Closing Bell - Closing Bell: Strong ending to a strong month, FCC Commissioner on potential TikTok ban, Visa CEO on consumer spending 1/31/2023

Episode Date: January 31, 2023

The major averages climbed in Tuesday trading to cap off a solid month of gains, finishing the session at the highs. Tony Dwyer from Canaccord Genuity joins to discuss the strength this month and what he expects from Wednesday’s Fed Decision. FCC Commissioner Brendan Carr weighs in on calls for a TikTok ban and a further crackdown on Huawei. Visa CEO Al Kelly gives his outlook for the consumer and the payments industry in his last interview before stepping down as head of the company. Plus the latest on GM’s earnings beat, Exxon facing heat from the White House, and the key factor driving Spotify’s user growth.

It is the last day of January and stocks are looking to end a strong month on a high note as we await some major catalysts later this week. The Nasdaq leading again today is now up around 10 percent since the start of the year. This is the make or break hour for your money. Welcome to Closing Bell. I'm Mike Santoli in for Sarah Eisen. Here's where we stand in the market. The S&P 500 gaining back most although not all of what was given up yesterday. We were up two and a half percent last week down a bit more than one percent yesterday and now up about one percent here. You see the 10 year yield coming in a little bit and the Russell 2000 small caps outperforming the January effect also often involves small cap outperformance. Check out some of today's key earnings movers as well gm is jumping on strong earnings as well as solid guidance ups getting a boost on a bottom line beat exxon mobil also higher after that company beat earnings mcdonald's lowered despite topping estimates and caterpillar is at the bottom of the dow today after a profit miss now we have a big show coming your way we'll

talk to f Commissioner Brendan Carr for the latest on calls in Washington to ban TikTok, plus his thoughts on reports of a tighter crackdown on Huawei. And later, Visa CEO Al Kelly joins us exclusively for his final interview. Before stepping down, we'll talk about his read on the consumer, the future of the payments industry, and much more. Let's take a look here at a snapshot of the S&P 500 encompassing the entire nearly 13 months since the S&P did peak for all time back last January. And again, we've regained most of what was lost yesterday, up close to 6% for the month. One thing maybe you want to take note of is we're still slightly below the early December

high. So everything that's happened in the month of January has happened within the range that we also were in in December. It's kind of interesting considering how people feel as if we've got a lot of upside momentum. And certainly there has been some good technical sort of breadth information, some indications of new demand for stocks. But it's not as if we've yet broken out, but very close to that as we get into a Fed meeting as well as the heart of earnings season. Take a look at the homebuilders. You have a lot of these parts of consumer cyclicals

that are doing relatively well. Lenar and Pulte both hitting 12-month highs today. And here you have the homebuilder ETF, which certainly not back at the highs, but it's way above the pre-pandemic levels. And it's basically right on the verge of getting toward those levels that were only ever seen in the kind of 2021 housing nirvana boom time. So it seems as if the market's either saying they're going to refresh demand with lower mortgage rates and the consumer remains OK,

or this is some kind of a big head fake or maybe something secular just going on in terms of the shortage of new housing in this country. But worth noting, a lot of mixed messages in this market. And we're going to try to decipher some of them as we do close out January on a monthly basis. Take a look at the major averages now all higher for the month. The S&P is on its pace for its best start to the year of any year since 2019. The Nasdaq on pace for its best month since July. Tomorrow, we'll get the latest interest rate decision, of course, from the Fed. And we will see if this rally holds up in the face of that. Let's bring in Canaccord Genuity Chief Market Strategist Tony Dwyer. Tony, good to see you.

You know, are you rethinking at all your call that a recession seems likely later this year? I mean, obviously, we know what the leading indicators have been saying, but based on what the market itself seems to be hinting at, is it giving you any pause on that front? Well, of course, you know, as our friend Pauline Meisler says, price has an amazing way of changing sentiment, right? But no, is the answer. So I think you stole my thunder when you opened up, Mike. You appropriately pointed out, we're just getting back to losses in late December. Before coming out, I looked at the high yield market, the S&P 500, the 10-year note yield are all around where they were at that December peak. And if you look at the relative

performance of the industrials, the financials in the energy space, where there's so much interest they were at that December peak. And if you look at the relative performance of the industrials, the financials, and the energy space where there's so much interest going into the year, they're all back to the relative performance level they were last early November, believe it or not. And actually, energy is at the exact same relative performance to the S&P it was in late June at that peak. So it's a really confused market, just like you and

