Closing Bell - Closing Bell: Stocks slide to end the quarter, Meta’s misery, Nike nosedives, Is a recession inevitable? 9/30/22

Episode Date: September 30, 2022

Stocks fell hard once again on Friday, with losses accelerating in the final minutes of trade to close out a brutal month and quarter for the bulls. Market experts Nancy Tengler and Scott Wren discuss ideas for the fourth quarter in this uncertain investing environment. The chair of the National Bureau of Economic Research, which is tasked with officially designating a recession, gives his view on the current state of the economy. Analyst Brian Nagel weighs in on Nike’s post-earnings nosedive. And with Meta shares down more than 50% on the year, a bull and a bear debate the company’s future prospects in light of a slew of headwinds.

Yep, thanks, Tyler and Contessa. Stocks are falling again on Wall Street as we wrap up a downbeat quarter and an awful month for the bulls. We're near session lows. The most important hour of trading starts now. Welcome to Closing Bell, everyone. I'm Sarah Eisen.

Take a look at where we stand right now in the market. We're down on the Dow 1.22%, about 350 points right now. S&P 500 is down a full percent. The only sector that is remaining higher at the moment is real estate. Everybody else is lower. Utilities and consumer staples are near the bottom of the market. A lot of staples. P&G, for instance. Mondelēz on the list of 52-week lows today. NASDAQ Composite down three quarters of 1%. For the week as a whole, we are down 2%. And take a look at the biggest decliners this quarter on the Dow, spanning a range of industries. It's been absolutely tough from Intel, Verizon, Nike, which is trading at the lowest

level today since April 2020, Walgreens and IBM. Double digit declines across the board in the last three months. Coming up on the show today, we will talk to John Lipsky, the chair of the National Bureau of Economic Research. That's the group that is tasked with officially designating a recession. Hasn't done so yet, as talk of a global economic slowdown does heat up. We'll see where he stands on that debate. We'll kick it off, though, with Nike. It's the story of the day. The stock is getting hammered, down more than 12.25%.

Some takeaways about what it says about the company and the broader economy. What is the problem here? It's excess inventory. Inventory was up 44% in the quarter, 65% in North America in September. Basically, product from Nike, sneakers, apparel, it's been flooding into the U.S. after having been stuck at sea or closed in Asian factories for months. It's an issue because Nike now has to mark down prices to unload all of it.

CFO Matthew Friend saying on the call last night, quote, we started to increase promotional activity in Q1 and expect the broader marketplace to be promotional. That means margins and profitability will continue to be under pressure. And margins were down more than 2 percent to 44 percent this quarter, worse than expected. And while CEO John Donahoe did say last night on the call, consumer connection is strong with Nike. The brand is doing very well. There's always a concern about

what liquidation or heavy markdowns do to a brand strength. On top of that, the strong dollar is shaving four billion dollars off sales this year, and China is still in rolling lockdowns and not growing. For Nike, the key will be, can they unload the inventories with markdowns and preserve the brand heat? And can they do it fast so that it won't keep weighing on profitability? As for what it says about the overall economy, not necessarily cause for concern about the consumer. That wasn't the problem here. There's even some good news. Promotions mean disinflation. Prices should come down in spots like apparel and sneakers. Inventory flooding means the supply chain is finally thawing. Two things we needed to see happen. The problem is it is taking a toll on corporate profits, slicing growth. And that

strong dollar certainly will hurt exports and earnings as well for the broader economy. Let's bring in Brian Nagel of Oppenheimer. Brian, really wanted to talk to you because you are a bull on this stock, was bullish going in and still bullish coming out. Why? Well, Diane, well, good afternoon, Sarah. So, look, I was listening to your opening there. And when I say this, I've been talking to our clients all day about Nike. So I want to make sure I'm clear. You know, there are risks. OK, there are problems out there. OK, but I really do believe against that backdrop that the market's got this one wrong. You know, Nike, yes, they're over inventory. But in my view, given the conversations we've had now for the last several quarters about the trouble getting product in, you know, this was Nike as well as many or most consumer companies out there.

This over inventory problem, there's a silver lining. What that means is the supply chain lows that have weighed upon the consumer landscape so dramatically are now abating. So, yes, they're going to clear product. They'll happen in this quarter, maybe the next couple of quarters. But in my mind, that is a short-term problem. And then behind all of this, and you said this in your opening, the company was very clear to say last night on their conference call that underlying demand in the United States and markets across the globe is very good.

