Closing Bell - December selling resumes, Tesla tanks, NEC Director on GDP 12/22/22

Episode Date: December 22, 2022

Stocks closed lower but well off the worst levels of the session, as bearish comments from investor David Tepper and mixed data hit investor sentiment. National Economic Council Director Brian Deese breaks down GDP data and his outlook for inflation and energy prices. Tesla was the worst performer in the S&P 500 on news of price cuts for some U.S. models. Former Ford CEO Mark Fields discusses the pullback, and former Nasdaq CEO Bob Greifeld weighs in on the broader pullback for the tech sector. Plus the latest on chip stocks, Sam Bankman-Fried, and the pain for cloud stocks.

Well, so much for our year-end rally. Bearish comments on CNBC from investor David Tepper. A mixed bag on the data front did send stocks lower today, although we've come off the worst levels. This is the make-or-break hour for your money. Welcome to Closing Bell. I'm Carl Quintanilla, in for Sarah Eisen. Take a look at where things stand on the markets.

We are off the intraday lows, as we said. S&P at the low, down about 113. Currently down, as you can see, holding 3,800. Biggest decliners right now in the space. You'll find Tesla in there on pace for the worst quarter ever. Tyler and Kelly mentioned the chips as well. Micron News, CapEx cuts impacting capital equipment stocks. We're going to be all over the sell-off throughout the show.

Coming up, we're going to get the White House reaction to today's GDP print. We'll be joined by National Economic Council Director Brian Deese, plus much more on Tesla, as we said, under heavy pressure again today on news of price cuts for U.S. cars. We'll talk about it with former Ford CEO Mark Fields. First, though, straight to the sell-off with our senior markets commentator, Mike Santoli. Mike, what is on the radar this afternoon? You know, it was pretty precarious, Carl. Maybe still is for a little while there.

3,800 or thereabouts was around the low for the week. We broke through that around midday, and it did seem to create some follow-on, maybe mechanical selling. Some of these trend-following funds were flipping short. The really unspooling of the big mega-cap Nasdaq trade continues. That puts a heavy weight on things.

Here's a two-year chart, and I decided on the two-year because we're almost back to a round trip. It's around 3700 at the very end of 2020 is where we're going back to. And that really to me represents a genuine reset in the markets. Once you're trading at levels first reach two years ago, you start to feel it a little more, though David Tepper did say we have about 8% annualized upside

in the S&P since the end of 2019. This is the defined downtrend that everyone's focused on. The rally from October into November did not win back the benefit of the doubt. We're dealing with the downside of that. The question is, do we have to really get lower and retest the October lows? It's about 7%, 8% down from here. Cars and homes, tough for the economy to do well when both of those are going in reverse. Take a look at these stocks that reflect maybe some divergence between the housing sector and what autos are doing. You see they mostly were in sync up to about two months ago.

Then yields peaked, they came in, mortgage rates got some relief on that, and you see the likes of D.R. Horton and Home Depot actually picking up a little bit, whereas Ally, the big auto lender, as well as CarMax, have continued lower. The affordability issue is really just coming to bear in autos, which, by the way, Carl, are both the largest production and consumption category in the U.S. economy. Just thinking of all of the warning signs we've gotten over the last couple of months about auto delinquencies, in contrast to the spread between housing equity and housing debt. Exactly. It just seems as if the consumer balance sheet issues are sort of giving you some balance. Also, structural shortage in home building. And the average monthly mortgage payment has come in around $300 just since yields peaked. Right. So in other words, a little bit of relief on that front.

All right. We'll talk in a bit. Mike Santoli this morning. Stocks did take a leg lower in the pre-market when GDP was released today. Growth of 3.2 in the third quarter. That's a faster pace than previously reported, driven by an upward revision in consumer spend. Core PCE also revised slightly higher to a 4.7 annualized rate. Joining us this morning in a first on CNBC interview, National Economic Director, Council Director Brian Deese. Brian, great to see you again. Happy holidays. Likewise. Likewise. It's great to be here. It's been a mixed bag for data, I guess. People watched leading economic indicators today, existing homes yesterday. But what do you make of that final look at the third quarter

and all of the folks who said at the time that they thought we were in recession? Well, you know, usually the final revisions to GDP don't actually tell you all that much. In this context, what we saw was a reinforcement of the resilience story, that the growth in the third quarter was solid. And importantly, that we saw a little bit more of that was driven by the consumer and private final demand, which is valuable and important in this context. Look, I think it fits into the context of what we've seen over the course of the last month in terms of data. Ongoing resilience in the labor market, some cooling.

