Closing Bell - Closing Bell: Stocks make up some ground, Housing headaches, SoFi’s student loan bounce 8/24/22

Episode Date: August 24, 2022

Stocks closed mostly higher in Wednesday trading, as investors await Friday’s speech from Fed Chair Jay Powell in Jackson Hole. Housing was a big focus on Wall Street, after new data showed a decline in home prices for the first time in 3 years. Jeana Curro from Bank of America and John Lovallo from UBS join to discuss the state of housing, and what the downturn in prices means for the real estate market. Meantime SoFi shares climbed as President Biden announced his student debt relief plan. Mizuho’s Dan Dolev explains why he thinks that’s a good thing for SoFi shareholders.

Stocks mostly higher, but well off their best levels of the day as the major averages try to gain back some of the ground lost earlier in the week. The most important hour of trading starts now. Welcome to Closing Bell. I'm Mike Santoli in for Sarah Eisen today. Let's get straight to the market dashboard, showing you the S&P 500 really trying to hang tough in August, staying above the 4,100 mark. Just to rewind, up almost 19 percent if you take intraday low to high from June up to last week's high. Pulled back about 4 percent of that. There's been these intraday rallies each day, some traction happening alongside the 10-year Treasury being above 3 percent, as well as the dollar index staying near its highs and oil firm.

So it seems as if these markets are being held in check, but stocks are actually maybe outperforming what you might expect them to do, given those other factors. Take a look at small cap stocks, which are an outperformer today, up about three quarters of a percent relative to high yield debt, the high yield ETF, and then longer term investment grade bonds. You see the iShares HYG, that's the high yield debt proxy, has more or less gone in sync with smaller cap stocks, which are consumers of riskier credit on some level. This is a one year chart. You see they've come back in sync. And this rally here in high yield relative to safer, longer term debt is significant. It shows you a little bit less stress in the system, although, of course,

still down on a unit basis, still had some spreads widening out. So that seems to be the setup right now, obviously going into that Jackson Hole conference with a lot of these macro inputs also filtering into the equation, including from housing. Let's get to this morning's new news. Pending home sales fell 1% from June to July, down nearly 20% from a year ago, according to the National Association of Realtors. That was slightly better than what analysts expected. Meantime, prices down about three quarters of a percent from June to July. That is the biggest drop in 11 years, according to Black Knight. Joining us now to discuss is Gina Curro, head of agency MBS Research at Bank of America Global Research,

and John Lovallo, senior Homebuilding Analyst at UBS. Good to have you both here. Gina, love to start kind of from a top-down view through the lens of mortgage finance. We've seen a pretty steep retrenchment in just the number of new home sales, the amount of housing turnover, and now we're seeing a bit of a price response. Affordability became very challenging. Does this mean we're in for another down leg in housing or are there signs of some kind of stability or equilibrium emerging here yeah so thank you great question the rise in mortgage rates that we've seen year to date has just had such a strong impact and if you think about what that's done it's really um

it's essentially raised the average mortgage payment about $500 we are now seeing that first you saw it in the home sales declines which are down about six consecutive months and only until recently have you started to see it in price action so you know it feels like price action is lagging a little bit but you know we think we're on track to see home prices up 10 to 15 percent this year and potentially up, you know, maybe two to five percent next year. And what's going to drive that push higher in prices more broadly? I mean, is it still the old, you know, demographic story, the supply demand being favorable or you think mortgage rates are

going to come down in order to make them more affordable at higher prices? Yeah, a little of both. You know, I think we still are generally light in inventory. So, sure, inventory is increasing. But the way we see inventory increasing is really we look at month's supply as a fraction of what home sales are doing. So when home sales are on a slower pace, what that means is there's more supply in the market. It's not that you're necessarily seeing all these extra units hit the market. And then also, yeah, we think that it's possible to see, you know, to end the year around a four and a quarter mortgage rate, and that should help somewhat. Yeah, that would obviously be a good deal off the recent highs. John, you've been pretty upbeat about the prospects for some of the home

builders. We've gotten Toll Brothers results in the last 24 hours or so. How does that fit into your view? I mean, the stocks still remain under some pressure well off their highs, though, not really declining too much on the latest fresh batch of data. Hey, Mike, thanks for having me. Yeah, I mean, I think I would agree with your points and also what Gina was saying. Look, I think that the data has been bad. And by definition, the data has to be bad in order to form a bottom, which is exactly what we think is happening. Now, what was the most interesting takeaway from the Toll Brothers call was that they said that August was actually seasonally better than it should have been. Right. It was actually up 25 percent for their non-binding contracts versus july so look i mean i'm not saying that we're out of the woods yet but it does feel like we're starting to form some kind of base here um now that's pretty consistent with our

