Closing Bell - Closing Bell: Rising Recession Fears, Bet On The Banks & Biggest Drug Ever 9/22/22

Episode Date: September 22, 2022

Another volatile day on Wall Street as investors fear the Federal Reserve's rate hikes could push the economy into recession. Fairlead's Katie Stockton says the market has long-term downward momentum and investors should be skeptical of any bounces right now. But CFRA's Sam Stovall says October is typically a bottoming month for the market and thinks we could be setting up for an end of year relief rally. Wells Fargo's Mike Mayo on what the latest Fed rate hike means for the banks and which financial stocks he thinks are the most attractive. UBS' Colin Bristow upgrading shares of Eli Lilly and explains why its new weight loss drug could be the "biggest drug ever". And Mizuho's Dan Dolev downgrading Block and says corporate mismanagement is blocking growth.

The Fed hangover, sending stocks lower once again with the Nasdaq feeling the most pain. Though the Dow has made a bit of an impressive comeback. The most important hour of trading starts now. Welcome to Closing Bell. I'm Mike Santoli in for Sarah Eisen. Let's get straight to the market dashboard for the day here. The S&P 500 has been down as much as just about 1% at the day's lows. Now the significant thing, if you look at the year-to-day chart, is yesterday in the seesaw action after the Fed decision, we did break below this 3,800 level. That was an

area that some of the bulls were hoping would kind of hold. It was the range low for what we've been into the past four months. And now we're in this sort of overshoot zone, not too far from the June lows. That's been the issue. But the real messy actions are really happening in treasuries, in fixed income. Stocks are kind of sloshing around, getting oversold. So maybe that's limiting the immediate downside. But it's a bit delicate because the market has been still twitchy, along with those bond yields rising all day. Now, take a look. There was a bit of a silver lining, a lot of talk around how negative sentiment has gotten, certainly among retail investors, a rare 60% plus bearish reading on the weekly AAII investor poll. Now, that's only happened four times in the past. This poll has existed since 1987.

These dots show exactly when that was, twice in 1990, twice in 08, 09. So there's never just been an isolated incidence of first getting to 60 percent and then the market bottoms. But it happens in the zone when one year out, the market has been higher each of these times. Not statistically significant, just four instances. And clearly, this is not the most scientific poll, but it's something to keep in mind. One of the positives eventually could be that sentiment has become so negative. Now, let's talk a little bit more about the market trend, where it might go from here. As I mentioned, with the S&P 500 falling below that support level around 3815 in this latest round of selling. Our next guest says there is a new level that should be on your radar. Let's bring in Katie Stockton from Fairlead Strategies.

And, Katie, it's great to have you on. You've been expecting, you know, this little summer rally we got into mid-August would probably not be sustained. And we rolled over once again. What are we targeting right now in terms of the S&P 500? Where do you think we have to visit? Well, the latest downdraft took the S&P 500, as you mentioned, down below this 3815 support level. It's not a confirmed breakdown yet. That would require a couple of weekly closes below because it is such a long-term major level. And unfortunately, if that breakdown is confirmed, the targeted support is just south of 3200. It doesn't mean it gets there quickly. There is some interim support just north of 3500. And we actually think that's doable for this year. But thankfully,

we are coming into today really, or today is showing a short term oversold reading. And part of what you just cited, that AAII data, so sentiment got a bit oversold, our stochastics got a bit oversold. And really just kind of over the broad basis of market internal measures, we saw some oversold indications. So it does collectively support a minor bounce in here. We think it will be fleeting, but at least could stave off that breakdown a little bit longer and give folks a chance to sell at a better price. Right. I was going to say, if we do get a bit of relief and the market is able to bounce a bit, clearly you think that would not be something to bet on

continuing. You think it would be something to sell into. But if you're scrutinizing the character of a rally, like a lot of people did coming off the June low, what would you be looking for as a sign that momentum was rebuilding to the upside? Well, I think positive divergences is the easiest and most obvious thing that we'd be looking for, meaning higher lows in our indicators as prices coming off of a lower low. That would be a first step, of course, and really just a loss of downside momentum that looks meaningful. While we have that short-term oversold condition, we don't have an intermediate-term oversold

condition. And unfortunately, those intermediate-term gauges that we track are going the wrong way. So we have long term downside momentum and now also intermediate term downside momentum. So we do think that bounce would be fleeting. And we think that the bottom will be a process, not an event. So we want to see those divergences unfold over time. And we think it could take months. Yeah, that would be, I suppose, typical after this kind of a long-term downtrend. Now, the NASDAQ, NASDAQ 100 or composite have been leaders to the downside here. And, you know, we see some major stocks this week, Microsoft, Alphabet, undercut the lows that they had hit back in June. So it clearly seems like there's some headwinds there. Is there a different story with the Nasdaq or is it essentially the same story, but I guess just more

