Closing Bell - Closing Bell: Stocks build on rally, Micron CEO & Commerce Secretary on CHIPS funding 7/20/22

Episode Date: July 20, 2022

Stocks built on strong gains for the week, with the Nasdaq leading the charge once again. Tom Lee from Fundstrat and Alli McCartney from UBS debate if you should trust this comeback rally. Plus, the CEO of Micron and Commerce Secretary Gina Raimondo join to discuss the push for government funding for the semiconductor industry.

Tech shares driving the Nasdaq higher today, but the Dow is in and out of the red as we head into the close. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand in the market. Tech is leading the way. Look at the Nasdaq right there in the middle, up 1.5%, building on some strong gains already this week. S&P is up about 0.5% because you've got groups like consumer discretionary at the top of the market, technology, communication services, energy, industrials, and financials.

Those are all the groups in the green. What's lagging today? The defensive stocks, utility, health care, and consumer staples. The DAOs have had a few attempts to go positive just in the last few moments. It's flat now. Check out the top performers right now in the NASDAQ 100, which once again is driving the gains. And that is despite higher treasury yields and a stronger dollar today. Both have put pressure on tech stocks before, not today. Look at Netflix.

It's an earnings winner. It's driving the whole movie theater and media groups higher today at the top of the market. You've also got some of the software names doing well, like a Datadog or an Okta. The ARK Innovation ETF, which houses a lot of these high flyers, which have gotten absolutely slammed in the spare market. It's up 5% right now, thanks to Coinbase, Unity Software, and Shopify, all up double digits right now. Coming up on the show, two key players in the battle over funding for semiconductors. We will speak exclusively to Micron CEO, who has been in Washington this week, as we speak, actually, meeting with lawmakers about the need for CHIPS Act funding in order to compete in the global market. Plus, the Commerce Secretary,

Gina Raimondo, will join us with the latest on where things stand in the bill's passage. All the semiconductors are rallying off of this procedural vote that happened overnight. Let's get straight to the market, though. Mixed action today, but the major average is still on pace for a strong week, even stronger month. The question now, can we trust this comeback rally? Joining us, Tom Lee from Fundstrat and Allie McCartney from UBS Private Wealth Management. I think we're going to have two people on different sides here because, Tom, you're pretty bullish. You see this rally as sustainable.

That's right, Sarah. You know, I think the second half of this year has a lot of tailwinds building. I think one of the biggest is that a lot of the inflationary pressures that we saw in the first half and that made investors think it was quite sticky are rolling over, whether it's commodities, durable goods, some of the foods and even some of the things pointing to housing. And I think from a market's perspective, that means inflation risk is declining. And that allows not only the Fed to be sort of less aggressive, but it allows PE to expand. And on top of that, earnings haven't been as terrible as expected. So the E part isn't as negative. And investors are bearishly positioned. And there's a lot of negative sentiment. And I just think it really is a formula for markets. If they can show a breakout, something that will be something that we have to respect. Ali, why are you more cautious? So, look, I do believe, we at UBS do believe that the 9.1 June inflation is likely to prove a peak, in which case, you know, there is a chance.

However, you know, the constant dialogue and back and forth in the market has been about, I say it's the I word versus the R word. It's recession versus inflation. And so maybe we have started on a path to a deacceleration in inflation, which would be wonderful and certainly start to provide some stability and hopefully get institutions back buying and taking on risks. But then we have to target the R word, the recession. And although it is true that earnings have not been horrible, the bare case for that is to say earnings are backward looking. Companies and consumers have been resilient and started to figure out a way to maintain

pricing power for now. But we're, you know, 24 companies in and each of those 24 companies have guided down. And, you know, that still has to hit the markets. Tom, it is a good point. Even if we've seen peak inflation, we have we may not have seen peak economic damage in terms of the Fed hikes on the economy. And the Fed is not signaling yet that it's ready for any pivot. So what about that recession question and whether there's more pain to come? Yeah, I mean, I think these are fair points. You know, foremost, we have to keep in mind that markets are forward looking. I think the central case for investors seems to be that a recession is sort of in the bag or it's a done deal or it's not, you know, it's unavoidable. But I think what may be strengthening in terms of incoming data is

a soft landing. What that means for earnings is just not entirely clear to me. I think a lot of companies, especially cyclicals, are going to get really hit with that bullwhip effect. So I think there's going to be a lot of e-damage. But as you know, with cyclical stocks, investors tend to buy high PE at earnings troughs because they look through that valley. And that means the index won't take as much damage. I do think you want to be overweight quality and visibility, which is large cap tech and growth. And then some defensives, as our team highlights, like health care. But that's a lot of ballast. I mean, we're talking 70 percent of the S&P is viable here and there's earnings risk on maybe 30 percent. But if the Fed's and you're right, we're not saying the Fed has said any declarative statement.

