Closing Bell - Closing Bell: Stocks sink into the close, Elon Musk’s Twitter takeover offer, and Wells Fargo’s CFO on earnings 4/14/22

Episode Date: April 14, 2022

Stocks selling off into the close ahead of a 3-day holiday weekend with tech leading the decline. Twitter shares closing in the red despite initially popping following Elon Musk’s $54 per share takeover offer for the social media company. Box CEO Aaron Levie explains why he thinks that bid may be too cheap. Evercore ISI’s Mark Mahaney weighs in on where the stock will go from here. Wells Fargo one of the worst performing stocks in the S&P 500 because weaker than expected mortgage lending took a toll on quarterly revenue. CFO Mike Santomassimo discusses whether the bank’s mortgage business will continue to be hurt by rising interest rates and why he sees the consumer doing well despite inflation fears.

The Dow is slipping again and the NASDAQ is sinking to session lows on this final trading day of a shortened week. The most important hour of trading starts now. Welcome everyone to Closing Bell. I'm Sarah Eisen. Here's where we stand in the market right now. Pressure on big tech. That's the story today. Down 1.85% on the NASDAQ. It's those rising rates. We got a bit of a reprieve on yields in the last few days, but that's reversed. It's gone the other way higher and that is pressuring big tech.

All the big mega cap names are feeling it. Software, chips, you name it. Tesla also not helping. It's lower on that Elon Musk bid for Twitter. The S&P 500 down 1%, masking some strength in groups like utilities and energy, staples and industrials. Take a look at the names dragging most on the NASDAQ 100 right now. Apple, Microsoft, Tesla, Amazon and Nvidia. That's what's pressuring the major average as well.

The S&P again down 0.9 percent. Coming up this hour, we will talk to the CFO of Wells Fargo among the worst performers right now in the financials after the company posted a mixed quarter before the bell. Plus, Fox CEO Aaron Levy on his stock's strong performance of late. Plus, details on a new hybrid work tool. And of course, his first take on Elon Musk's bid to buy Twitter. He is among the more active tweeting CEOs. Let's get to the top story of the day. And that is the big new chapter in the Musk Twitter saga. Elon Musk officially making a bid to buy Twitter for $43 billion. The stock initially popped on the news has since turned lower. It's down about 2%. Just moments ago, Musk did make his first public comments

during an interview at the TED 2022 conference. Listen. I do think this will be somewhat painful, and I'm not sure that I will actually be able to acquire it. And I should also say the intent is to retain as many shareholders as is allowed by the law in a private company, which I think is around 2,000 or so. So it's definitely not from the standpoint of letting me figure out how to monopolize or maximize my ownership of Twitter. Joining us now, Mark Mahaney from Evercore ISI, CNBC Senior Markets Commentator Mike Santoli, CNBC's Julia Boorstin. Julia, since this news broke this morning, there have been a cascade of events, including a major shareholder, Prince Ali, saying he's against it. Elon Musk speaking at this TED 2022 conference. Just bring us up to speed on where we stand right now and what we've learned this afternoon.

Well, it has been a cascade of news, Sarah. That's a good way to put it. And there's also been a cascade of analyst reports weighing in, many of them very skeptical and many of them saying that this saga is far from over. So the latest thing that just happened is that Elon Musk spoke at the TED 2022 conference in an interview with Chris Anderson, and he explained his interest in buying Twitter and taking it private, saying it's really about his interest in preserving this global town square as a destination for free speech, wanting to really preserve that for democracy, saying that even though it was going to be painful, that this was a very important cause that he wants to support. Now, there's been a lot of talk about the fact that Musk has spoken publicly and tweeted

about his criticism of the ad-supported model. And so there's been this question about whether or not he would be underselling the potential for Twitter. And if he were to find a financial partner, who that might be, if he's more interested in having a subscription business, which would presumably have many fewer users than an ad-supported business here. So still a lot of questions about what exactly this looks like, if he would find a financial partner, and what the next steps are. But there's also been some news out about the board talking about a poison pill, and also this meeting that the company is going to be having with employees. That's expected to be at 5 p.m. Eastern, 2 p.m. Pacific today.

All right. Thank you for bringing us up to speed, Mike. Bored considering a poison pill, according to the Journal. Explain what that means and how unusual this is as far as your coverage of big M&A in the past. Well, when you get an unsolicited offer like this, one where it's not really at a premium to where the stock has traded within the last year, keep that in mind. It's one of the tools that a board will often reach for if they feel as if the potential owner or bidder is also going to keep acquiring shares to try and pressure their deal. What it means is if the bidder does keep acquiring shares, it essentially triggers a huge rush of new share issuance that would dilute the new holder.

