Closing Bell - Closing Bell: Stocks Sink, Inflation Nation & Disney's Earnings Delight 2/9/23

Episode Date: February 9, 2023

Stocks sell off on rising fears the Federal Reserve will raise interest rates higher than investors are expecting. Cantor Fitzgerald's Eric Johnston and Fairlead's Katie Stockton explain why they are both skeptical of the recent rally and believe the market could  keep falling. Disney taking investors on a roller coaster ride after reporting better than expected earnings. Rosenblatt's Barton Crockett raised his price target on the stock and explains why investors should buy the stock on the pullback. JPMorgan CEO Jamie Dimon says it's too early to declare victory against inflation. Bank of America Securities Economist Michael Gapen tells us whether he agrees. Sunnova CEO John Berger discusses the demand for solar panels amid concerns about the economy and consumer spending.

Stocks giving up an early boost as investors weigh mixed earnings and a still muddled economic picture. This is the make or break hour for your money. Welcome to Closing Bell. I'm Mike Santoli. And for Sarah Eisen, here is where things stand in the market. At the highs, the S&P 500 this morning was up almost 1%. Now has declined to basically the lows for the week. We hit these levels back in the early part of the week, Monday and Tuesday. NASDAQ still the outperformer, but was up more than 1% itself a little bit earlier, firming on the 10-year note yield as

well. Coming up this hour, we'll talk to the CEO of Sanova about the state of the solar industry as another name in that space sees strong interest for its public debut. Plus, Cantor's Eric Johnston joins us with a new warning for the bulls following what he calls a dramatic change in sentiment and positioning in the markets. And as a matter of fact, that dramatic change in sentiment and positioning has been a big part of the story along this rally we've seen from October and then especially which accelerated at the beginning of this year. It's brought the S&P 500 right up to this level. You know, 41 to 4200 had been targeted for a while as a zone that might be a little bit tough, a little congested. We're consolidating that January gain.

But this is, you know, roughly the upper end of the range we've been in for some months here. Again, mostly just chopping around here, not a lot of downside acceleration either. But we are hesitating as we wait for that CPI report next week as well. Take a look at Disney. Of course, a big story on the day. The stock is up, well-received earnings, as well as a strategic plan. But here's a longer-term view of the valuation of Disney relative to a couple of general peers in the communications services sector, Alphabet and Comcast, our parent company.

Disney is already in the mid-20s in terms of a forward price earnings multiple. Now, this you can kind of ignore. That's when earnings went away and the huge excitement around Disney Plus's expansion made it a pandemic stock. But if you look at the pre-pandemic levels, this is still kind of the highs. You also see all these companies were kind of clustered together around the same valuation if you go back to the mid-2010s. And now you see, again, this big premium with Disney. So what does it mean? It suggests that investors have been giving Disney a certain amount of credit, both for perhaps under-earning international theme parks and things like that.

They're going to get the cost-cutting in line for the quality of the franchises and that they'll figure things out with the scale that they have built on the streaming side. But maybe also helps explain a somewhat muted reaction today in a stock that's come back pretty far in a short period of time. So let's go a bit deeper on Disney and the big moment of the day on CNBC that all of Wall Street has been talking about. CEO Bob Iger spoke this morning with David Faber about undoing some of the changes made by his successor turned predecessor, Bob Chapek. The structure of the company that had been changed by my successor and my predecessor, by Bob, and he had a reason why he wanted to do that, and he articulated that. But it created a huge divide between the creative side of the company,

the content engines, movies and television, and the monetization and distribution side of the company, the content engines, movies and television, and the monetization distribution side of the company. And while I think he, again, he had certain maybe valid reasons why he wanted to do that at that time, it was very, very apparent to me, both while I was out and when I came back, that that was a mistake. Just after the interview, activist investor Nelson Peltz, who had launched a proxy fight against Disney, called in to squawk on the street with his reaction to the changes that Iger announced. This was a great win for all the shareholders. Management at Disney now plans to do everything that we want them to do.

