Closing Bell - Closing Bell: Stocks give up rally, Bank of America CEO on earnings, What to watch from Netflix 7/18/22

Episode Date: July 18, 2022

Stocks gave up an early rally, closing lower for the day, following a report on Apple warning about slower hiring and spending for some teams. Katie Stockton from Fairlead Strategies breaks down the key levels to watch on the S&P 500 following the reversal. Meantime Bank of America’s CEO Brian Moynihan joins to break down his company’s earnings report, and whether or not he sees any signs of a recession on the horizon. And analyst Michael Nathanson discusses the key things to watch when Netflix kicks off FANG earnings on Tuesday.

Stocks did give up some sizable early gains, turning negative late in the session. The Dow had been up as much as 350 points, and we are sitting near session lows right now. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the market. The Dow's down about a third of 1 percent. S&P 500 down about a half of 1 percent.

WTI crude is popping 5 percent today. Lack of any concrete deal from the Saudis after President Biden's trip. Energy is the top performing sector. Materials and consumer discretionary all positive. Everybody else is weaker today. Health care is at the bottom of the pack in the S&P, along with consumer communication services. The Nasdaq down half a percent. Check out Apple making a sharp move lower midday. After a report saying the company is planning to slow hiring and spending for some teams next year. We're going to have more on that move straight ahead. Also helped bring the overall market lower on the day.

Also ahead on the show, a can't miss interview with Bank of America CEO Brian Moynihan. Fresh off of earnings before the bell today. His read on the consumer and the investing climate straight ahead. Plus an abysmal print for homebuilder sentiment today. We will talk to star housing analyst Ivy Zellman about the latest data and her outlook on the sector. First up, let's get straight to the market dashboard. The morning rally evaporated. Mike, was it the Apple news that triggered it? The Apple gave it the final shove for sure. The rally was sort of losing a little bit of its energy. I think some of the headlines from Europe were talking about the, you know,

still risk around the natural gas supplies with the heat wave and everything going on there wasn't helping. Also, Treasury yields kicked higher in the morning and that put bulls back on the defensive. But really doesn't change the overall picture too much. Now, at the highs of this morning or midday, the S&P was sort of threatening to break above that trend line since April. So he's been pretty decisively below that for a while. We've gone a month without a new all-time low or new 2022 low, I should say. We did also do that in April, though, I should say. So it's not as if that would have freed the market from this downtrend. But it does show you a little bit of kind of wait and see and lots of proof for the bulls right here.

The one area, if you look at all the factors, fundamental, technical or sentiment, sentiment continues to be the one that is most consistently suggesting that bulls have a shot here. Take a look at one measure from Deutsche Bank, which is stocks with heavy call option activity. So these are the 10 favorite stocks that people remember back in 2021. It was an automatic win. If you had these stampedes of people speculating on upside in these stocks, the stocks themselves did well. This is the performance of those stocks.

Right now, that has completely been wrung out of the system. It's no longer a game where you can just rush into Tesla and Nvidia and this geyser of call option activity gets the stocks up. It's not a major thing, Sarah, but it tells you a different behavior, a different character of this market, very defensive, and obviously people are a little more concerned about risk than the quick buck on the upside. Where are we?

One of the big themes coming into earnings season was that the estimates were still too high. So where are we on the still too high estimates for 22 and 23 as a number of targets have been cut, especially in tech? They have. They're coming down, I would say, slowly. Outside of energy, they've been cut, you know, appreciably for the second quarter. I think we still have to get, you know, maybe another week's worth of earnings estimates coming through to see what that means for the second half of the year and also 2023. 2023 is still making new highs in terms of the forecast consensus number. The thing I would always point out here, though, is the normal behavior of analyst earnings

estimates is they start too high before you get into a year and then they get ratcheted lower. And guess what? Most years in history, the market's higher. So that in itself doesn't tell you that the market's going down. If you have year over year higher earnings next year than this year, even if they're lower than expectations, that's probably not in itself going to undercut the market. Also want to point out what's happening intraday with the euro versus the dollar, because we always point it out when it goes the other way. And it has especially hard this year. But now we're seeing some significant dollar weakness. It's more than a 1 percent move. So clearly it was due for a snack back after a relentless March higher. But I do wonder if that if we're at the point where the dollar strength has really been

hurting the stock market and this removes a barrier, at least if it can continue to fall. It's been extreme. I do think that was one of the pieces this morning that had the market a good deal higher. By the way, the you know the way, a lot of this is the Apple effect on the indexes that we're seeing in terms of the downside. The equal weighted S&P is about flat on the day after being up a fair bit. But yes, I do agree with that. You had two-year Treasury yields actually were kind of tame, and then they popped a little bit. And that plus dollar weakness was helping the market get its footing. You also, of course, have energy bouncing today, too. So there's a lot going on that helped the market over the last few weeks that now might be at a point where it's going to get tested.

