Closing Bell - Closing Bell: Stocks rally to start the week, China stocks sink, Gaming out the Fed 10/24/22

Episode Date: October 24, 2022

Stocks moved higher to start the week, building on Friday’s rally, with the major averages all closing firmly in positive territory. Former PIMCO Chief Economist Paul McCulley joins to break down the potentially dovish signals from the Fed that have helped boost sentiment. David Rolfe from Wedgewood Partners looks at the set up for big tech ahead of earnings. Meantime China was a major underperformer, with Chinese tech stocks wrecked in the wake of President Xi securing a third term. Global investor Mark Mobius discusses if China is investable. Plus the latest on Tesla, Meta, Apple, and why solar stocks sat out the rally.

Stocks are jumping on Wall Street following the best week for the major averages since June. We are at session highs. This is the make or break hour for your money. Welcome to Closing Bell. I'm Mike Santoli in for Sarah Eisen. Here's where things stand in the market. Mentioned at the highs for the day, the S&P 500 up almost 1.4%. It was hovering around that up 1% mark for much of the day. The Dow up just about 500 points. At this point, the Nasdaq lagging slightly. Part of that is a weak day for Tesla, at least so far. And the Russell 2000 also trailing behind. So it's mostly some of the mega caps outside of Tesla driving things.

Check out our chart of the day. It is the Chinese Internet Group getting clobbered as President Xi firms up his grip on power. Much more on those moves ahead. And also coming up on the show, we'll talk to former PIMCO chief economist Paul McCulley about the more dovish Fed commentary that has helped support the market in recent days. Let's get straight, though, to the market and today's dashboard. The S&P 500 index now clicking just above the 3800 mark. This is an area that hasn't been above since early

October. So trying to get to a month to date high right here. You see, in a broad sense, the market has been kind of just sort of bouncing above those mid-June lows, refusing to go lower, even though bond yields had been going higher. There also is this little bit of a downtrend or actually significant one from those mid-August highs. You had the big summertime rally. People thought about a Fed pivot. That gave way to a test of the old lows. And it right now is trying to click just above that. Now, the U.S. market has really started to distinguish itself from some other global markets. And as a matter of fact, also detached itself from the way bond markets have been proceeding over the last month or two. So here's the U.S. S&P 500,

along with this is the global Treasury bond. So the price of those bonds going down, yields going up across the world. And then the Morgan Stanley All-Country World Index excluding the U.S. So it's everything outside the U.S. You see this white line, right? It's kind of gone flat here for the last few months, even though the others have trended lower. We have a very strong dollar, could be part of it. That's going to be perhaps a big theme throughout the rest of the day. But let's talk a little more about the rest of the world. Stocks rallying, as we mentioned, here in the U.S. It has been a different story in China. Take a look at Hong Kong's Hang Seng index, down more than 6 percent to a 13-year low. Chinese Internet shares getting hit particularly

hard this coming after President Xi Jinping strengthened his grip on power over the weekend, securing a third five-year term over the weekend. Joining us now is Mobius Capital Partners founder Mark Mobius. And Mark, it's great to have you here to talk about this today. You know, we had you on, I guess, maybe six, seven weeks ago. You were pretty cautious about China. You thought that there was going to be some genuine trouble for the markets, for the economy. I wonder if any of that has changed at all, just given the fact that stocks are now lower than they were then. We've gotten past the party Congress. Obviously, the currency is trying to adjust, and maybe we get a reopening.

Are you still cautious there, or are there signs that maybe things could turn? I am still cautious because I think we've got some really big political changes taking place in China. You know, the treatment of the former president of the Party Congress was quite shocking. And it really showed that how Xi is pushing his power, is really showing his power to everyone in the party who is at the meeting and to the world. So I think there's going to be a shift towards more of a Mao-type China rather than a Deng Xiaoping-type China, if you know what I mean. Less capital-oriented, less market-oriented. So I think we have to be very cautious still

on China. I'm not saying that stocks are not cheap. They're very cheap in many cases. But I would be very careful. Yeah, I mean, I guess I wonder if it also has implications for whether China can be as much or at least any engine of growth in the world or the region. I mean, GDP came in OK over the weekend as well. I just wonder what that means for the whole area there in terms of the Asian economy and markets. Well, there's still a big economy.