But in 1982, the stock market was almost three months ahead of the Fed before Volcker sort of declared an end to anti-inflation measures in the market bottom three months before that. But even if even, Tom, even if we see that this that that last month, June, was the high watermark in inflation, it's unlikely that we're going to get a Fed pivot anytime soon. They really have just begun their hiking cycle. It's the number one political issue for the for Biden. It's the number one issue for the Fed and the economy right now. And they've signaled they're willing to let the economy fall into recession to deal

with it. Even if we see 9.1 as the highest, it doesn't mean it's going to come down to 2% anytime soon. Sure. Sarah, those are great points. I mean, number one, you know, Fed hiking is not really what is problematic for markets as much as the Fed having upside risk, hawkish risk. And I think that's diminishing. We're starting to see a lot less expeditious language and much more measured. And look, if Fed funds get to neutral and the Fed wants to keep pushing above it, that's really most of the stock market history. And I think equally important, we have to keep in mind that 2% for core CPR or core PCE, if in the history of the economy, it's only been achieved 30% of the time. So I don't think the Fed actually needs us to get to

two. It just needs us to get away from, these are ugly numbers, you know, 6 percent core and headline and nine. I mean, these are terrible. But the Fed doesn't have to raise rates to 9 percent to really change forward expectations. In fact, consumer inflation expectations are still anchored around, you know, 2.8 percent. So it's not like the Fed has to crush the economy. It just has to manage expectations. Well, we've also got that QT wildcard. They're going to start tightening. And that's another sort of, I think, headwind for the economy. It just has to manage expectations. Well, we've also got that QT wildcard. They're going to start tightening. And that's another sort of, I think, headwind for the markets. But Ali, I'll give you the final word on the strategy. If you are feeling more cautious than, say, Tom's view on the markets, where should you be right now? Yeah, Sarah, you and I talk

about this a lot. My job and the job of advisors at a place like UBS is to protect capital. And as much as I hope that Tom is right, you know, I have to plan for the worst and expect sense in that transition period. And so I expect volatility to persist. We have, as our base case, a 3,900 in for year end. There is absolutely a world in which we saw peak inflation behind us and market history informs what happens over the next six to 18 months, which is largely above average returns, even if we go into recession. But there is also the possibility that there's another shoe to fall. And we've had a lot of good information hit the markets recently that has helped what may ultimately prove to be a bear market bounce. But I think all of the cautiousness, all of the strategies, defensiveness, going for quality,

having enough cash on the sidelines and, you know, really understanding what your time horizon still prove to be the truth in an environment like this. But we can keep our fingers crossed for sure. And really quickly, Tom, because you've been such a bull before. Look at Coinbase. It's up almost 40 percent this week. It's still down 70 percent for the year. Would you be going back into Bitcoin with this bullish view overall? Yeah, Bitcoin and China equities, I guess, are both going to be the highest beta expression of tech. But I think I think Bitcoin's recovery is pretty miraculous, right? There's been almost 50 percent wipe out of wallets, a huge deleveraging event, you know, maybe some fraud.

And yet Bitcoin has actually bounced close to twenty five thousand. I think it really speaks to the fact that we need to respect that price move. Yeah, also news there that Coinbase says it has no exposure to the collapsed hedge fund, three arrows, also Celsius and Voyager. That's helping the move today. Ali and Tom, great debate. Thank you both for joining me. It's good to have you. And the Dow's back in positive territory of 52, joining the S&P and the Nasdaq, which is rallying more than 1.5%.