We're certainly seeing that as we would anticipate, but resilience in the labor market, some cooling. We're certainly seeing that as we would anticipate, but resilience in the labor market, resilience for the American consumer, and at the same time, some promising signs of inflation easing as well. We've seen that in multiple parts of the economy. And so that's when we look at this, we look back several months ago to the president and he articulated a view of this is what we needed to see. This transition from a very historically strong recovery to a transition to growth that is more steady and stable. But to do that transition without giving up all the economic gains that we've made. I think the data that we've seen over the course of the last month, as well as the GDP revision that we got today, are consistent with that transition playing out here. Yeah, I'm glad you brought up inflation

because if we keep doing one-tenth CPI month on month for the next, say, five months, year on year you'll be looking at a number somewhere in the three and a half, three range by the beginning of summer. Will there be a point at which the White House will say, in effect, to the Fed, you did your job, and if they haven't paused by then, argue that it will be time to? Well, look, we have a ways to go, and the president has underscored that, and certainly we don't want to take anything for granted. But at the same time, the last couple of months of inflation, I think, have shown some important signals.

On goods, we're seeing clearly things have turned around. On housing, as you were just discussing, if you look at real-time indicators of housing in the housing market, both on housing prices and rents, I think we have seen, we're seeing moderation, and we know that that will feed into the data going forward. And we've seen some moderation on the services side as well. Of course, in the headline, a lot of what's happening is the decline in gas prices. But we know how salient that is for typical drivers, particularly in the holiday season. You know, price of the pump down almost two dollars a gallon. That's about two hundred dollars in increased discretionary income for a typical two car family. And so we're seeing that feed through into the process as well.

All of it leads up to people have paid less attention to this, but over the course of the last five months, we've seen real wage growth. And for non-supervisory earners, we've seen real wage growth over that period that has been pretty healthy. And that is helping to sustain consumers through this cycle as well. Yeah, we've had some conversations this week about a real household disposable income growing again. And we remember how painful it was when it was shrinking. How much credit, honestly, do you give SPR policy for what's happened in oil and by extension to gasoline? And have you received any expressions of interest in this new policy or at least offer to begin refilling it at 70? Well, look, if you look at the SPR action that the president took and our Treasury Department,

other independent analysts have looked at this, it's absolutely the case that it played an important role in mitigating further upside movement in oil prices and helping to attenuate prices starting in the second quarter and then throughout. Obviously, the price of oil set in the global market. There's a lot that goes into that. But also, the president's policy has been broader than the SPR. Starting about a year ago, the president and the entire administration have focused on diplomacy, some quite visible, others quite quiet around how do we maintain sufficient global supply of energy through this crisis, through this historic crisis. Now, as you say, we are initiating the process of repurchasing oil now that oil is down to

the range that we had identified, about high 60s, low 70s. That is a process we're out to bid for that first process. We'll have more to say about where those bids are coming in. But I do believe that we're going to be able to do this pilot, learn from it, and then continue to build on that effort, which ultimately will lead with a stronger and more resilient strategic petroleum reserve because we sold at higher prices or buying at lower prices. That will be a good return for the taxpayer and allow us to refill the SPRO and more. Right. You're not making any projections or you're not saying whether or not SPR inventories would get back to prior highs?

Well, certainly the long-term objective will be to refill the strategic petroleum reserve. Absolutely. In fact, one of the things that the omnibus bill that Congress is passing The long-term objective will be to refill the Strategic Petroleum Reserve, absolutely. In fact, one of the things that the omnibus bill that Congress is passing or is voting on right now would do that is constructive is cancel congressionally mandated stales in 2024 and beyond. Congress has in the past had a way of just mandating sales out of the Strategic Petroleum Reserve that weren't related to strategic or national security issues. That will give the Strategic Petroleum Reserve itself more flexibility to refill at a rate that's based on market conditions. And certainly the long-term strategy is to replenish the SPRO. And we can do so because we are actually in a position to actually repurchase now at lower prices than we sold for. Finally, Brian, I know you, I mean, we talk a lot of macro with you, but the micro this week has been, I would guess, net concerning to some,

given the guidance from the quarters from CarMax, for example, the CapEx guide out of Micron, obviously what FedEx said about global growth. What's the White House's view about how corporate America is trying to get in front of, obviously, inventory challenges, but also weaker end market demand? Yeah, look, this is what I would say about this, which is certainly this transition that we've all been living through and we're spending a lot of time analyzing is going to affect individual companies quite differently. The inventory cycle is moving now and in some places has shifted quite dramatically. And the price cycle is going to affect that as well. Some places where we saw persistent price increases that were actually contributing to inflation, a drag at the macro level. As that turns over, good news for the

economy, good news for the consumer. That's going to affect individual companies differently. The thing that I hear in talking to operating companies, CEOs and leaders consistently, however, is that even as they're navigating short-term challenges, that the investment environment in the United States has improved over the medium term, that the United States looks a better and more secure and more stable place to invest over a two, three, five-year horizon. That's certainly true compared to international counterparts. And I think that's in part, no small part, due to the policy changes that we've put in place, long-term investment in infrastructure, long-term investment in

