Closing Bell - Closing Bell: Tech’s Moment of Truth 10/18/23

Episode Date: October 18, 2023

What do today’s earnings reports mean for hopes of a year-end rally? Dan Ives of Wedbush, Alex Kantrowitz of Big Technology and Jason Snipe of Odyssey explain what they’re expecting. Plus, Sofi’s Liz Young breaks down how she is navigating earnings, the fed and more. And, we preview the key metrics and themes to watch when Netflix and Tesla report after the bell.

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. And this make or break hour begins with the first moment of truth for the tech trade. Tesla and Netflix reporting earnings in less than one hour from now, with so many rally hopes hanging on the Nasdaq's most important names. And it all comes with the markets, as you know, already on edge. Your scorecard with 60 minutes to go and regulation has looked like that for much of this day. The major averages in the red, under pressure for much of the session. As all eyes turn to the bond market, the 10-year yield tops 4.9%.

It's sitting right at that level. But we have yields on the move higher all day. It is a new high for this cycle as well. You throw in oil rallying because of the war in the Middle East. And obviously, it's been a lot for investors to deal with. Banks, well, they're weaker. Morgan Stanley suffering its worst one-day performance in many years. Look at the stock down more than seven and a third percent after earnings. Transport's downright ugly. Names like United Airlines, J.B. Hunt trading poorly as well. And as for tech, well, it's a bit of a mixed bag.

Yields popping. Some were trying to be green, but most have now turned red. As we begin the final stretch, it does take us to our talk of the tape. What today's key earnings do mean for the hopes of a year-end rally. As it relates to tech, let's ask our panel. Dan Ives covers Tesla for Wedbush. Alex Kantrowitz, big technology founder and a CNBC contributor. Jason Snipe of Odyssey is also a CNBC contributor. He owns many of the tech names, including Netflix.

So we're going to lean on Jason in a moment. But, Alex, I begin with you. Netflix has not traded well, to say the least. Shares are down 12% in a month. What's the issue? I'm embarrassed because last quarter I was here and I said it seemed like it was in a good place as far as valuation goes. It subsequently dropped about 26 percent. I think the big issue for investors here is the prospects of growth. You know, I think there's been some positive headlines around the fact that the password sharing crackdown has happened and that advertising is

coming. But, you know, they haven't delivered the results that make you believe that they're sustainable long run. Yes, password sharing has helped grow users after some user contraction, but the reports of the advertising is just not going the way that it hoped. There was a report in the information that I read recently that said the subscribers and the money coming in from advertising are about half what the company expected this year. What if the cold truth here is that people just don't want to watch Netflix with ads, even if it's cheaper? I think they do. I mean, I'm on the ad supported tier and it's fine for me. I mean, part of that is because when we go past those ad units, sometimes there's no ad that even runs. And by the way, that indicates that Netflix is having

trouble selling the ads. It's difficult to build an advertising operation from scratch. To me, that's the problem. It's not been the demand necessarily from the consumers. So net subs, what, 6.1 are expected. Is that number at risk? I don't think so. I think they're going to hit their sub number. But again, for Netflix, it's not necessarily right now about the short-term sub ads. It's about leadership telling folks that we can expect that growth in the future once the tactics have run their course. And I don't think the market has seen that to this point. And that's why we're having some of these issues. So Jason Snipe, I mean, you've had to watch this stock go through its tribulations over the last, you know, what, in a month it's down almost 9 percent. Excuse me, it's down 12 percent in a month. I was looking at Tesla, which has its own issues.

And we're going to get to those in a minute with Dan Eyes. But how do you approach this number now coming into overtime tonight? Yeah, I think it's going to be somewhat of a mixed bag. I think I think Alex hit the nail on the head in terms of I think the numbers will be relatively in line. I think subs you'll hit probably around six million. They'll probably likely be around eight and a half billion dollars worth of revenue. But yes, I mean, clearly all the discussion around password sharing and the ad supported tier, we heard from them in the conference, Bank of America's media conference on September 13th. And that's where you started to really see the pullback on the stock when they talked about, you know, those those numbers will likely be somewhat muted in this upcoming print. So there's obviously concern for me, but I do think, you know, the password sharing, there's 100 million users that they can potentially monetize going forward. The ad

supported tier is obviously the rollout is taking longer than expected. But I do think in the coming quarters, you could see some growth there. And I also think their opportunity is really internationally. That's where the membership growth is growing at close to 90 percent. So I think I think that's where the opportunity is for Netflix. All right. So Dan Ives, speaking of growth as it relates to Tesla, which has had its own issues from a stock standpoint, they're growing. They want more growth. And Musk is obviously willing to keep cutting prices to get there. Look, I think so far the strategy's paid off in terms of cutting prices for volumes. And we've seen that with demand, I think, holding up strong relative to the macro.