After the break, our exclusive interview with the CEO of Micron. As chipmakers anxiously await funding from the CHIPS Act, why he says the government needs to act soon or risk falling behind. Next, you're watching Closing Bell on CNBC. Check out today's stealth mover. It's Silvergate Capital. Another crypto play. Wells Fargo raising its price target on the crypto banking platform to 115 from 100, reiterating its overweight rating on the stock, citing valuation. The analyst there believes his bear case is already priced in at this point into the stock after a more than 30 percent decline just in the last three months. Everything crypto is rallying nicely today.

The CHIPS Act clearing its first hurdle in the Senate last night, and the semis are certainly getting a boost today on the news. The VanEck Semi Index up 6 percent this week alone. Micron CEO Sanjay Mehrotra is currently in Washington, D.C. He's meeting with members of Congress, and he joins us now for a CNBC exclusive interview. Sanjay, it's great to have you. What are you hearing? Is this going to get done? So first of all, Sarah, great to be on your show. And yes, as you noted, yesterday's motion to proceed and a positive vote, a large bipartisan support in the Senate is very positive

momentum. We are hugely encouraged by this. Of course, we have to get to the finish line in the Senate and then we move next to the House. Hopefully over the course of the next few days, CHIPS Act will pass. And Sarah, you know that this is really important to secure economic stability and economic prosperity here in the U.S., as well as, of course, national security. And CHIPS Act is all about having America lead on manufacturing front and reverse the trend that has occurred over the course of last 20 years, where due to the incentives provided in nations overseas manufacturing has shifted to now only 12% of the manufacturing here in the US and of course CHIPS Act will work on bringing that back. Micron as the only US

company in semiconductor memory and storage is absolutely going to do its part in terms of investments here in the US.S. with the support of CHIPS Act, with the federal support, as well as state support. Well, that's what I wanted to ask you about, Sanjay, because there are reports. I don't believe that you've confirmed them yet, that you are looking at building a fabrication plant in Boise, Idaho, which I know your headquarters is there. Is that true? What are your plans? So we have not confirmed the site yet. We are evaluating multiple states across

the U.S. in terms of site selection. First things first, we need to get chips passed. And of course, we will be then making our decision around the site. Of course, Micron is headquartered out of Boise, Idaho. Seven thousand team members who I know want to see, and Micron wants to see, but our team members also in Idaho want to see Chipsack supported. And we are a global company. We have strong presence. We have manufacturing here in Manassas, Virginia as well. And, of course, we are looking at future large potential opportunity for manufacturing.

But Sarah, no decisions made yet. However, the matter is of great importance and urgency because we'll be looking at making our decisions in the next few months. And therefore, it's important to get chips across the finish line before the August break in Congress. Well, keep us posted on that. But Sanjay, as you mentioned, you're already doing it and other companies are already building plants in the U.S. What do you say to the critics who say this is just corporate welfare, you guys anyway should be building factories in the U.S. to protect your supply chain so that this kind of shortage doesn't happen. You have plenty of money. So I

think what's important, Sarah, is to recognize two things. One, for memory, only 2% of the global memory production takes place here in the US, only 2%. And if chips doesn't get across the finish line, over time that 2% will become even smaller. And of course, how can you have your national security address through manufacturing overseas? This is why we need to have CHIPS Act. How can we have economic prosperity? We saw how industries across the board got

affected by supply chain shortages, semiconductor shortages. In order to provide the relief to that and in order not to have a repeat of that, the investments are needed, support incentives are needed from the government in order to bring manufacturing here to have a resilient secure domestic semiconductor supply chain here in the US as well as to really have a pipeline of chips manufactured here in the US for critical mission critical military infrastructure as well and I think what's important is that companies like micron the

semiconductor industry invest tremendous amount of capital that goes into these manufacturing plants so of course we have to be competitive Sarah with overseas come locations where the governments have provided incentives for considerable period of time over the last 20 years and there is a 35 to 45 percent cost difference between production overseas and here. So of course companies like Micron will continue to invest vast majority of the capital required for this but the incentives from federal and state level are needed just to level the playing

field with countries abroad that have been supporting this industry, that have recognized the importance of semiconductors over multiple years. No, I get it that the... Go ahead, Sarah. ...Europe and China are also giving subsidies, and therefore it's a competitive issue. I guess my point is just TSMC is already building a plant, I think, in Arizona, and Samsung is looking to build a plant in Texas. So at some point, it does make economic sense, doesn't it, for you as a corporation to do this anyway, subsidies or not? I want to be very clear that for memory, if there is no CHIPS Act Micron will not be

