Closing Bell - Closing Bell: Stocks Surge, Let's Make A Deal & Trust The Rally? 10/18/22

Episode Date: October 18, 2022

Stocks rallying for a second straight day amid another strong batch of earnings and activist investors taking stakes in Salesforce and Colgate-Palmolive. UBS Private Wealth Management's Alli McCartney and Clocktower Group's Marko Papic debate whether investors can trust this week's rally. Moelis & Company CEO Ken Moelis on whether this year's big decline in stocks will fuel a new wave of dealmaking. Plus, why he thinks the midterm elections could be the next catalyst for this market. Evercore ISI's Mark Mahaney discusses whether investors should buy Netflix shares ahead of the streaming giant's earnings. And Deputy Attorney General Lisa Monaco on the French cement company pleading guilty to making millions of dollars in payments to ISIS.

Stocks are building on this week's strong rally, but we are off the best levels of the day. Some headlines just hitting the tape moments ago from the information that Apple is cutting iPhone 14 plus production. That's taking some steam out of the rally. Welcome, everyone. This is the make or break hour for your money. Welcome to Closing Bell. I'm Sarah Eisen. Here's where we stand right now in the markets. Apple just turning negative. The Dow overall is still up more than 200 points, about three quarters of one percent.

S&P is up also almost three quarters of a percent. The Nasdaq is lagging today. It saw a supersized rally yesterday. But we are putting together here back-to-back gains if we continue to trade higher and close positive in the next hour. Nasdaq up four-tenths. There's the 10-year Treasury note yield. It's about four percent or so right now. I mention it because that is obviously one of the biggest drivers of stocks right now. Those higher yields standing in the way of an equity rally. I'm

certainly damping some enthusiasm right now just looking at the 10-year. A little bit weaker, but really not moving a whole lot. Check out some of today's earnings movers because we're starting to get into it. Goldman Sachs is higher on a beat. Lockheed Martin soaring up 9%. Johnson & Johnson beating on the top and bottom lines. The stock, though, under a little pressure. And Hasbro, the toy maker, is pulling back. After the bell, we're going to get Netflix.

And, of course, Mark Mahaney will join us with a preview in just a bit. Let's begin, though, with the big activist news that our own David Faber broke today. Starboard revealing it has taken a stake in Dow Components Salesforce after a big drop in the stock this year. Salesforce shares are up 4%. It's helping the Dow. David Faber joins us now with the latest. And I'm also interested in the Colgate news you brought, obviously, David, but activism, heating up. Yeah, a little bit, a little bit. We'll be happy to talk about both of them.

We can start with Salesforce. We did report that this morning. It was followed by a presentation by Jeff Smith at an annual conference that we attend, 13D Monitor Active Passive Conference, in which he made a presentation, Sarah, in which he focused on Salesforce, a new position at Starboard. Sort of an interesting one, at least from their perspective, because it is such a large company. We're talking about, what, $150 billion or so market value. But it has underperformed. When you look back over the last few years, it's underperformed the S&P. It's underperformed even a lot of its peers. And

Smith points to operating margins as a real focus for potential opportunity there. I'll let him say it. Perhaps he can do so better than I can. What we would say, what I have said to them is you're great at all that you do inside your business. You're number one or number two in all the areas in which you compete. You're highly competitive internally. You want to win. We as shareholders, we want you to bring that same energy, that same focus on being number one or number two, ideally number one on these metrics also. And on this metric in particular, they're not even average. For its part, I should say Salesforce simply says, listen, we're committed to acting in the

best interests of our shareholders and are focused on continuing to execute on their strategy that they outlined at Dreamforce, talking about as much as 50 billion revenues by fiscal year 26 and 25 percent margins. You know, Sarah Smith says they can just simply do better. Their long-term targets are less ambitious than their peers. They need to achieve and outperform the investor day targets that would result, he believes, in significant growth in free cash flow. Driving higher incremental margins, he said, would result in significant outperformance and ultimately thinks the valuation discount largely a result of Salesforce's subpar mix of growth and profitability. Nothing sets up here for a real battle at this point. And I should also point out in my reporting, I ran into

a couple of other well-known activists who thought about Salesforce as a potential play and chose not to engage there. They were more focused on capital allocation, perhaps questioning some of the deals that the company has done. But many people felt like, you know what, taking on Benioff, a giant of a man in so many ways, it's just not going to happen for you, even though he does not have voting control of the company. He has such great influence and reputation. They simply felt it was not going to be, if it went to it, a fight worth having. Well, and on the capital return program, they just announced their first buyback, right? Ten billion dollar buyback. He's got a good track record on acquisitions, I guess, except for the Slack one,

