Closing Bell - Closing Bell Overtime: Tesla Headlines Earnings Bonanza; Virgin Orbit CEO’s First Interview Since Bankruptcy 4/19/23

Episode Date: April 19, 2023

It’s an earnings bonanza: Tesla, IBM, Las Vegas Sands, Zions, and Lam Research headline a busy afternoon. Our reporters give you the instant reaction while Bespoke’s Paul Hickey and Schwab’s Omar Aguilar break down today’s market action. Tesla bear Craig Irwin gives his take on the EV maker’s latest quarterly numbers. NBER Director Charles Dallara has seen many market ups and down; he joins to discuss the state of the economy and where things go form here. Evercore’s Amit Daryanani weighs in on IBM’s strong quarter. Plus, an exclusive interview with Virgin Orbit CEO Dan Hart in his first public comments since the company went bankrupt. 

Well, flat day for the S&P, which is finishing right around 4,154. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Fort. Buckle up. We have got a huge hour of earnings. We're going to get numbers from Tesla with margins in sharp focus as the company cuts prices yet again on some models. Plus, we're awaiting results from IBM, one of last year's rare winners when Tesla was losing reversal of fortunes in 2023.

And we're also going to get earnings from Las Vegas Sands, Lamb Research, Zions Bank Corp and more. As we await those numbers, though, let's get to our market panel. Joining us now are Paul Hickey from Bespoke Investment Group and Omar Aguilar from Schwab Asset Management. Good afternoon to you both. Omar, I will start with you because in your notes you're saying you're watching the seas. What are the seas? Well, we're basically taking into consideration all the parts of the economy, the markets. So we call it the four seas, which is the first one relates to inflation. We're obviously looking at the latest spread of the CPI was encouraging. We're looking at China and obviously the effects that China will have on commodities and therefore in inflation. So that's the first round of things that we look at, CPI, commodities and China,

as to what the impact will be on inflation. The second thing that we'll look is the claims. So this reflects to what would be the labor market unemployment claims you know they have been very solid and probably very resilient over time we see a little bit of a cracks on what may happen with the unemployment but still unemployment will be one of the key trigger points for what the fed might do going forward um i would probably say the most important of the four c's it had to do with the credit market and with consumers. The credit market is going to be in a good test for the next few quarters. Obviously, the banking issue that we had just in March is putting a tight end credit conditions across the board, and we're starting to see a little bit of those spreads widening and having

a little more volatility. And obviously, in the case of consumers, we have seen that savings rates have continued to go down and therefore the potential for consumer spending to slow down further. Yeah. And of course, all this is focused, especially given the fact that we've had a flurry of regional bank earnings that have been moving the markets, at least under the surface. Paul, technicals are in focus, especially where the S&P is concerned, this idea that maybe you've got to break 4,200 to really see meaningful upside. Otherwise, we could see a drop closer to the 50-day moving average. You put out an interesting stat in the last 24 hours about the fact that the S&P has actually gone six months now without a new 52-week low.

How significant is that? Well, so, Morgan, when you look historically, when you've seen a 20% decline in the market, like we saw last year, and then you see the market make a low and not make a new low within six months in the post-World War II period, the only time that you were down six and 12 months later was in 2001. And there were 13 prior occurrences. So 12 out of 13 times, you were higher six and 12 months later. And the median returns were 12% over six months and 17% over a year. So they weren't small gains. So just the historical record suggests that you could see further gains. And then coupled with the fact that sentiment is so negative, whether you look at survey data like your own CNBC All-American survey, which you guys highlighted yesterday,

sentiment towards the economy and to the stock market has never been lower in the history of the survey. Couple that with positioning data in the commodity CFTC reports, speculator positioning in the S&P 500 is at the lowest level, highest level of short interest in 10 years. So sentiment is very weak towards the market, I think, right now. And that's contrarian. We're going to mention here that Tesla numbers are out. Stock, well, it's moving around. But we're going to be sure that we understand what those numbers are before we bring them to you. That's a big one this afternoon. Omar, what does all this mean for what you do with fixed income here?

And what are the different ways? I mean, we talk about treasuries all the time. But what are the different ways investors should think about that, given that we're probably not going too much higher, a lot of people think, on interest rates, but they're probably going to stay up there for quite a while? Yeah, well, you know, this is probably the perfect time for people to relook at the entire fixed income portfolio and, you know, make a clear, diversified set of assets. And we continue to encourage our clients to look at what we call defensive, high quality fixed income.

