Closing Bell - Closing Bell: Stocks mostly lower in wild session, Warning for McDonald’s 9/27/22

Episode Date: September 27, 2022

Stocks finished mostly lower after trading in a very wide range, with Fed commentary and bond moves pulling the market in opposite directions. DoubleLine’s Jeff Sherman and Mohamed El-Erian from Allianz discuss the factors weighing on stocks and bonds, if they’d be buyers in this uncertain environment. Meantime McDonald’s was among the worst performers in the Dow after Citi issued a negative catalyst watch on the stock. The analyst behind that call joins to explain his warning. And the CEO of cybersecurity firm Qualys – a rare tech winner on the year – breaks down his read on corporate tech spending.

Another early rally attempt failing on Wall Street today. The Dow giving up nearly 400 point gain, though gaining back some ground late in the session. The most important hour of the trading day starts right now. Welcome everybody to the Closing Bell. I'm Melissa Lee and today for Sarah Eisen. It has been a wild session with stocks trading in a broad range. Comments from Chicago Fed President Charles Evans on CNBC Europe helped drive an early pop in stocks,

particularly when he said he was a little nervous about the pace of hikes and the lag in data. There are lags in monetary policy, and we've moved expeditiously. And so, you know, when we've done 375 basis point increases in a row, and there's talk of more to get to that four and a quarter to four and a half by the end of the year, you're not leaving much time to sort of look at each monthly release. But that early rally quickly faded, and by midday, the major averages had given up. Sizable gains turned sharply lower. We've made a bit of a comeback here in the last few minutes.

Allianz chief economist Mohamed El-Erian pegging the downturn to a rise in yields, tweeting, as feared, higher yields on U.S. government bonds have eroded what was a 2% bounce in stocks serves as a reminder that a stabilization of the treasury market is likely to be needed to establish a sustainable floor under stocks all of which keeps the market's focus on the Fed. We'll hear more from Mohamed in just a bit when he joins us live. In the meantime let's dig deeper into the move in bonds and the impact from the Fed. Bonds are becoming more attractive to investors like DoubleLine CEO Jeffrey Gundlach, who tweeted today that he has been a buyer of bonds, quote unquote, recently. Joining us now is DoubleLine's Deputy

CIO Jeff Sherman. Jeff, great to have you with us. Hi, Melissa. Good to see you today. Hi. In a world in which there was no alternative for so long, there is an alternative at this point. And so I'm wondering how you view that opportunity right now for investors. Yeah, well, I think Mohamed's quote is correct. You know, all volatility runs to the bond market right now. And we've seen a very hawkish Fed. Not only was the Fed hawkish at the meeting last week, but they kind of out-hawked themselves. And, you know, Chairman Powell was committed to the dot plots. He's talking about they have to be forced to un-fight inflation. And the bond market was, it really did a 180 from the interpretation that we

saw back in the July meeting, where they interpreted the Fed chairman's comments as being dovish. And so we've seen a massive repricing in the bond market, not just in the last week or so, but really since the kind of local low in yields on the 1st of August. And just to put it in perspective, I mean, yields are up something like 140 basis points on 10 years, the two years up over 150 basis points. And so you're starting to get to the perspective

of where on a forward looking basis, if you believe that the inflationary environment is on a trajectory to be contained and what is priced in the bond market, there's significant value in real yield opportunity. That is return opportunity that can outstrip inflation over the next couple of periods. And so from our perspective,

we've been adding to our treasury positions to offset some of the credit risk within our portfolios, but also just as an outright trade. The bond market is very oversold right now. If you look at relative strength indices across the curve, you can see just this carnage that you've seen over the last week and a half or so. And it really presents a buying opportunity.

And so investors like the Fed, and I like Mohamed's comments that the Fed is being backward-looking, look at inflation. The inflation data we got is the inflation that has transpired. It's not the inflation data that we have on a forward-looking basis.

And so I think there is some significant opportunities out here. Yields are to levels that we have not seen both in credit markets and rates markets since back in 2011. And so there is significant opportunity out there. And I really think for investors that are timid and worried about the path going forward, there is a good opportunity right now in the fixed income markets to be able to put together high quality portfolios that can achieve some of their income and return objectives.

The notion that U.S. treasuries present an opportunity, I think a lot of investors can stomach. The idea that Europe presents an opportunity is something, Jeff, that I think a lot of investors may not be able to stomach because the rise in yields may signify something else. When you take a look at a U.K. 30-year popping above five percent for the first time since what 2011 or whatever that superlative is that signals the fear that you're not going to be paid back later on i mean it it's a whole other message where you have yields go higher and so i'm wondering where you see that opportunity in europe yeah i mean from that perspective i think you know the uk still has some challenges especially with all the budget budget talks over the last week or so. Really, you know, that they're going to try to stimulate here through tax cuts.

