Closing Bell - Closing Bell: Trading Today’s Leg Lower 8/2/23

Episode Date: August 2, 2023

Is today’s drop a routine shakeout after a powerful multi-month rally or a sign of a much tougher tape ahead? Josh Brown from Ritholtz Wealth Management gives his expert market take. Plus, CNBC’s Leslie Picker sat down exclusively with JP Morgan’s Jamie Dimon with his take on the banks, regulation and the overall market. We break down his comments. And, we discuss what to watch from the slew of earnings reports this evening – including PayPal, Qualcomm and MGM. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner here at Post 9 of the New York Stock Exchange. This make or break hour begins with some sudden turbulence disturbing the market's recent calm as higher long-term bond yields and some mixed earnings reactions help send the indexes toward what would be their worst day in months. You see the S&P 500 down more than one and a quarter percent, pretty much near the lows of the day. Forty-five, eleven or so was the low of the day. The Nasdaq has been the big underperformer. A lot of the winning stocks in that group, including semiconductors, leading to the downside. About 80 percent of all volume is negative today on the New York Stock Exchange. Take a look at Treasuries. That's part of the story as well. Ten year yield up about four point oh eight. A lot of that gain in the

yields on the long end happened after we got a stronger than expected ADP payrolls report. And we also have had recent kind of indications of higher oil prices and maybe some inflation concerns. So a lot of things in the mix, of course, along with that Fitch downgrade of the U.S. federal debt. That all brings us to our talk of the tape, where we ask, is this just a routine shakeout in stocks after this powerful month-by-month rally or a sign of a much tougher tape ahead? Here to discuss all that is Ritholtz Wealth Management CEO and CNBC contributor Josh Brown. So, Josh, we can write it any way we like. We could basically say everything lined up for this.

We had a five-month winning streak in stocks. Sentiment was say everything lined up for this. We had a five month winning streak in stocks. Sentiment was getting a little bit frothy. Technicals were stretched. We have a negative seasonality. Something's going to come along to maybe create an air pocket. And we did that. On the other hand, we also had a lot of bears capitulating. The economy looks really strong and everybody agrees with that. So do we have the makings of a perfect, ironic top in the market? Where along that spectrum would you sit yourself? Well, as someone who is really good at explaining what just happened, I would say that this is not very much more complicated than sell the news.

You had a huge run up into this earnings season. We're in the middle of it. I think we're on track to see a 7 percent decline in earnings for the S&P 500, which was the expectation for this quarter. And that's where we are. And, you know, you've had a lot of beating, believe it or not. If you look at that, we've had 51 percent of S&P companies report earnings and you have 80 percent of these companies beating on earnings, which is the highest number we've seen in seven quarters. So you're getting those good results. That was the reason for this huge rally we've had since May. OK, we have them now. Sixty four percent of companies beat on revenue. Now you could say, well, that sounds low. Shouldn't it be like 72, 73? Yes. But here's the other way to look at that. You're seeing

companies with decelerating revenue growth still finding a way to beat on margins with that earnings beat. So I think on balance, like we're getting the justification for the rally we've already had. We're not really getting a justification for further gains from here. One thing I want to point out, very strange situation. Look at the reaction in stocks after they report. The company's missing numbers are doing better on average the next day than the company's beating. Let me put some meat on those bones and I'll turn it back to you. Companies reporting a beat on earnings. And a lot of my companies have beat and fallen that I'm involved with.

An average price decrease of 0.7 percent. The five year average is plus one. So it's not even an environment that's rewarding better than expected reports. So if we just accept that, that we've had a lot of the run up and we're just getting the news that people are selling on, I think it's a better take than, oh, something's materially changed because we're still in an uptrend. You really have to pull the lens back and you can see that. There's no doubt. You know, you look at the chart. The trend has been encouraging. We've kind of been rotating around. The market's broadened out. I was pointing out earlier that the lows for the day today and really where we're trading right

now in the S&P is its 20 day average. Right. If you want to be a real kind of scalper, short term trader, that's what you look at in terms of buying the first dip. On the other hand, you know, the sweet spot that the market has been in where essentially we got comfortable that companies are going to make their numbers. The economy seems like it's far away from recession. And, you know, yields weren't doing a whole lot. Maybe there's a little more complication here. And we were in a market mode that wasn't really interested in thinking too hard about the tough stuff. And we get this Fitch downgrade. We get yields going above 4 percent and the sweet spot looks a little bit less sweet. All right. So the Fitch thing, these are not serious people. I think it almost seems like their intention is to influence the negotiations in Congress, but nothing's really going to change

there. We've basically gone 20 years letting the Fed worry about the budget and both sides of the aisle are guilty of this. And none of that has been a reason to stop investing. And I don't think that's going to change anytime soon. It's true. Debt is going higher. Deficits are going higher. The spending has gotten out of control. The stimulus plans are actually creating more inflation. Fine. That's OK. I don't think it's the main thing here. What's most interesting in fixed income right now, at least to me, is the steepening. Every treasury yielding three years or less is down right now.

