Closing Bell - Closing Bell: Tech Exuberance Fading? 6/23/23

Episode Date: June 23, 2023

The Nasdaq is on track to break an 8-week win streak. So, is the tech exuberance fading? Dan Greenhaus of Solus Asset Management gives his take on the sector. Plus, CIC Wealth’s Malcolm Ethridge breaks down the key stocks he is betting on right now. And, Goldman Sachs is facing a big writedown on its troubled Greensky deal. CNBC.com’s Hugh Son explains that exclusive scoop. 

Welcome to Closing Bell, live from the New York Stock Exchange. I'm Sarah Eisen, in for Scott Wapner. We've got an exclusive CNBC story today about a major write-down Goldman Sachs could be facing. We're going to have details for you coming up. But this make-or-break hour begins with the once-loved tech sector. The Nasdaq now on track to break an eight-week win streak, and new data shows tech funds seeing their largest outflows in 10 weeks. It leads us to our talk of the tape. Is the tech exuberance fading? Let's ask Dan Greenhouse of Solis Alternative Asset Management.

He joins me here at Post 9. Good to see you. Thank you for having me. Is the tech exuberance fading? It's been a strong run that nobody predicted. Year to date, month to date, and now some giveback. Not extreme, but down for the week. Not extreme, but every rainstorm has to begin with but a single raindrop, if that's what you believe.

So this is a rainstorm? Yeah, I'm not saying that. The saying is apropos. I mean, listen, you've had a terrific run in a lot of these names, as everyone is well aware. Apple on down through NVIDIA are up 30, 40, 50. NVIDIA is up almost 200% year to date. The law of large numbers kicks in at some point. And so it wouldn't be, whether in retrospect or at the moment, out of the realm of possibility to argue that most of those gains have been realized and perhaps some give back or at a minimum a pause wouldn't be out of step with history. So you don't think that you should buy the dip on NVIDIA

because AI is transformational and we're just getting going yeah i'm making no comment about whether one should buy nvidia or not what i'm saying is uh when a stock the size of nvidia trillion plus in market cap is up 200 for a given year through six months again the law of large numbers says are you going to be up 400 year to date and again we saw the data earlier today that showed that there were outflows of tech funds there's concerns about interest rates and and global central banks obviously the Federal Reserve being more specific. And so when you put that all together, you know, could we have some pullback during the summer? Sure. It's all of them, though. I mean, this was a week dominated by news of central bank hiking. That's right. And it came as a double from the Bank of England in a surprise,

came as a double from Norway, which I know people aren't paying attention to. The threat from the Federal Reserve is a double from the Bank of England in a surprise, came as a double from Norway, which I know people aren't paying attention to. The threat from the Federal Reserve is a double? ECB is promising more. Sure. Powell didn't say anything to dissuade us from more hikes. Nor just bank. There you go. There's a long list. So maybe it was too good to be true

that tech was rallying in the face of tighter policy and higher rates. Well, yeah, I mean, but listen, I think the idea behind why you would pile into technology, let's say, on the back of lower interest rates is because you're discounting cash flows at a more attractive discount rate. But if you're Apple or Nvidia, Meta, any of these companies, you're generating tremendous revenues, net income cash flows today. So I think that argument holds a little less water on the active side of things than it does for, like, let's make it up a Palantir or Workday, let's say, where more of your value is going to be realized in the out years of the terminal value. But since we brought up the central banks, you can't hide, one can't hide from the fact that

central banks remain way more hawkish about inflation than does, or as appears to be, the market. The market continues to not believe what the Fed is doing. They haven't believed what the Fed will do for six or nine months. I think there will be one more hike. I would argue, I mean, listen, most of the street is, from the economic side of things, appears to me to be at zero or even one. I think there's maybe two shops that are at two hikes. The city has two.

Andrew Hollenhorst is at two, and I think our mutual friend Michael Gabin over at Bank of America is now a two. Everyone else is at zero or one. But this has been the story of the last six or nine months. But the counter argument there is that they're closer to the end. Sure. And even if it's one or two more, you know, Bell's not going to ring when they're done. That's right. They're getting to the end. I think the bigger question is how long they stay at this high level and when they start cutting. I totally agree with you. And does that change your view on when you should be buying tech stocks? Listen, absolutely. I think the idea that one more hike is the straw across the camel's back, sure, maybe there's some evidence there,

but at the end of the day, we have no way of knowing whether one or two more hikes is it. But with respect to what you said, the longer you leave rates up at an elevated level, the more ocean you're chumming, so to speak, the more refinancings that are going to get difficult, the higher interest expense for on-the-bubble companies are going to be, the more projects or investments that get put off because your hurdle rate is elevated. And again, the longer you leave things up there, the more of that that starts to accumulate. And traditionally, that's ultimately that more than one more hike is what tips the economy over into a recession. And if that is what happens

over the next, call it six or 12 months, then you don't want to really buy anything on an absolute basis, let it be tech or industrials. I think Bostick, Atlanta Fed this week called it passive tightening just to leave it on hold for a long time. By the way, I just want to point out the market right now because we are hitting session lows. The S&P 500 down almost a full percent. The Nasdaq is down a full percent right now. We're just adding to the losses for the week. But again, we're down one and a half percent on the S&P for the week. So it hasn't been a tremendous pullback. We're maintaining the month to date gains for June so far. It's been a good month, up 4% on the S&P 500. But, Dan, you've got every sector lower right now.