so? Well, it is. It is exhibiting downside leadership and that's really coming from the mega caps. And we had cited a couple of weeks ago the breakdown in NVIDIA as being a bad example for the rest of them. And now we have Google, we have our Alphabet and Microsoft. Meta has already broken down. So these breakdowns are becoming very widespread below the summertime lows. And unfortunately, what it indicates is that the major indices are likely to do the same. And unfortunately, also the high growth stocks that I think a lot of investors have put some hope into in suggesting that perhaps they had found their bottom. I think, unfortunately, they're going to be surprised to the downside here

with those likely to follow suit, especially if we see heavyweight Apple break down. The level I'm watching on Apple is around 150 if it is taken out. I think that's where we're going to see that real sentiment shift. Already, the VIX is poking above a minor resistance level and has room to 35. And if we see Apple break, I think we'll see that level. Now, bond yields obviously making new highs, multi-year, multi-decade highs in some instances. Where does that set up? Because it does seem as if some of those moves have started to appear a little bit stretched.

I would agree. They do feel stretched. And yet, looking at yields, looking at the dollar index, the momentum gauges still do point to the upside. And I think they're both really cautionary tales as to why we need to respect momentum. I mean, we've seen positive momentum or upside momentum behind both, and it really has been unrelenting, if you will. Ten-year Treasury yields have cleared that three and a quarter level that we're watching that does suggest eventually they can reach four percent. It may happen much

sooner than we would have expected with this upside that we've seen more recently and yet there are still some signs of exhaustion there here based primarily for us on the DeMarc indicators. Those suggest that we might get a couple of weeks of consolidation. And yet day after day, we come in and there's still that momentum behind them. So I think for now we're respecting that. For sure. Four percent is really right ahead of us here. It's at three seven as we speak. Katie, thank you very much. Good to catch up with you. Of course, you too. All right. Bank stocks are pulling back again today as recession fears trump rising rates after the break. Top ranked bank analyst Mike Mayo lays out his latest thinking on the sector and later the Fed's rate hike.

You're watching Closing Bell on CNBC. Check out FedEx getting a pop this afternoon after the company released earnings ahead of schedule. They had been slated for after the bell. Earnings per share coming in at $3.44. That's on revenue of $23.2 billion. The stock up almost 3 percent now. This comes, of course, after FedEx warned last week about weakening global demand, with the CEO saying he expects a worldwide recession. Shares are down 25 percent this month, just getting a little bit of relief on that early earnings release. Now, in a rising rate environment, we usually see bank stocks rise, but that hasn't been the case this year.

The S&P Bank index down about 15% for 2022 and more of the same today. The big banks down along with the broader market. But our next guest says bank earnings should finally be back to normal after 14 years. Joining us now is Wells Fargo senior analyst Mike Mayo. Mike, good to have you here. I mean, you know, the story's pretty clean and consistent, right? I mean, higher net interest earnings without taking on more risk should filter through right to the bottom line. Market's not responding. Overhang of, I guess, credit concerns. Where does that leave us,

though? When is when are you going to disprove the idea? Well, how can you that a recession is not going to undercut their earnings? Well, I think when it comes to bank stocks, the stock market has a cognitive disorder and that disorder is recency bias, recency bias from the global financial crisis 15 years ago. So first, when it comes to credit, not every recession is a credit crisis. And if there are big credit problems, it's likely outside the banking industry. So if you're waiting to buy bank stocks for the big credit blow up, like the global financial crisis or even some other recessions, then you're going to wait and wait and wait and wait. And you're going to by that time, the Fed will be easing rates and it'll be off to the races. The other recency bias is that the banking industry is going back to normal. The last 14 years have been abnormal with zero interest rates most of the time. So the net interest margin,

the spread at banks, should be 40 percent higher if it went back to the level before the global financial crisis. So we're just going back to normal and we're going back to the level before the global financial crisis. So we're just going back to normal and we're going back to the days of what I like to call 363 banking. Now, this dates me a little bit, but that's when you borrowed at 3 percent, lent at 6 percent and you were on the golf course at 3 p.m. Right now, there's no more golfing at 3 p.m. for bankers. But 3 percent Fed funds where we are now is going back to normal And going back to normal means the biggest tailwind in modern banking history when it comes to Main Street banking revenues. You're likely to see that third quarter. You're likely to see more of that in the fourth quarter and still more next year.