me and everybody else is. At what point do you transition from bad news is good news to bad news is bad news? And ultimately, it would be historically unique for the yield curves to act the way they are, the leading economic indicators to be where they are, the ISM, all the different, the real liquidity money supply in Europe and the U.S. is still kind of in free fall. So it's one of those times where I'm going to stick with the fundamental data because even with the market data is so compelling. Sure. And of course, as all those things point in a similar direction, what they don't exactly tell you is the timing and how long the lead times might be. We just never quite know how that's going to work. But I wonder, in terms of the Fed decision tomorrow, in terms of the message that Jay Powell offers, is there anything that you think can bend

the economic trajectory much one way or the other? Or do you feel like it's pretty much well-baked now? I think it's pretty well-baked. And what's interesting to me is in tech right now, you're getting layoffs are the new bull signal, which is kind of unique. But when I look at what Jay Powell, so here's the problem that investors have. And it says I'm as confused as everybody else. But here's what the man said. We don't want to replay the early 70s, which means taking off the foot, taking the foot off the throat of inflation or the market too early creates longer term and more entrenched inflation down the road. He's also said that they're not going to do anything this year in terms of cutting rates. So at this point, they're having a tough time

with credibility and the market is telling them what they're going to do. He may push back a little bit on that. And, you know, again, the market is a little bit overbought. Could that put pressure on it? It could. Ultimately, nobody knows how high the market can go on this momentum run. What I do know is, again, it would be historically unique to not go into some degree of recession. The UPS CEO today said the base case is a mild recession. That's the guy shipping the goods. So if you go into a recession, you've never bottomed the S&P before you even entered it. It doesn't mean you have to go down 15% or 20%, like as we've talked about before on the show. You're not new in the bear market.

It's a year and a half old for the average stock. So to me, this expectation of a recession isn't, oh, my God, run for the hills. We're going to zero. I want to attack the next move to the low because to me, that's when the bad news will become the bad news. The margin compression will be evident in earnings and you'll be able to have a Fed that will allow us to look through the coming slowdown into the recovery. So that implies that you would still need a relatively stiff decline in this market. I mean, you know, we're now, you know, 500 S&P points, well more than 10 percent above the lows from October. So that would be some kind

of a scare that something worse was likely going on. And that's what it would require, do you think, to get aggressive in terms of buying? Yeah, Mike, as you know, we were in the camp of the fourth quarter rally. We turned more defensive in early the first week of December when you had already run almost 14 percent higher off that October low. We're back to those levels and all those areas that I had mentioned earlier. Okay, so the market is confused. It didn't know if it should have stayed down. Now it's railing back to that level. What do you do from here?

And that all comes down to what is going to happen with margins. And what I'd like to do for the viewers is just give a little data. So currently the consensus expectations, according to my earnings wizard at Refinitiv, for S&P operating profit margins for 2023 is 12.6%, down from 12.7% in 2022 and 13.4% in 2021. The reason I'm using those numbers, let's assume it's a soft landing. There's never been a soft landing that's been a double-digit level in margins. So the margin assumptions, again,

it's going to be historically unique for them to stay above 10 percent when you have a sales decline, not decline, a sales slowdown, which is ultimately what drives them. It's not cost, Mike, as you know. It's normally weakness in the revenue side because you can raise prices when costs are going up. You can't cut prices fast enough when they're going down. Yeah, obviously, it's the negative earnings leverage. We'll talk another time. I don't know how the composition of the S&P today versus years past matters in that margin discussion, but it's absolutely a good point. There's potentially more erosion to absorb. Tony, great to talk to you as always. Tony Dwyer. Great to be with you, Mike. Thanks for having me, buddy. All right. After the break, the clock may be running out

on TikTok. The company's CEO is expected to testify to Congress in March amid growing calls in Washington to crack down on the Chinese-owned app. Up next, FCC Commissioner Brian Carr joins us. Brendan Carr joins us to break down why he is in favor of a ban. You're watching Closing Bell on CNBC. Welcome back to Closing Bell. Time may be running out for TikTok in the U.S. The company's CEO is slated to testify before the House Energy and Commerce Committee on March 23rd in his first congressional appearance. This comes amid growing concerns over how the company handles privacy and data security. Those worries prompting several U.S. lawmakers to introduce bills against