able to invest because we have to be competitive with other global companies that are also in the same space so this is about not having these jobs in manufacturing go to overseas countries if CHIPS is not done we'll be seeding the future supply chain of memory future supply of memory to overseas countries. And this is what you don't want. Again, for national security reason, economic security reason. And of course, tens of thousands, many tens of thousands, hundreds of thousands of jobs here in the U.S. that the semiconductor industry will support with chips getting across the

finish line. But Sanjay, didn't you just warn a few weeks ago that the demand environment currently is changing and is weakening from what we've seen? So I do wonder about the timing here. Are we on the brink of seeing potentially that shortage go away? And in a few years, if this money goes to the chip makers and we start to see a real building a glut, an overcapacity problem given what's happening on the demand side.

I think Sarah, what you have to recognize is that semiconductors demand is continuing to grow. It's all the applications from AI to ubiquitous connectivity such as 5G, electric vehicles, industrial applications. So from cloud to your smartphone to data center and automobiles, memory and storage and semiconductors are needed. So you have to really look at the long view. The investments that CHIPS Act would allow are really about addressing the demand for

later part of this decade. Sarah, the semiconductor industry is going to double from its current levels and become a trillion dollar industry. Memory and storage is growing faster than the average of the semiconductor industry. So this is not about any near-term perturbations. You have to really look at the long term and to invest for the long term incentives from federal such as CHIPS Act are absolutely needed. Otherwise again, this manufacturing will end up being oversees and in that process, America

will lose in the long term. So this is not about any near term adjustments that businesses make from time to time managing their capex given the near-term demand environment long-term trends are secular in nature in terms of more need for semiconductors more need for memory and storage memory and storage which micron is the only company that supplies that here in the us will grow from 160 billion dollar industry last year to about 320320 billion industry in 2030 timeframe. This is what is at stake here in terms of bringing manufacturing to address that growth here in the U.S. Sanjay Mehrotra, we got a good taste of what you're talking to those lawmakers about. Thank

you very much for joining us today. Thank you, Sarah. CEO of Micron in D.C. today. Coming up, we'll talk much more about the CHIPS Act and how quickly it Thank you, Sato. this rally and the stocks that are sitting it out. As we head to break, check out some of today's top search tickers on CNBC.com. Netflix today unseats the 10-year yield. Amazing. I don't think we've seen that in months. Netflix rallying 6.4% off. Less worse subscriber numbers than reported, but the 10-year is number two. And we are above 3%. We're seeing another sell-off with yields pushing a little higher. Tesla, ahead of earnings, is rallying a little, 1.3%. That's coming after the bell. Apple and the S&P 500, which is now up three-quarters of 1%. We're building on these gains in this final hour of trade.

We'll be right back. Time for today's market dashboard. Mike Santoli is here with a closer look at the recent rally in tech. I was wondering if you were going to use the word junk when describing today's market dashboard. Mike Santelli is here with a closer look at the recent rally in tech. I was wondering if you were going to use the word junk when describing today's market rally. What's interesting, Sarah, is yes, the junk, the lower quality stocks, beta is running hard. However, if you look at it over a slightly longer term, you do have the quality mega cap tech. Also, maybe getting some adherence here because this rally has slightly broken above this downturn. NASDAQ 100, everyone's been watching this.

That roughly also approximates where it's 50-day average, which we've broken above. Built upon the rally from Thursday morning's low, it's about 9% or so in the NASDAQ 100. So relatively significant, but it hasn't just been all-inclusive, especially over the last couple of years. Interested to see Apple, which among the big ones, has really continued to stand out as the destination of sort of safety-seeking money. But this is Apple against PayPal, Shopify, DocuSign over two years. From two years ago until about Labor Day of last year, they were in the same spot. And then in succession, they fell away, right? DocuSign, you have this reopening trade, the pandemic favorites.