We wish the very best to Bob, his management team, the board. We will be watching. We will be rooting. And the proxy fight is over. Let's bring in David Faber for more on the big takeaways from Iger and Disney, from the reaction to it all, David. And, you know, it seems like on a simple level, the street is saying that Bob Iger, with these moves that he's unveiled, the reorganization, the plans for cost cutting, the kind of return to the core feel that he's conveyed out there, he's controlling what can

be controlled and has a credible plan to execute on that, even if a lot of the big strategic, you know, kind of asset disposition or acquisition questions are still open. Yeah, I think that's a really interesting point. And when you made with the charts as well there, Mike, now we are seeing the stock to the point you made as well. Turn around. I mean, this is a stock that had been up as much as what, six, seven percent, at least in the aftermarket yesterday, right after the numbers, right after actually the conference call when they unveiled the five point five billion cost cutting plan was up a lot more this morning. It's now down in part. I also think I mean, I agree investors are willing to look beyond really the current

quarter or the next quarter, because when you do, in particular, and this may be one reason why the stock has turned around, you know, linear cable networks, which we also spent a lot of time talking about during our time together this morning, linear cable networks not doing particularly well. I mean, the overall revenue number is down 5 percent. Operating income number is down 16 percent. But they did not guide to any great resurgence there. In fact, the opposite. And so I do think that's a concern of some investors right now. Although, as you say, if you given the valuation, you're clearly looking past that to the point being that Iger can deliver on so many of the things that he's promised now, but that won't be front and center for at least a

number of quarters. For sure. Look, five and a half billion dollars in cost is a lot. I mean, it's a real number. Obviously, it's not going to happen immediately or even necessarily in the current fiscal year. But that's a material number that should boost earnings from what we thought before. I guess the other piece of it is and the reason I talk about it being a credible plan is a lot of what Bob Iger spoke to you about, which was, look, linear cable is no great thing, but we know we kind of know how to run it. It's in decline, but we can be smart about it. And then also his feeling that general entertainment content is just difficult to make money in. I mean, I hear that. You know how this goes back when when when Iger first took the CEO job and, you know, the mid 2000s,

I guess it was. He said, why are we making all these kind of me to movies? Right. Touchstone Pictures was not Disney branded. And he said, let's get rid of that. And so, in other words, he's been shrinking the ABC network for a couple of decades in a managed fashion. I just wonder if it's it's just a familiar feel. He might feel like he's got the playbook, even if the macro environment is not going to be that friendly. I think those are all good points. And he did double down on talking about general entertainment, so to speak, even, and this was a bit of news that he shared with us this morning when it comes to Hulu, where I think it's now far from clear whether Disney wants to actually own more of that asset and might prefer actually to potentially part with a sum, if not all of it. We'll see.

But he clearly indicated that because, in part, it has such a imprint in the general entertainment genre, if you want to call it that, Mike. You know, what else has gotten people's attention when it comes to the cost cutting is the three billion dollars they're going to take out of non-sports content spending. So that's going to come a lot out of direct to consumer. Can you do that and still maintain the numbers, if not increase them? They certainly are encouraged by the fact that they raise price on the direct to consumer product, Disney Plus, and did not see a lot of churn off of it. But if you give people less, are they still going to want to pay more? That's going to be a question, but they're doubling down to your point on their franchises because that is what has worked the best for Disney throughout

the years. Yeah, and his, you know, professed flexibility on Hulu in terms of which way that might go or being noncommittal about it, I guess it really does raise the question of what was acquired of lasting value through the buy of the Fox assets. You know, that was part of Pelts' criticism, that it seemed like it was expensive or it didn't have to be so big in that area. Because the thought was you're getting kind of control of Hulu and then the Fox cable networks, which were, and the studio, of course, which was a kind of

manufacturer of content for streaming. Yeah, I mean, they would still say, listen, we got the main thing, which is the manufacturer of content for streaming, which enabled us to broaden out our product offering and increase our franchises. Avatar being a key one, right. Two point two billion or so at the at the box office. They're happy to point out, number four movie of all time, and enabled them to actually be able to withstand, if not benefit, during the period where nothing else was open. But there's always going to be criticism about what they paid for Fox. If they do depart from Hulu, it would seem they're probably going to get their money's worth there. Obviously, on Sky, when our parent company came in, they did okay. They were able to sell those regional sports networks as well at a lot more than they're came in. They did OK. They were able to sell those regional sports

networks as well at a lot more than they're worth now. They're basically bankrupt. So there are certain things that move around when it comes to sort of valuing Fox and how it ended up being for Disney. But you're right, you know, Mike, that listen, direct to consumer is the key here. It still will be the key. They've got to get to profitability by the end of 2024, or at least that's what they say they're going to. They're no longer pointing people to submetrics as much as they were in terms of ever increasing numbers. They want to get to profitability. But I'll come back to you, Mike. We've had this discussion for a long time. Iger pushed back on the idea that you can't replace the cable ecosystem with something that is as profitable as it direct to consumer. He says,