And, you know, the other thing I want to introduce that happened today is weaker economic data, both overseas and here in the U.S. We knew the manufacturing sector was sort of recessionary-looking recession. But do you worry about a recession, which we've been worrying about for the last year and a half with nothing happening there? Or do you worry about higher interest rates? Because bond market can't do both. No. I would push back on we've been worrying about a recession for a year and a half on the idea that I did, at least for me, I didn't think there was any probability of a recession last year. My estimate was that you would have a recession in the middle of this year. Have we been talking about an impending recession for a year and a half? Sure. That's what happens when you see, we saw four 75 basis point hikes.

Yeah. I mean, listen, I think ultimately what's going to happen is we underestimated where the neutral rate is, how high the Federal Reserve has to go in order to bring about the economic damage that it thought, let's say, 500 basis points of hikes had to achieve. But that's going to be time. Time will tell. But with respect to Bostick's point about the passive tightening, I'll just add, I don't think people appreciate this, that if you just leave rates up here and inflation comes down, then things start working against you from a tightening standpoint.

Policy just gets tighter the more normal things get. And with respect to the economic data that we saw out of Europe and here in the U.S., as that's happening, you're starting to see cracks in the labor market. And I don't think there's anything to fret about just yet. But when you have quits coming down, the work week coming down, and jobless claims going up, you're starting to see indications that maybe the strength in the labor market, on which everyone's attitudes have been built, is starting to crack. Right. 260 was jobless claims. So we stayed high. 2021 high. Not a terribly high level, but moving in the wrong direction. Right. So are you changing your

posture? Because you've been bullish. Yeah. Well, I've been less bearish this year, for sure. I don't know that I would say I've been bullish, but we've been less bearish. But that was largely tactical on the idea that, well, it doesn't matter. That's too long of a conversation. But now, as any person who works managing money will tell you, you have to think each day about the here and now and not the then. It doesn't matter what I thought yesterday or the day before. What would I do with it now? And if you're starting to see the labor market crack the way that you are, if you have global

central banks continuing to tighten the way they suggest they will, then you have to start continuing, or I should say, you have to start being more concerned about the recession rather than less. And it's important to point out that even if we're right, that people, even if you're right, that people were worrying about a recession last year and it didn't happen, doesn't change the fact that the here and now means that worrying about it six months from now is what's relevant, not whether you're worrying about it six months, 18 months ago. So now you're worried about it six months from now. I've been worried about it for a year and a half, but I didn't think it would happen until now. I'm wrong by six months. Let's expand the conversation and bring in

CNBC contributor Bryn Talkington of Requisite Capital Management capital management. Brand are you starting to get worried more worried. About recession and starting to reposition accordingly. We're not starting to reposition Sarah you know we came into this year. That we felt in terms of the economic data. And the market that we

had one of the widest ranges of outcomes because. Your point earlier we've had. You know within a year we've had, within a year we've gone from zero to five plus percent interest rates. And so far the economy has been incredibly resilient. But our concern in the beginning of the year

is we've had 13 years of zero rates and going so fast and so high so quickly would create cracks in the economy. And you clearly saw that in the regional banking sector. I think ultimately you have this dislocation right now where you're starting to see some economic weakness, some, because while unemployment's getting a smidge higher, they're not staying unemployed very long.

And you still have 3 million baby boomers retired during COVID and they're not coming back and so i think that as we're starting to have have green shoots of on shoring where as deglobalization happens which is inflationary we're missing these three million workers if we go into a recession it's not going to look like the past recession so that's never been our our call is that we're going to go into a recession we do think we call is that we're going to go into a recession. We do think we're going and we'll continue to go into a slow contraction where GDP continues to come down. And that's really important from a sector allocation of what you want to own and

what you don't want to own as GDP continues to come down and inflation later on in the year remains sticky. What about the topic du jour, Bryn, about tech? I mean, the NDX, NASDAQ 100 rally has been surprising and impressive so far this year. Are we starting to see real cracks in that? Would you change your tune there? No, I think that as of last week, it's come down a little bit, but as of last week, the NASDAQ was 20% over its 150-day moving average. And Sarah, if you go back decades, that becomes very vulnerable. In the first part of 2018, we saw a really big sell-off from January to February because the NASDAQ had gotten overextended.

