Closing Bell - Final trading week of the year, Tesla tumbles again, Southwest mess 12/27/22

Episode Date: December 27, 2022

Stocks closed mostly lower as the final week of the year gets underway. Tesla was a major underperformer once again, as the stock tracks for its worst year ever. Analyst George Gianarikas joins to explain why he’s maintaining his buy rating on the stock. Southwest Airlines also saw sharp declines following operational headaches in the wake of the deadly winter storm. Journalists Alison Sider and Kyle Arnold weigh in on new calls from senators for Southwest to compensate passengers. Former Macy’s CEO Terry Lundgren discusses new data from Mastercard showing holiday sales grew 7.6% in the U.S. Plus the latest on chip stocks, Peloton, and Biotech bets for the new year.

Stocks mostly lower here as we kick off the final trading week of the year, with the Dow giving up a triple-digit gain and the Nasdaq now down more than 1%. This is the make-or-break hour for your money. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look broadly where we stand right now in the market. There's the Dow taking on to a gain most everyone else is lower. The S&P 500 down about four-tenths of a percent. It's not all red today.

You've got pockets of green like energy. Commodities are doing really, really well off the reopening theme in China, loosening more travel restrictions overnight, causing an Asian rally. The Nasdaq, though, is down 1.3 percent. Part of the story at the bottom there, you see the 10-year note yield climbing higher, highest level since mid-November as bonds sell off. That's hitting a lot of the tech stocks. Tesla's part of it. Nvidia, Apple, Amazon, Microsoft, AppleBet, all weighing on the Nasdaq right now. Check out our chart of the day, which is Tesla, because it is getting slammed yet again, this time on concerns about production in China. Look at the stock. It's down more than 9%. We're going to talk about that in just a moment with a bullish analyst. Also ahead on the show, former Macy's CEO, Terry Lundgren joins us to talk about the holiday retail scorecard and his outlook for the consumer in the new year.

Let's get straight, though, to Tesla, because it is plunging. The latest move lower comes as The Wall Street Journal reports Tesla will extend a production shutdown at its Shanghai plant amid rising covid cases in that country. Tesla on track for its worst year ever. It's down more than 40% just this month. But a majority of analysts still have a buy rating on the stock, according to FactSet. Joining us now is one of those bullish analysts. We've got George Genericus of Canaccord Genuity. And George, why are you maintaining a buy and a $275 price target on this stock as it craters?

Hey, Sarah. Happy holidays. Thank you so much for having me. I understand and most participants understand what's happening with Tesla stock. The data points have been exceedingly negative for several weeks now, maybe even several months. And the latest, as you pointed out today, is that one of their competitors in China, NIO, pre-announced negative. They're not going to hit their numbers for Q4 after giving that guidance not so long ago. But our hope over the medium to long term is that what's happening in China, which appears to be cyclical and not secular, will rebound. Particularly, as you mentioned earlier, we have a reopening. So as

we work through this stuff in China, we think that EV sales can rebound probably in the second half of 2023. What has happened to estimates for next year for revenues and profits? How significantly have they come down for Tesla, if at all? They've come down a bit. Look, we've just reduced our numbers from a little over 2 million vehicle sales in 2023 to about 1.9 million vehicle sales. And they may have to go lower. You know, we listened to Elon Musk on Twitter spaces at the end of last week, and he decided and he sounded decidedly negative. And we think that maybe our ASP and margin assumptions might be a little too high for next week. So we're all waiting with bated breath for

the delivery numbers to come out after the turn of the year and for the earnings call in January, February. And we'll see how far the numbers have to go. But our view is that what's happening now to Tesla and to auto sales in general is cyclical. It's not secular. And after we get past whatever it is that we're going through now from an economic perspective, EV sales will rebound. And this secular trend that we're seeing towards EVs will continue. And we think, you know, through this economic downturn, Tesla will come out stronger competitively than they came into it. But even if it's cyclical, George, are you not concerned that with Tesla facing some real demand questions for the first time in years and the supply issues as well in China, the CEO is preoccupied running Twitter.