or at least still believes you can. I'm not sure. We've certainly seen no evidence of it to date. No, we don't. Absolutely not. Nothing is replicating the economics of it. It's all kind of consumer surplus and people trying to get up to scale expensively. So, yeah, we will see how all that goes. And you're right to point to the box office. Obviously, a huge performance recently with Avatar. And I think they did got a 20 percent market share of all global box office in 2022. So that's not exactly broken. David, great stuff as always. We'll talk to you again soon. Thanks, Mike. All right. Well, let's get back to the broader markets and this downturn we've been seeing throughout the session. Joining us now is Fairlead Strategies founder and managing partner Katie Stockton.

She is also a CNBC contributor. Katie, love to hear your interpretation of what we're seeing this week, this sort of churn in the indexes. Is it just kind of a healthy digestion of this rally? Or is there something potentially that's a more dangerous loss of momentum? Well, so far, we don't have any clear sell signals into this rally. It obviously has entered a consolidation phase. What we're seeing is really outside of the major indices. The S&P 500 still has the support of the short-term trend following gauges, albeit not as much as last week, naturally.

But what we're seeing is a loss of short-term upside momentum behind the likes of Bitcoin and Chinese equities. So areas of the market that are a bit farther down the risk spectrum are certainly showing some cracks. Yeah, that's an interesting, I guess, distinction to make right now, because so many of those areas did seem to get kind of overexcited in the first weeks of this year. And the question has been whether they can calm down and leave the indexes more or less unharmed. The Nasdaq 100, where does that fall at this point? People keep fixating on particular levels that we're basically flirting with now. Well, I think they should be focusing on triple Q's or Nasdaq 100 and really the mega caps that drive it because the mega caps have exhibited leadership on the last push higher. That last push higher allowed for breakouts in the

like of Apple and Microsoft about their 200-day moving averages and at the same time we've seen breadth contract. So we're no longer really talking about the breath surge that characterized much of January. But now we see an actually pretty notable contraction in that participation. And that puts even more sort of onus on the likes of Apple, even Tesla in there, too, all of which still have the support of the short term trend following gauges. But I would be very sort of carefully watching them, because if they do start to pull back, I think that that could impact the major indices in a way that we have not yet seen. And, of course, market sentiment is at places where you could consider it to be overly bullish after January's rally really instilled some confidence in the tape. I was going to get into that sentiment idea, this idea that there has really been a bit of an embrace, or at least a chase to grab exposure, some of the riskier parts of the market. I know you pointed

the fear and greed index ticking up into the greed zone as well. I guess the question is, is that in itself a reason to be wary of the market? Because I assume whenever the next real bull market starts, if it hasn't already, that stuff is going to start to look better and people are going to get more involved. That is actually a really good point. I mean, we definitely see surges in breadth around the start of bull market moves. We do see sentiment improve. Now, the key is that they have to hold sort of up near current levels. So we need to be able to maintain that market sentiment. And the way, of course, the market could do that is by continuing higher, seeing more breakouts. So sentiment alone is not any reason to be counter-trending. That's why we always go back

to the momentum gauges. And as mentioned, short-term momentum still is to the upside, but it's just not quite what it was before. So we're watching and waiting for our trustee MACD indicator to cross over, and that would be a trigger for a pullback. We also continue to watch the volatility index, which would suggest that sentiment is shifting to the downside, meaning that people are losing confidence when that VIX gets back about the 50-day moving average, which of, it's still very close to it. So those are our two risk metrics. We think a sentiment is somewhat tertiary to where support and resistance are and also to those momentum gauges.

And just in terms of the S&P 500, if it broke below a certain point, where would that essentially say that the benefit of the doubt is no longer with the rally? I would say thirty nine hundred. That area would be the zone that I'd focus on as initial support. It's defined by both the daily crowd and if the high from February 2nd proves to be a short term peak, well, then at thirty eight point two percent Fibonacci retracement to get technical on you is not far from that thirty,900 level. So below that, that's where we start talking about a more significant retracement, something that could be more than just a partial retracement and in fact, a full retracement. So that level certainly holds