In other words, it makes it practically impossible to acquire a much larger stake. That's one. I think it's an easy no for the board on the outset just because of the price. Well, the market is telling you it's a no. Exactly. You don't have really secure financing in this case. Interesting, too, in the TED interview, Musk said he's not interested in the economics. He's not interested in turning a financial return on this. That makes it really hard to go get a financial partner or go get a bank,

because this is not a financeable company in a large way at the current valuation that he's proposing. Maybe, but Elon Musk plays by different rules. Mark Mahaney, I've counted four analysts, your colleagues or competitors, that have downgraded Twitter stock today, largely on this idea that Twitter's going to say no, Musk is going to sell his shares, and then the fundamentals come into play, and they're not looking that great with all the macro headwinds around the advertising business. What's your take? I think you just nailed it, Sarah.

I think that's exactly my take, and I think that's the market's take here, too. This looks like a public good initiative, not a public markets initiative. In other words, out of total respect for Elon Musk, it seems like what he wants to do is run it as an absolutist free speech platform. He's on the side of the angels in my book on that, but the devil's in the details if I didn't screw up that analogy. And for shareholders, what are the ideas that are going to expand the value, the cash flow of this business? A subscription model, we've done a lot of survey work on this. I think about 10% maybe of Twitter users have really won a subscription business. And you run the numbers on that. You're talking about half a billion in revenue versus the

three to four billion in revenue that they're doing through advertising. So, look, the advertising model works. There's a lot of changes that need to be done to improve Twitter, to create more value there. I haven't heard it yet from Musk as to what those changes are. Have you heard it from current management, Mark? Because this doesn't exactly, this whole thing, cast them in a very good light. No, it doesn't. It doesn't.

So, in all fairness, you know, you do have a new CEO. I don't think he's yet, and I'll give him six months to come out with what his new strategy is. The company did take the first step in that process in acknowledging that they have a problem, that they have not been quick enough at product development, both on the user side and on the advertiser side. So that's where I think the innovation has to go. And I think it has to speed up. They need to be able to better tap into the fastest growing element of internet advertising, which is performance marketing dollars. Twitter has been a brand advertising medium,

not a performance marketing medium. If you want to grow faster Twitter, you got to develop performance marketing tools and they haven't done it well enough yet. That's what they need to do. So this is right now a sideshow for what I think the real fundamental changes that need to happen at Twitter should be. What is the stock worth to you quickly? It's at 45 bucks right now a sideshow for what I think the real fundamental changes that need to happen at Twitter should be.

What is the stock worth to you? Quickly. It's at forty five bucks right now. Oh, you know, this the pitch, by the way, that that Musk is giving that fifty four bucks or something with the pot number in there, the fifty four twenty, the four twenty crowd. Four twenty. That number is. Yes, yes, yes, yes. That's one of my San Rafael neighbors here. That's where it comes from. That's like six to seven times EV to sales or price to sales. That's the average of the multiple over the last three years. So if you're a shareholder, it's like, well, where's my big premium? Where's my big bid?

I think that's part of the problem a little bit with the Musk offer. In all respect, I think that's part of the problem with the offer. Mike? You know, he almost did just tweet. He replied to his earlier tweet. He reiterated what he said at the time, which says we'll endeavor to keep as many shareholders in privatized Twitter as allowed by law. If you remember back when he was talking about taking Tesla public, he had this idea, too, that public shareholders maybe could roll their stake into the private entity. This is very cumbersome. It's not

the typical way. It would be a way to reduce the dollar amount he'd have to shell out. But again, if the economics aren't really there and he doesn't really have a way to juice the revenue model. Well, he'd have to sell Tesla stock, right? Well, to buy it, yes. But I'm saying if you're going to say, fine, I'll roll my shares instead of taking your $54, I'll continue to own the private company, you want to have some means of getting a return on that as opposed to just participating in the creation of whatever this idealized platform he has in mind. Market not buying it. Down 2% of the stock. To be continued. Mark, Julia, Mike, thank you all very much. Have a good weekend. Thanks, Sarah. Shares of Wells Fargo down more than 4%, by far the worst performer among the big banks that reported earnings this morning.

We'll talk to the company's CFO about the results and his read on the consumer next. You're watching Closing Bell on CNBC. Dow's down about 29 points. Take a look at shares of Wells Fargo sinking today. After the bank reported lower than expected revenue amid a drop in mortgage lending, earnings did beat expectations as it decreased its credit reserves. Joining us now in a first on CNBC interview, Wells Fargo CFO Mike Santamasimo. It's great to have you back on, Mike. Nice to see you.

Hey, Sarah. Thanks for having me. As for the share price reaction, it seems like Wall Street wasn't that thrilled with the quality of the beat? The fact that it was reserve release related, revenues were lower, the drop in fees, the increase in expenses. What happened there? Well, I think we're continuing to see some good things, you know, in there as well. You know, as both the consumer and our corporate clients continue to, you know, have really high levels of liquidity. You know, people are out spending.