You know, they're not seeing a demand problem here. They're not seeing the signs, what they would consider signs of recession. So I actually think, you know, while I want to be clear, there's risks out there. You know, we kind of have a question. But right now, I think I think this report from Nike was actually much more encouraging than the stock price would suggest. So you're telling your clients to go out and buy that you've got it on sale? Absolutely. I mean, this stock now is, frankly, a fraction of what it was. I think, you know, you and your colleagues pointed out that it's basically back to now the levels of the beginning of the pandemic.

It's trading one of its lowest multiples in years. I think Nike's cheap here. I mean, what you're getting is an absolutely, utterly powerful global brand that is now much more digitally driven than it's ever been. And what that means is they operate the business better. They connect better with consumers. The product innovation is phenomenal coming out of Nike. So I do think it may take some time, right? But I do think at some point we'll look back and say, this is a huge buying opportunity at Nike. So here's the push. Here's one area of pushback. Promotions can damage a brand, especially if we're talking about liquidation, which which is what it increasingly is looking like here with the amount of inventories that they have. So, yes, while they're not having a demand problem right now, there are questions about whether they can retain that in a very

promotional environment at a time where the consumer is slowing around the world as it's a very global company. Yeah, so look, Nike has to manage this correctly. Okay, that's a great point, and it's absolutely true. Now, when I was talking to the management team last night after their conference call, and the product coming in, the excess product is primarily apparel, and I think they're very thoughtful in thinking of how to properly discount this, you know, to keep it almost a segment within Nike so as not to disrupt the brand. Now, the other point they're making to me is, you know, I asked the question, why discount this? And why not just kind of let it work its way through? And what they want to do is get their merchandise mix set, clean, fresh for the important holiday season and then start 2023 fresh. So

in a way that, again, these price promotions, I think, will be short term in nature and then will give way to a much better looking product mix from Nike. So my other question, and it has to do with some of the bearish threads out there today and frankly, in the last few weeks, are there any execution problems at Nike? Is Nike dealing with this worse, worsely, I want to say, which is not a word, than some of the other retailers in the space and some of the other companies in the space, the whole supply chain, inventory backup? Well, look, it's a great question. I mean, I don't want to, you know, I hate to give my companies passes, right? But I'm going to say this somewhat jokingly, but Nike and their inventory issues right now

are frankly a good company. We've heard something similar from companies like Walmart and Target. I think what had happened, the pandemic, the supply chain issues, the post-pandemic, I think this has just been an absolutely unprecedented environment for these consumer companies. So I don't think Nike is performing any worse. I think

Nike, like others, like other very high quality companies, got tripped up here a bit in an unprecedented environment. Brian Nagel, thank you. Pounding the table on Nike, $195 price target. That would be a big increase from here. We appreciate it. Says the market has it wrong. Well, back in August, we asked John Lipsky, who chairs the group in charge of identifying a recession, where he stood in the slowdown debate. It needs to be broad and diffuse slowdown or downturn in the economy. The latest data, of course, as you pointed to already, jobs data and others, certainly suggests that the economy continues to expand. Up next, he'll give us his read, his latest one on the economy as the chorus of recession calls grows louder by the day. We're down 286 on the Dow. You're watching Closing Bell on CNBC.

What is on Wall Street's mind this week? Recession, certainly a hot topic among Wall Street's biggest names at our Delivering Alpha conference this week and on our air. We believe we are in a recession. I think we'll likely have a recession. It may be a mild recession. It may be a growth recession. But yes, I do think we'll have a recession. The odds of recession are really quite high. Very, very high. Our central case is a hard landing by the end of 23. Everybody likes to forecast recessions, and there will be one. It's just a question of when,

and frankly, how hard. So many calls for a recession, but there is only one organization that officially makes the call. Joining us is John Lipsky, NBER chair. And I know, John, what you're going to say, that you're not out with the decision yet and you're not on the official committee. But how is it looking to you at this point? You're right, Sarah. You're a good forecaster. I'm going to say Professor Bob Hall, Robert Hall of Stanford University, chairs of the Business Cycle Dating Committee, is the one to talk to. But I know what he would say. He'd say, you have to remember a recession involves a contraction, a broad-based contraction in economic activity. So I'll leave it at that for your viewers to decide if we're there yet or if we're headed there yet. But this is certainly a period in