That obviously, at the moment, it is good to be patient. It is good to actually stay with a low risk, low duration where you have the highest opportunities to still with an inverted year curve. But at the same time, start preparing their portfolios for the future. As we actually think about what may happen with the interest rates as the Federal Reserve

pauses or starts in the cutting rate, probably towards the beginning of 2024, it is a good opportunity for people to have that, you know, well-balanced, diversified portfolio. Credit markets are still, even though, you know, will be tested for the next few quarters, still provide a very solid foundation if you end up in the high quality side. Paul, what matters most here as we start to look at Tesla? Is it margins given the price cuts that we've seen them taking? I mean, Elon Musk has said that demand is still high, but when you're cutting prices that much, you wonder what the impact is going to be. Well, so yeah, I haven't seen the details in the Tesla report, but when you're cutting prices that much, you wonder what the impact is going to be. Well, so yeah, I haven't seen the details of the Tesla report, but margins are going to be a focus.

The key with Tesla is they have margins that they can sacrifice unlike any of their other EV peers, and they have much higher margins than traditional OEMs. So you constantly compare Tesla's valuation to traditional OEMs, but it's not an apples to apples comparison. Ford and GM are growing sales over the next two years at 3% max. Tesla is growing sales at 25%. So it's a much different animal, Tesla versus the other stocks there. And profits are forecast to be flat in those traditional OEMs. So I think in that respect, Tesla's a different animal. But to the whole point of margins overall, not just Tesla,

but this coming earnings season, margins have been expanding. And we've seen that in some companies like consumer staple stocks like Lamb Watson, Conagra, General Mills. These companies make Lucky Charms, Slim Jimsms you know yeah things we're going to get to those tesla numbers so i'm going to interrupt you there for a moment uh paul and omar thank you as i mentioned the tesla earnings are out phil lebeau has the numbers phil morgan we have tesla hitting the exact expectation in terms of earnings per share that the analysts were giving 85 cents per share on revenue that's a little bit better than expectations coming in at $23.33 billion. The street was at $23.2 billion. But the pressure that you see on the stock, and it's not a lot,

but it's a little bit of pressure here, is the automotive gross margins coming in at 18.3%. The street was expecting them to come in at 20.5%. So a little bit below where the street was at. Now the question becomes, what do they say during the conference call a little bit later on today in terms of pricing pressure and the EV market in China, which is really where they're seeing the greatest pressure. Yes, they're seeing pressure here in North America, but China is really where they're seeing the greatest pressure. And again, those margins coming in at 18.3 percent. The street was expecting 20 percent. That's roughly speaking what the street was putting in as the expectation for automotive gross margins.

Guys, I'll send it back to you. So just to continue on that thread, Phil, I mean, we've been talking about it. I know you're talking about it just a short while ago on the last hour. The price cuts, the price war that Tesla has initiated here, is this signaling that you're actually seeing that dent their profitability? And if so, how meaningful is this against other legacy automakers that have much smaller margins? Well, it's significant because here's the significance. The question becomes, where does it bottom out?

Does it bottom out at 18 out? Does it bottom out at 18 percent? Does it bottom out at 17 percent? Or is this a case where it's going to rebound up as you see them have lower cost of goods and services, which is the expectation as they open up the new plant in Mexico eventually, as they get greater production out of both Texas as well as Germany? Those are the questions that I think analysts are focused on. You can cut these prices and you're going to impact the margin relative to the other automakers. Look, they blow all the other automakers out of the water in terms of electric vehicle deliveries and profitability. But the question that you have to ask yourself as an investor, and which is what

I think analysts are trying to get at, is where does it bottom out here? Where is this bottom in terms of the automotive gross margins? If it is 18 or 19 percent, great. What can we expect from there? Or are there going to be more price cuts? Is there going to be further pressure? And that's one of the main questions that I'm sure is going to come up during the conference call. OK, Phil, thanks. We'll continue to watch that this hour. IBM earnings are out. Meanwhile, Frank Holland has those numbers. Frank. Well, you know, John, IBM shares just fractionally low right now after a miss on revenue and also a beat on EPS profit, 8% above estimates. Margin was also a beat. That's become a key metric in what's becoming the year of efficiency for big tech. The company actually really focused on efficiency and shareholder return,

even with the bulk of a $300 million charge for job cuts announced last quarter being taken for the most part in this quarter. In the release, CEO Arvind Krishna said in part, clients continue turning to IBM for a unique combination of an open hybrid cloud platform, enterprise-focused AI and business expertise. Its software business was really the driver for the quarter, beating estimates. Red Hat, where it offers hybrid cloud and AI capabilities, seeing revenue rise by 8%. Consulting, however, that was just in line with estimates. We'll be listening to the call for any commentary

on that business after the news of layoffs at Ernst & Young. IBM also guided for the full year, 3% to 5% revenue growth in constant currency. However, that's not comparable to estimates of 3.6% growth from Refinitiv factoring in currency. Free cash flow guidance of $10.5 billion for the full year. Also, an increase over $9.3 billion actual free cash flow last year. So, again, a miss on revenue and a beat on EPS.