some importance going forward. All right. About 7% down from here. Katie, appreciate you always getting technical. Thanks a lot. We'll talk to you soon. We have a news alert in the crypto space. Kate Rooney has the details. Hi, Kate. Hey, Mike. So we've got the latest crypto enforcement action coming out of the SEC today. The SEC is charging crypto exchange Kraken with failing to register one of its offerings. It's a $30 million fine for Kraken. They also say they agreed to cease one of their offerings. It's a $30 million fine for Kraken. They also say they agreed to cease one of their offerings. It's something called staking. What you need to know here, it's essentially a way to earn high yield on your cryptocurrency. The release here says Kraken was offering up to 21% yield on this product. They're saying they needed to register this

as a security. It's something that Coinbase has also talked about. The CEO of that company, Brian Armstrong, yesterday tweeting about this issue and some of the rumors that the SEC may be looking to end staking, as it's called, for U.S. retail investors. He tweeted saying that he hopes it's not the case. He believes it would be a terrible path for the U.S. if it was allowed to happen. This has been seen as a big moneymaker for some of the crypto exchanges and significant that they're shutting this down and look to be clamping down here. Coinbase shares have been down for the last day or so, not necessarily after this news, but taking a hit. Bitcoin has been down as well. And some of the momentum, high growth names.

So you can see Coinbase down here as well today. But latest action from the SEC. Back to you, Mike. Interesting. Yes, it seems like going after what they call unregistered securities is the path in for the regulators at this point, Kate. Thanks very much, Kate Rooney. Shares of solar tech company Nextracker are jumping in their public debut today after pricing above their expected range. Up next, we'll talk to the CEO of another solar firm, Sanova, about what that strong debut says about his industry.

You're watching Closing Bell on CNBC. Dow down 250. Shares of solar tech company Nextracker getting a big pop today on their first day of trading. The IPO priced at $24 per share. That was above its stated range, making it the largest IPO since Mobileye, which went public back in October. Now, the company based in Fremont, California, sells hardware and software that enable solar panels to follow the sun,

which improves the output of solar power plants. Now, for more on the solar industry, let's bring in Sinova CEO John Berger. And, John, it's good to catch up with you. I know you're largely focused on things like in-home installations as well as some commercial applications. I mean, clearly the market response to this IPO, though, shows the longer term enthusiasm for the area remains pretty well intact. Question is near term demand.

I think there's been some questions about choppiness in demand for your product and things like California. Where do things stand this year in terms of growth rate? Yeah, thanks, Mike. Yeah, there's a lot growing out there in the solar industry, both on the front of the meter, the utility side of the meter, if you will, and that's where Nextracker makes their business, as you pointed out, Mike. And then on our side, the home and business side of the meter, so to speak, there's a lot that's changing.

And some of that's brought about by technological change, consumer change, utility rates are continuing to escalate as recently as some more utilities rates as recently as this week. And so, you know, if you go through and you look at the behind the meter, where Sunova is an energy as a service provider, there's about three things that are going on that are different. There are changes. And that's giving investors a little bit different signals, and there's reasons for it. So the first one is the sale is a lot more complex and sophisticated. So it's not just about solar panels. You have batteries, load management. There's a lot more going on there. The IRA, which was the law that was a big law that was passed that that's got a lot of excitement here for Nextracker.

That's also inciting a lot of production of equipment. And so there has been a lot of a shortage of equipment over the last few years. And we see that actually abating and flipping the other direction. We're seeing a lot of batteries out there, a lot of equipment. And the last is, is that the IRA, the Inflation Reduction Act, incentivizes a little bit different financing. Leases, PPAs, power purchase agreements paid by the kilowatt hour like the utility versus loans. And so if you're selling only loans, your business is going to go down. Sinova, you can do anything you want.

Cash, lease, power purchase agreement loans. And so our business, what we look out there, and certainly in the last few months, we see a lot of strength. Frankly, we see a lot of demand out there. We see the business overall growing quite nicely. And as recently as this week, we're still seeing a lot of demand from consumers to go out there, save money, and have a higher reliability of power for not only their home, but also their car increasingly as we've seen those EV prices come down and it's sent a lot more consumer demand for EVs as well. Yeah, draw the connection a little bit more between EV demand and why you might want to have this kind of in-home power situation. Certainly, it's very simple. Instead of going to the gas station, you go to the house. You can charge up anywhere, even the home, even the office rather, or restaurant or something of that nature. Of course, you've got the superchargers. We've all seen those out there on the highway. But the home is the gas station. It really supplies a lot of the power to an electric vehicle. I can tell you that that's what happens at my house,

