Closing Bell - Closing Bell: Timing The Bottom, Boeing's Boom & Sour Lemonade 8/1/22

Episode Date: August 1, 2022

Stocks slightly lower to kick off August following July's rally. Hayman Capital Management Founder Kyle Bass says despite last month's gains, the bottom is not in yet, but he reveals when he thinks it will be time to buy back into the market. Goldman Sachs' Ashish Shah discusses whether investors are getting ahead of the Fed on interest rates and why he sees big opportunities in software and biotech stocks. Jefferies' Sheila Kahyaoglu on Boeing's bullish dreamliner news and why she sees much more upside ahead for the stock. And Lemonade CEO Daniel Schreiber discusses the insurance company's huge stock decline this year and when he thinks the company will become profitable.

Stocks are mixed as we head toward the close up and down session here on Wall Street following the market's best month since 2020. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand in the market. S&P 500 feels like it wants to go positive. I know we're making a little push right now. The Nasdaq is positive right now, although you can say a little indecisive trading in terms of the overall indexes. We got higher earlier in the session after the release of some economic data.

Manufacturing numbers came in a little bit better, still showed some softening, especially in new orders. But prices paid for manufacturing came down sharply, perhaps a sign that inflation is really starting to come down here. Look at the S&P 500 sector heat map. It tells a story. It's a split market. You're seeing strength in groups like consumer staples, consumer discretionary, and industrials, all higher today. What's not working?

Energy. It's down 2% as oil prices slide on some weaker China data. Financials are weak today, down about a percent on the back of falling treasury yields. Materials, real estate, health care, communication services, utilities, and technology just turned red. It had been green a moment ago. Coming up on the show,

how much more upside is there in this market after the big rally in July? We'll ask the CIO of Public Investments at Goldman Sachs Asset Management what he is suggesting clients do next. Plus, we'll talk to the CEO of insurance company Lemonade, which just closed its deal to buy car insurer Metro Mile. The stock is jumping today, but it is down sharply on the year. Let's get straight to the market and the question on everybody's minds. Is the July strength going

to last? Joining us now is Kyle Bass from Hayman Capital Management. Kyle, always good to have you. Welcome back. Great to see you, Sarah. So what do you think? Are you a buyer? I think that we're still going to see a little bit more tightening. We're still pulling, what, $100 billion of risk capital out of the market each month. The Fed, in their language, is saying they're going to tighten some more. As you know, the yield curve's inverted. The 2's, 10's are inverted by about 30 basis points. I believe we'll be cutting by this time next year. So I'm not sure we put the bottom in, Sarah, but I think that as we get closer to the midterms,

that's probably the right time to buy. Because that has been part of the bullish thesis that the Fed will be cutting next year. And the market has started pricing that in. The pivot, the sounding less hawkish at the last Fed meeting, even though Fed officials have come out since then and sort of walked it back. Doesn't seem like the market believes them. Yeah, I mean, it's hard when you we've never printed the amount of money we printed, right? We put 40 percent more broad money in the system in 18 months. That's never happened before. And when you look at the construct of the CPI and what the media and the Fed reports to the population about inflation, the year-over-year number, what is it now, Sarah, 9%

June over June? 9.1, yeah. But, you know, you look at the components and the owner's equivalent rent. So when you think about the rent or the mortgage that you pay or the housing price you have to pay to be a housing buyer. Right now, that year over year number is up 5%. I beg you to find me someone whose rent is only up 5%. When you look at apartment rents, they're up 18% year over year. And they were up 18% the year before. So our price level has moved up about 40% because we put 40 percent more money in the system. And for us to get a deflationary print, given the level of restriction that the Fed has imposed on financial markets, we're going to get a print that's a deflationary print. But you have to remember, since the Fed was founded back in 1913, there have been seven disinflationary periods and all seven have had recessions. So we're already in a recession. You'll just see the lagging indicators will catch up here pretty soon.