I mean, look, you have a really good point. Elon Musk is on Twitter a lot. But as far as I can recall, he was on Twitter a lot before this all happened. And yes, he has more duties now being the CEO. He's pledged to investors that he'll relinquish those duties and focus more on software. Look, he's a busy guy. Clearly, he's had a lot of balls to juggle for many years now. He's thrown more into the mix with Twitter. But we've always been impressed with the way he's come through these things, whether it's with Tesla worries and early in the 2000s and then in 2018 when people thought the company

was going bankrupt. So we're making the bet that he'll come through this, that he has good people in place, both at Tesla and eventually at Twitter to manage both and come through the downturn successfully. I mean, the other knock against this one, and it has to do with a lot of what we're seeing in the Nasdaq this year, is that there's a massive valuation correction happening with higher interest rates. And if we are facing even higher interest rates next year and higher interest rates. And if we are facing even higher interest rates next year and higher interest rates for longer, a lot of the stocks

that were highly inflated over the last few years amid all the stimulus, and Tesla is very much a poster child of that, isn't it, George? Have to come down to earth. It's a really good point. And so the way we comp Tesla is relative to other tech companies. We think Tesla is a tech company that makes electric vehicles. And so when we look in the out years, again, next year, maybe even a little into 2024, we have a cyclical downturn and some estimates have to come down. But after we look into 2024, 2025, we're pretty confident in our numbers. And in 2025, we have close to $11 in non-GAAP earnings. And when you look at the stock today and you look at it relative to other large cap

tech stocks, whether it's Google or Alphabet, sorry, and Apple, we think it's incredibly attractively valued, particularly for the growth. We think over a five-year period, this is a 30 to 40 to 50 percent growth company. And that's a lot higher than those comps. All right. Sticking to your guns there on Tesla. Thank you very much, George, for joining me. Appreciate it. After another rough day for that stock.

We'll turn now from cars to planes because scores of Americans are still dealing with travel issues caused by deadly winter storms over the weekend. And Southwest Airlines is taking the brunt of it, canceling 70 percent of its flights on Monday and thousands more today in hopes of resetting its operations. Senator Markey and Blumenthal just coming down pretty hard on the company, saying in a statement, Southwest cannot avoid compensating passengers by claiming these flight cancellations were caused by recent winter storms. As Southwest executives have acknowledged, the massive cancellations yesterday were largely due to the failure of its own internal systems. Let's bring in Kyle Arnold. He's an aviation writer at the Dallas Morning News,

where Southwest Airlines is based, along with Wall Street Journal Airlines reporter Alison Sider. It's great to have both of you here, and I know you know each other from this overlapping beat. I just wonder how much of this is Southwest's problem specifically, Allison, you spoke to the CEO or how much we can blame the weather. Yeah. I mean, I think the problem started for all airlines last week and the weather was the

culprit. It was a huge storm that swept across most of the country and that creates problems for any airline. But sort of as the weather started to recede, Southwest in particular had much more difficulties than any other airline. So I think at this point, you know, other airlines are largely back to normal and Southwest is still seeing huge disruptions. Kyle, how bad is it? This is one of the worst kind of incidents, weather events that Southwest has ever seen, especially the way it's gotten worse and worse over the last couple of days. You know, Thursday was a, and Friday were an issue, but you know what? It's getting, there's hundreds more cancellations every day.

And now we're looking at, you know, maybe through this week to seeing these heavy number of cancellations and people are going to be stranded. And, you know, Southwest isn't selling tickets right now for these flights because they know they might have to cancel them down the road. So, Allison, all the politicians are jumping on the bandwagon here. What is Southwest offering at this point in terms of compensation? Yeah, so what they've said is that, you know, if you opt not to travel or you can't travel because your flight was canceled, you're entitled to a refund.

They put up a website which links to an email where you can send your receipts if you had to rent a car or hotel. And they're saying they'll reimburse reasonable travel expenses. So I guess we'll see how that plays out over the next several days. But yeah, like Kyle said, there aren't a lot of options on Southwest flights right now for rebooking. So some people either have to find another airline or they might be stuck for several days. Why is this, Kyle? Kyle, why is this happening so much worse at Southwest? Is it a management issue, an execution issue, a technology issue? What is the culprit here?

I think some people would say it's a little bit of all of the above, that, you know, Southwest didn't cancel enough flights ahead of this. They knew this storm was coming. Them and other airlines offered people the chance to rebook. They had the opportunity to reduce their flight schedule. But really, the company is blaming it on this scheduling software. Essentially, they've seen this over and over again over the last year and a half. When there's a weather event, even a minor weather event, people start getting, flight attendants aren't in the places they expected them to be down the line. Pilots the same.

And it just, it cascades and it builds up into one of these events until they have enough time to sort it all out. Yeah, I mean, the politician outrage in the marquee Blumenthal statement, Allison, they go after specifically the dividend. Southwest is planning to issue a four hundred twenty eight million dollar dividend next year. The company can afford to do right by its consumers that it harmed.

I do wonder how much more political pressure now this company is going to have to face. Yeah, I mean, airlines have already kind of been in the political hot seat for several months, you know, Southwest. But but rivals also have had a fairly difficult recovery from the pandemic. And, you know, earlier this year and last year, there were, you know, several of these kinds of major cancellation events, though not quite to this degree. And I think they thought they'd managed through it. Thanksgiving went incredibly smoothly, and I think they thought everything was back on track. And this is kind of a setback for that. So, Kyle, bottom line, it's getting warmer out.