Obviously, PayPal had a growth stumble. FinTech got a little bit overheated. And then Shopify, similar type story where e-commerce seemed to fall away. So the question is, are we going to continue to see this divergence? These stocks are all up big today, Shopify, DocuSign and PayPal, but it's not making too much of a dent. So there still is some selectivity in this market. And I guess we'll have to see if it's going to be a catch-up move, a catch-down move, something in between. Internet retail zooming today. Etsy, it's either at the very top of the market or the very bottom these days. It's up 6% near the top, but still down 60%. Absolutely. It's kind of a supercharged kind of consumer cyclical plus the digital economy

play. Yeah. Mike, thank you. We'll see you in the market zone. Well, you just heard from Micron CEO Sanjay Mehrotra on the chips bill, which moved forward last night, passing a procedural vote in the Senate. For more, let's bring in Commerce Secretary Gina Raimondo, who is joining us here first on CNBC. Madam Secretary, it's great to have you back on the show. Welcome. Nice to see you. So what is the timeline from here for passage? So last night was a big vote, big bipartisan vote in the Senate. As you said, the Senate will take another vote later this week, onto the House next week,

and then to the president's desk. So it's a train coming down the track now with great momentum. We just have to make sure it gets to the president's desk in the next week and a half to two weeks. It's a lot of money, $52.5 billion for grants, and then the 25% tax credit for the semiconductor fabrication, which is estimated to cost around $24 billion. So $76 billion for one industry. How does this get dispersed and when? So it's an excellent question. The money will come to the Commerce Department and we will have to set up a transparent process that's a competitive process for firms to apply. The purpose of all of these monies is to have more chips made in America. You know, very importantly, there are a lot of strings attached here.

None of the money can be used to build facilities overseas. And if it is, then we can claw the money back. It's really intended to have companies build large facilities in America making chips, including the most sophisticated chips, which are not now made anywhere in the United States. Critics would say that you're picking a winner here. $74 billion is a lot of money for one industry. And I understand the arguments that it's important for national security, it's important for economic security with the shortages, but so are a lot of other industries, aren't they, Madam Secretary? Biotech, AI, where China also has a competitive advantage there.

Why so much to one industry? Yeah, you can't have a biotech industry or artificial intelligence or quantum computing or really any innovation without semiconductors. Semiconductors are a cornerstone technology necessary to underpin every other innovation-based industry. But also, right now, the United States does not produce any leading-edge chips in our country. We purchased 90% of these chips from Taiwan, and those are the chips necessary for biotechnology, artificial intelligence, military equipment. So the national security vulnerability here, I would say, is nearly unique in the fact that we are so dependent on Taiwan and this is a product so necessary for innovation and military equipment. But we design a lot of the semiconductor, advanced semiconductors here, don't we? The R&D is done here, which I would think for national security is more important. I would not agree with that. I mean, yes, we do design here. Let me say,

the software companies, the tooling companies, the design companies, America has some of the best of them. But I would suggest that if you allow yourself to think about a scenario where the United States no longer had access to the chips currently being made in Taiwan, it's a scary scenario, right? It's a deep and immediate recession. It's an inability to protect ourselves by making military equipment. We need to make this in America. We need a manufacturing base that produces these chips, at least enough of these chips, here on our shores, because otherwise we'll just be too dependent on other countries. So you mentioned that there are limitations or rules. So are you saying that there's going to be strings attached with this money where companies like Intel

cannot invest or expand manufacturing for advanced semiconductors in China? Are those guardrails in place in this legislation? Yes, they are. You know, the exact legislation is being written as we speak. So I have to be a little bit careful because they're finalizing the text. But yes, absolutely. There are strict restrictions with respect to prohibiting companies from using the

money to build facilities any place other than the United States. And also, as you just said, prohibiting companies from building leading edge chips in China and other countries of interest. And how do you get around the fact that the critics and including from the semi industry, T.J. Rogers, a former semiconductor executive, wrote a while ago an op ed in the journal that it just when government funds project like this it's an inefficient use of spending and capital and ultimately whether it's the purpose or not it unintentionally rewards payouts of executives and and all sorts of other problems that come with government projects like this why not just let the industry do it itself? So there's no question that these companies are going to expand, right? Semiconductor demand is up almost 20% in the past few years, and it's going to increase

another 20% in the next few years. So for Intel, Samsung, all these companies to fill their customer demand, they're going to expand. The only question is, will they expand here in the United States of America? Or will they go to Singapore, South Korea, Japan, France, Germany, Spain, Italy, where they're receiving incentives? And I want them here in America because I want to protect the people of America. I want to be able to build the military equipment necessary to protect ourselves. And I want to create able to build the military equipment necessary to protect ourselves. And I want to create the hundreds of thousands of manufacturing jobs here in the United States of America. And so that's why this is worth doing and necessary to do.

