Closing Bell - Losing Streak Snapped, Central Bank Shocker & Gone To The Dogs 12/20/22

Episode Date: December 20, 2022

Stocks rising and snapping a 4-day losing streak. Bond yields surging after an unexpected policy shift by the Bank of Japan. Former Fed Governor Randy Kroszner discusses the impact that move could have on the global markets. Barclays Jason Goldberg on what Wells Fargo's record $3.7B settlement with the CFPB over customer abuses related to bank accounts, mortgages and auto loans means for the stock. And CFRA's Arun Sundaram discusses why weak pet food sales are dragging down General Mills' stock despite stronger than expected earnings.

Well, stocks are searching for direction early right now before picking up some steam as the bulls hope to break a four day losing streak. This is the make or break hour for your money. Welcome to Closing Bell. I'm Dominic Sheeley for Sarah Eisen today. And here's where we stand in the markets right now. You can see we've got some gains fractionally. So the Dow Industrial is up by one third of one percent. The S&P up by about two tenths of a percent, just about flat for the Nasdaq. Small caps up half a percent in a three year or rather the 10 year benchmark Treasury note,

just a hair below three point six nine percent right now. And check out the action in the yen. The Japanese currency today surging to its highest level against the dollar in months following a Bank of Japan policy tweak. So dollar weakness, yen strength to the tune of about 4%. We'll talk much more about that move in just a moment when we're joined by former Fed Governor Randy Kroszner. Now it's time for our market dashboard.

Our senior markets commentator Michael Santoli is here with the action. And Mike, what exactly is catching your eye? We've got a lot of stuff going on today. For sure, Dom. You know, we came in just modestly in the short-term basis, oversold in the S&P 500 market, getting a little bit of a bid on that weaker dollar in this sense out there that, hey, if there's going to be any late December seasonal strength, as there typically is, this is about when it might start. But more broadly, the range remains interesting. One week ago, we got that really well-received CPI number popped to about 4,100 on the S&P in the morning. That was an intraday number. Now, it's not really here on the chart, but it's essentially right in

that zone. We touched it briefly. And then on the downside, it's been 38 or so, right? So this is right here. It's a narrow band and we've been above and below it. But really, in a big picture, it's where we spent most of the last six or seven months. So it's kind of interesting. You can kind of broaden it out and say it's been a really tough year. Yes, it has been a tough year. The average stock peaked at trough down 40%, but kind of been churning for a while right here as we kind of work through the peak inflation and then the recession fears both.

Now, take a look at global bond yields, specifically U.S. Treasury 10-year yield and the German Bund 10-year yield. So far in reaction, both higher to that Bank of Japan move, releasing Japanese government bond yields higher. And you just see how synchronized this move has been all year. Now, the scales are slightly different, but the movements are quite similar in the sense that we got the surge to a peak in the fall in yield, came back pretty hard. People bought bonds. People thought peak inflation was in trend. Maybe we see a Fed pivot and basically kind of came back just about to those mid-year highs. And now it's off again. So maybe what it means is we put in a floor for the moment in yields that might not be a terrible thing, just in the sense we're still below the highs.

But I do think it's a delicate relationship, sort of how low is too low for yield, because it means global recession. How high is too high because of what it means for Fed or inflation expectations, Don. So, you know, Mike, I mean, it was 24 hours ago we were sitting here talking about some of the lines and some of the charts.

And we had talked about how this is maybe a possible pivot point or a line just to watch right now, not just for the stock market, but for interest rates as well. If you go back to your S&P 500 chart, this was the area, right, where we were saying, hey, if this holds, it could be some near-term support. Do you think it's a scenario where traders are scrutinizing these levels in the S&P a lot more because of those levels you spoke about just yesterday and again now today. Yeah, I mean, there is a hyper awareness of it. I think I think at least it's maybe not purely random that we bounced around some some round number levels. The intraday lows today,

you know, to your point, you know, in the mid 3700s, that's kind of brings you around that point right there, which would mean you're staying out of the trough. I think one day doesn't decide whether, in fact, you've held that support or not. Obviously, it's been a pretty twitchy market, even though it's been in narrow range today. It's not by any means a sense out there that you really have buyers rushing in at those levels. We basically just had a little bit of stabilization so far. All right, Mike, we'll catch up with you just in a bit later on in the show. Thanks for that.