So it sounds like so you just see more extremes. They're going to have to do more to fight inflation and then more on the other side when they go too far in the inflation side. And therefore, you're waiting to buy. Is that the summary? Yeah, they went way overboard with the monetary expansion. And, you know, I'm a believer that you're not going to see the Fed take $1 trillion off the balance sheet. I think we're going to have a permanent $7 trillion-plus balance sheet at the Fed. And before they have to reverse and say, you know what, maybe that was a bad idea, and we're going to have to start expanding the balance sheet again because I think they're going to induce a very quick, very sharp recession. And that's what's going to force them to start

cutting again a year from now. So where do you see evidence of a very quick, very sharp recession? Because, you know, the earnings weren't all that bad. There was a lot of fear, especially around big tech and in general. companies are still managing to eke out profits, doing better than expected, holding up a little bit better. There was a lot of demand pulled forward from that from covid into some of the services side of the economy, Kyle. But no evidence of something sharp in terms of recession, if that's what we're looking at. Yeah. I mean, be careful with the word no evidence, Sarah. I think if you if you really if you look at the most recent report,

real business investment in both, call it structures and equipment, dropped faster than it dropped as we went into the COVID scare and disaster in early 2020. So the leading indicators are telling you that this kind of gap is happening. When you look at employment, it's typical for employment to continue to actually grow or get better for a few months going into a recession because it's such a lagging indicator. So you're seeing the number of job postings or job openings drop pretty substantially month over month, and you're starting to see real business investment literally collapse in CapEx. So it's just going to take a little while to show. But it's clear. I know the National Bureau of

Economic Research hasn't declared a recession and the administration wants to redefine it. But when you have two consecutive quarters of negative growth, it's pretty much a recession. Well, the leading indicator on jobs, though, is jobless claims. And yes, we've started to see it move up to multi-month highs, but it's still historically pretty low. I'm looking at payroll employment. It's continuing to increase, but that typically increases going into a recession. You know, when I when I went and met with the various Fed members back in 2006, going into the global financial crisis, I heard the same arguments. I heard from the Fed people that I met with, you know, we look at jobs and real incomes

and those things move in tandem and we don't see a jobs decline. Therefore, we don't see a global financial crisis or a severe recession coming. And you can't look to that as being your leading indicator. You have to understand the way the economy is actually operating. And it seems to me that if you look at CapEx and you look at real business investment in these kind of things that you would need to see the economy keep growing, it just gapped down faster than it did in the first quarter of COVID. So I think it's worth paying attention to. No, and that's how you made your name and a lot of money, Kyle. You were betting against the housing market at that time.

What are you doing now? Yeah, so I think the pattern is set at the central banks, meaning, again, I mentioned I think we're gonna be cutting by the end of next year. I think you need to be picking your spots and starting to buy. And what we're buying at our firm is we're actually buying land and real assets within certain radiuses of major metropolitan areas in front of population migrations from, say,

call it the Northeast and the West Coast. But basically, you can buy, let's say, great U.S. businesses, U.S.-centric businesses that are dollar-focused, that will endure the test of time at the valuations that you think are worthwhile, meaning between now and November, I'm not suggesting be short. What I'm suggesting is pick your spots on where to be long, because one, two, three years from now, the Fed's going to be in another cutting cycle. And when you think about in a typical recession, the Fed has to cut rates 400, 500 basis points. And Sarah, we're not going to have the Fed funds rate high enough to cut 400 or 500. So you're going to see monetary policy kind of hit its limits and you're going to have to see new things happening in the next, call it round round headed below zero. So I just believe the pattern is set. And while we

might see more and more inflation, the markets aren't going to allow rates to go higher. And that's maybe where I differ from many of the participants. Well, we've seen central bankers get created before. And then, Kyle, there's the geopolitical risk, which certainly we've seen some reaction today. I know you're very hawkish on China, and I assume you believe that the Speaker of the House, Nancy Pelosi, should be going to Taiwan, which all indications at this point is that she will. And China's been making a lot of noise about it. What do you expect to happen as far as investment risk here and economic risk if we continue to see this escalation? Yeah, it's a great question.

You know, a lot of asset managers lost a lot of money investing in Russia because things were, quote, unquote, cheap. And the banks and the energy companies there were worth investing in and taking that risk. And the day that Putin decided to invade and commit war crimes in Ukraine, they lost all their money. In China, you've got another story. You have such an enormous amount of capital invested in China. So I think in this scenario, we've seen the frictions boil and get greater and greater over time here. And look, I applaud the speaker. The speaker has taken a stance against, let's say, human rights abuses and communism for a very long time. And that's difficult to do in the district that she's in in California, given her constituency.