for instance. And so you got to get that power from someplace and you want it cheaper and you want it more reliable. And frankly, you want it cleaner. And that's exactly what Sunova's energy service provides. And so we're seeing a lot more demand. If you buy an EV or two or three electric vehicles, you're going to want to have that Sunova service or power service to be able to bring that cost down and make it easier for you. And frankly, a lot more reliable. What is the, I mean, I know you can't always generalize about these things,

but what is the payback period for an existing homeowner to, to convert to one of your systems? How long would it take to essentially pay for itself? Well, we provide financing, as I mentioned, Mike, whether, again, you can choose whatever structure you want, a loan or a lease or a power purchase agreement. So the savings are immediate, to be very clear about it. However, if you want to look at that from my side of the ledger, if you will, the payback period varies quite dramatically from each area, but typically is around 10 years

or so. And what I want to point out here is that we've actually seen the economics improving quite dramatically. If you look at the price of electricity that utilities are charging homeowners, it went up more last year than it did in the previous 10 years combined. And it's still going up. It's still going up. So even as we've seen some leveling off in economic activity, a little bit of interest rates, we're still seeing those rates go up because there's a lag effect. So the utility rates didn't raise as much in the front end as inflation was really taking on. Now they're going to continue to rise even when inflation looks to be abating a little bit.

So we're still seeing a lot of demand that for obvious reasons, consumers want cheaper power. And the only way to get cheaper power is to have a service like Sonoba. Yeah, certainly people noticing that in terms of utility costs. John, thanks very much. Appreciate the update.

John Berger. Thank you. All right, very much. Appreciate the update. John Berger. Thank you. All right, let's check on the markets. We are at new session lows. The S&P 500 now off almost 1%. New low for the week. We're back to levels on February 1st or so. The S&P down 9.10 to 1%.

The Nasdaq Composite now down 1%. Russell 2000 underperforming as well. Shares of Tesla, now they're up for the eighth straight session and have climbed in 14 of the last 15 trading days. Up next, details about the NTSB's review about a fatal crash that raised questions about Tesla's autopilot system. Welcome back to Closing Bell. Shares of Tesla are rallying today, off their highs but still up at a down market, adding to big gains on the year. The National Transportation Safety Board issuing a review of fatal 2021 crash, which had raised questions about Tesla's autopilot system. Phil LeBeau joins us now with the results of that. Hey, Phil.

Hey, Mike. I remember when this crash happened. It was in April of 2021, just outside of Houston. And the reason this got so much attention is because this was a Model S that had crashed at a high speed. And at the time, the police who responded at the scene said, look, there's nobody in the front seat. Immediately, people started thinking, well, were they trying to test out the autopilot system, et cetera? And that got the NTSB involved here. And today they ruled that the autopilot system was not the cause of the crash. In fact, it wasn't engaged at the time. There were other factors, including high speed, the condition of the driver. For NTSB chair Jennifer Homendy, the significance of this is she has long been critical of Tesla's marketing of

its full self-driving technology. Keep in mind, this was not an investigation of Tesla's full self-driving technology, but a lot of people have said, look, does Jennifer Hamidi have a problem with Tesla and its autopilot system? This investigation was just about this one crash, but it makes it very clear that in this case, when there was a lot of speculation, Mike, back at that time that perhaps the drivers had engaged autopilot. Nope, that was not the case here. So this clears one of those questions that had been out there, although I think for a long time people sat there and said, look, it doesn't strike me as being an autopilot accident.

Now it's officially been cleared by the NTSB. Remember, Mike, NTSB simply reviews accidents, makes recommendations. NHTSA, which is the government agency that regulates technology and vehicles, that's a completely separate entity, and they are investigating Tesla's autopilot system in a number of incidents. Yeah, and again, the marketing of that system, I guess, also in the question, Phil. Thanks a lot. I appreciate it. Talk to you soon.

J.P. Morgan CEO Jamie Dimon warning it is too early to declare victory against inflation. Up next, the top economist tells us whether he agrees with Dimon's assessment. Indexes sliding to session lows. You see the Dow down 328, almost 1 percent. The S&P 500 is now down more than 1%. Also, the lows for the week going back to levels seen last week, right before Jay Powell spoke and helped the market rally for a time. In today's big picture, is it too early to declare victory against inflation? Well, Jamie Dimon certainly thinks so, telling Reuters as much in a new interview and saying the Fed could raise rates above 5 percent and keep them there for some time. The comment from the J.P. Morgan

CEO comes less than a week before we get January CPI numbers. But a couple of data points are giving us a sneak peek about what to expect in certain areas in coming weeks and months. Orange juice futures hitting all time highs today of two hundred 265 cents per pound, 265 per pound. Futures are up nearly 84 percent from a year ago. Orange groves in Florida are still recovering from Hurricane Ian. The Department of Agriculture predicts the state's crops will plunge 56 percent this season because of the damage. But some relief may come for consumers. Pepsi saying today it is not planning to raise prices again this year for its sodas and snacks.