But Scott, no doubt, I mean, there's a line in the sand here where I think investors going into this print are nervous that more price cuts could be on the horizon. You told me before that you thought they were done. They're obviously not done. So we believe they're about 95 percent done. And what I think is going to be key on the conference call is the MBS could put in a line the same way. There could be some price cuts, but ultimately the vast majority are in the rearview mirror. And we believe margins now trough out this quarter going into Q4. And that's really been our call here, is that you navigate

through this sort of trough for margins. They're in a point where they continue to own the EV market. And that story, in terms of going after demand and volumes, that's been the right poker move, in our opinion, for Musk. Well, what makes you believe that they're done with the price cuts, as they obviously are laser-focused, Musk is, on competition? They have to be done with the price cuts

in order to hold up the margins that you say will, even though they've narrowed as a result of everything they've done. Yeah, and no doubt it's been a tough few quarters when it comes to margins, but I think that's been the right move in terms of going for volumes in this Game of Thrones that's going on. To me, it's the Model 3 refresh, what we're seeing in China in terms of what I believe is sort of going further and further upstream. And even though demand, obviously in this macro, not roses and rainbows, when it comes to EV, it continues to really be Tesla that owns the market. I even think what you see with the UAW strike in Detroit,

that big competition that was going to come, that's really been a gut punch to what we see with Ford and GM. So this is a time for them to go on the offensive, not defensive. Expectations for Tesla. Are they low, given what's happened with the stock price? Because options are pricing in a smaller move than we would normally see. And by the way, from a stock standpoint, Bespoke was talking earlier today that this is the quarter

where the results give the stock the biggest boost historically rather than any other. I think it's 4% on earnings day. What do you think? Well, I think, look, a lot of numbers across the board. You've seen the band they had ripped off in terms of number cuts. I think the big focus here, Scott, is really gross margin. When you look at auto gross margin X credit, can it be above 17%? I think that's sort of the whisper number that the streets focus on. But the most important thing, the drumroll, we must commit to basically the vast majority of price cuts being done

and margins troughing out here. And what I believe, look, take a step back, still talking 35% type of growth from an auto delivery perspective where others have seen tepid growth. Is Netflix's near-term growth at risk, Alex, do you think as a result of what's happening with the ad uptake, if you want to call it that? As you said, it's going to take a bit of a while to build it out. Who knows what sort of economy we're going to end up with in the next six to 12 months. So what about the near-term? That's

really what investors are focusing on more than anything right now. Near term revenue growth is definitely at stake. I'm not sure about subscriber growth, but if I were watching Netflix revenue, I would be absolutely concerned. I mean, you have it's a standard ad unit. It looks exactly like the TV ad units that buyers are buying. So why is there trouble filling the spots? To me, that's a glaring red flag. Netflix needs to get this figured out immediately or else there's going to be some serious trouble for that company as far as it goes to showing Wall Street exactly the type of money that they need to be bringing in. We had that sound effect on the screen because recession lows for all three of the majors as we begin this final hour. Almost a 300-point decline for the Dow Jones Industrial Average, which we'll keep watching. The question, I guess, Jason Snipe, for you regarding Netflix, as some other analysts are suggesting, is that whether that company should just start spending more. As legacy media is having its challenges, people like

Rich Greenfield say, take advantage of that weakness and spend more. Would you tolerate that as an investor? I think that's a very important question, Scott. And obviously what I'll be listening for is free cash flow. I mean, their free cash flow has been growing pretty dramatically over the last year or so, and they have over $4 billion in free cash flow. And now, and I think they're better positioned than the other streamers that are out in the marketplace. So as it relates to context, man, they have a really strong library as it stands. And I think they have better flexibility than the others. And I do think there might be some capex there, which I think could drive continued revenue growth going forward. So I like their prospects from that perspective.

Dan Ives, it's all about targets that you set. You know, you tell the street you're going to do one thing. And if you do the other, your stock gets punished. Tesla's numbers, 1.8 million production target for the year. They're going to do one thing. And if you do the other, your stock gets punished. Tesla's numbers, 1.8 million production target for the year. They're going to get it. And that is hittable to I think they could exceed that. So I think that's a number they'll be able to hit. It's all about at what price in terms of the margins. Let's talk bigger picture than Dan because the other stock on my list that I want to talk to you about is Apple.

Stock, everybody knows how much you like it. The chart, though, doesn't look that good. How do you assess what's happening here? I mean, I focus on what we see coming out of our Asia supply chain checks. There have been no cuts to demand when it comes from iPhone 15. And ultimately, what I look at in terms of this sort of upgrade cycle that plays out in the streets, underestimated. I think we come out, you know, in a few weeks when Apple reports, I think they surprise on the upside. I think Cook, instead of being conservative, is going to talk about the demand story that continues to play out, not the time to back out in terms of relative

to what we're seeing in an environment where investors clearly have white knuckles going into this quarter. Well, because some of the data coming out of China suggests that there's a slowdown there and that Huawei has eaten into market share. Those are real numbers. I feel like you're just wholly dismissive of the story in China, which is 20% of the revenues. Yeah, and for Huawei, there's no doubt that that, from a competition perspective, in terms of what they've gone after.