Every treasury bond yielding five years or more is up. The 10-year, 2-year spread is now down to minus 0.82, which is the least inverted it's been since the failure of Silicon Valley Bank. To me, that's the big story. The 10-year yield is now back at its highest level. You have to go back to Thanksgiving. It's only 14 basis points away from the 2022 highs. That's the story here. It's a good story.

It's a story of an economy not poised to fall into recession. let's just take it as that and not try to make it more complicated sure um the uh let's hear what jamie diamond actually had to say about the fitch downgrade and uh and some other macro issues as he talked to leslie picker uh last hour it doesn't really matter that much uh you know the markets decide it's not the rain agencies make these big decisions number two they point out some issues It doesn't really matter that much. The markets decide. It's not the rain agencies who make these big decisions. Number two, they point out some issues which we all knew about, about our debt ceiling crisis and things like that. But number three, most important, the American public, this is the most prosperous nation

on the planet. It's still the most prosperous nation on the planet. It's the most secure nation on the planet. And I would point out to the rain agencies if I could that there are a bunch of countries rated higher than us, like AAA, but they live under the American enterprise military system. To have them be AAA and not America is kind of ridiculous.

Let's bring in Liz Young of SoFi to talk about that and all things markets. Liz, so hard to argue with the idea that, you know, Fitch or a rating agency in general is not going to tell the world how it should view the solvency of the United States or the attractiveness of the paper. But it's a little bit of an occasion to take notice where we are in terms of fiscal position, the state of the economy, sustainability of current trends. How do you think about it? I mean, this

is not surprising stuff, right? We knew that debt was high. We knew that we had continued to create debt in order to cover everything that we've done and stimulate the economy and sort of save us from disaster a la March of this year. So I don't think that this is a huge surprise. The reason for the downgrade, I would agree with Josh and I would agree with Jamie that it's not that big of a deal. It's one ratings agency. It's one little step downward. It probably goes back up decently soon. I think actually the bigger risk right now, which we knew when the debt ceiling issue happened, was that we just kind of kicked that down the road. We got through summer and then it was

going to come back up again in September, October. We have not entirely resolved that issue. Now, I think we probably will resolve it, but that doesn't mean it's going to come without conflict and it's not going to heighten up volatility in the market just because we're sort of waiting to see. And as we know, those things usually happen over a weekend. It always seems to happen when there's already volatility in the market. And we find out in the 11th hour. So eyes on September, October for that. Yes, there's no doubt about that. I think so. We all kind of agree here. Most people, I think, involved in the markets agree that this is not in itself much of a change of the outlook or a reason to incrementally worry. That being said, we do have the market down one percent for the first time if we close here since May.

So clearly, even if it's just kind of a convenient excuse or just a coincidence, we were in a place where the market had some pent up selling to do. Well, I think it was pent up valuations. Right. And you're looking at if you just look at the broad indices and the pattern that you see today, the Dow is down less than the Nasdaq. The Russell is down more than the S&P. Right. So the stuff that had run and had a really good July is giving back some of that. I think that's very natural. I think that's healthy. Even if you're a bull in this market and you think that this is a new bull market, these little pullbacks are good. These little mini corrections are good because it gets you back to more of a right sized price and it gets you back to a valuation where if you missed it and you want to be in, you get an opportunity. I don't think this is the last daily pullback that we're going to see in August. But again, I think it's healthy. The question that remains and that continues to be further and further away, at least for me, is will this be the beginning of a deeper pullback? Will this be something that gets added on to with credit issues or something that could happen in

fall and surprise us from the Fed? Sure. And I guess, Josh, to that point, I mean, in theory, there's a lot of house money that's been built up so far this year in equities. The total return in the S&P went above 20 percent, up 31 percent from the lows. And even if you look back farther, you know, you look at the five and 10 year annualized returns to this point, it's like 12 and a half percent. It's not like the market owes you anything right here. So for selling off on good earnings, at least in the short term, And everyone seems to like the market after they were expecting a retest of the lows for the start of the year. How does that shape up for you? I think today is what the old timers would call an inside out day. There are 20 best performing stocks in the S&P 500 this year have gains on average of 83 percent.