Let's talk more about some of the action from the Bank of Japan's yield move and the impact on those global markets and perhaps leading to some of the churn that Mr. Santoli was just talking about. Joining us now on the CNBC Newsline is former Fed Governor Randy Kroszner. Thank you very much for joining us, Randy, for this. This is a curious scenario. This is, again, the Bank of Japan seemingly joining the party, so to speak, when it comes to interest rates and moving them higher. But it's not as simple as that, right? There's nuance in what the Bank of Japan did. What exactly is on your radar, so to speak, with regard to what the BOJ did and how it factors into the Fed and everything else around the world right now? It's never simple when it comes to Japan.

I think you're exactly right. So they did, you know, a very interesting move of saying, well, we're not abandoning our framework, which keeps the short rate slightly negative and keeps the, It is, I think, echoing here. It sounds like we've got some audio issues. We're going to try to get Randy Kroszner back once we've got some of those technical difficulties sorted out right now. But with regard to some of those questions that we were asking Randy Kroszner right now with regard to the Bank of Japan, I mean, this idea of moving interest

rates higher, but at the same time expanding or getting some of these bond purchase programs. Randy, are you back with us? I'm back. I'm sorry about that. No, no, no, no worries. I guess what we were trying to address, and I think what you were trying to get at, there's this, this raising, right, of the ceiling for interest rates in Japan. And at the same time as this kind of tightening policy, you've also got the Bank of Japan kind of expanding its government bond purchase program, which would add liquidity to the system. This all seems like it would cancel each other out. Yeah, as we're saying, it's never simple when it comes to the Bank of Japan. So they're allowing

the 10-year rate to go up a little bit more than it had been before. And so that's gotten markets very excited. The 10-year rate in Japan has gone up 10, 15 basis points. We've seen a big knock-on effect for government bond yields around the globe, including the U.S., where the 10 basis points move up in the U.S. But at the same time, the Bank of Japan said, hold on, we're not abandoning our framework because we'll buy more bonds to make sure that we keep the 10-year rate in the same range, or at least they're committing potentially to buy more bonds to keep it in the same range, or at least they're committing potentially to buy more bonds to keep it in the same range. One of the challenges they had is that their yield curve control focused

on the 10-year, not really on the whole yield curve. And so, because inflation has actually gotten much higher than it has been in the past in Japan, 3% to 4%, which by Japanese standards is very high. We haven't seen that in 30 or 40 years there. The eight and nine year yield was much higher than the 10 year. And then anything beyond the 10 year was much beyond that. So they're trying to get a little bit better market functioning. They're saying they're going to bring more firepower to try to smooth that out. But I really do think this is a step towards tight. You know, Randy, what's interesting about this for the longest time now that we've been trying to see if there's been any way.

And I say it kind of rhetorically. If there's any way to jumpstart price movements higher or inflation in Japan, it's been nonexistent for maybe even decades at this point. Is it all a bad thing, I guess, that we're seeing the kinds of movements that we're seeing in prices and interest rates in Japan? Isn't it kind of more normal for us to see those kinds of moves? Doesn't it bring Japan back up into somewhat of the same realm as other developed economies around the world? You're certainly seeing inflation be much higher than it has been before. I mean, they're at 3%, 4%, which is much higher than zero, which is effectively what they've been, 0% to 1% for a long time. It is above where their target is.

The key question is, is it, much like in the rest of the world, moving much beyond their target, and how difficult will it be to bring it back down. And so I think that's why they're taking this first very gentle step in this direction. It was a surprise move by Kuretasan. Kuretasan likes to do surprises, and I'm sure we'll get some more surprises before he finishes his term in April. So this is an excellent point. Before we let you go, Randy, this is a preeminent central banker in Japan who is going to step down in the spring of next year. What exactly will the next Bank of Japan governor be facing once Kuroda steps down?

So I think what he's trying to do is provide an easier pathway for the next governor to be able to just tighten if need be. We would be delighted to have only 3% or 4% inflation right now. In Japan, that's considered a very high rate of inflation. People have gotten used to inflation being roughly around zero, zero to one. So there's a lot of political pressure to do something about what is perceived as high inflation. And this is a step in that direction that will make it easier for the next governor to try to deal with the issue. All right. Randy Kroszner, former Fed governor, thank you very much. We appreciate it, sir. Thank you. Bye-bye.