TikTok. The latest coming from Senator Josh Hawley and Representative Ken Buck, which would prohibit app downloads on U.S. devices and ban commercial activity with parent company ByteDance. Joining us now in a first on CNBC interview is FCC Commissioner Brendan Carr. Commissioner, it's good to have you with us. You have certainly been vocal and on the record in believing that TikTok ought to be banned here. I wonder, is there anything the CEO could say in Congress that might either change your mind or assure you that there's another way short of a ban that could take care of the concerns you have? It's been really difficult at this point. You know, the last couple of weeks, in fact, months in particular, the tide has really been moving

out on TikTok at an accelerating clip. We just had last month a new report come out where TikTok had to admit that, in fact, they'd been surveilling the locations of specific U.S. reporters that had been writing unfavorable stories about the company. And so I think it's going to be very difficult at this point for the CEO to come here and say anything that's going to really give me assurances that we can put in place some sort of protections. Again, we've been negotiating, the federal government has, with TikTok for a number of months now. They've had every incentive to be on their best possible behavior. And yet during that time period, that's when they surveilled the locations of U.S. journalists.

That's when ahead of our midterm elections, they targeted U.S. politicians for criticism ahead of the election. So there's a lot of concerns right now. And basically it comes down to trust. And I don't see how you rebuild that at this point. It might be certainly difficult to reestablish trust. But is it just about trust and what you consider bad faith by the company? Or are there just practical constraints to simply hiving off the data, having U.S. official eyes on it and making sure it's not misused or whatever the other concerns might be? I mean, we're talking about a world where, you know, you can only use certain sports betting apps in certain states.

And, you know, the app knows where you are and you can have these firewalls. I wonder what the impediments are here. Well, I think it's clear, practically speaking, that we can move forward with a ban. This will be done out of the Treasury Department. The Biden administration has a group there called CFIUS. Other countries have done this. India has put a ban in place. We've now seen upwards of 30 states ban TikTok from

government devices in those states. There's other precedents. SIFI has had national security concerns with an app called Grindr based on some ownership based in Beijing. That app ended up being sold. So I think that very practically we can do this. And frankly, TikTok in some ways is uniquely replaceable because a lot of people think about TikTok like normal social media, like a Facebook or Instagram or LinkedIn, where you're building a network of people you follow. TikTok is very different. As soon as you go on to the application, it starts feeding you content from an algorithm based in Beijing. So you can replace that fairly quickly and switch users over to alternative platforms that don't present the same national security, but also mental health challenges.

Sure. I guess I was wondering if these other proposals, which would essentially allow TikTok to continue to operate here, but more or less just sequester the data and have it run on servers that are domestically based. Yeah, I don't see that working out in this particular circumstance for a couple reasons. One, there's a story over the summer that got internal communications from TikTok officials talking about exactly that type of deal and protections. And the TikTok officials themselves said that it remains to be seen, even with those protections, attempting to get detailed information about the Oracle servers where this data would be held, including the location of those servers. And so I think that's that's clear to me that even TikTok officials aren't sure that they can trust these protections that we put in place. You mentioned that some to some degree this can done, or maybe it can be done entirely, through Treasury and through the CFIUS process. But do you expect that it really requires legislation to do what you would hope to do? You know, there's bipartisan interest on that front.

Frankly, I think this is one where it's teed up right now for the Treasury Department. I think they should take action now because we're exposed right now. All these new protections that I don't think will be enough, even those are in place right now. But we could see action in Congress as well. There's bipartisan interest, as I mentioned. Congressman Gallagher from Wisconsin, Republican. Congressman Christian Amorthy from Illinois, Democrat, are together on a bill that would ban TikTok nationwide. Those are two members of House Intelligence Committee. On the Senate side, you've got Democrat Senator Mark Warner, chairman of Senate Intel, who has said that TikTok is an enormous threat and says in

his words that it scares the dickens out of them. So I do think that there's growing bipartisan concern and also a coalescing around the idea that a ban is really what it takes, given the level of trust that has been destroyed by TikTok's own actions. Again, there's a saying that your actions speak so loud, I can't hear what you're saying. I think that's the case by TikTok's own actions. Again, there's a saying that your actions speak so loud, I can't hear what you're saying. I think that's the case with TikTok. When you look at the nefarious data flows, when you look at surveilling locations of journalists

when at first they denied it, I think that's very telling. And just separately, we did mention these reports that the administration is looking to further cut off Huawei from, I guess, U.S. suppliers of equipment. Is that sensible at this point? Does it go towards similar ends in your mind? Yeah, I think that we step in the right direction. The report is that the administration is potentially looking at additional action

