Closing Bell - Closing Bell Overtime: Stocks Sink, Norfolk Southern's CEO On Train Derailment & Coinbase Earnings 2/21/23

Episode Date: February 21, 2023

Stocks selling off on Wall Street as the major averages post their worst day of the year. Investors are worriedabout higher interest rates and new concerns about consumer spending. JPMorgan Chief Global Market Strategist Marko Kolanovic reacts to the big market sell off and whether he thinks more trouble could be ahead for stocks. Coinbase shares volatile after reporting better than expected quarterly results. Mizuho analyst Dan Dolev reacts to the report. And the CEO of Norfolk Southern discusses the catastrophic train derailment in Ohio.

All right, ugly day on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Ford, along with Morgan Brennan. We've got key earnings reports coming your way, including results from Coinbase, Palo Alto Networks, and Toll Brothers. Plus, J.P. Morgan Chief Market Strategist, Marco Kalanovic, is going to join us to break down this ugly day for the bulls, the worst so far this year, and whether there's more pain to come.

And later, a first on CNBC interview with the CEO of Norfolk Southern. for the Bulls, the worst so far this year, and whether there's more pain to come. And later, a first on CNBC interview with the CEO of Norfolk Southern. This after this month's train derailment and subsequent chemical release in East Palestine, Ohio. This is his first sit-down interview since that happened back on February 3rd. And that is the interview of the day. And you bring it to the hour on our very first day. I love it, Morgan. I love it. Let's get straight to today's sell off with our market panel. Joining us now Especially given how tepid both Home Depot and Walmart were this morning on the consumer. Sure, John. Well, I think we were definitely due for a pullback. If you just looked at the stocks a couple of weeks ago, we kind of saw the overbought signals and we knew

that a lot of CTAs were in the long trade and at least they they were short-carving, and now this is sort of unwinding. I think that's why we saw the mini-violent day that we saw today. But the reason I don't think we necessarily need to see an imminent and violent pullback to 3,600 or maybe even lower, like some people are calling, is because the fact of the matter is this economy is either soft landing or there is no landing.

I mean, most consensus estimates coming into the year were calling for a negative 0.1% GDP. You know what the Atlanta Fed is tracking now? 2%, over 2% for this quarter. So this is an economy that seems to be withstanding almost 5% rates because consumers are resilient, corporations are resilient, and by the way, all that infrastructure stimulus that got put into the system,

that's starting to work its way through the system. So I think, yes, the Fed may be raising rates another 25 basis points and consensus may be pricing that in. But this economy can actually withstand it. And that's why we may not have to price in a 14 or 15 percent multiple. That would be more consistent with a recession. All right, Charlie, I want to get your thoughts on this hard landing, soft landing, no landing. We've seen a pretty dramatic move in rates of the 10 year three nine five today versus where it was just five days ago, around three seven five. And now you see stocks following suit. Your thoughts. I think there's general consensus about the economy. I think where the problems are coming is not being

able to predict the Fed. And we were getting to a point where we thought the chance of the Fed making a big policy mistake was coming down. Many of us have been saying we don't have an overheated economy. We have an economy growing modestly. We don't have an overheated consumer or overheated labor market. Wages are going up less than inflation. But we do have a Fed that got made to look ridiculous by saying that inflation was going to be transitory when it clearly wasn't. And so there was this risk that the Fed was going to do something stupid. And then we got some very good inflation numbers and we got some things that made it look like the chance of that was lower. And unfortunately, we've had

sort of two or three bad inflation numbers in a row. And so now a Fed policy mistake is back on the table. And there's a reason why people say don't fight the Fed, because if the Fed wants to cause a recession, they can. So, Charlie, what do you do here if you're looking at your portfolio? I know you're always you're at Ariel, so you're in favor of value stocks, but what does value mean in this kind of jumbled up market? It means that our companies are making money today as opposed to 30 years from now is what a lot of growth and FANG stocks do.

And so they are less affected by higher interest rates. And so that's one of the great important rules of the last 40 years is interest rates have And so that's one of the great important rules of the last 40 years, is interest rates have been falling continuously since 1980. And that's been a huge, huge tailwind for growth stocks. It's been a tough time to be a value manager, but our companies are making money now. And so we think we will be less affected by this upturn in interest rates, which could get worse. I mean, again, that's the big headline. There are a lot of people on the Open Market Committee who want to see higher rates, who think

that we have this big risk of inflation. And so they are intent on cooling what they call an overheated economy when I just don't see an overheated economy. Yeah, it's going to make the Fed minutes tomorrow when we get that released that much more crucial to to pay attention to, Anastasia. I mean, S&P closing down two percent, thirty nine ninety seven. So breaking back below four K just to pick up on a thread that you started this off with. I mean, we're seeing the bond market move towards the Fed. All right. But are we getting to a point where maybe the Fed is going to move the goalposts in terms of where rates ultimately end up? Well, I think that's the biggest worry for the stock market right now, because as I mentioned, the economy can process this 5 percent rates.