We're seeing that in the results. None of the risks that we're seeing from inflation and other factors are driving any risks from a credit perspective yet. And you also saw us continue to focus on our own priorities that we've seen. We've distributed more capital back to shareholders. We're making progress on our efficiency initiatives. And we're also continuing to launch new products and innovate. We launched our new mobile app in the quarter.

We launched a new credit card that gives renters the ability to earn rewards for paying rent. And so there's actually, you know, a lot of good progress that you saw in the results as well. And there were high expectations as the stock has been an outperformer among the financials. So Mike, expenses seems to be the issue and one of the big focus areas, especially for a restructuring story like yours. They went up, but you did tell Wall Street that they can remain flat for 2022. How much confidence do you have and how are you going to do that? Yeah, we feel really good about the efficiency plan that we put in place a little over a year ago.

We're continuing to execute on that. And although we had slightly higher expenses in the quarter, we still feel really good about the ability to continue to do that for the full year. And this is going to continue to be a multi-year journey as we build more of the efficiency initiatives into our plan. And it's really starting, it's not only about saving money, it's actually about improving customer service. So when we do this, you get faster turnaround times, better capabilities for clients,

better products for clients. And so there really is a win-win for everybody as we continue to drive the efficiencies. And we're confident we're gonna be able to keep doing it. On the fee side, the big pain point for the consumer was mortgage banking, which I think deteriorated almost 50 percent quarter over quarter. What is ahead for your housing business as mortgage rates continue to climb as the Fed raises rates? Well, you know, in the quarter, we saw, I think, the largest increase in mortgage

rates, if not ever, certainly in a very, very long time. And that's going to have an impact on mortgage volumes, particularly in the refinance market. And you're starting to see that come through, not only our volumes, but also the industry volumes. So we would expect that to have a negative impact, at least as we go into the second quarter. But there are still some bright spots in terms of the purchase market where we still expect that there's going to be some growth there this year as there's still a strong demand for new homes.

You see that holding up, even with these higher mortgage rates? Well, it's certainly gotten more expensive as rates have gone up, but there still appears to be a healthy appetite for new housing out there across the country. So we'll see how that develops over the rest of the year. Aside from mortgages, you are a big net beneficiary of the rising interest rates, of course, that helps lending profitability. What is your expectation on that front now that the market's pricing in eight or nine rate hikes this year? What that's going to do to your earnings? Yeah, what's clear, right, is the expectations have certainly changed

a lot over the last couple months. And, you know, exactly how many rate rises we'll see and at what pace, you know, we'll see that, you know, together over the coming months. But what's clear is we're really well positioned in this environment to benefit from that. And, you know, hopefully, you know, what it'll do is continue to, you know, help tame inflation over the coming quarters. And we'll see how it progresses. But we're certainly going to be a beneficiary from rates. Now, that'll also have some impact on other factors that could impact our fee lines. But hopefully we'll see that sort of progress over the rest of the year. Yeah, talk to us a little bit about that.

How do you see it impacting the consumer, which I think, as you said this morning, is in very good shape. You saw credit card spending rise, loans are up. What is going to happen to the consumer later this year and into next? Well, I think people are starting to feel the impact of inflation. You're seeing these inflation prints come through over the last couple quarters. But so far, the good news is it hasn't really translated into real stress from a credit perspective, given the high levels of liquidity that are there.

And so, so far, we're seeing the consumer actually do quite well. You saw a little wage growth as well over the last couple of quarters that's helped. But I think we'll see how it progresses. We would certainly expect at some point, you know, our charge-offs to go up and maybe normalize a little bit more. But so far, so good in terms of the performance we've seen, both in the consumer side and the corporate side. Are you preparing at all for a recession? Well, you know, I think, you know, the actions that the feds taking will certainly have an impact on growth you know whether that translates into recession we'll see but we're certainly well positioned from you know from a credit perspective as well

as a balance sheet you know to to deal with whatever comes over the over the coming quarters and we're keeping a really close eye on it to make sure we understand how to best be there to support clients. But you're seeing not only the consumer spending that you talked about, but we're also seeing loan growth across consumers. We're seeing it in the corporate space and our commercial banking space as well. So there's still a pretty healthy amount of activity in the economy right now that I think should at least bode well for the next couple quarters.

And Mike, I also wanted to ask you about the hit to capital. It's still in excess, but it's certainly not as much of a cushion for higher buybacks in the future. What can you tell us about that? Yeah, well, we certainly saw the impact of higher rates impact capital really across the industry. But, you know, for us, you know, we come into this position with a really strong balance sheet, really strong capital position. And so we feel like we'll be able to continue to not only, you know, be there to support clients, but, you know, to distribute capital back to shareholders over the coming quarters. And again, as you mentioned, we'll be a real net beneficiary of an environment like this.