own channel checks the most recent of which was in the carolinas which the the brokers that we spoke with on the ground uh were pleasantly surprised with what they saw in August. But more importantly, the buyer traffic that's coming in now seems to be more qualified, more engaged, and they believe it sets the stage for some kind of recovery in September. We'll see to the extent that that happens. But the bottom line is that things aren't quite as bad, you know, as the market initially anticipated in our view and is toll brothers uh john an exception because of where it sits you know within the industry with a somewhat higher price level a different customer base it's a really good question right right mike and it's a debate

some people would say you know you go with it with the higher end buyer because they're better you know financially healed um 20 of tolls buyers pay cash, so arguably less affected by interest rates. But I think you can look at the other side of the equation, too, and say, well, you know what? That first time entry level buyer is a very need-based buyer that's driven by life events, marriage, children, and so forth. And to the extent that they can buy a home, they are going to buy a home. So if that means moving a little further away from the city center, sure. If that means buying a smaller footprint, sure. So we would actually favor the kind of the lower end entry level first time need based buyer in

times like today. Gina, how does the outlook for what the Fed has left to do in terms of tightening rates, even in terms of letting its balance sheet shrink in part by letting mortgage backed securities roll off? How does that feed into what you do expect in terms of where mortgage rates are going to settle and whether demand is going to remain pretty healthy next year in housing? Sure. So the Fed has probably been the number one driver of mortgage rates this year. And all the increase in rate that we've seen to date is really in anticipation of what will they do. And you know I think in

June with around when rates saw local peak just north of 6% that- that started to reverse when investors felt more comfortable that the Fed really had a grapple on inflation. And I think most recently with the minutes that were out last week

we got. We we felt very you know. Con, convicted that the Fed was ready to do whatever it needed to do to combat inflation. And then that started anticipating that rates could rise a little bit further. And that's why you saw this slight sell off. So, you know, I think as long as the Fed doesn't surprise, which is obviously very challenging in this environment with volatility so high. But when the Fed does kind of surprise and people are anticipating a more hawkish move, rates are likely to increase, spreads are likely to widen. They do have a pretty substantial MBS balance sheet. It's about $2.7 trillion, but that is, you know, in the runoff process. And right now that is the scenario that's baked in.

John, what are the builders saying about their pricing plans? I mean, Gina just talked about the chance that, you know, prices in general go up. But are they having to moderate their pricing at all? To some extent, yes. I mean, incentive activity has absolutely sort of normalized off of, you know, virtually no incentives over the past couple of years. I think that what they're really kind of focusing on are things that help on the closing front. So whether it's rate locks or buying down points, things of that nature, just to kind of get folks over the edge. I would say, though, that we're still very much in check on the incentive activity.

And what Tole mentioned today, what was interesting is that the buyer just really froze in June and July. And there was no sense even having incentives because the demand was so inelastic. Now they're starting to feel there's a little bit of elasticity coming back in, which is really encouraging. They can bump up incentives to some extent, still keeping them very low and get that buyer response that they're targeting. All right. We'll see if that happens, if consumer sentiment maybe lifts off the mat as well. John, Gina, thanks very much. Appreciate it. Now, representatives for Twitter and Elon Musk meeting in court this afternoon for a hearing

surrounding Musk's bid to buy the company. Up next, the highlights from that hearing and how this week's bombshell whistleblower allegations factor in. You're watching Closing Bell on CNBC. Let's check out today's stealth mover. It's Frontier Airlines. That stock is flying higher by more than 3% after Morgan Stanley resumed coverage with an overweight rating and a price target of $20. With the proposed Spirit Airlines merger in the rearview mirror, the analyst says Frontier, as an independent company, is the quintessential ultra-low-cost carrier thanks to its low fares, low cost structure, and attractive margins. That's stock up 3.6% on the day.