And that's an average. So a lot of these things have more than doubled. That's your top 20 stocks. Go down the list. Eight of them are tech, six are consumer discretionary, three industrials, two healthcare, one communication. It's pretty broad based. If you think about an inside out day, it's like all counter trend stuff going on. Those stocks, those top 20 names of the year, they're down today on average 3%, way worse than the overall market. So that's the kind of thing that you see on a day like today. And again, I think it's counter trend. The reality is, Liz is right. If you've been locked out of this market because it's been trending and you just can't think straight and you're watching it tick up day after day after day, this is what you want to have happen. I really don't care what Abercrombie and Fitch thinks. I think this is a situation where you want to look for opportunities to get long. You want to see stocks pull back. If you want to use a moving average as kind of a gauge where they should pull back to, where the buyers step in, that's fine. I don't have a problem with that. But we'll get through earnings here. And then we'll be basically facing a situation where we've

had the trough quarter. We're not expected to decline another 7% in earnings next quarter. So the trough is here. And I think people will go into the end of the year feeling positive about that. Not not knowing where earnings will trend, but probably not down. Yeah. I'm going to just walk right by you, you know, invoking old timers. I know that was directed at me, but that's OK, Josh. We'll get to it another time. No, not you. OK, even older timers. Yeah, got it. Liz, I did mention earlier that if you looked at the tick by tick of how Treasury yields traded today,

it was actually yields lower across the board overnight because, of course, it's the safe haven trade, even when the story is, you know, somebody downgrades the debt and then yields went higher after the ADP number. We all also want to kind of take the ADP data with a grain of salt. Last month, it was wildly off, looked way stronger than the official jobs number did. But maybe the market's saying, are we going to bet twice in a row that it's a couple of hundred thousand jobs off for Friday's jobs report? I bring that up only to say, just as everybody was glad we got soft landing conditions, maybe it's looking less soft. In other words, no landing. We got 3.9 percent Atlanta Fed GDP now. It's early. And then we're sort of gearing up for what is the Fed going to have to do to restrain

this economy again? Yeah, well, if you look at just the way that things usually happen in the formula, the market moves first, then earnings, then the economy. So if you're a bull and you think that 2022 was the correction that we needed, that's over, right? Now we're in the third quarter of negative earnings growth. If this is the third quarter and the last quarter of negative earnings growth, we come back out of it. Wasn't so bad. Wasn't great, but wasn't so bad. So that's an earnings recession, so to speak. If both of those things are foretelling what should happen in the economy, it shouldn't be that big of a pullback. It shouldn't be that big of a contraction. We haven't seen it yet, but it's still probably going to happen.

Part of that is that if you look at what's happening with earnings, Josh mentioned this earlier, revenue is missing more often than earnings are missing. Right. So revenue is coming down, which is also natural as inflation comes down. Companies have to manage that really, really well with their operating costs. They usually don't manage that very well with operating costs. So the chances of margins continuing to contract are higher. That does eventually bleed through into the economy because we're so driven by consumption. So I would expect a contraction in the economy. But that's only if this all continues at this clip, in which case the Fed doesn't really have to do much more. It worked, right? I'm still not sold that it's over. And the yield curve inversions, I know I'm obsessed with them. Every time I am on a program on this network, I talk about it. But they keep me up at night. There's something wrong there. It's not functioning

as it should. And the re-steepening is usually where we get the pain. So if we are able to re-steepen and get out of that without pain, I will absolutely accept defeat and say, OK, you know what? It didn't happen. Yeah. Well, I mean, look, we are still within the lag period of when we can get an inverted yield curve and then we don't yet see a recession. It was very long in 06 and into 08 and all that stuff. So we'll see. Josh, you were going to say? I just I would point out something really interesting that I think a lot of people are starting to pick up on. If you are a wealthy person in America, let's just say upper middle class, not a billionaire, but like the people who own 80 percent of the stock market, let's say so upper middle class and you don't have floating rate debt, which most people don't.

It's very likely if you were carrying a mortgage, you refinance that during the 24 months where it was basically 2% or 3% to do so. And so if you're in that situation and you have cash, higher rates actually have acted as economic stimulus. If you're not facing a situation where Fed funds affect you negatively, and again, upper middle class, they don't carry credit card balances. What do you think they're doing right now? This is why you're not getting that economic slowdown.