They're still importing a lot. They're still exporting a lot. But it's slowed down considerably. And what is particularly worrying is that they are not releasing statistics about the economy. They've cut out a lot of the vital statistics that people look at in order to assess what's going on. And that's not a good sign. Also, they delayed the GDP numbers. So it means that something is boiling behind the surface and it's not going to be good, actually.

Yeah, clearly markets are worried about all of those things, all the body language and everything else. And where are you perhaps finding maybe better opportunities? Clearly, emerging markets still have some headwinds as well. Strong dollar, global slowdown, inflation still an issue. But where would you prefer to be looking for bargains? Well, India is the place where we're looking at. We think that India is going to really power ahead. Younger population, they're already posting something like 7 percent growth, which is probably one of the highest in the world. So that is really the place to be. And Taiwan.

We don't think China's going to move against Taiwan anytime soon, although there is a danger there, but not anytime soon. So Taiwan has terrific companies, and a lot of the stocks are down. So that's another place where we want to be. And when it comes to Taiwan, I mean, is it simply the bellwethers, the Taiwan semis and things like that? Or are there other sectors that seem like they're interesting? We like the companies that are serving the semiconductor industry, the so-called fabulous companies that do the software and the design of the chips. Those companies are very interesting.

And the good thing about them is that having no factories, if something happens to Taiwan, they can move their whole staff to Silicon Valley, to some place out in the back. Many of them already have offices in the United States and other parts of the world. So those are the ones we're looking at. And more broadly, I wonder if you're thinking of the stresses that might be on

emerging economies when it comes to the fact that we do have this very strong U.S. currency that historically has been an issue for some of them. And then just in general, this idea that we have higher yields across the world and all the rest. And it seems like a familiar formula for when you would have some difficulties in those emerging markets. Oh, no question. A lot of countries in emerging markets that are in trouble because of the high debts, higher interest rates are killing them. And also the strong U.S. dollar kills them when they're importing a lot of oil and gas. But then there are the exceptions. There are a lot of other countries that are exporting oil and gas. And actually, a weaker local currency often helps them in their exports in U.S. dollars. So costs are in local currency, weak local currency, and exports in dollars.

So we're finding opportunities in some strange places where you normally wouldn't find them simply because of this change in the whole nature of the currency markets and interest rates. Yeah, I suppose it is a give and take and not strictly the economy that we got used to 30 years ago when they were all financing themselves in dollars and whatnot. Mark, it's great to catch up with you. Thanks so much. Thank you. Mark Mobius there. After the break, hopes for a Fed pause or pivot have helped boost sentiment in the last week. But is the market getting ahead of itself? We will ask former PIMCO chief economist Paul McCulley next. You're watching Closing Bell on CNBC, Dow up 46. More strength for the major averages today after last week's rally. Fed officials entering the blackout period before November's FOMC meeting, but getting in some last minute dovish comments last week, helping boost sentiment. So is a pause or a pivot really

on the table over the next few meetings? Whatever those things might mean, let's bring in former PIMCO chief economist Paul McCulley to talk about all of it. Paul, it's great to have you weigh in here. I mean, look, Fed officials have for some time characterized what they're doing this year as front-loading this program of tightening to fight inflation. It would seem six or seven months getting rates from close to zero to four percentage points, that's about what we'll be in nine days, would seem like a fair bit of front loading. Where is that going to leave us on November 2nd, do you think? I certainly agree with you. By definition, front loading should have a half-life. You can't front load an entire tightening campaign

or else you've got an oxymoron on your hands. And I think we really are at a juncture. We're about to have an inflection point. I hesitate to use the word pivot because I'm not sure what it means anymore, but I think we are approaching an inflection point where we're going to have kinder, gentler monetary policy moving forward. And I think that will be the big discussion at the FOMC meeting next week. They're going to do 75, but I take Mary Daly as a harbinger of the fact there's going to be a very serious debate about what to do in December, and I expect to step down to 50 in December. So, yes, it's a moment of kinder, gentler monetary policy to come.