which we've seen a set of unprecedented developments lead to a whole series of unanticipated reactions in the economy and in financial markets. And that means that using, since models are just a sophisticated way of saying what happened before will happen again, if we have unprecedented aspects, It's not surprising that the models don't work and the forecasters keep getting surprised. Right. And I almost feel like it doesn't even matter on the recession question. It's how long and how deep of a downturn are we looking at? Because the market's been figuring out what what earnings should try to look at. First, there's the question of how high rates are going to go. What is your projection on how deep and how ugly this could get? Well, partly depends. First of all, what has been the

most unanticipated aspect has been the rapid acceleration in inflation. Inflation is still today centered in energy, food and motor vehicles. It's broadening for sure because energy, among other things, will broaden out into the economy. But we've seen a stabilization for now of energy prices. So the trajectory looking forward of inflation remains very, very uncertain. The Fed, which we know was started late in terms of reacting, is now trying to give, not trying to, they are acting strongly and giving the impression that they are going to remain focused on inflation. But what is uncertain is how serious and long-lasting the inflation problem is going to be. I think there's a lot of uncertainty. People who are telling you now they know exactly what's going to happen may not have a year ago understood what was going to happen.

And even the Fed itself, when it's saying data-dependent now, it feels like what it means is inflation-dependent. John, so we're parsing every single Fed speech, and there have been so many of them today. Lael Brainard, the vice chair of the Fed, spoke. And interestingly, she did mention some of the risks out there from what the Fed was doing to the rest of the world, particularly emerging markets. Let's just play the clip for that. of high inflation and rising interest rates highlights the importance of paying attention to how cross-border spillovers and spillbacks might interact with financial vulnerabilities. In this environment, we're attentive to financial vulnerabilities that could be exacerbated by the advent of additional adverse shocks.

What do we make of that? They're attentive to the spillovers and the adverse shocks. That's the first time I've really heard them acknowledge that. We know they're paying attention to it. But do you think it could cause them to slow down because of how bad it's getting for the strong dollar and around the world? Naturally, of course. But I understood what she was saying very intelligently, was that we have to recognize that the rest of the world's economy has an impact on the trajectory of the U.S. economy, and the Fed has to take that into consideration when setting policy. It doesn't mean the Fed is trying to set policy for the

rest of the world. They would tell you that they have a domestic responsibility that is first and foremost, but they have to take into account what's happening in the rest of the world. And what's happening in the rest of the world is very complicated, but not very positive right now. But I guess what we're wondering is what all these feds, how they're thinking about when to hit the pause button or when to take back the giant size of interest rate increases we're getting? We'll take back. I think the debate is really, in the past, is the following. In the past, recent past, there's been widespread feeling or analysis that suggests that for the Fed to have an important impact on controlling inflation, they have to set the federal funds rate in positive real territory.

In other words, have to raise the funds rate above the inflation rate. Now, we're a long way from that. And how you would parse that, that principle depends on what you think inflation is going to be. So this is going to be very data dependent. But the possibility is the Fed has quite a ways to go. But if inflation turns out to be more benign, less so. But I think until the Fed has a positive real funds rate, it won't be clear to everybody that they're going to be exerting downward pressure on inflation. What do you think about interest rates in the U.S.? Do you think they've reached their so-called natural levels yet when they were pushed so far below that during the depths of the pandemic? Well, let's say what we're just saying is if inflation stays high and the principle is to have an important impact on slowing inflation back to target, the Fed has to raise their funds rate to above the rate of inflation,

then there's a way to go. If inflation recedes unexpectedly, that would make it much easier. But it's unlikely that the Fed is yet close to a place where they can stop. And you can see that in their own dot plots, that the Fed members, the voting members think that there's a way to a ways to go yet before they're done. No, clearly Barkin also on the wire. Deceleration and inflation won't be immediate or predictable, which I guess you can understand. Long variable lags in monetary policy. I was going to say it feels a little stale, though, these comments that we're getting from them. Don't they see what's happening in the market?