You know, maybe it's five and a quarter, maybe it's five and a half. That's not that far from now. But will the Fed say maybe in the March meeting or the June meeting that actually we think this economy needs to stomach a 6% or 6.5% level of rates? Or will the Fed go back to 50 basis point increases or 75 basis point increases? And it's really hard to say exactly when they will have this potential rethink, but it is possible that if we continue to have a couple more hot CPI prints, which we still have a couple to get through between now and March, then come March, there is the summary of economic projections and those assumptions get updated. And if they say that

inflation is not on the trajectory to 2%, which it's currently not towards the middle of this year, then they may actually have to be yet more hawkish. My point today is that, you know, if consensus just has to grapple with extra 25 basis points here or there, that's fine. But if they come out and say that previously what really tight policy meant is not 1% real rates, but more like 3% or 4%. So that's the biggest worry for the market. I mean, Morgan, it just feels like ever since Powell came out, and it wasn't totally dovish, but it wasn't really hawkish. Last time he was talking about, oh, well, we see some signs of things cooling off. I mean, we've gotten signs, Anastasia, of the opposite. So what are the

reasons that investors have left to believe that the Fed would stop at 5 percent? Well, because it seemed like inflation was on the right trajectory. And by the way, it still is on the right trajectory because year-over-year numbers in last week's CPI sprints, they have declined. And looking at the core PC that we're expecting this Friday, we should be seeing a pullback to 4.4% year-over-year, 4.3% year-over-year core PC inflation. So we are on that right trajectory. The game changer in the last week has been that the easing inflation is not seemingly happening quite as fast and retail sales were blockbuster. So that's what the market is really having to reevaluate. But again, my point is,

is a strong economy a bad thing? If all of a sudden the economy is stronger than we're expecting and we've got consumer confidence that is picking up and new manufacturing orders are picking up and because of that, we're upgrading our GDP estimates. Guess what the next step may be? We might actually start to see positive earnings surprises because earnings estimates have been taken down so much already. So it's not just the extended multiple, but it's the potential for earnings to be better than expected. This is a very contrarian take. We're going to hit the pause button on this. Anastasia, Charlie, stick with us. We're going to hit the pause button on this. Anastasia, Charlie, stick with us. We're going to bring in senior markets commentator Mike Santoli for a closer look at two consumer areas,

which have been in focus today, speaking of earnings. For sure, Morgan. Yeah. So a lot of focus on the consumer and how interest rate sensitive areas of the market might be able to hold up as we see bond yields going up. Home builders and retailers are really the two sides of this. On a three-year basis, now remember, three years from this past weekend was the pre-pandemic high in the overall market. You see the homebuilders ETF just slightly nosing out, the retail ETF. But you see also a pretty good cushion underneath from where we were prior to the pandemic. Also interesting that the homebuilders essentially

at their lows still kind of held above where they were pre-pandemic. So this shows you that there's still more consumer capacity in the pipeline by the market's estimation that can stay in place. By the way, that retail ETF is the market cap weighted one. Amazon, of course, dominates it. And Amazon from this moment is actually down a little bit from the day before the market registered that the pandemic was was on the way. So it's really kind of non-Amazon retail that's doing all the upside work on that one, guys. All right. Let's hold that thought. Mike Palo Alto Network earnings are out and that stock is popping almost five% after hours. Pippa, you got those numbers for us? That's right, John. A big beat here for Palo Alto Networks, the company earning $1.05 per share,

excluding items during the second quarter. That was against estimates of $0.78 per share. Revenue coming in at $1.66 billion, slightly ahead of the $1.65 billion that analysts were forecasting. The company said that billings were up 26 percent year over year. Palo Alto also gave a strong guidance. They said that the macroeconomic challenges continue to persist, but that in the face of that, they are focused on driving

profitable growth to stock up about 5 percent now. John? I'll take it, Pippa. Thank you. It's interesting because, Charlie, in some ways this sort of speaks to macroeconomic environment and the uncertainties, but then also the geopolitical environment where you think a cyber security focused name like Palo Alto is potentially going to continue to see demand given those circumstances. Your thought, whether it's on this name specifically or the broader sector? Yeah, I would say in general, people have been reporting pretty solid numbers. What's been inconsistent is the outlook. So on Palo Alto today and with Walmart and Home Depot, it was the same thing.