We did take out that 100 basis point hike in July. Exactly. The market took that out. We priced it in for a couple hours, I think. And then the Fed speak came. Yeah. Thank you, Mike. Mike Santoli, we'll see you in the market zone.

We'll turn now to the banks as more earnings roll in. Goldman Sachs is higher today after beating Wall Street's profit expectations for the second quarter, though profits did fall 48 percent, driven by declines in investment banking revenue. And then Bank of America hanging on to gains, seeing a similar story with a drop in investment banking fees. But the bank did beat on the top and bottom line, saw net interest income surge 22 percent on rising interest rates and loan growth. Joining us now in a first on CNBC interview is Bank of America CEO Brian Moynihan. Brian, it's great to have you on the show. Welcome. It's great to be here. And congratulations taking over. Now that you got rid of Wolf, we can have some fun on the show. Exactly. I always leaned on him for all the banking expertise. I'm all alone here. Now, Brian, I'm glad you're still on with us. So first on what Wall Street liked,

it sounds like the net interest income that's tied to the Fed rate hikes, that's forecast to be a huge help for earnings. What do you guys expect there? Well, we had told people last quarter earnings that we'd get $600 to $700 million, and we ended up getting $800 million, so that was good. And then we told them for next quarter, for the third quarter, over the second quarter, say $900 to a billion. So then we said it'd be a like amount. What that really is is the driving of gathering deposits from our core customers and investing either in the loans that are growing back a trillion dollars or in the securities. And all that benefits by a higher rate structure. I mean, most of my CEO, 12 and a half years in, has been in a very low rate structure. And so when rates go up a little bit, we make more money

in restoring that NII. What is your expectation on how aggressive and how much more the Fed is going to do? Well, when we calculate the numbers I just gave you, we just use the market's forward expectations of 75 basis points and 50. But I think, you know, the interesting thing is, and I heard you and your colleagues talking, you know, two days ago it was they've got to go faster, now they can go less. At the end of the day, this is data dependent. As they say. It's meeting the meeting. It's what's going on. But if you look at our customer base, the consumer is posing the greatest benefit to the Fed and the greatest trouble in that they're employed, they're earning money, they're spending money, they have lots of borrowing capability, the credit quality is still strong, and they have more money in their accounts at the end of June

than they had at the end of May, and frankly, multiples of what they had pre-pandemic. So that makes the Fed's jobs tough because they're trying to slow down this wonderful thing we have called the American consumer, who their spending helps drive our economy. And it's going pretty strong right now, up double digits for the month of June and frankly, up double digits for the first couple weeks of July over last year's July. That's sort of my big question on your earnings report. Your earnings and your guidance, Brian, say that things are OK. And yet, you know, the capital markets, the bond market, the stock market, the currency market says that things are not OK. So how do we square that? Well, it comes a little bit if you're heavily involved in the markets business,

like Jimmy DeMar and a team that run that are, you know, it's pretty tough times right now. The worst first half for bonds and stocks in 50 years or something like that. And Andy Sieg and Katie Knox in private banking, that's tough. But if you're in the consumer banking and lending business, the teams are pretty good. And the middle market is going strong. And loans grew. Our loans grew $100 billion year over year, to give you a sense, and are back above pre-pandemic levels. So, you know, like anything, it's nice to have a balanced company.

So if people are worried about the markets, we've got NII and fees and consumer and GTS, the Global Transaction Service, that make up for that. So even our global banking, with investment banking dropping $1 billion plus year over year, was just down a little bit in revenue. With billion dollars in that high, you know, the high corporate client base, you know, going away. They still almost made it on the NII growth through fees and through loans and deposits. So it's wonderful to have the mix of businesses we have, and yet it's tough in the capital markets right now. You and your colleagues talk about it every day, and we don't see anything largely different. I guess what I'm wondering really is the message, though, that the market is sending. When you are

seeing strong loan growth and a strong consumer, and you're not seeing any major signs of recession, I'm wondering about that disconnect in the outlook for the economy. Well, that's what people get paid to do in a trading environment. But simply put, the reality is the Fed has to slow down inflation and take it on, and they are going to take it on, and they've driven rates up at a pretty good clip. And they've got to keep going until that inflation breaks. And so that's what the market's going to be on tenor hooks every day as they watch those statistics come out, whether inflation's peaking or flattening or turning down. And you're seeing housing slow down dramatically. Why? Because rates are up. But the 60 million consumers that

have a mortgage today are locked in. They don't go up when rates go up. It's all the new home building, new home buying and stuff like that that slows down. And you're seeing that happen. Our mortgage originations and others were down this quarter because of it. By the way, our home equity originations are back over two and a half billion this quarter from a billion four or five or $4.5 billion again because people have the equity in their home to borrow out. So there's always countervails to this. But the core debate right now is can the Fed slow the economy down, which they have to. And all the economists, including ours, predict a slight recession. But it's going to be hard for them to slow it down given the strong employment.