semiconductors and clean energy. These are the kinds of things that companies are looking for when they're trying to make long-term investment decisions. So no question that in this transition period, individual companies, some of them will benefit significantly. Some of them will have to pivot and deal with those short-term issues. I do think in the medium term that we are seeing an improved investment climate. That's certainly something that we're hearing. Yeah. Well, we look forward to talking with you more about the battery belt and certainly industrial policy led demand, certainly in the in the weeks and months to come. If we don't talk to you before the holidays, Brian, have a great one. Thank you. Likewise. Happy holidays to you all. Brian Deese. Tesla's

bumpy road getting a little bumpier today. The stock plunges on news of price cuts in the United States. Coming up next, we'll talk to former Ford CEO Mark Fields, who will weigh in on the troubles of the automaker if things can turn around in the new year. You are watching Closing Bell on CNBC. Shares of Tesla taking a hit. Trading at low is not seen since October of 2020, as the company offers discounts in the U.S. on the Model 3 and the Model Y vehicles delivered this month. Joining us this morning, former Ford, this afternoon, former Ford CEO Mark Fields. Mark, it's great to see you again. Thanks for the help today. Hey, Carl. People trying to figure out whether this is demand

destruction, maybe built on Musk's antics over at Twitter, or if it's actually just a revaluation of what the EV space is going to be, what penetration is going to be, say, by 2030. What do you think? Well, I think overall, this is the first time Tesla's facing what I would call some demand issues, right? You have an economy that's slowing. You have interest rates that are going up. When you look at their business, right, they've had a lot of price cuts in China, which hasn't produced the results they expected. Now, how much is that actually their demand for their product versus COVID is still yet to be seen. But even here in the U.S., you know, they have a large market share. It's been declining because you can only go down from 100. But it is going to be declining with the established OEMs introducing products. But

when you look at a couple other data points, it shows demand may start supplanting supply issues for them. You mentioned the price cuts that they announced today. They doubled the incentive to take a Tesla by the end of the year to $7,500. and then when you look at their inventories in the third quarter they actually they actually manufactured twenty two thousand more vehicles than they delivered and they message that that may be a similar issue in the fourth quarter so you're starting to see their inventories build a bit so I think this is this is the market because when you have high interest rates and price points well above fifty thousand dollars that's a tough sell for consumers that are stressed right now. Yeah, I'm thinking back to remember the old quarters where Elon would say, oh, we've got to smooth out the quarter, meaning we had to get better at not having to produce as many at the end of the quarter.

Now it's about moving those cars at the end of the quarter. It's almost an inverse of the prior relationship. Yeah. And it's a logistical issue, too, because, you know, when you're trying to move that many vehicles at the end of the quarter, your logistics costs go up because you're trying to jam through a lot of vehicles that have to get delivered to different parts of the country in very few days. So, listen, at the end of the day, you know, the EV market penetration in the U.S. is going to continue to rise. Tesla is a leader there. But remember, this is the first time as a company, as a young company, that they're experiencing an economic downturn. And now they're competing.

Now that they're a presence, you know, a big presence in the auto industry, now they've got to compete with the established OEMs who are quite experienced in dealing with economic downturns. Right. You know, thinking back to a few years ago where Tesla was flying high, was valued more than every other automaker combined, and people argued, in the end, legacy OEMs usually end up with a similar type multiple. And I wonder if you think the cycle is headed that way for Tesla, because if Tesla's premier multiple gets more in line with ford's uh then the stock has a lot further to fall yeah i mean the multiple is down significantly but it still carries you know i think a 30 or 40 times multiple versus the established oems which are in the five to six range so you know they still carry a a premium there and And listen, a lot of that multiple, Carl, was the fact that, you know, it's a high growth stock and they projected high growth

over the future years. And so investors took confidence in that. And then when you start to see, you know, some of that confidence wane, that gets reflected back on the stock price, which I think that's why you're seeing amongst all the other issues with surrounding Elon Musk, it's now people are really focusing on the fundamental growth capabilities of the company, which are still very good, but maybe don't demand that kind of premium that they've had in the past. And I think the market is speaking in that regard. Although a lot of people still point out they're the alpha dog when it comes to supply chain. Semi's coming out and no dealer network.

I wonder if you think at some point in the end they will command a premium no matter what the overall auto cycle does. Is that fair? Well, that depends on the products and the services that they bring out going forward. I mean, at the end of the day, Tesla, you know, they're a they're a battery and a software and a technology company first. And they've done a very good job of bringing out innovative forward. I mean, at the end of the day, Tesla, you know, they're a battery and a software and a technology company first, and they've done a very good job of bringing out innovative products. And to your point, they know how to manufacture EVs at scale. And I think that's the big issue in 23, which nobody's really talking about. When you look at the established automakers, let's take General Motors as an example, they're going to be launching a number