Shares right now up a percent and a half. The call starts at 5 Eastern. Back over to you. All right, Frank. Thanks. Let's bring in CNBC senior markets commentator Mike Santoli. Mike, it seems to me that IBM sticking to that 10.5 billion free cash flow number is significant. There were some people wondering if they were going to have to blink there. And the consulting business seems to have held up. Right. So those two things obviously cause for some relief. I do think you can kind of pencil that in how they get there and whether it's going to be the highest quality free cash flow.

You can talk about that later. But it's a cheap enough stock that if you feel like the guidance can stay stationary, that's a good thing. On the other hand, Tesla, to me, the widest miss in the numbers was on the free cash flow line. Came in 440 million or so in the quarter. The estimates published were over three billion. Now, there was some sense out there that those were stale estimates. And maybe because of inventory and margin issues, it might be lower. But I do think you're going to want an explanation in the call for what the real run rate of free cash flow is for Tesla, which already, of course, sports a pretty high valuation on the expected free

cash flow levels. Yeah. And we're seeing Tesla, you know, bouncing a little bit off of the initial losses we saw there. But to your point, we're really going to have to get the commentary. CDW, it was the worst performer in the S&P today. It finished down 13 percent. It really speaks to the belt tightening we're seeing in some areas of tech and IT where business spending is concerned. The fact that IBM seems to be bucking this trend, is it too soon to say that there's a broader slowdown going on in the sector? It's really sort of company by company right now. I would guess, Morgan, that it's too soon to say how much of a slowdown is happening. Probably not too soon to say that there is a little bit of strain on budget.

CDW pretty much told you that. Again, you know, as Frank mentioned, IBM and Christina mentioned earlier, IBM, a big vendor to financial services. So what they have to say about the trends there probably will carry plenty of weight, too, on the software side. So I think we're on alert for all those things at this point. Now, CDW itself as a business, you know, it's a distributor. It's a sort of middleman type business. So I don't know that you have to be too concerned about exactly how that stock performed. And it's more about the message and whether it's a broad one.

Yeah, Mike, thanks. I think it's a question. It's a game of musical chairs in enterprise software. And whose chair gets pulled is the question. Even cloud names having to offer discounts these days. Meanwhile, Las Vegas Sands earnings are out. Contessa Brewer has those numbers. Contessa. This has got to feel good for Sands having positive earnings to report here. bottom lines, with revenues coming in at $2.12 billion versus the $1.85 billion that was consensus, and the adjusted earnings per share at $0.28 versus what was anticipated, $0.20 a share. Again, when we talk about gambling, the all-important earnings metric

is property-adjusted EBITDA. And I want to focus in here on what they're reporting. $7.92 million versus the anticipated $6.15 million, which was, you know, positive EBITDA to talk about. But for the first time, gaming revenue in Macau has reached a billion dollars since the pandemic started. I mean, you're talking about a robust recovery, the company says, looking forward to the call to hear about market share, margin improvement, and their operating expenses.

The share is up right now. It looks like more than 4 percent. John, well, we know where people are going on all those airline flights. They're going to the casino. Contessa, thank you. After the break, much more reaction to all of today's after hours action, including Tesla and IBM moving in opposite directions right now. And later, don't miss our exclusive interview with the CEO of Virgin Orbit. This is his first sit-down since the company filed for bankruptcy earlier this month. Overtime's back in two. Tesla trading lower right now in overtime.

Just released results moments ago. Roth Capital's Craig Irwin joins us now for an instant reaction. Craig has one of the street's lowest price targets on the stock. How big a deal is this gross margin number in the 18% range? And how important is it to know what Tesla expects to get in terms of volume from these price cuts? Yeah, that 18.3 number was more than a 200 basis point delta to consensus out there. And several analysts had actually been cutting their numbers on margin expectations during the quarter. So reality is the base model Y is now 29% cheaper in the U.S. in the beginning of the year. There have been six rounds of price