that would cut off less advanced chips to Huawei. Right now they're already banned from advanced chips like 5G chips, and that's been an effective tool. I do think it would make sense to take a look at extending that, as the reports indicate. But I think it does tee up that issue. If we have secure networks by removing Huawei and denying Huawei from U.S., we have to go to the next step and pair that with action on the app front. So if we have secure communications networks but insecure apps running on it,

then we haven't really taken care of the problem. Do you think all of these measures come at a cost of essentially really closing off what has been, you know, the flow in goods and ideas and IP across borders? I mean, obviously China doesn't allow most of those things in, but I just wonder if the corporate community here is sort of going to look at this as a step back? You know, I think reciprocity is a great starting point for international relations, for tech policy. And as you mentioned, that certainly is not the case when it comes to the Communist Party of China. So I think there is a whole set of national security concerns that we

have to act based on, but also mental health. I mean, there was a study that came out just a couple of weeks ago in the New York Times that showed that TikTok accounts set up for 13-year-old girls were showing eating disorder and self-harm content within 30 minutes, sometimes within as few as three minutes. You look at the version of TikTok that's available inside China called Doyan, it's not showing that content at all. It's showing museum exhibits, science experiments, educational material. So there's quite a contrast when you look at the content that's being showed inside China versus that outside and here in the U.S. I think that underscores the real national security that we have here. Commissioner Brendan Carr, I appreciate your time today. Thank you.

Thanks. All right. Let's go to check on the markets here. The Dow is up almost 200 192 at this point. The S&P 500 has slipped back just slightly up a little less than nine tenths of one percent. Wall Street is buzzing about Spotify today as that stock jumps on the back of quarterly results. And it is one part of the business in particular that's driving the strength. We'll explain that next. And later, don't miss our exclusive interview with Visa CEO Al Kelly on his final day as the head of the company. Watch Wall Street buzzing about today, Spotify user growth at a time when Wall Street

has been worried about consumers paring back on some subscription services. We saw Netflix add more subs than expected earlier this month, and now Spotify has done the same. The stock is up sharply after adding 33 million monthly active users, the most ever net additions for a quarter. Spotify now has 489 million monthly active users and said it should hit 500 million during the current quarter. One area Spotify expects will continue to help its bottom line, podcasting. CFO Paul Vogel was on Tech Check today discussing how the company sees that business growing. We've talked about over the next one to two years getting podcasts to break even and then profitability.

And we actually think long term it will be accretive to our gross margin. So we believe we're on track. We said 2022 would be the peak in terms of the negative impact. And we'll start to see the benefit of podcasts moderating at 23 and then improving thereon. Now, the stock is still off nearly 50 percent from its 52 week high and down 65 percent over the past two years, even after the recent rebound. Our own Julia Boorstin joins us now for more on this. And Julia, certainly getting some results on the subscriber side, although I guess at a cost. And people are focused on margins as the company as well is. Yeah, that's absolutely right. I mean, so interesting. I spoke to CFO Paul Vogel in Tech Tech.

I also spoke on the phone earlier this morning with CEO Daniel Ek, and they talked about how they are focused on reining in costs. The company just announced it's laying off about 6 percent of its employee base, and they said they will continue to invest in areas like podcasts, which are a drag on the bottom line, but they're going to be doing so very thoughtfully with an item margins, trying to figure out which of those podcast investments are most valuable in terms of drawing subscribers and also, of course, ad dollars. Yes, I was going to ask about the advertising side. Obviously, another kind of focus of worry on the street. And it seemed as if the numbers came as at least some relief in terms of how they performed. Yes, certainly. Certainly there was a little bit of relief there. And I asked this question of what do you expect in terms of the ad market as a whole? I mean, we will be hearing from Snapchat after the bell today, from Snap after the bell today. We hear from Meta after the bell tomorrow.

So there's a lot of curiosity about what is going on with the overall macro environment in terms of advertising. And what they said is that things, you know, regardless of what happens in the overall ad environment, we feel confident in the ad options we have. This is a relatively smaller business for Spotify compared to the strength of their subscription business, which is obviously essential for the future. So some sort of big picture confidence in their particular offerings as they compete in this overall market here. Absolutely. And certainly we'll check in with you later as those as those stat numbers come.