of products this year. Getting up the ramp-up curve in the production facility and getting those scale economies is really important. And with the continued supply chain issues, of which there will be continued in 2023, maybe to a lesser degree in 2022, if you see a start-stop in terms of that ramp-up that they have in the plants, that's going to be an issue for them. Finally, I wonder if, in fact, we are seeing some degradation in Tesla specific demand. Do you see Ford GM getting more aggressive either on production or pricing or marketing or any combination of those? Well, in a slowing economy, first to put into perspective, Carl, as we've talked about before, I think the auto industry is in a much better place starting at an economic

down cycle than they've ever had in the past, given their low inventory levels, the high average selling prices. But I think you're going to see, just like everything else, it reverts to the mean in an economic down cycle. So I think you're going to see some pricing relief for customers. I think you're going to see some incentives go up and what we call mix in the industry, which is people buying, let's say, a mid-level series versus a high series, which carries a higher price sticker. But overall, I think they're going to be very judicious in working their way through whatever the economic downturn is, whether it's severe or moderate, given their experiences from the Great

Recession. Right. Mark, good stuff. Appreciate the clarity on some of these issues, which the streets obviously still wrestling with. We'll talk to you soon. Mark Fields. Thanks, Carl. Check on the markets this afternoon. Well off the worst levels of the session. Dow declined of about 400 points, roughly half of where we were in the middle of the day. Coming up next, former Nasdaq CEO Bob Greifeld on why tech keeps underperforming the broader market and whether he thinks there could be a turnaround next year. As we go to break, check out some of today's top search tickers on CNBC.com. Tesla is in the top spot, followed by the 10-year AMC, S&, and Micron. Be right back.

Welcome back to Closing Bell. Sam Bankman-Fried back on U.S. soil after his extradition from the Bahamas. And some big news coming from today's court hearing in Manhattan. CNBC.com's Mackenzie Segalos joins us with the latest. What a day in court today, Mackenzie. Hey, Carl. Yes, it was. Bankmanman Freed has been released on a $250 million bond while he awaits trial. That number is staggering. I spoke to a former government trial attorney. He told me that's the highest he's ever heard of for someone granted release. I mean, think back to Madoff. It was $10 million, $5 million for Enron's Jeff Skilling. But there is a huge caveat here. So the bond agreement just was posted to the court docket. So this bail agreement was secured with his parents' home in Palo Alto, and that's literally

it. Three family members and one non-family member signed his bond. They have to hand over the equity value of the home by January 12th. The house from the records that I found online is assessed for $1.7 million, but it's probably worth more than that. We're talking about Palo Alto. Still, though, that's a fraction of that $250 million bond. I reached out to a former federal prosecutor and he described it, this whole situation as an unsecured bond. So essentially an empty promise secured by his parents' interests in their home. And that's all that they stand to lose if he flees.

Yeah, even with the conditions regarding location monitoring and passport surrender. Mackenzie, thank you. Mackenzie Segalos following FTX today. Meantime, some very sad news to report. Longtime CNBC guest and industry giant Scott Minard unexpectedly passed away yesterday from a heart attack. Minard was a familiar face across the investing and business worlds, a frequent guest on this show. The CEO of Guggenheim Partners saying in a statement that Minard was a key innovator and

thought leader who was instrumental in building Guggenheim Investments into the global business it is today. Scott Minard was 63 years old. Stocks well off their lows today, but the Nasdaq still getting hit the hardest among the major averages. Also turning lower for the week, which means it's on pace for a third straight losing week. Joining us today, Bob Greifeld, former Nasdaq CEO and chairman of Virtu Financial. Bob, great to see you this afternoon. Thanks for the help today. My pleasure, Paul. and chairman of Virtue Financial. Bob, great to see you this afternoon. Thanks for the help today. I know on tech, we all know how much it's underperformed and how overpriced it may have been at one point. It sounds like you think there are pockets, at least, that are now underpriced. There's no doubt about that, right? So I think you've heard many times,

probably in the last couple of weeks, about this going to be a stock pickers market. And I could not agree with that more. Tech as a monolith doesn't apply. Right. So you really have to break it down into component pieces, look exactly what the fundamentals are of each segment of tech. So certainly as we look at 2023, I'm quite bullish on large sectors of tech, but quite pessimistic on others. I also want to point out when you have stocks are down 50 percent this year and they go up 10 percent next year. I don't actually call that a victory. Right. So I'm looking at what is the performance over a longer period of time. Right. Are you are you willing to slice it up between semis in cloud or software and hardware or consumer and enterprise? Completely. But I still think that's in kind of the index mindset. I think you have to go deeper

than that. I think you've got to do fundamental analysis company by company. Right. So you could have a favorite sector and spend more time in that sector. And I certainly would recommend that. But within this sector, we're definitely going to have winners and losers, right? We went through a period of time with cheap money where it seemed everything would go up, and buying into a broad-based ETF index was a smart thing to do. But I think we're into a stock picker's period of time. It could last a decade. You know, Bob, getting into the end of the year, people are looking at the course of 22 and sentiment and retail flows and just looking how,