Certainly in the Northeast, the temperatures are changing pretty dramatically. Does this mean they can figure this out quickly? The question is, this big holiday weekend we have coming up again this weekend, it's going to be people returning home from college. You're going to be families that have these long breaks. So it's going to be really tight in airports again. And Southwest isn't going to have any margin for error if they can't figure this out in the next day or two. Yeah, it's a lot of pressure, but also seems like a big mess up.

Thank you very much for joining me. It's good to have both of you, Allison and Kyle. Appreciate it. After the break, is it time to rethink the classic 60-40 portfolio of stocks to bonds? Certainly after a rough year this year. Is it time to rethink the classic 60-40 portfolio of stocks to bonds? Certainly after a rough year this year, we're going to talk to an expert who is turning the old model upside down for the new year. The Dow is hanging on to a gain of 66 points. So I mentioned the pressure today is really coming on technology.

Consumer discretionary communication services and information tech are the worst performing sectors right now in the market. Nvidia, Tesla, Apple weighing on the Nasdaq in particular. You're watching Closing Bell. We'll be right back. Welcome back to Closing Bell. Chinese stocks rallying today as the country continues to ease its zero COVID policies. Overnight, China saying it will stop now requiring quarantine for inbound travelers by January 8th.

This even as the nation reportedly faces daily COVID cases in the tens of millions. Let's bring in Tara Hariharan. She's managing director of global macro research at hedge fund NWI management. Tara, it's great to have you on the show. Don't get to talk to you too often. I know you're head of research there at the macro fund that has about $3 billion under management and focuses specifically on emerging markets and China. So how are you guys thinking about how bullish this reopening story really is? Thanks so much for having me, Sarah. So my sense is that while China has recently loosened its COVID controls at an unusually rapid pace, we're going to face

a pretty bumpy ride for China's COVID reopening for at least the first half of 2023. And we can already see that we're not getting enough clarity on cases and deaths from the Chinese government. So in my view, while Chinese stocks are reacting bullishly right now to the reopening hypothesis, some of this is just front running actual improvement in economic activity, which I think will take some time, because a relatively cautious Chinese consumer will take a while to start spending back at pre-pandemic levels. And as we also know, China has a lot of other problems that are holding growth back, including over-tightening on its over-indexed property sector. And so my personal belief is until home buyer sentiment in China turns positive, we really cannot call a bottom for the Chinese consumer and an all-clear for Chinese growth. Even with the stimulus that they are going to and already have started

embarking on, they've got space, fiscal and monetary, don't they? They do have space. The problem is the growth multipliers for that space. We already saw in 2022 quite a lot of fiscal stimulus done. And we heard about infrastructure, fixed asset investment going up. The problem is the property sector is such a behemoth and the consumer is so slow that even pickup on the infrastructure side has not really been enough at this stage. So we really need property and consumer to click back before we can call a bottom for Chinese growth. The other interesting side effect might be on U.S. bond yields and potentially on global inflation. Tara, I've noticed that the bond sell-off today, yields are higher, technology is getting wrecked, commodity prices are higher. How do you guys see the interplay

between the China reopening potentially influencing this global inflation threat that we have? Is it going to make the Fed's job tougher? While it may take a little while for the China reopening to fully manifest, we do think it's going to be net inflationary, particularly in terms of oil prices. And actually, later on, Sarah, when we get to some trades and themes, I'll talk about that a little more. But as an overall global macro concept, I think one notable market shock that we saw in 2022 was this collapse of the usual reliable 60-40 model, right? With 60% stocks and 40% bonds usually being an easy play. But this year, both sides have performed poorly. And to deal with that for 2023, in our portfolio construction, we at NWI are planning to allocate a 20-80 ratio, basically a much bigger weight towards fixed income. And I'm happy to talk more about the exact details

about that later. But the basic concept is that inflation is going to stay high and yield is finally back. We are finally emerging from the negative interest rate paradigm. So yield curves for the U.S. in particular, but for most developed markets and even some emerging markets, they're underpricing the higher for longer rates theme right now that we have been hearing several central bankers even communicating very clearly to the markets. So in spite of the central bank hawkishness, the markets are expecting more muted Fed hikes and even, I would say, pricing rate cuts next year, even though the U.S. data has been resilient so far. So you think that's wrong. You're 80 percent in bonds. And so that includes in the U.S. globally and only 20 percent in stocks. You guys think it's going to be another bumpy year? Exactly. This is mainly because of our thesis that the Fed is going to stay higher for longer.