Secretary Raimondo, thank you very much for joining us. Another full-throated defense there. As the ball moves forward on this chip deck, it is moving the semiconductor stocks higher today. Up next, Mattel to the moon. Shares moving skyward after inking a new deal to produce space toys. Ha-ha. We'll bring you the details next. Check out Mattel.

It's just getting a pop here. After announcing a multi-year deal with SpaceX to produce toys and collectibles. Toys will hit the shelves next year. The vice president of SpaceX saying, quote, we look forward to working with Mattel to help inspire the next generation of space explorers and enthusiasts. Another company now in the Musk orbit. Mattel, of course, makes Barbies, Hot Wheels and more. We've got a news alert now on crypto out of Washington. Elon Moy with the details. Elon. Well, Sarah, the leadership of

the House Financial Services Committee is working on a new bipartisan bill to address stable coins. That's according to a source familiar. I'm told that this bill would lay out stringent requirements for the types of assets that can back stablecoins. It would also impose prudential standards on issuers of stablecoins and prohibit commercial companies from becoming issuers themselves. That's a provision that would be aimed squarely at Meta. Now, I am told that lawmakers are hoping to have a markup on this bill a week from today. That's when they would debate and potentially vote this bill out of committee. This bill is significant because the House Financial Services Committee is the one with jurisdiction over this issue. And if both the Republican and Democratic leadership support it,

has a good chance of moving forward. Sarah? I guess, Elon, better late than never, right? I mean, this has always been a target of legislation. And now that we've had a stablecoin blow up, they're looking at it seriously. Yeah, Congress tends to lag the industry rather than lead the industry on these issues, Sarah. But certainly this is something that the Treasury Department has said is critical to provide clarity to the industry. Some issuers themselves have been calling on Congress to weigh in here. So maybe we will get some clarity in the near term. Got it.

Elon, thank you. Elon, much of the U.S. and Europe is getting slammed right now by extreme heat. And Wall Street is buzzing about the potential economic fallout from climate change. That story is next. Dow's up 51. Staying positive here as the gains continue into the close, with the Nasdaq up more than one and a half percent, building on its gains for the week. We'll be right back. What is Wall Street buzzing about? How the record heat could cool the global economy.

We are feeling record high temperatures across the U.S. today. It's part of a blistering heat wave this week. And it's not just here. It's sweltering in Europe, too. The U.K. saw its hottest day ever, 104.5 degrees Fahrenheit, breaking a record that was set just three years ago. President Biden talking about climate change earlier this hour, calling it an emergency, saying his administration will announce executive actions in the coming days. HSBC out with a note today, tallying some of the economic impact of climate

change. The firm highlighting several factors that could impact activity, like rising temperatures, rising sea levels, extreme weather events and food security. These factors could have an effect on productivity, agriculture and infrastructure. Bottom line, HSBC says global GDP could be roughly two percentage points lower by 2050 as a result of climate change. So while Washington grapples with how to tackle this problem, the economic warnings could make some investors sweat. Up next, a post-earnings bounce for Netflix and a countdown to Tesla's results when we take you inside the market zone. The Dow is now up about 75 points. You've got Salesforce, Disney and Home Depot leading. We'll be right back.

We are now in the closing bell market zone. CNBC Senior Markets commentator Mike Santoli here to break down these crucial moments of the trading day. Mike, let's start with the broader market. NASDAQ once again the outperformer going for its fourth up session in the last five. And we're heading for a pretty positive week here. A Nasdaq 100 up almost 4% on the week. What are you watching as this rally looks a little more durable? Yeah, I mean, there were a couple of opportunities today for it to really back off, maybe digest some of the gains that we've gotten. The index has seemed pretty intent on kind of rushing to the next test to the upside for the S&P.

That's very close by. It's just over 4,000. Seems like we got this breakout off that two out of three day rally that we got Friday into yesterday. And now people are chasing it just a little bit. Again, you keep everything on a short leash. You understand it's been a longer term downturn. This might be probably, I would say, the second best rally we've had since the peak in January. Still more to prove, but you do have credit markets really helping out the story in the last couple of days by strengthening. Look at Netflix. It's near the top of the market. After yesterday's less bad results than Wall Street had feared, still it is the first time in the company's history to suffer two straight quarters of subscriber losses.