So I think in the short term, it's vulnerable. But this AI wave, I believe we're in the first or second inning. And there's so few publicly traded companies that investors can own. And so I still think companies like Microsoft, NVIDIA in particular, which maybe it's PE is expensive, but there's never ever been a company raise guidance that this big of a company raise guidance. And so I feel really confident that any weakness on NVIDIA, people are going to continue to add into that name because that just seems like a really clear cut way to get into that AI exposure where there's earnings to back it

up. Bryn answered my question on that by the dip in NVIDIA. Dan, it gets into the, I mean, the rally in the NASDAQ this year has been all about PE expansion, right? Are the earnings fundamentals changing for these companies? Yeah, I mean, for the market as a whole, you're starting to see earnings revisions move to the upside for next year. And again, from a broad market standpoint, coming into the year, one of the reasons why you would be optimistic is because you were looking out, call it six months and assuming correctly or incorrectly now we know probably correctly that you were reaching something resembling a trough and earnings expectations and you're starting to see that now in which case if this is the end of the bear market then you should obviously start buying in the market would rally I do

want to make a quick point about AI and get back to that for a second someone someone was making an analogy that I thought was really interesting about how when you think back to the invention of, let's say, refrigeration, no one really knows who invented refrigeration per se, but you know that the Cokes and the Pepsis of the world use that refrigeration to grow their revenues and their earnings over the next, obviously, number of decades. And right now, whether it's NVIDIA or Adobe or whatever, we're focusing a lot on who are the companies that are making the AI, which is not the right way to put it,

but we'll go with it now. The picks and shovels is what they say. And what will be really interesting is over the next five years, which companies are going to use this. Those companies are clearly not found right now. And when they start to emerge, I imagine that's where you're going to make

an enormous amount of money. But you don't have any names for us yet. I can't give any. I can't say any names on TV. You must invest with the fund. So what do you do, Bren, with the AI thing, which has been in the face of rising interest rates, worries about the economy, cracks in the labor market, valuation concerns on the market? I mean, it's hard to fight the AI wave, though, if it is that transformational. You have to be patient, because I said earlier, there's so few public companies that,

and we're so early in. And so remember going back when the internet was in search, came out, it was all about AOL, Yahoo, Yahoo or Ask Jeeves. I mean, Google hadn't even started then, and that actually ended up to be the winner. And so I think investors need to be discerning, be patient, don't chase it. But that's why I was saying earlier, I still think Nvidia, because they are creating the GPUs, they are the epicenter, will continue to be where assets flow because it is a pure play. You say in your notes markets don't care about the Fed anymore. And I'm just curious about that because I think I disagree.

I care. I care about the Fed, right? And so it's like you when the market has been very, very clear, if you see in this year's performance what's working, is that the Fed is done and the Fed may on the margin go one, they may go two. But I think that to what you said earlier, passive tightening, to me, we're just going to stay at this level. And we're going to go on autopilot around that 5% until we can't do that anymore. And so I'm very concerned about it. Because I think that Jay Powell has the 70s blown up in a poster behind his desk that showed you that inflation peaked and then troughed.

And then guess what? It started running up again. And so I think that will continue in my mind to be a concern. But I think the market has clearly shrugged off that they're going to do anything else except just rhetoric. But don't you think the market is factoring in interest rate cuts next year sooner than the Fed is factoring it in. So do you see that as a downside risk that the Fed doesn't do it or do you see it as an inevitability and doesn't isn't that going to matter and isn't every word going to be scrutinized until the Fed starts cutting rates. So if you and I are talking

about it it's already embedded in the market. So I don't care what Fed fund futures say. The market knows what it predicts in the future. And so Bostick and Powell can say, we're not going to cut rates for two years. The market doesn't believe that for sure. And I think it's unknowable because at the same time, Sarah, this is the same Fed. They're human beings. They make their best efforts. But, you know, Jay Powell in May of 2022 said we don't see any 75 basis point rate hikes on the horizon. So these are best efforts, but they don't have the best track record of predicting. And so it's still a concern of mine. But I think the market shrugs it off maybe right now. So I do think it's worth bringing up, Dan, and I'll give you the final word that the 10-year

note yield is a 3.7. So it's actually come down a little bit on the week, even with all this tighter talk and tighter policy. And two-year yields, 4.76. They haven't broken out to the upside. And maybe if that happens, that could be a big headwind for the market or tech. Traditionally, the two-year doesn't trade this far underneath the Fed funds rate unless there are rate cuts expected and and i i i let's say there's one more hike you are a a fairly large amount below where the fed's funds rate will be and so to your point i i don't want to predict anything but i i think the two years probably not right two years probably gonna have to go a little