But she's done it. She did it on the back end of Tiananmen Square's massacre in China back in 1989. And she's doing it again here towards the end of her career with Taiwan. I think it's important, Sarah, to note that if you listen to Xi's speech from last summer, he said it is his life's mission to, quote, bring about the rejuvenation of the great Chinese race, which is another way of saying they are going to annex Taiwan. And that is Xi's life mission, which he said he would be an abject failure if he didn't accomplish. So they are going to attack and invade Taiwan, whether Speaker Pelosi lands there or not. China's playbook is just like Putin's playbook. If you remember, he gave the rationale for his invasion of Ukraine that the Ukrainians basically made

him invade and do what he did. Their playbook is to blame the victim. And I think that's what we're seeing happen with the Chinese and their belligerence, militaristic belligerence towards Pelosi's visit of another thriving democracy. How do you as an investor even begin to comprehend what that looks like? It's not it's not Russia where it's not the second most important economy in the entire world. So, look, there's never been a case in the world's history where the second biggest economy in the world has a closed capital account, has a firewall that disallows any real news from getting in.

And even here on CNBC, when I talk China, you know what happens, Sarah. The MSS guys in your office in Beijing actually cut the feed and it turns into the rainbow screen. And I think the viewers need to know that when any truth about China is being spoken, China doesn't want to hear it and the censors cut it off. And so when I think about what would happen in this scenario, a lot of these institutions that have seen all of the writing on the wall, but they've had a fear of missing out, they've had such severe FOMO that they've plowed so much private equity and so much public capital into, quote, the world's second largest economy. When you think about, look at

the Shanghai Composite Index, Sarah, over a 10 year period, it might have annualized a 1% return annually. And the S&P in the US, where we have the rule of law, and we have the best innovators in the world, has annualized prior to this drop this year, about 14% a year. So you're not even being compensated for taking that Chinese risk. And here we are now with someone that's a genocidal dictator, war mongering and even having his mouthpieces, the Global Times and others say that they may shoot down jets if they escort Pelosi in. And yet, again, that chasm between the investment world of Wall Street, they can't wait to make another dime on China and the real world. And whether you look at Director of National Intelligence or even the Biden administration's National Security Council, China is our biggest threat. And yet we continue to plow money into it like we can't wait to have better returns. So it just doesn't make sense to

me all around. And I think those that are doing so are going to pay the price with their jobs when something negative happens. It only takes one bad event for this to precipitate a pretty calamitous fall. You've been warning of that for a while, Kyle. Thank you very much for joining us as always. Thank you, Sarah. Kyle Bass. And by the way, as Kyle mentioned, it's up to the NBER to determine the recession. Tomorrow on this show, we will talk to the CEO, James Paterba, who leads that organization, the National Bureau of Economic Research. Go through his checklist on what actually makes a recession. Sort of up for debate right now. Up next, insurance upstart Lemonade.

Got to pop early in the pandemic. It's been on a downward slope ever since, though, gaining some ground today. We'll talk to the company CEO about the stock's performance and the closing of its new acquisition of car insurer Metro Mile. You're watching Closing Bell on CNBC. We have turned higher here on the Dow, up 17. A few attempts earlier today. We'll see if it sticks into the close. We'll be right back.

Check out today's stealth mover. It's Geldwin. Shares of the door and window maker plunging after missing profit expectations and cutting its full year guidance due to weakening demand and also higher costs from raw materials. Freight costs as well and labor also hurting. The stock's down 13 percent. Shares of lemonade getting a pop today. The move coming after the company acquired Metromile. It's a pay-per-mile car insurance company. Shares may be up today, but year-to-date, they are still down nearly 50%. Joining us now in a Closing Bell exclusive is Lemonade CEO Daniel Schreiber.

Welcome back, Daniel. Good to see you. Great to be with you. So why now? Why is now the time to double down on auto insurance when the auto industry is facing some real challenges with supply chain and inflation and potentially softening demand? Yeah, there may be softening demand for the larger players, but actually from where we're standing, we see unlimited total available market. This is

a quarter of a trillion dollar market in the U.S. alone, and we have none of it. So for us, already having homeowners insurance and renters and pet, we're getting customers banging on our doors asking to bundle it with car insurance. We have tremendous pent-up demand. Our customers today spend over a billion dollars on car insurance. They just couldn't spend it with us. So for us, this is a huge unlock of value that we've been working on for quite a while. Piper Sandler expressing a little bit of skepticism on the deal,

saying that as a standalone company, they were challenged, the company you're buying, several headwinds. And in particular, pay-per-mile pricing remains inherently challenged, according to the analyst, with elevated driving patterns coming out of COVID and consumers turning to traditional policies. How do you respond? Yeah, we didn't buy Metromile as a going concern. We really bought it for some of its core assets. We launched six months ago our own car insurance, Lemonade Car. And Lemonade Car is, I think, the most customer-friendly, loved insurance product out there. But newcomers into this highly competitive market are disadvantaged. We're pre-scale, and without scale, it's tough to succeed in this industry.