And I think the marketplace is having a small party, not like this summer where we got rebuked for that at Jackson Hole. But I think it's a justified small party right now. Yeah, that's a fair point. I mean, we're not exactly off to the races in terms of markets. There's not some sense of certainty out there that we have the ultimate destination in sight. But it would seem even stepping down to 50 or becoming kinder and gentler is going to be to some degree dependent on getting some inflation data that that's going to cooperate with that. That picture now, I think that's true, but I would not pound the table about that. I think over the last month or two, the community has started to recognize that core CPI, core PCE,

but particularly core CPI is by definition, by architectural design, a lagging indicator, particularly on the housing side of things. And the housing market has cried uncle. When you look around the nation, it is unambiguously clear that the housing market is crying uncle. But that's not going to show up in the core CPI until six to 12 months from now. So I think we're at a point where the Fed could and probably will stop pounding the table so hard that it has to see core CPI cry uncle before he can move to kinder, gentler. And I think that will be part of the debate next week. And I think it will be the center of the debate come December. Yeah, you characterize this as a process of the Fed attempting to gracefully de-escalate a bit in its war on inflation. Clearly, though, Fed officials are conscious of not having the market celebrate too hard.

And how is it going to be able to walk that line if they start talking about how CPI and core PCE you know are basically lagging indicators would the markets not take that as a green light to run? I think they will and you put your finger right onto the limb of the faces and we went through it this summer so it's not a new movie for us at all we've seen it before and I think they can be a little bit less edgy about the notion that the markets are going to have a party now versus uh this past summer because financial conditions have tightened a lot since summer notably on the fixed income side and particularly mortgages but equally important on the dollar so if the equity market wants to catch a bit and have a bit of end of year party, it doesn't undo all of the tightening in financial conditions. And it's not going to do very much at

all for the domestic housing market or for the global fragility that we see both in economies and financial markets. So I think the world is safer for a party now than it was in the summer. But clearly that is the biggest concern that the Fed has, is that the moment they even hint, I mean, slightly hint, they will be kinder in general, that the marketplace will want to ease financial conditions too much for its own good. And I think the bullword against that now is the fact that we've tightened them so much on the mortgage side and on the appreciating dollar side. Implicit in what you're saying, I guess, is that, you know, we may have enough in the works to restrain inflation and slow the economy down to a fair degree,

which would perhaps mean we don't have to look for employment to weaken up all that much more or other parts of the economy that haven't yet really shown a lot of weakness to follow along. Is that correct? I mean, you know, I think the biggest fear the markets have had all year is that the Fed was intent on tightening until there was a genuine uptick, a significant one in unemployment. I think we're going to see that as we move out into the new year, that we'll see a broadening of the weakness that we're Fed literally needs to see the economy withering in the street, crawling, crying uncle in order to say enough is enough. We've got a huge amount of tightening already done. And I think the way that the Fed can tactically handle

this is starting talking about the cumulative effect of what they have done so as to take the focus off the incremental change going forward. The cumulative amount has been a lot. I think they can lean on that as their rationale, if you will, for more kindness and a more gentle approach. All right. Maybe they can pull it off without terribly much more pain. It's a fine line. It's a fine line.

No question. Absolutely. Yeah. All right, Paul. Well, I hope to talk to you after the next meeting. It's the middle of next week. Talk to you soon. Sounds good. Thank you. All right. Paul McCauley, thank meeting. It's the middle of next week. Talk to you soon. Sounds good.

Thank you. All right. Paul McCauley, thank you. Let's check the markets. The Dow up over 500 at this point, pretty much at the highs of the day. S&P 500 up a percent and a half above that 3800 mark. Pretty close to the early October highs. Now, the Nasdaq is carrying higher as well.

Small caps underperforming. Tesla, though, sitting out the rally today, hitting a 52-week low earlier on news. It is cutting prices in China. We'll talk to an analyst about the move and the big underperformance of late. And speaking of Tesla, it's number two on the list of top search tickers on CNBC.com today, along with the 10-year yield, Alibaba, the Hang Seng Index, and the two-year Treasury yield. We'll be right back. Let's check out today's stealth mover. It is WeWork moving higher after Cantor Fitzgerald

initiated coverage with an overweight rating on the stock and an eight dollar price target, which is well above current levels, now just above two bucks. Cantor says WeWork has removed two point seven7 billion in costs through a multi-year program and that its future cash generation capabilities are being ignored by the market. Adding the shift away from traditional office leases could be a decade-long tailwind. This is a bottom fishing exercise, the stock 85% off its high still. Coming up, it is a massive week for big tech earnings as Alphabet, Microsoft, Meta, Apple, and Amazon get ready to report in the next three days. We'll talk to David Rolf