Yes, but their goal includes financial stability, but it doesn't include market performance. Their goals are set in terms of economic performance. And that's what they have to focus on. But I'm trying to emphasize there certainly was a lot of surprise in the performance of inflation over the last year. And to assume that we can be very confident that we understand where it's headed is a little presumptuous. But again, I want to focus on that even today that the bulk of the price increases have come in food, energy and motor vehicles. It's spreading out.

It's spread out and it means it's not going to be easy to get out of the system. But it may not be quite as dire as a lot of the more worried warnings would have you believe. John Lipsky, thank you very much. It's always good to hear from you. Sarah, it's always a pleasure. Appreciate it. MBER chair. By the way, the two-year note yield at almost 4.2%,

higher again today, 10-year yield almost at 3.8%. Let's check in on the stock market. A little bit of improvement just in the last few moments or so. We're still looking at a broad sell-off, tenths of a percent on the S&P. But materials have now joined real estate in the green. Everybody else is down. Utilities and staples getting hit the hardest. The company formerly known as Facebook was also formerly a darling of Wall Street, but it has lost more than half of its value this year and facing some serious headwinds. We're going to debate whether it's a buying opportunity or whether there's more pain ahead for Meta. As we head to break,

check out some of today's top search tickers on CNBC.com. Ten-year yield right on top, selling bonds, yields higher. Meta, which is actually getting a boost today, but it's been on a downward slope. There's Apple down another 2%, awful week for Apple. Nike down 12% off earnings and S&P 500 down about eight-tenths of 1%. For the week as a whole, 2.25%. We'll be right back. What is Wall Street buzzing about this afternoon? Another twist in the Elon Musk versus Twitter saga.

And it's sending shares higher this afternoon, up 3%. Our David Faber has the story. He's been reporting all afternoon and joins us on the news line. So what's happening here, David? Well, Sarah, as you point out, Twitter shares have moved up this afternoon on a story that hit a couple of hours ago that raised hopes amongst investors that perhaps Mr. Musk and the Twitter board are engaged in serious settlement talks. Those hopes may be misplaced at this moment. It is not to say that there will not be serious settlement talks between now and when the trial in Delaware commences on October 17th,

but it doesn't appear to be the case right now. The story that was reported by Bloomberg, fully accurate and interesting in and of itself, which is that Mr. Ari Emanuel, who's the CEO of Endeavor, of course, the super agent, who is also close friends with both Elon Musk and Egon Durbin. Egon Durbin is a board member of Twitter. He's also, of course, one of the founders of Silverlake and one of the major investors in Endeavor. Mr. Emanuel, being close to both of of them try to encourage them initially at his wedding uh... some months ago to you know come to some sort of a settlement to talk to avoid court uh... and try to figure out if there was a way

uh... to avoid just endless litigation uh... i am told as well that mister manual followed up with mister durbin but still a number of months ago perhaps or uh... a couple of months ago, saying you really should give this a shot. It doesn't appear that he was pushed to do this by Mr. Musk, but was simply taking an opportunity he saw as a close friend of both men to, again, avoid protracted litigation, the inside of a courtroom, and what are always perhaps the idea of unexpected outcomes. That does not mean that there are serious settlement talks underway. In fact, my sources close to the situation indicate that is not the case at this point. Again, it doesn't mean, Sarah, that there won't be at some point. There seems to be an expectation

in the market, given the strength of Twitter's case, at least at this point, based on what we've seen take place in court so far before Chancellor McCormick, that Mr. Musk might be motivated to try to offer a reduced price, but one that is still amenable to Twitter's board. But at this point, best I can tell, those serious talks have not taken place. Mr. Durbin did bring news of his conversation or the outreach by Mr. Emanuel to Twitter's transaction committee of the board, and that may be one reason why we have learned about it. But again, it appears that that took place some time ago. That is the initial outreach by Mr. Emanuel to Mr. Durbin. So what happens now? I assume you've been following the spectacle in the courtroom

in Delaware, where I know I've read a lot of texts between Elon Musk. It's not your typical business case heads to court. What have you learned so far from the discovery proceedings that they've been going over? And what does it tell you about where it's headed? Yeah, well, the battles recently have been about what is privileged and what is not, or the communications between Mr. Musk and his banker, for example, Morgan Stanley, privileged, or should they be something that Twitter should be able to see and use. And on the other side as well, Mr. Musk's attorney is making certain arguments about things that Twitter says are privileged. It doesn't believe that the case.