It was a pretty solid fourth quarter, but with a very cautious outlook. And I think everybody in corporate America is seeing what the market is seeing, which is this same concern about possible slowing in the future as opposed to bad results. Palo Alto's numbers, those are outstanding numbers, better than we were expecting. And I think we're going to see a lot of that with a cautious outlook. Yeah. And Anastasia, the standouts to me that I've seen so far, just my first glance on this Palo Alto report is billings up 26 percent. 25 percent was going to be good, but 26 percent is great. And then

in the outlook, total billings for their fiscal Q3 in the range of two point two billion to two point two five billion, that would be year over year growth of 22 to 25 percent. I mean, you know, assuming they're being reasonable here to guide like that in this environment. I mean, if you're bullish, which you are relatively speaking, that's what you want to see after a print like today. Yeah, I mean, it speaks to the point, John, that there's still growth to be had in this environment, 5% rates or not. And there's going to be standouts.

There's going to be secular growers like cybersecurity, for example. So if you look at the total addressable market of cybersecurity and all the endpoint security that needs to happen and using artificial intelligence and machine learning, security that needs to happen and using artificial intelligence and machine learning, for example, to detect and prevent those threats, that's a huge addressable market and it's growing at 13%. If you look at spending, for example, IT spending, we know that this year is going to be decelerating when it comes to devices, but it's accelerating relative to last year when it comes to software. And if

you were specifically to look at within cybersecurity component is growing even much faster than the software space. So I'm not surprised to see the results like that from a company like that. And of course, it's all about profitable growth and reasonable multiple. So if the stock can check those two boxes, I think they can do well. Right. Okay. And the stock is popping right now. Don't miss Jim Cramer's exclusive interview with Palo Alto CEO Nikesh Arora. That is coming up 6 p.m. Eastern on Mad Money. We're going to get to another earnings mover right now, and that's Coinbase. Those

results are out. Kate Rooney has the numbers. Hi, Kate. Hey, Morgan. So a beat on the top and bottom line here for Coinbase. A smaller than expected loss on EPS. It was a loss of $2.46. Street was looking for a loss of $2.55. Total revenue is also coming in stronger than expected, $629 million. That is down still about 75% from a year ago, but better than what Wall Street was expecting here. That was helped by strong subscription revenue. It looks like $283 million. That was higher than what Wall Street was looking for. Also a beat here on monthly transacting users,

MTUs, assets on the platform, sort of a comparison to AUM and what the banks report. $80 billion, that was a little bit light compared to what the street was expecting. In the press release here, they say to state the obvious, 2022 is a challenging year for crypto markets.

They talk about lower transaction revenue and macroeconomic indicators like inflation, some of the loss of interest in crypto markets and a slump here in trading volume. You can see shares down here more than 1% after hours. Back to you. Charlie, was there anything, and thank you, Kate Rooney, is there anything that Coinbase could have said that would make you like it more here? I mean, it's down actually a little bit more than one percent after hours on this report. I mean, December was sort of bad for crypto, but the start of the year has been good. But maybe it was a little too good based on what's happening in the market. Now, how do you sort out Coinbase? You asked a very direct question, John. I'll give you a direct answer. The answer is no. There was

nothing that this company could say that was going to make me excited about it. We have had a fundamental change in the regulatory environment. Washington has gone from hands off, thinking that this was a populist asset class that they didn't want to mess with, to finally, in my opinion, late, introducing the kind of regulations that are necessary for this industry. And that pace of regulation is going to increase here. And I would point to people in history, looking back at the Gold Act of 1934, when FDR basically outlawed Americans owning individual coins and bullion. I think something like that is possible. We are going to see a dramatic increase in

regulation here. A lot of what's been going on in this industry has been fraudulent. And I think the SEC is finally starting to pay attention. And so, no, there is nothing good about this situation. All right, Charlie, I had a feeling. Charlie Berinskoy, thank you. And Anastasia, thank you as well. Let us turn now to another voice closely followed on Wall Street. J.P. Morgan, chief global market strategist, Marco Kalanovic, joins us now on the news line. Marco, you were just saying what a week ago that the market had gotten ahead of itself was was tempting fate, baiting the Fed. Have we gotten enough of an adjustment today, do you think?