from Wedgwood Partners about how you should be positioned ahead of all those results. We'll be right back. Welcome back to Closing Bell. Stocks are near session highs as we head toward the close. 30 percent of the S&P 500 reporting earnings this week. That includes MegaCapTech, Bellwethers, Microsoft, Amazon, Apple, Meta and Alphabet. Joining us now is David Rolfe, Wedgwood Partners CIO. And David, you are significant investors in a number of those stocks, Apple, Meta, some of the others. We've seen the valuation compression that's gone on for 11 months now since the Nasdaq peaked. Now, a lot of scrutiny on whether these companies, you know, maybe are not productive enough. They're going to have to do some cost cutting. You have a shareholder going at Meta management saying that they should really trim

back on investments. Where do you see things? Is this just a valuation adjustment or is there a little more in terms of a reckoning for the businesses here? I think I think there is a reckoning. I mean, let's face it, Mike, in that Gersten letter, I think he made a really good point that we could probably talk to more than a few companies in Silicon Valley. Zero interest rates, a booming bull market. There's a lot of hiring, a lot of really neat stuff going on in R&D. And it's time to trim the fat from these organizations. It's going to be difficult and it involves people. And so while maybe most of your listeners are waiting for a Powell pivot, I'm waiting for a Zuckerberg pivot.

And I think Gerstner's letter was well done, very respectful. And all the points he made, these are the same internal discussions that we're having here at the firm. And we've been adding, slowly but surely, adding to our position in Meta and some of the other tech names that we own. And when the Fed's tightening, we take our time. We overweight our highest conviction ideas. And with all this volatility the Fed is creating, we hope to swing a fatter bet still. You say with Meta. I mean, obviously, look, Mark Zuckerberg has voting control of this company.

He clearly has staked a lot of the ambition of the company and its future on this idea. They're going to have to find another route into the metaverse through all this investment. On the other side of it, you know, there's a lot of folks look at the valuation of meta and say that the market is almost projecting that it's kind of in a Yahoo AOL situation of no growth, lots of cash flow, and an entrenched business, but not a lot of growth. Do you think that that's a danger? It could be. Again, the valuation speaks to a company that has uncontrolled spending and that the growth algorithm is broken. We don't think that's the case. If we're wrong, and again, it's been painful this year, there's no doubt about it. But if we're wrong, we don't think the downside is that great. Obviously, we hope we're not wrong. If we're a little bit right, the stock's a double or triple over the next couple of years. When it comes to Alphabet, I mean, you did say you'd like to kind of get bigger in your highest conviction names in an environment like this. Would Alphabet be one of them? Because it has had a rough go of it, but not really because of a lot going on within

the company, it would seem, except general advertising demand concerns. Right, right. Yeah, we're bracing for maybe not necessarily a tough quarter, but maybe a little bit of a light guidance. We've owned the stock for years. We only own 20 stocks, Mike. It's our second largest holding. And over the years, the market has provided really great opportunities to add to that position. And we've tried to take advantage of that. But it certainly doesn't have a multiple that speaks of, you know, no growth like Meta. But it's really cheap. And I think that's another company that can probably tighten

their belt as well. I think a lot of Silicon Valley has to do that. And we remain, obviously, it's our second largest position. We remain very big holes on the alphabet. Are there any newer positions that seem to just kind of come into your zone based on what the market has done? You know, nothing really new, new. And the weakness earlier in the spring and summer, we added a couple of times to PayPal. We were adding the Taiwan Semi. And we just added again to Taiwan Semi just last week. I mean, again, talking about low multiples, the stock is barely trading in more than 10 times trailing and forward earnings. And we would argue that it's the most important company that involves technology, Silicon Valley, obviously, chips and so forth. But we would also argue it's probably one of the most important companies in

the world. And you're getting it at a multiple that speaks to, again, a no growth environment. And I mean, this is when you have to swing a fat bat. You think about a year or so ago, when everything was booming and it had a big multiple, it was easy to buy it then. The right decision probably was to sell it. Buying is hard when the crowd is screaming at you that you're making a wrong mistake. But we always try to remember the paradox, Mike, that to get rich, you have to make your biggest moves in the heat of a bear market. It's hard to do, but that's where conviction and discipline comes in. So we try to practice that. That's right. There's always scary headlines that are giving you an excuse not to do that when things are rough. David, great to catch up.