This is exactly what's happening that really was hard to foresee in advance. But if you talk to old time, Michael, sorry, if you talk to old timers who were rich in the early 80s, they'll tell you it was the same thing. They didn't have credit card debt and they weren't looking to buy a house with a new mortgage. They loved 15 percent interest rates. They couldn't count all the money they were making. That's why every single person, you know know this summer is in the south of France cleaning out the Chanel store. That's why everyone you know is in Amalfi, in Puglia. That's what that's what people are doing who are who are market investors with cash. And for those people, you're not getting any kind of a slowdown in their consumption. And if anything,

you're getting a double wealth effect, stocks and yields. And I don't know what the Fed does about that. I just think it's something that we should start thinking about. Yeah, no, there's no doubt about it. It's a major offset. And in fact, I think it was Wall Street Journal said it's almost equal the amount of increasing interest expense that tends to fall most heavily on people who are net borrowers and not net savers. So we do have this uneven situation. But yes, those people who would be in the stock market probably have had a windfall to some degree in terms of income. You know, Liz, this this little bit of of market volatility also comes after a period when we saw massive short covering in the hedge fund community, according to Goldman Sachs coming into this week. In fact, the most active short covering activity in a long time and a run in the meme stocks.

I mean, it seems very textbook in a lot of ways. People started to get a little overexcited. The silly stuff started to run a little bit. And now today you see all that stuff getting kind of wiped out. So, again, it might be to your point that stuff getting kind of wiped out. So again, it might be to your point of this is kind of a healthy sort of gut check in the short term. Yeah, I mean, it's exuberant, right? And that's what happens. You see it happen. You're not really sure why, but then you start to chase it and everybody just sort of piles on. Something that

I talked about yesterday on Halftime, I'll bring up again. P.E. ratios and valuations are a terrible timing mechanism, but they do a decent job of telling us what the forward return expectations are. If you look at the P.E. ratio on the S&P right now, let's say 19.8 times, it suggests that an annualized return for the next 10 years is 3.6%. That's pretty disappointing given that the average is 7%. So we need a pullback in those valuations or we need earnings to absolutely go gangbusters to justify that. And I think some of this is healthy for that reason. I want those valuations and that particular ratio to suggest better returns for the next 10 years rather than this sort of flat inflation like return. Yeah. And here we go. To your point, S&P making session lows 45 10 down about 1.4% as we sit here and talk about it.

Liz, Josh, thanks very much. Appreciate it. Oh, and by the way, Josh, as you know, I'll see you Friday for a CNBC special, Taking Stock. Josh and I will be together for the full hour tackling the biggest stories impacting your money. Catch it this Friday, 6 p.m. Eastern. It's almost too much. Right here on CNBC. Almost too much? I was counting on you to make Eastern. It's almost too much. Right here on CNBC. Almost too much?

I was counting on you to make it. It's absolutely too much. We'll see how that goes. Josh, see you soon. Let's now get to our question of the day. We want to know, where is the best place to invest right now? Is it stocks, bonds, cash, or real estate? Head to at CNBC closing bell on X, formerly Twitter, to vote.

We'll share the results later in the hour. Let's get a check on some top stocks to watch as we head into the close. Christina Partsenevelos is here with that. Hey, Christina. Hi. Well, we've got a couple of tech ETFs that I want to get to and in danger of recording their worst day of the year. That would be the SMH.

The semiconductor ETF is down over, what, 3% so far and is on pace for back-to-back losses. Results from AMD yesterday, specifically around its data center weakness, did not inspire confidence in the chip space. You can see the VanEck ETF down almost 3.8%. And let's switch to the computing ETF. Sky also down over 3% and on pace to break a brief lean streak. Component Paycom is weighing on the computing sector and is one of the worst performing stocks in the S&P 500 after the company issued weak guidance in its latest earnings report.

Paycom down 18, almost 19%. Mike. Christina, thank you very much. Talk to you again soon. We are just getting started here. Up next, much more from CNBC's exclusive interview with JP Morgan's Jamie Dimon, his take on the bank's regulation and the overall market.

We will bring you all the highlights after this break. Dow down 350. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back to Closing Bell. J.P. Morgan, CEO, Jamie Dimon, sitting down with our senior banking correspondent, Leslie Picker, for an exclusive CNBC interview within the past hour. Leslie joins us now live from Montana with the highlights. Leslie. Hey, Mike, you can actually potentially see Jamie behind me. He's on his annual bus tour and he's currently hosting a luncheon with some clients here in Montana. But as you mentioned, it was a wide-ranging interview.

It was on the heels of some pretty sizable regulatory actions last week, known as Basel III Endgame, which heightens the capital requirements for the big banks. It's a proposal at this stage, but he said that the banking industry has so many rules, but very little calibration among those rules. We need certainty, policy that, you know, the stress test clearly didn't work. So we, you know, we look at, we do a hundred a week, they do one and they act like that's the real stress for the company. I'm far more worried about China and cyber than I am about that stress test. And I just think, and the other thing, we don't have many conversations anymore. We should be having conversations with our

regulators about what we're worried about, what they're worried about. There's almost none of that. So it's both lack of transparency and lack of conversation with real practitioners. A lot of people in ivory towers, a lot of opinions here, they've never been in the real world. I'd like to see them get in the boxing ring one day. And while Fed officials would say that heightened capital requirements are important for financial stability, Diamond believes that the March and April turmoil wouldn't have been prevented by higher capital rules. He said they wouldn't have made a difference, but he was critical of the regulators handling of the Silicon Valley Bank demise.