And we don't have our own data. And data really is what this entire industry thrives on. Metromile had exactly those things. They had perhaps the best, most nuanced, and highest quality, most textured data of any kind out there. For 10 years, they've had highly, really intricate sensors, highly sensitive sensors driving around billions of miles of Americans driving around over half a billion road trips. And that data is tremendous. They have really world-class data scientists that have been working for years to distill those into models that can predict claims per mile driven at a level of precision that the rest of the industry really wishes they had. So for us, it's about bringing those two together, already having some of the best tech,

best branding, best product from a consumer perspective, marrying that with the best data science, best data archives that are out there. That should allow us to leapfrog a lot of the competitive dynamics out there and move from being a disadvantaged newcomer to really being a player with a competitive advantage that should endure. So, Daniel, you're still talking about growth, the growth company, all the runway that's ahead of you as a newcomer. You know, the stock has had a really rough ride. This was a stock that was, what, 160 or so at the beginning of last year. It's now down to the 20s or so. Have you had to refocus the attention on profitability, on cutting costs? How has it changed what you're trying to do there?

So yes and no. Clearly, when the entire stock market, let alone growth stocks, have been hit more or less in proportion to what we were hit. It's hard to take it personally. So, these are greater forces than our company. These are not reflections of performance of the company. The company has been public for nine quarters and has hit or exceeded expectations each time. So, we've really been focused on doing what we said we were going to do and in large measure have been able to do that. The stock in due course will reflect that. That said, costs of capital aren't driven by stock price. So as our cost of capital increases, we definitely want to marshal our resources to make sure that they last the distance and enable us to keep doing what we're doing. Notwithstanding that, we are seeing something like 70% growth this

year and peak losses. So we are seeing ourselves at the point of turning that corner towards profitability. Within a few months, we'll start seeing declining losses all the way through to profitability, all the while seeing robust growth because this is an industry where scale matters, and you have to keep growing if you want to be successful in the insurance space. So profitability within quarters, is that what you're saying? I'm saying that within quarters, we are turning towards increasing profitability. So you'll see our losses peak this year. And every successive year, we will be on a downward slope in terms of profitability

of losses towards profitability. We do still have a billion dollars in the bank we are well capitalized and should be able to manage that process reasonably well got it that's the kind of that's the kind of commentary investors want to hear right now daniel thank you thank you driver of lemonade let's give you a check of where we are here on the markets dow has been flip-flopping positive negative pretty much unchanged right now. S&P has lost a third of a percent because it is a tale of various sectors. Staples, discretionary, and industrials remain strong. Energy, though, dragging on the market along with banks, materials, real estate, all of those sectors are almost down a full percent. Coming up,

Mike Santoli is back. And for his dashboard today, he's going to take a look at the big swings, specifically in the energy market. Energy stocks down 2%. And then later, we'll talk about Boeing's boost with an analyst who sees much more upside ahead. That stock's surging 6%. It is the biggest contributor on the plus side right now to the Dow. Chevron is the biggest drag. Actually, now we've got UNH as the biggest drag.

UnitedHealthcare. Chevron is down there, too. We'll be right back. It is time for today's market dashboard. And welcome back to Mike Santoli. You missed quite the rally. A lot going on, Sarah. Thank you very much.

Glad to be back here with you where I belong. Yeah, well, here's what the market looks like. I mean, since I've been gone for a little over a week, a big exhale got the market a little bit higher and actually cleared some hurdles. This has been the downtrend since April. We've gotten above that. It's around 100-day average. So a lot of these technical targets starting to do some work in that direction. Now, right above it, people are talking about how really 4,200 and change might be where you have to get to. That's halfway back from the total decline from January down to the recent lows. So obviously haven't proven anything yet, but I think pretty constructive, at least on a short term basis. Still, bear market rallies can easily be as big as 12, 13 percent. Take a look at wholesale gasoline prices relative to the S&P 500. You know, you don't want to overstate the

role of gasoline, but you also don't want to overthink what the markets have been up to. Gasoline means persistence of inflation and the Fed has targeted it directly. So here, since the invasion of Ukraine, obviously, the big spike higher. Stocks have a little bit of trouble with that. Then, when they really got momentum, that's how stocks got down into their lows into June. And you see, obviously, the inverse move since then. It's not the only thing that matters, but it seems, Sarah, that it really does encapsulate a lot of things that we're worried about, which is resiliency of the consumer and how far the Fed's going to have to go to choke off inflation.