cuts. These have continued through the quarter. So margins are going to continue to come in at the company. There are levers like Berlin and some of the other manufacturing initiatives that could help ameliorate that. But margins matter for Tesla. It's not just growth. It's a growth stock. So they have to make the top line. They have to drive the units. But this is the Achilles heel of the company right now. It's gross margins and the price war, given there are 100 new models that are coming to market this year. Craig, I don't get it. I mean, you don't see Apple cutting the prices of iPhones even in times like this. If the demand remains as strong as Elon Musk says, why cut prices this much? Well, I think you raised the right question. Is demand really as strong as Elon Musk claims? I personally don't believe so. You know, I think

that the consumer of high-end vehicles is under a little bit of pressure in this current economy. And, you know, there's a lot of great EV models coming to market. You know, brands that have launched into the market successfully and new vehicles are expected, you know, later on this year. It just creates a difficult environment for Tesla to execute in. And, you know, quite exciting for the industry because, you know, this is what it takes for the industry to come to maturation. I mean, that being said, automotive revenue, which is the core segment, that's up 18 percent year on year. Tesla energy revenue actually is up quite a bit, up 148 percent. But just looking at the auto piece of the puzzle here, yes, we're talking

about price wars and cuts. We're talking about new competition coming on the market. But I mean, there's still they've said there's still so much demand out there. So, yeah, profitability and margins are under pressure here. But it looks like just looking at the top line, there's still demand. There's still demand. This market is a fantastic market. These are inevitable. I think, you know, this is this is a sector that's ripe for long term investment. You know, we've seen a little bit of a shakeout with some of the SPAC IPOs in the last couple years. But several of these recent entrants look like they could be very promising. The legacy OEMs are obviously taking this game very seriously now.

And, you know, Guide is, what, 40% growth this year? And, you know, on a unit basis, they did 36 in the quarter from 31 last quarter. They're cutting price to try and get to that 40 percent number. You know, 18 percent growth is not a sexy number. That's that's a number that's, you know, better than mediocre. But it's not enough to justify this valuation. I see the stock is egregiously overvalued. valuation. I see the stock is egregiously overvalued. Yeah, you see the stock is egregiously overvalued. And certainly we saw the stock fall dramatically last year, but it's had a big rally since the start of the year. So your price target

is half of where it's trading now, even under a little bit of pressure here in the after hours. Do you really think that the stock is going to fall that much? Because we know that, yes, valuation's lofty, but it doesn't necessarily trade on fundamentals. No, it trades on sentiment. And that's absolutely right. So when they were missing numbers and when deliveries fall short, that's when you see the corrections. So that's really what had the big correction last year when they did post that 31 percent unit growth number. You could see continued deterioration later on this year. It kind of depends on how successful these 100 new EVs are that come into the market

and how much Tesla actually is willing to cut price. I mean, 29% reduction in the base model wise, big move on price in a short period of time. That means that they know they need to do something to keep up the growth. All right. Craig Irwin, we appreciate the rapid response, the real-time response to these earnings from Tesla. Lamb Research earnings, speaking of, are out as well. Christina Parts Nevelis has the numbers for us. Hi, Christina.

Well, hello. Wafer fab equipment maker Lamb beating estimates with earnings per share of $6.99, adjusted on revenue of $3.87 billion. But gross margins declined quarter over quarter. Despite the CEO saying in the press release that LAM delivered, quote, solid March quarter performance, including record foundry related revenues. Something investors did want to hear given the concerns of CapEx cuts from the likes of Samsung, Intel and possibly Taiwan Semi. But we'll find that out tomorrow. The company did acknowledge the lower spending environment for its equipment,

which is why its Q4 guide was lower than estimates. Q4 EPS guidance of $5, that's $0.63 below estimates. Q4 revenue guidance also came in light for the quarter, adding to the small sell-off that we're seeing in the stock right now, probably just a little bit less than 1% lower. The company did say, though, it's going to focus on managing costs to better position themselves when wafer fab equipment growth resumes. The key word, when. We don't know when, though.

All right. Christina, thank you. Thanks. Now to the banks. Zion's Bancorp earnings are out. Bertha Coombs has those numbers. John Zion Bancorp's missing on the bottom line, reporting adjusted $1.33 a share. The street was looking for $1.53 per share. Net interest income also coming in below expectations at $679 million versus an expectation of $687.5 million. Provisions for credit loss slightly higher, about in line with expectations at forty five million and deposits.