Well, Wells Fargo is moving low today after the bank agreed to a record multibillion-dollar fine from the Consumer Financial Protection Bureau, the CFPB. Up next, we'll ask an analyst if the settlement marks a turning point for Wells Fargo or if there are more headwinds to come. Keep it right here. You're watching Closing Bell on CNBC. Our shares of Wells Fargo are lower today after the bank agreed to a settlement with the Consumer Financial Protection Bureau over customer abuses related to bank accounts, mortgages and auto loans. Now, as a result, the bank is expected to see a three point five billion dollar operating loss as part of its fourth quarter overall results. So joining us now is Jason Goldberg from Barclays, who covers the bank. Jason, I wonder, the big picture question is, given the size and scope of this fine and this overall action by regulators, is it fair to say

that Wells Fargo is finally ready to put this to bed and move on? I think from a dollar standpoint, the company has the bulk of the fines behind it. It's going to take a $3.5 billion charge this quarter, as you alluded to. It took about a $2 billion charge last quarter tied to regulatory matters and customer redress. So from a dollar perspective, we think the bulk of the consent orders are behind it. From an operational standpoint, it still has other consent orders outstanding and needless to deal with. But over the last few years, we think it's made material progress in dealing with them. How long does it take for a bank the size of Wells Fargo to work through the kinds of issues that it has tied to the allegations and now admission of some of these fraudulent practices that were happening with regard to account openings and everything else?

Yeah, I think certainly longer than anyone would have expected. If you think about it, one of the consent orders they resolved today went back to 2016. It's still operating under an asset cap from a consent order received from the Fed in February 2018. I think when that first came out, the prior management alluded to the fact it can get lifted by the end of 2018, early 2019.

And here we are at year end 2022, and it's still in place. You know, so it takes a long time to turn a big ship. You know, they brought a new management team in a couple of years ago that's made meaningful progress. And we certainly think they're on their road to getting an asset cap lifted. But that's not quite out of the woods yet. Jason, there was a time when some traders and investors used to look at Wells Fargo and almost put it in the same category as maybe a JPMorgan Chase or a Bank of America or a Citi. We know that they're not exactly alike. But how long before some investors can treat Wells Fargo as truly one of the, quote unquote, big banks in America? I mean, it's the amalgamation of so many different banks already. When do

investors feel as though this is really something they can say is, hey, we can say this is a big money center bank to go back to? No, I think I think investors kind of get it. I think a lot of all the issues that the company has dealt with and kind of resolved were, you know, from many years ago. I mean, if you look at performance over the last few years, the near term, you've actually seen pretty good revenue growth, you know, kind of an improvement in market share across the businesses they choose to compete in. You know, they're making investment in key product lines like investment banking, like credit card. And, you know, there is a meaningful expense opportunity after significant costs over the last few years to deal with some of these regulatory

matters. You know, we do think expenses will decline on a core basis in 2022 with room for further efficiency ratio improvement into 2023. So I think, listen, both of the issues are in the real view mirror and we do expect, you know, improved performance, you know, relative to peers looking out. You know, over the last few years, three or four years, if you look at the chart of Wells Fargo during that span, you're pretty much right in the middle of a trading range right now. So if you look at the chart of Wells Fargo during that span, you're pretty much right in the middle of a trading range right now. So if you take a look at Wells Fargo, Jason, it's a game of would you rather. Would you rather be in banks like JPMorgan Chase or even Bank of America and Citi that are trading at relative discounts to JPMorgan? Or is it going to be in Wells Fargo and others, maybe super regional banks? No, I mean, I think looking out over the next year or so,

I would say we're biased to you know, to the larger banks. You know, I think some of the regional banks are, you know, more exposed to net interest income. And, you know, we do expect net interest margins to peak or rather plateau at some point in 2023. You know, additionally, as you start to see the, you know, credit normalization process, I think commercial real estate probably becomes more in focus. So that's something to be, you know, mindful of. Where the bigger banks, you know, kind of continue to take share, you know, from from some of these regionals? And before we let you go, if there is a hypothetical recession that's perhaps on the shallower to mid-level range, is Wells Fargo in a position to withstand it?

