Closing Bell - Closing Bell Overtime: What An ARM IPO Would Mean; JPM Wins First Republic 5/1/23

Episode Date: May 1, 2023

Stocks close mostly lower, paring some afternoon gains. The Bahnsen Group’s David Bahnsen and Invesco’s Brian Levitt break down how earnings have fared so far. Former Uber Chief Business Officer Emil Michael talks possible green shoots for the IPO market, including a potential ARM offering. EQT CEO Toby Rice discusses his company’s stock outperformance despite natural gas prices falling. Former Reserve Bank of India Governor Raghuram Rajan on JPMorgan’s First Republic acquisition. 

Yeah, Monday reversal as the major indexes finished down marginally. 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. It is another big week of earnings, and this hour we're going to get results from NXP Semiconductor, MGM, Chegg, Avis MicroStrategy, and many more. Plus, we're going to talk to the CEO of natural gas producer EQT about the brutal starts of the year for the commodity and his outlook for energy as we kick off a new month. Let's get right to the market action. Joining us now is Invesco global market strategist Brian

Levitt and Bonson Group's David Bonson. Good afternoon to you both. Brian, I'll start with you. Your take on the markets here ahead of what is expected to be another very busy week, not only for earnings, but for macro data and, of course, the Fed decision on Wednesday. What's priced in here? Well, I mean, we priced in a recession over a year ago. We've priced in a softish landing at the beginning of the year, and we've been kind of bouncing around now. And so the market is waiting to see what its next catalyst is- is the Fed going to. Explicitly back off its tightening stance and

set the stage for what will be the new market cycle or is it going to be. A little bit less explicit than that I suspect we're not going to get the clear answer. On Wednesday but it does seem to me that we are getting- close if not there. I think we're there

at the end of the tightening cycle, which typically sets the stage for a better market environment. All right. David, how do you see it? I mean, it does seem like, based at least on some indicators, that the market is pricing in this end of a Fed tightening cycle, or at least the end of rate hikes, we'll call it. But we also know inflation is still way too high. And yes, I know it's trending in the right direction. And financial conditions, you could argue, with stocks rallying as much as they have since the start of the year and credit spreads being relatively calm, at least in recent weeks, maybe not the best news for the Fed that's looking at all of those types of indicators. I think that there's more nuance than that, though. I agree with you

that some financial conditions, credit spreads don't look too wide. The stock market's been reasonably good. But the reality is liquidity is a better measure of where they are than just kind of the overall financial conditions. And liquidity is definitely very tight. From the bank deposit withdrawals to the quantitative tightening. Look, I agree that they are at the end of a tightening cycle. But then this invites the second question that markets will have to interact with, which is recessionary consequences. Will there be a shallow recession? Will there be a deeper one? And then you look within the market. I think we're looking at the S&P or the Dow as an aggregate. But within the market, there's a lot of other nuances. And that's where I think investors have opportunity. I don't think the whole S&P trades

back to 22 times earnings. I certainly hope it doesn't. But I think that there's stuff within the market that is cheap. David, I think you've said you expect the Fed won't hike and will be cutting by the end of the year. If they do hike this week, that just means they're going to be cutting that much more. Explain to me how we get there. It seems like it would take a pretty painful recession to get the Fed to cut from here,

given where employment levels are, tightness in the labor markets, the inflation indicators that Morgan mentioned? What has to happen? I mean, do we have to have a really painful debt ceiling showdown? What are you expecting to happen that gets the Fed cutting by the end of the year? Well, yeah, let's first of all look at what the market is saying, which is that they're showing a Fed funds rate a year and a half from now, 200 basis points lower than it is now. So if you look at a quarter point at a time cut, they're looking at eight cuts. Now, it very well could be slower than that. It could take longer. But what is it that will cause that? First of all, the inflation number is not true. When you strip out the shelter number and you say, why would you strip out

shelter? Because they know that it is obsolete, that it is antiquated, that the lag effect is showing eight and a half percent inflation in something that might have two percent deflation right now. Certainly soaking wet, it doesn't have more than one to two percent inflation. That brings your current core CPI down below 3%. Brian, do you agree with that, that the market has got it right about where rates are going to be in just a few months? Because the Fed sure isn't agreeing with that. I find it hard to believe that we're going to see that many rate cuts between now and a year and a half from now. But I do agree that inflation is

coming down quite rapidly, is probably even lower than what the headline number is telling us or weaker than what the headline number is telling us. So I think the Federal Reserve is going to be on pause for a while and get a better understanding of what all the effects of all this policy tightening is ultimately going to be on economy. It takes time to find its way through the system. And the likelihood of us muddling through this or a more mild recession is high. I mean, we've gone through this with the job market remaining relatively strong, consumer remaining relatively strong. So can we