But I go after, instead, the 100 million iPhones right now in a window of upgrade opportunity in China. If I look at the demand story that we've seen in China and globally... Said to be slower after getting out of the gates fast. Every report that I've seen coming out of late suggests that uptake now of the new iPhone is slowing down or slower than expected or disappointing or whatever, you know, words you want to put on that. Is that not in your orbit at all? I mean, look, we just disagree relative to what we see in terms of ASPs that continue to increase almost 100 hours year over year in terms of more and more toward the

pro max. And when I look at what's happening going into holiday season, I think we're going to be looking at 225 to 230 million units. If that happens, there's got with services upticking. I think yet again, the bears and they take a shot every few years here in Apple, I think they're wrong here, which is why this continues to be our top tech pick. Is there a story here? Yeah, I do think there's a story. Because remember, a few months ago there was this story where the Chinese government was telling officials not to bring iPhones into the office, and a lot of people shrugged that off. That was a signal, by the way, to Chinese consumers that said, if you have national pride, you're not going to buy an iPhone.

You're going to buy something manufactured here. And I think that we see Huawei taking over. Some of that might be trickling in. By the way, you put that on top of multiple quarters of revenue growth decline. And if you're an Apple shareholder, yeah, I think it's a moment to be nervous. How do you respond to that, Dan? Look, I mean, obviously, Alex respects his opinion all the time. I just think on this issue when it comes to China, we're talking 2 to 3 percent of units

that potentially could be impacted at most. I do believe ultimately the bar's some worse than a bite there in terms of what we're seeing come out of supply chain. Next week we'll be in Asia doing more and more checks. And I think so far, ultimately from a demand story, iPhone 15, no cuts in terms of the supply chain. That's the most important thing, Scott, that I look at. When does the revenue growth story start to reverse itself? Because that's been, you know, one of the more dominating narratives that's emerged over the last few quarters.

No, I think when we go into December and March, that's where that starts to uptick, not just on services going toward back double digit growth, but I think when we go into December and March, that's where that starts to uptick, not just on services going toward back double digit growth, but I think units you could see increase and call mid single digits. But the ASP, which Alex knows as well, that's an important thing that's happening here. And I just point back to 240 million iPhones have not been upgraded in four plus years. And I think that's something that the street is sort of missing here relative to plan out. Assuming you think people have money left for an expensive iPhone after spending on travel upon travel, upon hotels, cruises, and everything else.

Jason Snipe, how do you feel about the biggest and some would say the most important stock in the market, which over a week is down a couple of percentage points. And as some have suggested, the chart doesn't look great. Absolutely. And I think the challenge here is clearly the multiple when you have somewhat of anemic revenue growth over the last several quarters and a 9% long-term growth rate And a multiple a forward multiple of 29 times I think that becomes challenging when you're looking at the greater mega cap tech spectrum and where other places you can own stock. So as I look at the incremental buyer here,

that's what I think is challenging. And I agree. I mean, it's very close to the 200 day, you know, where it's pricing at now. So I think that's what some of the challenges is, as well as what's going on with the iPhone 15, I'm sorry, upgrade cycle. It's not looking as rosy as we had expected, you know, maybe a quarter or two ago. So set it all up then for me, Jason. I said this is at the outset, this is the first moment of truth for important tech. Netflix is important. Its market cap is but $150 billion relative to a $700 plus billion for Tesla. So there's obviously a size advantage for Tesla. It matters more

in terms of movement in markets because of how its market cap weighted. But what about for the space of mega cap overall? Yeah, no, I think I think obviously these prints later on this afternoon are going to be important. Then we turn to next week when we have Amazon and Meta and Microsoft as well. So I think, you know, the price action hasn't been great over the last few weeks, you know, but when I think about the mega cap tech space and I look at this year and what has already gone on, I think about the catch up trade as well for the fourth quarter. You know, what really resonates with me is predictability of earnings. And I think earning strength within the mega cap tech

spectrum is going to be strong. And I think earning strength within the mega cap tech spectrum is going to be strong. And I think that's why folks will continue to turn there and feel good about them going forward. You talk, you know, Dan, as you look at what these companies are trying to do, Netflix,

the ad tier is sort of the key, perhaps for their next, you know, leg of growth for Tesla. It's the batteries. They continue to sign more deals with more major automakers around that end. Thinking about AI as well, autonomous driving. Where are we? I want a reality check from you. I don't want Musk talk. I want Ives talk on a reality check on where

autonomous is truly going, where it is, and what it means for that AI story that has been dominant for the last eight, nine months. Yeah, I think they've clearly turned the corner in terms of a lot of the issues they've had. But 2024 is a key year. I mean, for them to really make strides when it comes to Autonomous and what I would say the AI story for Tesla,