So when do you jump in? The next three months are tricky. I mean, you have Fed rate hikes, quantitative tightening, tighter capital standards for banks. You know, hopefully that all works out. That could be a toxic mix in the short term. But if you're looking out over the next year, banks should be one of the best performing industries out of all industries with some of the best EPS growth. By the way, if loan losses increase four times from the current level, we still think banks grow earnings next year. Yeah, that's the interesting part. I was going to say, even if there's no credit blow up,

if things erode a little bit on the mortgage side, the consumer side, the corporate side, small business, you know, how much of a cushion is there? And you kind of answered that. Does that mean that the stocks you should look at are the ones that are kind of the most traditional Main Street oriented or how to navigate the individual stocks? Yeah. So we still feel that there are Main Street banking tailwinds and Wall Street banking headwinds. And on the Main Street banking theme, I've been wrong this year at Bank of America, but actually I think the stock market's been wrong. At $32.50, Bank of America, Bank of America, Bank of America. I will come back

in a year from now and you're going to say, hey, that was a good opportunity. That's what I forecast because they benefit from the higher rates and they've also de-risked about as much as any bank for the last 15 years since the global financial crisis. Right. I'm looking at, you know, so it's a bit under a 3% yield. You know, you think that if the banks were able, without limits, to buy back as much stock as they could, this would be ideal, right? Because they are kind of earning plenty. They have excess capital. And yet they can't quite directly get out there and buy their own shares as much as they'd like. Right.

I mean, some of the regional banks still can buy back their stocks. Banks like PNC or Regions or Fifth Third or some of the regional banks that we favor. But you're right. J.P. Morgan and Citigroup can't buy back their stock now. Bank of America, you know, my personal favorite number one pick. They can't buy back that much stock next year, though, with all these earnings that are likely to happen in the second half of this year. They'll build up capital ratios pretty quickly and they'll be back in the game. So between now and first quarter of next year, you need to be heavy in the banks. We would start picking away right now, though. Outside of the very largest banks, is M&A even a theme at this point? Well, yes, to a degree. I mean, as you see, the government has been putting the brakes on some bank consolidation.

And doing so is one of the biggest gifts around to Brian Moynihan of Bank of America and Jamie Dimon at J.P. Morgan. So it just deepens the moats around the businesses of the largest banks. But certainly for U.S. Bancorp, investors are waiting for that merger to be approved. PNC has completed their deal, and they're doing quite well. So mergers are still a theme, but not as much in the current political environment. All right. I guess we've just got to get through whatever kind of recession scare, if that's what it is. And we'll see how it goes. Mike, thanks. Thanks.

Appreciate it. Let's now check on the markets. The Dow is up a little bit, up about 53 points. S&P 500 is now at its losses to down about a quarter of a percent, still below that 3,800 level. Russell 2000, though, deep underperformer, off almost 2% on the day. Up next, we'll tell you why FTX and Sam Bankman-Fried are looking to raise a big new round of funding, even as Bitcoin sits near multi-month lows. And speaking of Bitcoin, Mizuho cutting its rating on Block today,

in part on the company's, quote, Bitcoin fixation. We'll talk to the analyst who made that call. Closing bell. We'll be right back. Sam Bankman-Fried's FTX is looking to raise a big new round of funding, even as Bitcoin sits near its lowest level in months. Kate Rooney has more on the company and why it is looking for fresh funding right now. Kate. Hey, Mike, that's right. FTX is in talks to raise up to a billion dollars in new venture capital money. That's according to three

people familiar with these discussions. Those sources telling me this deal would keep the crypto company's valuation at about 32 billion dollars. That's what FTX was worth back in January after its last funding round. They call that a flat round. Some see it as a big win in this current market, especially when you've got private fintechs like Klarna taking VC money at an 85% discount. You've got shares of Coinbase down about 75% this year. And then, of course, Bitcoin and cryptocurrency is losing more than half of their value. But flat rounds, Mike, not the norm, at least in the past decade. It's not the valuation step up.