So I don't think we got enough. You know, if you look basically the day after Fed, you know, two year was about 410. You know, now it's 470. And Nasdaq is basically flat, you know, so so we had sort of 60 plus basis points increase in two year yield. And Nasdaq just gave back a little bit of the gains from the last few days. But I do think we could see more downward pressure here now i was a little worried um well i still am of course a little worried about the market but more worried until i saw palo alto networks because it seems that for the essential things at least enterprise buyers are still buying it's not all about what we see the consumer doing with Walmart

and Home Depot. Is that important at all to pay attention to? So, you know, that's the one company, and I think here's the question, bigger question of sort of the level of equity risk premium and sort of multiple for the broad market. So you will have like individual companies have a good or bad earnings, but here is more of a question of a sort of what's the right price that you pay for the equity it's or what is the right multiple and again you know multiples tend to go down when the yield go up you know like so i do think overall this would be sort of different type of the flows you know and a little bit like we talked you will have a investors moving into bonds out of equities. You will have some pension fund rebalances, some defined benefit flows from the pension fund defined benefit flows. So I do think sort of one

company like you mentioned today, I wouldn't think it's going to matter. So, Marco, I mean, you just talked about yields going up and what that does to repricing equities. Do we retest the highs for the 10 year going back to October when you see the move we've had in just the last couple of trading days? You know, so we may, we don't have a very strong view. You know, we made the 10-year rally a lot. You know, what we have a little bit of an issue is that equity multiple didn't react yet, even for the levels we have now. You know, like, so even if the bond yields pull back a little bit here, there's still a very big gap sort of what equities are pricing and what bonds are pricing. So I wouldn't think it's going to matter also as much for the equities going forward.

So given the fact in recent weeks we've seen this divergence between the bond market and the equity market, to put a fine point on it, are you saying the equity market now has to play catch up and we're going to continue to see a sell off, especially given the fact that we're in the seasonal time where you tend to have weakness in equities? Yeah. So we basically think that you could see another sort of 5 percent, maybe a downward pressure on equity markets. You know, for some of the sort of tech, high beta tech segments could be more than that, could be between 5% and 10%. So, Morgan, we were just talking to Anastasia about how far the Fed goes in this. And her expectation is still, hey, the market can handle 5%. Marco, how much do you have to have one eye on the Fed and how much jawboning they're doing, how much they're trying to talk the market down is the only direction they seem to be trying to talk the market in these days

as you're assessing what the market does for here. How much can you pay attention to the fundamentals of these companies as they report? So, look, we had the earnings season and generally consensus earnings expectations for S&P 500 and also for Nasdaq 100 has been coming down, right? You know, so, you know, the earnings have been coming down, you know, and actually our view for earnings for S&P is even a little bit lower than the consensus, you know. So when we look at the sort of what is the multiple right now for S&P with our EPS of 205, you know, you get sort of 19-ish, you know, which is pretty high. You know, last time interest rates were around 5%, you know, multiple average, you know, 15, 16, you know.

So you could have probably two or three more turns lower in the multiples, which would translate into around 10% downside, you know. So basically, you know, moving yields have been pretty fast, and we don't think market adjusted yet to it. So, Marco, you're saying near-term lower for stocks is your expectation. Where do you see us ending the year? What's your year-end target for the S&P? Yeah, so year-end price target for S&P is $4,200, you know, and you can say, okay, how come you think that market will end up higher? Because we think sort of a lot will happen between now and the year-end.

So we do think we first get a sell-off here now. Perhaps we retest the lows that we saw last year. And at that point, Fed maybe gets a message and Fed start cutting the rates or signaling cutting the rates, you know, like and only at that point, we think you're going to have a more sustainable rally. So we really think that Fed will need to cut the rates for market to rally on a sustainable basis. Wow. OK, well, that's saying they're not going to do that anytime soon. Marco, thank you. And as we head to break out a note, Palo Alto Network's now up almost 7 percent and Coinbase, at least for the moment, is in the green. But of course,

those earnings calls, Morgan, are still to come. And we are just getting started in overtime. Up next, we're going to dive deeper into Coinbase's results with an analyst whose price target is more than 50 percent below where the stock closed today. We're back in two. Welcome back to Closing Bell Overtime. Let's get a check on Coinbase, which is trading up about 1% right now in the after hours, on the heels of those earnings results we just got a few moments ago. joining us now for his reaction, Mizuho analyst Dan Dolev. He has an underperformed rating on the stock with a $30 price target. Dan, your initial take on the results we've gotten so far and whether it would potentially move the needle for you in terms of how you see the stock.

If I look at the composition, thanks for having me on the show. Look, if I look at the composition of the results, like what are the key things I'm looking at? I'm looking at the take rate, which is kind of the yield. It continues to come down. I'm looking at what's driving the beat. It's mostly interest income. So they had about $80 million of incremental interest income actually adding to the fourth quarter beat. And I'm looking at the overall message on profitability.

They want to be better or improve, better or, you know, improve in absolute dollars in 2023 versus 2022. But they're not promising anything, right? So it's kind of like a, I would say like, I call it empty calories beat in terms of like what it is. Interest income is not core to this business and retail investors are uninvolved. And I think that's basically what's happening here.