right, where they clearly paid a high price, which would have been valued much less today. But is that what has been the problem at Salesforce? Because it is an interesting one, because they've been a high growth company for years, driven by Benioff and a lot of his acquisitions. They have been and they continue to be a high growth. But, you know, the point that Smith is making is it's not dropping to the bottom line. And he said that, you know, time and again, they're not dropping as much in the bottom line. They haven't been focused on operating margins as maybe they should be. Again, I'm just quoting from our interview. And he's not being overly critical, he says, but he think they would say the same thing. They're moving in that direction, but he wants them to get profit margins up. Now,

others may have different criticism, as I pointed out, Sarah, but they necessarily haven't acted on it, certainly not in a public way with the company. Right. And I wonder what a large stake is for one hundred fifty billion dollar company. That would have to be a pretty bright. Yeah. I mean, listen, as we know, in activism these for many years now, you don't need a large percentage stake, perhaps, if you have a reputation as they do at Starboard. But it is significant in terms of dollars, though, nonetheless, percentage-wise, not. Right. Okay. Quickly on Colgate, because I found that news really interesting. Because I cover Colgate and the pet food business, which I know is what is kind of at stake here,

has been the growth driver for this company. I wonder if they, I wonder if they, maybe they, maybe there's an argument that if they spin it out, which is, I think, as you reported with Loeb Wands, that there would be some extra value there, that it's not being fairly valued within overall Colgate, but there's also, I mean, they get a lot of scale and costs and benefits from being part of that, that company, which has actually done pretty well. Yeah. As I'd reported, Sarah, they've been approached previously about that idea. And thus far, my understanding is the board and management have not been interested in splitting the company. Now, to be clear here, Loeb, in his latest shareholder letter, included a new position taken in Colgate.

I'm told it's as much as a billion dollars. He also was in a partnership, at least. I shouldn't say partnership. He also has been aided by the hedge fund, Tom's Capital Investment Management. So there may be additional ownership here based on the basic idea that there is a lot of potential for unlocking value. But Loeb wasn't saying do it. He was simply saying, hey, if you did, we think this thing would trade at a higher multiple given its higher growth rate could be worth as much as $20 billion. And when you look at the market cap of the overall company, that conceivably would add a lot of value. As well, he did point to the fact that the board has not been bold in his opinion and that, you know this again, given how closely you cover this area, Sarah, there's been a good amount of potential talk of consolidation in HPC. You know, you have the Halion spinoff from Pfizer and GlaxoSmithKline. You had Unilever interested in it.

And so they there at least is a question as to whether if you got Colgate to engage and they considered a split, could you imagine a scenario under which Hillswood traded a higher multiple and therefore a higher value and you could sell at a significant premium the rest of the company. That's pretty interesting. Organic revenue growth of 15.5% in the first half of this year is pretty good in the household goods space. Most of it is Hills, though. They also do not engage in media. Most of it is Hills, right?

I mean, most of it is the pet food. No, that's what I'm talking about. That is Hills. That is not Colgate overall. That is the pet food business. Yeah, the other business is not. No, that's what I'm talking about. That is Hills. That is not a Colgate overall. That is the pet food business. Right. Yeah. The other business is not right. No. Oral care has had a little comeback, but nothing, not that kind of growth rate. Thank you, David. Really good stuff today. David Faber. Let's get to the broader market

because stocks are mostly higher again, but there's still plenty of skepticism on Wall Street. BTIG's Jonathan Krinsky writing, quote, history says to fade this rally. UBS notes conditions are not in place for a sustained rally. But JP Morgan's Marko Kalanovic says, quote, weak investor positioning should limit further downside. So what do you do? Do you trust the rally? Joining us is Ali McCartney from UBS Private Wealth Management and Marko Papic from Clocktower Group. It's good to talk to both of you. Ali, first, what are you telling your clients? Well, having just put that quote up, Sarah, you know, we I don't want to be a wet blanket. Obviously, I'm a money manager. So

money going up, not down is a good thing. But we have looked at the last 60 years of bear markets and recessions and what we found is there are three preconditions that have to be met in order to have some sustained upside that is more than a bear market bounce and as I explain those to you you'll see that none of them describe where we are today the first is that investors expect looser not tighter monetary policy you know you see a two- year going down we're still going up as you just alluded to. The second is that there's a line of sight to a

trough in economic activity. If we just pick on one- piece of data we have the ISM that's still going down so that's not going to get us there. And then the third is that you have an increasing equity risk premium. The equity risk premium so that