The numbers that everybody is looking at down three point four percent from the fourth quarter to sixty nine point two billion. CEO Harris Simmons says broader diversification of deposits really help them, although they are up 18 percent from pre-pandemic levels, they are down 3.4 percent, and they do expect a change in funding mix to result in a 4 percent reduction in their run rate. Back over to you. Bertha, thank you. Still ahead, we're going to talk to National Bureau of Economic Research Director Charles Dallara about today's Fed Minutes and what they say about the health of the banks. Plus, we'll get analyst reaction to IBM earnings. That stock is moving higher. It's up almost 3% right now in the after hours.

Stay with us. Welcome back to Overtime. Earnings results starting to give us a clearer picture of the state of banking on the back of the Silicon Valley bank collapse. Also this afternoon, the Federal Reserve's Beige Book showed drops in lending volumes and loan demand. Uncertainty and liquidity concerns also driving banks to tighten lending standards. Let's bring in Charles Dallara, Director-at-Large at the National Bureau of Economic Research

and a former Institute of International Finance CEO. Charles, it's great to have you on the show, especially on a day like this. Just given everything we've seen in terms of the banking crisis, in terms of the Federal Reserve and other central banks reacting and responding to those dynamics in a much tighter liquidity environment, I just want to get your pulse on the global economy right now and whether we are, in fact, poised to see lending tighten much,

much more aggressively? Well, Morgan, first of all, it's good to be with you again. You went right to the heart of the matter. What's the outlook for the global economy? I think if you view this post-COVID recovery as an era that has been elevating into the atmosphere. I think it's losing its energy now. It hasn't yet started to turn down, but I think it's clearly facing stronger headwinds now. I think that the added deceleration effects of the Silicon Valley bank crisis has really added to the weight of the higher interest rates, the higher inflation that consumers and businesses are facing. And so it looks increasingly likely to me, Morgan, that we will be moving into a mild recession as we head into the second half of this year. You're somebody who basically took the global banking system through the great financial

crisis, through the Greek debt crisis, a number of situations over the last couple of decades. I just wonder if you think this banking crisis is over, given the fact that we've heard from the likes of Jamie Dimon in recent weeks who worry that maybe it's not? Well, I would feel much better if First Republic had been resolved. I don't want to point fingers at an individual bank, but this situation has not been resolved. And I think it continues to create a little bit of a cloud over middle and mid-sized regional banks. I think that it is important to stress, though, that in my view, the overall heart of the banking system is sound. I think we've clearly seen a few CPOs, a few risk managers, and a few supervisors who haven't done their job. But I don't think we

necessarily should broaden that to paint a darker picture over the banking system as a whole. I'm in Europe right now, and I've spent time with bankers here. And, you know, the European banking system hasn't been as robust the last few years as the American banking system. But it also looks quite solid to me. I think that capital levels are high. Deposits obviously have been the shaky dimension of this, particularly not in the super regionals and not shaky dimension of this, particularly not in the super regionals and not in the large banks, but particularly in the small to mid-sized banks, the regionals, the smaller to mid-sized regionals. But I think that they're addressing this through higher rates on deposits. I think we clearly are in a phase where the credit flows are going to be constrained.

And this has added, in my view, a significant factor to the potential slowdown. I know when we had you a couple of weeks ago, you did say that you were increasingly concerned about that. But then we look at the Beige Book today and I didn't see red flags, really. Some yellow ones, maybe activity was a little changed, slightly up, slightly down, labor market loosening, but not dramatically. Doesn't that make you a little less, perhaps, concerned than a couple weeks ago? Not really. Well, it depends on what the concern focuses on. If you're focusing on the concern about the core stability of the banking system, I am much less concerned. If we're focusing on the prospects of constrained credit

added to the decelerating forces in the global economy, then I'm more concerned. I've only taken a quick read of the Beige Book. I must admit, it's only been out a few hours. I just had to come in from a business dinner. But my reading of it is that it shows in many of the districts, many of the Federal Reserve districts, a slowdown, a fairly sharp slowdown in some in credit growth. And I think that is a clear signal of the deceleration in the economy. And when you add that to the troubles facing commercial real estate, when you add it to the challenges that are faced, particularly by consumers at the middle and low income levels who have been fighting this inflationary scourge now for quite some time,