And so the earnings generation of the company should pick up over the coming quarters too. Stock's down about 4.7%, but as I mentioned, had been an outperformer this year. Mike, thank you for your time today. Mike Santomasimo, CFO of Wells Fargo. Give you a check of where we are in the markets. Dow's gone positive again.

It's sort of been back and forth around the flat line this hour. It's up 13 points. It's the Nasdaq that's underperforming, one and three quarters percent decline. Takes the losses for the week to more than two percent, second week in a row of weakness. The Russell 2000 index of small caps also getting hit hard today, down three quarters of one percent. Strength in energy utilities and staples, but the weakness in tech and consumer and financials is hurting. After the break, what do chips, transports, and banks, speaking of, all have in common? Mike Santoli will tell us in his dashboard. And then later, Box CEO Aaron Levy tweeting his take on Elon Musk's bid for Twitter, of course, writing, I mean, who hasn't worked multiple jobs just to save up enough money so they could splurge on their favorite app?

We'll talk to Levy about Musk's offer, plus Box's own product news this week. Closing bell back in a moment. The Dow is pacing for its third straight week of losses. It is currently higher by about 19 points. Let's go back to Mike Santoli, who's taking a closer look right now at bellwether groups, Mike, especially the cyclicals. Exactly. Cyclical bellwethers, also risk appetite gauges. This would be semis, transports, as well as banks. Over the last 12 months, boy, it's really been about one trade, all of them down about 5%. Remember one year ago, in March and into April of last year, we actually had the end of a real reopening cyclical boom-type trade.

And we've come off that. Just for comparison's sake, the S&P 500 itself is up more than 6% over these 12 months. So the outperformance of the market versus these groups is pretty dramatic, more than 11% right now. Question is, are they maybe tentatively bottoming? I mean, they're not plunging to new lows. If you look at something like the transports, you know, they've kind of held that general area here. Airlines have acted better. It's a little bit of a dicey proposition. They clearly are not really the leadership of this market.

But this is where you'd want to look, Sarah, if, in fact, we come to some kind of collective conclusion that the recession alarms have sounded a little premature. What's interesting here is that they're all moving so closely together because you would think that the banks get a little bit of the benefit of the doubt with the higher rates. I mean, there are different factors at work. The airlines and the transports are getting a ton of demand right now. Well, let's look at where banks in the orange were right at the beginning of the year. They were getting the benefit of rates for a while. And then the rate move kind of tipped over into maybe it's going to be accompanied by problems on growth. As we just heard from Wells Fargo CFO Mike, thank you. We'll see you in the market zone. Up next, Vox CEO Aaron Levy reacts to Elon Musk's offer to buy Twitter, plus how his

company is trying to cash in on the future of hybrid work. Dow is up 12 points. Nasdaq still sharply lower, down almost 2 percent. We'll be right back. Software company Box announcing a new collaboration tool for its customers this week. It's called Canvas. It's a way to allow hybrid work teams to collaborate from anywhere. The product will be rolled out later this year. Box shares are a little bit lower today, but they've had a strong run lately, up more than 20% in the past month. Joining us now to discuss is Box CEO Aaron Levy. Aaron, thanks for joining me. Obviously,

we'll get to the prize announcement, but because of the news of the day, and I know you're following it very carefully on Twitter, where it is unfolding about Twitter, the Elon Musk bid. Do you think this company should take the deal? You're an avid tweeter. This is just my luck. I wanted to talk about Canvas, but Elon had to go blow that up with an SEC filing. So Elon Musk is obviously one of the top entrepreneurs of all time, one of the greatest innovators of all time. I do believe that $54 a share is probably too cheap for Twitter. His particular take seems to be one about free speech and censorship online, but that does not necessarily mean

that that is the best path for monetization and building durable value at Twitter. And so I think the comparison would be alternative paths that would actually generate more value for the company over the near and long run. So that will be the question for the Twitter board, but it's certainly a lot of chaotic energy going on in the Internet right now. And it's good just to be on the sidelines of that one.