Bed Bath & Beyond getting a boost today on a report from the Wall Street Journal saying it has found a lender to shore up liquidity. The stock is still sharply lower in the past week, though, following news that Ryan Cohen had sold his stake. Courtney Reagan joins us with the latest on the struggling retail. Hey, Courtney. Hi, Mike. I know you followed this one pretty closely, and the moves are enough to give investors and all the rest of us whiplash. So today, the news that Bed Bath & Beyond has a new source of liquidity is pushing shares to their best day since just August 16th. The Wall Street Journal reports the troubled home goods retailer has selected a lender to pad cash levels and potentially pay debt, though who and how much isn't known. In its most recent quarter, the retailer had $107.5 million in cash. That's down from $1.1 billion the year prior. And sales,

which of course is the primary source of cash flow, those are falling with total revenue down 25% in a year, again, according to that most recent quarter, $1.4 billion in long-term debt. Now, reports have suggested that Bed Bath & Beyond vendors have been reluctant to ship goods for fear of not getting paid, knowing how low those cash levels are. The retailer does have an interim CEO after its transformation efforts and push to private label really failed to gain traction, along with, of course, external supply chain snarls and then other company missteps. Mike, we've reached out to Bed Bath & Beyond for clarification on the reports about the vendor reluctance and about the potential of a lender, but have not gotten word back yet from the company. Yeah. So obviously so many things not specifically known, such as if there is a lending agreement, what the terms might be and how that,

I guess, sets up Bed Bath & Beyond financially down the road. But just in terms of the strategy from here, aside from having the liquidity to, you know, get vendors shipping things to them, what do you think Bed Bath is in a position to do? Are they aggressively shrinking the number of stores? Have they done a bigger rethink of exactly how they're going to be approaching this market when they are kind of in shrink mode? Yeah, so very interesting, Mike. They had done sort of a lot of the big stuff, like the the culling down of the stores and selling off different brands under CEO Mark Tritton, who is no longer there. And so what they had been doing was really changing around the merchandise,

bringing in new private label brands. So brands that Bed Bath & Beyond were developing and building all on their own and then putting them in stores for sale, stores that had been newly redone that were kept. So all of that was sort of either done or largely done when this big transition happened. And so right now we're really waiting to see who's going to lead the company in the longer term and what will that strategy be? Are they still going to push into private label? What's interesting is Tritton actually had a very good track record for private label at Target before this. And investors, when he was brought in, were very excited about what he might be able to bring in terms specifically of private label. But in my personal opinion, I think it is possible to look at this hindsight is 2020 and say, look, he probably did too much too fast and at a time

when retail was very dramatically changing and during a pandemic, which none of us could have seen was coming. For sure. It's kind of amazing. It's still about an $800 million market cap at Bath & Beyond right now on a pretty big sales base. We'll see what happens there. Court, thank you very much. Thanks, Mike. Let's check on the markets here. We have a little bit of a lift in the last 20 minutes or so. S&P 500 about four-tenths of 1%.

NASDAQ outperforming just a little bit. As I mentioned, Russell 2000 small caps up nearly one percent. Still ahead, SoFi shares moving higher as President Biden announces his student debt forgiveness plan. A top analyst will tell us that he thinks it whether he thinks that is positive news for shareholders. And as we head to a break, check out some of today's top search tickers on CNBC dot com. The 10 year yield holding that top spot, followed by Peloton, Tesla, Bed Bath & Beyond, and WTI Crew. We'll be right back. Markets are in slight rally mode.

We have the Dow up more than 100 points here. It's been hovering above the flat line for most of the day after a little bit of a morning dip. S&P 500 up about four tenths of one percent as well. We do also want to take a look at the Twitter back and forth. Representatives for Twitter and Elon Musk meeting in court this afternoon, just one day after a whistleblower complaint raised new questions about privacy and security at the company. David Faber has been following the developments closely, joins us now on the news line. So, David, what did we hear? I guess lawyers for both sides were, I guess, giving some indication of the points that they may press.

Yeah. You know, Mike, going in before the whistleblower complaint yesterday, we had an expectation this would be about Musk asking for more data specifically to support his case, that bots on the platform are far more than 5 percent, and Twitter would be pushing back, essentially trying to make this much more about, hey, Musk has got approved fraud, which, of course, they think is going to be extremely hard to prove. Then we thought things might change, that today might be a different hearing given the explosive allegations and that whistleblower complaint that we received yesterday. But frankly, it ended up being kind of what we'd expected prior to that. While Mr. Zatko was mentioned a number of times by Musk's legal

counsel at Spiro, it wasn't the center of this hearing at all. There was new sort of counter claim or attempt for, you know, for paving the way for a counterclaim of some kind, including this line of inquiry. It was much more about back to the basic case, which was we want to try to prove that bots are greater than 5 percent. We need a lot more data in order to do that and a lot of things that we don't think we got and we've asked for. And Twitter trying to make it about, no, that's not what this case is about. It's about proving a material adverse effect, which they're not going to be able to. So, you know, and Mike, in many ways, I think those listening,