which needs to incent equity buyers over risk free bonds and is that you have an increasing equity risk premium. The equity risk premium, so that which needs to incent equity buyers over risk-free bonds and treasuries, has gone actually the other way this year. It's gone down, and it's largely gone down not because there's a risk premium at face, but because it's reflecting the interest rates. So great that we have some buyers stepping in. I think getting some flow and since sustainability or at least some support in this market is really important and we will

take it but we do not think we are out of the woods yet. Marko you have some interesting trades on I don't know if you agree with Ali but but you have been in the Fed is going to pause. Camp. And you like certain things because of that

explain. Yeah so I think Jay Powell has an interest in proving guys like me wrong for to pause camp and you like certain things because of it. Explain. Yeah, so I think Jay Powell has an interest in proving guys like me wrong for as much as he can before causing a calamitous recession. So I think that he's done that really well. But I would probably be in the same camp as my namesake, Marko Kalanovic, because with an equally unpronounceable name. And I think that... I thought I did okay.

I think you did great. I think you did really well. And I think what's happening here is that the Fed... I mean, if you look at what's going on around the world, normally when the Fed starts raising rates, things start breaking in the rest of the world. But it's not... Things are not breaking in South Korea or Thailand or Russia.

They're breaking in the United Kingdom. ECB has essentially yield curve control on. The BOJ does. The UK just did it too. I think what's happening is a crescendo of central banks ECB has essentially yield curve control on. The BOJ does. The UK just did it too. I think what's happening is a crescendo of central banks that are starting to either pause or ease overtly. So that's the first issue.

The second issue is that if the Fed gives room for reflection, as Leo Brainard recently called for, I think that three things that are going to do really well are commodities can put in a bottom, emerging markets can rally, and Europe, most importantly, which is very high beta to China, is going to do really well as well. So you guys are in total disagreement, actually, Ali, because you're not seeing it yet. I guess my pushback, Ali, would be, like, they're not going to ring a bell when it's time to buy stocks, right, and when the Fed is going to pause. So what is it going to look like, right, and when the Fed is going to pause. So what is it going to look like? No, and that's the concept of market timing

is always come secondary to timing in the market. So I think there are two parts to that. If you're already invested in the market, then you need to make sure that you're repositioning and rebalancing so that you can take advantage of what we're coming into, which is very different than what we came out of. A lot of that is just having fixed income again, right? Having an alternative, having a private vintage year in 2023 that should be quite frankly epic as private markets start to open again and rationalize what it's like to operate in a world where there's a cost of capital. If you are putting new money to work, then absolutely. Do we think there's still potential for more downside? Yes.

When you look at bear markets and recessions in the past, there has been much more pronounced downside in where earnings go. We just came down about 4% year over year. That usually looks closer to 16%. But does that mean that you should be staying out of the market? Absolutely not. It means you should be getting into those areas where you think you're going to see outperformance, whether that's three months from now or six months from now, and begin that dollar cost averaging. And really quickly, so you're buying commodities, Marco, on the opposite view. Is oil included? You know, so oil, I think, is really going to

have to wait for the Fed pivot. But at the same time, what's coming out of China is encouraging, both on zero COVID. There's a lot of things that are not being reported. Also, on real estate, they seem to be putting in a bottom. So I've been bearish for most of this year on oil. I think that's helped stocks in some way, in shape, or form. It's helped CPI get to where it is. I think going forward, it's a much tougher call.

And it's going to depend on what happens in demand. And that's a China call. I do think policymakers in China are going to have to step back because they're facing a lot of political risks going forward if they don't put in a floor in the bottom. We'll have both of you on very soon. Thank you both for joining me now, Marco and Ali. We've got some news, speaking of oil, on the Strategic Petroleum Reserve. Diana Olick with the story. Diana. Well, Sarah, we just got White House confirmation that there will be an announcement tomorrow on high gas prices.

I'm here at a climate summit in Seattle with the Energy Secretary, Jennifer Granholm. So I asked her about it. Here's what she had to say. The White House has confirmed that it will make an announcement on gas prices tomorrow. What can we expect? Well, I'm not going to get ahead of the White House on it. Suffice it to say that the president, you know, if there's one thing that makes him lose sleep at night, it's that people are paying more money for energy and the gas at the pump is the most visible, you know, manifestation of that. However, I will say that over the past few days, we have started to see prices at the pump on average tick down about five cents. And we hope

that that continues. Obviously, the, you know, upward tick in prices, some of which had to do with OPEC's decision to cut two million barrels per day. But we, you know, the president is looking at this and he's got a lot of tools at his disposal, including the Strategic Petroleum Reserve, to let him make the announcement tomorrow. But you said SBR. I think it's one of the things that's on the table. And we expect that announcement again tomorrow. Sarah. Thank you very much, Diana Olick. Diana, just looking at the price of oil right now,

a little bit lower, down about 3%. Back in May, I spoke with investment banking legend Ken Mollis and asked him whether he thought we were heading for a recession. Here's what he said. There'll be tremendous revision. I don't think we're going into a recession, meaning we'll go to negative growth. But I think we're going to have volatile change. We'll see whether Ken has changed his tune when he joins us next for an exclusive interview on that, dealmaking, and the economic landscape. You're watching Closing Bell on CNBC. Stock's having another strong day, but it has been a volatile session. We're up 212 right now for the Dow.