I do believe the AI story and FSD for Tesla is a huge part of what I view as some of the parts in the next leg. And Scott, take a step back in terms of this earnings season. You talk about reality versus hype. I think the big theme, we'll see it next week, I think when it comes to Microsoft, Amazon, what we're seeing from Google, I think cloud,

you're gonna see an acceleration. The AI monetization, it's not just the godfather of AI, NVIDIA. I think now the rest of tech starts to participate in the party. That's going to be important in terms of this earnings season. 10, 11 months or so, Alex, into this whole AI hype machine. Did we overdo it at the beginning? Are we just right? Where do you think we are?

I think we overdid it a little bit. There was a belief that this original version of chat GPT and the OpenAI GPT 3 and 4 models were transformative. They're the step to getting us there. In the meantime, we've seen a lot of building from enterprises, a lot of differentiated chatbots, not just the general purpose chatbots, but something that's being used for law, something used for medicine, something specific for students, plenty of these character chatbots coming from a company like Meta.

We're in the settling out moment right now. I mean, to match the hype that we saw 10 months ago would have been nearly impossible. But that being said, unlike some of the other big hype and big trends that we've seen in tech that haven't amounted to anything, I am seeing tech companies really build with this stuff, deliver actual benefits to their customers. And so this is real. It's just going to take a little bit more time for it to ramp up. Which leads me back to Jason Snipe, who's going to get our last word today, because NVIDIA is where many bets have been placed, as you know, Jason. The stock's down 10% in a week alone.

You have these new export bans weighing on the stock. As some of the notes today from Wall Street analysts, we're taking price targets down, not by huge amounts, but nonetheless taking price targets down. It seems to be no margin of error for NVIDIA relative to where the story's gotten that stock to. Absolutely, Scott. So I think, you know, clearly the export bans are weighing on this stock. You know, this week it's down 10% relative to this stock. This week, it's down 10% relatively this week. But I think going forward, and I think the margin for error has obviously decreased when we look to the print in a couple

weeks. And I think what's going to be important, guess what? I mean, NVIDIA has delivered. And that's why the multiple is cheaper today than it was six months ago, even with all the growth that it's already had this year. So for me, I do think they're going to deliver. I do think that demand for their GPU chips, I should say, is extremely valuable. And I think that will play through when they report. But clearly, the bar continues to set higher as we get closer to their report. All right. We're going to leave it there. We covered a lot of ground. I appreciate it very much. Jason, thank you. And the guys here, Dan Ives, Alex Kantrowicz, thanks too. We'll see what happens in overtime. It's going to be report. All right. We're going to leave it there. We covered a lot of ground. I appreciate it very much, Jason. Thank you. And the guys here, Dan Ives, Alex Kantrowicz, thanks too. We'll see what happens in overtime. It's going to be interesting. And in the subsequent days,

we may lean on you again for all that. Our question of the day, we want to know, will big tech earnings fuel a year end rally? You can head to at CNBC closing bell on X. Please vote. We'll share the results a little later on in the hour. In the meantime, a check on some top stocks to watch as we head into the close. Christina Parts of Nevelos is back with us today. Christina. Oh, Scott, Spirit Aerosystems is soaring on a new production deal with Boeing that will see higher prices paid to Spirit in the near term on some parts. And that should help some of Spirit's recent cash flow issues related to its 737 fuselage problems. Shares, though, they're up 25 percent, almost 25 percent today, but down 25

percent just over the last three months. Switching gears, Roku, though, deep in the red right now, as well as Fargo analysts say they expect softness in the streaming players fourth quarter. They're reiterating their equal weight rating and cutting their price target to $70 a share. Shares are trading right now at $62.97, about eight percent. And this is the reason for this is citing a weak ad environment and that's adding to the sell off. Scott. All right. We'll see in just a bit. Christina, thank you. We're just getting started here on Closing Bell. Up next, stocks are lower today. The Dow's down more than 250. Now, SoFi's Liz Young is back and she's breaking down how she's navigating this earning season, got yields higher, keeping her eyes on the Fed. Jay Powell speaks tomorrow. So there's a lot to consider, which is why she joins me at Post 9 just after this break.

We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. We're back on Closing Bell. Losses accelerating into the close today. S&P on track for its fourth down day and five. The 10-year yield, well, that's the culprit, hitting its highest level since July of 07 yet again. So it's a new cycle high for the 10-year, which got above 4.9%. Joining me now at Post 9 to break it all down is SoFi's head of investment strategy, Liz Young.