Well, and the markets as well. So you mentioned the free speech aspect, which is sort of interesting that that's what he wants. As someone very familiar with this product and with clear views about its value. Do you think Twitter should restrict speech or hate speech less and some of the other areas where they've had to crack down, especially in this kind of regulatory environment? This is an incredibly tricky topic, and it's one reason why very few people probably want to run social media companies these days. These are challenging decisions that I don't believe that there's a very clear answer for. What you do want is being able to build safe platforms where people feel like they can

communicate and not be harassed and that there's no threats of violence and other types of issues. And at the same time, people want to be able to freely share their thoughts on different topics going on. And that's always an important balance to find when you're when you're running one of these social media platforms and it's not not clear to me that that you know there's a much better way to do it than than some of what we've seen from youtube and facebook and twitter um but uh you know we'll see how this plays out there's another angle that i just wanted to ask you about and that is during your proxy fight with starboard when you were defending your company and ultimately prevailed you had kkr come in with with some financing and advisory work to help defend the company. They've got Silver Lake on their board, Twitter that is. Is that something that you could see

happening here, either through advisory or financing work, help that company defend itself against Musk? You know, the Musk situation is probably so unprecedented just in the sense of the type of takeover approach. It's not it's not clear that this is sort of exactly like an activist coming in as much as a sort of a one time offer for the company. And and obviously, Twitter will have to make the case for why they have a better path, more than $54 a share. But whether that requires another bidder or another investor to come in and make that case for them, very hard to imagine. But I'm sure there's going to be a lot of great meetings with investment bankers and law firms. Oh, yeah, a lot of busy ones. OK, Aaron, let's get to the news of the day, and that is Box Canvas.

Yes, that is what everybody is talking about online. So you've got this new tool that you say that your clients demand to help promote hybrid work. My basic question is, how is it different and how is what you're doing and offering different than some of the bigger competitors like a Microsoft or a Google? Yeah, so it's extremely different. So what we do is we focus entirely

on the life cycle around content. And that could be the storage, the sharing, the security, the classification, the threat detection, the workflow automation, the data governance. So that's the platform we've built out. And increasingly, we want to introduce new and improved ways of working with your content. Things like e-signature that we launched last year, where BoxSign is now fully baked into our platform and can offer complete e-signature capabilities built on Box. Similarly, with Box Canvas, we offer a new way to be able to collaborate in a virtual whiteboard or visual collaboration interface, where all of that data goes back into Box, where it's secured and protected for our enterprise customers. And so Box has over

100,000 customers all around the world. They're using us today to be able to securely manage their content. And we're going to be introducing more and more capabilities that really creates the best platform to work with your content and collaborate with anyone all around the world. And that's the real vision that we have. And then we'll integrate with all of the other software that our customers are using, whether that's Microsoft Teams or Slack or WebEx or Zoom or Salesforce or IBM technology, any other tools that our customers are working with, we want to ensure we are embedded deeply into. Well, so clear. You've turned this business around, Aaron, that the stock has been, it's up 18% this year when the NASDAQ is down 14% on the year. Unlike unlikely safe haven, I would say, in the software storm.

What are you telling investors about how much more upside there is in client acquisitions, in revenue per seat, and the growth that you have in front of you? Yeah, so we just had an analyst day a couple of weeks ago. three year model- taking box to fifteen to seventeen percent annual growth- in that three year- I at the three year point. And I improve our operating margins- to the sort of mid to high twenties- from operating margin standpoint so I think- we've been able to

introduce a model which- is able to drive consistent. And increase growth rates as well as consistent and increased operating profits on which we think is a very durable model particularly in this- climate from a stock market standpoint

in a macro standpoint but we think it's a model that will be durable. Over the long run as well and so we're really excited about that we still believe there's significant upside in the business- we just announced a- share repurchase

of up to one hundred and fifty nine. A million dollars in additional share repurchase. And- and so that i think you know certainly certainly speaks to the confidence we have in the in the share price going forward aaron levy aaron thank you very much and thanks for bearing with the whoop whoops which happened at 3 33 on a friday before a three-day weekend here on the floor of the new york stock exchange always fun aaron levy of box here's where we stand in the markets right now. The Dow is down, again, 54 points.

The S&P 500, down about a percent. That's pretty much where we've been holding throughout the session. Strength in energy and utilities, staples and industrials, weakness in tech and communication services, financials and consumer. Semiconductor stocks, a big factor in the sell-off today as well. Within technology, why the chips continue to get clobbered. Later on Closing Bell. S&P down a percent.

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 as always. Plus, our Leslie Picker on the big day for bank earnings. And Citi's Scott Cronert on today's market action and some new sentiment data. The major averages trading lower right now and for the week. The Nasdaq's down about 2% today and the Dow is on track for its third straight week of losses. Mike, if you look at today's performance, especially

the pain on tech, and that's really been the theme of the week, you're going to hate this question. But do we need treasury yields to stabilize for the market to go higher? Because they're going the other way today. And the last few days when they've come down, that's been a big support for the market. No, I don't hate the question. You do. You don't like the direct link. Well, I don't like the direct link as if that's the only determining factor. I mean, the valuation compression that we've seen in the NASDAQ obviously has something to do with yields going up, corporate yields going up. But we've traded at this level of the Nasdaq literally over the last year when yields were at right now 2.8, when they were at 1.8 and when they were 1.6. So obviously there are other things going on.