in a sense, it was a year of malaise, not dramatic malaise, but steady, drawn out malaise. And I wonder what you think that means for retail flows in the new year? Yeah. So I've spent a lot of time thinking about this and studying it, and it's really quite simple, right? If the retail investors believe the market is going to go up 10 or 20 percent, they're more likely to engage. If they believe the market is going to go down 10 or 20 percent, they're less likely to engage. So that's so self-evident, it seems simple and silly. But that's the basic case. When you look at the data over time, it's always about the expectation of return for retail

investor. Makes a lot of sense. But the other point I have to make, and it's been a major shift in retail mindset in the last, call it, 18 to 24 months, a lot of the retail investors' desires are now executed through the options marketplace. So the options volume is at records, right? Record options volume. So when we think about retail today, we cannot look just at what's happening in the equity market. We have to look at the equity option market to get a fuller picture. Yeah. Now, every expiration day, the numbers,

the dollar numbers just keep getting larger and larger. Two-year high, I think, this last Friday. On IPOs, some down here at the exchange have, I would argue, relatively high hopes for at least the pipeline maybe in the back half of 23. What do you think? So, one, I'll give you a couple of data points. So you see there's about 200 IPOs on file. There were 300 a year ago. So clearly that's not positive. In 2022, we had a reasonable year better than people, I think, report upon as about 150 IPOs went public. So those data points are out there. But I would point you more to the qualitative. In my experience, what happens to break this kind of malaise in the IPO marketplace, you have to have two things. One is it helps have the perfect company come to market. And that releases the animal spirits. Back in 2003, when I came to NASDAQ with zero IPOs,

we were living through the aftermath of the dot-com bust. Google came public, right? The perfect company. The IPO wasn't great in terms of pricing, but that really released the rest of the market to feel confident going forward, and we saw that happen. So now you have a situation where where is the next company, the standard bearer? Could it be SpaceX? That will tell you. The other data point I'd point out, too, is look at the volumes in the private market. Right. So there's a couple

of venues where there's some active trading. And you can tell that is a pretty good precursor to what will happen in the IPO market going forward. Yeah, you can feel the eyes moving over to private valuations. Give us a clue about where we might be going next. Bob, as always, appreciate it very much. Talk soon. I appreciate you doing yeoman's duty in this holiday week. Thank you, Paul. Thanks, Bob Greifeld. Still ahead, consumer discretionary among the hardest hit sectors today

as a major industry executive gives a warning about holiday spend. We'll talk about that when Closing Bell comes right back. Welcome back to Closing Bell. Stocks continue to gain back some ground in this final hour of trading. Take a look at the major averages right now. S&P shaving some losses now to about one and two thirds percent. Joining us this afternoon, Quadratic Capital Management founder and CEO Nancy Davis, who is quite adept at at least assessing tail risk. Nancy, I wonder what you think led us to those intraday lows earlier in the session.

Well, there's a large options position outstanding. It's the December 31st 3835 call. It's part of a put spread collar and the dealers on the street are long gamma around the 3800 mark. So there is a lot of pin risk going into expiration at the end of the year, especially with a lot of people being out of the office and lower liquidity going into the holidays. Right. Do you expect that that level to remain important through the course of the year? Yes, I expect the market will continue to be pinned around that strike around the it's a thirty eight thirty five strike. But most of the open interest and you can see this by going into the S&P options market,

is around the 3,800 point. And dealers are long about $3 billion of long gamma going into this expiration. Pretty fascinating. And then as far as the data goes in the prints, I wonder what had the biggest effect earlier today, sort of the backward-looking inflation or consumption data, or some of the more more macro or sorry, micro corporate results and guidance and costs, to be frank, cost to savings measures? Well, inflation continues to print higher. And I think today's reaction is the market expecting a little bit more in 23 in the front end in terms of Fed hikes. So you see Fed hike expectations going up. And I think it's really a reminder that. Inflation is still a

problem in our day to day lives even though the Fed has really managed to convince the market. That inflation expectations are going to fall in the future. You can see- using the inflation protected bond markets the tips markets.

All break even curves are around 2% even one year forward. So even though the last CPI print was 7.1 and today's, the PCE was still above 4.7, the market is expecting inflation to dramatically fall in the future. So I think it's a great opportunity for investors to really add more inflation protection into their portfolio. And I question whether we're near the peak confidence that the central bank, the Fed hiking interest rates, is going to fix the labor market or the supply side issues. Fascinating. Nancy, what a session. We'll see how it wraps up here in a few minutes. Thank you very much, Nancy Davis, today. Meantime, we are now in the closing bell market zone.