Unemployment's at 3.6. You've got to get it up a lot higher. And so that's the tension the market fights about every day. But I think people should keep in mind that that's not the worst problem to have. Low unemployment, good consumer spending, and reasonably good corporate profits are not the worst thing to have as the Fed does its work. So you're sticking with your relatively optimistic take, Brian. It sounds like you're in the soft landing camp, which has really been interesting.

As we've gotten today, there's a report that Apple is going to slow down on spending to prepare for tougher times. You know, Jamie Dimon about a month ago said he's bracing for an economic hurricane. You sound much more sanguine than what we're hearing. Well, what we're talking about is not what's going to happen, you know, in 23, because if the economy will slow down, and our guys say even at the end of 22, it may slow down, go slightly negative, the Candace Browning Platt and our research team. But the reality is, it's a much different environment when you have this kind of fundamentals that are strong. Does that mean things could go wrong? Look, there's geopolitical

risks. There's other things that we all know about. But that's different. Does that mean things could go wrong? Look, there's geopolitical risks, there's other things that we all know about, but that's different. But from the core America, what we're seeing in our consumers today, and that's the distinction I always make, is don't test people with what they say they're gonna do, look at what they're doing. And in two weeks of July so far,

they have spent 11% more money than they did last year, and transactions were up six or seven percent. And so when people say inflation's 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 in the same amount. So that's the thing. So right now we're saying we don't see it. And by the way, most people don't see it right now. What they worry about is the Fed does this job that you'll have a higher, higher probability it could tip over into recession. No matter what, we're going from a 4% to 5% growth rate in the

economy in a couple of years, in last year, to somewhere pretty low this year, to somewhere pretty low next year. All that doesn't feel good because the economy is slowing down, and that's what you're seeing out there. Yeah, and you mentioned the solid double-digit loan growth that you're seeing. Why? What is driving that, and how long do you anticipate we'll see it? Well, it'll normalize as the recovery normalizes. So remember we had a shoot-up in loan growth in 2020, then a big drop when people paid off those loans after the panic borrowing. It took place, the capital markets opened up, and everybody stampeded to that.

And now you're seeing this sort of normalize. So you're seeing the loan production across our consumer and middle market. And frankly, I think we're growing share. The team's doing a great job. But by and large, we have outgrown the economy. We were outgrowing the economy before the pandemic, and now we're outgrowing it now. But a lot of it's coming now. We're basically back to a trillion dollars loans round number. That's where we were coming in the pandemic. So most of it's been the recovery. People using their lines in small business and in the middle market businesses, using their lines at the rate they traditionally use it at, it's fallen by 300, 400, 500 basis points, those types of numbers. So everybody is doing incrementally more. Now, are all corporate clients, are commercial clients, are they worried

about what's going to happen with the Fed fights inflation? Are they worried about what could happen to their profit margins given the pricing pressure, the input pressure they have? Absolutely. But they're trying to manage through it. And that's what's going on right now. And as you talk to them, it's the classic thing. I'm worried about the future, but I feel pretty good about the current environment. And that's kind of the interesting sort of dialogue that goes on every day. And so when does that tip? That'll be the question when the Fed can get inflation understood well enough that people can plot a path forward. But given that, of course, people are being more careful about hiring and about spending, because why wouldn't you be? So what about the markets group? You mentioned that that was obviously a weak spot across banks, but yours was a little bit weaker than some of your

competitors on capital markets, on investment banking. At what point do you cut back in this economic environment, or are you preparing for a rebound? Well, in the investment banking fee category, we maintain our number three position. So we were three overall before, and we were three overall, and everybody had a massive drop of 40%, whatever it was. We're not cutting back. These things go up and down. And by the way, as you all know, the way the compensation works in those environments, you know, the compensation is relatively self-adjusting. But the team we've hired that Matthew Coder has put on the field for corporate investment banking is very strong. And then we have this added advantage that we get a lot of business from our middle market client base led by Wendy Stewart. And that is a significant part. And that

tends to have more resiliency to it. Nobody right now, given the capital markets, but resiliency over time. If you go to the true trading, we're up 10 or 11 percent year over year in trading, fixed income. Macro was good. Equities was good. I think it was another record, near record in equity. So Jimmy DeMar and the team's going to, so we're not cutting back anything. We invested heavily in our balance sheet. There are $200 billion more than they were three years ago when Tom Montag started the initiative. And the team's doing a good job. And Jimmy's doing a good job driving it. So we forget. So you won't hear us cutting back. We always are managing headcount. This quarter, we hired 7,000 people. And outside our interns, we're actually down 600 or 700 people