Is it on a relative basis better off than, say, a Bank of America, a Citi or a JPMorgan Chase? Yeah, you know, I do think with Wells, I think there's, you know, more meaningful expense opportunities, right? Their efficiency ratio or cost to income ratio is well above peers, given their recent struggles. You know, we think the new management team has a plan in place to address that from a capital perspective, despite the charge you're going to take in the fourth quarter. You know, they have relatively more excess capital than peers. So there's room to put that, you know, to work. And, you know, just given, you know, their asset capital of the last several years, you know, the deposit base is probably in better shape than most other banks, you know, to withstand kind of the current interest rate environment. So, you know, coupled with a valuation that's, you know,

below some of the other big money center banks, you know, not a bad place to be on a relative basis. All right. Jason Goldberg at Barclays covers the banks. Thank you very much, sir. We appreciate it. Let's check on the markets right now. The Dow right now, you can see just about up 105 points. The S&P up about five, one tenth of one percent. The Nasdaq flat on the session so far. Now, Mark Zuckerberg is in court today for the latest FTC antitrust hearing surrounding Meta Platform's virtual reality acquisition. We'll bring you the highlights coming up next. Later on in the show, we'll ask an analyst why General Mills is selling off today, despite a strong report for earnings and solid guidance as well. Those shares off 4 percent. We'll be right back after this. Welcome back to Closing Bell. Metta

CEO Mark Zuckerberg in court today for a hearing surrounding the FTC's antitrust suit against the company over a virtual reality, a VR acquisition. Steve Kovac has been following the case and joins us now with the latest. Good afternoon, Steve. Hey there, Dom. Yeah, Mark Zuckerberg taking the stand today in a San Jose court, and he's making the case that the FTC should allow Meta to buy the VR studio within Unlimited. They make a popular fitness app called Supernatural. Now, FTC is arguing Meta would have an unfair advantage in virtual reality if it's allowed to buy within, arguing that it's already the leader in the VR market. But Zuckerberg was downplaying the importance of the deal in his testimony today, saying fitness is only the fourth or fifth use case in VR

behind activities like gaming and social networking. He also said Meta doesn't need to own Within in order to make Meta successful in the Metaverse. Meanwhile, the FTC tries to paint Meta as a virtual reality behemoth that could become even bigger if it's allowed to buy rivals. They're trying to avoid another situation, Dom, like what happened when Meta was allowed to buy Instagram about a decade ago for a billion dollars. And broadly, this shows the Biden administration's attitude towards tech M&A. The FTC is also trying to block Microsoft's $69 billion acquisition of Activision. But this is going to be a tough case in this one for the FTC because it has to prove Meta has dominance in an almost non-existent virtual reality market.

Okay, so Steve, you just hit me. You kind of opened the door for my next question and point here. I read your mind, Dom. Exactly. So this is a situation where regulators are almost acknowledging that there is a future, possibly massively so, for the metaverse when all of the investors out there are, well, I shouldn't say all of them, when a lot of investors have a lot of skepticism over the investments that Mark Zuckerberg is

making, billions of dollars worth, and whether or not it actually leads to significant gains in the metaverse, right? Yeah, exactly. And that's kind of the irony here, because Mark Zuckerberg, he has to convince the FTC, this is not a big deal, it's just a small acquisition. You know, fitness isn't that big of a deal in virtual reality. At the same time, he has to tell, like you were saying, he has to tell investors, I'm building the future right here, right now. This is going to be the biggest thing ever. It's going to unlock trillions in value. So it's hard to understand which Mark Zuckerberg we should be believing. But we do know he's willing to spend

whatever it takes to make the metaverse happen. Well, apparently the government is scared of exactly this right now and its dominance by meta platforms. All right, Steve Kovac, thank you very much for that. Well, General Mills shares have gone to the dogs today following disappointing pet food sales. See what I did there. A top analyst discusses whether this is a buying opportunity and reveals his top three consumer staples picks for the coming new year. That's coming up. All right, take a look at shares of General Mills, the company reporting an earnings beat, but shares are taking a spill thanks to unexpected weakness in its pet food categories. Joining us now is

Arun Sundaram from CFRA Research. He just downgraded General Mills to a sell rating and cut the target price as well. Arun, at face value, you know, when I first saw the headlines this morning, it was a profit beat, a revenue beat, an upping of the forecast for the full year. Why are people so focused on what's happening with the pet food side of things overall? Yeah, hey, Don. Yeah, you know, you think it's a sure recipe for a good quarter, good top line beat, good bottom line beat, and the guidance raise. But if you dive a little deeper into the results, you saw some pretty significant weakness in their pet segment, which has historically been General Mills' fastest

growing segment. I recall they bought this company Blue Buffalo in 2018 for $8 billion. A big acquisition there. And it's really been a really top performer. This segment has been a top performer since the acquisition. And this quarter, we saw flat sales growth. Volumes actually declined 11%. And what's also equally concerning is that profit margins in that pet segment has significantly deteriorated. And although General Mills is pretty confident that sales will bounce back next quarter in the pet segment, they didn't sound as confident that the operating profits or margins would bounce back in that segment. And a lot of that has to do with the things that we've all been talking about, cost pressure, supply chain pressures, lots of

ingredients and dog food. So those things are, there are more acute supply chain challenges there for this company. So that's one of the reasons that we did lower our rating and our price target today. It's the ongoing weakness that we're expecting in pet. And we just think in general, I think these packaged food companies are entering a much more challenging operating environment next year. These companies, packaged food companies really haven't had to work that hard to generate sales growth over the past few years, but that's starting to quickly change. And I think we saw that this quarter. So I think the next year is going to be a little more challenging for General Mills.