Julia Borson, thank you. Up next, an exclusive interview with Visa CEO Al Kelly on whether he's seeing any signs of a slowdown in consumer spending. Welcome back. PayPal joining in on the wave of tech layoffs, announcing this afternoon that it's cutting 2,000 jobs. It's around 7% of its workforce. CEO Dan Shulman writing in a note to employees today, While we've made substantial progress in right-sizing our cost structure and focused our resources on our core strategic priorities, we have more work to do. PayPal shares ticking higher on the news, now up nearly 15% on the year, with today's gain of almost 2%. Meantime, U.S. consumers are starting off the year a bit less confident than they were in December, according to new data out this morning

from the conference board. But payment giant Visa recently reported earnings showing a strong holiday quarter with no hint of a spending slowdown. Let's bring in Visa CEO Al Kelly, who joins us now on his last day at the head of the company, along with our own Kate Rooney. Kate. Hey, Mike. Thanks for that, Al. It's great to see you. Thank you so much for being here. Kate, my pleasure. Good to see you. I want to start with what Mike just mentioned. Visa reported earnings last week, really no hint at all of a consumer slowdown, an extraordinarily healthy consumer.

How do you reconcile that, what you're seeing in your role at Visa, with some of the other data points out there that do show a slowing consumer and some pressure on consumer spending? Yes, we're seeing boring stability from the consumer, up 9 percent in the holiday season, 141 percent of 2019. And, you know, I think a lot of it has to do with the amount of cash digitization that has happened during and now post the pandemic. We saw in the holiday season 5 percent higher mix of people shopping in e-commerce than in face-to-face environments. And that combined with the fact that there's still a lot of pent-up demand in terms of travel, there's been a nice return of travel over the course of the last number of

months that's frankly continuing. Boring stability, probably a good thing in this market, I would think. I also want to ask you about some of the regulatory challenges in the past few years in your tenure, really, as CEO, most recently antitrust division of the DOJ, talking about debit cards, some competition within the card networks. And then also one of Visa's biggest deals to buy a fintech company, Plaid, was called off as well. I wonder how investors should think about Visa's growth going forward and potential M&A with that in mind. Well, we've made a number of purchases since the plant acquisition was rejected by the DOJ. So we're going to continue to look at good opportunities and good companies.

It's something that is part of our growth strategy, and I think that will continue. And regulatory activity around the world, I've been involved in payments for almost three and a half decades, and regulatory activity is kind of part of the game when you're there. And we spend a lot of time trying to educate regulators and work with them around the world. And in the case of the DOJ, the latest CID we got from them was similar to the ones we've gotten before. They're looking at debit and competition in the United States. We believe that we are completely compliant with all the laws and that

we're doing all the right things. Al, thanks, Kate. Al, I remember, you know, Visa coming up on, I guess, the 15th anniversary of its IPO. And I remember at the very beginning, the whole story was payments are going from cash and checks to electronic form one way or the other, plastic or otherwise. Where are we in that process? I ask because it seems as if it's getting a little more splintered. There are going to be more electronic payment options, things like direct bank payments, whatever the Fed might do, and whether, in fact, you feel as if the franchise long term is getting a little more challenged. Well, Mike, first of all, good to see you. Thank you. Look, the industry is a great industry.

The pie continues to grow and it attracts a lot of players. That said, I think we have an incredible history, an incredible brand, incredible infrastructure, a global footprint that's hard to duplicate. And frankly, there are a lot more ways to pay, Mike, but we don't pick winners and losers. We enable anybody that wants to try to figure out uh... how to provide a new way to pay for consumers to work up and run on our our network and ultimately we believe that the consumer based on the value proposition in the user experience will make the choice as

to what's in their mind of the best way to pay so when i look at the fact that there's still $15 trillion spent on cash and checks around the world in the consumer space, the total addressable market for the B2B space is about $120 trillion. I see nothing but tremendous upside in this market. And I think the pie will continue to grow. That on top of the fact that geographically, there's still so many places where payments are nascent. And I've spent a bit of time this last year focused on Africa, for example, where, you know, we're really just beginning to scratch the surface in terms of

consumer payments in that continent. You know, and getting a little bit into that in terms of you have such long termterm drivers of overall volumes, I wonder if you, therefore, can even have much of a read on the current pace of the cyclical fortunes of consumers. In other words, look, the overall space is growing. And what clues you might look for in terms of activity that would suggest that maybe things are weakening, whether it be, you know, more spending turning toward credit versus debit or other metrics that you might be able to look at? You know, Mike, my successor tomorrow, Ryan McInerney, says that when we squint really hard, it's still hard to find these things. What we do know, though, is that there is some substitution going on. So if somebody spent