in headcount. That's just to maintain the staffing and invest in the areas and take it out of the areas where our driven operational excellence, our flat expense management thought process drives our efficiency and allows us to reinvest that in the future. Yeah, you mentioned the flat expenses. I know you got a question on that from Mike Mayo on the conference call. It is notable that you didn't change the expense guidance. He asked, why don't you hedge with the expense guidance? So you're projecting higher revenues and not changing expenses in an inflationary environment. How do you do that? How does that work? Well, the revenue is coming from the NII, the spread revenue, which largely comes in the consumer commercial bank and the wealth management business. It comes with very

little cost attached to it because we don't need any more commercial lenders as rates rise and people borrow. You know, you don't need more commercial lenders to generate the spread that comes into the business. We have basically been subsidizing our customers at the zero floor on deposits for a couple years now. It went on for a bunch of years before the rates rose in 16, 17, 18. And so as we recover that, it doesn't take any expense. Now the most important thing in our company is our discipline expense management culture. We brought expenses down and had 20 quarters operating leverage. We just completed our fourth quarter in a row now. And we feel very good

about what's going on and how we manage expenses. Investing $3 billion plus in technology, more financial advisors, more commercial bankers, at the same time taking expenses out through process efficiency and effectiveness. And if you manage your headcount ahead, you can plan that out. And we sit there and manage headcount by months for 36 straight months ahead. And whether that's exactly right three years from now, people are working on it every day to say, how do we reduce headcount out there and invest it in something else? And that's what we try to do. I also wanted to bring up another something else that stood out this quarter, which was the regulatory expenses, the $425 million in costs related. There are two, the messaging one, and then there was the one that CNBC had been looking into and investigating about how you

handled some of the unemployment disbursements during COVID. Brian, why did you settle on this one? And is there going to be any future impact, for instance, on Bank of America and how these kind of federal issues get handled? Well, the future impact, the unemployment was from a couple of years ago where we put in filters to try to save the taxpayers money because this was a U.S. taxpayer and a California taxpayers and the other states taxpayers money that went out. And people start taking advantage of the situation, defrauding and getting, you know, applying for multiple cards and all the stories you've read in the paper. We went to help, and some people got caught. We've reimbursed them. You know, that's what you do.

You get these things behind us and move on. And on the device thing, as you can see, that was a street-wide street that you're well aware of. And it's behind us now, and we just got to make sure the team does a great job in the future. But frankly, I'm very proud of what our team did during the pandemic, whether it was a consumer deferrals, whether it helped unemployment, PPP, distribution of other benefits, waiving hundreds and hundreds of millions of dollars of fees so people could get their stimulus payment without having to pay their outstanding overdraft fees. And during the pandemic, we've changed our overdraft posture even more favor to the consumer to the point now where it's pretty modest in terms of what we do. So I'm proud of our team for doing a great job in

the pandemic. It's nice to have those things behind us. You're giving a lot of credit to your managers and your team, Brian. Final question, you know, just listening to you, you're a good snapshot of the U.S., right? Huge reach on the consumer. You mentioned housing. Is the market, are investors too, do you think, worried too? Are they freaking out too much about a recession? Because listening to you talk about the consumer right now, it doesn't feel like we're on the brink of anything dramatic as far as a downturn. What I always say is, you know, we worry about everything. We worry about, you know, all the parade of horrors you can come to from China slowing down again to Europe having a problem because of the Russia-Ukraine war to the pandemic resurgent. We got a thousand scenarios. We stress test ourselves every day in the markets and every quarter deeply into all the portfolios.

We are very careful in underwriting. You see that in our stress test results. 10 out of 11 times it's been run with the lowest losses. All that's terrific. So we worry about all that. The reality is what we're saying is, as you look at what's going on right now, that you don't see it now. Unemployment, 3.5 to 3.6. Spending strong, more money in

accounts, more borrowing capacity. All the things that drive the U.S. economy, two-thirds consumer driven, are still in good shape. The question is the Fed's got to take on inflation and that's the tension going on and we'll see that play out. But if we all do our job and do capitalist things and hire people and drive and invest and spend like we do, I think it'll be easier to get to a soft landing or a correction of the inflation rate without causing a deep recession. And our team, you know, our $700 million a year we spend in research, one of the best research chairmen in the world, think it's a very shallow recession that occurs and comes out. And that's largely due to the issues about more technical issues.