muddle through this will be critical. But I don't expect it to be a severe downturn, largely because of the uniqueness of this cycle. Yes, we had high inflation and policy tightening, but we never really got to a point of significant excess with regards to the leverage on corporate balance sheets or the impairment of bank balance sheets. So any type of downturn here is likely to be more modest in nature, which suggests last year's 25 percent decline in the market, largely priced for it. And it means that the Federal Reserve is probably on pause to slightly lower rates over the next year, but certainly not eight rate cuts. At least that wouldn't be my expectation. Okay. Brian and David, thank you. We want to get to Phil LeBeau, who has Avis budget earnings, which are out. Hi, Phil. They're out, Morgan, and the stock is

reacting as if people are not happy with what they're seeing. Here's the numbers that we have. We've crunched them. It comes in at $7.72 a share, which is well above expectations of $3.07 a share, with revenue coming in slightly above expectations at $2.56 billion. We're going to keep diving into the numbers, see if we get a little better understanding of why the shares are under pressure here. Remember, so much of what drives not just Avis budget, but all of the rental car stocks is what's happening with the used market and with residual values. And as that market has cooled off a little bit, that is expected to help the residual values, not only in the first quarter to help, but it's expected to extend throughout the rest of this year. So again, there you have the Avis budget, three numbers for the first quarter, 772 versus the street at 307 to share.

Guys, back to you. All right. Phil, thank you. Meanwhile, we're going to dig deeper into today's bank news. J.P. Morgan taking control of First Republic. Joining us now is our Leslie Picker and Hugh Sun. Leslie, welcome back. It's been a while.

It's good to see you here on set. Is this sort of the all clear? Because you look at the KRE, it would seem not. It was it was down about three percent, I think, today, even as Jamie Dimon is saying this leg of the crisis is done. Yeah. If you talk to bank analysts and Jamie Dimon's perspective as well, they appear to think that this kind of is the ring fence that they were looking for for quite some time. That said, you talk to investors, they look at just the massive growth that the banking industry has experienced, low interest rate environment, the various incentives that go on. And some investors that I'm talking to have a bit more concern. Now, the question is kind of whose

prognostications are going to ultimately prevail remains to be seen, obviously. But a lot of the issues that created this crisis are still there, maybe with the exception of some of the specific idiosyncratic issues with regard to the specific customer bases, the concentrated customer bases, the high growth that especially was problematic with regard to First Republic as well as Silicon Valley Bank. Yeah, I mean, there do seem to be a lot of winners and losers emerging in this market. And regionals were some of the worst performers in the S&P overall today, including Citizens Financial, PNC, names that were sort of being bandied about this weekend

as possible contenders to buy First Republic. We know J.P. Morgan ended the day higher and actually led the, you know, well, in spite of the Dow moving lower. But even if you look at First Citizens and New York Community Bank, which picked up assets of other failed banks, those two names have outperformed pretty dramatically since those deals were struck. I mean, are we seeing are we seeing a definitive landscape of winners and losers emerge? And how much does it raise the questions about a J.P. Morgan, for example, being too big to fail, getting bigger? Yeah, a lot there.

It feels as though we are in the next phase of this crisis. And, you know, I take Jamie Dimon, usually, you know, I have a lot of credibility to his name. If you look at the banks that had a high degree of uninsured deposits, flighty customers, and unrealized losses on their bonds, you know, these three that failed in the past two months were at the top of the list. And so there may be one or two more out there, but they're going to be smaller and less systemic. So let's move on from that phase of bank runs, crisis, and weekend deals and on to this next phase where we're looking at banks and we're basically saying, what's their profitability going forward? Are they facing higher capital requirements? Will there be greater regulation on them going forward? And will they be treated as the big banks were the last 10 years? And that's

certainly the case for that middle layer of mid-sized banks that call it, you know, bigger than 100 and less than 250 billion. And I think the street is now getting to the next phase, which is, you know, these banks, their profitability isn't necessarily that clear and there's changes coming and that's not great. And so, Leslie, do you think we talked to you about this just a few days ago? That means M&A within the regionals potentially. Right. And so how does that look, especially given that? I mean, last week, the regional bank index was a little lower than it is now, but it's down at levels where it was in late 2020, right?

So that's opportunities for bigger banks. Absolutely. And maybe the best performing of the regionals. When does that happen? How does that happen? I think consolidation is something we're going to be talking about in the months to come here. It's interesting. I remember reporting back after Dodd-Frank was passed that $10 billion was kind of that threshold.

