Closing Bell - Closing Bell: Stocks mostly lower, Regional banks hit hard, Tom Lee on the market 10/20/22

Episode Date: October 20, 2022

Stocks were mostly lower in Thursday trading in another up-and-down session, with earnings, Fed commentary, rising yields, and the resignation of the UK Prime Minister all weighing on investor decisions. Fundstrat’s Tom Lee joins to break down the headwinds and if he thinks a prolonged rally is possible. Regional banks fell again today, with Fifth Third sinking on results. The CEO joins to discuss the macro factors hitting the space. Tesla shares also plunged on the back of its results. Mizuho’s Vijay Rakesh explains why he cut his price target on the stock. Plus the latest on Ye and Adidas, the strong dollar headwinds, and AT&T’s pop.

Thank you, guys. Stocks mostly lower this afternoon, giving up an early rally as earnings, Fed commentary and U.K. drama remain center stage. This is the make or break hour for your money. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the markets. We're lower. We lost that earlier rally. Actually, the Dow is as high as 399 earlier in the session. It's not extreme, though, in terms of the selling right now. Down on the Dow about 82 points. The S&P 500 is down three quarters of 1%. You've still got two positive sectors right now, communication services and energy. Communication services, you can thank AT&T for a change off better earnings.

That stock up almost 8%. Also, some of the media names, Warner Brothers, Activision, Blizzard, Twitter, all working today. The NASDAQ down about six-tenths of a percent. Higher yields are still the name of the game. Those higher treasury yields, the sell-off in bonds. Check out today's earnings movers. Tesla pulling back after revenue and margin miss. We're going to have much more on that straight ahead.

AT&T, I mentioned, jumping after beating on both the top and bottom lines. Better outlook, too. IBM reporting strong results, higher revenues, and American Airlines beating on both top and bottom lines, but the stock is moving lower. And, of course, here is a look at the British pound. Story of the day. Giving up some of its earlier gains, though,

it remains slightly higher as Prime Minister Liz Truss resigns, shortest living prime minister in British history as her party tries to figure out who the next prime minister will be as soon as next week. Coming up on the show, we're going to talk to the CEO of Fifth Third Bank, the latest regional bank to report results. We'll ask about the mortgage market as existing home sales today fall to a 10 year low. Plus, venture capitalist Eric Hippo on the recent strength in tech and where he's looking to put money to work. What these down rounds actually signal for the private market.

Let's get straight, though, to this up and down day. Mike Santoli standing by with his dashboard. As always, what are you focused on as technology? Just joined energy and communication services in the green. So things are improving. They've improved a little bit, Sarah. Yeah, I mean, we basically have this constant struggle, or at least the last several days, of the market trying to make use of decent earnings, better than feared earnings, as well

as just some built-up negative sentiment to try and go higher. And then bond yields making new highs kind of thwarts that effort. That's what happened today, along with some hawkish Fed speak, which had been absent for a couple of days. So we had a 1% gain earlier today in the S&P, went to about a 1% loss. It stayed within the range that we've traded in for the past couple of days. So it's not necessarily carving out new ground. But you see, market has improved all that much with that rally off of last Thursday's CPI reaction low, which was around 3,500, a little bit below that.

So we still have a cushion, but it's not a particularly thick one. Now, another data point we got today was the leading economic indicators from the conference board. Take a look at this chart going back more than 20 years. Now, it's called the leading economic indicators because it really does work to indicate what is to come several months or more in the future. So here you see this peak earlier this year in the leading indicators. It's been several months on the downside. That looks like a defined downtrend now. And you see what's happened in the past. It rolls over before recession, shaded parts of recessions, rolls over in advance of a recession. And then the coincident indicators finally give way. That's been the pattern. Now, there's sometimes been about a two-year lead time

between the peak in leading indicators and the onset of recession. We don't know exactly how long it might be this time. You could argue there's extenuating factors such as a strong job market. But the weekly unemployment claims is in the LEI, as are stock prices, as are ISM, a lot of manufacturing, purchasing manager stuff. And so it's a lot of credit, equity, and then just economic numbers and housing that tends to be on the leading edge of what's happening with the cycle, Sarah. So you're saying it's pretty bearish?

Well, I'm saying it certainly moves in the direction of the scene is set for a formal recession of whatever character we might get. It's nothing that's clinched yet, but it seems like this is what is happening. And also, you didn't typically have the Fed continuing to tighten well deep into this period when the leading indicators were trailing off. Right. You did have it here in in the mid 2000s as well as in 2000, but not for a year and a half after it happened. Yes. Well, we are in different times here with inflation, that peak rate in the swaps market hitting 5 percent today. Yes. And by the way, I think the question is going to be, what have we kind of priced in? We keep talking about how we've gotten to the median decline of a recession bear market with a down 27 percent S&P. So that's the other piece. Mike, thank you. We'll see you soon.