So we're advising clients to take profits now and wait for a better entry point. By the way, Arun, if you look at the chart over the last year, I mean, General Mills has been an outperformer compared to the rest of the market here. There's been a lot of focus on consumer staples. I'm the owner of multiple dogs myself in our household. We know what we spend on pet food. It's going up in price. We also know, though, that we spent a lot on packaged goods during the pandemic. How much of this is about this notion that it's a tough comparison, so to speak, going forward versus the spending on packaged food and specifically pet foods over the last few years during the virus pandemic? Yeah, I mean, it's a combination of both. You know, 2020 and 2021, we saw the really strong demand that boosted sales for general mills and packaged foods. And then late 2021, 2022, it was really higher prices

that boosted sales. And it's a combination of higher prices and relatively strong demand, meaning, you know, elasticities are relatively strong for really all these packaged food companies. So that's what I meant by what I said is that, you know, these companies didn't really have to work that hard to generate sales growth over the past two to three years. But that's what I meant by what I said is that these companies didn't really have to work that hard to generate sales growth over the past two to three years. But that's starting to quickly change. Demand is moderating. We're seeing that. We saw that this quarter for General Mills.

And starting next year, they're going to be lapping these price increases from 2021, 2022. So it's going to be much more challenging to generate top line growth. And I think a lot of these companies, General Mills included, is going to have to do things like increase advertising, promotional spending. These are the things that focus on innovation. These are the kind of things that the companies need to invest in

to really generate top line growth, which could impact the bottom line. So one of our thesis for our downgrade today is the whole profitability and margin side of the story. So even of our theses for our downgrade today is the whole profitability and margin side of the story. So even though these companies might generate maybe mid-single digit sales growth next year, we don't necessarily see that flow to the bottom line because of all these cost pressures and investments these companies have to make. All right. So General Mills,

it's now sell rated in your universe. That means that there has to be a favorite pick in packaged food or consumer staples. What is it? Yeah, so our top pick in packaged food is Mondelēz International. They're predominantly a snacking company. Snacking is one of the fastest growing categories in the center of the grocery store. So if you're a packaged food company, you want to compete in snacking. That's what every packaged food company is kind of slowly gravitating towards. And Mondelez is the leader in snacking. Other reasons we like Mondelez International

is they have relatively low private label exposure. So right now with consumers trading down to maybe store brands, that isn't materially impacting Mondelez International because of their relatively low exposure to private label. They also have relatively low food away from home exposure. They mainly sell products at the grocery store. So that's a positive given recession risk in 2023. And another reason we like Mondelez International is they're predominantly an

international company. Only 25% of Mondelez's sales are in the United States. And now that we're starting to see the U.S. dollar kind of slowly come back down to earth, what was a big FX headwind this past year could turn into a pretty sizable FX tailwind in 2023. All right. Arun Sundaram at CFRA with the topic is Mondelez. Thank you very much. We'll talk to you soon. Now, here's where we stand in the markets right now. We are in the green, but we've been losing a little bit of steam. The Dow Industrial is now up roughly, we'll call it one half of 1%. The S&P up about one quarter of 1%. 3826, the last trade there. The Nasdaq Composite just about flat on the session, up one tenth of 1%, 10,558. Now, Nike has been one of the biggest losers in the Dow this year.

Coming up, we've got a top analyst on whether investors should buy this beaten-down name ahead of earnings after the closing bell. And by the way, you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app, Closing Bell in audio format. We'll be right back. All right, let's check out today's stealth mover. We're talking hostess brands, and the stock is leaving a bad taste in the mouths of investors

today. Morgan Stanley downgrading the maker of Twinkies and Ding Dongs to equal weight from overweight and taking a bite out of its price target to $25. It was $30 before. The analyst team over there citing tough sales comparisons and valuations as well. Hostess has seen sweet gains over the last year, significantly outperforming the broader market. As you can see, they're up 19% year-to-date versus a down 16% for the S&P. By the way, the ticker there, TWNK for Twinkies, obviously.