Once you get close to that $10 billion threshold, then you start to see some M&A activity because it doesn't make sense to be too small and not have enough scale to kind of absorb those regulations. So you do M&A so that you become big enough that you can actually absorb the new regulations. Now that threshold that people are talking about, as Hugh mentioned, is $100 billion. So in that level, you could see some pretty significant deals as people seek to consolidate in order to handle the regulations a little bit better. Interestingly, though, as we kind of do a postmortem here, it's the G-SIBs that seem to really be in a strong position here, the universal banks, the biggest banks, the ones that are the most heavily regulated. Now that regulation is looking to kind of filter its way to smaller banks, and they're going to be the ones kind of adapting to this.

But it's the ones who are already experiencing all of that regulation that are in pretty good shape, at least as far as the market is concerned. Yeah, which, of course, kind of raised the questions or speaks to the FDIC report that came out this afternoon to urging lawmakers to make some changes, including significantly raising deposit insurance protection for payroll accounts and other business payments, et cetera. More to be discussed, as always. We love kicking off the hour with both of you here on set, though, Leslie and Hugh. Thanks for being here. The frozen IPO market, me time showing signs of life as SoftBank's chip company, Arm, takes a step towards going public. We're going to discuss that news with a former Uber executive who is now running a SPAC when overtime comes back.

Welcome back. NXP's semiconductor earnings are out. Contessa Brewer has the numbers. Well, NXP has a beat here on the top and the bottom lines. We're looking at shares coming in at $3.19 versus the consensus of $3.02 adjusted. And year-on-year revenues up half of 1%. The revenues came in at $3.12 billion versus the anticipated $3 billion. The company says it has some cautious optimism that NXP is successfully navigating through a

cyclical downturn in its consumer-exposed businesses, while its auto business and its core industrial business are still showing some strength there. The stock reacting positively, as you can see it in the extended trade, up about 5 percent, Morgan. All right. Another big mover on earnings in the semi space today. Contessa Brewer, thank you. Some green shoots for the IPO market this weekend. SoftBank's chipmaker Arm has filed for a NASDAQ listing. Exact timing and size have yet to be determined. But could this news be a sign that the frozen IPO market could be poised for a comeback? CNBC Senior Markets Commentator Michael Santoli joins us now with his take. Hi, Mike.

Hi, Morgan. Yeah, there's a chance that this actually is one of those breakers of a logjam. I mean, the IPO market has been pretty dormant. There's another one, by the way, also coming to market. That's Johnson & Johnson's spin out of its consumer business, Kenview. That'll be a good size IPO, too. But look at how the IPO sector has performed. It's basically been one of the hardest hits part of the market since the peak in the market. Actually, this part of the market peaked in early 2021. We're in another full year before the kind of more mature companies in the S&P 500 peak. So this is the IPO ETF relative to the

future tech ETF. This is essentially an arc like fund that kind of buys disruptive, unprofitable technology companies with kind of long term growth stories, but not a lot going on right now. You see very similar shape to these charts. IPOs have underperformed. By the way, the IPO ETF really doesn't have any IPOs anymore because there haven't been enough. Normally, it's supposed to be stocks that have come to market in the last two years. Well, the biggest holdings at this point are Snowflake and Airbnb and DoorDash is in there and Palantir. And so essentially, they're all two and a half years old at this point in terms of the market cap weight. One final point is an arm holdings or a can view are exactly the types of deals that you would expect to be able to come to market in a very

slow IPO tape. They're mature companies, not startups, and they have motivated sellers, parent companies that want to get rid of them and essentially are in sectors that have been relatively in favor. That would be semis and consumer staples. Yeah. I'm just wondering, along those lines, how crucial is the performance out of the gate of Kenview when we do see that spinoff happen and realized later this week? I don't know that it has to really have a huge pop because the issue is it's a very known quantity. We know pretty much what the earnings and earnings history are. We're going to put a multiple on that. But you definitely want to see people receptive to new ideas, new tickers. I think that'll be certainly a successful deal. They'll probably price it pretty conservatively. And so I expect that would be a decent sign,

whether it's broadly applicable to, let's say, these private companies venture back that really have wanted to get out there and get some liquidity through an IPO, that's a little bit more debatable. But when it does start to thaw out, that early wave of IPOs typically do well because, again, you're not pricing them too high and there is a sense that you have the best of breed coming public, not the also rants. All right, Mike. Thank you. And now we're going to continue this conversation with Emil Michael. He is the CEO of Blank Check Company, DPCM Capital, former Uber chief business officer. Windows Arm, Qualcomm makes chips based on it. Apple's chips are based on it. Heck, Amazon's cloud chips based on this. And yet it's been passed around quite a bit. What's the significance of this for the market?