Another bright spot, wholesale egg prices, which had been soaring, of course. They've now fallen more than 50 percent from the December highs, according to data from market research firm Earner Barry. Our next guest, though, says it could be energy prices, not really the swings in food. That could be the wild card in next week's headline CPI number. Joining us now is Michael Gapin, head of U.S. economics at Bank of America Global Research. Michael, good to see you. Thanks for having me on. So you fine-tuned your forecast for CPI next week. We have seen an uptick in month-over-month energy prices. How is that going to feed through to the final numbers? Yeah, that's exactly right.

We project energy within CPI will be up 2% on the month in January. That's largely a response to the upward move in gasoline prices. We think that means the headline rate of CPI will rise four-tenths of a percent on the month or 6.1 year-on-year. So that would be an acceleration in the month-on-month pace, but certainly another decline in the year-on-year pace. But we do think energy will add to a fairly solid inflation report in January.

And so where do you come down on the question of whether we really do have downside momentum in inflation? In other words, can we start to project ahead in coming months that it's going to be somewhere close or, you know, within range of, say, the Fed's target area? Or is it going to get sticky at some point? We're of the view, certainly, that we've passed the peak in inflation and year on year rates of headline are likely to continue to move lower. But we would suggest caution in terms of saying the battle is won, because right now, most of the disinflation, it's narrowly driven. It's almost all coming from goods like new cars and used cars and household appliances and so forth that has not yet reached services. So you need a broader base slowing in inflation to make us comfortable that inflation will be more, say, consistently back to 2 percent. And services historically is sticky. So I think it's too early to say we're out of the woods,

but we're moving in the right direction. Right. And of course, Fed Chair Powell has been pointing to, I guess, services X shelter, because we know that there's a big lags in the in the shelter readings. I guess the question is whether, you know, the job market really has to weaken up very much or you have to have wage growth really come down a lot more beyond what already has happened in order to be confident that services inflation is going to calm down as well. That seems to be, you know, the big question that the market was recently feeling better about that maybe the Fed didn't feel like they had to get unemployment much higher. But now I suppose it's still a question. That's right. It is an open question. We come down on

the side of thinking we probably do need some softness in labor market conditions in order to get the Fed fully comfortable that inflation will return to 2 percent. But you're right. It's an open question. The labor market is extraordinarily strong. We added four point eight million jobs last year. The unemployment rate is at five decade lows. So that certainly is contributing to the high rates of inflation we're seeing currently. And then, you know, the folks who are very confident that a recession waits for us somewhere in the next several months, keep pointing to these indicators that have rarely failed, right? The leading economic indicators, the ISM, the yield curve, all that taken together, does it tell the story that we're pretty much beyond the point of hoping to avert a recession? I don't think so. I mean, we are in the camp where we think it's more likely

than not we will see a slowdown in the economy, broadly consistent with a mild recession. That does kind of fit our view that to get inflation down to two, you need to remove some of the imbalances in the labor market. But I don't think it's a done deal. I would caution against over-reading one or two specific recession indicators and saying, oh, it's done. Household balance sheets are pretty strong. The labor market is strong. So there's momentum in the economy right now. Resilience is more the word than a slowdown. So I wouldn't get too far out in front of that right now. Yeah, somewhat reassuring. Yes, the balance sheet story for sure. Michael, good to talk to you. Thanks so much, Michael Gapin, B of A. Thank you.

Here's where things stand in the markets. You have the Dow down just under 300 points right now, firmed up just slightly. S&P off almost 1%. NASDAQ composite down 1.1 and the Russell down a percent and a half. The S&P 500 is up by roughly 7% so far this year, though. Coming up, Canterford Sterild's Eric Johnson makes the case for why this could just be another bear market rally. Let's check out today's stealth mover, BorgWarner. The stock is firing on all cylinders. The auto parts supplier is one of the top performers in the S&P 500 after beating earnings estimates and forecasting its EV business revenue will rev up by at least 72% this year, or about a billion and a half dollars, stock up 2.5%.