But the thing I'd watch is watch new claims for unemployment. Still very low. Still very low, given people's views of the economy. And it hasn't changed much. Well, that makes me feel a little better. Brian, thank you very much for taking the time today on earnings. Thank you, Sarah. Good to see you. Brian Moynihan. And tonight on Mad Money, it's great to see you. Much more on the banks when Jim Cramer will be joined by Goldman Sachs CEO David Solomon, another earnings winner today from Jim's brand new set right here at the New York Stock Exchange. Look at that. You won't want to miss the special episode, 6 p.m. Eastern time. It's good to have Jim here all afternoon long. It's a special treat. Up next, Netflix kicking off FANG earnings tomorrow, and it's had a rough

track record lately around earnings days, falling after nine out of the last 10 reports. Last one was a doozy. We're going to ask analyst Michael Nathanson what he's expecting from the print. Dow has recovered a little bit here, about 50 points in the last, I don't know, 20 minutes or so, down 53. We'll be right back. Spotlight on Netflix as we await earnings from the company tomorrow. The stock is higher today. But remember, shares have plunged after reporting a major subscriber loss in the first quarter. Joining us now is Michael Nathanson from Moffitt Nathanson.

And we should we should set you up, Michael. You've been a skeptic on the whole streaming hype for a long time. Sort of missed part of the way up, but definitely right here on the way down with Netflix down more than 60 percent. Are you feeling any differently right now? No. Good morning. Good afternoon, Sarah. I think the problem with the model is it's so capital-intensive, right?

You need all this content to keep driving engagement. So I'm not feeling any more bullish today than I've been the past couple of years. But what I find intriguing is you're starting to see other companies starting to acknowledge the high cost of competing, like Warner Brothers Discoveries hinted about that. Disney's walked away from some sports rights in India. So maybe we're at the beginning of a sea change in how the companies are going to invest in streaming. But it's early days in that sea change. In other words, we're going to see a lot less investment?

I think, in other words, in the next one or two years, people are going to rethink how much money they're going to invest in this space as they realize that the growth is slowing. They need to find another way to drive profits. They have to spend less. But I think, Sarah, again, I think we're in the first couple of innings of that. A year from now, it'll probably be more obvious that, you know, there's less spending in the sector. Well, Netflix does, to be fair, make money, right, Michael? And they have this grand plan of an ad-supported model. Does that change anything for you? Yeah, so when we say make money, we look at cash flow.

The company's going to do a billion dollars on 30 billion of revenues, right? So that's not a great cash flow margin. The pivot to advertising, we think, is the right thing to do. It's smart. We see it as a creative potential. We want to understand tomorrow how they're going to price the ad tier. How much lower will they bring the price down? But, yeah, I agree with you. The move to advertising to us is smart. They stopped, you know, investing in as many films. They made 70, 80 films last year. That's probably like 30 or 40 too many. So there are things they can do to actually improve the free

cash flow. When I say make money, it's free cash flow that I want to see really start to grow. The expectation is low. It's down 68 percent so far this year, and they're expecting 2 million subscriber loss. But they did have a good, I don't know, just from the Zeitgeist, it seemed like anecdotally Stranger Things was a hit. A lot of people watched. Could there be an upside surprise here just given the setup and the fact that they had a hit? Yeah, it's funny. We were originally going out with a higher number, so we stayed at the

guidance of negative two million. But originally we thought, you know, it's going to be worse than that. But stranger things came and what they did really smartly was they kept two episodes for July, right? So people didn't turn June 30th because they wanted to watch the rest of the season, which

I think is the beginning of a trend for them to realize what HBO always realized. You need to spread it out over 13, 14 weeks. So yeah, I think the people like our view is don't get too bearish on the subscriber print because it's a strange thing. Third quarter is interesting and fourth quarter is going to be tougher. But what I've always done is I've stepped back and said, what's this company going to earn, either a cash flow or EPS? So any volatility around subs definitely moves the stock. But our issue has always been,

what's the earnings potential of this company? And that's why we're still neutral, because we think it's probably a $12 to $13 earnings company. You know, $180 to $250 of earnings is value. It's kind of high. We see kind of fair value. Where does it fit into the consolidation picture, which everybody still expects more of that coming in the streaming world? It's interesting that it has a tie up with Microsoft, which I guess makes a little sense because Google and Comcast, our parent company, are more direct competitors.

But where does Netflix fit in in the future when you look at how all these models are changing? Yeah, so our view is that it's going to have to be consolidation. You've got three media companies, Comcast, NBCU, Warner Brothers Discovery, and Paramount. They probably need to get down to two or three. I don't think any of the traditional media companies could buy Netflix. It's too expensive. And the only tech company that could buy it would be Microsoft. But up until this point in time, they've shown no interest in video, right?

So it's interesting that they moved into partnership with them. But to me, there's no history there, right? I understand why they bought Activision. They have a games business. So Netflix could be the odd man out of this valuation. I still think you will see those media companies I talk about have to get consolidated.