$100 at Walmart yesterday, they might be spending a little bit more on food and and pharmacy products and a little bit less on discretionary items. We know that there is some movement away from brands to generics. But when we do our analysis and we look industry by industry and we look country by country, we're still seeing a pretty stable consumer out there. And I think one of the areas that's really attractive right now and has really grown much faster or recovered much faster, I should say, Mike, than we thought is cross-border travel. And that's still with Asia being still behind 2019, China obviously still being behind 19, and North America or the United States specifically just getting back to 2019 levels,

given where the value of the dollar has been and how difficult it has been for international people to get visas into the United States. And now I do want to ask you about the political environment. You have had some challenges over the past few years, whether it's things like gun control and some of the new merchant protocols there, pushback as well on Visa's role in the online pornography industry and issues there. I wonder what your advice would be to CEOs who are wondering when to chime in, if at all, on some of these issues and And looking back on your own legacy, any regrets on how you dealt with some of those controversies recently? My view, Kate, is very simple, that if it really impacts our country, our company,

I should say, I should speak out. But if it doesn't, I shouldn't. You know, we have a very specific purpose at Visa, which is to uplift everyone everywhere by being the best way to pay and be paid. And so I want everybody to like us. I want everybody to use our products. I want everybody to be comfortable using our products. We're guided by the law of each land in which we operate around the world. And our belief is that we should follow that law. So, yes, for example, there's a new merchant code for gun stores. That was a standard established by ISO in Europe. And given that we operate in a global, interoperable world, we follow standards. That said, I can tell you and tell viewers that we will make sure that anything that is legal is still allowed to be purchased.

And beyond that, there is some of this nonsense about, for instance, we can create a gun registry or track people is total nonsense because we don't collect the skill level data. So if you go into a gun store and buy a tent and three thermoses, all I know is what store you went into, when you went into it and how much you purchased. I don't know what you purchased. Absolutely. Well, I'll have to leave it there. Really appreciate your time today and your last day as Visa's CEO. Kate, thank you very much. Mike, thank you to you. Thank you.

And thank you, Mike. Back to you. All right. Appreciate it. Thanks to you both, Al Kelly and Kate Rooney. Take a look at where GM shares are. They're revving higher after reporting better than expected earnings and guidance. Coming up, a top analyst explains why he's maintaining his sell rating on the stock despite those results. As we head to a

break, check out some of the standout stock winners for the month of January. It's a lot of the names that were hit hardest last year. Carvana has more than doubled. Coinbase up more than 60 percent. Tesla and Roku both up around 40 percent. And the ARK Innovation ETF is up nearly 30 percent this month. We'll be right back. Let's check out our stealth mover, International Paper. And investors are seeing some big paper profits today. The company packaging together a fourth quarter profit beat on the back of lower costs and issuing stronger than expected full year guidance thanks to improved pulp profitability. The share is up 10%. IP, a former Dow component, Caterpillar, one of the worst performing current Dow stocks despite a big earnings beat. We'll explain why straight ahead. That story plus GM cruising and drilling down on Exxon when we take

you inside the market zone. We are now in the closing bell market zone. Bespokes Paul Hickey is here to break down these crucial moments of the trading day, plus Pippa Stevens on Exxon and Sima Modi on Caterpillar. Welcome to you all. As we hit session highs here on the major averages, you have the S&P 500 up 1.1 percent, Paul. On a day when, you know, I guess familiarly mixed bag on earnings. I don't think earnings are really across the board dazzling anybody yet. Here we are with a 6 percent gain in the S&P in January. What do we attribute that to? Yes, I mean, it all comes down to expectations when you're talking about earnings, Mike. And what you've seen heading into this earnings season, like the prior two earnings

seasons before that, was the fact that expectations were extremely low. You had some of the most, the highest pace of negative revisions in the month leading up to earnings season that we've seen in quite a few quarters. And last two earnings seasons, the market was up 8%. We're off to a strong start now. And so when you have that low bar, it's easier for the companies to exceed them. And we've seen relatively disappointing results relative to expectations. The earnings beat rate is lower than the three-year average. Revenue beat rate is lower than the three-year average.