Thanks very much. Appreciate it. Thanks, Mike. Talk soon. All right. And here is where we stand in the markets. The Dow up about 480, S&P 500 holding to a 1.4% gain, again, right around that 3,800 mark. After the break, the big picture on clean

energy solar and other green industries have been getting slammed of late mostly lower again today we'll tell you what is driving those moves and don't miss cnbc's 2022 work summit tomorrow and wednesday we'll bring together top names in business policy policy, labor, banking, and academia to discuss the future of work. To see our lineup and register for this live online summit, go to cnbcevents.com or scan the code on the screen. We'll be right back. Time for today's big picture, and we're taking a look at the clean energy space. Solar stocks have been under pressure of late and getting hit hard again today, even as the overall market rallies.

Pippa Stevens has a closer look at what is driving those moves. Hi, Pippa. Hey, Mike. Well, the solar ETF is down another 2% with today's declines driven by China-based companies, including Jinko Solar, DACA, New Energy, and Flat Glass Group. But more broadly, these stocks have gotten hit hard over the last few months thanks to sensitivity to rising rates and the related rotation out of growth. This is especially true for the residential solar companies, given their business models require

frequent access to capital. The group has now more than erased the initial spike after Senators Manchin and Schumer announced their agreement on the climate bill. The Tan Fund is down 16 percent since the end of July. Hannon Armstrong and SolarEdge among the biggest losers, dropping 30 percent, with Sunrun and Sunova also falling. Now, amid this skepticism around the group, third quarter earnings, which Enphase kicks off tomorrow, will be key. Things to watch include pricing power, as well as how companies are navigating ongoing supply chain issues. Mike. You know, Pippa, it's fascinating that the interest cost has become such a big swing factor here. You would think that other fundamentals might be moving in their direction,

just generally high utility bills and a lot of focus on perhaps having more sustainable energy. I wonder if there's a way around it on the residential side, the idea of just exactly how they sell these products and their finance. Yeah, I mean, there are a lot of tailwinds longer term, including the IRA. And the group got a lot of interest right after that was announced, but that's completely since been erased. And the group has the residential solar companies have up until this point said that their value proposition remains that even if they're raising rates, as long as they raise them less than utility companies raise their rates, then solar still looks attractive. So they do have that going for them long term right now.

But right now, it seems like investors are squarely focused on that rising rate question. And of course, this industry really developed during a time of easy monetary policy. And so we really have yet to see how they react as rates continue to climb higher. Yeah. China related and housing related and rate related are tough places to be for any group right now. Pippa, thanks very much. Shares of Tesla hitting the brakes again today on news of a price cut for some of its vehicles in China. We'll talk to an analyst about whether there's a larger demand problem at play. That story, plus warnings for Meta and Apple hikes fees when we take you inside the Market Zone.

We are now in the closing bell market zone. Dan Suzuki from Richard Bernstein Advisors is here to break down these crucial moments of the trading day. Plus, Christina Partsenevelos on the Chinese tech wreck and Oppenheimer's Colin Rush on Tesla. Welcome all. Dan, love your thoughts on the market action today. It seems like, you know, we've been here a few times this year. The market had sustained a little bit of a struggle in the face of higher yields, fears of the Fed. Are we going to head into a recession or not? Earnings growth slowing down. We maybe have found some kind of traction, at least in the short term.

Do you think it changes anything about the overall direction of things, market leadership, what it means about the implications for the economy? Yeah, Mike, good to see you I don't think it really changes anything for the sort of the medium to long term story but in the near term I mean you've been commenting on this as well. You know sentiment and position on the market did get

really old oversold in the near term so. You know you have this environment where earnings is coming in as expected so pretty bad but you know that you know we saw similar dynamic last quarter where you got to rally. You on the back of you know you know- lack of you know things

getting worse than expected at the same time you have this optimism around the Fed pivot I think that. You'll kind of make sense in the near term I think that the Fed story did get sort of fairly price if not overly priced into the market and so

it's not to be. It's not- it's not crazy to think that the market can rally as that as you come to terms with that I think going forward though. The big issue for the market is that growth is going to be the predominant driver

and growth is going to continue to slow. That means you know that's going to put downward pressure on rates over the next twelve months is going to. Put down pressure on earnings. Over the next twelve months and I think that's

going to cause. A lot more over the next 12 months. And I think that's going to cause a lot more volatility in markets from here. And I don't think it changes the leadership story because at the end of the day, the tech growth leadership that we've seen over the last few years has been challenged by this repricing of inflation and repricing the Fed. But what they haven't fully done yet is reprice growth. And this idea that they're not going to be cyclical, I think that's a lot more hope than it is reality. Right. Maybe if they're not cyclical, but if yields are coming down, if you think that's going to be the case, because people are worried about overall economic growth, don't growth companies, by definition, start to look a little bit more attractive or not yet?