But anyway, J.P. Morgan cutting its iPhone shipment estimates for a second time this quarter. What that means for the most important stock in the market, that's coming up straight ahead. We've got that story, plus the key numbers to watch when FedEx and Nike both report earnings when we take you inside the market zone. That's coming up. Keep it right here. All right, you know what that means. We are now in the closing bell market zone. We've got CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day.

Plus, we've got Steve Kovac on the big Apple trade and Neuberger Berman's Kevin McCarthy on what to watch when Nike reports earnings after the closing bell today. Now, stocks bouncing around. Mike looking to snap a four day losing streak. So can we figure out whether or not this is a directional bet right now or if this is still that churn that we've been talking about for a couple of weeks now? Yeah, it's a little tentative, Dom. Obviously, the fact that the market was able to withstand a little bit of a jolt overnight from the Bank of Japan. In fact, when that news hit that they were allowing longer-term bond yields to go a bit higher, immediately people said Dow futures dive on Bank of Japan news. Well, it didn't really last. We've seen a move in the currency markets and bond yields, but it has not necessarily translated to a tangible impact on U.S. stocks. The market's

sort of rotating away from danger in some respects today. You see Tesla down 6 percent. There was a time that might have really undercut the broader market. Right now, it's just mostly a weight on the Nasdaq 100. Basically, it's kind of banks getting a little bit of a lift and small caps doing their part today. Now, Mike, it's also a point about whether or not there is a fear of what's going to happen in the marketplace going into the next week or so. This is always the time when we've talked about seasonal tendencies. They tend to be positive for the markets this time of year. But there seems to be less, I guess, enthusiasm about that particular seasonality trade this time around.

Is there hope for that, so to speak, Santa Claus rally as we head towards the beginning of next year? There's certainly hope. I think everyone knows the historical patterns on this. But I think you're also seeing people say, well, this is the worst December since December 2018. That was a washout month. And I think it's not so much about people losing faith that we might get a lift. But if you don't get a seasonal lift, that's often a sign that the market just remains weighted down with bigger issues as opposed to being able to capitalize on those general tendencies when you do have a good seasonal window. All right. Maybe trading a little bit heavy right now, so to speak. All right, Mike, stick around. JPMorgan cutting its Apple price target today. The bank is moving its December 2023 target to $190. It was

$200 before. The stock has been bouncing around in the session so far today. Steve Kovach, we turn to you. What's the reason for the price target cut with those particular analysts? Yeah, Dom, it's the same story we've been hearing for the last six weeks or so about Apple. It's JPM saying we don't think they're going to sell as many iPhones this quarter that we originally thought because of those protests and lockdowns that we saw throughout China over the last several weeks. Now, look, it's really hard to guess, Dom, where they're going to land. I'll point to this tweet that we're showing right now from Ming-Ching Kuo of TFI International Securities, where he's saying it's going to keep getting worse into the spring as far as tech demand. He actually got this right.

He had a similar tweet back in March of this year saying demand is falling off a cliff for smartphones, and boy, was he ever right. And he's saying he's hearing from suppliers over in Asia it's going to be the same thing, too, and maybe people are not baking in how bad of a quarter it could be for Apple because of these shutdowns and supply problems they've been having throughout China, Dom. Steve, we know just how important the iPhone is to the overall health and well-being for Apple as a company. It contributes a lot to revenues and, of course, to profits over there. But I wonder whether or not there is even more of a macro or bigger picture buzz about Apple products this holiday season.

They released these new products in the early fall so that they can capture some of the holiday shopping season. Are Apple products hot this season? Can we expect any kind of a tailwind when we see earnings results next quarter? Yeah, if you ask, well, there are two things here, Dom. If you ask Apple, yes, demand is incredibly strong. When they issued a warning back in early November, they said, we're not going to sell as many iPhones as we anticipated because of these issues making them in China. But demand, especially for those pros, even the more expensive $1,000 phones, yes, they are saying demand is still high. That's what they're telling investors. Meanwhile, the big question that everyone has is, will this

carry over into the March quarter next year if people can't get the phones in time for Christmas? If you order or try to order an iPhone 14 Pro today, Dom, it's not going to arrive in time for Christmas. So will people kind of give up or will they buy them in January and February of next year? That's the real question. Or even just wait for the next phone iteration as well. That's a long time, though. Exactly. Next fall, possibly.