higher especially if the fed hikes at least one if if not two more times. And is that going to be a headwind overall? Yeah. I mean, I don't know if it's a headwind per se, but I think the larger issue then is, and this is the only question that matters for investors today, is if the Fed feels like it needs to crack the labor market to get that, to wring that last one or two percentage points of inflation out of the economy, what effect does that have on the stock market and corporate earnings? Everything else, to Bryn's point about the market doesn't care, as long as the Fed does not think they have to do that, then the market doesn't care. The second the Fed is at the point where they are really doing damage to the labor market, in order to get inflation back to 2%, I agree they don't know. But if that happens,

believe me, we're going to care about the Federal Reserve. Dan, thank you. Dan Greenhouse, Bryn Talkington. Have a good weekend to you both. It brings us to our Twitter question of the day. We want to know from you, which of these big tech stocks would you be buying on weakness? Intel, AMD, Microsoft, or Alphabet? You can head over to CNBC Closing Bell on Twitter to vote. We'll share the results with you later in the hour. Let's get a check on some of the top stocks to watch as we head into the close. Christina Partsenevelis is here with that. Hi, Christina. Hi, Sarah. So let's talk about JD.com and PDD Holdings. They're two of the biggest

laggards right now on the Nasdaq 100 today and unfortunately heading for their worst week since March. The declines, though, come amid ongoing concerns over the global economic picture that you just discussed and then China's own recovery. The K-Web ETF is actually set to snap a three-week win streak at the moment. You can see PDD, for example, is down almost 5% right now. Let's switch gears and talk about Coinbase. Coinbase is higher after the Supreme Court ruled that customer lawsuits against the company could be paused while it aims at moving disputes into arbitration. But the move is also being driven higher by a rebound, I should say, in Bitcoin that has been trading at its

highest level in over a year and topping $31,000. Right now, it just came under $31,000, but it was above $31,000 when we wrote this. Coinbase also 6% higher today. Sarah, I was about to say. Thank you. Thank you. Christina and Bartonellas, we'll see you in just a bit. We are just getting started here. Coming up, our next guest is betting on one financial name as an under-the-radar crypto play. He'll explain why after this break. And then later, we are setting you up for Nike earnings next week. We're going to hear from a top analyst about what he's expecting from that report and what it says about the overall consumer. We are live from the New York Stock Exchange. You're watching Closing Bell on CNBC, down about

220 on the Dow. Welcome back to Closing Bell. S&P 500 on track to snap a five-week win streak today, but our next guest still sees pockets of opportunity in what he calls a stock picker's market. Malcolm Etheridge, CIC Wealth Executive Vice President, joins me now with some of his top names. So first of all, Malcolm, you're buying into this kind of environment. Yeah, I mean, there's definitely opportunities still in the market that, you know, we're hearing a lot of people concerned that recession is right around the corner, right? We've heard we've been on the brink of a recession for the last 18 months.

But there's definitely opportunities for some companies that are just not so far over their skis, like the Magnificent Seven, right, to keep using them. But also Schwab is atop of your list, which is an interesting one because, I don't know, it's a little controversial right now. It was considered after the SVB failure to be in trouble while Benger came on here a few times, tried to reassure everyone. Why are you buying Schwab? Well, not only did he reassure everyone, he also plunked down five million bucks of his own cash out of his pocket to buy additional shares of the company. So anytime you see an insider buying like that, it definitely

should at least get your attention. But I think that Schwab is a unique story in the sense that it got thrown out with the bathwater, the regional banking crisis, but it's not necessarily a bank. It's a brokerage that also has a little bit of banking business. But aside from that, what I think is about to happen as far as Schwab shares are concerned is the announcement of EDX, the exchange for crypto trading that just got announced earlier this week, Schwab is one of their initial investors. And what that's going to do is allow people to invest in crypto, hold their crypto inside of their brokerage accounts alongside their individual stocks in a way that we haven't seen happen before. And I think that's a seismic shift for the crypto industry because it brings some validity to it. It brings it from being just a fringy thing that's only done on Coinbase and others and makes it more mainstream.

And I think of the three, you have Schwab, Fidelity and Vanguard as the major brokerages where folks hold their trade, their individual stocks. It's the only one that's publicly traded, right? Fidelity's family owned and private. Vanguard is owned by its shareholders. And so it's the only way to play that trade, I think. So are you excited about that opportunity? Because it's been a while since someone's been excited, I think, about an equity based on crypto opportunity with all the fallout there.