Is it just something that's supposed to do well? I think it's going to do well and it's supposed to do well, John. And I'll tell you why. I think they're going to benefit from the AI pixie dust, I guess, that we're seeing around there. They've got a lot of things in development that I think are relevant. It's the computing power that AI needs. And that's where you're seeing the run-up in NVIDIA in the last six months has gone up 67%. And NVIDIA, since the time of the acquisition when they were supposed to merge a couple of years ago, is up almost double. And NVIDIA, since the time of the acquisition, when they were supposed to merge a

couple of years ago, is up almost double. And I think a lot of that's due to AI. And I think ARM is going to benefit from that. And I think it'll be a good IPO for that reason, even though Masa San from SoftBank spent 30 billion dollars on this over three, four years ago. Yeah. So what is the signal then, if any, for the rest of the IPO market? I mean, this Johnson & Johnson spin out that we're looking for, again, kind of like a sequel. It's Johnson & Johnson. This is Arm. We've seen it before. I mean, the SPAC market has pretty much imploded.

Does this help to open up a window, perhaps? Or do we have to look through understanding what the Fed's going to do going forward, debt ceiling, all that kind of stuff into the second half before the window opens back up? Yeah, I think, well, first, we don't know when ARM is going to go public because they probably filed privately. So it could be in Q3 or 4. I don't think the Johnson & Johnson thing is going to have that much of an impact on the tech private company backlog. Instacart, however, which you just showed on that chart, will. If and when Instacart goes public in Q3 or 4, I think you'll have a lot of eyes on these private tech companies, whether it's Stripe or some of these other venture-backed companies, really look to the signaling that that provides and see if 24 becomes a big year again for the IPO market for tech companies. All right. I want to shift gears with you a little bit here.

Uber finished the day up 5.5%. We get those earnings after the bell. We know they've been taking market share, at least here in North America, from Lyft. What are you watching for? I'm watching for increases in free cash flow. They've had free cash flow for the last two quarters. So can they continue on that path? Because they have a big target that they announced for 2024, which is, I believe, $4 billion in free cash flow, which is quite a distance from where they were at the last three quarters.

I'm also looking for stock-based comp. Has stock-based comp, which has been a big criticism on them, has it come down percentage-wise or nominally? And finally, and most importantly, I think, is the growth in food delivery. Growth in food delivery is starting to slow down across the industry, not just with Uber Eats. And depending on how slow that gets, you then have to balance it with growth in Uber rides to see what the blended growth rate in the company is. And the multiple that Uber is going to trade out is going to have a big impact from the blended growth rate. So looking at those two growth rates is going to be important tomorrow.

Yeah, I should note, before the bell, we get those results. I'm so used to saying after the bell with our show that I just slip of the tongue here. Anyway, quick last question for you. And that is, and I realize maybe, you know, you're a former Uber, so you might have an opinion here. But what happens to Lyft? Are we going to see some sort of consolidation or M&A activity across the industry? I just don't think so. Sadly, for Lyft shareholders, I believe they're sort of at the end of their growth cycle. There are,

in ride sharing and in a subtle way, network effects. The bigger you are in any one city, the cheaper the rides are, the lower the wait times, the more drivers can make because they have more trips per hour. And that dynamic is starting to play out. Now, Lyft is being smart. They're doing a 33 percent cost reduction. I just don't think it's going to be enough. And when you talk about the merger market, you think, OK, Tesla, DoorDash, General Motors, Cruise.

DoorDash has said repeatedly they don't want or need this asset. I don't think General Motors will take the losses and sort of the greediness of what ride sharing is. And I think Tesla is going in a different direction with their own self-driving cars. So I just feel it may be one of these orphaned companies. All right. Emile Michael, thank you. Thank you. And as mentioned, tune in tomorrow at 7.30 a.m.

First on CNBC, Uber CEO Dara Khashrashahi is going to join Squawk Box to discuss the company's Q1 results. MGM earnings are out. Contessa Brewer has those numbers. Hi, Contessa. Morgan, what a difference Macau's return makes to profitability. MGM coming in with beats on top and bottom lines. Earnings per share of 44 cents compared to the refinitive estimate of 10 cents. And revenues of $3.87 billion versus $3.58 that was expected.