CNBC Senior Markets Commentator Mike Santoli is going to break down some of these crucial moments of the trading day. Mike? Yeah, I mean, Carl, in addition to all those mechanical things Nancy was just talking about, I do think there's a way of seeing today as a bit of a microcosm of what's been going on all year, right? That huge premium and mega cap Nasdaq stocks bleeding out, still not cheap relative to the broader market. At the same time, just this general sensitivity to anything that says the Fed's going to have to

really pinch the economy into recession. In terms of the levels, though, I find it fairly interesting that we went back to this November 9th area. That was when we got some real relief on the CPI trend that the next day, actually, on the 10th. And so it seems as if the market's willing to check off that box and say peak inflation is there. We don't know what the implications are. We don't know how fast it's going to be. And so therefore, we remain kind of sticky around this area. And just intraday, Tesla stopped going down at around 1230, 1240 p.m. Eastern time, within an hour of the S&P bottom. So between that and the fact that the, you know, Santa Claus rally period that we keep talking about actually begins tomorrow, probably a reason that you wouldn't want to be leaning too negative going into the close. Yes, we've already gotten

one mention of Santa and milk cartons from Mark Cashin earlier today, Mike. Thanks. Talk in a minute. Micron, as Mike mentioned, tumbling today after the company said it would cut 10 percent of its workforce in 23. The latest tech company undergoing layoffs. That restructuring is in part a response to weaker PC demand. The chipmaker also reported a deeper quarterly loss than analysts had anticipated while revenue was amiss. The rest of the semi space also selling off hard today. The SMH down around 4%. Major players like NVIDIA, AMAT, AMD take a sharp leg lower. Let's bring in Stacey Rasgon to discuss senior semis analyst over at Bernstein. Stacey, great to have you. I'm thinking

of what Kramer said earlier this morning, and that was that the Micron call, in his words, was seminally bad. Would you go that far? It wasn't great. I don't think expectations were for it to be great, but it certainly, you know, was not great. Seminally bad, I mean, it's pretty bad. Things are getting worse. I mean, demand across a variety of end markets has already been weak, and it looks like it are getting worse. I mean, demand across a variety of end markets has already been weak and it looks like it's getting worse. Micron, as you mentioned, is doing a layoff. I think even the executives are taking a salary cut. That doesn't happen unless things are not great. How far can gross margin fall? I mean, where do you think that troughs out? So I don't cover Micron, so it's a colleague of mine, but I mean, gross margins, I think they,

so I don't have a model for it, but at the end of the day, they guided gross margins, eight and a half percent. You know, I mean, it's, it's, I mean, it's a, it's a function of, of utilization and price. And it sounds like both of those things are going down. Not Micron, but I mean, like we've seen other players, like most players that aren't necessarily around anymore, but we've seen, you know, gross margins in memory at the trough of a cycle get very, very bad. I mean, they, in just in general, they can go negative. I don't know that they'll do that for Micron, hopefully not. But I mean, it's not unheard of in memory in the deep trough of a cycle for things to get very bad. Yeah. And that's why

Mike Santoli, at least one Southside Research report today, started to talk about the notion of inventory write-offs, not declaring or predicting, but just saying, what if? Yeah. And that's the next potential wave, I guess, people are braced for. The other end of it is just the sort of game theory of trying to play this phase of the cycle. if you do see bigger competitors in the memory area actually investing through this part of the cycle like samsung in other words you have to figure all that out right but this this is part of it so i mean like like the idea that micron is like cutting capex and memory in general is cutting capex along those lines is not new they've already

said that they expected capex to be down you know more than or equipment's going to be down more than 50% of their next fiscal year. There's been some worry that Samsung maybe is not going along those lines. And again, memory is this sort of game theory prisoner dilemma. And so some of this also could be signaling. I mean, the thing that's killing the semi-caps today, by the way, is not so much that they cut the CapEx for this year. Micron said in fiscal 24 that their equipment spending would be down from 23 when 23 it's already down another 50 you know 50 so i think nobody knows what 24 is going to look like even micron nobody knows but micron's got zero incentive right now to paint a rosy picture they might as well set it low and there may be some signaling going on there as well like

there's plenty of that kind of game theory that happens in the memory space. Yeah, it definitely felt a little kitchen sinky. But as you said, visibility in this cycle, not very long duration. I mean, at this point, you might as well set things as low as you can. They've been cutting and cutting and cutting and cutting and cutting. It hasn't been enough. You want to, at some point, set that bar low enough where they don't have to cut anymore. All right. Stacey, thanks, as always.