And we also think that U.S. growth forecasts are underestimating the U.S. investment boost in the next several years from the very muscular U.S. government-led investment initiatives that have been recently announced, particularly related to shifting supply chains in technology away from China and back to North America. Now, while this is on the margin growth positive, we think it's much more significant from the point of view of being hawkish Fed. And I want to just hit a couple because you guys are very macro. So you've got some interesting currency trades on for next year. And it speaks to a lot of the themes that investors are paying attention to globally. So you're long Mexico, short China in currency. Why did you pick Mexico specifically as a beneficiary against China? So, well, Mexico is going to benefit exactly from what I just mentioned before, U.S. supply chain nearshoring and French shoring and

reshoring. And so we believe that the Mexican economy will be able to take off in the next couple of years thanks to this support from the United States and from strong U.S. growth. And on the other hand, as we kind of discussed, Sarah, China's COVID reopening is going to have ups and downs. And because the Chinese consumer and the property sector are unlikely to fully revive until the second half of 2023, we think it's fair, at least in the first half of the year, to remain short the CNH, which is China's offshore currency, while we go along the Mexican peso. Really interesting, especially today,

when people are feeling more bullish about China to get that sort of out-of-consensus view. Tara, thank you so much for joining me with some of the ideas for next year. Appreciate it. Thank you so much, Tara. Happy holidays. Tara Hariharan from NWI. Happy holidays to you. Tara, thank you so much for joining me with some of the ideas for next year. Appreciate it. Thank you so much, Nada. Happy holidays. Tara Hariharan from NWI. Happy holidays to you. Let's show you what's happening with the markets. About 40 minutes left of trading.

Dow is inching a little bit higher. We're off the highs of the day, but we're up about 79 points or so. It's a divergence because you've got strength in energy today, utilities, staples, even industrials are higher. Materials and financials also just clicked higher. But the Nasdaq's still under pressure. It's down one and a quarter percent. Tech sells off, partly because maybe that sell-off in bonds we're seeing with treasury yields a bit higher today. As far as what is working the best, it is the energy sector with oil prices higher off the China news.

Retail sales growing by nearly 8% during the holiday season. That's according to brand new data from MasterCard. But it lagged, actually, the jump from last year. Up next, former Macy's CEO, Terry Lundgren, here to help us make sense of the new data on retail. Talking winners and losers as well and his outlook for 2023. Dow's up 80. We'll be right back. Welcome back to Closing Bell. A new report from MasterCard says U.S. retail spending increased by 7.6% from last year, this holiday season. And that was higher than its initial forecast, but does lag last year's pop.

Joining me now to break down some of the winners and losers, former Macy CEO and chairman Terry Lundgren, retail expert. Terry, I don't know what to make of the data because it's not inflation adjusted and we have a 7.1 percent inflation rate. So couldn't it just be that we have to spend more on all of this stuff we're buying for the holidays? Well, first of all, I'm thrilled with the numbers because last year was a record, unbelievable, eight and a half percent last year in the holiday season. So to put that type of increase on top of last year's number, Sarah, I think was quite extraordinary. It just shows you that the consumer has money to spend and is willing to spend. And they certainly showed that in these last several weeks. What is your

perception of where they're spending? Because there's a gap that's widening between goods and services for sure. Definitely. And I think that gap will accelerate. You know, we saw a drawback to goods during the pandemic, but it was strongly in favor of services prior to that. I see it going back to that norm again in 2023. So I see purchases on services and entertainment and travel, hospitality,

food, restaurants, all those categories I think are going to benefit in 2023 when that shift occurs. I feel like one of the biggest questions for the market next year, Terry, is what happens with the U.S. consumer? Does she hang in there? Because the story of this year is that, yes, the growth was the growth was better. It was better than the rest of the world. But now we're dealing with not only the inflation shock, but a rate shock as well. The housing market is hurting. The stock market is hurting, which hurts people's retirement accounts. Can the home can the U.S. consumer hold up amid all these headwinds next year? The answer to your question, can the consumer hold up, is yes. Will they hold up? Let me just talk that through a little bit. So there's clearly

more money in the savings accounts in total, particularly for this middle household income consumer, than there was in 2019. And that's thank you to the stimulus packages that were generated in 2020 and 2021. There's still plenty of money. I'm talking over a trillion dollars in additional savings with consumers. And so that's a positive. They're spending it like they're spending it aggressively. And that's been good for for the economy. It's keeping the economy going, Sarah. But the one and by the way, wages have been good. OK, so so obviously with the rate wages rising six percent, that's a big plus to put even more money back into consumers pockets. However, to your point, with inflation being as high as it has been and it's very it varies in different categories, it's taking a lot of that discretionary opportunity

to spend away. I think that will be particularly true in 2023. Christmas, Hanukkah, the holiday season, Thanksgiving is an event-driven activity when consumers do all they can to come out and give that great gift to their friends and family. That's behind us. And so I do think we'll see a bit of a slowdown again. That shift, I think, will occur into more travel. Hopefully, we'll be able to travel again, but more travel, more hospitality in the coming year. Yeah, just not on Southwest in the coming days.