But co-CEO Reed Hastings saying on the analyst call, the future for streaming and Netflix is still bright. Here's what he said. We're talking about, you know, losing one million instead of losing two million. So, you know, our excitement is tempered by, you know, the less bad results. But, you know, looking forward, streaming is working everywhere. You know, everyone is pouring in. It's definitely the end of linear TV over the next five, 10 years. So very bullish on streaming. So what do you do with the stock, Mike?

Clearly, it's up today on relief. And also the setup was just poor. The stock had been down almost 70% this year. But does it mark a turn? Do you think? What do the analysts say in streaming and in Netflix's business? I think it's definitely a little bit premature to say it's the turn in the sense of some kind of return to anything like, you know,

the stock prices that you had in the last couple of years at the highs. It's definitely still in the penalty box. You can totally grant the idea that Netflix is going to remain at the core of whatever the multi-bundle streaming world we're going to be seeing. But the growth in the most lucrative markets looks saturated. What's the cash flow number look like? I mean, at some point, when cable penetration peaked out, it was a great business for a long time. But there was pricing, there was really attention to harvesting cash flows as opposed to growth. It takes a while for that transition to happen. You're not paying a whole lot for the earnings right now relative to the past, but I think it's still sort of caught in the middle between growth and value investors.

Netflix is driving the communication services sector, but a lot of other stocks are rallying off of it. Disney's at a six-week high of 4%. It's had a nice little run here, just a mini run. It's still the worst performer in the Dow this year. Paramount is doing well. News Corp, all these names are rallying on the back of Netflix. The bull bear debate isn't just going on in the markets right now. It's happening in bank C-suites as well.

We've heard from a number of top executives just in the past week off earnings talking about the economy and the consumer. Here's Goldman Sachs CEO David Solomon this morning on Squawk on the Street. Our economists have put out that they think that there's a 30 percent chance of a recession in the next 12 months and a 50 percent chance over the course of the next 24 months. That's a high probability. I'm not a good speculator on odds, but as we run our business and we're giving advice to clients everywhere, we're suggesting that the chance of a recession is higher now that it's been in quite some time, and everybody needs to be a little bit cautious about that. Other bank executives on this show, a little more even optimistic than that. One even

saying the consumer is outpacing last year so far in July. Listen. Consumers are continuing to be out there spending. We're seeing good activity across both the consumer and commercial portfolios. And I think that really bodes well for the environment we're in right now. In the two weeks of July so far, they have spent 11 percent more money than they did last year. And transactions are up six% or 7%. And so when people say inflation is driving the dollar volume, transactions wouldn't go up unless people were out spending money, vacations and other things that they weren't doing last year at this time. It's remarkable, really. So if you look at any metric, if you look at the criticizing commercial loans in the corporate side, those trends are favorable. If you look at delinquencies on the

consumer side, no alarming trends, in fact, very, very stable. So feeling really good right now about the credit outlook, at least through the rest of this year. That was my biggest takeaway, Mike, from bank earnings and speaking with these executives is that if the economy is turning, they're either not really seeing it yet and they're not forecasting anything dire as far as a recession. And if you look at the bank stocks, they're up 3% over the last week or so. So the market's telling you too, it wasn't doom and gloom. If we heard any kind of recessionary warnings, we wouldn't have seen that kind of action. Right. Or it's certainly not. If there is a recession on the horizon, if that's the risk that we're going to tip into it, it really isn't being driven by consumer household finance stress. It really isn't. And that's what

the bank CEOs are telling you. Incomes are high enough that you can easily cover in aggregate, easily cover the debts. The market-based indicators of recession risk are really all about how much tightening there's already been in the system from the Fed and from the markets themselves, the downturn in housing activity, the retrenchment in manufacturing, maybe some layoff waves running through corporate America. So it isn't so much about, oh, consumers are in bad shape and that's why we expect a recession. It's much more about consumers might, if anything, hold up better than the rest of the economy, even if technically we do dip into a contraction. Amazon, by the way, at 4%, having the best, most positive impact on the Nasdaq 100. Apple, Nvidia, Meta, Microsoft also doing well. And Tesla's rallying, too, out with Q2 results