Well, I would say that it's definitely early in the game, right? Schwab always tends to lag its banking peers anytime there's a massive sell-off in the banking industry. And so there's definitely still time to get into the trade. But what I think is really exciting about it from a positioning perspective is it got sold off wholesale with the rest of the regional banks, right? As you were just talking about with SVB, it fell 35 plus percent. And so you're buying at a discount anyway, holding and waiting for the opportunity to cash in

on the crypto trade. No, I mean crypto. Are you positive on crypto as a real catalyst for this company? I think that going into next year where the halvening is scheduled to happen, there's going to be a renewed interest in crypto, specifically in Bitcoin. And I think that's where the excitement really starts the rally. So I think that we definitely aren't done hearing and talking about crypto as a meaningful opportunity. I wanted to highlight another one you're buying, which is UNH, United Health Group, because we saw this big slunge.

What was it last week on some comments at a conference that they were seeing more surgeries and more elderly people getting elective procedures and that was going to hurt the business? Big sell off. So I think that was a mistake. I actually think that the concern around elective procedures, hips, knees, replacements, those kinds of things that seniors were holding off on during the pandemic and decided to now kind of start to ramp back up. I actually see that spending as a positive. And if you think about insurers in general, when's the last time an insurance group actually ate the costs and didn't pass on those additional costs to the insurer, right? And so if you just think about the insurance business in general and the way that it works, I think that that 7% sell-off actually

presented an opportunity. And we'll find out, you know, after earnings, what, mid-July for UNH, just how true that is. But I think the wholesale sell-off and all of the insurance names was a mistake. And the reason I like UNH out of all of them specifically is because it's the largest holding in the Dow and it's what the 10th largest stock in the S&P. So just from sheer momentum, it's gonna benefit from that trend if I'm right. I mean, the long-term chart on UNH is pretty amazing.

It's been a moonshot over the last, I don't know, five, 10 years, but has really been marching in place just in the last year or so. Where's valuation? So we have been very bullish. We as a firm have been very bullish on healthcare for the last couple of years. And you're right. It was a trend that was doing us very well once upon a time. And then the last year, that thesis has kind of cooled off. But I don't think that necessarily is indicative of a complete stoppage or slowdown in the healthcare industry. I think there's still a lot of spending that is happening and is going to continue happening in the space that as earnings start to come out, Q2, Q3 is going to make the case for a renewed interest in healthcare, especially as we look to rotate away from tech and try and figure out what

comes next. I think healthcare is going to be a big beneficiary. Maybe some signs of that this week. It's the only sector to close positive this week, up a third of one percent in a down market. Malcolm, thank you. Good to see you. Malcolm Etheridge. Up next, student loan economics. The SCOTUS ruling on the White House's forgiveness plan could come any day now. So how could it impact the broader economy and some financial stocks? We're going to take you live to D.C. with the answer. Don't go anywhere. Closing bell. We'll be right back. And all month long, CNBC has been celebrating pride, sharing stories of corporate leaders with you. Here is Poshmark CMO Stephen Tristan Young. For me as an LGBTQIA who recently

went through a surrogacy process, I'm very thankful that me and my partner now have two twins. I was shocked at the number of people who felt uncomfortable asking me questions about the process. And for me, I welcome the opportunity to share with them about the struggles, the costs, the emotional journey that we went through as partners, and how we got there. Being able to answer those questions really felt like I was creating a bridge for people to feel comfortable to understand more about the struggle that we go through. Welcome back to Closing Bell. The Supreme Court ruling

on student loans could come any day now. Kayla Tausche is live in D.C. with how that decision might impact the U.S. economy. Kayla, what do we need to know? Well, Sarah, we didn't get that ruling from SCOTUS today, but it could come next week. And regardless of how the high court rules, student loan borrowers are preparing to resume their payments in September after three years of a pandemic era pause on one hundred and eighty five billion dollars in payments to the government. The pause saved borrowers between three300 and $500 a month, according to the Education Data Initiative. That's money consumers will no longer have to spend elsewhere once that pause ends once and for all. So what is the impact of that spending on the economy? Goldman Sachs analyst Alec Phillips says it depends in part on whether the Supreme Court

allows the president's loan forgiveness plan to go forward, writing, in either case, the impact on spending is likely to be modest in the medium term. We estimate student loan repayments will subtract two tenths of a percent from PCE growth this year if the student loan forgiveness plan is struck down or a tenth of a percentage point if the plan stands. But the other question is, for how long? Because interest kept accumulating on the nearly $1.8 trillion in outstanding debt, even if those payments weren't being made. Now many borrowers are underwater. The Center for Responsible Lending took a snapshot of borrowers at Navient and found 63 percent of borrowers owe more than they originally took out, and a third of those owe more than 125%