and even with a more sophisticated perhaps take than I have, who I've hopefully talked to, that there wasn't that much brought to the table that was new. Interesting. Now, I mean, suppose that might reflect to some degree the fact that the whistleblower complaint, while somewhat explosive and maybe damning about how the company was managed and some security issues, it didn't necessarily get specifically at that 5 percent, you know, monetizable daily active user figure or anything like that, that that seems to be at the crux of Musk's case? It didn't. You're right. And in fact, some might even say because of that, it's more supportive than not. It was much more, as you say, about security and security flaws, a lack of focus there at the company. But that doesn't mean that at some point down the road, Mike, we aren't going to see the Musk legal team sort of try to bring that in and focus on it to some extent. But they didn't do it in this hearing, at least not to a great extent. We'll see what the judge rules.

You know, again, there's been some expectation perhaps that because of that go, you'd see a lot more time given to depositions, to subpoenas, to all sorts of different things, and therefore even the possibility that trial would be delayed. We'll see what she rules. She didn't rule from the bench, so we are awaiting her, whatever it is that she will decide in terms of allowing for more data that Musk wants. But again, back to the issue of bots, really, this was about largely appearing, you know, not much new, really, from both sides. Obviously, a lot of back and forth, as you might expect. Yeah, interesting. I mean, certainly it would raise the noise level of a trial just having this new information.

But the market seems like it also feels it didn't necessarily get too much of a fresh take there. David, thanks a lot. Appreciate it. Sure thing. Talk to you soon. All right. Natural gas prices are on the rise again today. They are up double digits on the month. After the break, we'll talk to RBC's Halima Croft, who says natural gas is the most important story to watch right now in the energy space. Natural gas prices hitting their highest level since 2008 this week. The move comes as Europe deals with soaring prices as a result of Russia cutting off flows. For more on the

volatility in that, guests, let's bring in Halima Croft from RBC Capital Markets. And Halima, every single day, a new record for European natural gas prices. It seems there's a rush for them to fill up what they can in terms of storage, preparing for the winter. What's priced into this market? What do we have to brace for? I mean, I think we have to brace for clearly further Russian disruptions. I mean, the Russians have already signaled that they are going to shut down the all-important Nord Stream 1 pipeline for several days at the end of this month. I think we just have to brace for rolling Russian cutoffs as we head into winter. Russia does not want Europe to fill storage. Russia wants to make this extremely painful for Europe,

because Europe is set to impose very tough sanctions on Russia on December 5th, which essentially embargoing Russian oil that would go into Europe, putting a whole host of other sanctions that would make it difficult for Russia to move their oil into other markets in Asia. I think the Russians are deeply concerned about these sanctions. Gas is their weapon of choice. They don't earn nearly as much money on gas exports as they do on oil. So they are going to play the gas card going into winter to make this awful for Europe. There has been some talk.

I mean, obviously, Europe is trying to prepare as it can, one, by rationing consumption, presumably, but also perhaps switching to the degree possible, whether that is to things like heating oil. I mean, are all those things factors in the rest of the energy complex at this point? I mean, absolutely. I mean, what we're seeing is, you know, the IEA actually increased their oil demand forecast because they're looking at a situation where countries are going to have to burn you know more oil for power generation but we're also seeing you know countries saying we're gonna bring back hard coal so this is a real situation that will affect the entire energy complex and

again you know I think the Russians really want to be playing this essential mutual assured destruction strategy with Europe. You go forward with these sanctions that will hurt our bottom line, that will go after our key engines of revenue, and we're going to have to make you choose between heating and eating. They really want to make this a very politically painful choice for European leaders. Right. And it would be. And of course, many, many expectations that it will certainly mean recession in Europe one way or another. And then just more broadly on the crude oil story, we have the Saudi comments recently about the possibility of cutting back on production.

At the same time, maybe some progress with Iran. How does that net out? I mean, this is going to be a really important story to watch. I mean, the Iranians, they now have the deal. The United States made their comments. They sent them back to Tehran. This comes down to a question of, is a supreme leader willing to sign on the dotted line? I mean, one thing that the Iranians wanted was guarantees that whatever sanctions relief

that would be provided would survive past January 2025. The White House cannot provide those guarantees. So it's going to come down to, is a Supreme Leader going to walk his nuclear program back from the brink of weapons capability to take a deal that gives him essentially two years of sanctions relief? If the deal is done, you can expect more Iranian oil to start hitting the market in a couple of months' time. And that leads to the question about what will the Saudis do? The Saudi oil minister was out this week talking about a potential production cut because of the volatility in the market, lack of liquidity.