Companies or those private investors are used to FTX's previous backers include SoftBank and Sequoia, among some other names. And sources tell me these deal terms could change in the coming weeks or months. But bottom line, any money raised here will be used for more M&A. We've talked before about CEO Sam Bankman-Fried's role as an industry consolidator in crypto. And sources tell me that FTX is looking harder now at consumer finance apps to gain users in the U.S., not just those pure play crypto companies. Voyager, though, is really one to watch in the next couple of weeks. A source close to that process telling me that Binance,

which is another crypto exchange, and FTX are now the front runners to buy Voyager out of a bankruptcy auction. Mike, back to you. Interesting, Kate. Now, you mentioned that FTX has been a consolidator, kind of backstopping other players, whether that means, you know, they're kind of making sure some counterparties are liquid and all the rest of it along the way. I wonder if that changes the assessment of what the new valuation might be. And what I mean by that is if it's now a bigger company that's bought a lot of other stuff relative to when it last raised money, is it apples to apples to say it's a flat round? That's a great point. I mean, they have been this consolidator.

They have also taken on, you'd think, potentially some leverage here. So will the value of their books be the same? And has that changed on the back end? The one downside of covering some of these private companies is you don't always have that transparency. Even if and when they announce this funding round, you likely won't get some of the details in terms of what the deals looked like that they did.

They've done a deal with BlockFi. Voyager is likely to come out in the next couple of weeks here. But it's a good point. It may not really be apples to apples of what they were worth because their balance sheet could look so different. They're really now a sort of crypto holding company in a way. Exactly. Yeah, no, it's fascinating, especially if they want to go more sort of direct to consumer. As you say, we'll see how how it tracks. Kate, thank you. Thanks, Mike. All right.

UBS says Eli Lilly's new weight loss drug could be the biggest drug ever. And the stock is rallying as a result. The analyst behind that call joins us next. And you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. And don't forget, you can be in the room with some of the biggest names on Wall Street during CNBC's Delivering Alpha, which returns in person next week. Just scan the QR code on the screen to register now. We have a news alert on Kano Health. Bertha Coombs has that story. Hi, Bertha. Hi, Mike. We saw shares halted actually for volatility. Kano is a value-based care. They provide home health and primary care health for seniors and others. In fact, we had the CEO on

just last month, the Wall Street Journal, now reporting that Humana is looking perhaps to acquire, at least in exploring a possible acquisition of Kano Health. The CEO, Marlo Hernandez, was on closing bell just last month when we were talking about Signify Health having been one of the companies that Amazon, United Health and CVS Health were looking at, CVS Health winning the bidding on that. Kano shares, as you can see there, surging now, 37 percent on that news. This is a really hot area right now, Mark, in health care. Yeah, apparently so. Kind of moving on to the next deal opportunities, Bertha. Thank you very much. And Kano Health CEO, the same one will be on the exchange tomorrow at 1 p.m. Eastern time. Shares of Eli Lilly popping today after UBS upgraded its rating to buy from hold

and raised its price target to $363 from $335. The rating change comes after Mojaro, a key weight loss drug, showed promise in a recent study and could become the biggest drug ever. Joining us now is UBS analyst Colin Bristow. Colin, thanks a lot for joining us. And obviously there's been some excitement certainly around this drug. It's seemingly been in the market to some degree. What is your call based on in terms of where that can go revenue-wise and why do you think the market hasn't already figured it out? Yeah, I think there's a couple of things to point out here, right? So the drug launched in diabetes

in May. To date, this has been the most successful launch in diabetes ever. We had subsequently we had data in obesity after that, which is really where this outsized opportunity comes from. And the drug showed a best in class-class profile that we've ever seen for a therapeutic in diabetes. And as a headline data point, the drug led to a 21% mean reduction in body weight, which, to put this into context, with bariatric surgery, you're in the ballpark of 25%. So really, this is a new paradigm of of treatment or could be a new paradigm of treatment in obesity. And Lilly is potentially going to file this drug for approval in obesity by the end of this year.

So, we took up our estimates to $25 billion from $20 billion, which would give this drug the accolade of being the highest selling drug ever. And street consensus is currently around 15 billion. We just see this number as stale. And as Lilly subsequently file and the launch continues to execute, we expect numbers to come up to eventually meet or exceed ours. That $25 billion estimate, what goes into that in terms of the number of patients and pricing and how long they take it for? Yeah absolutely so the I want to point out a couple of things here like one this is already approved in diabetes and so if you look at the

market this is operating in the GLIP1 market was around 16 billion in sales last year and so by our estimate we think Manjaro can do around 10 billion in diabetes alone so that do around 10 billion in diabetes alone so that leaves around 15 billion from our obesity estimate now turning to obesity there's around 108 million obese people in the US and for Manjaro to reach say 20 billion in peak sales in the US alone you'd have to treat 1.6 million patients at the current price point, which equates to less than 1.5% of that obese population.