All right, Steve Kovach, thank you very much. Apple, Mike, I'll turn to you on this trade. Apple, you could argue, is the most important stock in the market, right? It's the most valuable. It carries the most weight in so many indices. Is there a fear about Apple right now, generally speaking? Yeah, there is a fear that it's kind of conforming to a lot of what's been plaguing the biggest of the Nasdaq stocks. I mean, Apple clearly with the heaviest weight, which is a broad give back of this huge premium that was built up.

So to me, yes, genuine concerns about the upgrade cycle, genuine concerns about light cars, just because you have a lot of iPhones out in the market that are due for upgrade, that maybe there's no urgency to do it because they don't break. But also, what are you paying for a dollar of earnings? Apple's not supposed to grow very much this coming year, like one to two percent earnings growth penciled in. You're going to pay 21 times earnings for that because that's what it trades for right now. So I think that's that's the fix as well. Not just, you know, the business performance, but exactly what the company is worth, given that before the pandemic, this was the ceiling on the valuation, not a floor. All right. So that Apple trade key for the markets right now.

FedEx also one of the big names set to report after the closing bell. Frank Holland breaks down the key numbers to watch for. So, Frank, this is obviously one we watch for because of the economic implications. What should we be keying on? Well, Don, the big thing to hear watch is the latest on FedEx's plans to cut two point two to two point seven billion dollars in cost. Of course, this follows FedEx doing an earnings warning last quarter. Their CEO, Rashid Mehmanian, coming out saying that we're on the precipice of a global recession that's hitting its volumes both in Asia and in Europe. And of course, here in the United States, $700 million of that savings plan is supposed to happen in the quarter

that is reporting after the bell. So a lot of questions about where those cuts come from. The cuts supposed to come from reducing worker hours, flights in its express business, and also reducing capacity in its warehouses. Well, how does that also work with the holiday season? Of course, e-commerce ramps up there. And then we're also looking for any guidance about the next quarter and of course, for the full year. So in the current quarter FedEx is in right now, it starts on December 1st. It ends on February the 28th. During that time, we have Christmas, of course, here in the United States, Lunar New Year's, and FedEx is a very big business over in Asia, both air freight and regular freight.

Looking for any commentary on the call about the details of the COVID situation in China. Is it as bad as the reports that we saw today? Are there signs that China will reopen and things will get back to normal? A lot of questions that Raj Somanian is going to be asked during the call by analysts and hopefully give us a lot of answers, not only about the freight market, but also about China. All right, Frank Holland, thank you very much for the preview there on FedEx. Michael Santoli, the transportation stocks and FedEx included, often seen as bellwethers, right, for global trade. FedEx, a severe underperformer this year with regard to UPS. I mean, almost double the losses on a year-to-date basis. What exactly is the difference now between FedEx and UPS, and what can we glean from the numbers today?

I mean, mainly it's just the global exposure to air freight and directly to the China market for FedEx relative to UPS, which is much more domestic-focused, parcel delivery. There has been a bifurcation there. I mean, until recently anyway, the road and rail stocks were working fine. Seemed like the U.S. economy was operating a high level. That's come in for a little bit of give back, just given the fact that people are at least bracing for a recession. FedEx also a bit of a management execution story, as Frank was suggesting, just new management. Are they going to be able to get costs in line? They were a bit of a serial disapointer in recent years before this management turnover.

So we'll see if there's a change in tone there. All right. Michael Santelli, we know you've got to get prepped here for the overtime trade. So watch for that. Thank you very much. We'll see you at the top of the hour. Well, Nike shares are lower in trading today. Second quarter results are due after the bell, as we've been pointing out.

Investors will be closely watching things like inventory levels and any commentary, of course, about China, one of its biggest markets out there. With us now is Neuberger Berman senior research analyst Kevin McCarthy. He's also portfolio manager for their connected consumer ETF. The ticker there is NBCC. So, Kevin, Nike is a key story. It has a lot of kind of consumer overtones, perhaps some of those, you know, whether or not China is a concern type overtones there. I guess now, Kevin, what exactly is the biggest thing to watch? Is it going to be those China results?