Market likes low gas prices. So far, yeah. Who doesn't? That's right. Mike, thank you. We'll see you in the Market Zone. Up next, we'll discuss whether the market is starting to get ahead of the Fed, though, when we are joined by Goldman Sachs Asset Management's CIO of Public Investing. Next. Joined by Goldman Sachs Asset Management, CIO, Public Investing, next.

It has been a seesaw session after a strong July. S&P rose 9%, where the Fed hiked rates by another 75 basis points. Minneapolis Fed President Neil Kashkari warning in a New York Times interview that markets have gotten ahead of themselves, anticipating that the Fed is near the end of its hiking cycle. Joining us now is Goldman Sachs Asset Management Public Investing CIO, Ashish Shah. Welcome, Ashish. It's nice to see you. Thanks, Sarah. Thanks for having me.

Wanted to actually start with the action in bonds today because the 10-year yield is below 260, and this is sort of your background, your expertise in fixed income. We're seeing a greater inversion of the curve. What is the message right now from the bond market? Look, I think the bond market is telling you that we're seeing slowing growth and decelerating inflation in the marketplace. And so, you know, the market believes that the Fed is priced in getting tight,

but knows that that tightness is going to actually slow the economy and down the line that we're above the neutral rate. And so I think what we have to gauge is what are the types of returns that we can get by buying bonds where easing is priced in. You know, I'd much rather be buying those higher yields. We were almost 100 basis points higher about a month ago. And now the risk return is looking a little bit less good out the curve. But do you think we've seen the highs for bond yields this cycle? I think we've probably seen the highs out the curve. But in the near term, we certainly could see more hiking. And in fact, I'd expect more hiking from the Fed as they go from neutral to tight.

So do you think the market overall, stocks, bonds, has gotten ahead of itself when it comes to a Fed pivot and potentially easing next year? Look, I don't think the market has to have gotten ahead of itself here. I think that the market's acknowledging the fact that they do have risk priced in, further hikes priced in, over 80 basis points of hikes priced in from here to the end of the year. And equity markets have rallied as a function of simply having less uncertainty. We were talking about 4% or 5% interest rates. There are folks that were talking about inflation that was out of control. I think what we're finding is that the Fed is being effective in its board guidance

and its hiking cycle. And so that's part of the reason why markets have rallied back in. Have we gotten a little bit overdone in the near term based on technicals? Probably. But I think that kind of just reducing the amount of volatility has been constructive for both bonds and stocks in the near term. So what is the signal for beyond just the very near term and the technical move that we've seen? What is the signal for stocks that you're getting right now as it relates to this question about recession and the Fed cycle and everything like that? Yeah, so take a look at, you know, what's happening today. You have the cyclicals or deep cyclicals getting hit. That's partly as a function of the weak data that we got over the

weekend. And I think, you know, as we go forward, the real question is going to be, can we keep from going into a deep recession or bounce out of a really shallow recession? Or are we going to see follow on shocks that really limit the growth of the global economy? And I think that the bottom line is no one knows this, right? Like no one can actually forecast. But we've priced in some good risks into markets. And I think that you can earn some good income given how rates have gotten, how high rates have gotten in the near term and how much risk premium our price in the equity. So we're definitely seeing good opportunities across equity credit and and frankly even

bonds. All you have to do is not sit in a bank account that's earning zero because there are plenty of those out there. Cash is trash. Where is the cash flow is key. I know you think so. She's where where is the best entry point in terms of equities? What types of sectors or types of stocks? Yeah, so the things that we think are kind of really interesting here, you know, I kind

of point to the growth space, which has really gone through a lot of consolidation. I think a lot of folks are hiding in in kind of the bellwether names the largest uh caps and in uh growth equities and i think that maybe a little bit too much has been priced in on the back of strong earnings so where we see opportunity is in uh the software sector where we think there's just a secular trend of software eating the world and where mid caps represent good value to capture real growth. We also see a lot of value in biotech where you know they have very robust research pipelines and you know at the end of the day a ton of cash that they're sitting on granted they're burning it to do that research

but we think that there's going to be a lot of M&A in that space going forward and it represents a real opportunity for active management. People have been waiting for that biotech M&A for a while. Ashish Shah, we'll kind of leave it there. Thank you for joining us. Goldman Sachs, asset management, CIF. Here's where we stand right now overall in the markets. Down 14 on the Dow.