Now, you know, we can argue, like, what is the true size of that treatment-seeking, compliant, reimbursed population? Even if it were one-fifth of that, you'd still only need a 7.5% share of that population to get to your 20 billion number. And then I just wanted to get at the valuation of Lilly because, you know, it is certainly about double the P.E. of comps like Bristol Myers or Merck or whatever. And so you're saying that that's that's fully justified. Yes. Lilly's trading at some low 30s multiple on 2023 EPS. Our price target is based on a 36 times multiple on forward

EPS. And so when you look at the growth profile of Lilly, you have double digits of 10% plus and 20% plus sustained top and bottom line growth, largely driven by this asset. And so it definitely deserves a premium multiple. We believe Lilly could do in excess of $20 in EPS by 20 asset. And so it definitely deserves a premium multiple. We believe Liddy could do in excess of $20 in EPS by 2026. And if you look at other comps that are generating that sort of growth from a diversified revenue base that's sustainable, you look to the animal health comps, they're trading at 30 to 40 times. Yeah, certainly not too common to see that kind of growth at this point. Colin, thank you very much. Appreciate you running through the call with us. Thank you. All right.

And here's where we stand in the markets. The Dow is still marginally positive of about 35 points. The rest of the index is still in the red. The S&P 500 down a third of one percent. The Russell down a full two percent. Nasdaq still underperforming, even though Microsoft is up. NASDAQ composite off 0.8%. Now, blocking growth. Shares of block falling after getting downgraded this morning. The analyst behind that call joins us coming up. And throughout Hispanic Heritage Month, we're celebrating our CNBC teammates and contributors. Here's former Diane von Furstenberg CEO Sandra Campos. As a Latina, it's very important to me to be proud of my heritage and be proud of who I am. We are uniquely strong and we need to be proud of that and showcase our strengths in the workplace and at home.

From my own upbringing, having to work in my father's portiller, and learning how to understand about logistics and warehouse and production. I certainly have taken that and apply a lot of those lessons learned throughout my own career. Let's check out today's stealth mover, Darden Restaurants, and investors are losing their appetite for the stock. Darden missing same-store sales estimates for its flagship chains Olive Garden and Longhorn Steakhouse. And higher commodity costs also weighing on the results since the company is paying a pretty penny for ingredients, such as its all-you-can-eat salad and breadsticks. The stock, as you see there, down 3.7% on the day. From human food to pet food, we have a news alert on Fresh Pet.

Leslie Picker has that for us. Hey, Leslie. Hey, Mike. Yes, we have some headlines crossing from the Wall Street Journal about how Jonna Partners has taken a nearly 10 percent stake in Fresh Pet. The firm has been quite active over the last few years among the more active activist investors. According to the article, which cites people familiar with the matter, Jonna is hoping that the company will consider operational changes, capital allocation improvements, potentially selling the company outright as it's been a very lucrative space for dealmaking in recent years. Fresh Pet shares down about 57 percent year to date. And so we have reached out to sources close to Janna Partners. We've reached out to Fresh Pet for a comment we have yet to hear back,

but we will let you know once we do. But those shares are currently halted at this point in time. All right. And down something like 75 percent from their high. So definitely a bottom fishing effort here by by Janna, it seems. Leslie, thank you. You got it. And Len something like 75 percent from their high. So definitely a bottom fishing effort here by by Janet, it seems. Leslie, thank you. You got it. And Lenore shares higher after beating Wall Street earnings estimates. Up next, we'll discuss whether it's time to bet on the builders. That story, plus Salesforce surging and block falling when we take you closing bell market zone. CFRA Research Chief Investment Strategist Sam Stovall is here to break down these crucial moments of the trading day.

Plus, Mizzou host Dan Doliv on block and UBS Private Wealth Management's Ali McCartney on the market. So welcome to you all. And Sam, let's start with you. You know, don't fight the Fed's been a pretty good maxim for, you know, six or eight months right here. We did get a little more ratcheting up of the anticipated hawkishness and what the Fed's going to do. Is it as simple as that? Has the market already kind of absorbed that reality or how do you see it playing from here? Well, I think that investors right now aren't really sure which way to turn. I mean, if you look to history and you know that I'm a big historical fan, but realize that history might be a great guide, but never gospel. It's on the line. And I mean that because we retraced 50 percent of this bear market move on April 12th.