At the high of the day, we were up 652. We've been trading in a more than 500-point range. The uncertainty this year is weighing heavily on the M&A world. Mergers and acquisitions slumping nearly 50% from last year, according to Dealogic. Joining us now is Ken Mollis of Mollis & Company. Ken, it's great to see you again. Welcome. Good to see you, Sarah. So, tough market. It's not like deals aren't happening, but boy, have they slowed down.

What is it like from your perspective? Yeah, they have slowed down. And I think maybe it's like every other industry. Maybe we have a supply chain problem and our supply, I guess, in M&A, a lot of it is finance, especially in the leveraged loan market and transactions that involve less than investment grade credit. And it's just almost impossible now to get a deal financed. So that's a problem in the short term. When and how do you see that turning around? Well, look, it's kind of a strange world out there. You know, we have a mid-threes unemployment.

The banks, I listened to some of the bank calls. There's almost no credit problems in the system. Bank capitalizations are fine. I think there's a extremely volatile market out right now. You know, the post-J Jay Powell's speech at Jackson Hole, it was just a rapid increase in volatility. Look at the last, you know, you can see the last few days in the market. And there's been a real change in interest rates and risk ratings for leveraged credits. There's a significant amount of transactions that are still hung in bridge

loans from the bank in the banking system that have to get cleared. I can't tell you the exact day it'll happen, but I will tell you there's a real feeling out there that this is it's containable to a time frame. I don't know if that's 10 weeks or four months or but but it just feels like there's a wave that has to get behind us of revaluation, reversion of interest rates, and resetting evaluations. Yeah, it comes back to the whole Fed pause, which we were just talking about, as far as what your market outlook is. It depends on how much more you think there is left to do for the Fed and ultimately what the next move is.

We played a soundbite when you were with me in Davos in May, saying you don't think there's a recession coming. And you've been right so far. I mean, we've had negative growth, but really hasn't felt that way. Recessionary, the unemployment picture is pretty good. Have you changed your tune about what you think is happening in this economy? Well, I do think the Jackson Hole speech made things a little tougher out there. But it was interesting when you and I met, I think, Jay Powell, we discussed the fact and I felt that the Fed was going to be tough. I felt no chairman wants to go down and release inflation back into the world. I thought personally that it would be that he would want to stamp it out pretty dramatically.

You know, I look back and I think the thing that might have just shocked everybody, including I bet the Fed chairman, was when he took the fire extinguisher out in June and policy, you know, policy from the federal government throwing another trillion dollars of gasoline on the fire. I think looking back, that might be what's causing this tremendous clash of the Fed with the economy. In other words, it was not so much an inflation reduction act as promised. You think that's a spark here? You know, spending a trillion dollars is often not an inflation reduction move. I won't. It was the Inflation Reduction Act. I read it. That's

what it said it was. But, you know, I don't know many worlds in which spending a trillion dollars would result in lower inflation. Yeah. Well, I do want to ask you a little bit about politics in a moment, but just on the deal front, Ken, there was an interesting article in the FT today, and they tallied the number of companies that went public during COVID or post-COVID. Three quarters of the large companies that went public during that period are trading below their offering price. And they say forcing some once promising names back into private hands at these fire sale valuations. We Poshmark deal, for instance, something like that. Are you seeing interest in these kinds of companies?

Do you think they're good targets? Some of them. I mean, there's a lot of different companies out there, but I think this is why, look, I've been, I love this business. There's nothing better than being involved in Wall Street from this point of view, because you see the radical changes that people make in their outlook for the world and how exciting something can be at one point in the cycle, and how ridiculous or unappetizing it can look at other points. And I think the market is a humbling event. These companies had, many of them had incredible stories and prospects at the moment they went out.