And the market didn't want to hear that. But I think some of the pain you've seen in the rates market here in the U.S. this week, or at least yesterday and today, is some of that selling from UK investors. Right. They have their own treasuries. They were selling them to, essentially, they don't care about the price they sell back because if they're unhedged, the currency move way outstrips what the decline they saw on the rates market. And so from the standpoint of thinking about some of the pressure we've seen in yields here, some is because the world has been long the dollar that they're trying to sell some of that to kind of protect that currency as well. So really, Europe doesn't really offer a significant opportunity even at

these levels right now. We'd be very cautious on that. The U.S. is the place to be. The U.S. is the carry trade right now outside of the U.K., as you pointed out, and it is a high quality asset. And so for U.S. investors, we think they should be remaining to focus on the U.S. bond market today. What are you seeing then? This is the last question, Jeff. What are you seeing, though, in the credit markets? A lot of people on the equity side look at the credit markets to see if there's any cracks, any signs that there's stress. And what I noticed in the notes that you gave to our producers, that liquidity continues to be poor. It's not that there's less. We know that there's less liquidity. That's by the Fed's design. But that liquidity is actually poor. How poor is it? Is it getting worse? Yeah, it's poor

in terms of bid offer spread, but that's also a function of volatility. So bonds, you know, as there's more volatility, bid offer spread widens. But talking with our desk this morning and talking to the credit traders, it still is pretty orderly in these markets. And so, yes, the bids are a little bit wider on assets out there, but there are significant bids across the credit spectrum. So from a standpoint of liquidity, it may not be the price you want, but there is liquidity in the market right now. And so the liquidity has been poor, but this is also by design. And what I mean by that is the Fed is tightening policy. They're raising interest rates.

We all know that. But don't forget on the back end, they're also doing quantitative tightening. And so they're removing liquidity from the system. And this shot north with the dollar really over the weekend or so is also exacerbating some of those challenges with liquidity right now. And so ultimately, this is kind of really it falls into the plan of what the Fed wants in tightening conditions in general. But when we look at credit markets, they are behaved that they may not be the price where people want that, you know, the if you look at like the largest ETF out there,

an investigative corporate bonds, it's now down more than 21% year to date. And so some of that has to do with credit, a lot of it has to do with rates. But so far, what it really is is just the widening we've seen in corporate spreads and across the credit markets in general is really just commensurate with the rate volatility we've seen. So it may not be what investors want to hear from a standpoint of looking at credit. But if you're calculated in the way you look at it and you're willing to take that risk, some of these below-investor grade parts of the market do look attractive. Now they have recession risk, right?

So what is an investor to do? Well, you can get double-digit yields out there, but you can also pair it with this trade we started with, right? We can talk about the treasury market. We can build portfolios out there to do that to withstand some of that credit volatility. So the bond market is one of the most interesting places it's been in over a decade right now and we just think that investors out there that are concerned about equity markets potentially

they should look at some of these credit markets putting some of these ideas together and building yourself kind of a portfolio that can weather the storm that's forthcoming from the fed over the next six to nine months jeff thanks for for your thoughts. Great to speak with you. Great to see you again, Melissa. Thank you. Jeff Sherbet. We're following a number of developing stories in the energy space today. First up, net gas and suspicious leaks in a pair of pipelines carrying Russian gas. Pippa Stevens has that story for us. Pippa. Hey, Melissa, we're talking about the Nord Stream pipelines, which carry gas from Russia to Europe. They've been hit by three different leaks at once, raising suspicions of sabotage.

The Swedish National Seismic Network saying it detected two blasts near the leaks, that it's certain were explosions rather than an earthquake. That's according to reports. Now, it's important to note that this does not interrupt supplies right now, given that neither pipeline was actually carrying any gas. Gas Gazprom had already cut flows via the Nord Stream 1, and production on the Nord Stream 2 pipeline was halted earlier this year. But it raises questions about future flows, especially heading into winter. Secretary of State Antony Blinken said today that sabotage of the pipelines is in no one's best interest. But RBC's Halima Croft said this could be a burning down the house strategy