Mike Santoli, a number of factors pulling the market in different directions today, apart from the wave of earnings. There's also the situation in the U.K. Prime Minister Liz Truss resigning after her policies sparked market turmoil, market in charge there. Meanwhile, Philadelphia Fed President Patrick Harker saying today he expects more rate hikes because higher rates have done little to keep inflation in check so far. And hedge fund manager David Einhorn saying in an investor letter that he's bearish because of the Fed's official policy, which is to make the stock market go down. Let's bring in Fundstrat co-founder Tom Lee. That certainly has been a winning trade for him.

He's been bearish and he's up double digits this year, Einhorn, on the simple idea of don't fight the Fed. But you still disagree with that, don't you? Well, I mean, I think David's been right. It's been tough to fight the Fed. And, you know, we've had a real tough time with our calls this year. But I think as we get into October, I don't think investors are fighting the Fed if they think stocks have upside from here. I think that's one of the big changes. And, you know, some of it has to do with some of the

tail risks are coming off, like what happened in the UK. Part of it is that earnings delivery has actually been quite good. So, you know, a bear thesis of it is that earnings delivery has actually been quite good. So, you know, a bear thesis this year was that earnings were going to get crushed and that still is going to be weakening, but the delivered earnings have been really good. And I think from an inflation perspective, I do think the Fed, you know, hasn't seen any effects. I think that's what we're hearing is a consistent message. But I think a couple of things have definitely changed when you really listen to what they're saying. You know, the first is I think increasingly they are pointing to supply chains and commodities as really driving CPI, less attributable to labor markets.

And that's an important distinction because that means the Fed can actually also get some help from the supply side easing. And I think we're seeing a lot of data, whether it's housing or used cars, that are really supporting that there's a payback coming where even though CPI still looks pretty strong, I think the Fed would be happy to see any type of weakening in inflation. And I think that's coming. So I just think the odds are very good for investors. I don't know. I mean, those have that have thought that that inflation has peaked and that the Fed is going to be encouraged by recent signals have been dead wrong. Every time we have a Fed speaker come out and say we're not there yet, inflation is not coming down enough. We've got a lot more work to do.

We're going to go higher. We're not even restrictive yet. Just sort of smacking down that idea that they're looking to pause anytime soon. Sarah, that's right. I don't think the Fed is saying, oh, we're going to get a great number and we're going to pause. But I think the Fed is now laying groundwork for two pretty big hikes into year end and then the possibility of like taking a look around. And that's a huge change because if the Fed is potentially going to pause, it's not a pivot. It really changes how risk is positioned because investors wouldn't necessarily be short bonds, right? So interest rates don't necessarily have to keep going up. In fact, I think a lot of bond managers are making that

observation now. And if interest rates plateau or start to come down at a time when there's almost record short positioning in equities, there's record put buying, record gamma on equity, put buying for gamma on equities, investor sentiment is record negative. That's a huge positioning offsides if the Fed is pausing. So, Sarah, you're right. I mean, it's like a chicken little question, but I think that this past week has actually really been in the bull's favor. Except for rates continue to climb. The 10-year yield is now at 4.2, and the two-year yield right now is at 4.6%.

Whenever we think we've reached peak, they continue to price in more. And I mentioned to Mike that the news today that the swaps market is pricing in as a 5% peak funds rate next year. That continues to make new highs as well. So as long as that's happening, isn't that going to stand in the way of any kind of stock rally? Yeah, and I think someone pointed out on Twitter, the UK 10-year yield is actually below the US 10-year yield. I mean, if you were sort of thinking about that fundamentally, that almost doesn't make sense either. So I think, you know, you do have to respect what rates are doing, which they're rising. But at the same time, rates are a reflection of risk premia and Fed policy. And again, it does come back to

where economic data comes out. So I would just say that investors who think inflation is going to just keep powering higher, that's a possibility. But what's not really reflecting that is the soft data. And eventually, they do have to sync up. And again, it's been very tough to kind of forecast in economic days, especially inflation. But there's actually, I think, a much better appreciation that there are some things that are statistically lagging and flawed in CPI. So your other point was earnings. And it does feel like for the most part, earnings have been better. But I do wonder, Tom, always how much of that expectations have been cut to the bone. And so the companies are coming out and beating. I guess it's good to see rational reactions. So when there's good numbers, AT&T, for instance, today goes up a lot and on the flip side. But