And I think Netflix, if it does get cheaper, you could start adding some of the, you know, the older media companies into the mix and maybe they buy it. But they can't buy it at this valuation. It's too dilutive at this point. Shares are up a percent, still down big, heading into earnings. Michael, great to talk to you.

Good to see you, Sarah. Michael Nathanson. Let's give you a check on the markets right now. Down 150 or so. So we have taken another leg lower in the last few minutes. The Nasdaq is down about seven tenths of one percent. Energy is still holding in there. We've got a five percent rally or so on crude oil. That's helping energy materials and consumer discretionary staying

positive. Everything else is down. Health care getting hit the hardest, down two percent. Still to come, homebuilder sentiment just showed its second worst monthly drop in the survey's whole history. We're going to talk to noted housing analyst Ivy Zellman about what that means for the stocks that she covers and the housing outlook straight ahead. Check out today's stealth mover, WD40. TA Davidson upgrading the maker of lubricants and cleaners to buy from neutral, hiking its price target on that stock to 205 from 169, citing increasing confidence in the company's long-term sales growth strategy.

It's resonating. The stock is up about 7%. Homebuilder sentiment plunging last month amid a spike in mortgage rates. Up next, housing expert Ivy Zellman on how investors should be trading these stocks right now. Stocks sitting at session lows right now. We're down 200 points on the Dow. This morning, homebuilder sentiment plunged in July as buyers pulled back, marking one of the largest single drops in the survey's history. Meantime, the homebuilder stocks, Lennar, KB Home, DR Horton, seeing their shares fall 30% on the year.

They are down today as well, even though we are seeing some strength in the consumer discretionary group. Some of the travel names are doing well today. Joining us now to discuss Ivy Zellman of Zellman and Associates. Ivy, this was an ugly drop in homebuilder sentiment. Where are we in the process of the housing slowdown, do you think? Well, first, thanks for having me back, Sarah. I would say that the rate of change has been pretty dramatic, and I think we're just in early innings. We've seen deterioration that really started to inflect in May. And the acceleration of that negativity has just been

continuing through early July. I'd call it mock speed in some markets. It does vary by market. So we've seen the biggest rate of decline probably in Phoenix, with the Southeast and Florida markets holding up better. So it's not across the board. The sentiment's negative because affordability is so stretched. But I think that it really varies by market right now. Diana Olick, our housing reporter, noted in an email to me that the survey showed 13 percent of builders say they had dropped prices last month, even though she says that the big builders in their last earnings said they wouldn't have to. So what is going to happen with prices? They're going to have to drop prices, Sarah, no question. We're seeing significant increase in incentives. We're already seeing price cuts,

again, somewhat market dependent and price point dependent on the first time buyer market where affordability is extremely stretched. In fact, affordability is worse than it was back at the peak of the last boom period on how we look at the index. So I think you're going to see that price cuts are just, you know, inevitable. Is it in the stocks? Some of these, I'm looking at Lenar, down 34% off the highs. They're down about 30% to 40% on the year. Is it already baked in or you think more bad news to come?

Well, I think that because I really think we're in the early innings of what could be a prolonged downturn and we're seeing inventories which have been steadily rising with demand plummeting in many markets. I think that we're not seeing enough pain yet. I don't think it's time to start accumulating here in terms of the home building shares. I think that we've got more capitulation that has to come to fruition. And you don't fight the Fed, Sarah. We're still in a tightening cycle. So these stocks don't work when the Fed is raising rates. And we know that that inflationary pressure

that we're feeling is not going away anytime in the near term. So I would say that there are going to be better opportunities. And as we see stocks that the builders have outperformed over the last several weeks, I think if the stocks are going to continue to rally, I'd be taking profits and selling into that strength. So I'm just going to push you on more specifics, Ivy. When you say you expect a deeper and more prolonged plunge in the market, what are we looking at here and for how long? Well, we expect the overall downturn to last throughout at least 23 and into 24. We're expecting home prices to decline nationally, both in the new and existing home market and low to mid-single digits. We are feeling it right now that we might be even conservative. I think what you

have, Sarah, is a backlog that's at the highest level since 2006 for the single family market. We have a tremendous amount of builders that are rolling out new communities, a lot of those communities where they are bringing on inventory that's spec, and they're going to monetize that inventory, and that's going to result in pricing pressure. And we're seeing a big increase in cancellations, albeit from historic lows, but builders are canceling some people in their backlogs just because they know they won't be able to afford, as well as people are getting cold feet. And we're seeing a lot of those short-term rental private investors that have portfolios of assets that are now recognizing their rental income is not going to be where they'd hoped it would be or their costs are rising. So you're seeing a lot of

non-primary sellers in the market. So I think we're really, unfortunately, just in the early innings. And I would think that this could be a one to two year correction, if not longer, depending on the economy. And sell the rallies and those stocks. Pretty bearish. Ivy, thank you very much for joining us. Thanks for having me. Thanks, sir. Ivy Zellman, thank you. Still ahead, chart expert Katie Stockton breaks down this late-day pullback,

whether she thinks the market is heading to test its recent lows. We're down a little more than 200 now on the Dow. We'll be right back. Apple turning negative and taking down the broader market. a report the company plans to slow hiring and spending next year. We're going to discuss that and this broader pullback at session lows with the S&P down 1% in the market zone next. We are now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here as as always, to break down these crucial moments of the trading day.