with more infrastructure, Melissa, potentially at risk. Wow. We also want to talk about oil and the impact from Hurricane Ian. It's poised to strike Florida's Gulf Coast. What's the impact on crude so far? At the moment, we're not seeing that much of a response. Hurricane Ian is nearing Florida, but missing the panhandle, avoiding much of U.S. production in the Gulf of Mexico. Right now, about 190,000 barrels per day of production has been shut in, according to the Bureau of Safety and Environmental Enforcement. That's about 11 percent of the Gulf's total production. But the U.S. produces more than 11 million barrels per day, so this is really not a meaningful number. The regulator added that a total of 12 oil and gas

platforms have been evacuated, including by BP and Chevron. But BP said this afternoon that the storm no longer poses a significant threat to its assets in the Gulf, and it's working to redeploy its offshore personnel. But once the storm makes landfall in the U.S., this is quickly going to turn into a demand destruction story. As again, Capitals' John Kilduff noted, Florida is a big consumer. So while gasoline futures are up about 4.5 percent today, he does not anticipate, Melissa, those gains holding. All right, Pippa, thank you. Pippa Stevens. The S&P 500 now trading at levels not seen since November of 2020 after this latest round of selling. Chart expert Chris Verone will join us with the technical levels that you should be paying very close attention to right after this break.

You're watching Closing Bell on CNBC. The S&P 500 on pace for a new closing low on the year. After finishing yesterday below the June levels, our next guest has been bearish all year and is looking for the next support levels. Joining us now is Chris Verone, head of technical analysis and a partner at Strategas, which is a bear company. Chris, great to see you. Hey, Melissa. So 36.36 is in the history books.

36.26 is where we are right now in terms of lows. What's the next level to watch well it's lower I mean there's some modest support in say 3500 neighborhood but really our kind of view all year has been that the market is going back where it was pre-coveted and you know that's 31 32 3300 SMP I think those are levels that we have to circle. Our big issue here is the market's just not that oversold. Right now, the S&P is about 12% below its 200-day moving average. Historically, you need to get that closer to 20%, 25% below the 200 to make a big oversold call. That's what we saw at the 1970 low, the 74 low, the 02 low, the 09 low. So I think it's early to make a big oversold call.

The top of the market here, I think, is really where the risk is. I mean, look at the stocks that broke down first. It was Microsoft below its June low two or three weeks ago. It was Google below its June low two or three weeks ago. So this is very, very top heavy here. I don't think we're through it. So is the further breakdown going to be driven by those biggest stocks, the S&P 500? Because the complaint on the fundamental side, Chris, is that we haven't seen sort of that next shoe to drop when it comes to guidance from a lot of these companies. From Microsoft, we haven't heard about enterprise demand slowing, for instance. And so maybe there is further weakness ahead. What do you see in the charts? But when you look at the progression of this bear market, this began in spring of

2021 with the ARK stocks. And then they hit what we call the almost fangs, the names that were once considered to be fangs, but really never quite in that same conversation. Now they're going after the fangs. So I think the stocks that drive us lower from here over the next number of months are your big waves. I think it's Apple. I think it's Microsoft. I think it's Google. I think it's AMD. I think it's NVIDIA. You know, bear markets are a function of price and time. There are certainly a lot of stocks here down a lot, but we really haven't been in this from a time perspective, I think, long enough. So whether you agree with me on the next 300 S&P points up or down, what I think the bigger story is time. This will take time, I think, measured in quarters, maybe years to repair so many broken charts that are out there.

In a world, Chris, in which the S&P 500 does go to 31, 3200, are there sectors, are there stocks here that are relatively defensive, or is everything off the table on that sort of trip lower? I think the trick here is, you know, it's almost shades of fall of 08, where what led you lower, kind of that climactic move lower, were the defensive groups that were viewed as untouchable. I remember the summer and fall of 08, it was Walmart and Exxon that really dragged you lower. So I think you've got to be careful with some of the defensive groups here. A lot of money has moved into staples and utilities. They are crowded.

They're not particularly attractive from a valuation perspective. And in that final phase of the bear market, it tends to be when they hit the very defensive groups. And you look at some of these staples or utilities, they're still outperforming, but only because they're going down less, right? If you look back earlier in the year, they were outperforming and going up. That's changed. This is now just a relative story. So I do think there's risk to some of these defensive groups going forward. Shades of 08 sent shivers down my spine, Chris. Good to speak with you, nonetheless. You too.

Chris Verone. Let's get a check on the markets and where we stand as we head into the close. The Dow is now down by just about a third of a percent. S&P 500, 3649 is your level right now as we head into that close, down by just two-tenths of a percent. After the break, we'll talk to the CEO of a rare year-to-date tech winner. Shares of cybersecurity from Qualys are holding on to gains for the year, and the CEO is ringing the Nasdaq bell today. He'll join us next with his thoughts

on corporate tech spending and the recent breaches at Uber and Take-Two. And as we head to break, check out the cruise stocks having a decent session today. Carnival, Norwegian, Royal Caribbean, all outperforming. Posing Bell, be right back. Nasdaq moving slightly higher today, but still negative week today and a down more than 30 percent in 2022. But one bright spot, cybersecurity.