So I don't think it's much to kind of write home about. But Dan, I mean, given that the end of the year of 2022 was so bad for crypto overall, and it's been pretty good the first month and a half. I mean, if we're thinking about how monthly transacting users say and trading volume is going to look for them, even in the current quarter, even if things get a little choppy from here, might there not be upside to Coinbase, at least in the near term? I think I actually expect this rally here to, or the initial reaction to FADING, you're already seeing that FADING. I think that the first few months where I agree with you,

that there were, there's no other word for it but nuts. And I do think that I am extremely bearish, not just on Coinbase, but on the overall category. And I think that as money becomes tighter and as people realize that they have to pay higher mortgages and have less money to spend and now they might be getting laid off, I don't think they'll play crypto. And if they're not going to play crypto, and this is pretty much the main way that Coinbase is monetizing and all their other stuff. A lot of other stuff is under scrutiny. I don't see great things in 2023 for them. I mean, not at all. All right. Ten seconds or less. What's more profitable,

retail investors or institutional investors for Coinbase? It's 100 percent retail. Institutional is basically a one basis point versus 130 basis points. Not even comparable. All right. That puts it in perspective. Dan Dolev, thanks for joining us. After the break, our first on CNBC interview with Norfolk Southern CEO Alan Shaw at the scene of this month's train derailment in East Palestine, Ohio. What he says about the investigation into the accident, cleanup efforts and compensation for the community. That is coming up next. Welcome back to Closing Bell Overtime. It has been 19 days since a Norfolk Southern train derailed in East Palestine, Ohio.

The EPA announcing today it is ordering the rail company to clean up the accident site where toxic chemicals, including vinyl chloride, were released in the days following. If the railroad fails to do so, the agency is saying it will immediately conduct the work and compel the company to pay triple the cost. Norfolk is already facing multiple class action lawsuits from the community. I was at the site of the accident just earlier today. I sat down with Norfolk Southern CEO Alan Schauffer, a first on CNBC interview. We began the discussion by asking him about the cause of the crash and the video that has circulated showing a wheel shooting off sparks 20 miles away from the actual site of the derailment, and specifically why the train system didn't send an alert.

Take a listen. I'm really prohibited from talking about this while it's under NTSB investigation. We're fully cooperating with the NTSB and the FRA. We're going to get to the root cause of this. And if changes need to be made, we'll implement those changes. Right now, my focus is on the citizens of this community. Okay. So three days after the derailment, the decision was made to do a control release,

control burn of some of those tank cars that did hold toxic chemicals, including some that are known carcinogens. Why did that need to happen and who decided that that was the way it should happen? So I was here when that decision was made. I was with Unified Command and Governor DeWine and Governor Shapiro and Mayor Conaway and Fire Chief Drabeck and the National Guard were all aligned that this was the right decision to make in terms of public safety. You know, the fact that we knew at that time that the pressure relief valves on the cars had failed, the temperatures were rising, caused our independent expert to become very concerned

about the potential for an uncontrolled explosion that would shoot harmful gas and shrapnel into a populated community. So our independent consultant and the Ohio EPA recommended unified command for a controlled burn and a controlled release. Now, the goal of that was to burn off the harmful chemicals. We had air monitoring in place before, during, and after. And that air monitoring did not pick up any traces of those toxic chemicals. But look, I was here. I know I saw it. I know how it looked.

It was scary. I've never seen anything like that. And I know the citizens of this community have never seen anything like that. So I know how it looked, and I know how it could scare folks. I also know that based on the test results, it was done in strong consideration of safety of this community. And that was the only factor that was in play during that decision. So this was a decision that was made in tandem between Norfolk Southern and officials, government officials? Yes. We were in unified command with the governor, with the fire chief, with the mayor, with the National Guard.

So in terms of the environmental magnitude of this, still potentially not known. It's an evolving situation. But the EPA and government officials have said that the air and town water are testing safe, while water is still unclear, but that it's free of harmful levels of contaminants. How involved is Norfolk Southern in the testing process? Well, we set up air monitoring within an hour of the derailment, and water monitoring was in place several hours thereafter. We've been working, cooperating with the Ohio EPA and local health officials

to test the air and test the water. And Morgan, as you noted, every test has come back clean. Every test has come back good. So we've got hundreds of tests and thousands of data points from multiple sources, and they all show that the air and the water quality is good. Now, if folks in this community want additional air testing in their home, they'll get it. If folks in this community want additional water testing, they'll get it. If folks in this community want bottled water, they're going to get it.