ahead after the bell today. Just a few moments. Joining us now for preview is CFRA Senior Analyst Garrett Nelson. Garrett, so we know the deliveries. They pretty much came in line. What do you expect to see from the numbers, the margins and the profits and revenue that could drive this stock? Yeah, thanks for having me. We're a little bit more concerned about Tesla's quarterly results this time. I mean, they have a good track record. You know, they beat 10 of the last 11 quarters. But Q2 presented some unique challenges that we think are really going to weigh on their bottom line. So we're at $1.48 for the quarter. The consensus is $1.80. And the reason we're at $1.48 is the impact of COVID on their Shanghai factory,

as well as startup costs related to the two new factories, one in Austin and the other in Berlin, we think are really going to weigh on their bottom line. But more important than the quarter, we think, is their outlook for the year. We know they ended Q2 on a strong note. Their June production was the strongest in company history. So we think investors will be looking for more signs that that momentum is going to carry over to stronger volumes in the second half of the year. But do you expect that to happen? Because if so, would you be a buyer on the stock, even if you do expect bad news today? Because some of that news is dependent on the Shanghai factory, which hopefully

should reopen. We are buyers. And we think if there's a weak headline number, you could have a pullback in the stock after hours, and that would be a really good buying opportunity. I mean, the stock's already down about 30% year to date. So we put out a report a few weeks ago looking at the long-term opportunity. And whether Tesla reports a few weeks ago looking at the long term opportunity. And, you know, whether Tesla reports a beat or miss or however the earnings release ends up, however the stock reacts to it, we think investors will do very well looking ahead a year, three years, five years down the road by buying Tesla around these levels. There's also the macro environment, which I'm sure will come up on the call, and just whether so far Tesla has seen more demand than supply, but whether that demand picture is changing.

Garrett also just wanted to run by a headline, a report just this hour, that Ford Motors preparing to cut as many as 8,000 jobs in the coming weeks as it tries to boost profits to fund its push into the EV market. That's a Bloomberg report citing people familiar. Does that come as a surprise? Are we going to see more layoffs in the auto industry? We do see more layoffs coming. So that's about 4% of Ford's global workforce. You've seen Elon Musk already come out and announce some job cuts. But you're going to see more of that from traditional auto manufacturers as they pivot more jobs to their EV businesses. And they certainly want to get ahead of the competition as far as cutting jobs if we do have a recession.

And U.S. auto sales were down 20% in the second quarter. So all signs show that demand is certainly pulled back. Got it. Garrett, thank you very much for helping us get ready for Tesla after the bell. Garrett Nelson, two minutes to go in the trading day. Mike, what do you see in the internals? A little more mixed than yesterday, Sarah, which was an extremely broad upside thrust, but definitely better than the morning. So it's not quite two to one advancing to declining volume. So there's pretty broad endorsement of this little lift we've gotten today. Take a look at the higher beta stocks in the S&P 500 against the low volatility

stocks. These two ETFs on a three month basis, they're coming together. You see that catch up move by higher beta, the riskier, more aggressive, faster moving stocks. Now, on a unit basis, high beta is still down a lot more than low vol is, but there has been this sort of mean reversion in the riskier parts of the market. The volatility index actually nudged below 24. This is kind of a low since about April, just about. So it's relaxing just a little bit here as we had a relatively stable day in the overall indexes there. Stable and higher, up a half a percent, a little more than that on the S&P 500. On the Nasdaq, up about one and a half percent. And on the Dow right now, up 0.5%, a little more than that on the S&P 500. On the NASDAQ, up about 1.5%.

And on the Dow right now, up about 40 points. They're not quite the highs of the day, but as you can see, we've been up and down all day. It looks like we're holding the gains here into the close. What's working and driving this rally? It's tech and it's cyclical. Consumer Discretionary is the best performing group right now in the market. Thank you, Royal Caribbean Carnival Etsy. A lot

of the internet retail names are rallying. A lot of the travel stocks are rallying, too. Technology is doing well, thanks to the semis. Thanks also to Netflix and all the media companies. Energy is having a strong day. Just the defensives are lagging. Utilities, healthcare, staples, and real estate. There goes the bell. S&P up six-tenths of one percent, taking the week-to-date gains to two and a half percent. That's it for me. I'm closing now.