But I do agree to some degree with the premise that to the extent that long yields globally, by the way, today was a lot about the ECB and long yields in Europe going up and releasing U.S. yields higher. We're seeing a re-steepening of the yield curve. And that obviously means, you know, we're still on alert for the inflation trade. Nothing really was decided in stocks this week. But also the only positive is the absence of a breakdown. That's the way I would characterize it. Otherwise, it's been indecisive and one up day, one down day within a 2 percent range. Big down day for the euro, to your point.

On the ECB, President Lagarde not sounding very hawkish, not sounding like Powell when it comes to fighting inflation or talking about interest rate hikes. On track to end the bond buying program, but nothing really too surprising in the hawkish side. So it went the other way. Mike, what can we expect? Are we just going to continue to be at the mercy of Fed speak and macro reports to see whether inflation has peaked? You know, to a degree, obviously we will. It's going to get heavier on the earnings side going into next week. We're going to be free of the sort of, you know, tax deadline slash options expiration of today.

So maybe it's going to be a cleaner view. Huge drop in retail investor sentiment, at least by the AAI survey. I mean, almost fluky how low it is, like a 30-year low in bullishness. That, to me, at least insulates the market from something nasty and lasting on the downside. But yeah, I think it's corporate earnings. And we're still not at that point where we can, with any real conviction, say inflation has peaked and, therefore, the Fed can ease back slightly. Take a look at the financials among the worst-performing groups today. Four big banks reporting earnings. Wells Fargo beating profit estimates, but revenues came in light because of weaker-than-expected mortgage lending, among other things.

The stock, one of the worst performers in the S&P, actually, as a result. We just talked to the CFO about it. Meantime, Citigroup, Goldman Sachs and Morgan Stanley, all beating earnings expectations thanks to strong trading revenue amid all the market volatility. Leslie Picker joining us. And Leslie, if you take some of the threads from all the conference calls and all the bank earnings today, what were your big takeaways? Yeah, Sarah, with four banks reporting, I think we listened to about six hours worth of calls today. What were your big takeaways? Yeah, Sarah, with four banks reporting, I think we listened to about six hours worth of calls today. And there was a very key thread among all of the CEO commentary, which was we are concerned about the risks, the uncertainty that lie ahead. Goldman

Sachs' David Solomon highlighted, you know, seeing an increased risk of stagflation and mixed signals on consumer confidence. Wells Fargo's Charles Scharf noted that they will likely see an increase in credit losses from historic lows, of course, and they did say that they would be a net beneficiary as they benefit from rising rates. J.P. Morgan's Jamie Dimon, this was yesterday, but he mentioned that there's almost no chance you won't have volatile markets. Jane Frazier talked about how the macro outlook for the rest of the year can only be described as complex and uncertain. You pull all of those comments together, Sarah, and you really do have a concerned CEO group about what lies ahead.

And it's important because bank CEOs do have so many touch points within the economy that, you know, you have to listen when they sound the alarm. I'm curious your thoughts about Wells Fargo. And I don't know if you heard a conversation with the CFO just a few minutes ago. Jim Cramer suggests execution problems, the fact that they're not taking advantage more of their scale and lending more and that the misses came on things like fees and higher expenses. What is your take there? Because this one, there was a lot of hope as this was sort of seen as the value play in banking, the one with the restructuring turnaround story.

Yeah, no, I think part of it, too, is the fact that Wells Fargo was the one bank going into earnings today that was actually beating the S&P 500 and was actually positive for the year. Every other large bank that we track was in the red for the year. So investors were looking for any potential slip up from earnings. As you mentioned, the fact that fees were lower, expenses were higher. Of course, the mortgage market has been somewhat of a headwind for them as well as there are fewer originations. I think they were down about 33 percent with regard to mortgage originations, just based on the fact that mortgage rates have gone so high.

And Wells Fargo has the most exposure to that among the big banks that we follow. So, you know, part of it is just valuation. And then part of it was that investors, you know, were able to be a little bit pickier because the stock had run up so much. Leslie Picker, Leslie, thank you. One of the best performers,

in fact, the best performer right now in the Dow is Nike. Also one of the best in the in fact, the best performer right now in the Dow is Nike. Also one of the best in the S&P, rallying 5%, a slew of analysts. That was some positive notes following an event hosted by top Nike executives, including the CFO, Matt Friend. JP Morgan, Jefferies, and UBS all reiterating their buy ratings on the stock. The street loves this name. Highlighting optimism for Nike to deliver sequential improvement in China, especially, Mike, Matt Boss of JPM highlighting the China story. Despite the fact that we have

lockdowns, it's hard. You know, Nike gets hit when there are these macro concerns, and then you hear from the company, they heard from the CFO, and everything seems to be going just fine. Talked a lot about the brand heat in some of these new releases. How does Nike stock look overall for a brand that does have pricing power, but also gets whipsawed by the macro? Yeah, it's been a little bit in the penalty box. I think it's largely because it did have this amazing run. A lot of the elite global brands did through the pandemic. It's still, you know, 20-something percent off its high.