And history says that whenever we have retraced that much, we don't go down to set an even lower low. Ditto when you look at the washout of breadth that we saw in that June 16th period. But we're getting pretty close to possibly setting a new low. And I think that the blame will likely go to the Fed. Sure. And, you know, in a more long term way, how have our things getting set up right here? Because we are going to be running into obviously, if not now, then soon, if we continue to decline, the market will get kind of washed out again. As you mentioned, it was in June. We're going to be running up into what's typically a pretty bullish seasonal period. Of course, that's not until, I guess, late October or after. And, you know, we've been going down for eight, nine months when markets have been down 20 percent year to date in

September. They actually more often than not are higher than that low at the end of the year. Well, I think we're probably setting ourselves up for some sort of a nice extended relief rally, as you just mentioned. I mean, October is by far the most volatile month of the year, 36 percent more volatility than the average for the other 11 months of the year. But it's also typically a bottoming month in terms of market declines. And because this is also the beginning of the fourth quarter of the midterm election year, heading into the first four months of the midterm election year heading into the first four months of the third year. Again, history says that there have been outsized advances, not only in share price, but also frequency of advance, which you really can't ignore.

Yeah, certainly can't ignore, but maybe shouldn't be too early in trying to anticipate. So we'll see how things how things go. Stick around, Stan. Meanwhile, FedEx unexpectedly reporting earnings in the last hour. anticipate uh so we'll see uh how things uh how things go stick around stan meanwhile fedex unexpectedly reporting earnings in the last hour it had been slated to come out after the bell let's get to frank holland at the nasdaq with more hey frank hey there mike as you see right there shares up after that surprise announcement i spoke to fedex they said this early announcement was a result of a filing error and not intentional in any way that That was really the biggest surprise of this whole thing. The revenue and EPS, basically what they pre-announced last week. The company also laying

out the plans for its cost-cutting measures as much as $2.7 billion. The bulk of that's going to come from its express division, including reducing flights for a signature air delivery and parking planes, up to five million cuts from its ground service. That's the e-commerce-focused division, closing some facilities and even cutting Sunday delivery. By 2025, it's looking to cut $4 billion as part of an overall transformation plan. Also starting next year, FedEx will increase its rate starting in January, a 7% hike for expressing ground, almost 7% to 8% for freight, which is basically trucking. In the release, CEO Raj Subramanian saying FedEx implemented cost action and continue to focus on yield management and revenue quality. Some shades of the better not bigger from UPS. New CEO Carol Tomei implementing that.

When you look at the report, you're going to see a lot of things are going to point a lot of analysts to basically errors in operation by FedEx as opposed to the macro pressure that CEO Raj Subramanian pointed out last week on mad money. You're looking at revenues for Express. They were flat year over year. But ground was up 6%, freight up double digit. Revenue per package up 16% for Express. Revenue per package up 12% for ground.

But as you can see right now, shares actually moving higher after this very surprising preannouncement of earnings for FedEx. Back over to you. Yeah, just a little bit of relief on the stock given where it's come from. And Sam, I just would ask you about, you know, the transports in general. They've not been friendly in terms of their message for the overall market. But here you have an example of a stock that's down 40 percent, has a pretty bad macro outlook. They announced some cost cutting and the market says, OK, maybe it's already taken

its punishment. Where does that leave us? Well, I think that it's possibly the situation, because when you look at Q3 earnings estimates, the market was expecting a 10.5 percent increase for the 500 for Q3 as of June 30th. But now that number is only 3.1 percent, whereas the industrials have actually held up fairly well. And that's where the transports are found, with the air freight being among the biggest sub-industries in that sector. Also, revenues remain fairly optimistic at about 16.9 percent growth. We are seeing also positive numbers still for 2022, as well as full year 2023. Yeah. Frank, I want to get back to you also to talk about Salesforce. Now, that's a bright spot for the Dow today. The cloud software company unveiling plans to reach adjusted operating margins of 25 percent for fiscal year 2026, which is 5 percent higher than its current fiscal year. So, Frank, investors seem to like that

margin guidance. But what about Salesforce's revenue outlook? Yeah, investors seem to really like that revenue outlook as well. They held their investor day yesterday when their CFO, Amy Weaver, laid this out. She spelled out their guidance for revenue for fiscal year 2026. That's also kind of going along with that margin guidance of $50 billion by fiscal year 2026. And that included $2 billion of impact from a stronger dollar, potentially. The stock really popped after that. And then when you look at it, it's a substantial increase from their fiscal year 2023 guidance. And again, that includes that FX headwind. You got to remember, that's a big thing for Salesforce and a lot of other tech companies. The dollar up more than 6% in Q3 alone. And then in general, I've spoken to a lot of analysts that have said,

if you look at the valuation of Salesforce right now, it's just too cheap to ignore. Back in January, it was trading at 54 times forward earnings. Right now, trading at about 28 times forward earnings. And if you look at the whole macro picture, totally different macro picture than FedEx for Salesforce, cloud spending has been resilient. Even as we've seen recession talk, we saw the stock market hit lows in June. Well, cloud spending, it dipped just a little bit,

but then it popped right back up and staying really consistent in July and August, 26% higher year over year in August. So for Salesforce, there's a lot of macro trends going in the right way, really supporting their revenue story and their guidance, and also the idea of cloud adoption. Yeah, that's something more than 15% annualized revenue growth.