We certainly think that the return of Iranian barrels would be a qualifying event for OPEC to start talking about production cuts again. And it was interesting to hear the comments that, you know, inflation adjusted oil is cheap or adjusted for other commodity prices relative to their own histories. Oil's not high at this point. I wonder if that's just essentially feeding all in the same direction, preparing for some more production discipline. I mean, if you want to see the energy market that is really having, you know, in warp speed in terms of prices, I mean, again, this is a natural gas story. I mean, yes, oil is hovering at that $100 Brent mark. But just look at what we started this segment talking about. Look at what is happening in natural gas. I mean, that is where we're really seeing these extraordinary high levels. And again,

the real, real economic contractions that's coming because of natural gas. Yeah. And we know about even the wear and tear on people's ability to pay electric bills here in this country. Halima, thank you very much for running through it all with us. Thank you for having me. All right. Here's where we stand in the market. Still solidly higher, though moderated gains in the S&P up a bit more than a third of one percent, S&P 500. And then the Dow up a quarter of a percent. The Russell still outperforming. NASDAQ up six-tenths of 1%.

After the break, it is prime time for Peloton, the bike maker kicking into high gear today after news of a partnership with Amazon. We'll talk to the CNBC reporter who broke that story next. And you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. What's Wall Street buzzing about today? Peloton.

Those shares surging after CNBC.com's Lauren Thomas reported the company will shift gears in its selling strategy. Consumers will now be able to buy Peloton products, including the original bike on Amazon. It is the first partnership with another retailer, and the company tells CNBC to look to other retailers for similar deals. Lauren Thomas joins us now to discuss really a strategic shift. Lauren, what is behind it? What's the calculus on the part of Peloton? Definitely. So this is really big news in and of itself because Peloton was started as a direct- consumer business you know it has this d2c core where up until now it has relied primarily on its own website and its own stores to sell its products now the company of course has been through a massive shake up this year it

got a new ceo in barry mccarthy who had stints at spotify and netflix and this McCarthy, who had stints at Spotify and Netflix. And this is someone who is very interested in the subscription aspect of Peloton more so than the hardware. So you've seen Peloton already in just a few months that Barry McCarthy has been CEO. It's gotten out of the production business. It shifted that to third parties. It's gotten out of last mile delivery

and now is relying on third parties such as XBL Logistics or FedEx. And with this announcement today, we're now seeing Peloton take a step in retail to rely on Amazon to sell its goods. So clearly, you know, this company is still looking to grow its base. Peloton has about seven million members today. Barry McCarthy has said he wants to hit 100 million members,

so certainly still has a long way to go if it were to achieve those goals. But it believes that retail partnerships are really going to be key to that moving forward. Well, and it is interesting because while it is such a departure, the idea that he is so focused on the subscription business means that Peloton would retain a relationship with the customer. There is still that kind of ability to retain and sell through things along that line if you don't think the hardware is the main thing. The other piece of this, and I've heard you talking right about this, which is Peloton, customers are already searching for Peloton products on Amazon. There seems to be this ready-made known level of demand, people looking for it there. Can Amazon also look to other brands? Presumably this is an advantage Amazon

has in terms of trying to create partnerships. They can see what people search for on the platform. If some vendor or some brand is not yet selling on there, I assume they can say, why wouldn't you come in and cut a deal with us. Yeah absolutely. And it's important to point out and remember just a few months ago really there were rumors swirling that Amazon was interested in actually acquiring Peloton right and

obviously those talks didn't bear fruit. Peloton has not been acquired. But you know when you see the market cap fall it was at early twenty twenty one closer to fifty billion dollars and. Certainly with the stock price up a bit today it's it's up a bit but around the four billion dollar mark now. So you know there were certainly some businesses I think at at a point in time.

That had an interest or wanted to explore Peloton as as an acquisition opportunity. But to your point you know Amazon it recently announced it was going to acquire the robot, iRoomba robot maker, you know, and that was a big data play. This is a company that's very interested in learning about consumers. And now with this Peloton partnership, I think they'll get a much better sense of just what the American consumer is thinking about in terms of fitness and health and wellness. For sure. And it's advertising business helped by that as well. Lauren, thank you very much. Thank you. All right. Talk to you again soon. SoFi getting a lift today on the Biden administration's student debt announcement. We'll get to an analyst about the news, what the news