I think that the odds of that era turning downward, moving into a mild recession have grown. And I think that with a lag, that's likely going to be the evolution in Europe. I am mildly encouraged by the slight improvements in inflation. And I would hope that as we look out two weeks to the Fed's next meetings, that they would, you know, at most consider a quarter of a point increase and then maybe take a pause and let the economy digest the moves that have been made. You know, the moves that have been made in the own interest rate increases have historically been so rapid that it's not surprising that they've shaken some accidents out of the system. All right. We're going to

continue to monitor it. Charles Dallara, great to speak with you. Thanks for joining us. Great to be with you both. Take care. Up next, we're going to talk to an analyst about IBM's quarter as that stock moves higher by about three plus percent after an earnings beat driven by software and consulting. Plus, a can't miss exclusive interview with the CEO of Virgin Orbit. This is his first since the satellite launch company filed for bankruptcy. Check out IBM right now in overtime, just reporting numbers moments ago, the stock moving higher more than 3%. Evercore senior research analyst Amit Dharianani joins us now for an instant reaction. Amit, some pressure on consulting,

but arguably not as much as some expected. They're sticking to that second half target. Yeah, absolutely. Listen, I think, John, in the context of the weak IT spend fears that folks have had, which heard from CDW last night, the consulting peers a couple of weeks ago, these numbers seem exceptionally impressive in the year two. One, the consulting revenues standing up are holding up really well at plus eight. It's a positive. Socket growth was fairly good, around five, six percent. And the total, I tell you, is free cash flow at ten and a half billion. There's a lot of fear that they may have to take that number down or adjust it lower. The fact that it comes to blend up to stick with a ten and a half billion free cash flow target for the year

is fairly impressive. Again, good set of numbers, all the more impressive, I think, given the macro worries, the IT spend worries that are out there. How are you feeling about infrastructure revenue? We know that that moves in cycles, you know, given the currency headwinds that they're seeing. Are you comfortable with that and what you see happening with Red Hat and software? Yeah. So, on the infrastructure side, right, this is sort of the it's a hangover year, if you may. It's a year after the mainframe cycle that they had last year. So business over there is forced to slow down a bit. I think it was flattish in the constant currency basis. That's not terrible, at least to stop the year with. Right. I mean, does it get a little bit worse? We'll have to see. Mainframes also have a lot of big financial exposure for it as well. Right. But

flat to stop the year is actually a pretty good place for them. And then Red Hat, we were surprised by the double-digit constant currency growth they had here. I think our expectation, IBM's expectation was Red Hat will do well in 2023, but it's going to be a better back half story than front half. This seems like Q1 was actually better than what they had expected with plus 11% constant currency growth there so ahmed the fact that the stock sounds something like 10 to start the year we just had these results and i know we still got to get the comments from the conference call but do you buy in at this level you know these look good right to your point i would love to understand kind of if did anything go awry in the quarter was it a really strong start to the

quote and then things faded what does q2 like? We need to get details out here. The other part would be, right, are you starting to see cracks in IT spend? And will CDW in a way the first one to tell you that, hey, small, medium enterprises are slowing down? Eventually, does IBM see it? And again, IBM is a lot more larger enterprises versus not, right? So just clarity around those things would be helpful to understand. But these set of numbers kind of validate IBM being this, you know, bastion of stability when there's macro turmoil, I feel. All right. I meet Daryan Ani. Thanks for joining us. Thank you.

Let's get back over to Mike Santoli with a look at correlations among S&P 500 stocks. Mike. Yeah, Morgan, and those correlations have been low. We'll get to a chart that shows that recently. But I think what helps is to set this up and really maybe give a sense of why the market has been sort of churning in place here at these familiar levels. S&P 500 over two years. There you go. April 19th, 2021, we traded at 41.50. We closed today 41.54. So this has been this axis running through the entire past couple of years. It's also the exact middle of last year's range.

So the whole peak to trough move, 48 and change, down to almost 3500 was essentially, we're halfway between those. So obviously a lot of potential ways it can go from here, but I think it helps explain why, in fact, the market feels unhurried. And we're sort of trying to digest exactly what this latest year to date move has met up 8 percent. Now, the correlations, the CBOE implied correlation index is essentially a way of measuring whether stocks are going their own independent direction or if they're sort of moving in unison or expected to continue moving in unison. So when we have these macro-driven markets where it's just about is risk on or risk off, is it all about the Fed, is it all about the cycle, you tend to see every stock kind of correlated when the market's under some kind of a stress.