If they can hit it, we'll see if 28 times earnings reads as cheap to a lot more investors. Frank, thank you very much. Meanwhile, KB Home and Lenar both topping earnings estimates in their recent quarters, but rising interest rates putting a chill on demand. Lenar reporting a 12% drop in new orders in the third quarter. KB Home's orders dropped by 50 percent. The home builders hit hard this week with the Fed in focus and mortgage rates on the rise. The average rate on a 30 year fixed mortgage climbing further above 6 percent, touching its highest level since 2008.

So, Sam, this is this is a tough call, right, because these are stocks like a lot of cyclicals look really, really cheap on on current earnings. But the Fed is quite explicitly looking to have a housing market retrenchment. It's already underway. And we haven't seen mortgage rates like this in a long time, even as house prices have gone up. Where does that leave you? Well, leaves us unexcited when it comes to the home building area. As you just mentioned, the mortgage rates are the highest that they've been since 2008. So that is a headwind that we think is going to keep pressure on the group, certainly maybe because you have very low inventories that that could be a benefit. But in general, our feeling is that while last year we had much of the earnings decline,

and therefore this year it won't be as bad. The other areas, such as household furnishings and appliances, we think are going to see double-digit declines in 2022. All right. Yeah, it's certainly a rapid turnabout in all those product areas. Meantime, blocked down again today. It's its fifth session of losses in a row and now down nearly 20 percent for the month. Mizuho downgrading the stock to neutral this morning. Analyst warning of slower user growth and saying a preoccupation with Bitcoin is one example of broader mismanagement.

The analyst who made that call, Mizuho's Dan Dolev, joins us now. Dan, great to catch up on you here. I mean, you also talk about some user fatigue when it comes to core products for Block, of course, the former Square. What does that mean? Does it mean just user growth not as rapid as it was before? Does it mean that they're finding other services to use, either consumers or vendors? That's a great question. Thanks for having me on.

So first thing, like the issue with Block or with Square is that they already tapped 75 percent of the low-income users right they have about 47 million users in the US and it's kind of like how many more users can you get from here and the second issue is those users are not transaction or not transacting as much or they're not transacting they're not increasing transaction as much as we want so the inflows into the cash app aren't as big the monetization if they don't take pricing is kind of flattish so that's what we talk about fatigue they're not really like you don't you don't get that next boom for that next step in the stock or in the cash app of engagement that you need for that to work and that's kind of the fatigue that we're talking about

and in terms of you know the the bitcoin storyline, obviously leader Jack Dorsey of Block is a vocal backer of Bitcoin in a very big picture way. Has the company, you know, using some of its resources in that direction? How does that either distract management or how does it color the overall story? I mean, what should they otherwise be paying more attention to? I think it's a great question. Look, he's a visionary, obviously. He built this. This is an amazing and we still say there's enormous potential. You think about the Holy Grail on Square is kind of connecting the three ecosystems, right?

The point of sale, the cash app, and then afterpay, which is buy now, pay later. But I mean, what we're hearing is he spends a lot of time on Bitcoin. He's very focused on Bitcoin. I think that, you know, when you don you don't have him fully engaged and fully in there doing everything you need to connect the ecosystems, there's just no one else there with that vision. And that's our worry is that they're too distracted right now. And that's what's causing the lack of innovation or too slow innovation. Product launches are not as fast.

So everything that accumulates to slower than expected growth. And that's our call today. Now, the stock already, you know, just about down 80 percent off of its record high, not a ton of kind of earning support here. Where do you think the shares should get to? I mean, we're I mean, the bears of the bears think that, you know, it could go down to 30. I mean, we have like a fifty seven dollar price target, which is kind of already above where it's traded. But I think there's, if the economy, but by the way, really important,

none of our call is based on the economy. If the economy actually takes a turn to the south, then that consumer is going to weaken dramatically. So I think there's even more downside in a weaker economy because of the low-end consumer spending power. Yeah, fair point. It's mostly, I guess, about kind of crowded payments, fintech space. Dan, thanks a lot. Appreciate the time.