No, I don't think so, Mike. I think it's going to be a bit of a tug of war. I mean, if the growth holds up and rates go down, certainly that's a good environment for those stocks. But if rates are coming down because growth is slowing, I think people are going to focus on the profit story. You've already seen some of that dynamic start to play out with a lot of the earnings for these tech and growth-oriented companies come down. But if that continues, I think that's going to be the next leg of the story. I think that's going to offset the potential benefit from lower rates. I mean, one way to think about it is like it's all a liquidity story. These stocks have benefited tremendously from the record liquidity over the last few years. And if we see lower rates because we

have lower growth, that's not going to be a strong liquidity environment as we've seen in past slowdowns. Gotcha. Chinese tech stocks meantime plummeting today. The K-Web ETF sinking around 15 percent. Tencent, Alibaba, JD.com among the biggest losers. Now, this after President Xi Jinping consolidated his power over the weekend in preparation for a third term. Let's bring in Christina Partsenevelos. We want to focus on Alibaba here. Now, once the world's largest IPO, now trading below its listing price. Christina. Yeah, that was, what, eight years ago when it listed at 68 bucks a share. And today you can see shares have plunged down to what 63 64 dollars right now earlier today was 61 dollars Baba is an exception with the sense that yes it had a failed IPO two years ago of its of the the digital payments

affiliate that would be and group and the fact that just this past August Baba did post its first revenue decline so those are two company specific issues for the for Baba but overall we know that Chinese tech has been selling off, like you mentioned, just what went down in China just this past weekend. And that's having a trickle effect on Pinduoduo, JD.com, and further dragging down the Nasdaq China or Golden Dragon China index, which tracks a lot of these Chinese firms. Look at that. That was down, what, over 14 percent? Look at that, almost 15 percent at the moment. And that's because investors right now are really concerned about the future of pro-market reform in China and the possible return, if I could say it, to a Mao regime.

Right. I mean, that certainly is, I guess, on the outer edge of what the market is registering in the way of its concerns here. The government's already said they don't really want their tech companies to be kind of global businesses, so to speak. Dan, just with the political stuff really front and center when it comes to the China investing equation, and yet seeming like the economy there, if anything, has a reopening ahead of it, how would you think about investing in that market at the moment? Yeah, Mike, I think you said it very well. I think if you're worried about the politics, you don't want to touch China. But I think, you know, focusing on politics and investing based on politics is really the road to ruin. I think, you know, I think what we try to do at RBA is we

try to take the politics out of it. And if you focus on those fundamentals that you were referring to, you know, China, the Chinese stock market actually looks pretty good. And not only does it look good, you know, it looks like the complete opposite of everything that's happening everywhere else in the world. I mean, almost every market out there, you're seeing a continuation of slowing profits and tightening liquidity. You know, the Chinese stock market is seeing, you know, likely to see improving profits

growth over the next couple of quarters. And liquidity has been improving, you know, partly as a result of lowering interest rates which is again you know the opposite you're seeing in most markets and not to mention the fact that you know nobody wants to touch these stocks with a 10-foot pole and that's reflected in you know pretty bombed out valuations here so I think you're looking at profits looking at liquidity looking at sentiment all pointing in the direction of know, being able to invest in these stocks. And despite the geopolitical issues, which is often more of a red herring than anything else. All right. That is certainly the contrarian take and a market that is not really in sync with ours cyclically.

So we'll see how it plays from there. And thank you to Christina. We have more news on the China front. Tesla briefly hitting its lowest level since mid 2021 today after cutting prices for its Model 3 and Model Y sold in the country. CEO Elon Musk last week saying he sees signs of a recession in China. Let's bring in Colin Rush, senior research analyst at Oppenheimer. He has an outperformed rating on Tesla and a $436 price target on the stock. Colin, put it into some context for us here. The stock, first of all, has been under pressure from multiple fronts over the last few months. But the China story maybe seems to give pause to those who felt like, you know, Tesla was facing more or less insatiable demand.