The percentage of companies raising guidance is lower than the three-year average. The percentage of companies raising guidance is lower than the three-year average. Yet the average stock reporting earnings has been doing much better than the three-year average. And the ones that are beating are doing much, much better than their average. And the ones that miss are going down less than you would expect. And it's all about supply and demand. When you have a scarcity of companies beating expectations, investors are going to flock to those for them. Whereas when you have more companies missing expectations than average, you're going to see muted downside moves. Yeah, I guess loses its power to shock on that level. Let's get to one

of the outperformers today. General Motors surging after topping fourth quarter estimates and issuing better than expected full year guidance. The automaker said it had no pricing changes for its electric vehicle models planned. A departure from Ford and Tesla, which recently cut prices. GM also announced a $650 million investment in Lithium Americas, further committing to its EV strategy. Let's bring in Garrett Nelson, further committing to its EV strategy. Let's bring in Garrett Nelson, senior analyst at CFRA. He just raised his target to $32 on the stock, but maintains a sell. Garrett, good to have you. Thanks for having me. What fails to get you on board the stock here? I know your projected target valuation for GM based on what you expected to earn is more like five to six times earnings.

What is it about the company you feel like doesn't warrant more of a P.E. than that? Yeah, we think they're making a very aggressive bet on the future of electric vehicles. They want 40 percent of their U.S. fleet to be electric by the end of 2025. And we see a situation in the very near future where the U.S. market is really oversaturated with electric vehicle models, and the demand just isn't there. If you look last year, EVs accounted for about 5% to 6% of total new vehicle sales in the U.S. There's well over 100 new EV models that consumers will have the option to buy by 2025. So there's a whole lot of new models coming to market, and we just don't see many selling particularly well.

Now, GM's production goal for the current year is at 400,000 EVs. It would just seem as if in the very near term, GM's fortunes are not strictly hitched to how it manages to fight the EV market share wars. Yeah, in the near term, they're expecting to introduce three new EV models this year, the Chevy Silverado, the Blazer, and the Equinox. The problem is GM hasn't had a lot of success with EVs in the recent past. Aside from the Chevy Bolt, there's two other Chevy EVs which they've had to discontinue due to poor sales, the Spark and the Volt. And so, you know, if you look at the market, Tesla's Tesla vehicles still account for almost two thirds of all EVs sold in the U.S. And so, you know, you look at the rest of the market, it just doesn't leave a lot of opportunity for GM and other competing automakers who are rushing into the EV market. All right. We'll have to leave it there,

although it is worth noting that even with this pop in GM shares, it's still below where it was in early December, about a $40 stock. So clearly some skepticism about how well they can do there. Garrett, thank you very much. Appreciate it. Thank you. It has been a volatile day for shares of ExxonMobil, the oil and gas giant reporting better than expected fourth quarter earnings. They beat estimates and a record 56 billion dollar annual profit for 2022. Despite the beat, stock trading lower at the open because of concerns about higher drilling costs and lower chemical margins. This morning on Squawk Box, CEO Darren Woods discussed whether the company's record profits will spark backlash from the White House, which has been urging oil companies to lower prices for consumers.

We've done the hard work. We've made the investments. We had a keen focus on making sure that we had the production there and products available for society when it was needed. When the call came, we answered it. We had spent that money taking criticism at the time and grew our production and are basically providing more products today because of those investments. And so I think we're doing what the White House, in essence, is asking us to do. Well, sure enough, a White House spokesperson telling CNBC this afternoon, quote, it's outrageous that Exxon has posted a new record for Western oil company profits

after the American people were forced to pay such high prices at the pump amidst Putin's invasion. Pippa Stevens joins us. And, Pippa, I guess this is the predictable back and forth. On the other hand, if you look at Exxon's numbers and their plans, I think their capital spending budget is about what people were expecting at well over $20 billion for the next couple of years. So it's hard to know if this is an either or situation. Yeah, their CapEx is in line with expectations. The company was at pains to emphasize that in places like the Permian and Guyana, production was actually up 30 percent in 2022 relative to 2021. And as you heard in that soundbite just now, Darren Woods was really emphasizing that the company has invested countercyclically.

They've invested no matter the commodity price backdrop and that those investments are now paying off where they've increased production in places like the Permian Basin. And so what he's saying is that they actually are increasing their output and they're doing their part. Of course, the White House is taking issue with that. But once again, Darren Woods would say that this takes a long time to get new production online. There are refinery shortages throughout the U.S. We have seen a reduction in capacity there. And so, you know, he says that this is really not the industry's fault and that they are doing as much as they can.