And check out Qualys in the green this year, up 3 percent. Companies are beefing up cybersecurity as work from home continues and cyber hacks have stayed in the news. Just this month, Uber and Take-Two Interactive both hacked in high-profile attacks. Joining us now is Qualys president and CEO Sumedh Chakkar. Sumedh, great to have you with us. Thank you, Musa. Thank you for having me. It makes sense that companies still need to spend on cyber, but I'm wondering what you're seeing and what you're projecting in a recessionary environment.

Let's say that there is in fact a recession. We're hearing already about corporate layoffs across the board. If that translates into a higher unemployment rate, how do you think about that as it affects your business and revenues? I think you have to look at how the market has evolved in the last few years where a lot of companies continue to use digital transformation and technology as a way to bring more efficiency and productivity in their businesses. And so I think in a challenging macroeconomic environment, companies will look forward to

leveraging IT technology as a way to bring more efficiency, to be more productive, and to be able to bring more automation so they can do more with less. And cybersecurity becomes an enabler of that. Without cybersecurity, you cannot have this digital transformation that is going on and I think that is how I see moving forward that and why we have seen today robust budgets for cyber security continuing because IT spending is something that organizations are looking to leverage in the recessionary environment today. So let's say just simple headcount goes down Sumed, does the spend stay the same at a company?

The way that you, today already in cybersecurity specifically, there's not enough people, and we hear that all the time, right? There's not enough qualified people in cybersecurity. So the focus for companies have already been on how to leverage more automation and how to leverage more of cybersecurity cyber security platforms like qualis which can bring multiple capabilities into a single approach and so with that with automation and security you can reduce the reliance on having to have put more humans on doing tasks you can actually have more automation that can get rid of a lot of the cyber security tasks and then you can focus the fewer humans that you have on uh tasks that require a human intervention to look into what's going on in the environment i want to see i want to see what you're seeing right now um sumed and and i'm not going to pick on the second

quarter because that was a great quarter it was a beat and raise kind of quarter in terms of current calculated billings growth ccb it was up 18 on year, but it did show a quarter on quarter decline. So I'm wondering what you are seeing right now in terms of quarter on quarter business and what the trend is. Yeah, we are happy with where we are in terms of the acceleration that we have seen in the business to come to where we are.

You know, last quarter was obviously 20% and at the margin of 40 plus percent on EBITDA. And look, the way we see right now, we have run a profitable business. We have $500 million on the balance sheet today, which is a rare thing in the cybersecurity stocks. And as we stay cautious with the macroeconomic conditions and we continue to leverage the cash that we have on balance

to invest it in the right ways and to look for opportunities to see how we can continue our profitable growth and that's really our focus right now is how can we add more value to our customers so they can do more with the Qualys platform and that way we can continue the way we have been doing with having growth but with the profitability that we have. So the trend is still good? That was the question. The trend that you're seeing in terms of Billings growth. Yeah, so the trend that we are looking at the Billings growth is something that we look, continue to monitor

and we look to see how we're going to do for the next guidance that we'll give at the beginning of the year. Okay. Sumat, great to speak with you. Thank you, Sumat Chakar. Thank you. After the break, Mohamed El-Erian weighs in on today's downside reversal and whether or not he'd be a buyer of stocks at multi-year lows.

Stay tuned. Got a check on the markets right now. The S&P 500 has taken out its June intraday low of 36.36. We're trading at 36.44, down about three-tenths of a percent on the S&P. The Nasdaq is trying to finish out in the green with a four-point gain right now. Joining us now is Alliam's chief economic advisor, Mohamed El-Erian. Mohamed, great to speak with you again. We pay attention a lot to the equity markets, but a lot of the action is in currency as well as fixed income these days. And what we're seeing overseas, I think, is really shocking.

And we may not have paid attention as much to it today, and we should. And that's the move in the U.K. bonds, U.K. guilt. The yields on a 30-year, you tweeted the levels we have not seen since 1998. Dalio tweeted earlier levels we've not seen since 2002. Whatever the year is, we haven't seen them in a very long time. And we're seeing the ripple effects here. Can you sort of walk us through what those dominoes are? So UK 30-year yields reached 5.04 percent. We haven't seen that level for a long time. They've moved 100 to 125 basis points in three trading sessions. So that's massive. Melissa,

the general story is a simple one. Yields are in the driver's seat and in the backseat are stocks and now FX. So depending on what yields do, everything else follows. And what we need desperately is a stabilization of yields. And we haven't had that. We've had a relentless rise. Part of it has to do with the Fed. Part of it has to do with bad technicals. And part of it has to do with the Fed. Part of it has to do with bad technicals. And part of it has to do with people stepping back.