I also think we made huge mistakes on Silicon Valley Bank. I hope the regulators are going to be looking at that one day. What one place, you know, we created a crisis and we created a melting cube that maybe didn't have to happen. They should be asking a lot of questions of themselves. Like whenever we make a mistake, we spend a lot of time on what I call

the after action report, the postmortem. What did we do wrong? What can we do better? How do we make sure we're doing that across our company? You know, we know we're going to make mistakes. So I don't think we should treat every mistake like, cause you know, it's a violation of morality or something like that. But I think they should be doing a little bit of that little soul searching.

In that category of D.C. soul searching, he also said, you know, that may include what we do about the debt ceiling. Diamond said we should get rid of it, saying it's always, quote, used in a way that makes it very difficult. We need certainty in the world and we should have more of it. Mike. Yeah, Leslie, some some somewhat familiar themes that Jamie Davitt has hit on over the years in terms of, you know, the risk of perhaps a higher bond yield interest rate environment in general, but also potentially the risk of the non-regulated or less regulated sectors of finance. I was interested in what he had to say about, you know, the private capital, private credit markets and what that could mean about, you know, general economic stability.

Yeah, he said basically with higher capital rules, a lot of the business will be moved over into those non-bank financials in a lesser regulated area. He said private equity hedge funds would be dancing in the streets if these proposals came to pass. And, you know, that's been the criticism from a lot in the banking industry, just this idea that, you know, when you regulate too much the entities that are already enduring a lot of regulation, you just move business. You move that lending into areas that have less oversight, less transparency. Of course, the SEC is trying to change that somewhat. But that's been the criticism from the banking side the whole time

these higher capital requirements have been discussed. Yeah. And he even mentioned just basic mortgages, in fact, coming into that category of non-bank origination. Also, though, seemed like he was relatively comfortable with the current condition of the economy. Talking again about, you know, consumers seem like they're in decent shape or in an under leveraged position relative to how we were, you know, before prior recessions and things like that. So perhaps he's a little bit less wary of the environment. Yeah. And he spoke about that specifically in response to what Fitch did with its downgrade. He said the economy here is resilient. And to your point, he really believes that the strength of the consumer, the fiscal spending, I mean, all of that

is keeping the economy on a solid trajectory. He thinks it could actually be stronger if there weren't regulation, but he thinks it's doing OK. He noted the risks that he has in the past. Of course, that's QT. That's the geopolitical situation, specifically the war in Ukraine. Those are some of the big risks that he's focused on. But overall, I agree with you. His tone, his tenor was really quite positive. Absolutely. Well, great conversation, Leslie. Good stuff and enjoy it out there. Thank you very much. Leslie Picker up next. We're setting you up for a busy afternoon of earnings. Analyst Dan Dolib standing by with what he's watching when PayPal and Robinhood report. Plus, Disney having a tough day along with the broader market.

And we have new reporting this hour on the fate of ESPN. Those details when Closing Bell returns. Indexes at the lows of the day. The Dow now clicking to a 400-point loss, down 1.1 percent. The S&P 500 right above the 4,500 level, down about a percent and a half on the day. Meantime, PayPal shares sinking as well as the company gears up to report second quarter earnings in overtime. Those results will be one of the few key prints giving a deeper look into the digital side of consumer spending. Joining me now at Post 9 with what to expect is Dan Dolev of Mizuho Securities. Dan, good to see you. Hey, Mike. Great to be here.

Set us up for PayPal. I mean, the stock has kind of been in the wilderness for a little while, it seems. There's some concern about fee compression or the take rate, but trying to maybe bottom out there in terms of the fundamentals. So what can we expect this afternoon? Yeah, I think the key thing, I mean, the key thing that got the stock, killed the stock in the first quarter, it was down like 20 percent, is that take rate compression. They've got two ecosystems, right, the branded checkout and the unbranded, which is Braintree. And people didn't believe that the reason the take rate is compressing is because unbranded is growing five times faster. I actually did the work and I think that's what's happening. What we expect here in the second quarter is basically them to beat what they guided to. They should do at least double digit organic

growth in the branded side. And if we see that take rate compression abate a little bit, I think the stock's going to rip. Is that not a concern, even if it is kind of them losing market share to themselves in a lower margin way on an ongoing basis? Yeah, I mean, they're losing. They might be not losing market share to themselves. But I think what's happening is they have to basically grow different. Correct. They have to be in that space because, you know, if they're not in that space, they're going to lose share to Audion. They're going to lose share to, you know, Stripe. They have to be in that unbranded space. And by the way, it helps them actually get access to more merchants. So it's an offensive and a defensive move at the same time.