then, you know, you get this Union Pacific today cutting its forecast for volume growth to reflect a challenging year. So it's not all good news. Well, I mean, you know, you should expect anybody who had pricing power or benefited from, you know, the bullwhip effect should be slowing. But earnings are really a function of inflation, which affects top line and pricing. And that's going to be a tailwind for earnings. And then worker salaries, even though they've been rising, they've been growing slower than the real rate. So you have some margin expansion there. And then worker salaries, even though they've been rising, they've been growing slower than the real rate. So you have some margin expansion there. And if commodity prices, which, as we know, haven't really been rising, I'd actually think we should be expecting earnings

to deliver surprises, even though we are in the face of what should be a slowing economy. Tom Lee, thank you for coming on. We appreciate it. Pushing back against the negativity as always. By the way, the Dow has climbed back a lot just in the last few moments or so. It looks like we might have been about to go positive. We're down 45 points or so. Take a look at the day. We spent actually most of the day higher, got as high as up 399 on the Dow, but as low as 150 in the afternoon sell off. Again, coming back a little bit right now, what's working better today? Communication services, energy, and technology. Everybody else is lower, but it's not sort of the extreme selling that we've seen on big down days. For the week overall, it's still looking strong, 3% higher on the NASDAQ, about 2.5% on the Dow,

and 2.5% on the S&P. Look at the regional banks. They are sharply lagging the market this week as more earnings roll in. We're going to get the latest read on the space when we are joined by the CEO of Fifth Third Bank, which is falling after reporting results this morning. You're watching Closing Bell on CNBC. Shares of Fifth Third Bank falling hard today, down more than 6%. The company's earnings coming in slightly below expectations. More broadly, though, the regional banks have underperformed so far this week as more financials report quarterly numbers. Joining us now is the Fifth Third CEO, Tim Spence, from my hometown of Cincinnati.

Tim, it's good to see you. I thought this was a good time for the regional banks, like you guys with the net interest income going up on higher rates, still seeing loan growth, healthy credit. What's the story here? Yeah, no, Sarah, I think you're right about all of those factors. If you look at Fifth Third, we've been around for about 164 years now, and we're having our best year ever in the history of the company. The $2.2 billion in revenue that we generated this quarter is an all-time record for us. We posted a 53% efficiency ratio. Credit continued to be really well behaved, right? We had 21 basis points of net charge-offs as a percentage of total loans.

And the byproduct of that is Fifth Third posted the best return on tangible common equity of any of the commercial banks over $100 billion who have reported thus far this season. I think what we're hearing from investors is that it's not the performance in the quarter that they're questioning. It's the macro factors that you were discussing at the top of the show, whether that is the direction of travel on the economy, whether there's another leg to the trade on rates, the impact of inflation on expenses and otherwise. Deposit growth a little lower than forecast, and people were concerned about the forecast as well on expenses. And those have been really key areas of focus for investors, haven't they, Tim?

Yeah, they have been. Although I think we were clear mid-quarter that we expected to be able to be flat on deposits from an end of period in June to an end of period in September basis. And we did achieve that outcome. And we were also clear that we expect to be able to grow deposits from here, including 1-2% deposit growth in the fourth quarter. But there's no question that the deposit markets are more challenging. I actually think expenses are one of the areas where Fifth Third has really differentiated itself. There's not another one of our investor peers who has had lower expense growth over the course of the past two years than we have on a cumulative basis. So I feel really good, actually, about the outlook on expenses.

It really is a question of when does NII peak for the regionals? What impact does the aggressive action on the part of central banks have on credit performance? And then in our particular case, I think we have another unfortunate example of the impact of the CECL methodology. We have a really excellent residential solar finance business that we acquired earlier this year that's generating really outstanding growth on the back of the Inflation Reduction Act on one hand and the increase in energy prices. But we have to provide for the life of the loan at the point in time that we originate it, which creates a growth math drag as we grow that business over the course of the next year or two. And on those macro concerns, which are hitting your stock and other financials,

Tim, what is your sense of things, given you're in loans and credit and housing? Where do you think we're going in the economy and with the Fed? Yeah, I make it a practice to keep my crystal ball in the drawer, so I will say that. But, you know, look, if you look at our customer portfolio, there's no sign of a crack anywhere. Our consumer deposit balances, depending on the cohort that you look at, are anywhere between 60 and 80 percent higher than they were in February of 2020. We really haven't seen a decline there. So consumers are still maintaining really significant liquidity. And on the commercial side of the equation, what we see from our clients and what we see in their financials is that demand remains strong and that they have been able to pass on increases in input costs in the form of price increases.