We're going to hear from Chancellor McCormick soon with an opinion on where those things stand. But overall, Sarah, again, and this is talking to people who follow it closely and know these kinds of trials well, or the pre-trial motions and the like, they believe, you know, Twitter has been doing a good job in court and that it's clear from Chancellor and the comic comments uh... in open court that she sometimes frustrated with mister mucket moscow attorney that doesn't mean necessarily anything but it's certainly uh... again perhaps being used as a sign by men who are following it closely

that twitter has a very strong case enough for there have not been a lot of evidence introduced that would seem to indicate the ability of Mr. Musk to argue on the presence of bots on the platform being far above what they're supposed to be and therefore being fraud and a way to actually exercise a material adverse effect in the merger. Up another three percent, kind of quietly climbing and back to 44, not 54.20, but off the bottoms we were seeing in the 30s originally. David, thank you. Thanks for phoning in with the latest.

Our David Faber. Meta, take a look, hovering around its lowest level in more than three years. Up next, we'll debate whether Meta is just getting too cheap to pass up right now. We'll be right back. Look at Meta. It's slightly outperforming today, but still closing out the week in the red. A slew of headlines hitting the company lately. There are reports of a hiring freeze there. It's trying to catch up to TikTok with Reels, losing momentum and online ads after Apple's iOS privacy changes. And top executive Sheryl Sandberg is officially leaving today. The stock has lost more than half of its value since the start of the year. Is now a good time to buy? Joining us

is Rohit Kulkarni of MKM Partners says yes, and Angela Zeno of CFRA says no. So, Rohit, why do you think it's a good time to buy? As you said, the stock is cheap, the valuation is very compelling. It is almost modeling that this company is Yahoo 2.0, which I believe it is not. The company has a lot of irons in the fire. They are going to be controlling costs here. There are a lot of new areas of growth that they could start to monetize next year. There's a leap of faith i believe but given the valuation given the track record of innovation and given that they have a lever to probably cut back

on metaverse spend while pull forward with the monetization this company can do many things from a revenue standpoint while keeping costs under control i think they have clearly got the message from the street that they need to show some discipline on metaverse. I believe they will do that. We'll hear from them from on the Q3 call. And if that is the case, then this is as good a time to buy given where the valuation is. Angela, why is Rohit wrong? Although I am looking at your target and it looks like you took it down from 190 to 150 which is still above where we are now yeah i mean it is above where we are now but you know i'd say kind of you know when we kind of think about names that you want to buy in a potential recovery let's say in 2023 um this is probably not the name we would be gravitating to in terms of large cap tech um yes it is the cheapest large tech name within our

coverage universe but we think one the consensus estimates just remain overly ambitious you're looking at about low teams revenue growth in 2023 and there are just too many headwinds ahead i mean clearly the macro headwinds out out there they're top of mind i mean uh depending on how far that you know this reception has to go um the easiest place to really cut costs right are on the ad side of things that we do think there's more um kind of cuts to come here in the coming months and quarters um and then on top of that i mean the competitive pressures which we're all aware of um as well as kind of um you know i think a lot of the balls out there if they're kind of hanging their head on anything it's reals um and the run rate there is still extremely low we're talking about a one billion dollar annual run rate right now so i'm just cannibalizing kind of a longer term video um offering there but you know really at the end of the day it's really hard to kind of

um talk about um large cap tech in any respect until kind of the dollar starts to stabilize which is kind of growing you know increasing out of parabolic rate. And that's really going to intensify here in terms of the headwinds going into Q4. No, the dollar continues to make new highs, new high earlier this week. So, Rohit, what is the deal with Reels? Is it a success or not? Because earlier it seemed like they were gaining a lot of traction in the competition against TikTok. But as Angela said, it's still very small. And recent reports indicate it's lost some of the momentum. It is still an experiment. I would say for a company that's $100 billion in revenue, a billion-dollar run rate is not a needle moving in any shape or form.