What happened in the five-year auction today was very informative. What does it tell us, Mohamed, that yields around the world are going higher all at once? That there's not a safe haven trade for, let's say, U.K. debt holders who are selling their U.K. bonds and seeking safe havens in other government bonds. We're not seeing that in the U.S. We're seeing bond yields spike here as well. Yeah, so it's different stories. I do think that in the case of the U.K., in the case of Italy, there's a sovereign risk story there.

There's an issuance story there. In the case of the U.S., it's a Fed story. We've had a Fed that made mistake number one, as you know, embracing transitory, falling way behind the curve. which is the Fed has dug itself into another hole, this time by being hawkish and being unconditional, but looking at lagging variables. So what the market is worried about is this. The Fed will continue hiking and will go too far because it's looking at lagging variables. Why? Because it's trying to restore its credibility. And that is what's pushing yields up, especially at the front end in the U.S. And that's why the five-year today was a really poor auction. And I will keep an eye on that because that has significant technical spillovers. I mean, especially if the Fed is actually starting to sell and there are no buyers on the other side.

I mean, that's that's a problem down the road. Mohamed, you know, I've had the pleasure of speaking with you on Spock Box on Friday, on Spock Box yesterday and then here on Closing Bell today. So three days in a row. It's one thing to talk about these extreme moves and the impacts on one single day. But this is three days in a row that we're talking about these sort of similar ripple effects of extreme moves. Do you feel any worse about the markets or the damage that is being done to the markets after three days of these sorts of movements that we've been watching, as opposed to just a single session? Yes and no. First, I think we are causing technical damage to the markets. I think people are more hesitant. I hear nothing but complaints about liquidity. And remember, you're talking

about the most important markets in the world, and they are having technical issues. They're having liquidity issues. So, yes, I feel worse because these things accumulate. The pleasant surprise is that we haven't seen anybody really get off sides, not as yet, at least. And that surprises me. It seems that risk management has become much better. Let's hope that the next few days we don't hear of any accidents. But those sorts of violent moves have tended to cause quite a bit of casualties in the past, but we haven't seen it this time. Yeah, it'll be interesting to see in the weeks and days ahead if there are casualties, especially funds blowing up and that sort of thing. I'm wondering, you know, we had Chris Verone, we talked to him about levels. He said 3,100, 3,200 could be in the cards. Are you that bearish?

Do you see further downside even from there? Look, I see value. And I'll tell you, there are times when I really want to buy. But I also respect what's going on. We're going through these major paradigm changes, not just in liquidity, but in the economic paradigm. the technicals are terrible. So I would like to see a few days of really good stabilization. And I don't mind missing some of the upside, to tell you the truth, until we have greater confidence that we're starting to establish a floor. Right now, the market is so tentative, Melissa, that I'd rather stay on the sideline. But I am tempted, but I'm trying to be disciplined

and staying on the sideline for now. All right, Mohamed, we'll see if it'll be four for four tomorrow. Thanks for joining us. We appreciate it. Thank you, Marcia. Mohamed El-Eriani, let's take a look at where we stand in the markets right now. Dow down by just about six-tenths of a percent. S&P down by almost half a percent, 36, 38, 39. We're watching that level very closely on the S&P. Tesla managing to hold on to gains today after a bullish report from trade journal Electric. We'll discuss if now is a good time to jump in after a nearly 10% drop in the last week. And don't miss your chance to be in the same room with some of the biggest names on Wall Street during CNBC's Delivering Alpha, which returns in person tomorrow.

Scan the QR code on the screen right now to register. Let's check out today's stealth mover. It is Keurig Dr. Pepper, and it's a real bruiser after Goldman Sachs downgraded the stock to a neutral. Goldman saying household penetration is normalizing, pod rates are moderating in growth, and market share gains are slowing in the packaged beverage business. Keurig's margins are also at risk as coffee prices remain, well, steaming hot.

The stock is down 3.5% today. Well, Citi raising a red flag over the yellow arches and it's sending McDonald's lower today. We'll talk to the analysts who just initiated a negative catalyst watch on the stock, that story and much more when we take you inside the Market Zone. Welcome back. We are now in the closing bell Market Zone. Barbara Duran from BD8 Capital Partners is here to break down these crucial moments of the trading day, plus Phil LeBeau on Tesla and Citi's John Tower with a warning about McDonald's. Let's get straight to the market. So off the lows, the stock market route still extending to a six straight session today.