So if you look at the retail stocks, Terry, it really, there's quite a divergence. Only a handful of them are higher for the year. And there's a definite theme. Dollar General, TJX, Dollar Tree, and Ross Stores. Those are some of the best performing retailers besides Ulta Beauty, which is in a league of its own. And then the other stocks, a lot of them are down 20%, 30%, 40%. Stocks like Nike, VF Corp is down more than 60% this year.

What is the strategy in 23? Clearly, that speaks to the trade down and the pressure on the low income consumer, which we saw this year. Yes, both of those subjects. Absolutely. And I think the third piece, we've talked about this before, Sarah, and that is that many retailers got hurt by ordering too much inventory during the pandemic when they panicked because last year, as you remember, they didn't have enough inventory. And so as a result of that, they ended up ordering too much just at the time when demand was beginning to soften. And so there were some very big numbers with more inventory than the prior year, and they were completely out of numbers with more inventory than the prior year,

and they were completely out of line with their own sales expectations going forward. That hurt them because no matter what retailers say, and I know I was in this category for a long, long time, that if you were overloaded with inventory, you want to buy all the hot sellers that you know you can sell through, but your hands are tied because you can't get rid of fast enough that other inventory that you're trying to liquidate. And so this has been their opportunity. We've had robust sales. I believe a lot of that came as a result of a heavy promotion. We talk about this every holiday season.

It's going to be a promotional Christmas. Yes, it always is. But this one was particularly more so than I've seen in a long time. And that's because of the high levels of inventory. Question is, which retailers did their job and got rid of that inventory as of today, as of this week, and which ones did not? The winners are going to be the ones who have got clear, open to buy, open receipts going into 2023. Sure. And then my follow on has to do with margins. What do you

expect for retailers like Macy's, the company you used to run? Margins next year as we could see continued promotions, right? And we see apparel prices starting to come down. Yeah, I think it'll be a very mixed bag. I think that the retailers that manage this subject I just discussed, and by the way, Macy's was actually better than most in terms of their inventory management, as I think you all reported in the last quarter. So they should have less of an issue clearing that inventory. But I think the ones who were able to get through with it with a mild bump in inventory at the end of third quarter are going to be fine. I think the ones who have huge lumps of inventory, and I don't remember exactly who

those were, but I remember that some of those numbers were quite big, 20, 30 percent more inventory than the prior year. I think those guys are going to have a very hard time getting rid of all of that inventory unless they took aggressive markdowns to do so, which I think would be the right thing to do, by the way, to just get off, you know, take your lumps, get over it, move on and prepare for the year going forward. Because frankly, the rate of sale, the rate of unit sales drops precipitously starting like in two days versus what it's been for the last several months. But Target did that. Target did that, took a couple really big hits and surprises, negative surprises for investors on the profit side. And then it came

out and said it's dealing with a demand shortfall and that consumer discretionary spending has really started to slow this fall. Yeah, I can't speak for Target in particular. They've been, I think, a well-run company and they've done great work for a long, long, long time. But perhaps back to my earlier point, when you have too much inventory, which they did at the end of the third quarter, wanting to fill the demand of those hot sellers, those hot categories, very difficult to do when you've got so much inventory in their own categories. Terry Longren, thank you very much. Always appreciate the perspective. Thanks, Sarah.

Happy holidays. Up next, the CEO of Driven Brands, which owns Meineke and Mako, on whether Americans are putting more money into maintaining and repairing their vehicles because of record high new car prices. Car prices hitting record highs. The average new car price right now, $48,681, with the average buyer paying over the sticker price every month since July 2021. But with surging prices and rising interest rates, will consumers hang on to their cars instead of buying them new? Driven Brands is the company behind such automotive services like Take-Five Oil Change, Mako, Meineke. CEO Jonathan Fitzpatrick joins us now. The company went public last year. Jonathan, it's great to have you on the show.