As Ashish said, it is some of the cyclical parts of the market that are under pressure. That's energy, financials, materials. Although consumer discretionary is having a good day, by the top of the market, you've got staples. Industrials are also a little bit higher. Shares of energy drink, Celsius heating up on news. Pepsi is taking a stake in the company that has Wall Street buzzing. We'll share the details when Closing Bell comes right back. What is Wall Street buzzing about today? A jolt for Celsius, the energy drinks company, not the bankrupt crypto lender. PepsiCo announcing it is investing $550 million for an 8.5% stake

and a long-term distribution deal. With Celsius, it's a very fast-growing energy drink that bills itself as a healthier, cleaner alternative, has ginger and green tea and vitamins. Its share has been growing fast. Take a look. Thank you to Beverage Digest for putting this together. Celsius has about a 3% share. Monster and Red Bull dominate the energy drinks business. But as you can see, Celsius has been growing quickly. And this deal, according to JP Morgan, would likely boost its distribution at convenience stores and gas stations, which represent about 70 percent of the energy drink demand. For Pepsi, it's a chance to compete harder in energy drinks and comes at a time when it's to distribute. Bang, another competitor is over. Remember, the leader monster is distributed by

Coca-Cola, which has a nearly 17 percent stake. Red Bull is independent. And the other top players, Bang, Celsius, and Rockstar, which was bought by Pepsi for nearly $4 billion back in 2020. Monster is lower a little bit today, probably on worries that it could lose share to the now stronger Celsius. But the bottom line,

the energy drinks category is still super hot and Coke and Pepsi continue to pour money into these faster growing upstarts who are starting to take real share in this market. The next step would be an outright acquisition, something the market has been speculating about for the last decade since Coke first put in that stake in Monster. Monster's market cap over that time has tripled. Boeing shares are rallying after taking a big step toward resuming Dreamliner deliveries in the next few weeks. Up next, we'll discuss whether the stock is more upside from here, that story, plus more

big tech hiring concerns and rough seas today for Royal Caribbean. When we take you inside the market zone, the Dow is down one point. We've been as low as down 200 and up as high as more than 140. We'll be right back. We are now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here, as always, to break down these crucial moments of the trading day. Plus, we've got Steve Kovac on big tech spending and Jeffrey's Sheila Kayalu on Boeing. Big run today. We'll start off with the broader market right now. Mike, indecisive after a very strong month where the S&P gained 9 percent%. We're sort of wavering. You've got strength in some of the tech names like NVIDIA, Amazon, AMD, Microsoft, Apple, Google, all weaker.

So you can see the split. Last few weeks, it's been sort of more monolithic in terms of NASDAQ outperformance. Yeah, in general, at the index level, just kind of pausing to look around. First day of a new month. You know, the worst first half in 50 years, which is what we had through June, gives way to this very oversold rally. It makes sense that we are where we are. Definitely a tone across the markets of some concerns still building in about the pace of growth. You can see it in the bond market.

You can see it in the Treasury yield curves inverting the way they are. But it's also happening in a way where financial conditions are kind of loosening along the way because corporate credit is holding up. So that's the macro side of it. On the micro side, no big earnings yet today, really. But in general, this I guess this sort of sigh of relief that, in fact, companies are able to beat lowered expectations. That's OK for now. We'll see if that can carry us further from here now that the S&P is back, you know, above 17 times earnings again. So really not cheap, at least at that from that perspective. So that that is the bear case, right, that it's not that the market has not

gotten cheap. Yeah. And that earnings expectations really have not come down enough. So where does that where does the where does the price stack up relative to history, relative to bear markets and recessions? Look, I think we're in the zone of fair value at the S&P level. And so you'd probably consider investors to have gotten off relatively easy if all you do is migrate from expensive back to fair value. That being said, it's still the very large mega cap growth stocks that are holding up the valuation, the P.E. If you look at the equal weighted, it's like 14 times earnings. The typical stock has come down a lot more in valuation. I'm fully on board with the idea

that if we get a true all out recession that comes along with a 10 or 20 percent decline in S&P profits, it's not priced in. But I also don't think the market should rush to price that scenario in before we know that that's what we have waiting for us. Let's hit big tech because Alphabet is the latest company to weigh in on spending concerns. CEO Sundar Pichai telling employees last week they need to improve efficiency and focus during this uncertain economic period. That's according to attendees of that all- meeting and internal documents that were viewed by CNBC. Executives also say they're not ruling out lay ruling out layoffs, although none are currently planned. Steve Kovach joins us. Steve, how does how does this message from Google compare to what we're hearing about hiring and spending from some of the other big tech companies?