of the original balance. Chipping away at that debt will take time, and the White House is now prohibited by Congress from extending the pause any further, and it could take borrowers a long time to catch up with that, Sarah. So what is the expectation? Is it that SCOTUS will rule against the president's plan? The expectation is that SCOTUS will strike down the president's plan to forgive up to $20,000 per borrower. Of course, you could always be surprised, but that plan is an estimated $400 billion boon to the economy if it goes forward. It would keep a lot of that money in borrowers' pockets,

but the expectation is that it will get struck down at some point alright here thank you feel it's how she let's get back to christina parts and others who's looking at how the scotus ruling christina could impact payment stocks so fine particular has moved a lot on this yeah thanks i don't want to be back to some of the list of because you have consumer debt at a high of seventeen trillion a rising number of people thirty days late on their auto and

credit card debt. And now you've got the student loans that are set to be repaid back in the fall. So the over-leveraged consumer right now has helped lending as well as buy now, pay later companies like Affirm, Upstart, SoFi. You can see on your screen those three names, not PayPal, those three names are at least 53% year-to-date higher, vastly outpacing the S&P 500. But the issue right now with a lot of analysts is that they're remaining cautious. They're saying student debt has been priced in because we knew it was going to end as of June 30th, that moratorium. So Compass has a sell rating on SoFi in particular with a $5 price target. And they point out that the pause was scheduled to end on June 30th. And that's why you're seeing the stock down about 3% today.

PayPal, another one, announced a deal with private equity firm KKR earlier this week to buy its European buy-now-pay-later debt, which is definitely good news for PayPal because you're externalizing the credit portfolio, but it's bad news that the company still hasn't named a CEO, still hasn't named a new CFO successor either, and is facing increased competition from the likes of Apple, for example. And also part of the reason why that stock is down year to date compared to the other fintech players. And then you've got Affirm seeing total delinquencies actually increase in May after two months of decreasing. But Mizuho still says this name is a buy because it's one of the leaders in the space. And Sarah, I've just named a few names.

There's so many in the space, which is why saturation is considered a negative. And then the fact that already priced in debt may make it more difficult for many of these names to climb higher. All right, Christina, thank you. Christina Partsinevelos. Thanks. Still to come, driving growth. CarMax shares are popping today. We're going to tell you what's behind that move and what it says about the economy. Plus, your earnings rundown. We are setting you up for Nike results next week. The key themes and metrics every investor needs to be watching for all ahead on Closing Bell.

We'll be right back. Dow's down to about 200 points, hanging around this level. We'll be right back. Goldman Sachs facing a big write- down on its troubled Green Sky deal. That's according to the latest scoop from CNBC dot com's Hugh Sun. Hugh is here with me at Post 9. Welcome. So what have you learned? We knew we knew they were putting this for sale. David Solomon told me a few weeks ago, no update, but you've been doing something.

They announced the sale in April. And look, they're getting out of consumer finance writ large. So this is part of that. However, they're finding that the market in the middle of 2023 is far different than the one in which they purchased it in late 2021. And so, you know, much again. So they announced the 2.2 billion all stock. It took six months for the deal to close. And the economics of it was roughly 1.7 billion when it closed, I'm told. And so the deals, the offers that they're getting from the likes of, you know, we're talking about PE shops and some strategic purchasers, so Synchrony, KKR, Apollo Global, they're talking about an evaluation for the origination business of roughly $300 million

to $500 million. And granted, there's a delta of that and the purchase price of roughly $1.2 billion, Sarah. So that would be a big write-down. It could potentially be a big write-down. What we don't know is there's also a loan component. So they may be getting credit. They've created loans in the past year, and they're going to sell that loan book as well. That could offset the hit from the fact that they've lost money on the sale of the origination

business. So where does this fit in overall with the Solomon and Goldman strategy? GreenSky was part of, you said, the consumer push. And he was very hot for that. He purchased it. And so, you know, it just shows it's sort of a whiplashy kind of moment, right? Here you're inviting a business in and you're saying we're going to be your long-term stewards. About a year after it closes, it's like, just kidding, right? So there's whiplash on the part of their employees. On the part of, you know,

Goldman at large, it's sort of like they want to put this behind them. And they've said that this is behind them. However, in the coming quarters, they're going to have, you know, write downs from this and some other things. So it's going to be a reminder of what they, you know, of a deal they preferred not to have done. Well, yesterday, Betsy Gracek took down the models for earnings this quarter and the year, in part on our interview where he talked about some real estate losses and equity exposure, real estate losses, but also 500 million in impairments related to Green Sky sale. On the Goodwill. Yeah. On the Goodwill. There you go. Hugh, thank you. Hugh Sun, another great scoop. Keep us posted on what you go. Hugh, thank you. Hugh Sun, another

great scoop. Keep us posted on what you learned. Last chance here to weigh in on our Twitter question. Remember, we asked which of these big tech stocks would you be buying on weakness? Intel, AMD, Microsoft, or Alphabet? Head over to CNBC closing bell on Twitter. We'll bring you the results right after this short break. Let's get to the results of our Twitter question. We asked you, which of these big tech stocks would you be buying on weakness? Intel, Microsoft, Alphabet? Turns out more than 40% of you said Microsoft, 43%. Next closest looks like was AMD, 21%.