How comprehensive are the tests? And I ask that because some residents have complained about burning eyes, sore throats, headaches, and other types of ailments. Yeah, you know, this has been a traumatic experience, and all the textology reports, all the testing shows that we're clean. However, if folks are experiencing symptoms with which they're not accustomed, I would strongly encourage them to go see a trusted medical professional. If East Palestine was your home, would you have come back? Would you bring your children back right now? Yes. Yes. I've come back multiple times. I've drank in the water here. I've interacted with the families here. I know they're hurt. I know they're scared. I know they're going to see that all the testing, whether it's done by the EPA or local health officials or our independent contractors, show that it's safe to return to this community. And my commitment to this community is we will continue with the environmental remediation. We've made a lot of progress and we're cooperating and coordinating with the Ohio

EPA on a long-term remediation plan. We're going to continue our financial assistance to the residents of this community. So far, we've either reimbursed or committed 6.5 million dollars to this community and we're working with the local officials here on how to invest in this community for the long term to make sure that it thrives. In terms of some of those reimbursements, one of the things has been a $1,000 inconvenience check. Is there any reason to believe that accepting those checks by residents could limit future payments?

No, not at all. Frankly, that was a mistake. That was a form used by one of our contractors for entry into the home, that type of liability. And as soon as we found out that that was the case, we told them to remove that language. And we put out our website and made public statements that doing testing absolves Norfolk Southern of no liability. We've been very clear about that. What does cleanup actually entail? How long does it take? How long will it take? We've made a lot of progress so far. We've removed about 450 cubic yards of contaminated soil.

We've secured about 1.1 million gallons of contaminated water. We're cooperating with the Ohio EPA and a long-term remediation plan and we're gonna we're gonna clean this side up. All the testing right now shows that we're the results have been positive so far. We'll continue to monitor, and we're establishing a network of wells in and around the site to test for the groundwater as well. You've said that you will be here and you'll be supporting the community as long as it takes. How long is as long as it takes? This isn't about time or money. We're going to do the right thing for this community. I've had the opportunity to meet with a number of members of this community,

and they've been really clear with me that they want to make sure that Norfolk Southern is here. We will be here. That's my personal commitment. We're going to do what it takes, and I'm going to see this through, and we're going to help this community thrive. So when we're talking about something like the release of vinyl chloride into the environment, and I realize so far testing has shown no signs of that, but we're talking about a known carcinogen. There's the possibility that you don't even see the full impacts until 10 years, 20 years from now. So how are you thinking about that? What does that mean in terms of the broader liability picture for Norfolk Southern?

The toxicologists have said that that's not a concern. We're going to continue to test. We're going to let the science take us where it needs to go, and we're going to do the right thing. Do you have any expectations around what liability, total liability, could be for Northwick Southern? We're going to have an opportunity to talk about that, Morgan. This isn't the time, nor is it the place, to talk about financial impacts. My focus for being here today and my focus in this community is helping with the environmental remediation, getting that going and completed, reimbursing the citizens of this community and investing in this community to help them thrive. Now, we did talk a little bit about what long-term investment could

potentially mean in the community, too. I think still more questions than answers in terms of that. But continuing to say over and over again that he is committed to that community. I also asked about what this does to home values, because that's a key concern for residents in this community amid these cleanup efforts. In terms of that specifically, he said he can't comment on, he's not going to comment on that, but that he can reinforce his commitment to doing what's right for the community. I'd also just note, because there's a lot of sound in the background in that interview, we were just across the street in East Palestine this morning, just across the street from the actual derailment site.

And the blue containers you see in the background in some of those shots are actually part of a water tank farm. They have these farms set up where they are extracting the water from the area. They're putting them into these tanks, testing the water, and then the water is getting shipped out on trucks to go at similar situation with the soil to go to another location to be filtered out and cleaned out and detoxified by entities that know how to do that type of work. So many important issues converging here. Most important, the health and safety of the people of East Palestine.

A lot of questions to be answered here, and you're getting some of them answered, Morgan, so that is important. We had a 30-minute sit-down interview. This is just one part of it, and we're going to have more coming up on the show. So Norfolk Southern CEO Alan Shaw, what he has to say, his response to that strongly worded letter from Transportation Secretary Pete Buttigieg. We talked about the regulatory environment, the safety environment. All of that is coming up. Plus, more on today's big market sell-off and all the action after hours when Closing Bell Overtime returns.