In fact, when we talk to them about where the investments are going in the business, they're nearly all on supply chain or labor productivity at this stage. They really are not worried about the sustainability of demand. But I think on the other side of the equation, as you said, first principles will tell you that at some point here, given how aggressively the Fed is acting, that the interest rate cycle has to convert into a credit cycle. And the byproduct of that is I think we have been cautious in terms of the way that we're running the business, in terms of the way that we think about the outlook and how we invest going forward to ensure that in the event that we do get a

credit event here, a recession over the course of the next, you know, call it six to 18 or 24 months, that the bank's well positioned to perform through the cycle for its investors. But you've got to be saying cracks in housing. We just got an existing home sales rate down eight months in a row, now at the lowest since May 2020, with mortgage rates, again, nearing 7 percent. Yeah, there's no question that the rate, the increase in rates has had a big impact on housing demand and that in some markets, although not the markets that we operate in, in the Midwest and the Southeast, that there is some impact to home values. I think as it relates to our bank, we are one of the largest mortgage servicers among

all the regional banks and have been deliberate over the course of the past 12 to 18 months to grow the servicing portfolio. So the impact that we're seeing on a decline in purchase business over the course of the past 12 to 18 months to grow the servicing portfolio. So the impact that we're seeing on a decline in purchase business and the elimination of the mortgage refinance market is being offset by an improvement in the servicing business, which has allowed us to generate actually pretty good mortgage revenue in an environment where the industry is really challenged. Really interesting. Citizen CEO told us yesterday that he was seeing the offset in the home equity lines of credit as well. Tim, great to talk to you.

Thanks so much for joining us today on The Quarter. Absolutely. Thank you, Sarah. Tim Spence, CEO of Fifth Third Bank. Show you where we are right now in the market. Down 114 in the Dow, so we've swung lower in the last few moments or so. Less than a percent lower right now on the S&P 500. You've still got pockets of strength in energy and communication services. Utilities are the worst performers right now.

The Nasdaq's down three quarters of one percent. Tesla is certainly not helping the Nasdaq or a consumer discretionary space right now. Small caps down one and a quarter or so percent. Still ahead, should you buy the dip in Tesla? We're going to talk to an analyst who just slashed his price target but is still bullish on this stock. And speaking of Tesla, it is one of the top search tickers, of course, on CNBC.com today. Although the 10-year yield is right in its number one spot. Higher yields again, 4.22.

The bond sell-off continues. AT&T, an earnings winner, bright spot up 7.5%. The two-year yield, which also continues to make new highs, up 4.6%. And the S&P 500 gives you a taste of what investors are looking for. We'll be right back. What is Wall Street buzzing about? Still no word from Adidas about Kanye West. But the pressure is rising.

The Anti-Defamation League today calling on Adidas to cut ties with Ye in a new letter. The rapper and designer has made several degrading remarks, dangerous remarks and threatening remarks about Jewish people in recent weeks. The letter says, quote, We urge Adidas to reconsider supporting the Ye product line and to issue a statement making clear that the Adidas company and community has no tolerance whatsoever for anti-Semitism. Adidas did not immediately respond to requests for comment from CNBC. We've been asking for days.

Its relationship with Ye is currently under review after he trashed the company and its board, including on this show. Morningstar analyst David Swartz estimates Yeezy sales for Adidas to be around $2 billion annually, potentially making up 10% of Adidas' total sales. And today, Adidas announced preliminary third quarter results, which it lowered its full year 2022 guidance due to deterioration and traffic trends in China. That's been a big burden. And also significant inventory buildup as consumer demand waned in major Western markets. The stock under pressure on that pre-announcement, but no word in the release or condemnation of

Ye. Instead, the company has been releasing new Yeezy styles again this week. Up next, venture capitalist Eric Hippow on how this uncertain market and economy are impacting valuations of private tech companies and his outlook for the IPO market. Will it ever open? We'll be right back. Tech stocks we know have tumbled this year. The Nasdaq, the worst of the major averages, down around 32 percent or so, so far. Private companies have not been immune to the volatility either. Just in the past week, Instacart slashing its valuation to $13 billion. This is the third time it reduced the valuation this year. And then on Tuesday, we got word that Intel is targeting a $16 billion valuation for the IPO of its self-driving unit, Mobileye, that number coming

in much lower than previous reports. Joining us now is Eric Hippo, managing partner at Lair Hippo. It's good to see you again, Eric. Do you look at these two cases as unique? You know, Instacart had the whole COVID wave of online groceries, Mobileye may be mismanaged by Intel, or is it suggestive of the broader environment and what's happening in the private market? Hi, Sarah. No, I don't think that they're unique. And I think that if you're a private technology company that got last valued last year in 2021 or in the second half of 2020, chances are that your valuations are completely out of sync with the public market and that you're going to have to lower your valuation. I think this is true for companies that need to raise money now, as in the case of the two that you mentioned. They need to go public, and they have to adjust to the new public multiples