Welcome back. Is that the dominant story, yields? We're watching them move higher again? Yeah, as it should be, right? I mean, we've got fresh highs in the 10-year. You've probably got mortgage rates that are going to creep closer to 8%, fresh highs in the 2-year. And then all the chatter is about, oh, the Fed will be done. They're going to stop hiking rates, and that's bullish for equities.

Well, they may not have to hike rates anymore because the bond market is doing this for them. But that is not bullish for equities, particularly on the short end of the curve. So if we were making fresh highs in the 10-year and the 2-year was slowly grinding lower, maybe a different story, but that's not the case. I mean, most of the Fed speak of late has been sort of leaning towards, we don't have to do any more, potentially, because the bond market's done all the work for us. So there was perceived to be a dovish pivot, if you will. Maybe Waller was a little bit on those lines today, too. And he's been somewhat hawkish. Now, the Fed chair himself talks tomorrow at the New York Economic Club. And those are his last comments before the quiet period before the meeting. How do you factor all that in? What if the Fed is done despite the fact

that rates are where they are? Well, I'll be at that presentation tomorrow, so I'm very interested to hear what he has to say. I factor it all in in the sense that I don't know that it matters whether they're done or not. The damage has already been done. We've raised rates so quickly, and now I think we're finally seeing some of it coming out in some of the credit spreads. You're seeing high-yield spreads start to widen considerably, especially if you look at that at a time when the 10-year has risen, right? 10-year yields have gone up.

You're still seeing spreads widen on that. I think it's starting to come out in the wash. I don't think that 25 basis points makes that big of a difference if they go again. And I do think that the last couple hikes have really been just more about the narrative than the actual move itself. They can be done here, but the cracks are already starting to form. It's funny, you know, we talk about cracks and you've had, I think, a more cautious outlook on the economy than some others. The Beige Book was out, you know, what, two o'clock this afternoon, anecdotally agrees with you. The data doesn't necessarily agree

with you. I mean, the data has been strong. The anecdotes are concerning. The Fed says it's data dependent, going more with the data than the anecdotes. How do you factor that in? Well, I mean, data is effectively backward looking, so it hasn't shown all of the stress yet. Some of the high frequency data that we get is weakening slightly. But a lot of the stuff that we're waiting to react is things like the labor market, consumer spending. Consumer spending and the labor market are very closely tied to one another. Consumers will spend as long as they're employed. So a lot of that stuff is too far backward looking to really rely on in the moment. The anecdotes are important. And I think there's

a lot of pressure on CEOs right now in this earnings season in particular, and probably in fourth quarter earnings season, because expectations are so high. And nobody wants to be the first company that comes out and says, you know what, we're not going to make it. You think expectations are high? I mean, I would almost argue that they're kind of low. It's not going to take much to get over what feels like a reasonably low bar. The expectations sort of ratchet up as you move forward into the next quarter and then into next year. But right now they feel kind of low. Well, for the third quarter, they're kind of low.

They're unimpressive, right? We're hoping for maybe a 1% positive growth number, and that was up from a negative 0.8 number. So this could mark the end of the earnings recession. But I'm talking more about fourth quarter results and into 2024. The commentary that we hear from CEOs right now is about that forward-looking period. And if they come out and start to have anecdotes that say, you know what, we might not get there. We're going to try to prepare the market for that right now rather than surprise them later with negative results. If we start to hear more and more of that, it's going to be hard for markets to get to a place where these valuations make sense.

We're really priced for a pretty good period right now. We're priced for good earnings going forward. And the equity risk premium is very low, if not zero. So you're not getting paid to take that risk. What about tech? NASDAQ's down one and two thirds percent today. It's the hardest hit. You know, maybe it has something to do with rates.

I mean, NVIDIA hasn't traded well lately. Some say the Apple chart doesn't look great. And here we go with Tesla and Netflix here in overtime really is the first moment of truth for this group of stocks. Is it going to be enough to overcome a lot of the stuff that you said and carry the market higher? I don't think it'll be enough to completely cancel out everything that's out there as a headwind. And I think that tech should trade on what rates are doing more than it has over the previous periods. We've had some periods here where tech goes up, yields go up, and that doesn't make a ton of sense if you're talking about from

a long duration stock perspective. So tech earnings, I think the expectations are probably OK. They might meet them. But I think we're in a period right now where stocks are going to get overly punished for missing expectations and they're not going to get rewarded as handsomely as they have been in prior quarters for beating expectations. Why isn't it enough, though, in your mind, if it was before? If it was before? I mean, rates were elevated. Long, really long duration growth got pounded. These didn't because they offer you a lot more than a lot of those stocks do, namely profitability. Big balance sheets, a lot of cash, unreliant on debt markets and things like that. I think it's finally valuations. And I talked about the equity risk premium before.