So new prices are way up. Used car prices are starting to fall. How does it impact your business? Are people hanging on to them longer and just maintenancing them themselves? Yeah, thanks for having us, Sarah, I appreciate it. Yeah, to your question, what's interesting is the age of vehicle has been increasing

for the last couple of decades. So we breached 12 years of age as the average age of the vehicle on the road today. We see that trend continuing to increase and it's certainly been a tailwind for the industry in the road today. We see that trend continuing to increase, and it's certainly been a tailwind for the industry in the automotive aftermarket space for a number of years. And we don't see anything changing that overall trend line as we look into the next couple of years. What are you seeing, particularly this holiday season? There have been some analysts wondering if the weather, the brutally cold weather is a catalyst for

stocks like yours as people need to outfit their cars better for cold weather. Well, it's been a disaster for some folks, obviously, on the airline side, you know, feel for them. But, you know, we see weather complexity and age of vehicle as natural tailwinds, which are going to continue to sort of increase the demand for our automotive aftermarket services. I think that's a really good tailwind that we've seen in the last number of years. When we look at vehicle miles traveled, which is the key metric we look at in the industry, the number of miles that are being driven annually, we will see an overall increase in 2022 versus 2021.

And we expect that to continue as we head into 2023, as people hold on to their vehicles longer. And then as people sort of perhaps look at the cost of travel in their car versus other forms of transportation. So we do think VMT, vehicle miles travel, will continue to increase as we head into 2023. Even with oil prices higher than where we were last year? It's certainly moderated, Sarah, if you look at where they were at the peak in the late summer, early fall. I think we are driven brands, our core customer owns a vehicle that's typically four years of age. They use their vehicle in their everyday lives, so they've been driving for the last couple of years. And we see that, you know, to live your life, you need to maintain your car and your vehicle. So

we saw very little moderation in terms of miles driven, even with the sort of short-term spike in gas prices we saw late summer. One thing I wanted to ask you about, Jonathan, was just what you make of what's happening in the world of used cars and with some of these stocks, CarMax's earnings disaster as used car prices and sales fall. Carvana now looking for financing and questions about its own solvency. What do you think is happening here? Look, I'm not going to comment on any other public companies here, but I will tell you from Driven Brands, again, automotive aftermarket, it's been a really nice tailwind for us. What people forget about our industry is that 80% of our industry is still what we call fragmented, so in the hands of small chains or independents.

So Driven has basically grown 10x over the last 10 years, and that scale and sophistication has enabled us to continue to take market share, again, in the auto services needs-based aftermarket. What is the most discretionary part of your business? Is it the car washes? Is that, and do you see any kind of slow down there? Yeah, the car wash is a great business. And, you know, when you think about sort of EV resiliency

over the last couple of years, we have invested heavily in car wash and auto glass as two categories that we see as sort of EV neutral for decades to come. Specifically across our portfolio, you could argue that car wash is the most susceptible to discretionary income. That being said, Sarah, we've got a lot of folks that live in inclement weather areas and they see car wash as sort of a preventive maintenance almost, you know, maintaining their vehicle. We also have great research that shows that people feel really good about themselves when they feel good about

their car. So it is this affordable luxury category. We also have about 50% of our revenue comes from monthly subscribers. So we've got a really nice business that has, you know, subscription revenue along with sort of the daily a la carte user. Jonathan, good to check in with you, hear about what's going on in the business. Appreciate it. Thank you. Thank you, Sarah. Thank you, Jonathan Fitzpatrick, CEO of Driven Brands. Take a look at where we stand in the market. We've kind of been accelerating for the final hour. Dow's up 93 points right now. NASDAQ is still firmly negative, but it's come off the lows. It's down 1% right now. With the S&P 500, it's still lower, but again, it's improved over this final hour of trade.

You've had some groups in the S&P turn positive just in the last few moments. I'm talking about real estate, financials, and materials joining positive sectors today, like energy, utilities, staples, and industrials. Materials also very strong. Anything tied to China has been a bright spot in today's session. Technology under pressure, higher treasury yields. When we come back, a top analyst discusses why biotech could be ready to

bounce back, reveals his top picks for the new year. And tonight, don't miss a CNBC special report with Brian Sullivan taking stock 2023, focusing on the opportunities in the energy sector in the new year. That's going to be at 6 p.m. Eastern right here on CNBC. Closing bell back in a moment. Check out today's stealth mover. It is Peloton. The stock is spinning lower. The company announcing it will sell now refurbished bikes for up to $500 off of new models. Investors have been sweating out this stock all year. Shares are down more than 70% in 2022. Chinese tech stocks, though, on pace for a two-month win streak as China announces it will end quarantine restrictions for international travelers.