Macau results here are eye-popping. Revenues, $618 million versus the $413 million expected. And the all-important earnings metric in casinos, adjusted property EBITDA, more than double the fact-set consensus, 169 million versus 73 million in Macau. That's only 12 percent off the first quarter of 2019 pre-pandemic numbers, an unbelievable rebound. U.S. results show that MGM is firing on all cylinders as well. MGM's Las Vegas strip property set another earnings record up 41% year over year, regional casino performance steady, and it's maintained

its market leader status in online gaming or iGaming, though it has lost a bit of market share in sports betting. Of course, we saw news today that its European subsidiary, Leo Vegas, is acquiring game developer Push Gaming. All things that we expect that Bill Hornbuckle will address on the earnings call, which starts in about half an hour. All right, Contessa, thank you. Meanwhile, Chegg Earnings also out. That stock is getting slammed after hour, losing nearly a third of its value. EPS and revenue were a beat, $187.6 million versus $185.2 expected on the top line. But it's the guidance that investors are keying in on. Q2 revenue outlook, $175 to $178 million versus $193.6 expected. And I would mention a year ago they did 195 in the quarter.

So well below analysts estimates. CEO Dan Rosenzweig calling out artificial intelligence in the earnings release, saying the company's embracing AI aggressively, prioritizing investments there. And Rosenzweig is going to join us exclusively tomorrow right here on Overtime. A lot to explain about this report card, Morgan. Yeah, it's a huge move lower in that stock right now. Let's turn to Meta. Speaking of AI, doubling this year and getting an extra boost after last week's strong earnings report. Julia Borson caught up with Meta's VP of the Global Business Group at the Milken Conference. She joins us now with the highlights. Hi, Julia. Hi, Morgan. That's right. Meta's Nicola Mendelsohn joined me on stage for a panel I moderated about the impact of AI.

After just last week, Meta reported better than expected first quarter results and second quarter revenue guidance. Here's what she said when I asked how much of that outperformance is due to AI. Our community that we shared is the largest it's ever been, and we're really proud of that. And a lot of that's been driven through the invention and the creation of new products like Reels, or short-form video solutions. And what is it that's powering Reels? That is AI. And so again, we're making sure that the content that's being created is being shared in the best and most timely way. I also asked Mendelson about her outlook

on the advertising market after last week Meta reported ad weakness was actually stabilized. When I'm talking with the CMOs and the CEOs out there, stabilization is very much the word that they're saying to me. And that's very different from where we were at the back end of, say, even last year. They're becoming more familiar with some of the major disruptions that have been there and, you know, the wider macroeconomic conditions. But they've sort of built that into their businesses

now. Mendelsohn even used the term cautious optimism, which is a far cry from what we heard from both Snap and Pinterest. Their warnings about the second quarter sent those stocks plummeting. Meanwhile, you're right, Morgan, Meta shares are up 102% year-to-date, and they're up 17% since their earnings last Wednesday. John, Morgan. All right, Julia. Thank you. And now natural gas prices have been cut in half this year, but producer EQT holding on to gains. We're going to talk to the company's CEO about navigating this downturn in prices next. Breaking news on the debt ceiling.

For that, we turn to our Kayla Tausche. Kayla. Well, John, Treasury Secretary Janet Yellen has sent an update to congressional leadership on the date after which Treasury will not be able to continue paying the country's bills using extraordinary measures, as that's called. June 1st is the new date after which Treasury Secretary Janet Yellen says the debt limit must be raised. Otherwise, the country will enter a very precarious fiscal situation. Now, remember, Treasury is often more conservative in producing this estimate than necessarily is the case. And Secretary Yellen acknowledges in her letter that it could be weeks or potentially even months after that that they actually run into that. But, of course, the purpose of this letter is to stress the urgency to Congress in raising the debt limit, reaching some sort of deal sooner rather than later so that you don't have to get up to that June 1st or possibly later deadline.

John and Morgan. Kayla, I mean, everybody keeps talking about this X date and that we'd be getting this type of information this week. But I think about the Goldman report, I guess it was last week, where they basically said because of the tax revenue, the surge in tax revenue that we've seen in recent weeks, it would be more like July. I mean, I would assume Treasury is accounting for that surge in revenue.