Do want to hit Robinhood. What have been the trends there? We have seen a little bit of a revival of things like options, trading volumes and the rest of it. So what's the what's the setup? Yeah, you know, I'm a crypto bear. But surprisingly, you know, we talked about it a lot. But surprisingly, they're actually gaining share from Coinbase. We've proved it in April and May in crypto. So they're gaining share in a space that I don't like very much. That being said,

they're killing it. They're crushing it on options. Contract volumes or contract prices are actually coming down because of the VIX is coming down. Volatility is coming down. The most important thing on Robinhood, and that's going to make or break the stock, is the margin growth, because they're saving a lot of money, and also retirement. This is a big initiative. If they do well on retirement, if they give you a few data points on retirement, this is going to make the stock work really, really well. Yeah, I guess the bid there is to broaden the franchise out, obviously, beyond transaction pricing. Just quickly, I did want to hit on SoFi the franchise out, obviously, beyond transaction pricing. Just quickly, I did want to hit on SoFi, which has been a story for several days right now.

Big rebound on their numbers. And how does the stock set up now valuation-wise? I think it's actually, you know, you haven't even seen the start of what's going to happen here. I think it's actually very, very cheap. Like, this could be like the next, like, J.P. Morgan of Bank of America in the future. Branchless bank getting a ton of deposits. The big opportunity here, and this is the work that we've done today, we see $350 to $400 billion of student refinancing TAM. None of this is in consensus right now. Stock's trading down today, but you know, in three months we'd be sitting here and people would say, oh, Dan, you told us that three months ago that this is a big

opportunity because as the moratorium ends, there's a massive pent up demand for student loan refinancing. So I actually think it's very, very cheap. It's one of the best banks out there. All right. Yeah. Well, the stock has in the past traded along with the prospects for student loan repayment. We'll see if that continues. Dan, good to see you. Thanks, man. Thank you. All right. Up next, we're tracking the biggest movers as we head into the close. Christina, standing by with those. Hi, Christina. The power. All right, up next, we're tracking the biggest movers as we head into the close. Christina, standing by with those. Hi, Christina. The power of company guidance.

Two stocks moving in very different directions because of their outlooks. I'll explain next. Just about 20 minutes until the closing bell. The Dow down 1%. Let's get back to Christina for a look at the key stocks to watch. Christina. Well, we've got a couple of earnings movers, starting with Humana. Shares of the health insurer are surging after they reported earnings that beat estimates and also forecast. There's that outlook conversation of expanding Medicare Advantage business, and that's why shares are up

over 5 percent. But on the other end of the spectrum, SolarEdge falling today after its earnings report missed estimates. Falling is probably an understatement because it's down almost 18%. While the revenue miss was small, investors are concerned about current quarter revenue guidance amid waning solar demand. Mike? Christina, thank you. Now to a developing story on Disney. New reporting on CNBC.com regarding the future of ESPN and its search for minority partners. Alex Sherman has those details.

Alex, I know you've been on this story. What's the latest? So a few new details to pass along. Just briefly background here. It was last month that Bob Iger went on our air in an interview with David Faber and said he was looking for strategic partners for ESPN. About 10 days ago or so, I broke the story that ESPN has been in talks with the leagues, the NBA, Major League Baseball, and the NFL as potential partners there

where the leagues themselves would take stakes. You can add the NHL to that now, too, I found out. So all four leagues in talks with ESPN to be potential minority stakeholders here. Disney is paying a consulting fee to two former executives, Kevin Mayer and Tom Staggs, who have both worked closely with Bob Iger for many years when they were at Disney, and even informally in recent years when they were not at Disney, to provide advice about what to do with ESPN. I'm told a full spin of ESPN isn't totally off the table here if ESPN can't find a good minority partnership. But Mayor Staggs and ESPN President Jimmy Pataro

are focused on what Bob Iger wants here, which is to keep a majority control of ESPN and then find some majority stakeholders, whether or not that's the leagues or someone else. Yeah. And Alex, I mean, in the days since you have broken that story, clearly all of the questions around such an arrangement have been raised, right? I mean, look, the leagues rely on these big checks written by the networks like ESPN in order to actually pay their owners out. And that's the whole value of the