Disney shares are now in the red, despite beating earnings estimates and Nelson Peltz ending his proxy fight with the media giant. Up next, a top analyst on whether this pullback is a buying opportunity. That story, plus more AI fallout for Alphabet and what to expect from PayPal's earnings when we take you inside the Market Zone. We are now in the closing bell Market Zone. Canterford Sherald's Eric Johnston is here to break down these crucial moments of the trading day. Plus, Rosenblatt's Barton Crockett on Disney and Kate Rooney on PayPal. Let's first dig into today's market moves. Got the S&P down almost 1%.

Eric, you've not been a believer in this rally for a while now. You have had some other skeptics have been kind of won over by some of the characteristics of this year's rally, such as the breadth of the market, the fact that we have this positive midterm election cycle. We're sort of shaking off some Fed speak in a way we hadn't last year. Why do you still believe we are headed perhaps to new lows? So our conviction is extremely high right now. And some of the sentiment positioning factors that are going on right now are actually at a very important inflection point. So over the past five weeks, we've seen a massive change in the positioning dynamic from institutions. CTAs are now max long

in the 95th percentile. Hedge funds have covered a significant amount of shorts over the last five weeks, bringing their net exposure up. And mutual funds have reduced their cash levels. And while that's happened, sentiment has also significantly improved. The bull bear index is at a 14-month high. And overall, people are talking about a soft landing becoming much more likely based on the payroll report. And so now you have these dynamics where positioning is such that when we move lower, there is now going to be a lot more supply that is going to need to come to the market. And we think that's going to happen because the fundamental backdrop in some ways is the same and in some ways has gotten worse. In what sense has the fundamental backdrop gotten worse if, in fact, there are some clues that there's a little more resilience in the underlying economy

than we might have thought? Sure. So if you look at where we are today, for example, versus where we were on October 12th of 22, when the S&P was at 35.77, the lows, the two-year yield at the time was 2.29%. It's now 2.5%. The peak Fed funds rate at the time was expected to be 4.66%. It's now predicted to be 5.15%. The Fed balance sheet is $300 billion smaller than it was then. And the earnings estimates then were $235 for the S&P. They're now 221 and continuing to fall. And we don't see, you know, the payroll report is giving people a lot of hope. The labor market right now is very strong, okay? But that's not a predictor around what the labor market's going to look like in three, six or nine months. We are at the peak of the cycle, right? By definition,

with an unemployment rate where we are at the full labor force, that is the peak of the cycle. And as we know, before every recession, as an example, the year 2000, March of 2000, payrolls were 473,000. That was a three-year high, and the unemployment rate was at a 30-year low. So everything feels good from a labor perspective before a recession. But all these other indicators, whether it be rates, leading economic indicators, the yield curve, all suggest that that is going to change going forward, looking at the future. That is true, although the S&P was at a peak when jobs were peaking in March of 2000,

we did get a 25 percent drop. We'll see. Unfortunately, Eric, we've got to leave it there. But I appreciate you coming on to freshen up your view today. Absolutely. Thanks, Mike. All right. Let's get another check on Disney turning negative on the day. Better than expected earnings, restructuring plans and an abandoned activist push from Nelson Peltz had pushed the stock higher earlier in the day. Reinstated CEO Bob Iger discussed with CNBC earlier the recovery from the pandemic and potential plans for a dividend. We're still recovering from that and we're still obviously losing money on streaming. And obviously that's one of the reasons why we have to turn that around.

But as we said on the call yesterday, we're going to get to a point where we're going to recommend to the board a dividend at the end of the year. That suggests some confidence in our cash flow directory and how we not only generate capital but how we allocate capital. Barton Crockett of Rosenblatt Securities just upped his price target on Disney to 129 from 120 and reiterated a buy rating. He joins us now. Barton, I guess, first off, your read on the market action today, is there a rethink of the reorganization of the strategy that was laid out by Bob Iger? Or do you feel as if, you know, stocks just up a lot, you know, in the past couple of

months and it's given some back? Well, I think there's part of that. I don't know if there's people who follow on with Nelson Peltz when he's moving in. And then now that he's no longer an activist, maybe some people are selling around that. You know, that would be speculation. You know, I do think that your previous guest was saying there is a lot of kind of concern, I think, broadly around the market. So, you know, I think the market's not helping Disney here either. And then when it comes to Disney specifically and the plans that were laid out, the magnitude of cost savings that are going to be targeted and things like that. Where does that get you? I mean, 129 as an upside target certainly is well below where this thing traded the past couple of years. Do you feel there's some valuation

headwinds at this point? Well, I think that you're just taking this company and rebuilding it from the ground up. So the good thing about Disney relative to the other media conglomerates is that they have theme parks and their theme parks are huge contributor, doing great. That's something they have that the other media companies don't. They are like the other media companies going through this process of acceptance of pay TV as a business that's in decline and perpetuity and hopefulness that the direct to consumer streaming can offset that. That's going to be a tough road. You know, I think that what we see here is that the cost cuts are necessary to rebalance those two.