John Fort with us on Apple. Fairleads, Katie Stockton on the market downturn. Welcome, everyone. Stocks are really losing steam here into the close. We are at session lows, Mike. The only sector that's positive remaining is energy. So we're about 5% off the lows for the S&P 500, about 20% off the highs. What is causing this week?

Didn't anyone listen to Brian Moynihan, CEO of Bank of America, at the top of the hour, said even in the last two weeks, in the beginning of July here, spending is up sharply from last year. And it's not just inflation. It's transaction volume. Yeah. I mean, I think that's been a consistent theme that in the moment we're not really seeing the economy, certainly not the consumer economy in aggregate buckle. The market's been preoccupied with other things, the implications of that for for what it means for the Fed. And obviously the stock market basically got to the top end of this range.

Thirty nine hundred on the S&P was very, very, I think, primed to have a little bit of a test. Apple provided that with that downturn intraday, and kind of loosey-pilled the football away again. We had a broad rally on Friday. Those have been one-day wonders up till now in this market. Are we watching bond yields? The dollar, as I mentioned, is weakening, so that is good, at least for earnings

and for some of the pressure that we've seen lately. What are some of the macro factors as we enter another earnings period? It's all those things, Sarah. I mean, you have had some upward drift in short-term Treasury yields. That's a proxy for how aggressive we think the Fed's going to have to be. Now, it's nothing extreme. It's still below the lows. More to the point to me is the sort of tactical moment we found ourselves in.

You had another 6% or 7% rally. The growth stocks had revived a little bit. They're the ones backing off today. They have an outsized effect on the index. If I look at the Russell 3000, it's kind of a nothing day. It is the mega caps that, again, are kind of putting the S&P into a little bit of a tailspin. But some of them are working today, at least in the Nasdaq. Nvidia is doing well, for instance. Netflix is rallying ahead of earnings tomorrow. Airbnb, a lot of the travel

names are doing well in the consumer sector, the cruises and the casinos. Let's hit Apple, though, because shares did turn negative late in the session, and it took down the whole market. A report from Bloomberg saying the company plans to slow hiring and slow spending for some teams in 2023. The spending cuts would come from places like R&D and hiring for certain groups within Apple. John Fort joins us. John, how much of a bellwether for other companies should we take this Apple news?

I think a bit. I'm kind of surprised that the market will react to it because, in a way, I mean, Google put out similar news just a few days ago about, you know, considering hiring more carefully. Not layoffs, but considering more carefully. And then when you consider what Apple is, it's got about 154,000 employees, most of whom are in retail. So given that sort of exposure to the consumer, even the high end consumer specifically, if there's a bit of a macro slowdown, you'd expect Apple perhaps to be cautious, not saying that they're necessarily going to cut. But we'll see what divisions

end up being affected. Yeah, Apple's down about 2 percent, Mike. I guess it's just that it's always Apple with the news, right? When they were closing locations during COVID, I remember I was like, whoa, this is this is happening. And we're shutting down our economy now, slowing hiring, slowing spending. Feels like there could be a ripple effect. What do you think, Mike? There could be. I think it just more reflects the environment than it does dictate the environment. Really, as John said, lots of companies doing this. What lots of companies don't have is a stock like Apple, which was up 15% in the last month and which people buy because

they think it's utterly predictable and we don't have to worry about anything aside from the buyback and the dividend and all the rest of it. So I think that's why you're having the give back today. As I said, 15% in a month, you give back 2% of it. That's not a disaster, except when it's 7% of the S&P, it has a little more of a ripple effect. John, what is the, I don't know, are you keeping score? You follow all these tech companies, big and small, in various parts of the tech ecosystem. How many of them actually are and what parts of them are slowing down on hiring or cutting spending and hiring? Well, it depends on what position they're in, Sarah. I mean, you know that Amazon's been in position where because of the COVID demand, they both scaled up in their logistics operation,

staffed up. And then when people started coming back from COVID, from having COVID more quickly than expected, they found themselves oversupplied with logistics space, with warehouse space, and with workers. Microsoft sort of continuing to hiring. We just had word from President Brad Smith that they expect that this wage inflation, some of it might be permanent because they think that the sorts of workers that they want might continue to be in shorter supply. Then you look at Google. They talked about slowing their hiring a bit or at least being more thoughtful and careful about when they actually hire people. Now this coming out of Apple. But that's different from what you're seeing from both of your tech, which has been even cutting back in some cases as the gas comes out of some areas of the economy.