and the new public reality for tech companies. So are you seeing a lot of these down rounds, and are they reflective of what's happening in the public market? We're not. We're not. We're starting to see some. We at Lerahippo, most of our companies were funded last year, so they're not looking for

new financing. But certainly, if those who are looking for new financing today, what happened was that the private investors used the public comparables as a standard. And so they valued their company in the private market exactly the same multiples, exactly the same way that the public valued the public companies. And as we know, public multiples in technology have tumbled, sometimes by half, sometimes by more than half. So it's only natural that private valuations should be adjusted similarly.

What has to happen for the IPO market to open back up? What are you telling your companies on that front? What I'm telling them is that the IPO market always comes back, but I don't have a crystal ball and it could be a long time. So I'm asking them just to prepare and to make sure that they don't need to tap the public markets until valuations go back to a more decent level. What are you guys doing right now? Are you making investments?

Are you keeping powder dry? Because I know you've done a bunch of fundraising. Yeah, we are just starting to invest two new funds for a total of $230 million. Now, we're early stage investors. We invest typically in about 20, 25 new companies every year, and we're on the same pace to do that. In the early stage, some of the best companies come, are invested during a downturn or just after a downturn. And so the pace of innovation is not in any way slowing down or stopping because the financial markets are down. And we are very fortunate to have money to invest at the moment, and we're doing it.

In what type of sectors or technologies? What are you excited about? So there's still a lot of enterprise software, kind of B2B marketplaces. We continue to invest heavily in digital health as well as productivity of all kinds, whether it's automation. There's this kind of new balance between work from home, work from the office that requires

a new technology environment as well. We're starting to invest in climate, which of course is a theme of the moment. But climate now, a lot of it is driven by software that doesn't need a lot of capex. And we're very interested in the intersection of technology with biology, computational biology.

So there's really a lot going on that's very exciting at the moment. So bottom line, Eric, you know, there's this view out there still that the private market, and we've seen a shift, is a shelter right now, is a place that people can hide out from the storm of rising interest rates and inflation and everything that's happening with the Fed in the market. Is that true? Is it really a cushion? It's true if you're judicious about it and if you invest at valuations that are very reasonable. We're still seeing relatively high valuations that are kind of the effect of what happened in 2021, where the market went completely nuts. And so the answer is, you know, be judicious, be reasonable, be middle of the road, and you're going to do well.

Eric, thank you for joining us. Appreciate it. Eric Hippo, Larry Hippo. Here's where we stand right now in the markets as we head into the close, down 153 or so on the Dow. The S&P 500 down now 8%, so we've taken a little bit lower here. As far as what's weighing on the Nasdaq, Tesla, Apple, Microsoft down today, Meta as well. As far as what's weighing on the S&P, utilities and consumer discretionary, worst performing sectors. Although Tesla is really the big drag there on the consumer discretionary space. Amazon, too. Industrials and financials are weak as well.

Up next, the big picture on just how much earnings are being impacted now by the increasing headwind of a stronger dollar. And a reminder, you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. We'll be right back. In today's big picture, it is all about currencies. For me, it's always the case. But for corporate America right now, it is headache number one. Look at IBM, 6% revenue growth, lots of progress from the Kindrel spinoff. But revenues would have been 9% higher if not for a strong dollar, a billion dollars higher. IBM had double-digit growth, taking out currencies in all geographies and across all of its three segments, software, consulting, hardware. I spoke to Aravind Krishna, the CEO of IBM, about the quarter. He said as far as issues go right now, number one is currency, currency, currency, then Russia, then inflation. And it's not just IBM.

The strong dollar shaved most of Procter & Gamble sales growth away this quarter and led to lowered guidance of negative growth. This will surely be a problem next week. Watch out for Coke on Tuesday. Microsoft and Alphabet also have big exposure overseas. Meta and Apple later in the week. The big issue is that the dollara and Apple later in the week. The big issue is that the dollar is still getting stronger by the day against pretty much everyone. The Japanese yen is now so weak that it's passed 150 against the dollar.