Yes, sir. It's very similar. In fact, just a few weeks ago, Mark Zuckerberg told Netta employees not so many words, but effectively the same thing, which is, hey, we all got to buckle down here. We're heading into a really tough environment and we need to see productivity go up. And there's just kind of subtext throughout all of this that if you're not willing to do that, you better get out now before the layoffs hit. So you can kind of see this era as preparing these staffs for any kind of future job cuts. On the Apple side, I asked Tim Cook about this just during their earnings report last week, and he wouldn't really say they're slowing down or laying off. He just said they're going to the end of the year. Foreign exchange headwinds expected to be a huge pain, especially for Microsoft and Apple through at least until next year. And then we're seeing other headwinds ahead, just like lower ad spending, which is really hurting Meta and LinkedIn side of Microsoft as well, Sarah. So what's happening, Steve, with the estimates and the expectations

for these stocks after the big sigh of relief we got last week? Yeah, that's what's funny. Despite all these warnings of the economy just getting so much worse, Sarah, a lot of these companies are saying we're still going to be growing. We're going to even beat our own expectations. Apple, for example, beat even its worst expectations due to those COVID shutdowns in China. They had warned they were going to have at least $4 billion hit. It came in under that. So they're actually, because they're so big, they're actually able to perform better than anticipated. So they're just going to be okay at the end of all this.

Steve Kovacs, Steve, thank you. Thanks. Wanted to hit Target as well because shares are moving higher. The stock got an upgrade from an analyst at Wells Fargo, taking the stock to overweight with a price target of one ninety five from a previous target of one fifty five. Analysts there writing that management is taking decisive action to protect its pandemic share gains. And it is well positioned for a faster recovery than its peers. Wells Fargo also writing that investors are too bearish on Target's prospects for next year, that this year's margin misses were one-time related. Target shares are down about 28%, Mike, so far this year. A few bad news surprises took that stock pretty lower. And also, we got

the news from Walmart as well. So are these one time issues with inventories or not? Well, they're one time in the sense that they're about a moment in time or this phase that we have been in where everyone got whipsawed by worry about shortages, too much ordering, this huge drop off in goods demand, all the stuff we know about. One thing, you know, as part of this upgrade really is the idea the target. In itself didn't necessarily make any unique missteps along the way even though when they first warned. It did seem as if they

were an outlier and they really had. I had botched. The ordering system and basically did miss miss- miss engaged demand. So I you know I think you could make the case the stock is very reasonably valued here really really ran

up to a big premium. When everyone thought they had it perfectly figured out. They had the right mix for a huge consumer boom. So it's rationalized to some degree. It's unclear if consumer discretionary, real core consumer discretionary like big box retailers, are going to be the leadership of this market. But at this valuation, a lot of the risk has been taken out of it. A lot of the retailers are working today. Bath & Body Works up 5%. Actually, all of consumer discretionary

is higher except for Wynn Resorts. Actually, Wynn just popped into the green as well. So now every stock in that group is higher. Boeing is also a big winner. It's today's top Dow performer. Shares getting a boost on news that Boeing can resume deliveries of its 787 plane in the next few weeks. The company's inspection protocol of the aircraft has been approved by regulators. This comes 14 months after the company was forced to halt those deliveries. Boeing has roughly 120 built that have not been delivered. Joining us for more, Jeffries defense analyst Sheila Cayalo. Sheila, how big of a surprise is this for investors?

It's a positive, clearly. But we had it in our numbers. We had 12, 787 deliveries for this year, 84 for next year. But I would say it was about 25% of the risk removed from the stock, the other being the max. Right. And so Phil LeBeau earlier reported that it's really good timing because what the carriers want right now are these larger body jets because they're investing in international and that's sort of the missing piece of the recovery that we expect to pick up. So how much of a tailwind do you think it is from that perspective?

So what's happening right now in the domestic market is we're basically 100 percent of domestic is back at 2019 levels, but international is still really far behind. So to give you guys a sense, wide-body aircraft, which is what a 787 would take folks internationally, with Airbus' A350 is going to produce at 17 per month in 2022. That number in 2019 was 28 per month. So we're still well below peak, and there's a full cycle on the wide bodies to go. And we project about 80 to 100 787 deliveries per year between 2023 to 2025. And that assumes about only 5 percent comes from China. So American Airlines, United, Lufthansa are all really asking for the 787. So this is big and it drives the next leg of the recovery, which is international. So you agree with that. So the stock is up 6 percent. It's still down about 16 for the year. What do you do with it?