But what they're doing is, from an engagement standpoint, that's where they're bringing back users in. They're bringing back people in spending more time on the main Facebook platform. And they're bringing back creators with a way for them to stay on Facebook with the large base of users that they have. So once the flywheel on this small little molehill, which is Reels, starts to play, I think that that balloons very quickly into a needle-moving revenue contributor for next year. Again, it's still early days. I think Facebook has dealt with transitions in consumer behavior, dealt with transitions in advertising technology over the past four or

five years. So part of why we like Facebook here, apart from valuation, is in the belief that this company has gone through cycles, has gone through investment focus areas over and over again and re-innovated in a way that they can hold on to users, hold on to engagement, and rest will follow. We'll see evidence of that over the next six, nine months, and then the flywheel kicks into itself, and that's where upward revision estimates will follow so that's that's our basic Facebook kind of a long thesis and it is how they have performed in the prior to the memory that people have prior to July of last year you got to go back what Facebook has done prior to July of last year they

increase their market share every year for six years in a row. Believe that. Google lost market share every year for six years in a row. Facebook will return to that starting 23 June, I would say. Good debate, guys. Thank you both for joining me. Meta unchanged on the day. Rohit, Angelo, good to see you both. Take a look at where we stand right now in the markets. The Dow's down about 321. We're just off the lows here, but still couldn't hang on to the gains today. It got as high as 122 higher on the Dow and then gave it all back and then some. The S&P 500 tracking for another 1% decline almost here. Every sector is lower except for real estate at the moment.

It's been a dismal third quarter for the market. But coming up, Wells Fargo's Scott Wren reveals his best investment idea for the fourth quarter. We'll be right back. Check out today's stealth mover, Rent-A-Center. Good read on the consumer here. Retailer allows people with little or no credit to rent to own everything from electronics to furniture. The company slashed its third quarter earnings forecast below Wall Street's estimates. The company says that economic conditions are hurting retail traffic and also hurting customer payment behavior. The news sending shares to the lowest level since April 2020.

Remember, yesterday, a firm CEO, Max Lefton, told us that there were early signs of stress in the most vulnerable consumer demographics, the lower credit, lower income part of the portfolio. Continuing to see evidence of that today in Rent-A-Center. Take a look at Carnival shares, also sinking to their lowest level since the pandemic on a much larger than expected quarterly loss and rising costs. Up next, we will discuss whether a potential rebound is on the horizon. The stock is down more than 22 percent. That story plus Micron rallies and the best investing idea for the fourth quarter when we take you inside the Market Zone next. We are now in the closing bell Market Zone. Lafleur Tengler, investment CEO and CIO Nancy

Tengler here to break down these crucial moments of the trading day. Plus, we've got Jeffrey's David Katz on Carnival's big plunge and Wells Fargo Investment Institute's Scott Wren on top ideas for the fourth quarter. We'll kick it off with the broader market, Nancy. Dow down 354, just another day where we could not hold on to a rally this morning, up 122 on the Dow, even in what many would call oversold conditions, very negative positioning and sentiment. What have you been doing this week? Well, holding on. We've been moving our clients for the last three months into short, high-quality bond ladders, not at the expense of equities. We still have pretty significant exposure to dividend growers.

I've been running dividend growing strategies since the mid-1980s, Sarah, and this is a time when they shine. Not only do they provide some hedge in your income against inflation, but also protection in declining markets. And then around the edges, we've been adding to some of the higher quality growth names in our GARP strategy, because we think when all the dust settles, you are going to want to own some of these companies that can deliver growth reliably. And their multiples have come down pretty dramatically. So we're finding some attractive names in that space. But you don't want to get too far in front of this. We've raised a little bit of cash over the last couple of months. We aren't fully invested, so we're not market timers with cash. We use our asset allocation to make those decisions. But when you have some gainers like the Palo Alto Networks,

you kind of want to take some of that in an environment like this. That's it, Micron, because interestingly, it is in the green today, and it's actually up 2% this week. The company beat estimates for earnings, missed on sales, issued weaker-than-expected guidance. But CEO Sanjay Mehrotra was upbeat that demand will improve soon when he came on for an interview on Spock on the Street. Listen. In calendar year 22, smartphone and PC demand has come down significantly versus the expectations in the earlier part of the year. We do project that in calendar year 23, the smart China will open up. You know, post-COVID, China economy should rebound.

