where we can rent them in effect for EV charging. More and more of our customers are electrifying their fleets, and we have long-term relationships with them through our leases.

So it's a perfect opportunity to supply them with all these products and services that they're going to need to buy from somebody else anyway. And we're in the best position to bring that to them because of our scale and our ability to do these things on a very economical basis. Like putting washing machines in a multifamily unit.

Makes sense. I mean, thank you. Yeah. CEO of Prologis. All right. Time for ACNBC News Update with Christina Partsenevelis. Christina. Thanks, John. The South Korean military reporting that North Korea has fired an apparent ballistic missile into the Sea of Japan today. The missile test coming a day after a U.S. nuclear submarine visited a South Korean port for the first time in four decades. On the same day as well, the Pentagon says a U.S. soldier was detained by the regime when he willfully crossed the border into North Korea while on a tour of the DMZ, which I've done about 10 years ago. Florida health officials are reporting a new case of malaria, bringing the national total to eight infections. The newest case was found in Sarasota County, the same location as the first seven.

These are the first locally acquired infections in 20 years. But the CDC says the outbreak fits the pattern of past infections that remained relatively small and contained. Egyptian authorities cancelled Travis's Scott Giza, I should say Pyramid concert saying his performances contradict the culture of the cultural identity of Egyptian people. Authorities say the strange rituals from Travis Scott happened at concerts were

inconsistent with societal values. There were no details on what those strange rituals were but the cancellation notice came just a week after Scott announced he would premiere his new album in front of one of the seven wonders of the world. I guess you'll have to find another wonder. John? I think he's got six others to work with.

Perhaps. But Travis is known to be a little controversial. Up next, Mike Santoli is going to look at what the latest reading on retail sales could mean for the market and the economy when overtime returns. Welcome back to overtime, a name that has been watched closely in the wake of all the regional banking turmoil. Western Alliance. Those earnings are out. Leslie Picker has the numbers. Hi, Leslie. Hey, Morgan. Yeah, those shares are down about 3%, 2.5% currently after missing analyst estimates on the bottom line by just about 1 cent, coming in at 196 per share there. But revenue beat, that came in around $669 million, up 21% in the quarter. They did say they grew deposits by $3.5 billion in the quarter. That's up incrementally from the update they gave in mid-May

amid all of that turmoil you were talking about. If you recall, Western Alliance was among the regional banks that was kind of caught up in the volatility in the aftermath of the Silicon Valley bank turmoil, as well as Silvergate, First Republic. It was kind of rumored to be potentially one on the chopping block, but ultimately was able to stave off the short sellers, to stave off some of that volatility. Shares were actually up 8% going into earnings just today. And throughout the quarter, they were able to kind of attenuate some of those concerns by showing those inflows that I mentioned as a result of, you know, in May. And the question kind of remained, what would those inflows do to margins? How would that impact deposits? Would their funding costs rise from here? We did see net

interest margin in the second quarter tick up a little bit to 3.4%. I'm sorry, that actually was a decrease from 3.79% in the first quarter. But you can see shares have come back a little bit down now, 1.9% after reporting two Q results, guys. Yeah, narrowing quickly, too. Now down just 1%. We'll see where it goes with more information from the call. Leslie, thanks. Now, U.S. retail sales barely rising in June, up just 0.2 percent. Mike Santoli is back with a closer look. Mike. Yeah, John, the month over month number is pretty soft on the headline. A little bit better if you look at some of the core measures. But this is the very long term path of overall monthly retail sales in dollar terms going back more than 30 years. Because I wanted to really show the absolute level of spending and how dramatically higher it is versus before the pandemic.

So we see what's happened here. This jump was both, of course, because the front loading of goods demand during and after the pandemic, of course, as well as higher prices. Remember, it's a nominal number. So inflation gets put in here. What I think is interesting is retail and food service excluding gasoline expenditures. You know, it's essentially on the same, roughly the same trajectory as before, maybe a little steeper as before the pandemic throughout that long expansion. You see, it's a very slow and steady grind higher through an economic expansion. So even though it's kind of faltering, maybe we're going to give back some of the consumers decelerating. It's really not changing much in terms of the absolute level of spending. Maybe there's some give back you can have without really having the overall economy really give way in a dramatic fashion, John or Morgan.