I think they can pull it off. But, you know, there's clearly going to be a lot of wood to chop to right balance the expenses relative to the normalized revenues. And it's a business that's in transition. So I think there's some question about where it settles out. So I think it'll work, but I don't want to get over my skis. And on the streaming side of things, is there risk in terms of cutting content spend too much? I know everybody in the industry pretty much is trying to cut back, but I just wonder if we know the right level or the sufficient level to keep subscribership strong. Look, no doubt they have some numbers that will tell them that their franchises work. And if they lean in on those and cut back on some of the less franchise kind

of general entertainment, that, you know, that there's a decent trade in terms of engagement. Do we know exactly how much you need to spend to be competitive? No. Is this a great setup for Netflix with all the competitors pulling back? Yes. But you need the right size. This is the moment where we need to grow up. We need to make money in these businesses.

So what Disney is doing is the right decision. And we're going to have to count on them to manage the revenue and the expenses to an equilibrium that makes sense. And, you know, and I'm glad they're moving in that direction now with the cost cuts. Yeah. As they also cease disclosing subscribership trends, maybe that's going to take a little bit of the pressure off on that front. Barton, thanks a lot. Thanks for checking in on Disney today. Well, Alphabet selling off for a second straight day in response to its artificial intelligence chatbot making an error during an event on Wednesday. Google's Bard was championed as competition to Microsoft's own push into the AI space. Deirdre Bosa joins us with what's happening here.

And, you know, clearly there was disappointment about the performance of that example of what the AI search could do. But to me, there's also tremendous amount of renewed focus on the vulnerability of Google search margins with the aggressiveness that Microsoft is showing right now. And a vulnerability that investors for a long time didn't even think was there. I mean, that demo factual error was just one part of a very messy rollout that made it look like Google, which is supposed to be an AI-first company, is reactive and rushed. There was the AI event in Paris where Bard made up such a small part of it. And the day before, we heard so much enthusiasm from Satya Nadella, the Microsoft CEO. Sundar Pichai, we didn't actually hear from him in Paris. So a lot of this is making

investors question who is going to lead this next leg. I mean, we've certainly been here before in terms of threats to Google search, maybe not as existential, but back in 2010, Bing and Facebook, they were going to partner to take down Google. That didn't materialize. The question is, I guess, is more at stake here? Is this the biggest platform shift since the iPhone, since Google search itself? That's what's playing out in markets right now. And investors think that Alphabet is vulnerable. They certainly do. It's well over $100, $150 billion in market cap in a couple of days. Very dramatic rethinking of that business, thank you so much. Well, PayPal is one of the big names set to report earnings after the bell. Kate

Rooney looks at the key number to watch for. Hey, Kate. Hey, Mike. So PayPal investors really want to hear how this company is navigating a more challenging macro environment. Payment volume is key. Total payment volume is expected to come in around three hundred and sixty billion dollars. Watch for any commentary around competition and user growth. There's really been fears around Apple pay, for example, eating into Venmo's market share. Cost-cutting measures will also be a big focus of the analyst call. PayPal announced last week that it was cutting about 7% of its workforce. Finally, strength of the consumer.

CEO Dan Shulman talked about people pulling back on discretionary spending in the last quarter, and PayPal could really be another window into the health of the consumer right now. Back to you, Mike. I'm sure it will be, Kate. We'll talk to you very soon, as soon as those numbers come out. The markets right now set up for a down close of the S&P 500, a bit up off the lows, down about nine-tenths of one percent. It is below that 4,100 mark. Market breadth has been pretty negative all day.

It's about three to one declining versus advancing volume. You have seen a turnabout in the Nasdaq that was a point of strength. And now outside of Tesla, you have mostly profit taking in that index as well. You see it down about one percent on the day. We are still above where we traded early last week in the S&P 500. So we're still kind of hovering not too far below those recent highs. The VIX is above 20 again. And it seems as if investors are worrying if we've lost some upside momentum with this rally attempt, as well as bracing for that CPI release, which comes on Tuesday. That is going to do it for Closing Vow.