That's the peak of the market right there. Then you see the mid-year sell-offs in stocks. We're really low right here. So we're basically sort of back toward late 2021 levels. It's a more normal market. We're seeing a lot of stocks move based on earnings, a lot of independent sector action, which is also based on where these different stocks are in the cycle. So on a net basis for stock pickers, it would seem to be a ripe environment for trying to find winners, which also means you might end up with the losers, of course. But I do think you also have to be on alert for the fact that this could represent a trough in volatility

and maybe we're susceptible to some sort of a macro shock or a Fed kind of revision of the Fed path that's going to get the market's attention again. Yeah. First of all, let me just say you're very good at drawing those straight lines. I'm impressed. A lot of practice. Thank you. Second of all, I think this is a great chart on a day like today where the S&P is literally unchanged. Yes. Right. But there's so much chop below the surface. To your point, we've had a lot of earnings movers dramatic in both directions today, despite that top line figure. Are we seeing that? Are we seeing signs that this is actually a stock

pickers market and that for the first time and we talk about it every year and that it doesn't actually happen, but that for the first time, those stock pickers and those actively managed funds are outperforming? Well, I think those are two separate questions, actually. I think that's a little bit of a problem. No, but that's the right way to pose it. But a stock picker's market means that which stocks you pick matters a whole lot. So you can either outperform or underperform based on that. And what's happened recently, at least going into late March, was less than a quarter of S&P stocks were actually outperforming the index. So it was hard to find the good ones. We arguably are in a spot right now

where maybe you do have the makings of a decent selection type market. If you know what to look for, if you get the call right on whether earnings are already priced in and things like that. So I think that you're probably going to see a situation here where you can't just necessarily buy the five names that everybody knows and they're driving the index and expect necessarily to outperform at this level. What have you picked? None of the above. Mike, if I recall the chart that you had up that was showing that early 2022, the correlation was low like now. And if you had sort of just said, you know what, I'm out for a little while. Let me let stuff drop. Wouldn't you have done OK? You would have. It's not necessarily like a one factor decision model, I don't think. But yes, what it often means is we've gone through a period of calm.

Maybe the investors have become a bit complacent. But at least those periods can last for a very long time. You know, everyone looking at the volatility index right now at 16 and saying it's too low. Well, based on history, it's around average. And you actually ended up below 15 for years at a time if you go back to the mid-2000s and the mid-2010s. All right. Mike Santoli, always coming prepared with lots of knowledge and lots of great charts. Thank you. Thank you. Up next, the CEO of Virgin Orbit in his first interview since the company filed for bankruptcy reveals what went wrong, what comes next for the space company. Stay with us. Welcome back to Overtime. Let's get another look at shares of Tesla near their post-market lows, down about 4%.

Shares matching estimates, revenue topping expectations, and that closely watched gross margin number, X credits, coming in at 18.3% versus 20-plus expected, Morgan. All right, well, let's talk space. Small satellite launch provider Virgin Orbit went public back in January of 2020. It went through a SPAC. The goal, to raise $480 million in gross proceeds. But as the SPAC market started to swoon, it only raised about $230 million.

In total, the company, funded by Sir Richard Branson, after being spun out of Virgin Galactic, launched six orbital missions, four successfully, but its latest in January failed. Virgin Orbit releasing key findings today about what went wrong with that January launch. In March, the company furloughed staff, paused operations to conserve cash

while it tried to secure funding. But after those efforts failed, on April 4th, Virgin Orbit filed for Chapter 11 bankruptcy. So what is next for the company? Well, CEO Dan Hart joins us exclusively in his first broadcast interview since that bankruptcy announcement. Dan, we appreciate you coming on the show. Thanks for being with us. Good to be here. So we just laid out that timeline, and it would seem like this collapse happened pretty quickly. But in hindsight, there were fewer launches than forecast, higher spending, climbing costs, faster cash burn.

It was a dynamic that was emerging even before that January launch failure. What happened here? Could it have been prevented? Well, let me let me first frame who we are and what Virgin Orbit has been. You know, we brought a new technology, new method of space launch, which has, you know, differentiated capabilities. We come off the wing of an airplane with a liquid rocket. We fly to orbit something that's never been done before. The failure that you mentioned happened while we were doing the first launch in history

from Western Europe. So we've been a company of firsts and moving forward boldly with an incredible team. The issues that we had, and you sort of mentioned one of them right from the start, you know, we timed the SPAC transaction at a time when it was waning. And so our runway was set and our runway was shorter than perhaps we needed in a market that was very, very much retrenching in 2022. So that sort of sets the stage. In terms of operations, you know, we had issues moving from development into scaling and production, something that often happens in aerospace in what's called low-rate initial

production. I mean, the good news is we have moved and trundled through there. We had a good launch in July. Our launch in January was due to a very simple but troubling issue. Basically, a screen, a filter came loose and spoiled our engine. You know, we did all this in the course of COVID. And so we were dealing with that operationally, as well as, you know, the year of the resignation didn't help us either as we scaled the production. So those were the sort of the rudiments, plenty of lessons learned that we've, you know,

digested and as we look forward. Yeah. This was a company that was created by Sir Richard Branson. It was spun out of Virgin Galactic back in 2017. He and Virgin Group, and there were other investors as well, even before the company went public, but funded the company heavily, had continued to do so up until recently. What changed? Well, I mean, we went through our SPAC. We went public. The purpose of all that has been to broaden our investment, you know, our portfolio of investors, our participants. That's been the plan ever since. Richard and Virgin Group have been incredible supporters. The company wouldn't exist without them. They've supported us also more recently towards the end of the year, still currently, as we're going through Chapter 11, getting their support.