And as many as it could produce, it could sell at the right price. Yeah, and there's a couple couple things that I want to highlight. First you know they had eight days of inventory exiting the quarter so extremely low inventories for the vehicles. Two they're going through a ramp of two new facilities in Berlin and Austin and so they're shifting around where these vehicles ultimately end up. A lot of those vehicles coming out of the Shanghai facility were ending up in Europe ultimately and so there's a shift in terms of just supply availability. And then the third thing is that Tesla's really gone through a price adjustment in a variety of ways around an ongoing basis. And so they tend to err a little bit on the low side before they

start raising prices. So I wouldn't be surprised to see them lower prices, kind of feel out where the demand is firm for them, and then end up creeping prices higher as things start to ramp up. You know, it's one of those things where they've been kind of working with the market in terms of selling through and want to continue to be in a position where there isn't any inventory here for that facility. I mean, it certainly makes a lot of sense, all of those things. On the other hand, the market seems to be at least alert to the possibility that the 50 percent volume gains that are anticipated for this calendar year, you know, globally may be a close call. In other words, it's not just in the bag. It's not that

they can just feed open ended demand. And I wonder if that's part of what has been compressing the valuation or is it, you know, Elon Musk selling the shares and everything else? Yeah, I mean, there's all that noise around Twitter and whatnot. But ultimately, the bear case has been founded on the idea that competition was coming and that it was going to eat into Tesla's market share and margin profile. That has been the case for the last decade, that the company wouldn't be able to hit their margin targets nor sell the volumes. And what we've seen over the past decade is that they've been able to do all of those things. And so now what we're talking about, again,

is low-cost competitors in China coming in and taking lower margin and trying to to eat into that market share in that margin profile our view is that tesla's brand still continues to be fairly strong in china despite some of the the missteps in the communication side and that they're going to be able to sell through just primarily on the functionality of the technology being better and having a better uh better platform you know and so as we see them work through this i I think they're anticipating a lot of these problems early, adjusting the business, and typically have overcorrected to the conservative side to make sure that they continue to produce a lot of

vehicles and sell them through very effectively. Now, your price target implies a double from here for the stock. What catalyzes that at this point, do you think? It's really pretty simple. Just them continuing to ramp up volumes and get, you know, not even all the operating leverage that's available in this model. We don't have them getting into the low or mid 30s in terms of gross margins. We think that's a very real possibility. We also have them not hitting 5 million vehicles, you know, over the next five years in terms of total volumes. That also seems like a very real possibility for the organization. And certainly the operating leverage that they've been demonstrating over the last couple of years has been well more substantial than we had modeled. And so we're giving them a bit of that credit, but not fully.

And so we see a full, you know, 5 to 7, 8 percent incremental margins at the operating level, you know, as we roll through some of the potential on the gross margin and the operating leverage, as well as, you know, substantial upside on revenue to the order of 20 to 30 percent incremental revenue from increased volumes. And that really, you know, drives upside to our model here. And that's not even including what they can get from the FSD program. And so as we look at this, a double from here just reflects some pretty conservative assumptions with a lot

of headroom on execution. All right. Yeah. FSD being full self-driving. Colin, thanks very much. Appreciate the update. Thank you. Meta gaining back some ground after initially falling hard earlier in the session. Bank of America downgrading the stock to neutral ahead of its earnings on Wednesday. Analysts pointing to weakness in ad spending. And separately, Brad Gerstner, CEO of Altimeter Capital, writing in an open letter to Mark Zuckerberg that Meta needs to rebuild confidence with investors. Julia Vorson joins us to wrap up all of that. So, Julia, what exactly is Gerstner saying

here? Well, what's so interesting here is Gerstner held about two million shares as of the end of Q2, but he he can advocate for change. But Mark Zuckerberg does not need to take his advice because Mark Zuckerberg controls the board. But here's what Gerstner says he wants. He wants Meta to reduce its headcount expense by at least 20 percent, to reduce annual CapEx by at least $5 billion from $30 to $25 billion, and also to limit investment in the Metaverse and the Reality Labs division to no more than $5 billion a year. So that's cutting that expense by half. What he's really asking here, Mike, is for Zuckerberg to focus on the core of the business that's making money right now, and that is advertising and not to spend too much money on these long term plans.