So it's been holding in this range. It first got to this price in late 2020, like, you know, around Thanksgiving of 2020. So it's really been long sideways. I do think, you know, it's going to trade at a premium. The question is how much of one. It's like 35 times forward earnings, well down from where it was at the peak. So I do think any relief on, as you say, the macro issues. It does tend to get penalized when those things are front and center. So hard to say that the stock really looks like it's about to take off, but

it's gone sideways for a good long time and digested that huge gain after 2020. It's just so hard to know what to do with some of these retail stocks. XRT actually had a pretty good week and has had a nice run, although well off its highs, because all you hear is the consumer's great. Even the banks say right now the consumer's in great shape. Credit card spending is up. Everything is up. But we're not so sure about the medium term and long term. And you just wonder how much of a cushion is out there in terms of the strong jobs market and the strong consumer to withstand some of these shocks we're dealing with. Yeah. And everyone seems also to be anticipating this. And maybe it's already very much underway. This transition away from goods

into services is a little more of limited ways to play that in the market. And that has been hanging over some of these areas, although I wouldn't say Nike is one of those companies where it's been, you know, the boom in durable goods demand is going to go away. It's much more steady and it's a perennial buy. It's not like Whirlpool, which has been a terrible stock because the appliance market looks like it's challenged. True. Let's hit the chips. Those stocks taking a hit again today. NVIDIA, Taiwan Semi, AMD among the biggest losers on the SOX Semiconductor Index right now. Taiwan Semi beat estimates, raised guidance. But earlier today on Squawk Box, Amazon CEO Andy Jassy warning that the global supply chain still faces major challenges. Listen.

There are certain items that are very difficult to get. You know, we all have a lot more chips for the things we do in AWS and our devices, even in our vehicles, we get a fair share of those. But still, it's not fast enough and it's not enough. And I think some of the issues happening right now in China where, you know, as there are variants and as they're being very conservative and locking down production, creates some issues and getting products as fast as we need. And it's still more expensive and more time consuming to get products into the country. Let's bring in Christina Partsenevelos. Christina, even though it is time consuming and costly, are companies doing enough to boost this

domestic chip supply? I guess it can't happen overnight. Yeah, it can't happen overnight. It usually takes one to three years for these foundries to be created here in the United States. You've got Intel, Taiwan, so many semiconductors that are doing so, but it's going to take some time, and the United States is already behind the curve. So to echo Jassy's point, yes, there needs to be a little bit more done. If we're talking about Taiwan semiconductors, another issue, too, is the equipment needed to build these foundries. The lead time could be, you know, well beyond a year, well beyond 12 months. They even said in their report today that they have issues with tool delivery so there's tool delivery problems that they've been

seen since the beginning of this year not just now so this is going to be an ongoing problem and they also warned too that inventory levels remain elevated why because people are stocking up just in case this chip shortage continues and this is not just about the actual chips and the wafers and everything that goes in it it It's also the equipment as well, that this continues well into 2023. And there's also the fight for market share and the competition. You've got some new data on who's ahead. Yeah, this is a Gartner. They just put this out today. Revenue for semiconductors jumped 26 percent in 2021. but Intel was dethroned. Intel was dethroned by Samsung Electronics.

Samsung is now number one. This is the first time Intel has been pushed off this list, well, pushed off, moved to second place since 2018. So you can see right there the top four, Micron number four. Christina, thank you. Christina Partsenevelos. Citigroup's Lefkowitz Index, named, of course, after the late Tobias Lefkowitz, dear friend, crossed into euphoria territory this week. Joining us more to talk about investor sentiment is Scott Kroener, U.S. equity strategist at Citi.

Scott, explain this. I thought all the sentiment readings were so down in the dumps. You're saying euphoria? Well, it's a good point. Yeah. Yeah. I mean, the index is comprised of roughly 10 inputs and they're moving in different directions. But I think versus the past week, we've seen a pickup in a couple of the inputs that have triggered the index back into modestly into euphoria territory after being in a more neutral range for the past month or so. And so, you know, we're keeping an eye on the various inputs, but the net effectiveness is to underscore some of the conversation in the last few minutes that, heck, market's been actually fairly resilient since the Fed's first rate hike a while back. And so we just need to be prepared for, you know, ongoing bouts of volatility in response to this.