I mean, over the years, you've seen you can never write off China. As well, that will bring back some of the demand trends on smartphone and PCs. Micron also cutting its capital expenditures, they're cutting utilization. Why is the stock up? Nancy, are you a buyer? No, we're not. Listen, I admire CEOs that get in front of the camera after a disappointing earnings call. But, you know, we've been paying attention to a lot of the CIO surveys that show that most CIOs and to the tune of 86 percent in a recent survey are increasing their software spend in enterprise or enterprise CIOs are increasing their software spend and 58 percent are decreasing their hardware spend. So while I think the consumer will return and that will help their their handset and smartphone

business, I don't think this is a place where you necessarily want to jump in right now. We think a name, you know, one of the top spend names in that space or in software between now and 2025 is Microsoft. It garnered, according to the CIOs, 27 percent of spend. So I think you want to stay with the industry leaders with a bias towards software and enterprise and then, of course, cyber. Yeah, some analysts pointing to just the glass half full view that Sanjay painted and the executives painted on the conference call. Look at Carnival, though. Shares are getting crushed today, losing nearly a fifth of their value. The company missing street estimates on revenue.

It also said inflation and rising fuel costs are delaying a return to profitability. The stock hitting a 30 year low. The three major cruise operators are some of the worst performers right now in the S&P. Let's bring in Jeffries analyst David Katz. He's on hold on Carnival. Twelve dollar price target. What what happened here, David? This is supposed to be the big rebound. They did miss on revenue, as you pointed out, Sarah. They came in high on the cost side as well. But I think more importantly, the street had been taking the view that they could exceed 2019 EBITDA by 2023. And they walked that back on the call this morning. And I think that aspect of it is probably the biggest driver.

What is the trajectory of this recovery going to look like? And the most important aspect of our thesis has been that Carnival and Cruise in general does not have the pricing power that we're seeing elsewhere in hospitality, right, where room rates are high, the cost of things. They're just not able to embed that inflation the way others are because their patrons are a value driven customer. And so they bundle and do other things. But but they're just not getting it, Sarah. I was going to ask why. So the value driven customer, part of the reason, because, you know, we've had and I know Arnold's not there anymore, but we had him on so many times and he kept saying, you know, once these restrictions ease, once the CDC lifts its guidelines and now they can, they can, you don't have to be vaccinated, right, to go on a cruise. The demand is there. The forward bookings are strong. Is that not the case?

It is the case. I think part of what hit them today and what will hit them again in the fourth quarter is they had some carry forward credits that worked into pricing and brought the ticket pricing way down below what we were expecting. And frankly, they've not been particularly good guiders, particularly open guiders over the years. And, you know, I think that attribute, this is not the day to be like that. I think we need a little bit more information flow and just more comfort with where our numbers are. We're still working through our model today, post the filing coming out. But we have some homework to do and try and figure out what 2023

is going to look like and potentially what 2024 could look like in this environment. So when now do you expect profitability and how's the liquidity position until then? Right. So we do expect that they will be in positive EBITDA territory in 2023. And where that exactly lands is fine. They have ample liquidity for the moment. They did a billion dollar equity offering back in July

at nine dollars, ninety five cents. So they have enough cash. You know, people have been asking, can they survive? And we believe that they can in some semblance of a normal twenty twenty three. You know, frankly, it's just not an easy stock to buy today because you need to have a cohesive consensus. You need to have a sense of what 4Q is going to look like. And if they're not going to get to that 2019 benchmark by 2023, we need to know how far off they're going to be and what that trajectory really looks like. And until then, you know, establishing value is hard. It's a tricky one. Thank you, appreciate the commentary david katz well the market is

finishing up an ugly quarter in an ugly september the worst september for the dow since 2002 and 2008 for the s&p and the nasdaq we remember what was happening then joining us now for some top ideas for the next quarter as well as fargo investment institute scott wren and i'll just point out that we are now making session lows again. We've headed south and we're down more than 400 points, 438 falling fast here on a Friday afternoon for the Dow. The S&P 500 is now down one and a quarter percent. Looks like it just took a spill here into the closing bell, Scott, down 2.7 percent for the week. So what are you telling your clients to do? Well, Sarah, you know, we've been trying to do really since early March and into April and into early May was get defensive. I mean, we're in hunker down mode here and I think we're about as defensive as we want to get. I mean, we're sticking to from a from a

larger picture perspective. We like large caps. We do like some mid caps. We want to be in very short term fixed income. You know, this is capital preservation mode, not capital appreciation mode. And so I think, you know, for the fourth quarter here, you know, do we think the market's going to be a little bit higher than where it is right now? We've got a 3,900-year-end target out there, so we do. If that happens, we'll probably see things like technology, healthcare, energy help get us up there. But we're not expecting a whole lot in the fourth quarter. And I think into the early part of next year, you know, hunkering down capital preservation.