could mean for the lender. That story, plus a preview of NVIDIA, Salesforce and Snowflake earnings when we take you inside the Market Zone. We are now in the closing bell Market Zone. Samir Samana from Wells Fargo Investment Institute is here to break down these crucial moments of the trading day. Plus, Mizzou host Dan Doliv on SoFi's Pop and Needham's Raj Gill on NVIDIA. Let's talk, Samir, in terms of the markets as a whole, they've been acting as if in the last couple of months, let's say, there's a perhaps higher perceived probability we get some kind of soft landing that maybe recession isn't a foregone conclusion or at least that earnings are going to hold up. You seem as if you're a little skeptical of that view. You think that we still have a little bit of a tough road ahead economically? We are. I mean, you know, look, there's just too many supply

dislocations that the Fed just can't control, which are going to keep a little bit of a bid under inflation. And so, you know, can they get inflation down from eight to, you know, four or five percent? Sure. But if they're pretty resolute on getting it down to two, they're going to have to go into a much more restrictive territory than the market is currently pricing. And that's the part that we think is underappreciated. Once that flows through to multiples, especially on earnings that should decline as those rate hikes make their way through the economy, it's just going to be a tough time going anywhere down. I wonder how what we might hear over the next couple of days from Jay Powell in Jackson Hole

is going to affect that, because there's some sense out there that as soon as we have a couple of months of declining inflation, given already what's been done on the tightening side, the lagged effect of that on the economy, maybe there's a sense out there that some equilibrium point might be not too far in the future. Yeah, look, I think all of our work suggests that wages tend to lead other types of inflation and especially the stickier types of inflation. And so you've still got wages growing well into the 5 percent range. That's the tricky part for the Fed right now is that will eventually put upward pressure on things like rent and those stickier components of inflation, even if the headline comes down.

All right. Let's get to SoFi. That stock getting a pop today. It's off its highs, but still up more than 3 percent. President Biden announcing last hour the federal government is canceling $10,000 in student debt for some borrowers, likely to affect some 40 million loans in total. Joining us now for more is Mizzou host Dan Dolib, covers SoFi. Dan, first, just talk about the general implications of this move in conjunction with the fact that the moratorium on paying interest on student loans is going to end at the end of this year. How does that run up against SoFi's business? Hey, Mike, thanks for having me on the show. Look, this has been a huge drag on the stock and we're so happy to see that drag go away because it kept, you know, for the last two years,

we've been hearing, you know, it keeps getting extended, extended, extended. And what ends up happening is when, you know, there's finally clarity about this, then you're going to get a big wave of refinancing. And that's how SoFi makes money, right? In 2019, it accounted for about 60% of volume, 6-0. It's down to 20% now in the first half. So if you get that refinancing boom again, now that you have that, you know, the moratorium clarity ending, I think it's going to be great for SoFi. So that that's how it kind of plays into the SoFi story. So the elimination of student loan balances based on the forgiveness of this ten thousand dollars is not going to offset that at all. In other words, people won't have as many as loan balances to refinance if that happens.

It's only about I think about 50 percent. So remember, there's the benchmark is one hundred twenty five thousand. So it's only about 50 percent or so. Their book is below one hundred twenty five thousand of income and the average loan balance is about 70,000. So you still need to refinance your remaining loans. Plus, the people that have higher incomes now have clarity that they're not going to get a pass anymore. And that might create them to basically stop kicking the can down the road and refinance again. We've seen this in the fourth quarter of last year when people thought that the moratorium was going to end. You saw a huge boom in refinancing. I expect to see the same thing in the fourth quarter.

It's happening sooner and it's happening bigger than what we thought before. And that's why we're saying, you know, Biden is forgiving. Don't forget to buy SoFi. And then just bottom line, clearly, it's not the only driver of SoFi's business. But how else is it situated here? We're over the about a six billion dollar market cap on the company right now. It's well down from, you know, the highs of a year and a half ago or something like that as people rethink maybe, you know, the model and what to pay for it and whether profitability is going to be nearby. I think this is a great time for SoFi because remember, in an environment where interest rates are rising, SoFi has a huge advantage. They're lending like a bank, right? They're lending with their own balance sheet and they get a better cost of capital. So they can make a bigger spread when

others are having trouble, right? We've been in this environment where lending is a problem. But SoFi, because it's got the cachet of the fintech, it's got a huge brand and great management, and it lends like a bank, it's got sort of the best of both worlds or the best of all worlds. And, you know, we're getting more and more calls from investors who are interested in SoFi these days because it's very, very uniquely positioned. Plus, there's more liquidity with soft bank selling. So it's sort of like that perfect environment or perfect weather for people to get back into SoFi. Well, we'll see if FinTech is still something that has cachet, I guess, over time. But Samir, let me just ask you quickly, in terms of the macro implications, if any, of the student loan

forgiveness, some people say it might drive more consumer inflation, others that are just refresh, you know, household balance sheets. Is there really a play in this from the macro side? You know, it probably does, you know, kind of put a little bit of, you know, confidence back in the consumer's mindset, right? I mean, there's been a lot of things that have kind of weighed on it, whether it be, you know, wages, whether it be gas prices. I mean, this is definitely something that should ease some of the pressure on the lower end of the consumption, you know, bracket. And if anything, you know, it feeds back into that conversation earlier about making the Fed's job a little bit harder because now you're getting consumers feeling better again. Right. Yeah, there is a push-pull for sure.