The S&P 500 hovering at levels not seen since November 2020. If it closes lower, it marks the longest losing streak since February 2020. Barbara, we took out a lot of important levels in terms of June levels, and I'm wondering how you gauge what the market damage has been so far. Well, I look at the portfolios I own, and it's not pretty, but it hasn't been,

you know, for a lot of the year. And certainly, technically, a lot of people are very concerned. Internals and all those kinds of measurements are not looking attractive. But when you look at where the market has come from, it's down past the lows of June. The concerns are now about earnings because the Fed has embarked on the most aggressive rate hiking cycle we've ever seen. But I think we're setting up for an entrance into the third quarter earnings, as we did in June for the second quarter.

I think earnings are probably gonna be okay. There'll be some disasters. They'll be taken down but I don't think there's gonna be a wholesale- decrease in earnings estimates which is what the market is discounting. And that's where I think I don't know where the bottom is. I think we have to be close. Although I said that you you know, in June. But I think somewhere in here, a lot is discounted in the market right now. Are you buying these days or are you waiting? Well, I'm waiting basically because I am fully positioned and I have bought into downturns.

But what I would say is that now you don't sell stocks certainly here. But if you have some cash in the sidelines this is an excellent time to begin picking up some real bargains. This is the kind of market where you throw out a lot of great companies and people because people don't know where the bottom is or what the earnings will be. And you can start really nibbling on some very good names. All right. Health care energy and financials those are three sectors you're betting we'll see the gains over the next year, according to our Delivering Alpha Investor Survey. Those results ahead of the Delivering Alpha Investor Summit tomorrow. So, Barbara, we want to ask you, do you like those sectors? Well, it's interesting. I like the healthcare, I think, is a good defensive play when you've got rising rates and uncertainty in the economy. You know, financials would sort of be last on my list.

And the second one, what was the other one? It was, you said, health care and... Yeah, energy. Energy is interesting. I don't invest a lot in energy, but certainly I think energy will outperform. It's at a nine-month low. You've got limited supply,

hardly any spare capacity or inventory. And as the world economies do start to recover, which is not just the moment, but sometime next year, I think you will start to see a reflation. I think energy could do very well. Instead of financials, I would prefer the big cap tech. I mean, they are all down dramatically, 30% or more, meta down 60%. And I think those are names that when they turn, they will turn big. And growth is going to be scarce. And these names still have a lot of growth and long secular runways.

Why don't you like financials? Is it the thought that we're going to go into a recession? Well, I think in financials you have to make distinctions. I mean, there's the PayPal's, the fintechs of the world. You've got the big multi-capability banks like the jp morgans they're in trouble in terms of their trading side their capital market side and then you've got the big regional banks which it should do well in terms of interest rates but i think now you're starting to see the moves in some of the banks they should do well but the the question was for what do you see over the next

year and i think that they will not perform as well as these other three groups all right let's get to tesla now that stock bucking the market pullback and reports a company had called for an all hands-on deck at its warehouses to fulfill a surge and the quarter deliveries arc's kathy wood reiterating her bull case on cnbc earlier today tesla is a key holding in our arc innovation etf we're pretty excited about the next five years. I think this year there will be almost 8 million EVs sold around the world. We think that goes to 60 million in five years, and we think Tesla's in the driver's seat.

Let's bring in Phil LeBeau for more. Phil, we hear this every, at the end of every month, every quarter, that is. Yeah, yes, we do. All hands on deck end of every month, every quarter, that is. Yes, you do. All hands on deck, right? So what do we get from this? I don't think that's the reason the stock moved higher today, Melissa. Look, we do hear this practically every quarter we hear. Everybody's got to get involved. We got to make these deliveries. We can have a big quarter if we all put our efforts into the end of the quarter. And that's fantastic. It doesn't mean that the quarter is any better or any worse than what people were previously expecting.

And oh, by the way, when it comes to third quarter deliveries, Tesla is expected to have its best quarter ever. And I think that's part of the reason why the stock has been moving higher. Phil, in terms of it's amazing that they still say, come on, everybody, help us with these deliveries when it's such a large company and they have so many. The numbers are so much larger than when they first started doing this in the parking lot in a tent. Sure, but I've had friends who have taken delivery near the end of a quarter. One friend in Chicago had to go downstate Illinois, had to go almost all the way to St. Louis because that was the best place to take delivery of the vehicle. I just think this is the way Tesla has operated and will continue to operate probably for the next several years, maybe. Who knows? But it has been effective in terms of them being able to have a surge of deliveries at the end of the quarter.