That's what people need to think about. Hopefully they're defensive by now. They've had plenty of time to do that. Now it's just riding through the volatility. When I think of defensive, though, and this is a question for Nancy, too, who is recommending dividend growers, I think of the staples. But if you look at the 52-week low list today, Procter & Gamble lows since March 2021, Mondelēz is on there, McCormick, Colgate, Church & Dwight. These are supposed to be the safe places to go during recession, Scott. Yeah, it's true. You know, it's tricky, Sarah. There's a lot of, you know, within, let's say, staples, you know, there's a lot of different cost variability because of inputs and things like that. And so I think you have to be, you know, you have to be very choosy here. And, you know,

whether it's technology or consumer staples, you know, you need to pick companies that have good cash flows, that own their niche, that have good balance sheets, that have products that are selling and that they can supply and they aren't seeing their costs just absolutely sore. So, you know, you really have to put paper right now. Well, I mean, you know, let's say in technology, which has obviously been hammered here, you know, you need to look at technology companies that are focused on efficiency, automation, those types of things. And then other staples, you know, you have to pick and choose where, you know, you might have a staple that has really high food input prices.

Well, you know, they're probably not faring all that well, where you have something with some slightly less sensitive or tight supply type of inputs. Those are the ones you need to gravitate toward. But, you know, the bottom line is you want something that's less sensitive to the economy, isn't suffering from a bunch of input price pressures and, you know, can still deliver at least some semi-adequate or good earnings growth going ahead. Nancy, I'll put it to you because you like some of the high dividend payers. I think of AT&T and Verizon. Where are we on those dividend yields? Six, seven percent. They get higher as the stock prices go lower. But they're now AT&T is trading at lows we haven't seen since

April 2003. Verizon going back to 2015. We don't own either one, Sarah. We look at relative yields. So we're buying not the top quintile or decile of dividend payers. We're buying the ones that are actually, you know, more relative value and growing their dividends fast. So, you know, Target is a name that you want to be stepping in here. 20 percent dividend growth. Public Storage just paid a special dividend of 13 dollars. Walmart. Walmart is a staple that's actually held up pretty well in here. And in some of the names in technology. So we're looking at the companies that are raising the dividend based on what they think long term sustainable earnings power is. And if you look at the market return since March of 09, the return on on the stock, the price performance was 433 percent.

When you add in dividends and the compounding, it was 600%. So dividends play an important role in total return. Major averages heading for their third straight quarterly loss. Scott Wren, Scott, thank you very much. We've got two minutes to go in the trading day, Nancy. So as I mentioned, worse September since 2008 for the S&P 500, worse months since March 2020. I mean, all the superlatives are there. It's getting ugly. How much more pain do you think we are in for?

What's going to be the key to stop the bleeding? Yeah, you know, it always feels awful like this. I've been through enough of these and I think never again. But, you know, I think we need to get a sense of where the Fed is going to stop. I know what they've told us. But remember, a year ago, the dot plot showed an increase. The median was an increase of 25 basis points for 2022. And we're at 300 or 300 to 3.25. I think the tough talk has been and we've heard it. And now we need to see if there's going to be any any relief coming. Earnings is something you've got to be focused on. And we're going to get that soon enough.

So I think that may give us some relief because I don't think earnings are going to be as bad as the market might be anticipating. OK, well, that's something hopeful. We'll leave it on that note. Nancy Tingler, thank you very much. And I would just add to some of those 52-week lows that I mentioned in the Staples world, some of the technology stocks are in there as well. Alphabet now trading at the lowest level since February 21. Salesforce, lowest level since April 2020. Some of the banks are in there, like Citigroup, lowest level since November 2020. Take a look at the Dow as we head into the close. We are at the low point of the day, down 498 now, down 500 here on the Dow. The Dow is actually having its worst September since

2002. So that is even larger than the September 2008 when the financial crisis was in full swing. Thank you very much for that. Peter Schuch now on the notes here internally. S&P 500 goes on with a loss of 1.5%, 1.5% also for the Nasdaq. Another week in the red, another month, and another quarter, the third straight in a row. Have a good weekend, everyone. That's it for me on Closing Bell.