All right. Mike Santoli, thank you. Feeding on earnings and hiking its full year forecast were not enough to help shares of Lockheed Martin today. Up next, we will discuss what that could mean for the rest of the defense sector. Stay with us. Welcome back. Lockheed Martin today kicking off earnings season for the aerospace and defense sector, reporting a beat and a raise as revenue grew 8% and the backlog ballooned to a record $158 billion, enabling the weapons

maker to raise full year sales and earnings guidance well cfo jay malave noting the return to growth a year earlier than forecast and coo frank st john telling me the supply chain overall is also growing despite some lingering issues with things like solid rocket motors which power missiles speaking of missiles demand is especially strong for missiles and air and missile defense. That's thanks to Ukraine and the need to replenish stockpiles. St. John's saying investments last year to ramp production for systems like Javelin and Pac-3 missiles, HIMARS, etc. But those are now, quote, starting to come through with increased production rates. F-16 fighter jets are in focus, too, as allies move to supply Ukraine with them. Lockheed will be involved in training, sustainment and transfer, according to St. John, and would be ready to build more when those countries needed to backfill.

All of this as lawmakers continue to hash out U.S. defense policy for fiscal 2024 and budgets not only here, but globally do continue to climb. Following results, Cowen saying, quote, based on LMT's healthy beat and the record level of still unobligated DOD O&M, so that's operations and maintenance appropriations, we think there is potential for favorable revenue surprises at upcoming defense revenue reports. Speaking of reports, we're going to get more of those in coming days. The other defense primes like Boeing, L3 Harris, General Dynamics, Raytheon and Northrop Grumman, they're all on tap next week. Meantime, shares of Lockheed did end the day in the red, down about 3%. But John, this was a very solid report. Interesting. All right. One name that didn't end the day in the red, Microsoft. They closed at a record high and added more than

100 points to the Dow's rally today after announcing the pricing of its new AI tools. Up next, a top analyst weighs in on how that might impact Microsoft's bottom line. We'll come right back. Welcome back. Microsoft closing at an all-time high after announcing a $30 per month AI subscription for Microsoft 365 at its Inspire conference today. The company also unveiling visual search capabilities in Bing chat, among other announcements. The news helping the company reach a nearly $2.7 trillion market cap. Joining us now is Tyler Radka from Citi. Tyler, just because they're going to charge $30 a month doesn't mean people are going to pay it. I mean, but the street seems to think people are going to pay it. Had they yet proven the productivity improvements that it's going to take for customers to justify buying this?

Yeah, John, it's a good question. I think we don't know the answer quite yet. The exact release date will be coming out in the coming months. But what we do know is that there's been a lot of interest from some of the early adopter customers. They've been oversubscribed in terms of some of the private previews that they've announced. And clearly, this price point of $30 that you mentioned was a lot higher than we thought. Our view was maybe it'd be in the $5 to $20 range. So clearly, we think they're pricing it at a premium. It's probably reflective of the underlying value. But to your point, we'll have to wait and see. But again, this is $30 per user per month in a base of over 300 million subscribers that continues to grow.

So certainly, even if they only get, you know, a couple percentage points of adoption, that can be very meaningful in terms of the revenue contribution. Going back to the pricing piece of this and what it means in terms of underlying value, is it appreciated out there in the marketplace yet just how strong that underlying value is? And I guess what I mean is how quickly would you expect adoption to happen at a $30 price point? Yeah. So I think what we've seen with a lot of these generative AI or chat GPT tools is incredible viral adoption, right? I mean, the stats on chat GPT, it was kind of the most, the biggest viral adoption curve we've seen in history, right?

You've seen things like Adobe Firefly, tons of signups. So we do think there's going to be a huge interest in terms of vetting out the features, learning about the use cases. And so we would expect once the general availability gets announced that we could see certainly a very strong interest in trialing the product, but ultimately converting that to paid customers over time. Tyler, whose strategy do you think is better? You mentioned Adobe. Adobe hiked the price of its overall Creative Cloud suite and added AI, at least so far, as just a piece of that. Microsoft is putting a layer in above. Now, granted, Microsoft is the ubiquitous productivity tool. Maybe there wasn't that much to gain for