That story, plus semiconductors slumping and the best biotech bets for the new year. All when we take you inside the Market Zone next. We are now in the closing bell Market Zone. Bob Bassani is here to break down these crucial moments of the day with us. Plus, Christina Partsenevelos joins on chips and Jeffrey's Michael Yee on biotech picks. We'll kick it off broad. The Dow's up 71 points. Bob, we've seen a little bit of an improvement in this final hour of trade, but you've still got two narratives going on today. The China stocks, anything tied to China really working. Wynn is one of the best performing stocks in the S&P. And then big tech under pressure as yields rise. Tesla is now down almost 11 percent. What stands out to you today? What stands out is, first, the China play. Obviously, LVS moving, metals moving also on that.

But the story is really tech. And I want to show you, we really have a problem because since the beginning, since the middle of December, it was about December 14th or 15th, bond yields, which were trending down for several months, reversed and are now trending up. So we've gone from 3.4 to 3.8, about a 10% move upside in 10-year bond yields. And that's just killing tech stocks. I want to show you this chart, if we can. Since the middle of December now, as yields have moved up on the 10-year yield, there's the 10-year moving to the upside. The other section, like ARK Innovation, have moved straight down. So bond yields up about 10% since the middle of December,

ARK's down about 10%. It's the same with the semiconductor stocks, SMH. Same thing with the S&P tech sector. Since the middle of the month, look at that, right inverse proportion. As bond yields have moved up, there's the VanEck semiconductor, SMH. Semis have moved down as well. And this is true of any kind of tech sector that you look at, including Apple and as well as the individual stocks.

At the same time, Sarah, we are seeing today the reason we're holding up so well in the Dow is the value stocks are winning out. So Merck's at a new high today. UnitedHealth is positive on the year. Chevron is the biggest winner on the Dow and almost in the S&P 500 this year. Procter & Gamble is positive. And consumer staple stocks in general are flat to slightly on the upside. So it's the value stocks that are really helping us out as we close out the year. I feel like what the market is telling you is that the China reopening story

is inflationary. Commodities are all up today and you're seeing a lot of pressure on bonds with these higher yields. It's weighing on tech. Bob, we'll continue to talk about it. But you mentioned semiconductor stocks and I want to zero in there because they are underperforming the broad market on a report that falling demand for consumer electronics is resulting in an oversupply now of chips. Christina Partsenevelis joins us. So we had a short supply and now we have an oversupply. What does the data show? Yeah, this is an ongoing problem and it's weighing on the sector. There's actually specific data coming from China that shows the domestic smartphone shipments

fell 27 percent in October. So I know you're talking about the reopening, but this is a bigger trend. We're seeing across the globe that smartphone sales have still not come up to part. That's weighing on the semis markets as investors try to figure out where is this bottom? They're searching for this bottom. NVIDIA, one of the worst performers today. Some of that has to do with the higher yields, like Bob talked about on the NASDAQ 100. It's down over 7% right now. And then you've got chip equipment names like Marvell, ASML, KLA. They're down, what, at least 2%?

Marvell, off 60% from its 52-week high, and that's the worst of the group. Those names, though, weaker over the last week or so. After Micron earnings showed, there is still excessive customer chip inventory, a.k.a. a chip glut in several markets. The Wall Street Journal writing a report on that just today. And so that's an overhang on the market where we thought things were improving, but Micron is showing, no, that's not necessarily the case. They expect demand to improve in the second half of next year.

And they still plan to cut CapEx. So that means less money for machines impacting equipment names like LAM and the ASMLs that I just mentioned. One name I want to focus on, Taiwan Semiconductor. That's faring a little bit better today, still off about half a percent right now. But there's news from DigiTimes that it's ready to start production on its next generation of semiconductor wafers. Apple would be the first to reap the benefits of these three nanometer chips. And when I say three nanometers, you know, some people's eyes glaze over. But nanometers refers to the size of the transistor on a wafer. So the smaller they are on the wafer, the more you can fit on a piece of silicone.

And that means more computing power offered. Smaller is better, in other words. Christina, thank you. In this case, yes. Yes, in that case. Christina Pritzenevelos, let's talk biotech stocks. They're selling off today, on track for their worst year since 2016. But look at the IBB ETF.