But it'll be really interesting to see if Zuckerberg takes any of his advice, because, of course, Zuckerberg does not have to. But with the stock down about 60 percent, we'll see if he goes in that direction when Meta reports earnings Wednesday. For sure. It'll be fascinating to see how much of this, you know, gets traction with management, especially because if you really kind of look through the details, Gerstner's almost saying, you know, stop pretending that you're a fast growth company anymore. You know, it's more about harvesting your cash flows and just riding the digital advertising market. Yeah, getting back to basics. You know, we heard a lot about this from Snap,

which was the first of the social platforms to report. Snap talking about how they're not investing in these cool futuristic technologies like they're flying drones. They're really focused on their ad platform and on augmented reality, which is their differentiating feature. But Snap is using AR to make money from ads now.

And I think the question for Meta on Wednesday is going to be, how are you making money now? And less interest in the 10-year plan, for now at least. Absolutely. All right, Julia, thank you so much. Apple, meantime, making a surprise move today. Hiking prices on its TV and music streaming services, excuse me, Apple Music, will now cost $10.99 per month. That's up a dollar. And Apple TV Plus goes up by $2 to $6.99 per month.

Steve Kovach joins us. So, Steve, aside from the fact that they can do it, what's driving the price increase? Well, according to Apple's statement today, Mike, they said it's all about being able to pay the artists more and provide a better product for you. And that's true. But what's also true is they're facing tons of headwinds with foreign exchange in countries like throughout Europe and in Asia. And we've already seen them go into price-raising mode throughout the fall. They raised prices on the iPhone 14 line in those countries. They've raised prices in the App Store throughout the EU. And now they're raising prices

on their own services. And this is all coming, Mike, as we were getting reports from Morgan Stanley, Bank of America, and others that App Store sales were actually down for last quarter, which is really puts a ding on the services business. So we're watching Apple right now kind of try to make up the lost ground wherever they can, and that includes raising prices on their own homegrown services. None of this really surprises me, though. Apple TV Plus was already way cheaper than its rivals, and they've added a ton to their library already, including Oscar and Emmy winners. But what is surprising to me, Mike, is that Apple Music is more expensive than its rival Spotify now, and I'm curious what happened going you know, going on the conversations

behind the scenes that made them think that they can go above Spotify in pricing when those products are very similar and pricing's really the only differentiator they could potentially have there. So I'm curious to see if Spotify reacts now and raises prices or tries to keep the undercut Apple Music. Yeah, that'll be a great test of, I guess, the strength of Apple's ecosystem and just whether people feel like the switching costs are not worth saving a couple of bucks. Steve will keep an eye on all of that. And, you know, just a couple of minutes to go in the trading session. Dan, in terms of, you know, we've been talking about a lot of these, you know,

big platform technology companies. They were the winners of the prior few years. They've had their valuations cut back. You have clearly been cautious and skeptical and negative on that category of stock. Is anything changing along that front, given where valuations are? No, I don't think so, Mike. I think, you know, you've got to separate the story from the investment. I mean, I think a lot of these companies have a great story. But I think it's just like you saw in 2000. I mean, people were expectations and valuations got way too high. You know, we think that it actually got so big that it was a bubble and bubbles take time to deflate. Certainly, you're

going to see a lot of rallies on the way down. I mean, you saw 16 different double digit rallies, you know, during 2000, 2002. Ultimately, you ended up with different double digit rallies, you know, during 2000, 2002. Ultimately, you ended up with a market that was, you know, 83 percent down. I don't think we're going to see that that type of pain. But I do think that there's more pain to come. And the most important thing here, Mike, is that bear markets always signal a change in leadership. So even if the worst is past us, you know, these are not going to be the leaders of the next cycle, however long the next cycle lasts. So I think that, you know, these are not going to be the leaders of the next cycle, however long the next cycle lasts. So I think that, you know, you want to be cautious here.

They are still the most expensive part of the market, and they still have that perfect headroom ahead of them as things continue to slow. Dan Suzuki, appreciate the time today. Thanks so much. We've got about 45 seconds left in the trading day. The S&P 500 is off the high slightly, still above 1% move for the day. It's just under the 3,800 mark.

Take a look at the volume split. It actually has been more mixed than positive, a 1% gain. But it was basically 50-50 when it came to the breadth of the market of the New York Stock Exchange here. So it was the mega caps that were leading the move. The volatility index has been stubborn right around 30, has not really come in, even though we do have this two day rally, although we do have it now down in the in the 29th. Market's going to go out with a Dow gain of about 430 points. 31.5 is the number that does it for closing.