leagues. And of course, other networks are also in there as well. So presumably there would have to be some kind of revenue participation by those leagues. All these things perhaps have been hashed out. Has anything happened since then that makes that scenario seem more or less likely to you? Well, I can't comment on it from the league's perspective. I talk about it in the story on CNBC.com. There's still a lot of reasons why I think the leagues might not go down this path. You risk irritating the other media providers who you're relying on for bidding rights here. If you take a stake in ESPN, you may give them preferential treatment because you're going to care more about the performance of ESPN than all of the other various partners. What I do think has maybe changed a

little bit, in part with the news now that both Mayer and Staggs are helping out Iger here, is that Iger seems committed to doing something with ESPN. And that's news because for years, Bob Iger has resisted doing anything with ESPN. ESPN has been the crown jewel of Disney for decades. And now there is a realization, I think, even at Bob Iger's level, that this asset is now potentially a drag on earnings moving forward. So doing nothing is actually going to be a negative for the stock moving forward. So he's kind of boxed into a position as so many people have canceled traditional cable TV as they transition into this direct-to-consumer business, which, by the way, also a little news nugget for you.

I'm told that that direct-to-consumer ESPN probably won't be launched either this year or next year. So we're thinking about 2025 or beyond. But as they transition to this world, either they're going to need to have some minority stakeholders or they're going to think about having to do something even more drastic like spinning out ESPN completely. Yeah, that's a smart point. There's almost no doubt that the valuation gets a bit punished based on their exposure to the linear ecosystem there. Big change from the past. Alex, thanks so much. Catch you again soon. Last chance to weigh in on our question of the day. We asked, where is the best place to invest right now? Stocks, bonds, cash or real estate? Head to at CNBC closing bell on X. We'll bring you the results after this break. Let's get the results of our question of the day. We asked, where's the best place to invest right now? Stocks, bonds, cash, or real estate stocks?

The clear winner, everyone wants to buy this dip, which now stands at about 1.3% on the day in the S&P 500. After this break, your earnings rundown, the key themes and figures to watch when Qualcomm and MGM report that and much more when we take you inside the market. We're now in the closing bell market zone Wells Wells Fargo's Samir Samana is here to break down today's sell-off and share what could come next. Plus, we're watching two earnings reports in overtime today. Contessa Brewer on what to expect out of MGM. And Christina Partsinevelis is keeping an eye on Qualcomm. Welcome all.

Samir, a lot of people coming into July after five straight winning months in the S&P say, you know what, we're due for a little bit of a pullback. A lot of folks felt like they wanted to buy that dip. You've been positioned a little more defensively coming into this. How do you view today's action? I mean, we're not surprised at all, right? I mean, we were kind of through that phase, that fever, if you want to call it, where people pay ever higher multiples for the same stream of earnings. And now you kind of go right back to, all right, you know, we've had a lot of things play out kind of better than feared.

But you know and I know that we can go from better than feared to not as good as expected in a dime in these markets. And unfortunately, I think that's probably what we're in store for into August and September. What if the other side of it being investors paying higher valuations for what they consider to be a rising stream of earnings, at least looking into next year? Because it seems as if, you know, if you could explain the trade of the last few months, it's inflation coming down more than the economy's been weakening. And it looks like where earnings are perhaps on the upswing again. And sure, look, that would be great, right? But the tricky part is, if you look at the four-week change in both 2023 and 2024 consensus estimates for the S&P, they're both flat, right? So, you know, that's what you would expect to see is eventually earnings have got to start to improve. The tricky part is they're not. And that tells us

that, you know, again, we're just in this phase where, you know, people are enjoying the fact that things could have been worse up to this point. We appreciate the fact that Wile E. Coyote might be sinking into the canyon at a slower pace. But, you know, at the end of the day, unfortunately, he is still falling. And so we just don't want to play that game. And so how bad do you think things will be? In other words, if better than feared is not going to be enough, are you pushing against the emerging consensus now that a recession is not on the horizon? We are. We're still in the recession camp. And the reason we are in the recession camp is that's the only way to solve for inflation. Otherwise, you're going to have a Fed that is forced to go further.

And if they are forced to go further, that Fed funds rate at higher levels than markets expect will drag that 10 year higher. And every time we've gone north of 4 percent, the market has been unwilling to pay the multiples that they're currently paying. So for all those different reasons, about the only way this really works out in a positive way is if a recession comes sooner, inflation is solved for, and then the Fed actually can cut rates. You say it's still time to stay defensive in equities and fixed income. Just quickly, what does that mean specifically in each asset class? Sure. So within equities, we would stay up in market cap. We really like large caps. We like the sector mix and we like kind of the quality characteristics, right? Lower debt, higher ROEs, et cetera. We like the U.S. over international, so we would kind of stick with that theme, too.