them in raw subscription numbers. How should investors think about the difference in approach? Yeah. So I think the opportunity at Microsoft, and we have a buy on Microsoft. We're neutral on Adobe. But I think for Microsoft, we see kind of a multifaceted approach to AI, right? They're monetizing it in Office 365, which we talked about. But they also own kind of the leading cloud computing layer for running GPUs and NVIDIA-like workloads, right? And so they're monetizing it on the cloud infrastructure side. And then also we haven't talked about search, right? I mean, search is a market where there's a huge opportunity to gain share relative to their 2% or 3% market share they have. So we think there's more drivers at Microsoft. They're more durable. Adobe, we acknowledge there could be some

interesting monetization in the near term. Adobe, we acknowledge there could be some interesting monetization in the near term. Ultimately, our view is the consumer market is going to be more competitive. And we do see increased competition ultimately offsetting some of the monetization for Adobe. Okay. Tyler Radka, thanks for joining us. Microsoft finishing the day up 4% new all-time high, closing in on $2.7 trillion market cap. Yep. Tomorrow's earnings calendar is jam-packed with some of the biggest names on Wall Street, and our next guest says one of them has been overlooked during the recent market rally.

We'll reveal that name when Overtime returns. Welcome back. Investors are getting set for another huge day of earnings tomorrow. Goldman Sachs and U.S. Bancorp report before the bell. And after the bell, we'll break down results from Tesla, Netflix, IBM and United Airlines. And speaking of Netflix, once again, it hit a 52 week high today. Trading levels not seen since January of 2022. And our next guest says it will head even higher. Joining us now is UBS analyst John Hodlick.

John, why do you think it's going to head higher? And I ask that knowing that there's really three main things I think we're looking at for Netflix tomorrow. Paid sharing, ad tier, and strike impacts. Right, that's exactly right. And I think all those are moving in the right direction, and as a result, the financials are moving in the right direction. I mean, I think, obviously, with Netflix,

the guide is an important part, at least in terms of the short-term movement. And they're not going to give subscriber guidance, but I think their underlying guidance that they do provide for next quarter will show meaningful acceleration in not just the sort of metrics, but in the financial health of this company. And we should see some dramatic acceleration as a result of those initiatives that you're talking about over the next couple of quarters. A year plus ago, we were talking about international expansion and maturing of the business there being the most important thing for Netflix.

Is that no longer a big deal? No, that's still a big deal. I mean, I would say in general, the growth has been we got to remember only about a third of the subs are in the United States. Two thirds are outside. But there was a lot of those markets are still massively under penetrated. So the company has been shifting its content budget from U.S. language or English language and U.S. content to more local language, which I think is very different than what's going on competitively from what the rest of the streamers who I think are in the process of pulling back. And I think that should drive growth. But the real growth drivers, as we

already mentioned, is really the ad tier and then the fix to password sharing. Both of those, I think we should get some more color from the company this quarter. And I think you'll see that really kick in in the second half. Is Netflix in a good position to withstand what could be prolonged strikes from writers and actors versus its media peers? Yeah, we think so. And again, part of the fact is they do so much content production outside the U.S. that's not impacted by the strike. And as a result, they have a tremendous amount of growth outside the U.S.,

definitely in contrast to a lot of their competitors. But also they have a lot of content that's sort of already done. And they're also licensing a lot of third-party content that goes on their platform and actually does very well from a rating standpoint. And again, as the other sort of large media companies with streaming businesses retrench from the streaming side, you're going to see them step into that licensing market even more,

which is also good for Netflix and gives them more content along the way. Very quickly, John, AT&T and Verizon. We just got that statement from AT&T earlier in the hour, the impact from these lead cables. And what has done to the stock. Oh, it's crushed the stocks. AT&T, Verizon, even the towers, which we cover and are constructive on. And we think it's overblown. You know, these companies, starting with AT&T and Verizon, have not deployed infrastructure

with lead in it since the 50s. It's a low single digitdigit percentage of their overall infrastructure. The testing that they have done in the past has not shown any contamination, nor have they had any issues with personnel. So we think it's overblown, and the massive moves in these stocks are overdone. Got it. John Hodlik, thanks for joining us. And of course, fresh 52-week highs for the S&P and the NASDAQ and the transports today, John. I'm particularly interested in the regionals reporting in the morning, given the move in the KRE today and what we saw from Western Alliance.

All right, well, that's going to do it for us here at Overtime. Fast money starts now.