And people had a different time and view on growth and what they wanted to speculate on. And then the world changes. And the great part about that is the capital markets will respond. And if there are good companies out there that are being left by the wayside, that will lead to significant transactions in the future. And this is the dynamism of a market. Yeah. Private equity mentioned in that piece as a potential buyer. And we've seen a lot of that from Orlando Bravo and others. So, Ken, you're hiring, even though dealmaking has fallen sharply, IPOs off a cliff. Why are you hiring investment bankers? Because this is going to, this will be, one day this ends. The world grows. And I've never,

even this environment, I will tell you that the engagement of most of our clients in continuing conversations about the future and build out of their five and ten year business plans is unlike any really cycle I've been in in the past. Sarah, it's funny, you know, I think back to the 08-09 cycle, people were hiding out in caves and planning on how, you know, where they would run to in the crisis. Today, it's nothing like that. Almost every conversation is still focused on where will I be in three to five years? How does technology change my business? What do I need

to do to respond? And look, we just announced today. You're right. We announced some significant hires in health care. Believe me, nobody is cutting back on investment in health care research, in keeping people healthy, in solving illnesses. These are things that the world will continue to absorb and be very aggressive in. And again, where we are is we're not a bank. We're not levered. We have no debt. We have a lot of capital. And I'm planning for the next five or 10 years when the cycle turns back up and then trying to find the talent to service that will be impossible. Ken, stay with us if you would, because I do want to ask you about the midterms and another potential catalyst here for the market on the other side of the break. We're talking to Ken Mullis of Mullis & Company with the Dow up 245 or so off the highs of the day, but does look like

we're going to get back to back gains up three quarters of a percent on the S&P 500 with the NASDAQ lagging up half a percent. We'll be right back. Welcome back to Closing Bell. We're back with Ken Mullis of Mullis & Company. Midterms just three weeks from today. Could it be a market catalyst, Ken? I remember you mentioned a few months back that you thought it could be bullish if Republicans take back power.

Do you feel that way still? Well, I said split government, Sarah. And I think that, look, I think business likes a split government. Again, to my point that the last go-round and maybe even the one before that of government spending I don't think is working out well in the markets. I think, I hate to say it, but for business, not for everything else in this country, but for business, gridlock's a good thing. And yes, I think that's one of the elements of policy

that could be very helpful. So you kind of dodged the recession question. You were worried about the Inflation Reduction Act and the change in tone from Fed Chair Powell post-Jackson Hole. Does that change your view of where we're headed economically? You know what I said to you, which was I think recession is defined. It's funny because you and I laughed about it. And now you can see there's like a huge debate over defining the word recession. It's in and of itself, that's become a political argument.

And I said I wanted to stay away from it. Look, again, it feels out there that the economy is going to get tougher in things like home prices, levered companies. But, you know, three and a half percent unemployment is very hard to fit into the word recession as well. So, yeah, I think what I said at the time, I still believe, which is extreme volatility in things that have been misvalued or levered. But yet again, you know, I'm not sure we've ever had a recession with three and a half percent unemployment. So I'm just trying to stay away from getting into the definitional catastrophe. Fair enough. Well, it is a hot debate right now. I'll put it in another

way. How's your bankruptcy practice doing right now? Because bankruptcies have been so quiet over the last, I don't know, decade or so. Is that picking up and do you expect more? OK, so that's a good example of your point on recession, which is rates are coming up. Now, it is interesting. Everybody wants bankruptcy to occur immediately. Really, there's only been like one or two interest payments at the new rate. I mean, it's all happening so fast. People are like, well, you know, why aren't you bankrupt instantly? But the good news is, you know, the amount of pressure on the system is way less than you'd expect given the markets, given what you're seeing in credit markets, given what you're seeing in the stock market. So calls are increasing.

We are way more active than we were, you know, six months ago or even eight weeks ago. But the amount of defaults and stress in the system is surprisingly light, given the amount of leverage and given what, you know, we're talking about as feeling like a distressed market. I imagine it's concentrated, too, in places like crypto and SPACs and other pockets of the higher speculation areas of this market. Is that what you're seeing? No, because crypto is very unique and there aren't that many levered entities. You know, you know, we were involved with an entity that

had problems. And the SPAC market, I don't think was too levered. It was just valuation problems, highly speculative, high growth companies. And I don't believe it's going to be, you know, the last cycle, it was centered around commodities, a lot of oil and gas in the last down cycle. I think this time it's just going to be that idiosyncratic company that had too much floating rate debt or was too levered or is exposed to some angle of the consumer market that might get to have a problem due to inflation and gas prices. So, you know, it's interesting. I don't think it'll be a sector this time. I don't think it'll be that company that over levered itself going into the cycle. That's pretty interesting and also speaks to the fact that the system is in better shape. It's so much better, as you mentioned, this time around. Ken, thank you. It's always good to catch up with you. I appreciate it. Great to see you, Sarah. Thank you. Ken Mollis. Up next, Mike Santoli on whether

history says the market could be setting itself up for a year-end rally. We're building on the gains here. Just gained 100 points or so. Dow's up 330. We'll be right back. Welcome back. Let's get straight to Mike Santoli for some context, Mike, around this two-day rally and today's market dashboard. How are you monitoring the health signals? Well, Sarah, we have some respectable upside follow through, 1% after 2.6% or so yesterday, and actually leaves the S&P 500 up really 6% or 7% above the early Thursday morning lows. Not a bad move in four trading days. We got tested today by a bump higher in Treasury yields that has since eased back. We also got those Apple headlines.