That is a level we have not seen since August 1990. The Japanese finance minister threatening to intervene again. Japan has already had to step into the market to curb the currency's decline, which makes it much more expensive for that country to import oil and everything else. But unless we see more coordinated efforts, other countries join in, it's going to be awfully hard to stop the surging dollar. And Treasury Secretary Janet Yellen pretty much ruled it out last week in our interview, saying a market value exchange rate is best, despite the pain for America's multinationals and for other countries. By the way, the dollar just turned higher on the session. Perhaps one reason stocks are heading south. Up next, Tesla shares tumbling on a revenue

miss. An analyst who just cut his price target on the stock following that disappointing result will join us. That story plus AT&T's big rally and a bullish call on athleisure when we take you inside the market zone next. We are now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Mizuho's Vijay Rakesh on Tesla and Oppenheimer's Brian Nagel on athleisure. We'll kick it off with the broader market here because we're kind of soft here into the close. The Dow had been up this morning, up almost 400 points, lost those gains. And right now we've sort of been hovering down 100 points or so. Mike Santoli, there are still some areas that

are working, communication services, energy, technology. What's your read so far on earnings? It does feel like the news is better fundamentally than we expected. Yeah, I think the news has been, in general, I would say reassuring or at least didn't give incremental reason to be more concerned than we otherwise were. That said, I think today you had a little bit of a mixed bag in terms of reactions. The regional banks have actually not taken the numbers very well. Those stocks have suffered. Danaher, the industrial kind of health care roll up, also down 5 percent on what looked like OK numbers. So it's mixed. I think, you know, next week we'll get the real kind of critical mass of reports that's going to give you the full narrative. But to me, it's almost as simple and and it really gets repetitive and monotonous,

but it's the 10-year Treasury yield stretching to new highs up toward 4.25. That yield move does look extended, and a lot of folks are saying it looks like it should take a rest for a while. It's almost as stretched as it was a couple times earlier this year when the yields peaked out, but it's hard to anticipate. As long as it's going on, the equity market stays in check, even though we're not really selling off much below where we were a couple days ago. Yeah, didn't Jeffrey Gundlach join the forum saying that yields have topped out here? I guess, though, people have been saying that.

It can't get more hawkish. It's peak yields, and then we go higher. Look, this is the way markets do. They overshoot. They blow off. People feel as if I'm not going to. I lose patience going to lose patience trying to wait for that turn. And ultimately it will. But yeah, we don't know at what level.

Let's hit Tesla. Kind of a mixed quarter there, sending shares lower, better than expected profit, not enough to offset disappointing quarterly revenue and a downgraded full year delivery estimate. Let's bring in Vijay Rakesh, Mizuho Managing Director. He just cut the price target to $3.30, Vijay, from $3.70, but kept a buy rating. Why? Yeah, thanks for having me on, Sarah. I think from a fundamental perspective, they're executing very well. Production is on track. They had some headwinds on the delivery side, and that's why you saw the September quarter come in lighter.

And that was well telegraphed because they had some issues on delivery side. But as you look out, the production side continues to do well. The reason the stock has lagged is primarily because this is a discretionary item. It's a consumer-focused, consumer-facing item. And you have a consumer that is very stressed. And that's what's being reflected in the stock, the broader macro slowdown that you're seeing everywhere. Concerns on Europe slowing, U.S. slowing. And so that's what's being reflected in the stock, the broader macro slowdown that you're seeing everywhere, concerns on Europe slowing, U.S. slowing. And so that's what's reflecting the stock.

But from an execution standpoint, they seem to be doing very well. They have new products ramping from the semis to the trucks into next year. The margins, as you mentioned, were stellar, better than any margin, profit margin when you look at the typical legacy Ford or GM or even Toyota, right? I mean, their margins are ahead of all those guys. So execution-wise, they're doing well, but just a bad neighborhood in terms of, you know, just the macro environment being so bad, rates going up, and so the whole consumer facing business there. What did you make of Elon Musk's tone and comments on the call? Yeah, I mean, it's, I would say, definitely a tightrope to walk there. I mean, he has the whole M&A going on on the Twitter side.

And you have, you know, in terms of production, that's ramping. But you obviously have a huge FX headwind, as you mentioned in the prior segment. You know, 50 percent of sales are outside the U.S., so to China and Europe. So you have FX headwinds. Yeah, there was an FX headwind there. That's right. And then you have in Europe as well, things are slowing down a little bit, given all the macro energy crisis happening there.