Right. So your argument is and you're looking at it really near term, just in the last week, the resilience of the market is making people feel a little better about it. And therefore, that's a warning that there's more downside ahead. Is that the takeaway? Yeah. I mean, I'd say, look, we're still moderately positive for the rest of the year. We think we can get to 4,700 in the S&P, up 5 or 6 percent from here. I think earnings are going to be the driver of that. But along the way, we've got a lot of inputs that we need to factor in, both geopolitical, economic, and of course, you know, from a Fed monetary perspective. So I think this notion of volatility being with us for a while is, I think, probably the important take-home message here. And the

Levkovich index just gives us another way of reading this and preparing for it, particularly as we head further into the earnings reporting period. Losing a little steam here into the close, down 1.1 percent on the S&P. You had industrials turn red, so now it's just staples, utilities, and energy higher. Scott, have you changed your views at Citi about the sector performance and where you want to be in the market? More defensive, perhaps, less cyclical, given all the changes we've been going through? So what we've done is through a factor lens, we've really highlighted quality as the factor that we want to be attentive to. And essentially what this does is give us a means of navigating

sort of a mixed value versus growth circumstance. And what you get with quality are going to be those types of companies that presumably have more pricing power against inflationary backdrop. And we think that this is an appropriate approach for navigating this ongoing period of volatility as we're watching the extent to which the Fed goes down its more hawkish path. Mike, what do you make of the quality trade as sort of a related call to a defensive trade? Yeah, absolutely. Almost everything that you would look at in terms of, you know, where we are in this cycle on the later side, where we are in terms of the profit trajectory feeds into that idea. You want companies with better balance sheets, more resilient profit margins, things like that.

The bit of a trap, as we talked about earlier this week, is that a lot of the quality screens really surface a ton of NASDAQ, mega cap growth in tech stocks. So there's a way to, you know, obviously mitigate that. You could look in other sectors. You could basically look at things like shareholder return, you know, buy back and dividend strategies, which have done relatively well. So I guess you kind of have to settle on your definition of quality. But it generally does make sense and it has been working modestly.

What about that, Scott? And what about tech and its setup into earnings as we get sort of knee-deep going into next week? Yeah, well, I mean, so I guess what I would say on that, the Senate for Tech, obviously, we're of the view that as we go through the Q1 reporting period, you're going to see, generally speaking, a more normal positive surprise circumstance across the board. Obviously, what's going to come into question

are outlook commentaries from a variety of different sectors. When you look at tech specifically, yes, it does tend to carry a positive quality attribute to it. But what I would also point to is as we talk about this real rate discussion and we look at where the sensitivity to real rates is, just keep in mind that rising real rates is more of a headwind for growth, i.e. tech, than it is for value, i.e. other areas more defensive and economic sensitive to the market. So we have to keep an eye on this toggle between what fundamentals are telling us, the quality attributes, the way of navigating this. But at the same time, rate direction is going to have, and particularly real rate direction, is going to have a big impact on

how the near-term trading unfolds. Scott Cronert, thank you. Got to go into the close from Citigroup. As we deteriorate, Mike, here a little bit, NASDAQ now down well below 2%. What do you see in the internals? Yeah, and in fact, the downside in the indexes since about 2 o'clock has mostly been, again, about the NASDAQ and the big growth stocks. But it's pretty broad now. You see more than 2 to 1 declining to advancing volume. That was much closer to 50-50 in the morning. So definitely been some distribution here in this market around this 4,400 level of the S&P. That's around the floor you'd want to see hold to keep it out of that kind of sloppy zone near the lows.

Take a look at the equal weighted S&P against the market cap weighted version year to date. Still a lot of outperformance by the typical stock. You see almost four percentage points, three and a half percentage points of performance differential year to date from the equal weighted S&P. That shows you it's largely been the mega caps that have been the drag. It's been the opposite in a way of parts of the prior two years. The volatility index not doing a whole lot. We are ahead of a three day trading weekend that often saps the VIX. So we're down near 22, still not raising a whole

lot of sort of stress hormones in the market just yet, Sarah. Session lows, maybe some selling into that three-day weekend. Never know what the news is going to turn up over three days. Dow down about 100 points right now, 116. It's Microsoft, Salesforce, Home Depot, Apple, Disney, the growth trades that are weighing the most on the Dow. Caterpillar, Nike, American Express adding the most. As far as the S&P 500, you've got weakness there, too, thanks in part to technology, which is the worst-performing

sector, but communication services, consumer discretionary, financials, real estate, health care, materials, industrials, staples, utilities, all gone red. Energy is the only positive sector with a 2 percent gain in the price of oil. NASDAQ getting hit the hardest right now, down more than 2 percent. NASDAQ 100 on the week is down about 3%. So it was another brutal week for tech stocks, down 2% overall for the week on the S&P. Happy Passover. Happy Easter, everyone. That's going to do it for me on Closing Bell. Now I'll send it into overtime with Scott Wapner.