Let's get another check on the market with the S&P tracking for its third down day in a row, though it is making a bit of a comeback here late in the session. Never did get too messy to the downside, at least not yet. Allie McCartney is managing director at UBS Private Wealth Management. She joins us now. Allie, take us inside some of the conversations you're having right now. We're hearing a lot of folks say, hey, look, bond yields all of a sudden are paying you a little bit to stay safe. On the other hand, are we not in the business of looking to buy equities when they're down, you know, 23 percent off their high. So how's the risk reward set up? Look, so yesterday was a tough day and it was a tough day because the three questions that investors had of the Fed were answered and they were answered in sort of a negative light. Right. How, when, what, how high are we going, when are we going to get there and

what is going to make you pivot? And the reaction was therefore sort of a puking out of risk in an environment where there was very little risk on to begin with. You just had the B of A asset manager survey come in at a historical high for both bearishness and cash on the sidelines. And that's what you're seeing. And you're seeing that to the point you just made on the equity and the fixed income side. We are in a very strange environment going back to history, which I know Sam was talking about. And I think a lot of us use as sort of a relative benchmark setter for our investment decisions. Two percent of the time in 12 month rolling period, stocks and bonds have been down at the same time the bad news is we're in that two percent of the time the good news is that relative normalcy that

98 of the time is in front of us so there seems not to be again on either equity or bond sides a lot of urgency right now but just like some of the stocks that we were just talking about fedex block there is so much negativity priced in that any surprise to the upside, whether we see that in economic data, CPI, the energy crisis, that could be a great time to get into the market. But you have to have your time horizon. You have to be able to differentiate the short term murkiness from the long term opportunity. Yeah, on some level, it seems like a fairly linear process we've been going through this year. We had a highly valued market. Yields went up. Valuations came down. Now we're all maybe waiting to see how much earnings have to come down in this economic slowdown or stall or downturn, whatever we're in right now.

On the other hand, the macro stresses seem to be building up, too. You're looking at currency markets. You see the extremes in the way the dollar trades, the velocity of the move and global yields. So it almost seemed like if all we're dealing with is corporate fundamentals and the discount rate, it's OK. If all of a sudden we have to be on alert for some kind of macro accident, that seems to be a different story, Ali. Yeah, look, and you pointed a lot of them out, but there are even more. So we have macro challenges. We have micro challenges. We have hyperbolic moves in markets, whether it's the dollar, whether it's interest rates that we've never seen before, even isolated. So all of this together means that the level and the appetite of willingness to

take risk is really, really low. But to the point you made earlier, you actually have fixed income yields. You can buy a six-month treasury and you can pocket that yield. You can start to think about really building a portfolio on a fixed income. So not only do we have an amazing amount of overwhelming uncertainty out there, but we also are starting to have opportunities we haven't seen in a while. And, you know, and this gets talked about a lot, but I really don't think people understand it or give it as much power as it should, there are 15 years behind us of free money at virtually zero interest rates and investors that have only experienced that kind of economy, which really has very few repercussions on either the micro or the macro side,

or professionals who have lived through it. Yeah, for sure. There's it's definitely been a bit of a of a tidal shift in in expectations and conditions. I mean, look, the 90s tech bubble happened with yields at five and six percent. People managed to take risks. So people just have a different equation in their heads, I think, right now for what all that means. Ali, thank you so much. Sam, one other point I think maybe it's worth making, which is by the time the recession is here and now and obvious and declared, stocks have often done the work to the downside. How has that tended to operate? Well, you're absolutely right that the market

tends to top out about seven months before the recession hits, and then it bottoms about five months before the recession ends. And usually the NBER, National Bureau of Economic Research, doesn't really tell us we're in recession until eight months into the recession. So as a result, usually when the NBER tells us we're in recession, that is typically a good buying signal because from a timing matchup perspective, most of the negative news has already been factored in. Yeah, we talk a lot about lagging indicators, whether it's employment or something else, and the NBEO might be one of them, but they haven't talked yet. So, Sam, thanks a lot. Appreciate the time today.

My pleasure. Thanks for having me. As we head toward the close, market has sort of narrowed its earlier losses a little bit, but not terribly much. The S&P 500 on track to be down about three quarters of one percent. The Dow slipping below the flat line down to about 82 points. NASDAQ continues to be the underperformer here. Market breadth, you see there about three to one declining to advancing the U.S. dollar index making new multi-decade highs. That has been a macro pressure point as well as the volatility index ticks just a little bit higher into the close here. That does it for Closing Bell.