People are finally not willing to pay up for taking that risk. And the idea that a lot of these big tech stocks have been utility players, right? Yields go up, they're supposed to do well. Yields go down, they're supposed to do well. Market contracts, they're still supposed to do well. Market goes up, they're supposed to, right? Not everything can work in every single environment. And I think we're getting to the crux of that decision factor of will we contract in the economy? If we do contract, if we do see something that even looks like a recession, these valuations are overly extended, not even just for recessionary times. They're overly extended for where the 10-year is and where the 2-year is.

What about geopolitics before we go? The market has been incredibly resilient to this point since this whole thing started 10 days ago or so. I mean, oil, yes, I get it. Oil is up today, but it hasn't been completely off to the races. Crude's at 87. How should we be thinking about that new risk? Geopolitics are always a risk that kind of boils in the background. I don't think

the market has been entirely resilient. If you look at something like gold, right, gold has seen a lot of upside, even just in the last week. I think it's in a one month high right today. And I don't think that that's just a random coincidence. I think that is something that's trading based on fear and based on increased geopolitical risk. So far, that risk has not bled into U.S. equity markets. There could be some conditioning by investors to believe that if it does, and if it creates and wreaks havoc on U.S. equity markets, that the Fed will save it. The Fed cannot save us from geopolitical risk. And they certainly cannot do it at a time, it's not safe to do it at a time when inflation is still too high.

So I think we're running into maybe something where the expectation is that we'd have some sort of savior, and we won't have that savior. I mean, there are some who believe the Fed can save you from every risk. Right, right. Well, because when haven't they? At some point, they can't. We think. You think. You think. I think. I'll own that one.

At some point, they can't do it. All right. We'll see. Liz Young, thank you very much. I'll own that one. At some point, they can't do it. All right. We'll see. Liz Young, thank you very much. Good to see you again. Liz, of course, with SoFi. Up next, the Fed is in focus. Jay Powell, as I said, set to speak before the Economic Club of New York tomorrow, just ahead of the Fed's blackout period.

What is he going to say? And how is it going to impact your money in the markets? We're going to ask Steve Leisman next. Welcome back to Closing Bell. Shares of Morgan Stanley sinking on the back of its earnings report. Leslie Picker is here with that now. Tough day, Leslie, one of the worst in years for this stock. Yeah, tough day in about three years, Scott. Morgan Stanley on pace for its worst day basically since June of 2020. Shares under pressure amid a clear continued slump in investment banking and a decline in net interest income in its wealth management unit.

And net new assets that were about 45 percent below the same quarter last year. Now, a big culprit of all of this spanning most of Morgan Stanley's businesses is higher for longer rates. Yes, that is causing clients to punt large transaction. Muted activity creates a ceiling to the firm's fees that they generate from advising clients on those transactions. And then it's changing the deposit mix for wealth management customers who may opt for cash or cash-free securities, which are yielding much more than they were even at the start of the quarter. So a turnaround depends in part on the macro. And Chairman and CEO James Gorman spoke about the recent surge in rates, saying he thinks the Fed will do one more hike by the end of the year,

and then he thinks the Fed will cut sometime after 2024. But in about 12 months, that's when he thinks the game will really start to change. Maybe we'll see a pickup in M&A activities. Some of that cash sorting with the deposit mix will be largely behind us. So we'll see. Sometime in 2024, we start to see a reversal, Scott. All right. Leslie, thank you. Leslie Picker.

Fed Chair Powell, as we said, set to speak tomorrow before the Economic Club of New York. Here to discuss what to expect is our senior economics correspondent, Steve Leisman. What do you expect based on what some of the other Fed speakers have been saying? Well, you know, we've been putting this all together, Scott. And first, let me say I expect him to use the time the market is giving him. And I'll come back to that in a second. But the first thing I did when I figured, you know, when Lisa asked me to come on and talk about this story was to say, well, what has happened to the data since Powell last spoke? So we put together, I'm calling this the unofficial Powell data dashboard. What you'll see is almost all the key economic indicators

have trended up. There's that strong jobs report. Remember that one, the strong retail sales report just last week and the GDP, GDP now from the Atlanta Fed has been trending up. More importantly, what's happened to the inflation numbers? A little more mixed, Scott. So headline PPI trended up, core PPI down, headline CPI up, but core CPI was unchanged and the year over year actually went down. So I think he's going to look at this and he's going to say, you know what, this is not the time to make a big decision. I will say that all the Fed speakers so far, Scott, have really not pushed back much on

the market pricing. So let's look at that market pricing. We're going to take November off is essentially what the market's saying. There we go. We do divide it into three camps here. First, we have done or near done. We've got a bunch of guys there. Patient or non-committal, a bunch of folks there.