Not surprised Intel got the lowest. Oh, no, the 22% for Alphabet. There you go. Up next, CarMax shares popping today. We're breaking down the used car market and what strength in that sector could mean for the broader auto space. That and much more when we take you inside the market zone. A little mini recovery down 170 on the Dow. We'll be right back. We are now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, we've got Phil LeBeau on the rally in CarMax shares and Oppenheimer's Brian Nagel on why next week's Nike earnings look promising. Kick it off, though, Mike, with the market, which is feeling soft as we head into this weekend.

There's also some funky things going on with rebalancing and expirations. What do we need to know about that? A lot of mechanical stuff going on. Mostly it's a volume issue. It's going to be a big sweep of orders at the close as the indexes get reconstituted. I think the bigger message this week is there was a bit, really the first sustained selling you've seen almost each day, profit taking in the big NASDAQ stocks, as well as things like, you know, regional banks down 8% on the week. You have semiconductors like 6% off their highs. With all that being

considered, it's been a very orderly pullback and in some ways textbook. This is the week after the June options expiration. It's disproportionately a down week, but modestly so. And so we've seen that so far. I don't think it leaves us with really looking at any clear fat pitch coming our way if you're a bull or a bear, just because, you know, I think sentiment has improved enough that it's no longer possible to say everyone hates this market. Obviously, valuations have gotten higher again. But we're in this window where economic surprises are coming to the upside. And the Fed's message is consistent, but not incrementally more hawkish, I don't think. So I guess all that mixed together means it's kind of a coin toss in terms of the next few percent.

But the market uptrend has been maintained. Yeah, we're only two and a quarter percent from the 52-week high. Let's get to Phil LeBeau on what CarMax's quarterly beat could mean for the used car market. Big move up here, Phil. Big move up. Best move in about three years for CarMax shares. And this is a case where they beat on the top and the bottom line. But the numbers within the numbers show that you're still looking at a business where revenue,

in terms of what they did last quarter, it was down 17.4 percent compared to a year earlier, but they have a stronger inventory mix. And as you take a look at shares of CarMax over the last six months, they've really had a nice move higher. Remember, as the interest rates have risen for auto loans and as the market has become so priced, so heavily, highly priced, the importance of having lower priced vehicles, it can't be overstated. And that's important because they have 25% of their vehicles priced at under $20,000. Makes sense, Sarah. If you've got a market where people are looking for the best deal possible and they're looking for those vehicles under $20,000, if you can play in that market and make

a profit, you're going to do well. And that's why shares of CarMax are higher. By the way, all of the auto dealers who have been either expressly with used vehicles or have a heavy mix with used vehicles, they've all been moving higher over the last several months. So today, CarMax, not a surprise as they beat on the top and the bottom line. Sarah? Which, Mike, actually has some interesting implications for inflation and monetary policy. Remember, it all started with those used car prices. Yeah, they're not really cooperating with the rapid disinflation story. Other parts of the economy are. Also, it seems like auto-related expenditures are stealing share of wallet from other things.

If you look at, like, the Bank of America consumer spending data this week, ex-auto was much weaker than everything else just because prices are higher, as Phil said. So I don't think it's necessarily the cleanest story for the economy, but it is good. I mean, CarMax shares up like 60 percent from the March low. People really thought that regional bank stress event was going to be much worse for the auto business than it has been. Auto loans in particular. Phil, thanks. Brian Nagel of Oppenheimer. Let's discuss nike which reports next thursday you see promising signs heading into that release explain well good afternoon sarah so i do uh you know the sentiment around nike has been very negative

lately you know it's the same story over and over again that investors are worried about some pullback and spending that spending pullback catching up with Nike. But if you look closely, I mean, there's been a number of reports lately from Dick's Sporting Goods, Academy Sports. They've all talked up, if you will, underlying strength in the Nike brand. The only place where we really saw weakness was Foot Locker. I don't cover Foot Locker officially. I watch it closely. I think that's mostly a Foot Locker problem. But look, I think Nike's faring quite well here. I think they've got a great brand. I think you've seen a lot of innovation in the brand. And I think underlying, while there are definitely points of weakness

in consumer spending, I think overall the consumer is actually in pretty good shape here in buying products like Nike. I think the concern around Nike this quarter in particular is that, first of all, inventories might still be bloated and the China recovery might be bumpy, which has been key to the Nike story. I agree. I mean, that's what we'll be watching. So it's next Thursday night, Nike's reporting. And those two points you brought up are exactly what we'll be watching. But look, from an inventory perspective, everywhere I look now in this athleisure channel, inventories have really been cleaned up. And if we go back to Nike's last quarterly report, I think Nike's inventories are basically back in balance. So I don't think inventory is an issue. Look, China,