So it seems like it's okay. The average stock doing better than the S&P itself. Of course, we're still not even up to the highs of two weeks ago or so. 3,800 or so is the early October highs. That's the next hurdle that you want to monitor. Now, seasonally, there's some fuel in the tank, at least one would think. There's a chart that's been making the rounds, has for a while, about the tendency, as you know, of midterm election years to finish very strong. Here's midterm election years here in orange. Typically, we're down into October,

of course, down a lot less on average than this year. And then it's a pretty dramatic recovery, typically beginning in October into December. This is not necessarily, of course, a guarantee. You see, all years you tend to have a year-end rally. 2018 was a midterm year. You had a bad fourth quarter. The point being, there's some fuel in the tank in terms of sentiment, in terms of seasonals, in terms of positioning, if, in fact, you can find some catalysts with decent earnings or perhaps yields calming down, Sarah. Right. The yields, the big question. Thank you, Mike. We'll see you later for Market Zone.

News out today that a French company has pled guilty and paid more than three-quarters of a billion dollars in fines resolving a U.S. federal criminal charge that the company made payments to ISIS and another terrorist group to keep a cement plan operating in Syria. That was in 2013 and 2014, as ISIS was kidnapping and killing Westerners. The company, Lafarge, paid more than $10 million to the terrorist groups. Our Eamon Javers is here with Deputy U.S. Attorney General Lisa Monaco on the news.

Eamon, how on earth does this happen? So good to see you. And Lisa Monaco, thank you so much for joining us. Thanks for having me. Sarah's question is that's right. How on earth does this happen? So good to see you. And Lisa Monaco, thank you so much for joining us. Thanks for having me. Sarah's question is a great one. How on earth does this happen? Well, what we've seen today is the first time ever that a corporation has pled guilty, has been charged with and pled guilty to providing material support to terrorism. The most notorious, one of the most brutal and notorious terrorist groups this world

has ever seen, ISIS. So they were sending just cash checks to ISIS in order to be able to do business in Syria? They're paying ISIS for protection and for muscle, but also to undercut their competitors, to get a business advantage. They were making a business decision, but it was not a decision that was theirs to make. It is against the law to pay money to a designated foreign terrorist organization. That's ISIS here. And this was happening all the time in 2014, the summer of 2014,

at the same time that ISIS was brutalizing the Syrian people and killing, murdering innocent civilians, innocent Americans, journalists, aid workers. So this is a truly horrific case. And what we've seen here is, frankly, a cautionary tale to companies, multinational companies doing business as they are every day in this very complex world today in high risk environments. And boards and CEOs need to be very vigilant about their companies operating there. During these years, or some of these years, you were running Homeland Security for the United States. Did you have any idea that a French company was paying ISIS at the same time you and the rest of the U.S. intelligence community were trying to put a stop to them? No, we didn't, Eamon. And this was, as I said, in the summer of 2014. ISIS is marauding across Iraq and Syria, waging a horrible, brutal, engaged in a civil war in Syria, and undertaking the most brutal

acts of terrorism, both on the Syrian people and against Americans, innocent Americans they kidnapped and murdered. Do you think global corporations are making the same type of decisions now? I mean, we've got Ukraine, you've got all sorts of conflict zones around the world. Are companies deciding on a business basis to be in business with terrorists now? Look, this is what we want boards and CEOs and general counsels to take away from this case today, which is that now more than ever, companies are operating in high-risk environments all around the globe. Boards and CEOs and general counsels need to be hyper-vigilant about those operations. They need to be really paying close attention to doing deals

with companies, with other companies operating in those environments. They need to be doing due diligence. They need to be investing in compliance structures so they can detect this type of activity and report it to the government. Now, the initial reason we had scheduled for you to be here at the NYSE today was to talk about cryptocurrency, because we've got a big documentary on this fascinating couple that you arrested and charged earlier this year with money laundering more than $3 billion in allegedly stolen Bitcoin, Heather Morgan and Ilya Dutch Lichtenstein. You seized more than $3 billion worth of currency earlier this year. Can you tell us what's going to happen to that currency at this point? Are

you any further down the process of deciding who's going to get all those billions of dollars? Well, this was the largest financial seizure ever that happened, as you noted at the time, and the largest seizure of cryptocurrency. That case is very much ongoing. That investigation and case is ongoing. And victims, individuals and entities whose money, who claim that that's their money, that they were victimized by this money laundering scheme, will submit claims ultimately to a court who will decide how that money is dispersed. So somebody's going to get those crypto billions, but we just don't know who yet.