And I'm not surprised that we saw this memo saying all hands on deck. Do you think, Phil, I mean, do you think that it has weathered sort of the supply chain issues that have hurt Ford and GM more in our reasons? I mean, Tesla just hasn't come out and warned. It hasn't said that it's having any issues with the quarter in terms of demand or fulfilling orders. Why do you think that's so even now? Well, they've done a much better job managing their supply chain than any other automaker. And that's that's been the case here for several quarters where there have been some issues. Melissa, we've talked about this is China because of the issues with the covid shutdown and the inability to either produce and or people being able to leave their homes in order to take delivery. It looks like most of that is in the rearview mirror now for

Tesla. And one reason why Cathie Wood is so optimistic about Tesla is they have the manufacturing set up. They've got the pipeline set up. They have the best position right now in terms of the growth of electric vehicles for the foreseeable future. Could be different in three or four years. But if you look out in the near term, Tesla is in the driver's seat, as she mentioned. Yeah. Barb, you have a small position in Tesla. I'm wondering if it's, well, I mean, obviously it's probably because it's a market leader in EVs. But at this point, you know, high multiple stocks won't necessarily be in favor in a market like this and when does that concern sort of enter the equation in terms of how you handle your tesla

position yeah melissa i agree i mean i have not been a long-term owner of tesla i missed a lot of upside because it was always expensive and it is still expensive the small positions i established were on major drawbacks in some of these market drawdowns over this last nine months. So I have not gone whole hog and I will not go whole hog, even though I think their long term story is very positive. Yeah, that I think the whole entire EV market will expand. They may be able to maintain their leadership. They got a lot of competition coming in, but even the pie will be so big they will still do very well. The question is, when do you buy this? Tesla, I think, only on major drawdowns do you add to this name because it is always expensive.

And it's one of those names, typically, these high-growth names can grow into their PEs, but this one has a lot of fences to jump over before it can grow into it. All right. Phil, thank you. Phil LeBeau on the Tesla story today. McDonald's, by the way, the worst performer on the Dow today after Citi issued a 90-day negative catalyst watch on the stock. Currency headwinds, weakening economic conditions in Europe seen as two reasons to get cautious. The analyst that made that call, Citi's John Tower, joined us now. John, great to have you with us. It's not often that an analyst makes a 90-day call here. So what do you

think is going to transpire in 90 days? And how do those negative catalysts get resolved at the end of the window? Yeah. So the 90-day catalyst watch is really just the street coming around and investors coming around to the idea that the operating environment for the brand in Europe, it's going to become more challenging, not only from a top line standpoint, but also on a bottom line standpoint. And I think the CEO even alluded to this about two weeks ago at a conference in Chicago. On top of the fact that FX headwinds are not necessarily being accounted for correctly in street estimates today, we think come the third quarter earnings call after that, street will likely readjust their numbers a little

bit lower going forward and better reflect really the fx headwinds and the operating environment that's about to come uh in europe for the brand and the reason we call out mcdonald's here is the fact that they do have greater operating exposure to that market relative to any of the other brands in our universe. So it's calling that out. Go ahead. In Europe, do you see what are the major forces in terms of headwinds in Europe? Is it consumer demand waning? Is it inflationary pressures whittling away at margins there, the inability to raise prices as fast as inflation? Yeah, it's all of the above. I mean, the company is going to take as much price as they can while still trying to promote the value message. But I think an important piece of the research that we did today is taking a look at how the brand is positioned in those markets relative to other

limited service chains and independents. And unlike the United States, where they held a fairly significant value position in Europe, across many of the markets, they don't have that same type of price positioning relative to the consumer or relative to other competitors in the market. So we think there's a little bit of risk on that end. But to your point, rising energy prices are likely going to crimp consumer spend. On top of that, the company does have greater operating exposure in the market, so their own stores are likely going to feel more pressure on their own margins in that market, and therefore profits are likely going to slip a little bit going forward.