I mean, that's more of an unknown. I don't know if anyone has a great read. But what we've been hearing from Nike and others is that as the Chinese economy has moved past the COVID crisis, you're seeing more activity there. So I think to the extent that Nike comes out and shows sequential improvement, or at least talks to sequential improvement, that's a positive for the stock market. What's the stock been doing, Mike? It's right in the middle of its, let's say, one year range. I would argue it's holding up relatively well, considering if you look at calendar year consensus earnings for the current year, we're talking about 2021 level of EPS. I mean, that's just, you know, consensus not using the fiscal year.

And so it shows you that there has been this reset on profit expectations. It's maintained most of its valuation. I think it has that quality bias that people want in the market right now in the consumer area. So it's hanging in there. And I do think it's all about getting some kind of clarity as to whether there's going to be a little more of an upswing in terms of demand and clearing of the inventory. Also reminds me that we got Brian and Wells Fargo downgrade from Under Armour today. They cut the target to $8 from $12. Obviously, a totally different story. And Wells has a self-help story where we

wait to hear from the new CEO and see what the plan is for a turnaround. But who's gaining share here? Because Lulu's been on a really strong run in terms of performance. Nike seems to be firing on all cylinders. What's happening with the rest of the group? No, I think you summed it up well. I mean, Lulu's been performing remarkably well. After every quarterly report from Lulu, I mean, basically the message is, what recession? I mean, there's just nothing to suggest under those results. Nike's not far behind. I mean, look, Nike's a biggerositioning story that's happening. It's going to take time. Like you said, Sarah, there's a new CEO. I think she laid out a great plan. It's just going to take some time here. So arguably, Under Armour is probably donating share right now at some level to Nike, maybe even Lululemon.

Brian, thank you. Good to talk to you. Head of those Nike results next Thursday, Brian Nagel of Oppenheimer. As we head into the close, Mike, of course, we give you the final word. The 10-year note yield, 3,742, could have been higher this week, given all the hawkish talk from, I mean, Powell, kind of hawkish, but everybody else still raising rates. It threatened to go higher, actually, for a while earlier in the week. Shorter end of the curve did go higher. There has been this undertow of weaker global macro numbers, and that's dragged down yields globally.

And I don't think you can necessarily dismiss any of that. Even though I say, yeah, economic surprises are running well in the U.S., it seems like we're sidestepped the immediate recession risk in the market. Earnings are flattened out and maybe tilting higher over the next 12 months. All that said, the yield curve is where it is. The leading indicators are where they are. And you haven't repealed their power necessarily to say that there could be a downturn coming. I think really the argument comes down to what work has the overall stock market done to take account of the possibility of targeted further declines in the U.S. economy. So yields staying range bound are fine, I think, for stocks. It's more about the message

that it sends in terms of whether we're going to have this weight of the leading indicators of a recession drag us in that direction. So what are we watching into next week to find out whether this sell-off is going to be something more pronounced? I think, well, if you want, just the straight-up seasonal patterns are probably a little more weakness. Then maybe you get a perk up into the very, very end of the quarter. July has been OK. I think what we're looking for is, you know, we get the university admission consumer numbers next week. So some stuff about about the consumer. And then we're going to be focusing right in on second quarter earnings before too long. And it's looking like the trough. If you look at the way that the cadence is, it's like a 6% expected decline year over year for the

S&P for the second quarter. Let's say they come in three percentage points better than as usual. It's still a decline for the third and fourth quarter. We're talking about flat to up. So, you know, getting a read on guidance eventually over the next couple of weeks, I think is going to be somewhat significant to see. Also, this the AI wildcard, you know, it's this kind of source of animal spirits in the market that you don't really know what to do with. But if you look at 3C, 3A, I mean, that stock is has gone down from like 46 to the low 30s from the highs, but it's still up massively. So that's sort of sloshing through this market. And the options flow into things like Tesla and NVIDIA still show signs of getting overheated. And that's totally non-fundamental in my view. It's really all about how much we want to catch in the future. That's why we corrected the bearish positioning.

That's why the market's up. Everyone was too bearish. I think a lot of that has been taken care of. Yeah, in theory, if we get outright greed-driven FOMO, there's room to go, but we're much more neutral than we were. All right, there goes the bell on a Friday. Dow's going to close down more than 200 points. S&P 500 down about eight-tenths of one percent, and the NASDAQ is lower as well for the first time after an eight-week run. That's it for me.