So there are multiple challenges. But I would say execution-wise, pretty solid, right, across in terms of margins, solid free cash flow, $3 billion in the quarter. You know, the battery side is ramping very well. It grew threefold sequentially. So execution-wise, it's good. But, you know, just the backdrop is not constructive. So. Yeah, I mean, it's interesting that a lot of you guys took down your targets and did not downgrade the stock. My final question is the issues right now facing Tesla and the mist. Is it macro related or is there something specific here that you can point to on execution? Yeah, I mean, I think they definitely pointed out the issue with deliveries, not having enough

tracking, not having that as an issue in terms of transportation to multiple distribution points, etc. So that's been the real drawback. I mean, production-wise, they're hitting all the production numbers, might come in a little bit lighter. But again, it's primarily because of disruptions they saw early in the year in multiple geographies, as you know, COVID, etc cetera, and Europe and some of the disruptions that they saw. But overall, execution, I would say, didn't leave a lot to be desired. It's more on the shipping, logistics, and as we noted, a broader macro challenge is there. Tesla now 50 percent or so off the highs. It's down 6.4 percent. Thank you very much,

Vijay. Good to hear from you. Let's hit American Airlines and Alaska Air, both under pressure despite both carriers beating on the top and bottom lines, thanks to what we've been seeing, strong travel demand. But Alaska did forecast costs for the full year will be up sharply because of new labor agreements, raising concerns that could hit the rest of the industry. And then earlier on Squawk Box, American CEO addressing skepticism that travel spending is part of the new normal. Listen. We're only back 90 percent of where we were in 2019. It tells you that we have not grown as much as the economy. People want to get out on travel and they're traveling in different ways and they're treating themselves differently. And I think that that's a phenomenon that continues not just now into the future, but also if there is any type of stagnation of the economy as well.

Phil LeBeau joins us. Phil, airline CEOs really believe the strong travel demand will hold and makes them recession resistant. But if the economy continues to slow. What are you hearing from investors and analysts? Well, look, let's be clear. If we go into a recession in the U.S. and other regions around the world, there could be a point at which you start to see a drop in travel. But they're not seeing that. The airlines are not seeing that in terms of future bookings. We know the fourth quarter will be strong. They're already starting to get some insight into January and February. It's a little bit out for February, but they're already seeing

what the booking trends are looking like, and it's not slowing down. And remember, Sarah, the first quarter is when you typically see the slowest numbers for the airline industry until you get into March and spring break, and then you start to see things pick up again. So at this point, we're not seeing the consumer slowing down. No, certainly not hearing it either from them. Thank you very much, Philip. Oh, let's hit AT&T surging today. Best one day gain since April 2020. An outsized move for the low, typically low volatility stock. The telecom rallying company rallying after topping estimates on both the top and bottom lines in Q3, raising profit guidance for the full year as well. Wireless revenue was a highlight, up more than 5 percent, strongest growth there in more than a decade.

But AT&T CEO John Stanky warning prolonged inflation does remain a concern when he was on CNBC earlier. Listen. A circumstance where we have inflation running as high as we do, that that's not healthy for this country. It's not healthy for the economy. And I'm still concerned about that. And I think we can see evidence that there's pressure on those individuals who maybe aren't as flush with cash. Quite a move here, Mike, for AT&T. Yeah, I mean, certainly results that were better than they could have been pretty much across the board in terms of, you know, some market share gains and things like that. And I understand why, you know, the company would be concerned with inflation in

the overall customer expending basket, because, you know, wireless communications is not necessarily something that has sustainable pricing power. So they would kind of be on the outs there. I can remember back in the bad recession around the global financial crisis, they were sort of running out of credit-worthy, post-paid wireless subscribers because obviously people's finances were so stretched. We're nowhere near that. But clearly they would like for an economy that didn't have prices of everything else going up

that would ramp up the competitiveness of their own market. I just don't understand where wireless subscriber growth comes from. I was looking at Verizon and T-Mobile. They're both up today. I don't know. Is this good for them? Or does it mean that AT&T is starting to make a market share play? Because where is the growth here?

Yeah, I mean, obviously, they come from one another. It comes from smaller competitors. I mean, you do have a certain number of, listen, I can tell you, I know your kids aren't there yet, but every 11-year-old is getting a new phone, and everyone has one until the day they die. So, I mean, there is a slight growth in the overall market, but I think it is mostly about, you know, sort of sloshing around of market share among the big three. Thank goodness. We're not dealing with that yet. But 11 does sound young. Mike, thank you. Let's hit athleisure because Oppenheimer making a pretty bullish call

on the sporting goods space today, upgrading Dick's to outperform, calling it underappreciated and better position than competitors. Oppenheimer also reiterating an outperform on Nike, Lululemon, Under Armour, and Academy Sports and Outdoors, but lowering price targets there. The analyst behind the call joins us now, Brian Nagel, Oppenheimer senior analyst. Why do you think there's an opportunity here? This space has not been particularly in favor lately. No, look, thanks, Sarah. And I think that's a big part of why I'm getting more bullish here. I mean, I think the sentiment around these names is very bearish, overly bearish. And what we're seeing, I agree with the comments Phil was making on the airlines.