And nobody has really solidly any one camp, except for maybe the may likely go further, the Logan, Bauman, and Mester folks. They seem to be suggesting that a bit right there. So there's three camps. I think Powell takes the time given by the market, Scott. And that time is essentially the market at 50-50 for a January hike. And so he doesn't have to make a decision tomorrow. I don't think he's going to point either way.

So the data, as you mentioned, has obviously been telling one story. But as you mentioned, I think perfectly earlier today when the Beige Book came out, there's all these anecdotes. And I believe this is the second straight month of Beige Book that you've had all of these anecdotes suggesting slow down here, slow down there, uneven here. And yet the data hasn't been telling the same story. So what does the Fed do with that? So the anecdote gives you time, Scott. It gives you time to let it play out. And we saw Barkin the other day in a speech that he gave the Richmond Fed president. He said, you know what, I know the data is strong, but what I'm hearing is not strong.

Waller, Fed governor today, similar kind of take on it. And of course, the Beige Book today, as you suggest, was also very much sort of leaning towards weakness or at least not much growth, not certainly as strong as the GDP number we have. So what happens? That anecdote has to show up into the data. If it does, then the Fed was right to wait. If it doesn't, and that anecdote is just, well, them here on the wrong side of the story and the data continues to be strong, you know, I don't think you can rule out another rate hike here, Scott. Let me ask you another question real quick, Steve, and it has to be quick. What's happening in the Middle East and what sort of that risk, what sort of risk that poses to the Fed's own outlook on a number of fronts and how that might impact policy decisions? You know, I think it's another reason for the Fed to be patient here. And I think when I look at that full screen we put up earlier about where the Fed is, Scott,

I think the center of the board is with patience right now. And I think Powell goes with that. We don't know how this breaks. It's a different world than oil. We can talk about this another time. But essentially, it could detract from business investment and capital spending. It could detract from hiring. It could create weakness.

At the same time, it could create inflation. So a potential stagflationary impact from higher oil prices. But I don't think the Fed's going to react to just how the market immediately reacts to what's happened recently. Again, I hate to keep hammering it. I think the Fed's going to take the time the market's given it. Well, it has the time on its side, largely because the bond market's already done a lot of its work for it. Steve, thanks. Precisely. Great point, Scott. Thanks. We'll catch up with you. That's Steve Leisman. Up next, we're tracking the biggest movers as we head into the close. Christina Partsinevelos is standing by with that. Christina. No, weight loss drugs won't kill glucose monitoring devices. Well, at least that's according to one

company. And a key component of electric vehicle batteries may be an oversupply. Of all the details after this short break. About 15 to go before the closing bell. We're at session lows here for the Dow, which is declining as we speak here near 370 points, even more than that. So you can see there's some activity here as we get a little bit closer to the closing bell. Christina Partsenevelos is looking at the key stocks today as we approach the end of the trading session here before overtime. What do you see? Yeah, you mentioned the Dow down, but Abbott is actually climbing right now. Abbott Laboratories higher following an earnings beat. The medical device maker

also says the market is overestimating the impact of new weight loss drugs and says its customers still use its devices in tandem with those meds. And that's why shares are up about 4 percent, but still down about 5 percent on the month. And the CEO will be on overtime just in the next hour for a CNBC exclusive. Robert Ford. Lithium stocks, though, getting slammed today as Bank of America says supply is exceeding demand. They expect the market to be oversupplied for the next two years, which could pressure margins and earnings. Analysts downgrading Alemarle to underperform. They reiterated buy rating on Levent, but that's not helping the stock much today as the whole group trades lower. You can see just 9%, 7%, 10%, 6% lower across the board. Scott?

Christina, thank you. Appreciate it as always. Christina Parts and Nevelos. Last chance now to weigh in on our question of the day. We asked, will big tech earnings fuel a year-end rally? You can head to at CBC Closing Bell on X. The results are coming up just after this break. Let's get the results now of our question of the day. Will big tech earnings fuel a year-end rally? The majority of you said yes, in fact, it will.

55%. Up next, the countdown's on. Netflix and Tesla reporting results in just a few minutes. And OT will take you through all the key themes and metrics you need to be watching when we take you inside the Market Zone. We're now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, we're watching two big earnings releases out in overtime tonight. Phil LeBeau on what to expect from Tesla. Julia Borson, of course, on what to expect from Netflix as well. Mike Santoli, I begin with you.

You want to just opine on sort of here it is, the start of tech, important tech. Yeah, well, it is the start of important tech. Yeah. Well, it is the start of important tech. And I think that what traders might wish for is the ability to focus on those numbers as opposed to trying to worry about, are we getting these kind of quick silver moves in the bond market? Does it mean there's an underlying instability? This morning, 10.30 a.m. Eastern time, 30-year yield ticks above 5%. And that's the high for the day in the S&P 500. We're down 1% since that. So it shows you the very short-term seesaw action that we have with stocks versus bonds.