Dan, thank you very much. We'll catch you again soon, I'm sure. We have two big software stocks reporting second quarter results in just a few minutes, both in the green today and part of the summer bounce over the last few months. Snowflake up 23 percent, Salesforce up 15 percent, both since mid-June. Frank Holland joins us now for more. And Frank, what will investors be watching in particular when Salesforce reports? Well, when it comes to Salesforce, revenues are forecast to increase by 21%, but EPS to decline by 31%. The big question for this quarter is operating margin. In Q1, Salesforce reported almost 18% operating margin and then guided 20% operating margin for the full year.

I know I'm throwing a lot of numbers, but follow with me here. But Salesforce did not guide for operating margin this quarter. The street's looking for over 18%, and there are a lot of questions about how the company will expand margins for the full year. CEO Mark Benioff says results are also deeply impacted by the strong dollar last quarter and is guiding for a $200 million hit due to currency in this report. Salesforce gets about a third of revenue outside of the America, so some questions there about the dollar impact and how that is going to impact margins. For sure, definitely been a headwind. And Frank, what should we watch out of Snowflake? Well, investors, analysts, they all want to see growth that justifies the sky-high valuation

of this data as a stock, excuse me, data as a service stock, which is now trading at more than 1,000 times forward earnings. So revenues forecast increased by 71%, but EPS estimates have a loss of a penny. So just pick a metric. Remaining performance obligations, RPO, is forecast to increase by 84% to 2.76 billion. That would be in line with the growth from Q1. Estimates also have customers growing by 35% to over 6,700. Beats in either of these or AAR would signal a strong pipeline of business and real growth during an uncertain macro time. Yeah, for sure. Clearly, very, very strong long term growth expectations in Snowflake to see if any of them really prove justified by these current numbers. Now, Samir, I wonder just as a as a category of stock, these somewhat higher growth,

very well regarded business models in software. Is it a part of the market that you think can come back that, you know, Salesforce down 40 percent off its high, Snowflake, I think, off 60 percent? You know, what we would say is there's probably parts of tech that can play pretty well. You know, we like larger cap tech. It's a sector that we favor. But I would say smaller cap growth companies, smaller cap software companies, non-earning, smaller cap growth companies probably are pretty vulnerable. It's interesting because they've been one of the market leaders since that mid-June bottom. You can throw biotech in there. That's maybe the poster child for the

rally that we've seen since mid-June. We'd probably be fading those types of companies. I think they'll have a pretty difficult time as those financial conditions tighten and it becomes a little bit harder for those high cash burn companies to borrow to continue to fund that growth. Yeah. And Frank, you know, in terms of Salesforce, Mark Benioff, he always has a pretty upbeat, longer term story to tell. He's been doing it for whatever, a decade and a half or something like that as a as a public company. Sometimes the street listens. What's the street kind of view of this stock at the moment? Well, right now, obviously, everybody knows that Salesforce is going to have strong revenues, has a great customer base. The real question is about

its profitability long term. There's FX headwinds. There's also margin questions. Salesforce, like a lot of other cloud stocks, is also impacted by rising interest rates. So that could be another potential headwind long term. All quarters, we've seen the 10-year rise. We've seen stocks like Salesforce and other companies that are at the top of the stack when it comes to cloud names really get hit hard by those higher interest rates, with rates increasing. That's something to watch for this company long term, at least for the rest of this fiscal year.