That's exactly right. Lisa Monaco, thanks so much for being here. Really appreciate your time. Thanks for having me. Sarah, back over to you. All right. Look forward to that doc from you, Damon Jabbers. And thank you, Lisa. When we come back, we're going to have much more on this market rally. The Dow is up 333 points.

Netflix is under pressure ahead of its earnings after the bell. We've got a top analyst on whether investors should buy the stock ahead of those results. Next. We've got a rally here on Wall Street, but Netflix is sitting it out and actually dragging the communication services sector down to the bottom of the market. Netflix gears up for results in just a few moments. We've got a preview when we take you inside the market zone. We are now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here as always.

Plus, we've got Leslie Picker today on Goldman Sachs and Evercore ISI's Mark Mahaney on Netflix as we await those results. Let's kick it off with the broad market, though. Dow's up 327. S&P 500 is up a percent, Mike. So we've had a nice final session here. We're off the highs of the day, but back-to-back gains encouraging. What do you think? Not bad.

You know, in a strange way, maybe a 1% gain is better than these huge big bites that you get on the kind of short-covering, rush-to-grab-for-exposure type rallies we've had in the past month. You know, the equal-weighted S&P is doing better. There's some drag from things like Apple. You don't want to draw too many conclusions, though, just because, as I said, still not back up to the early October highs. There's a lot of work to do, but enough, I think, dry powder out there that people are getting a little bit of confidence that it could run if you have the right things line up. Dollar is stronger, which is a sort of caution point of caution, although yields are

a little bit lower today. We'll watch that. Goldman Sachs is higher after beating estimates. A soaring bond trading offset a big decline in investment banking. Leslie Picker joins us. Leslie, David Solomon gave some cautious comments earlier on the economy when he spoke to CNBC. What does it say about the environment for Goldman Sachs, its dealmaking and its markets exposure? Yeah, so there's a really important correlation there. He said on the call, actually, that he's talking to CEOs who are, quote, rethinking business opportunities. They would like more certainty before committing to longer term plans. So he expects that lack of confidence to continue throughout the fourth quarter. This quarter, though, investment banking revenue was down 57

percent from a year ago, 26 percent from last quarter. The firm said its overall backlog was essentially unchanged from 2Q. Equity underwriting biggest declines here, but not far behind was corporate lending, specifically acquisition finance, which saw declines of 77 percent. But volatility and uncertainty wasn't all bad for the firm, while price swings on fixed income currencies and commodities trading drove a 41% jump in revenue. So you did see declines on the top and bottom line, but some of these areas that were more benefited

by volatility were able to offset the slump in CEO confidence, which caused a slump in dealmaking. Sarah. So, okay, Mike, clearly the volatility is helping firms like Goldman. We've seen that in some of the other results. How does that is the stock stack up relative to some of the other banks, Mike, that did better on the on the lending front and, of course, on the net interest income front like Bank of America and Wells? Been lagging a bit. I mean, Goldman Sachs really has traded right along with Morgan Stanley. So they remain kind of counterparts in those capital markets heavy areas, even though the business mix is quite different between the two. It's interesting

because it's not as if Goldman is really held back by the same concerns that the bigger retail oriented banks are, which is, you know, credit and things like that. It's really just about deal activity and the fact that investors tend not to really want to pay up that much for trading profits, even though Goldman has proven it's a franchise and it's relatively consistent. It's just not something that they put a multiple on in this environment. Well, hard to tell the sustainability of it as well. Goldman Sachs up 2.3 percent. Let's hit Netflix up double digits in a week. Lower today ahead of earnings ahead of the bell. Let's bring in Evercore ISI's Mark Mahaney. Mark, what do you expect? Anything different than what the market is expecting? Well, I think the real question, we already know what the ad

product is coming out in early November across 12 countries. You know what the price points are. What the market wants to know is, are you coming into this from a position of weakness or real weakness? They've missed or some have declined two quarters in a row. That was the March and the June quarter. The market's expecting around a million sub ads this quarter. If it's a negative number, again, the market's interpretation is this ad move is really a sign of just how weak the core business is. So that's really going to be the over-under on the stock today. If they come in close to a million in subs, the stock, the