I mean, the consumer here is holding up really well. You know, I know I talked to you, I think, on your show a couple of weeks ago following Nike. And, you know, that report spooked investors because of the inventory comments. But, you know, Nike was very clear, as well as these other companies have been, that consumer demand for these products is very solid. So the call we're making today is, look, things look good right now. Yes, there are risks on the horizon. We did some work in our report to try to handicap what those risks might be. But most important is we look through whatever type of economic malaise we're going into. On the other side of that, I think these companies are extraordinarily well positioned.

The stocks are cheaper now. The valuations are low. Now, this is a place I think investors want to be over the next, say, 12 to 18 months. Consumer demand may not be the problem, Brian, but didn't we learn from Nike that there are other really big problems? You mentioned inventories. The strong dollar is one of them the the promotional environment that we're now finding ourselves in because all the supply comes back online aren't all of these enough to hold back profitability on some of these companies

well look i think that's a really interesting point so on with regard to inventory so that's that's what nike said nike said that and the others have said this as well but they'll be you know they'll be clearing excess inventory here over the next, say, couple quarters or so. But to me, there's actually a big positive in that statement because what that means is, the reason these inventories are now built up is because the supply chain constraints have eased so significantly. So products flowing. There were multiple orders now hitting the United States. So there's excess inventory now.

They're going to clear it. I think it's a relatively short-term type issue. I think they'll do it strategically. But again, on the other side of this, what this means is that for a long time now, we've heard these companies talk about not being able to satiate consumer demand because product was stuck in the water or stuck somewhere else. That product is flowing now. So I think this is actually a possibility. Why do you like Dick's so much? And why do other people not like it so much, I guess, is the question. Because that was the other big call you made. Yeah, look, Dick's is what we call battleground stock.

You know, what's interesting, I have a number of these in my coverage. I mean, Dick's clearly benefited through the pandemic. As people were taking up new activities, they were not spending elsewhere. And so as I watch this business, there's a lot of skepticism as to how much of these gains are real, how much of them were COVID-related when evaporating. I really believe, I've studied this very closely, I think Dick's today is a much better run company. Their merchandise is better. They've gone higher end, so that's moving them away from competition. And I think another big positive going back to Nike is Dick's relationship with Nike is now stronger than ever.

I mean, Dick's is really a preferred partner for Nike. Nike has pulled out of a lot of other retailers. So that gives Dick's another competitive advantage. And like I've been saying, the stock is cheap here. The valuation is very much in favor of the Bulls. All right, big call today. Upgrading to outperform $138 price target. Brian Nagel, thank you very much.

By the way, we also heard positive comments on the consumer today from the Fifth Third Bank, who said he really isn't seeing any cracks in terms of the overall economy. Mike, a lot of 52-week lows today. Hasbro, CarMax, a lot of these regionals, like Fifth Third, First Republic and Northern Trust, Truist, Zions, they're all trading at some new lows. What are you seeing in the internals? Yeah, it's pretty sluggish. I wouldn't say any kind of a washout. It's just kind of churning lower. And take a look at the volume split here. Almost even, actually. It started out about 70 percent to the positive side. And you see it here now just ticking slightly positive on the New York Stock Exchange volume split. Take a look

at gold, basically making a new low. Two-year chart doesn't look great. Higher real yields, dollar being very strong. In other currencies, gold is holding up a lot better. And then, of course, the Fed seems in control, and that's always not necessarily great for gold. Volatility index really hovering around 30, struggling to make it look like it's rolling over. Still hasn't gotten rid of that uptrend from mid-August, but it's kind of wait and see. Maybe a couple more of these not-so-volatile days will deplete it a little bit, Sarah. As we head into the close, not a catastrophic sell-off here by any means, nothing extreme like we've seen lately, but we are lower about 82 points on the Dow,

still firmly higher for the week. Home Depot, Caterpillar, Travelers are the biggest drags on the Dow Jones Industrial Average. There's the S&P. It's down three-quarters of 1%. Utilities, industrials, and consumer discretionary are your worst performing sectors. And on the consumer discretionary note, Tesla's big decline is certainly dragging down that sector. That stock is down six and a half percent. You're also seeing some weakness in other consumer names. Whirlpool, Tractor Supply, VF, Lowe's and Ford. The Nasdaq down six tenths of one percent.

And small caps getting hit especially hard today, down one and a quarter percent as we continue to watch bonds sell off with yields ever higher. That's it for me on Closing Bell. I'll see you next week, now in overtime, with Scott Wapner.