Yeah, that certainly was or has been one of the pressure points. Frank, thanks very much. We'll catch you after the numbers are out. And don't miss the CEOs of both Salesforce and Snowflake on Mad Money with Jim Kramer. That is tonight at 6 p.m. Eastern Time. Nvidia shares meantime in the green today and up about 7 percent since the company's last earnings report. Our next guest says this may be a kitchen sink quarter for the chipmaker. Joining us is Raji Gill, managing director of semiconductor equity research at Needham. And he has a buy rating on NVIDIA with a 185 price target. So we're hoping for a kitchen sink quarter. What would that entail specifically in terms of what NVIDIA says about the outlook, do you think, Raj Raj? I mean, we're hoping, we're certainly hoping for a kitchen

sink. I think, you know, what Micron spooked us a little bit because when they cut numbers, we thought they kitchen sinked it, but then they went out ahead subsequently and lowered numbers further. I think there is going to be some continued risk to the October guide. As Ethereum moves to proof of stake, the demand for miners goes away, so there's still a fallout from that. That will impact their gaming business. China and Europe are still a very large percentage of their gaming market. Both markets, the economies economies are weak there. So we're

hoping that the October guide will be a kind of a reset. We're also paying very close attention to both gross margins as well as data center. On the data center front, on the pre-announcement, data center growth grew only about 2% sequentially, and it decelerated on a year-over-year basis. Data center is the principal growth driver of the company. So we really need to see that that business is not slowing down in a meaningful way. And then additionally, on the gross margin, they took a $1.3 billion charge, inventory charge. Their gross margins around 46 percent this is versus 67 percent they clearly took the inventory charge and took the hit initially we want to have a better understanding of what are the

normalized gross margins coming out of this inventory correction with gaming what are those normalized margins going to look like to clear out this inventory? Those are going to be very important. You mentioned the transition in Ether, proof of stake, and you categorize that as in the gaming segment. I mean, I think there's a little bit of, there's a crossover here, right? It's the gaming products, the chips that are used for those purposes. What about, though, the end demand for personal gaming and things like that itself? Have we seen a trough?

Well, I don't think we're out of the woods yet with respect to gaming, core gaming, ex-Ethereum mining. And it's really due to a couple of reasons. I think China represents 25 percent of their installed base of GeForce gamers around the world. The Chinese economy continues to be very weak. All our conversations with companies that sell into China indicate that the Chinese economy is not recovering anytime soon. There's a housing crisis. There's multiple issues. So the China consumer, we think, is still in – has some challenges. I think, secondly, Europe is also a big percentage of their gaming market, the European economy.

So we really need to see that those two markets have started to slow down. The pricing has fallen pretty dramatically for NVIDIA. What NVIDIA can get for its gaming GPUs, say, a year ago. A year ago, they used to get two to three times MSRPs. The pricing now has fallen as more supply has come in. So the pricing of GPUs has come in. So I think we're not out of the woods yet in terms of gaming. A lot of that is understood by the industry. I think the main issue is really data center. Got it. All right.

We'll see how the numbers come through. You've got a 185 price target. Pretty modest upside to where it is trading right now. Raji, thank you very much. Thank you. Samir, final thoughts here. It seems like you're advising investors not to fight a Fed that's going to have to be a bit more aggressive than now anticipated. You know, we would say it's been dynamic, right?

So, you know, if we're talking, you know, in mid-June and we're, you know, sitting with a 36 handle on the S&P, you know, at that point, we like large cap stocks. We want people to kind of add exposure. You know, here, closer to, you know, 42, 4,300 like we saw last week. This is the time to be kind of pulling back on those lower quality areas. And probably our favorite area continues to be energy. You know, that still continues to price oil in kind of the 60s or 70s as opposed to the 100s where it's trading. There's just too much skepticism there.

So that's probably a really good, you know, area to continue to, you know, kind of up the exposure. And you say, you know, down at the 3,600 area in the S&P, you would have advised adding and liking large caps. You expect that low to hold? We do. You know, again, just given the fact that interest rates seem like they're well behaved, it seems like, you know, things should start to moderate next year. So if we do overshoot that, I mean, we would think it would be probably a generational opportunity. Interesting. OK. Yeah, that's some some way to benchmark everyone's expectations, if nothing else. Would be a pretty big drop from here, though, to go to those lows again, 12 or so percent. Samir, great to have you today.

Thank you very much. As we head into the close, moderated gains a little bit. The Dow is only up about 67 points. That's about two-tenths of 1%. The S&P 500 up about 0.3% here. We're kind of hanging steady in August on a month-to-date basis. The S&P 500 is actually up about a half a percent, even as it's about 4% below its highs. We have the Russell 2000 continuing to outperform, up about 1%. That could be as the dollar rises and people get a little more comfortable

about perhaps the resiliency of the domestic economy. Meanwhile, the 10-year Treasury yield, still above 3%. A lot of the same pressure areas on stocks remain. 3% Treasury yield, strong dollar. And, of course, we await the Fed conference in Jackson Hole coming over the next couple of days. That does it for Closing Bell.