quarters de-risks. And it's all about what I think is the biggest catalyst in internet land, which is the launch of an ad-supported solution by Netflix. So are they coming at it from a weak spot or a really weak spot? Because you recently upgraded the stock, didn't you? Yeah, Sarah, I think they're coming at it from a weak spot, but not really weak. In other words, I think they'll make the sub numbers for this quarter around a million. And that's not that big of a number. The street's looking for four million for the core business in the December quarter. And this is the global leading streaming platform. It is a business that's now consistently gap operating profit positive. And we're also starting to see this inflection point in terms of free cash flow. So, you know,

this company was probably a year too late in terms of launching this, but that's the past. Going forward, I think it's a great, smart initiative on their part. I think the $6.99 price point is a super aggressive price point, which is exactly what Netflix, given its platform power, has the ability to do. I think there's a big win for Netflix. I like Netflix. It's one of my favorite stocks for the next 12 months. But doesn't it depend on having a big release?

They had the last Stranger Things. That did well. What is it right now? Do they have anything going on? When is Bridgerton coming back is my main question. Yeah. The way I think about it with Netflix is they've got 17 billion shots on goal. So, you know, you and I talked about Squid Games a year ago.

Nobody knew about Squid Games prior to it becoming a viral hit. The Dahmer series, which is out now, which is particularly enlightening. But anyway, it's become a mega hit. And Netflix has the platform potential to really take anything and thrust it into the zeitgeist it's big enough i mean there's 220 million paying subscribers worldwide maybe half a billion people on netflix so they have the ability you know they're what's the next big content hit i don't know but they've got a series of shots of movies that are coming out series that are coming out and then they do return some that have a lot of popularity.

So I look as a hit factory. I don't think that's changed at all. It's more competitive than it was in the past. And I think Netflix just responded to that with this price cut. I think they've set themselves up well. What's the bear case, Mike Santoli, as the stock is still it's gotten hammered this year and over the last year? The bear case in general is that it's kind of profitless prosperity among the streamers in general, where, yes, Netflix has the greatest scale, but it seems like it's a fast maturing user base is not the pie isn't growing that fast.

I do think it's interesting, though, the ad supported tier from Netflix has already done a lot of probably what it was intended to do, which is change the subject to a fair degree, start a revenue stream from zero. That's going to look like growth no matter what happens, and reorient people's attention away from just nothing but quarterly sub growth and the fully paid model. So I think that that's probably interesting as well as pretty skeptical sentiment on net in terms of sell side approach to Netflix. I think the bullishness has kind of been wrung out of the street to a fair degree because the stock really did get pounded so badly in the past disappointments. All right, Mark Mahaney, thank you for your preview. $300 price target, bullish long term on Netflix. We've got two minutes to go in the trading day. Mike, what are you seeing in

the internals? Yeah, pretty positive, even though the market as the index level has wavered a little bit. You still have very solidly positive volume splits here on the New York Stock Exchange. It's better than what? What is that? Four to one or thereabouts advancing to declining volume. So nothing like yesterday's 90 percent plus advancing, but not too bad either as a follow up. We had bad homebuilders sentiment numbers this morning, and yet the homebuilder stocks have managed to retain some traction here. That's a six month chart. Homebuilder ETF well out morning, and yet the homebuilder stocks have managed to retain some traction here. That's a six-month chart.

Homebuilder ETF well outperforming the S&P. Now, on a one-year basis, it's lagging, but in the last several months, it's actually held up okay. Maybe the pain has already been taken, at least in the market's estimation, in terms of what the builders might have in the way of an earnings base going forward. Volatility index has been sticky right above that 30 level. Still too many jumpy one day moves, still too much bond market volatility for the markets to fully relax. So right there, you see it's off the highs, but still in that little bit of an uptrend since August. Also, I would add the dollar yen above 149 adds a lot of uncertainty and questions about

whether Bank of Japan is going to have to intervene against strong dollar higher yields, part of that same trade. Although I would note that bonds are unchanged right now into the close. Let's show you where we are, up 327 right now on the Dow. Again, high of the day was more than 600 points higher, but we have rallied in this final hour and kept the momentum going. The biggest contributor to the Dow gains today, Goldman Sachs, off better earnings, adding 44 points. Salesforce also adding about 40 points after David Faber reported the Starboard stake. American Express, Home Depot, McDonald's,

also a big contributor to the gains. Every sector is higher right now on the S&P 500, which is rallying more than a percent. So week to date, yes, it's only Tuesday, we're up 3.8%. The best performing sector today is industrials. The worst is communication services held back by Netflix, which reports any minute now. That's it for me. I'm closing bell. See

you tomorrow, everyone. Now into overtime with Scott.