The sectors we like are energy, materials, and healthcare. We think those have kind of been left behind by some of the growth areas, so we would, you know, kind of maybe take a look at those. On the fixed income side, this is not the time to be chasing yield in, you know, lower-rated parts of the market. We like treasuries, and at these higher levels, we'd be locking them in for long term. All right, Samir, appreciate the update. Thanks so much. Let's get to Contessa on MGM. What are we looking for, Contessa? Well, in focus for MGM here is the Macau performance. And I will tell you that the gross gaming revenues from the whole destination are up more than 4,000 percent. So there's a lot riding on what MGM has to say about that's 4,000 percent in July.

And that's year on year. But with all the skepticism on the Chinese consumer, the question that we want to hear from the CEO, Bill Hornbuckle, is are they spending, are they going to keep spending on travel to the world's gaming capital? We had bullish commentary from Las Vegas Sands. We are also looking at the second quarter performance in the U.S. and Vegas against tough year-on-year comps. Again, we got bullish commentary yesterday from Caesar's CEO about the domestic situation heading to the back half of this year. And we'll see how MGM stacks up.

Finally, I'm hearing a lot of whispers again about M&A, especially where Entain is concerned. That's the JV partner in BetMGM. CEO Bill Hornbuckle tried to put the speculation to bed earlier this year when he said he was putting those acquisition attempts in the rear view, although he added for now. But BetMGM's recent earnings update put some juice back into that story. So we'll have to see how that goes there, Mike. For sure. And when it comes, Contessa, to Las Vegas and I guess to a degree, Macau as well, you know, investors have been attempting to figure out if we're seeing peak travel, peak lodging demand, you know, the peak desire to get away. What can we glean so far from what some of the gaming companies?

OK, so, you know, the two biggest operators in terms of footprint on the Strip are MGM Resorts and Caesars. What we heard from the CEO of Caesars yesterday, and he came on last call with me last night, he said, look, we think that we're going to get a 5% lift from F1 alone and that the bookings, the forward bookings for Super Bowl in February are way ahead of where they would be and at rates far higher than typical. And so he said, when you're looking at the kind of displacement that happens, when you're bringing in those higher spending customers, you're displacing the lower segments. So even if you get fewer visitors into Vegas, they're spending more.

Formula One football and Taylor Swift is driving the travel and service economy this summer. Contessa, thanks so much. Let's schedule Christina on Qualcomm. What do you have, Christina? Well, Qualcomm has really already set investors up with two warnings to avoid surprises. First warning was continued weak smartphone sales. Management already lowered its 2023 handset demand to high single digits year over year. Q3 demand, they're expecting to be worse than the normal seasonal drop-off. And so the consensus right now on the street is that handset revenue will fall 1% quarter over quarter.

The second warning from Qualcomm is about inventory levels. Management had guided for inventory drawdowns for, quote, at least the next couple of quarters. We're still in those next couple of quarters. They even called out a specific, quote, modem-only customer cutting orders. So that is presumably Apple. Now, with those warnings out of the way, investors will want more or want to hear more on whether the smartphone market has shown a bottom and, secondly, how Qualcomm can capitalize on AI moving forward. Recently, Qualcomm announced they would enable Meta's new large language model, Lama 2, to run on phones and PCs starting in 2024.

That could be a big stream of revenue. The tech can even help run virtual apps. So one quick mention, though, Mike. According to the Insider Score, no Qualcomm insider has sold shares since mid-February. That's five months and no one sold. Perhaps a bullish sign for the stock, but shares are down 2% before earnings come out. Very interesting poll, Christina. Thanks so much.

We'll talk to you soon. As we head into the close, a little over a minute left. We're on pace for the S&P 500 to post its first 1% or greater loss since May 23rd. You see it down now about 1.3%. Also, the volatility index up to its highest level since May 31st. So basically, we're sweeping away this June and July mode of very calm grinding uptrends, at least for now. I did mention earlier the S&P 500 has been hovering most of the day at this level. It's a 20-day moving average.

So that sometimes is a short-term support area, though it has been a pretty broad based sell off today. About 80 percent of all S&P 500, of all New York Stock Exchange volume has been to the downside. Not exactly a washout, but a pretty good short term shakeout. Treasury yields part of the story as well. You have a 10 year above 4.07 to 4.08. Those highs in the cycle more like four and a quarter. So that has some folks on alert and people reassessing valuations right now, although short term yields have remained much more contained. So no big change in terms of the federal funds outlook from the Fed as we head way ahead, looking for the jobs number on Friday and the next Federal Reserve meeting in late September. That's going to do it. The Dow down about three hundred and forty four points into the close. Let's send it over to overtime with John Ford and Morgan Brown.