Is it just that we're spending so much more? Yes, that's part of it. But then again, Goldman and other prognosticators also include that in their forecast. Bank of America, Deutsche Bank, a handful of other shops also predicted that it would be more of a late summer phenomenon. But I think that the dynamic here, Morgan, is really how conservative Treasury is in its estimates. Treasury does not want to take this up until the very final last minute that it possibly can. It's being extremely conservative, but it says that June 1st is the date at which it would have to really reorganize things to pay the country's bills after that fact. All right, we're going to have to see how lawmakers respond to this week. Kayla Tausche on the president. Thank you. Natural gas producer EQT recently reporting Q1 earnings,

the stock getting a pop after beating estimates and showing a stronger than expected capital return. Piper Sandler says it remains one of their top picks in the sector, even with gas prices down significantly this year. Joining us now is EQT CEO Toby Rice. Toby, it's great to have you on the show. Thanks for being here with us. Hey, happy to be here again. I do want to get your outlook on natural gas prices because we can talk about the macro or something like oil is concerned, but really the two driving forces for NatGas are weather and storage. And we just came out of a seasonably warmer than expected winter, and we know storage and inventory levels are filling

up as well. So what does that mean for pricing through the rest of the year and beyond? Well, these two events, specifically weather, to put this into perspective, this was one of the warmest winters we've had since 1950. So that's had a tremendous impact on lowering demand. But that demand for this product is temporarily receded because of this weather event. We still see very strong demand for natural gas in the future because it is the cheapest, most reliable, cleanest form of energy. And to help balance the market, you are seeing operators act with discipline and respond by lowering activity levels. And that should help bring balance to the market sometime in the second half of this year. But I don't think you're lowering activity

levels, at least not yet, right? It looks like you're going to hold steady in terms of your production plans for the year. What would it take for you to change on that? Well, EQT has the luxury of being one of the lowest cost operators in the business. And we've worked very hard to create a business that is going to be the low cost operator. Being the low cost operator is going to afford us the luxury of looking past short-term issues and looking towards the long-term. That being said, we are continuing our activity levels, but that production capacity that we are bringing back will be a game-time decision of whether we deliver that into the market. We believe that being in a volatile natural gas environment, which we'll

be in for some period of time until we get this pipeline infrastructure built. It's good to have the production capacity on standby so we can deliver it if needed. Toby, speaking of low cost, it seems like M&A has been a key part of your strategy to do that. But for example, it's taken longer than you expected to get this Tug Hill deal done for just shy of $4 billion, which you say is going to boost your cash flow. How much more M&A is there to do, do you need to do to keep that momentum going, assuming the prices do stay volatile? We're really excited about the Tug Hill transaction. Not only is this going to be accretive on our free cash flow per share, NAV per share metrics, it's also going to make us a better business.

It's going to lower our breakeven costs by over 15 cents. That's pretty significant when you figure every penny at our scale translates to free cash flow of $20 million. So we're excited about this transaction. When we look out in the future for M&A, the biggest benchmark that we have is compared to buying back our own stock. We think that is a very low risk, very attractive opportunity, and any M&A will be benchmarked against that. All right. Toby, thank you. Thanks a lot. And now it's time for a CNBC News Update with Courtney Reagan. Courtney. Hi, John. Here is your CNBC News Update at this hour. Mayday protesters continue to clash with police in the French city of Lyon in union-led protests

against pension reform. What started as peaceful mass protests turned violent when demonstrators pelted riot police, set fire to cars and shops as police used tear gas and water cannons to repel the protesters. Clashes also erupting in Paris and other cities where marches were organized against French President Macron's increase in the retirement age. Interstate 55 is shut down in both directions in Southern Illinois due to major car crashes that occurred during a dust storm.

Multiple people are dead and at least 30 others are injured. The National Weather Service is urging local residents under the quote, blowing dust warning to stay indoors until the storm passes. And the U.S. military is tracking another mysterious balloon that flew across portions of Hawaii. According to officials, the military has been tracking the object since last week and has determined it poses no threat to aerial traffic or national security,

though it is not yet clear exactly what it is or who it belongs to. Morgan, back over to you. All right. That image looks eerily similar to one I've seen earlier this year, though. Exactly, doesn't it? I don't know how we know it's not a threat yet if we don't know what it is, but hey. Okay, I'm going to dig into this one a little bit more myself. Courtney Reagan, thank you. Thank you. In the meantime, MicroStrategy earnings are out. We're not comparing results here because it's

thin analyst coverage, but earnings per share for the first quarter coming in at $31.79 on revenue of $121.9 million. That revenue number was up 2% from the same quarter last year. The company's CEO is saying, quote, the conviction in our Bitcoin strategy remains strong as the digital asset environment continues to mature. Tomorrow, we're going to break down the results with co-founder and executive chairman Michael Saylor. We're going to talk about the Bitcoin rally. And by the way, we talk about the bank busts of recent months. We don't usually talk about the one that kind of kicked this entire process off as well. And it was Bitcoin related. And that was Silvergate.