You know, I think you buy the news because although the 787 was in analyst numbers, you know, we're waiting for the next leg of the story, which will be the max recovery in China. That's 40 percent of the backlog that is yet to deliver. But, you know, that that has other geopolitical ramifications that we're waiting for. Then we work off of, you know, the recovery in commercial airspace profitability, which is currently loss making. So everybody's looking to buy Aero, but we haven't had good news because Boeing simply can't deliver any planet manufacturers in 2022. And now the 787 with the FAA allowing it allows this to happen. So it's just one. I guess the question is, is it too, is it getting too late? Are we getting near the end of the

cycle? We're worried about recession now and demand for discretionary things like travel after a huge jolt that we have seen, Sheila. Well, I think that's the best part of aerospace. We haven't seen a recovery. You know, COVID's still very much impacting it. Whether you look at wide bodies, which I mentioned are 50 percent depressed, or narrow body production, if we're lucky, Boeing and Airbus combined will produce 90 narrow bodies this year. Regardless of what happens to air traffic with a recession in 2025, we predict that to go up to 125 units per month of production. So a 7% caper. So regardless of recession, aerospace is pretty recession-proof at the moment. So investors were looking for a bit of good news to buy Boeing, and they got it here with the FAA announcement. Got it. Sheila, thank you. Boeing, top performer, not just on the Dow, but the S&P 500 as well.

Sheila Cagliolo of Jefferies. Royal Caribbean, the worst performer in the S&P right now, after announcing an offering of senior convertible notes worth up to $900 million. The cruise line operator planning to use those proceeds to restructure its existing debt. Seema Modi joins us. Seema, Carnival stock was hit recently after its stock offering. Why is Royal Caribbean getting crushed on this bond deal? Still financing struggles for this group. Sarah, I think investors are being reminded that how much debt these cruise lines have had to take on during the pandemic. And now that needs to be refinanced at a higher interest rate. It's important to highlight, though, that each cruise line is taking sort of a different approach to addressing their debt and that this convertible bond offering is not dilutive

in the way Carnival stock sale is. In fact, CEO of Royal Caribbean joined us last week, Jason Liberty. He said that taking raising equity a very high bar for us and we don't have any plans to do so. But clearly, with about $4 billion in debt maturing next year, Royal's convertible bond offering was sort of the best option. It's replacing the existing 2023 convertibles with a new one that will price tonight. There are no new shares. But clearly, again, a news that is still pressuring the stock, this idea that as interest rates rise,

these companies that took on a lot of debt have to refinance and at a higher rate, Sarah. Got it, Seema Modi. Seema, thank you. We've got just about two minutes to go here in the trading day. Mike, it looks like we've lost the gains on the stock market, despite the fact that we have lower yields, lower prices of oil and a weaker dollar, which all have typically done well for the stock market lately. What do you see? They have. I would say within still a very narrow range, especially by recent standards in terms of the high to low move. It's been very mixed under the surface. Take a look at the New York Stock Exchange breadth.

It's mostly skewed slightly negative, but been sort of, here you go, close to 50-50 at this point. The NASDAQ just a little bit weaker. You mentioned the dollar. The U.S. dollar index has kind of stayed in this pullback. In fact, it's actually at an interesting point right now. If you look at the sort of uptrend since February, it's sitting right on that line. So if it breaks down from here, you're going to have some people say maybe there's something more decisive about this pullback that is reflective of loosening financial conditions, although also could be

concerns about growth. As you mentioned, the volatility index has ticked higher. Nothing too dramatic, but we're at the low end of the recent range for the VIX, just as we're at the high end of the range for the S&P 500. All makes sense. A lot of the move today is just Monday rebuilding some of that premium piece. People may be also locking in some of this rally's gains, Sarah. Yeah, down 31 points on the Dow. We got as low as down 200 at one point today as we head into the close. Take a look at the Dow Jones Industrial Average. It is Boeing that is the biggest contributor on the upside for the Dow and UnitedHealthcare, the biggest drag, along with Chevron, Caterpillar, Microsoft and Travelers. Within the S&P 500,

we are off just about a quarter of one percent, Of course, after the 9% monstrous rally we saw during the month of July, which brings us about 14.5% off the highs for the S&P 500 and about 13% off the lows. You've got staples on top, energy on bottom, 5% decline in crude oil prices. That is certainly weighing on energy stocks. The NASDAQ losing some of its earlier gains, closing down about two-tenths of 1%. That's it for me. I'm closing down.