On the other hand, we were at this level on the S&P. We're basically at last week's lows. It was from Friday, 43.11 or something. We were about this level September 22nd, and the 10-year was under 4.5. So there's a way for the market to try and establish some kind of a peace treaty on a short-term basis with where yields are, unless it seems like there's just this inherent unpredictable volatility. It seems like price-insensitive selling. It seems like there's financial accidents waiting to happen.

So to me, that's the story of the afternoon. The market's getting a little twisted up. Volatility index refuses to go above 20. That's because the S&P is only down a quarter percent this week. Where is it supposed to go? We've been trapped in this range. On the other hand, the VIX near-term futures are trading above the December. My point is, you're starting to see the market tense up, but it doesn't really know why, because the economy is relatively strong. Earnings are expected to go through. He just wants the bond market to tell him we can relax a little bit. Well, let's see what happens in overtime if it helps us feel something in either direction. And Phil, I'll go to you first with what Tesla has on tap. You know, Scott, aside from the top and the bottom line, that's always in focus.

It's the numbers within the numbers. And I know people are tired of hearing about gross auto margins, but that really is the key metric that people will be focused on. Three things to look for in the earnings report. 17.6 is the estimate on gross auto margins, excluding the zero emission vehicle credits. Look, if it's close to that, it's not going to move a lot. If it's dramatically lower than that, it raises the question, how much lower will margins go in the future? That depends on pricing pressure.

And what do we hear about the Cybertruck? Will we see first deliveries in the fourth quarter? So take a look at shares of Tesla. Remember that the conference call starts at 5.30 p.m. Eastern time. We expect to hear from Elon Musk at that time. And when he's on that call, the focus for the analysts will be, what is the Chinese market doing right now? Brutally competitive on pricing over there.

What does Elon Musk say about that? Obviously, there will be some other questions in terms of development of the new gigafactory down in Mexico. But those are the things that people are going to be focused on when we get the numbers and then later when we get the conference call. All right, Phil, we'll talk to you, of course, in overtime. Look forward to that. Julia Borsten, we're going to talk to you then as well. When Netflix reports, what's the key thing, the theme that we need to focus on? Well, Scott, this quarter, Netflix really cracked down on password sharing. And so now we're going to see if this page sharing strategy they have to get

freeloaders to start paying is working. The street's projection of five and a half million subscribers, that is the number to watch. It is down slightly from the subscriber additions last quarter. Netflix shares are down about 5.5% in the past week, with 50% of analysts now rating the stock a hold or a sell. Wolf Research recently downgrading the stock to peer perform, writing, quote, while Netflix is on course to build a massive advertising business for the long term, we have rising concern about 2024-25 growth forecasts. Now, those issues around advertising, et cetera, plus any commentary on the strike,

expanding video games and even the financial opportunity around new experiences, those are all sure to be in focus. Scott? Julia, thank you. We'll see you in just a bit as well. Two-minute warning. You heard the sound effect, which means I go back to Mike. Banks haven't traded well today. No. Morgan Stanley, you know, having its worst day in a few years, obviously, but transport's no good. United, J.B. Hunt. So you can find some negative stories really in many different places.

There's no doubt about it. Today was a day when there was some questioning about the strength of the cycle, certainly in terms of transports, both trucking and airlines, as well as just broader industrials. So it seems as if the confidence in the cycle is wavering, and it's been this way for a while, whereas in the here and now, the economy looks strong. Fed's willing to give it a pass for a while. A lot of things are lining up to say we should be in a better period here,

but we keep testing the economy at higher and higher rates. while. A lot of things are lining up to say we should be in a better period here. But it's sort of we keep testing the economy at higher, higher rates. Said earlier that we did. We didn't really do OK with 7 percent mortgage rates, but didn't break anything. Well, now we're at eight. Exactly. So it's it's always like you can't really rest until you get a sense of if the economy is able to to absorb this much of it when it comes to Tesla and Netflix. I think it's you Netflix, I think expectations have kind of come in a fair bit. I agree with that. I think the sell side is a little cautious. None of them look cheap.

Tesla's still an $800 billion market cap company. It's 70-something times earnings. It's not as if it makes sense for the size of the business today, but it's really, I think, expectations have been downscaled. We'll see if that really pays off at all. Because as you say, in general, stocks have not traded really great off of earnings, but that doesn't mean that the earnings aren't there

and moving in the right direction. And this is the one earnings report in the one quarter more than most where Tesla tends to move the most. So we'll see. And we're going to see shortly, because as we wind down here, we're going to close with the Dow off by more than 300.

We'll spend that kind of day across the board.