So there's going to be a lot to get to in that conversation tomorrow. You know, Michael Saylor sticks to his guns. So we'll see. You're going to see what he has to say. Up next, Mike Santoli returns with a look at one piece of the earnings picture that might give some bulls some hope. And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We'll be right back. Welcome back to Overtime. Mike Santoli back again from the New York Stock Exchange with a look at earnings forecasts. Mike?

Yeah, John, and a potential inflection point to the upside for projected earnings for both this year and next year. This is the fact set consensus for S&P 500 earnings, how it's tracked over time, starting over a year ago. You see back here, this is the 2023 number. It was in the 250, 255 share range. It has been on a steady decline with a couple of breaks going flat along the way, but you can sort of barely see it. But it is just curled higher here. It's not necessarily an all clear for the earnings picture. Of course, a lot of the revisions are happening about the back half of this year, even the very end of this year. So still some time to prove whether that's plausible. The other piece of it is very large companies reporting and affirming or raising guidance has an outsized effect on this. So just as the index performance of the market has been very top heavy, so is the

earnings production, but still better than continued decline in this consensus. Morgan. All right. Mike Santoli, thank you. Up next, the IMF's former chief economist reacts to the failure and sale of First Republic and what that could mean for the economy. Stay with us. J.P. Morgan's takeover of First Republic comes at a critical week for Wall Street. We're going to be getting the Fed's decision on Wednesday.

The April jobs report comes out on Friday. Joining us now is Raghu Rajan, former IMF chief economist and currently a professor at University of Chicago Booth School of Business. Raghu, I don't know. I mean, these don't look like the kinds of conditions that would force the Fed to pivot. I mean, the VIX is practically asleep. S&P is above 41.50. Employment seems pretty tight. And now the bank crisis, Jamie Dimon has said this phase is over. What does this mean from a broader perspective? Well, you left out inflation, right? Inflation is still pretty strong. Core inflation numbers have not come down. They've flattened out. And, you know, there's not a lot

of comfort in those numbers. So, yes, I think the betting is that the Fed will, unless there is some very sharp numbers in credit tightening, The Fed will raise interest rates once again in a few days. And then there is a question of what it'll do next. I mean, it certainly will watch. The economy is slowing. We saw the first quarter numbers. Now, some of that was inventories, but there is certainly some slowing in investment. So it's going in the direction the Fed wants. It hasn't told on the labor markets yet. They seem very tight, especially in the service sector. And that's what the Fed would like to see more slack in. So, you know, I think it's at the it's probably going to be a dovish hike. It's probably not going to be a hawkish hike. But the Fed is certainly

going to say it is still worried about inflation. So, Raghu, what's more important at this stage? Is it more job losses, though you don't want too many job losses? Or is it for the tightening of credit conditions that Powell said that he was expecting would happen and would do the job of a quarter or a half point hike? Do we need to see evidence more of one or the other? Well, you will see loan officer, you know, conditions coming in, and that'll give them some sense of what's happening on the credit tightening. Now, it's not showing up in the aggregate numbers as yet. You're not seeing the slowing that would be consistent with loan officers now getting really worried and tightening credit conditions. But we know it's coming. We also know that while the first phase of the banking problem is probably over, there is a slow

burning, you know, distress emerging in the banks as they find they have long-term loans made at low interest rates and their deposits are repricing to much higher interest rates. So their profitability, especially the small and medium sector, is getting hurt. They also have commercial real estate loans on their band sheet, which are going to start turning down as they start coming up for renewal. So there is a worry about bank balance sheets. There is a worry about slowly tightening credit. It's not going to be enough to make the Fed sort of stop and say we're done and we want to start cutting interest rates at least for a while. And so my sense is the Fed has to watch. It can't say we're done this time around. It's going to hope that the economy is slowing in the right direction. The problem, however, is it's never been able to slow it just enough.

There's always been an overshoot in terms of slowing, which typically means a recession. OK, what you're saying is so important, particularly for the market this week, where there does seem to be this pricing in of, okay, we're going to get another 25 basis points, but that's going to be it. And if I'm listening to you correctly, it sounds like maybe that's going to be it, but that doesn't mean that chair Powell is going to put it on the table that they've paused. In fact, he might put on the table the possibility of another rate because they are data dependent and inflation is still too high. I think that's exactly right. That's what he probably will do. He will not shut down his options for another rate hike. He's going to leave enough room, if not in the statement, certainly in the conversation he has afterwards,