And they were importantly critical in supporting our employees as we did have to significantly reduce the staff. And they provided a severance package, which we're very grateful for. Yeah, and before the Chapter 11 bankruptcy actually happened, you did have a prospective 11th Hour investor that stepped in. That possible deal with Matthew Brown collapsed. I realize there's been a lot of controversy swirling around that situation. We don't have your comment on the record, so your response? I can't comment on that. OK. We did have discussions with a number of investors over the course of the weeks and months preceding the filing. Yeah. What are those discussions

looking like now? Bids to buy the company are due May 14th how confident are you that somebody's going to emerge to buy Virgin Orbit as a going concern? You know we're in the thick of it and so you know May 4th is a date when initial interest will be received and then the 14th for final bids so we'll just have to see you know how everybody looks at the business. I'm optimistic that we'll find a partner who wants to take us forward and continue our strategy and merge it with their strategy. Yeah. And there is tech here, as you mentioned. It's flight proven. It's made it to orbit successfully a number of times.

If somebody didn't want to buy the company as a whole, would you sell it in pieces? Well, I mean, that's all part of the Chapter 11 process. My preference is the former. If somebody didn't want to buy the company as a whole, would you sell it in pieces? Well, I mean, that's all part of the Chapter 11 process. My preference is the former. But certainly we have, you know, unique IP across our engines, across our airplane, across our infrastructure and test stands up in Mojave. But I think we're most valuable as an integrated enterprise doing launches for a emerging and growing small satellite community. Yeah. You've said you are targeting another launch attempt. Timeline for that, do you have the money?

And just as importantly, with 85 percent of staff being let go in recent weeks, do you have the manpower to do it? You know, it's been remarkable over the last few weeks what the 100 team staff has done. I mean, we made it our engine to our booster. We finished most of our testing for our failure analysis. We did a simulated launch, I think it was the day before yesterday, with our airplane. We will probably staff up slightly to do this staff, to do this launch, maybe 20 people. And we're working on the schedule for that. It'll have to dovetail with the transaction in the Chapter 11 filing.

Dan, we appreciate the time. Thank you for joining us. Dan Hart of Virgin Or time. Thank you for joining us. Dan Hart of Virgin Orbit. Thank you. Make sure to follow and listen to Manifest Space, my podcast, which is relaunching as its own standalone podcast here at CNBC tomorrow. And you can get it wherever you get your podcasts. We have so much good content coming, too. Yes, indeed. All right. And still ahead, speaking of what to expect from Tesla and IBM's earnings calls, which are going to kick off just minutes from now. We'll be right back.

Margins, cash flow, key things investors will be listening for during the Tesla and IBM earnings calls, which are moments away from kicking off when we come back. We are keeping an eye on several key reports out this hour. The IBM conference call just about to start. Here's what investors and analysts are going to be listening for. Infrastructure is momentum flagging in the mainstream mainframe cycle and cash flow. Color on why the company is still confident in its second half guidance and consulting after emphasis weakness. And that warning. What is the demand picture? Then Tesla's call starts in about 30 minutes.

Three key things in focus there, setting margins, pricing pressure as competition grows, and production upgrades, updates and targets. And the earnings parade rolls on tomorrow, of course. We're going to be watching for names like American Express in the morning, AT&T, Union Pacific, and D.R. Horton, Morgan. It is going to be another busy, busy day. And we do have two huge interviews tomorrow on this show that you do not want to miss. We're going to get reaction to those Tesla earnings and so much more when we speak exclusively with ARK Invest CEO, Kathy Wood. I'm guessing she loves them. Yes. And we're going to talk infrastructure,

different type of infrastructure and energy when we're joined by New Fortress Energy CEO Wes Edens. We're also going to talk a little bucks and sports since he is owner of. You know, I'm always looking for an excuse to talk about Muni Bonds. Some of the stuff he's working on relevant there, right? A hundred percent, especially where all of the infrastructure activity is. And, you know, he does have this passenger railroad down in Florida, which is expanding and plans to do something similar on the West Coast as well. All right. That's going to do it for us here at Overtime.