That doesn't appear to be reflected in street numbers today. Looking at the numbers for 23, the streets essentially suggesting there's going to be a step up of 300 to 400 basis points for same store sales growth. And all the inputs that we're seeing regarding consumer demand across many of the major markets in Europe suggest that things are rolling over now and likely going to start worsening as the winter months come along. What's your outlook when it comes to Asia? We heard earlier this week or maybe it was late last week that McDonald's raised prices in Japan because of inflationary pressures and labor costs. What are you seeing in that area of the world and how does that pose any sort of a drag on the

quarter? Yeah, for McDonald's itself, because of their ownership structure, they've got less operating exposure in Asia than, say, some of the other brands that we follow, for example, Starbucks. But taking price, considering it's mostly a franchise business model, is actually a good thing for McDonald's profit, assuming you don't see a significant slip in traffic or demand in a market where they're taking price. But Asia, including China, still recovering from a lot of the COVID challenges. China itself still in the process of reopening

or still has the zero COVID policy going on, which is likely impacting demand into the third quarter. Until that gets resolved, we won't get a better idea as to what normalized demand will look like going forward. And across the rest of Asia, we're hearing kind of mixed bag in terms of performance due to COVID-related restrictions across many different markets. Last quick question, John, that is a 90-day trading call takes you through the end of the year. Does that mean next year looks a lot better for McDonald's? Well, no. I mean, investors typically discount 12, 24 months out. And what

we're trying to do is just point out the fact that next year's numbers still need to move a little bit lower, at least from a street standpoint. Investors need to really digest what's happened with FX and what's likely going to happen with demand. So once they do and investors get more comfortable with it and the multiple re-rates, first the numbers come down and the multiple moves a little bit lower, I think that's when people come back to this from a defensive standpoint and start looking at the stock again. But right now, it just looks like with earnings risk and the stock near multi-year highs from an absolute and relative basis on valuation, it's hard to see a lot more upside in the near term. Right. John, thanks for your thoughts. Appreciate it. John Tower of City

on McDonald's. We've got just a few minutes left in the session here. Barbara, thanks for your thoughts. Appreciate it. John Tower of Citi on McDonald's. We've got just a few minutes left in the session here. Barbara, I think this call on McDonald's really sort of encapsulates the question a lot of investors have, and that is how all these, you know, cross currents, particularly FX, weakening demand picture in Europe, how that will all feed into the earnings picture in the third quarter and the outlook for the fourth. Yeah, Melissa, I think people are trying to figure that out because typically currency impact is not taken all that seriously in terms of revaluing the stock. It's typically looked at as a one quarter or two quarter effect. This time it looks like it's going to be bigger this week. And also we've had such a big increase in the dollar, you know,

in a very short time. I think the McDonald's call is a good short term call. Because 40% of their sales you know are in your forty one percent are here you know they have a lot of initiatives here. You know it will send the stock then a little bit but I would argue

that stocks already down 10% since mid August. And I think it's profits if you only you certainly don't sell it here this is a great long term core holding. And this is the kind of stock as it weakens you can buy into this and I think you're own it, you certainly don't sell it here. This is a great long-term core holding, and this is the kind of stock, as it weakens, you can buy into this. And I think you're going to see this happen as third-quarter earnings start in mid-October. I think you're going to see exactly this kind of reaction.

You'll have an immediate downside. You can buy into that most likely. And, Barbara, as you look into the market, we're in the sixth straight session of losses here. What's on your shopping list? What do you think, you know, if we go down tomorrow again, what's top on that list? Yeah, well, we could go down tomorrow. The sentiment's terrible. And as we know, this could actually be the start or in the midst of the capitulation phase that everybody's been waiting for all year. I think you look at, again, some of the big cap tech names, Microsoft Meta, Amazon, Alphabet. You can look at Starbucks,

which we talked about last week. Starbucks has great pricing power. They've got a new CEO. They've got all these initiatives. I'd look at that one. UnitedHealthcare has been weak. That is a core holding. They've just got a super business that should do well through thick and thin. And then you have the stalwarts like a Costco or a Walmart. They're not cheap, but these are names that will continue to outperform and help you weather the uncertainty. And we are going to have continued volatility in this market because we're not going to know for a while how much inflation comes down and when the Fed is likely going to be able to ease. Do you think that we're close to the bottom? Do you think that we're close to that washout point?

Just quickly, Barb. It sure looks like it, but it doesn't mean it can't go lower again, because sentiment's so terrible. So it's not based on fundamentals. It's based on the unknowable, which is when things can turn. I could go lower. All right, Barb, it's great to get your take in the market zone. We do appreciate your time. Barbara Duran, BD8 Capital. We've got 30 seconds left until the bell rings on Wall Street. We're watching the S&P 500 very closely. 36.45 is your level here. We have some pretty notable moves. Semiconductors having a very nice day today, up by about 1%. We're also seeing some green arrows in some sectors like tech, consumer discretionary, materials, and energy up by more than 1%. That does it for us here on Closing Bell.

I'll see you on Fast 20 at 5. Meantime, let's send it over to Scott Wachner in overtime.