Also, interestingly, he made a point of differentiating Exxon from other energy companies. You know, he said that when they leaned in, when others leaned out, bucking conventional wisdom, that he continues to invest throughout the pandemic and into today. So responding to the White House there, saying they are increasing their output and then also making a distinction between Exxon and what other energy companies are doing. Yeah. And of course, crude is down where it was about 14 months ago in price. So it's not as if it's still riding the highs, Pippa. Thank you very much. Caterpillar, the biggest loser in the Dow today, despite beating Wall Street's earnings estimates. Investors concerned about higher costs, currency headwinds, and Caterpillar's warning that demand in China will remain sluggish this year. Sima Modi joins

us to really pull apart all these threats, Sima. Well, Mike, I mean, the comments from Caterpillar on China were significant amid this reopening. The company saying instead it's seeing weakness in China, specifically in the excavator industry that is above 10 tons. Oh, they're also expecting the business in China to remain below 2022 levels due to low construction activity. Now, this is significant because Wall Street analysts, including those at Jefferies, had been building this thesis around Caterpillar being the beneficiary of this revival in the

economy. And that very well may be the case, but it may be more of a second half of the year story versus now. So sort of a reset in expectations. The stock has seen four weeks of consistent gains. It's been an outperformer in the industrial space so far in 2023. The earnings report didn't really meet those high, high expectations, and that's why you're seeing it down about 4%. Absolutely. And see, I mean, it's, Paul, below, I don't know, up 50% CAD is from the lows in October or thereabouts. So it seems as if the market was geared, Paul, for something that was a little bit stronger in the near term. But nonetheless, machinery and some of the other capital goods areas of the market have been leadership to the upside. Yeah, I think Seema summed it up perfectly. I mean, the expectations were high within the sector.

The industrial sector overall, we've seen more downward revisions and upward revisions, but Caterpillar was an exception. Contrast that with UPS, which didn't have a great report relative to expectations today, but that stock's trading higher. And why? Because expectations were low. There was a high amount of negative revisions to UPS heading into that report. And UPS, like a lot of these transport stocks, has very negative sentiment going into earnings. So if you're looking for an area where the bar is set low within the industrial sector, you may want to look at the transports area. For sure. Now, we are levitating here toward the close. Forty seventy one on the S&P 500 up one point three percent. Pretty much the highs for the month. January 31st, actually often a strong day.

Paul, what's your read on whether the market is kind of setting itself up on a tee for for Jay Powell to take a swing at tomorrow when when he talks about what he's doing from here? Yeah, I mean, he's got the bat ready, I think. But the last three Fed days, we've seen big sell offs after the announcement. So who knows what's going to happen tomorrow. But when you look at the broader perspective and the broader backdrop, the economy is a worry, definitely. The Fed being that ultra hawkish is a concern. But at the same time, you have seasonal strength working in our favor. You still have negative sentiment. And then most importantly, the internals of the market, which we've been talking about, have been strong since October. And give me the choice to invest based on the headlines or the internals. I'm going to pick the internals every time.

What do you think, though, about I mean, you mentioned some of the obvious worries and the ones you can't necessarily set aside. But the idea that all these leading indicators of a downturn seem to be lining up, people feel like it's when not if for the economy with the yield curve and everything else. And yet the stock market is, you know, is managing to fight through to the upside. Yeah. So I think two things like the two stool, the two legs of the stools that are still standing for the economy, so to speak, I think are employment. You still have an average of, you know, 200,000 a month jobs created. And then as we've heard in these big bank earnings reports, consumers still have excess savings in

their bank accounts. They haven't drawn down that pandemic savings yet. So that's helping to keep things from really turning south. Now, we just want to have we just want to see when the Fed talks tomorrow, are they going to start, you know, toning it down a little bit or are they going to keep going guns a blazing? And that we'll find out tomorrow. And that'll tell us how we close after the meeting tomorrow. Yeah, absolutely. And, you know, I guess real quickly, what would be a routine pullback from here that would say, OK, nothing too much to worry about? So, I mean, just look at the, you know the 200-day moving average that everybody's been focusing on. I mean, if you see a 2% to 3% pullback here, that's typical of garden variety. Tomorrow, Thursday after the close, we're going to get these mega cap earnings.

That could create some volatility. But I think, you know, within 5%, that's nothing to be overly worried about here. All right, Paul Hickey, thank you very much. And we have the S&P 500 at 40.75. It is above the closing low from Friday, up 1.5% on the day heading into that Fed meeting tomorrow. Market threat pretty strong all day. We have the volatility index 19.4, under 20, heading into a Fed decision day tomorrow. That's going to do it for closing.