Welcome back. Transportation Secretary Pete Buttigieg sending a letter over the weekend to Norfolk Southern CEO warning that the railroad must support the people of East Palestine, Ohio and the surrounding areas following this month's train derailment and the release of toxic chemicals. And today, the EPA ordered Norfolk to pay for the cleanup. I asked CEO Alan Shaw if he's been in touch with Secretary Buttigieg, who has yet to visit the site, and whether the secretary is involved on a day-to-day basis. I've spoken to Secretary Buttigieg twice about this, and he has been very clear about his frustration. I've been very clear with Secretary Buttigieg, and I've given him the same commitment

that I've given the folks in this community. We are going to continue with the environmental cleanup. We will continue to test and monitor. We will make financial assistance and reimbursement to the residents of the community. We will invest in the future of this community. And I'm committed to making Norfolk Southern a safer railroad. Because it has, for better or worse, right or wrong, it has become a political talking point. Is it typical when you see a major accident, a tragedy like this transpire, to see the Transportation Secretary show up and be on the ground for it?

No, I understand why there's a lot of interest in this from all sides. My focus really is on this community. This is my third time here. Every time I've come here, it's about what I can do for this community. Understood. The letter, though, from the Transportation Secretary, three-page letter over the weekend, pretty sharply worded, basically calling on you and on Norfolk Southern to lead the charge for more stringent safety measures for the rail industry. Goes as far as saying, quote, rather than support these efforts to improve rail safety, talking about previous efforts, Norfolk Southern and other rail companies spent millions of dollars in the courts and lobbying members of Congress to oppose common sense safety regulations, stopping some entirely and reducing the scope of others.

It goes on to talk about ECP, the phase-in of more durable rail cars, etc. Your response to that? Well, we're going to let this process play out. As I noted, I've got a lot of confidence in the NTSB. We're fully cooperating with the NTSB and the FRA as they investigate this. I think more broadly, I'm looking forward to having discussions with our regulators and with elected officials on how we can make Norfolk Southern a safer railroad. We're going to look for solutions-based decisions on where we can apply science and where we

can make Norfolk Southern better. So to counter what's said in this letter, what some lawmakers have said, some of the media reports about lobbying to the tune of millions of dollars per year around safety standards, how would you respond? We were very focused on science-based solutions for safety. We invest over a billion dollars a year in maintenance of our tracks, in equipment and technologies to make us a safer railroad. And that's going to continue to be our focus going forward.

We're going to learn from this accident, and we're going to continue to be our focus going forward. We're going to learn from this accident and we're going to engage with the regulators and we're going to engage with elected officials on how to make Norfolk Southern a safer railroad. What are some examples of those science-based ways to make the railroad safer? Well, there's opportunities for using more technology to catch things that the human eye can't catch. Okay. Senator Sherrod Brown over the weekend did an interview on television, said, quote, it's the same old story. Corporations do stock buybacks. They do big dividend checks. They lay off workers. Goes on to say these things are happening because the railroads

are simply not investing the way they should in car safety and the rail lines themselves. Well, as I've noted, we invest over a billion dollars a year in our safety program, the form of maintenance and the form of equipment in the form of maintenance, in the form of equipment, in the form of technology. There's more to be done, you know, as you can imagine. Since this occurred, every single day I've asked myself, what could we have done better? What could we have done to prevent this. And, you know, Morgan, it's pretty clear that our safety culture and our investments in safety didn't prevent this accident. And so we need to take a look at this and see what we can do differently and what we can do better. And that's my commitment.

It's raised the conversation around and the scrutiny of precision scheduled railroading, which is a strategy that many railroads in recent years, including Norfolk Southern, have adopted to some extent or the other, this idea of running longer trains, cutting costs, cutting headcounts to create a more effective network to increase service levels and with it potentially profit. Your response to the criticism around PSR and whether it laid the conditions to create an environment in which a derailment like this could have happened. We're going to see what the NTSB and the FRA say about the cause of this derailment. I'm committed to a safer operation for Norfolk Southern.

We're hiring employees, as you and I have talked about before, at a rate that is among the highest in our history. So we're really focused on providing a higher quality service product and a safer product. That NTSB report is expected within the first week of March. I also asked Mr. Shaw if the fallout from the accident has changed his thinking on staffing moving forward, on how hazardous materials moved by rail should be classified, as some lawmakers have called for changes in recent days. You can watch the entire interview now on CNBC.com. An important unfolding story, Morgan. Yeah, and the latest read on the housing market is now just out as Toll Brothers releases results. The stock

is jumping. We're going to break down the numbers when overtime returns. Welcome back. Toll Brothers earnings are out. The stock is up two and a half percent. Pippa Stevens has the numbers. Hey, John, it was a top and bottom line beat for Toll Brothers earnings are out. The stock is up 2.5%. Pippa Stevens has the numbers. Hey, John. It was a top and bottom line beat for Toll Brothers, the company earning $1.70 per share for the first quarter. That was ahead of estimates, 29 cents ahead of estimates. Revenue also beating forecasts. Now, the CEO, Doug Yearley, did say that since the start of the calendar year, they've seen a marked increase in demand, pointing to buyer confidence improving. Stock up about 2.5% here.