It is showing some life in recent months, up more than 10%, and actually leading the S&P. Let's bring in Jeffries biotech analyst, Michael Yee, recently upgraded Moderna to a buy, downgraded Vertex Pharmaceuticals to a hold. So flipping your calls from this past year, I don't think of you as a Moderna bull. So I'm going to have to change the idea, Michael. It is one of your top picks for the for the year. Do you expect any catalysts when it comes to some of these studies, especially around the cancer vaccines? Yeah, well, it's good to be here with you, Sarah. That is a big change. Moderna stock is one of our top ideas for 2023. You mentioned, obviously, the great data for personalized cancer vaccine, and I think that that story is going to continue to unfold this year. Merck, particularly, as I've said before, a big and

important partner that is very bullish on this program and opening up a lot of studies, including in lung cancer. So I think it's the first chapter, and I think that's an important development. And I would also mention that there's some phase three RSV vaccine data coming imminently as well. I think that should be another important near-term catalyst besides COVID. So you also like Amgen and a few others. Talk to us about some of the important clinical studies that are coming out that should be on our calendars and on our radar for these stocks. Yeah, good. So in addition to Moderna, we continue to like Amgen and Gilead for 2023. I think you obviously have made a lot of comments about a difficult environment. And I would say that Amgen and Gilead and some of these

more defensive type large biotech companies are quite attractive in this environment. And not only in a defensive position, but in an offensive position where we've been talking about a bit of a renaissance with a lot of these pipelines that have been going underappreciated. So with Amgen, obviously a new obesity drug that sent the stock up about 10 percent over the last month or so, both Amgen and Lilly playing in the obesity space as well as Novo. This is a 20 or 50 billion dollar class. Amgen also coming up with a potentially very competitive drug. So major obesity readouts, there's a cardiovascular readout as well as Gilead as well as cancer for 2023. Which is the most controversial pick, Michael, of your top ones?

Which ones are you getting the most heat from on clients? Well, no doubt about it, Sarah. I mean, I think every day I get incoming emails and calls about Moderna, both on the long side and on the short side. Obviously, hugely controversial, whether it's arguing about COVID and where the numbers are going or whether there's any near-term catalysts of cancer vaccines, etc. But certainly the most controversial stock, I think you've got to understand that. Biogen, one we didn't necessarily mention a lot today, but also I think a controversial idea on Alzheimer's. And Alzheimer's plays out. That's obviously going to be a controversial place. Yeah, no, they had some bad news that we covered some bad news last week on a report of another death in that in that trial of the Alzheimer's drug. It feels like there's it's not definitive

yet whether people will be using that or whether it will get approval. Right. That's right. Well, Lily also has a phase three readout as well in Alzheimer's. That should be positive. And I think open up and continue to instill confidence with these drugs working, working and are safe and are getting approved. And so I think over the next 12 months, obviously moving forward towards approval, Biogen, January 6th, an important date for approval. Lilly data as well. So look, we're in early chapters of this, and I think if you have a 12-month view, Sarah, you're going to see these positive developments be positive for the biotech space in 2023. Michael Yee, thank you very much for

joining us. Appreciate it. Want to hit the China stocks before we go. Look at the CraneShares China Internet ETF. It's up more than 60 percent now since the beginning of November, thanks to easing China COVID restrictions. Alibaba, JD.com, some of the names that are rallying again today as China announces it will end quarantine for international travelers. Deirdre Bosa has been tracking this one for us. Deirdre, many Chinese Internet names are making up ground from COVID restrictions and Beijing's regulatory crackdown. Has anything fundamentally changed in their outlooks? Yeah, so if you have the appetite for Chinese internet stocks, of course, they are not all the same.

We tend to look at the KWeb ETF, but if you dig down a layer, you'll see that some names are actually outperforming. They're taking market share. They're becoming profitable. Names that aren't the usual Alibabas and Tencent. There's Meituan, which is a food delivery group, and Pinduoduo, an e-commerce company that competes with Alibaba. They've also used Beijing's crackdown to their advantage. In its most recent quarter, Meituan grew revenue by 28%, Pinduoduo by 65%. That compares to Baba's 3%. Tencent revenue actually declined in its latest quarter.

So you can see as well that Pinduoduo has outperformed by a large margin some of the other names. But Sarah, if you're betting on Chinese tech as a group, most analysts will recommend caution. The reopening isn't all that straightforward, and it's likely to be bumpy, as I know your previous guest this hour described it. No, we had a hedge fund, NWI, saying they're short China, at least the currency, against the Mexican peso

because they think it's going to be bumpy. It's not just a straight shot up. Deirdre, thank you very much. Into the close, just want to show everyone where we stand. The Dow remains higher. And as Bob mentioned, some of the value stocks are working today. We're talking about Caterpillar, which is actually adding the most to the Dow, along with Chevron, P&G and Salesforce. It's what's working in the S&P as well. Energy, utilities, staples, industrials and materials are all green today. Tech is really what's getting hit. Consumer discretionary, communication services and technology, higher treasury yields. You've got

this China reopening, which is adding bullishness and helping a lot of the China-exposed names like the casinos, but also pressuring bonds. That sends yields higher and hurts tech. That's it for me. I'm closing the bell. See you tomorrow, everyone.