Talk soon. Stacey Raskin over at Bernstein. Cloud stocks among the big losers today as well. Frank Holland joins us to talk about how much we're seeing there and how much, Frank, is related to rates. I mean, is general rate pressure, not necessarily today rate pressure, Carl. Obviously, David Tepper's comments that everybody should believe the Fed and believe the ECB, actually calling Christine Lagarde a grizzly bear, and some of these thoughts there might be some type of pause or some type of pivot are just realistic because we haven't heard

any indications from the ECB or the Fed that they have any plans. Again, they've maintained their position that they want to tamp down inflation. They plan to move rates even higher than we've seen so far. Of course, as always, when we look at the WCLD ETF that represents cloud stocks, it moves inversely to the moves of the 10-year. The 10-year moves up, those cloud stocks generally move down. Similar story for the BUG cybersecurity ETF, a different part of the cloud sector that we don't often talk about, that BUG ETF actually hitting lowest levels that we've seen since November of 2020. So something to watch there. We've also heard from investors themselves in general that there's two choices when it comes to these cloud and enterprise stocks, either mission

critical or multifaceted. Either we know exactly what you do and we need it, or you can do what multiple vendors do. We've heard that from the companies. We've heard that from analysts. We've even heard it from investors that just having one focus simply isn't enough. So not surprising, these stocks are down, but it's not rate pressure from today necessarily. Of course, since the last CPI report, we've seen rates go up about 15 basis points, but still about 50 basis points than the high we saw this year back in October. Pretty interesting. You know, Mike, cloud is one of those areas where the street's trying to get very surgical in terms of what could be a potential M&A target down the road.

Yes. And, you know, there's probably not enough in the way of actual buying interest to go around, but it can create a general sense of support out there, at least, you know, against the stuff that's really gotten washed out. So I think that's a fair theme going into next year. There will be the lucky ones that get taken out on the smaller cap side, larger cap. It is to me about just exactly how much demand goes down. The management teams want to talk about oh it's just sort of a slowdown in the closing of deals. Well that's obviously a sign of customers having more power than the vendors do and it means earnings estimates going

down. So to me the rate story was part of it you know in the first part of this year. Since then it's been how fast are these things going to grow? They're still too expensive if they're not really going to grow very well in the next few years. So, you know, the 10-year has been flat since late September at these levels, and these stocks have still been heavy. Right. That's a good point. Frank, thank you very much. Frank Holland on Cloud. Check out retail today in the red as we go into the final days before the Christmas holiday. Former CEO of J.Crew and Gap, Mickey Drexler on Squawk today, talking about one of the biggest retail headwinds as inventory as consumer spending slows.

Most of the goods were placed nine months ago. Business was good then. There was supply chain issues then, which there are no longer. And I think all of us got a little too bullion about the future. And a perfect storm happened in October. Business slowed and therefore inventories climbed.

And so I'm not very optimistic. Dana Telsey joins us today of Telsey Advisory Group. Dana, it's great to see you. It's funny, Mickey said he was warned by his friends not to be too negative before coming on the air, but then he went into a litany of how the industry was too aggressive nine months ago. Nice to be with you, Carl. I agree. I mean, when you think about what's happening out there, I think the theme of 23, expecting the unexpected requires agility.

The first half of the year, you're still going to be plagued by the negative impacts of consumer spending with rising rates and rising inflation. And while these companies are marking down to move goods, you're going to have some of these goods continue into the first half of 2023. It's not until the second half of the year will hopefully margins stabilize, given lapping higher labor costs and lapping supply chain. It is a tough road. And I think 2023 guidance for a lot of companies, it's going to show the reality. Right. They've already said so much. I mean, Target's a great example, Dana, where they got inventory wrong, made steps to correct it. What is the mood then this ordering season? Where's the line between clearing out inventory, but making sure you have enough inventory if things do recover? So the numbers I'm hearing from my network is overall orders from the wholesale accounts could be down as much as 10 to 15 percent in order to be able to come back to a better margin than what you're going to see right now. I think there's a difference between the companies in the stocks a lot

of these stocks that you've seen out there within our consumer world. They're down thirty forty and fifty percent so the valuations are already discounting the risk that's in there for twenty three numbers. All right so the latter it for

us at the moment soft lines are hard lines a home improvement. What are your favorites? I want to be in value and I want to be in brands. So I think brands like Ralph Lauren are going to continue to be able to grow their average unit retail selling price. I think you have retailers like Ulta who's going to benefit from the strength of what's happening in beauty, both in makeup and in skin care. I think of companies like Decker's, whose innovation on footwear with Uggs and Hoka continues to show appeal. And I think the trade

down on value, TJX and Walmart, those are going to win in 2023. Do you think luxury has another leg here if, in fact, China reopens the way some hope? Or is, I mean, is the overall mood going to be too deflating? A couple of things. I think that luxury overall, that consumer always has more to spend. Even now, we're hearing about the rate of growth of luxury moderating from what it was. But importantly, it's still growing. LVMH, Estee Lauder, they have big opportunities from the reopening of China. And luxury trades at such great margins and the price increases that you've seen, it leads them to continue to have, in my mind, a better 2023,

especially if China reopens. Dana, thanks as always. Great to get your take. Dana, Tulsi, Tulsi Advisory. Mike, it does bring to mind sort of the one nugget of good retail news that we got in Nike and their comments about inventory recovering, although others argued they're essentially a one-off in their own space. To a degree, yeah, Carl. I mean, that category does seem to be one of the brighter spots, just athletic as well. And I think the big debate, as Dana was alluding to,