John Fort, John, thank you. As Brian Moynihan said earlier, watch those jobless claims. They're still painting a pretty healthy picture overall for the job market. Let's get back to the broader market. NASDAQ and S&P 500 down just shy of 1%. We gave up a big earlier rally. Joining us now is Katie Stockton from Fairlead Strategies. Katie, S&P 500, how does it, does it look like we're going to go retest those those lows about 5 percent or so from here? Yeah, I mean, listen, it's very fickle price action and that's completely normal in a consolidation phase, which essentially reflects a tug of war between the bulls and the bears. I know on Friday, at least, it seems like investors were very, very bullish after just one big up day.

And, you know, we saw some names clear their 50 day moving averages. There was some incremental improvement, but really nothing meaningful in terms of intermediate term momentum. Our weekly gauges are still very much pointing lower, and that's the case for the S&P 500 as well. So we're not a believer of these bounces in general. They've lasted maybe three, four days on average. And this one has been so far no different. In terms of Apple's reaction to its news, it is negative because it creates an outside down day on the chart. That's just something that shows a loss of intraday momentum. And it does tend to give way to a consolidation phase or some kind of pullback. And this was a natural place for

that to happen to Apple, which had some resistance essentially in line with this morning's price action. And a lot of these mega caps have resistance essentially in line. Wanted to quickly hit Tesla with you as well. Do you see it as a key to this market in any way? And what are the technical showing on that stock? I do. I mean, it's really interesting. As we come into Tesla's earnings report, the stock is very coiled up, at least that's what we call it. It means it's effectively like a triangle formation on the chart. And the triangles, they don't really have a directional bias. They're neutral by their nature. But you usually see a really big move coming out of it. And that big move often occurs in the direction of the prevailing trend, which for Tesla, you just have to look at its 200-day or 50-day moving average, and you'll direction of the prevailing trend, which for Tesla, you just have to look at

its 200-day or 50-day moving average, and you'll see that the prevailing trend is lower. So the way the chart sets up is for a breakdown around earnings for Tesla from that triangle formation, and naturally, just given market sentiment and how sensitive it is, you even saw that today with Apple, I think that could be a market negative. So you're seller of all these rallies. You're not a believer. Is there anything that any part of the market in 20 seconds here, Katie, that looks strong to you? Well, you know, for me, it's like I'm happy to look at other alternative asset classes. So gold prices look more interesting coming off of an oversold low. We're interested in having counter trend exposure right now to treasuries. And in terms

of sector exposure, we really are very limited in what we can do right now. But utilities and energy, those are the last sectors standing in terms of having both good relative strength, but also long term uptrend still intact. Energy is having a good day today, up 2 percent, though it has been weaker on this decline in crude oil lately. Katie Stockton, Katie, thank you. Two minutes to go in the trading day. Mike, what do you see in the internals? Yes, Sarah, it's softened up quite a bit over the course of the day,

but still not too negative. A lot of times we start out with a big 80% up day, and it doesn't really buckle, and it has not at all. It's more than 2 to 1 advancing to declining volume. That's what happens when you have just a late-day sell-off concentrated in the biggest stocks. Henry Hub, natural gas, interesting move here. Pretty aggressive rally today, up almost 7%. It's got its 50-day average just ahead of it.

So you see pretty well off the peak still, but making a run. The volatility index, not a lot to change that story, about 25. It's the low end of the two-month or three-month range we've been in there. Right now, hasn't fully relaxed, and you see maybe a little bit of an uptrend since April. But so far, really nothing more than the usual trading range anxiety we've been in for a while, Sarah. A few 52-week lows to mention as we head into the break, or into the close, I should say. Striker Digital Realty Trust, paramount, also trading at lowest point we've seen since July 2020. One high, 52-week high, and that would be Humana.

There's the Dow. It's down about 200 points. Looks like we're going to have our sixth down day in the last seven sessions. The S&P has recovered from a 1 percentage point plunge here in the last few minutes. It's down 0.8%. Energy, discretionary, and materials are higher. Consumer stocks are actually working today. At least the cruises, some of the travel names, Expedia and Bookings are higher.

Some of the retailers as well. But the homebuilders are not helping dragging down that consumer sector effort. A dismal homebuilder sentiment report earlier. The Nasdaq's down three quarters of 1%. It's kind of a split bag in terms of mixed technology stocks. Meta's higher. Some of the Chinese internet names are higher. But Apple, obviously, weighing on the S&P

and on the Nasdaq. There is the bell. The S&P down 0.8% of 1%. That's it for me on Closing Bell. Have a great evening, everyone. I'll see you tomorrow.