Guys? Pippa Stevens, thank you. Mike Santoli over at the Stock Exchange. Want to get your thoughts on this, especially given the fact that we did see those softer than expected existing home sales this morning. But in general, as mortgage rates have come down a little bit off of the fall highs, other signs that maybe the housing market is springing back to life. Yeah. And without a doubt, what Toll reported for the past quarter was generally positive relative to expectations. Both margins were pretty good. Obviously, the backlog was down.

We knew that was going to be the case. And you had that bottom line beat. I think the issue is those comments about how traffic and order activity has picked up and been firmer so far this quarter. You just wonder what the current mortgage rate level is going to mean, right? Because we've seen the 10-year Treasury yield go up by half a percent, half a percentage point in just a few weeks. So that's going to push mortgage rates up. Now, Toll Brothers stock is not traded at an aggressive valuation right here. It's trading at book value at the moment, well below the 10-year average. So it's not as if I think the street was expecting an immediate takeoff. Also, Toll might argue, and a lot of analysts might argue,

that their customer is a little bit less sensitive to every tick in the mortgage rate, somewhat higher end, higher value homes. All right. Always looking forward. Mike, thanks. Meanwhile, inflation playing a big role in the market action. As investors worry it's going to force the Fed to raise rates higher than expected and keep them there longer. CEOs also grappling with it at the company level. I spoke with Medtronic CEO Jeff Martha after this morning's earnings report where the company beat on the top and bottom lines. The stock was a rare winner in today's trade.

Martha said even though costs are stabilizing, it's going to take a while for last year's inflation spike to work through the system. When we build a product like a transcatheter heart valve I just mentioned, our input costs, the materials costs are higher, the labor costs are higher. And then that product sits on our balance sheet and sits in a warehouse or en route to a customer or on a customer shelf before it's actually used and translates into revenue. And that cycle is anywhere from four to seven or eight months for us. So, you know, for us to clean out all, to clear out all this information that's currently sitting on our balance sheet, you know, that's a, you know, that's, like I said, a four- to eight-month cycle for us,

depending on the product. Now, the bounce back in elective procedures, they saw a bright spot that might bode well for DaVita, a smaller player that reports tomorrow after the Bell, Morgan. Great stuff. Up next, we will discuss how earnings from Home Depot and Walmart could foreshadow tomorrow's results from e-commerce retailers Etsy and eBay. Stay with us. Welcome back to Closing Bell Overtime. Walmart and Home Depot kicking off

this Retail Earnings Week with disappointing guidance this morning. Both companies still seeing consumers under pressure. You can see it was a mixed result in today's trading session in terms of the stocks, though. But what do these numbers mean for others? Melissa Repko here with us. I'm specifically wondering the discounter in TJX and then the online players in eBay and Etsy. Yes, there's a couple of different dynamics to look at here. So for TJX, one good piece of news for them could be that Walmart CFO told me that actually in January, there was a pickup in sales of general merchandise, things that are not food, basically, because they were on sale after Christmas. And so TJ Maxx is, of course,

a place that's known for deals. And if that's what the consumer is hungry for, maybe that lifted their fourth quarter sales. But on the other side, with eBay and with Etsy, perhaps they will be a little bit squeezed because they sell a lot of that general merchandise. And frankly, you know, Etsy is known for a lot of home decor, items like that. And Walmart CFO told me that home was one of the weak categories. So that could carry over for online players as well. All right. So we're seeing some sensitivity in terms of inflation and consumers pushing back on some prices, it sounds like. But what about the convenience piece of it? Because we know that was so crucial during the pandemic. Is price trumping convenience now? It's really both. That's what Walmart told me. The CFO, John David Rainey, said, you know, it's not just low

value people are coming to us for. They really have gotten used to curbside pickup. They like having things dropped at their doorstep. And he was actually saying as Walmart attracts a lot of middle and upper income consumers with its low grocery prices, some of those customers really appreciate having those options and may use that to stick with even beyond the inflation dynamic and obviously beyond the pandemic. We've seen that become a stickier habit too. All right. Melissa Repko, thank you. Thanks. We've got another busy day of earnings tomorrow, including, by the way, NVIDIA after the bell. Yeah, and I'm particularly interested in commercial real estate. We've got public storage coming up, as well as we had CoStar report after the bell today. All that mixes together. All right. Well, that does it for overtime. Fast money begins right now.