the press conference, he's going to leave enough room for potentially another rate hike if things don't slow down. But yeah, it's going to be a dovish sort of statement about the rate hike relative to previous statements. How closely are you watching the ECB? We know we're going to get another hike there as well. Inflation is still very, very painfully high in that region of the world, too. How much does that matter at a time where you are seeing so many other central banks? You know, we've got Australia tomorrow, Brazil, so many others that have already essentially paused. Yeah, I think the ECB still has more work to do. Right. They have very high core inflation. They also have a wage setting

process. They have much stronger unions. Some of the wage increases in Germany have been quite strong. Other unions are picking up across the ECB, across the euro area. So my sense is it's too early for the ECB to pause. The question is 25 or 50. I suspect 50 is probably more likely. There's a lot of data coming over the next few days, but it is, you know, somewhere between 25 and 50 that the ECB does, and it's probably not going to pause. Okay. Raghu Rajan, thank you for joining us ahead of a busy week. Coming up, a look at all of the after hours movers that need to be on your radar right now. And CNBC is celebrating Asian American and Pacific Islander heritage throughout the month of May.

Here is Meta Head of Social Marketing, Eric Toda. The Asian American community is one that is built on resilience. But I think what makes me most proud isn't just how we've reacted to things that have happened to us, the things that we have gone through, but the way that we look forward into the future. Asian Americans contribute 1.5 trillion dollars to the GDP, and if you look at that, we are still under leveraged.

And so what makes me most proud is the line of sight that we have, that we can be so much more, that we can continue to expand, and that we can continue to bridge and build better bridges with other communities so that the business world does thrive. Welcome back. Well, the overall indices might not have looked like they did much, but on the S&P, there were some movers to the upside. Norwegian Cruise up 9% on Semiconductor, about the same. Lowe's up four. NVIDIA also up four. So quite a few. But there were some downside concerns, too. Newell Brands was down 11%. Global payments down just over eight. First Republic, I mean.

That says it all, doesn't it? I mean, that's, you know, there is no more First Republic. It's J.P. Morgan. So that, of course, yes. All right. Well, even in a down day for the major averages, the Dow transports, to your point with C.H. Robinson, popping 1% today. Definitely an outperformer. We're going to look at some key movers after the bell here.

MGM beating on the top and bottom lines with Las Vegas. Revenue also topping estimates. Keep in mind, MGM in the regular session reached a new 52-week high. NXP Semiconductor also beating on the top and bottom lines. You can see those shares are up almost 5% right now. Avis beating on both as well, though under a little bit of pressure right now. And Chegg getting absolutely slammed after revenue guidance came in light, down 33%. Yeah. I have to talk to Dan about that. Up next, what to expect from another busy day of earnings after the bell tomorrow.

Overtime will be right back. Got some key reports to watch tomorrow, including Pfizer, Marriott and Uber before the bell. Those three stocks finishing in the green today after After the bell, right here on Overtime, we're going to have Ford, AMD, and Starbucks. And two interviews you will not want to miss. Chegg CEO Dan Rosenzweig joins us tomorrow exclusively as his stock tanks after hours. I mean, it's down by a third. Rosenzweig saying in the earnings release, since March, the company's seen a significant spike in student interest in chat GPT,

which they think is having an impact on their new customer growth rates, getting help with their homework from AI. Plus, another exclusive interview, MicroStrategy's Michael Saylor. That stock slightly higher in overtime after reporting Q1 numbers. But their numbers are really Bitcoin's numbers, aren't they? Yeah, I mean, this is their core business is business intelligence software, but Bitcoin, they are the biggest publicly traded holding company of Bitcoin. And as that moves, so too does MicroStrategy shares. So that'll be key to watch.

You know, we've got a lot of data as well this week, and certainly it's really all about the flash PMIs, ISM services on Wednesday, and then, of course, labor data in the midst of all this central bank stuff with the Fed in particular going on this week as well. It seems like a quarter point hike is pretty well expected. It's what happens next. And what's the language around that? And then pretty soon after that, of course, we got the jobs report. And that's where we get to see how much pressure the Fed is under to do one thing or the other. And then Janet Yellen's trying to say, hold on, wait a minute. We've got the debt ceiling here.

Raise it, please. We're going to end up with a knot on our heads. Yeah. With June 1st, the number that was put out by Yellen by Treasury just earlier in this hour, and certainly, I think, going to be raising some eyebrows on the street. We're going to have to see how lawmakers and investors react to that date, which we know from Kayla is conservative. And that doesn't mean, yes, that June 1st is the X date. It's maybe more of a Y date, but, you know, still watch out for it. All right. Well, that's going to do it for us here on Overtime. Fast Money starts now.