is just exactly how much have the stocks kind of pulled forward the expected pain. You know, you look at something like a Best Buy, right, you know, often a cheap stock and continues to look cheap at, you know, 0.4 sales ratio, price-to-sales ratio. It's up 30% off the October lows. Clearly, you know, took a lot of punishment on the way down. So it'll be data point to data point on the consumer. But the retail stocks haven't waited around to see that things really fall apart yet. Mike, we're going to let you get ready for

overtime at the top of the hour. We'll see in a few minutes. Mike Santoli. In the meantime, you can see the Dow 33,000 here as the S&P back to 3822, getting back some ground. But billionaire David Tepper, if you missed it earlier today on Squawk Box, talking about his view and how essentially, especially Lagarde over at the ECB has forced him to lean short into equities. I would probably say I'm leaning short on the equity markets, you know, so right now, because I think they're, you know, I think the upside downside just doesn't make sense to me when I have so many people telling me, so many central banks telling me what they're going to do, what they want to do, what they expect to do.

Scott Wren, Senior Global Market Strategist at Wells Fargo Investment Institute, joins us. Scott, it's great to see you again. What do you think? Tepper's been pretty adept at simplifying the message from central banks. It worked for him on the upside with QE. And now he appears to be playing the opposite view. Does that all make sense to you? Well, Carl, I tell you, you know, you know, don't fight the Fed. That's, you know, how many times have you heard that over the past decades? It's true. We've been trying to play defense since really March or April. You know, we're not having

conversations at the Investment Strategy Committee level on how we're going to hide more or get more defensive. I mean, I think we're good where we are with that, but we would expect a little bit more market downside here. But what we're talking about is what do we do in anticipation of the economy recovering? What's the timing on that? When do we get interested in small cap stocks and high yield bonds and consumer discretionary sector? That's the conversations we're having now. And we've had a little bit of difficulty pinpointing when the recession is going to start. We certainly think we're going to have one, a moderate one. And so for us,

we're not trying to hide more, get more defensive. We're looking for when we're going to get more assertive. I'm thinking the way you're describing that, that thought process kind of takes you back to the October low, right? When people did start to give small caps a second look. I wonder if you think that's going to be instructive in Q1, if in fact there's further weakness. Well, I tell you, you know, you have to look at levels. I mean, you know, my entire career has been based on fundamentals and technicals. You know, you got to look for your spots in those October lows. That's one spot. And then really, if you look below that, if we didn't hold there, I would argue somewhere in the 3250 to 3270 range for the S&P 500. So, you know, those are spots that we think the market could

definitely trade to. We have some things we're thinking about doing at those levels because we think valuation levels are going to be attractive there. But I think one key, Carl, for us, big key is that we expect to see inflation come down pretty quickly next year. We expect the Fed, you know, maybe they've got 75 or 100 basis points left in terms of hiking. I don't think that's out of whack with what the market's been expecting. And then we expect the Fed to maybe cut 75 basis points or so in the second half of the year in response to this moderate recession we think we're going to have. So that's kind of the track we're looking at as far as over the next six or eight months and the types of things we're looking to do. Interesting. That

view on rate cuts. What do you say to people when or what do you say to David Tepper when he says they're they're telling you they're not going to do that? Well, I tell you, you know, you know, sometimes you think you have to take the Fed at their word. If you look at their track record, they're not very good at projecting what they're going to do. That can change, as you well know, Carl, that can change at any time. So what we're trying to do is just figure out what are the fundamentals going to be? And if inflation does not come down, well, the Fed's not going to cut. But that's not our base case.

So we're expecting a reaction to that moderate recession. We think we're pretty close to the end of this hiking cycle, although the Fed's still talking tough. But even if you look at the median dot plot, 5.1 for the terminal rate, well, 5% is pretty much what the market's been expecting. So we don't think we're going to go much above there. for the terminal rate, well, you know, 5% is pretty much what the market's been expecting. So we don't think we're going to go much above there. Probably not hardly any there at all, above there at all if we get there. But things are going to look better in the second half of next year. I think the market, you know, if you think the market normally turns higher about halfway through the recession, and you thought the recession might start pretty soon and last until June, July, August, something like that, well, then, you know, maybe might start pretty soon and last until June, July, August,

something like that, well, then, you know, maybe you start to get more interested in things in March, April, because, you know, if you wait till the skies are clear, the market's going to be higher. Scott, appreciate it very much, as always. An important day today. We'll talk soon, I'm sure, Scott Wren, on this market day where we did defend some important levels. As you see, we're going to close right around 3822. Dow right above 33,000. Really did start this morning with a mix of macro and David Tepper. Leading economic indicators down nine straight months. In addition to the sort of the corporate commentary that we've said,

we got from Micron, FedEx earlier in the week, CarMax. As we work our way toward one more session before a holiday weekend, let's get over to overtime with Mike Santoli.