Great to see you, Dom. Thanks for having me. So, you know, China is definitely going to be important, but the bar is low there. So I don't think the expectations are really what people are, shareholders are focused on. The two topics that shareholders are going to be most focused on are, number one, progress with calling the North American inventories. And then I think beyond that, they can speak to some of the discrete margin recapture opportunities following what were very significant headwinds over the trailing 12 months. Now, this is also a stock that still trades at a significant premium to the overall market. I mean, it's a brand name. We know it's a brand that

people love, but it trades at 33 times forward earnings. Is this a scenario where investors are still trying to grapple with whether or not you should pay that much in price for a dollar of anticipated earnings for Nike in the coming 12 months? It's a great question. And I don't think, you know, the valuation properly reflects, you know, it looks expensive, but this is an under-earning story. If you think about it, you know, inventories last year, you know, they're up 44%. That would be a high point. It should be a high point. We think the management team has eyes wide open at the opportunity, and we expect to see good progress on the inventory fronts, bringing it down into the mid-30s. So we think that's good for the stock, for momentum in the stock. And then on the margin front, like I mentioned, there's significant recapture opportunity,

about 200 basis points with the disruption from freight. And then if you think about the resets that occurred in China and North America on the inventory front, there are about 150 basis points there. So there's significant under, there's a significant margin opportunities and for them to claw back on the earnings. Now, Kevin, from a product mix standpoint, is Nike in your mind positioned appropriately with their mix for shoes versus athletic apparel versus everything else? I mean, and within shoes, are there enough models that are hot out there to be able to capture consumers' attention and get them to spend out there?

What Nike's done a great job is keeping their foot on the innovation pedal. So I think as we look into 2023, we're going to be facing a consumer that is going to be having to make decisions. As we look at the key inputs, wages and employment, that's going to be the contribution from growth from those factors is going to be coming down. However, when we think about all the essential spending that occurred, the growth in essential spending in 22, you know, in the 10 to 15 percent range, that's going to be going down to something where flat to up 5%. So as we think about consumer wallets for discretionary items such as footwear, Nike stands out as being a winner in that situation. And last but not least, Kevin, is Nike or another company your best pick

when it comes to athletic apparel and footwear? Nike is our top pick on athletic apparel. All right. Kevin, thank you very much. Kevin McCarthy of Newburger. We appreciate it. All right. Markets are higher going into the closing bell, trying to break a four-day losing streak. Joining us now is Ellen Lee, Portfolio Manager at Causeway Capital Management. The firm has roughly $34 billion under management, so quite a bit of client money at stake here. Ellen, you've been hearing a lot of commentary about the after the bell earnings reports. We're anticipating about some of the dynamics in the market as a portfolio manager. Is this a market where you're worried?

I think worried is a strong word, but obviously, you know, I'm cautiously tepid on the markets going into 2023. I think there's going to be a lot of negative earnings revision. And with interest rates where they are, all the policy measures that central banks have taken, this is going to impact demand. Remember, there's always a time lag between when policies get implemented versus impact on demand. And I think that's going to play out in 2023. The economy is going to slow down globally. Now, Ellen, this is interesting. We've heard a number of sell side analysts and strategists talk about the possibility of earnings coming in weaker, some earnings growth issues coming up. You're a person who puts money to work based upon your

own evaluation. And you're saying that you are worried that there's going to be an earnings slowdown. How big of an effect will that have on the markets? Just how far could we fall if there really does become an earnings deceleration? I mean, you know, at Causeway, we're looking at companies' valuations very carefully. And I think one of the things we're excited about are areas where there is a lot of negative earnings revision and there's always going to be overselling. So we're looking at areas of consumer discretionary stocks where we see good opportunities. Obviously, there are some we're watching closely. But the reality is, you know, when earnings fall, the prices are going to fall. But we want to take advantage of the long-term investment

horizon we have, and we want to invest through the cycle. And also remember, sticking to our discipline of looking at value stocks is going to pay off. We believe that the era of zero-cost money is over, and hence, valuations are going to be really key. Okay. So if valuations are going to be key, what types of companies go on the shopping list there? We know value versus growth is fairly large level. What types of industry groups and what types of companies are you looking at specifically? We're looking at companies bottom up. You know, if I look at consumer staple side, we like stocks like Danone, which traded below 15 times. It's a French yogurt maker and they have changed their board completely in the last two years.

It's a great restructuring story. So that's one. Another one is Uni Credit, an Italian bank that, you know, trades at below point.5 times tangible book. These companies have, you know, a lot of running room in terms of, you know, the capital structure that they have. So looking at UniCredit, it is going to be able to give back a lot of capital returns because they're not really suffering from any sort of credit losses, at least in the short term. Remember, during COVID, people were really negative on these banks, but actually the hit was taken by the central banks, not the individual banks. All right, we've got a couple of minutes to go before the closing bell here. Ellen, before we let you leave, one other value part of the market that's talked about a lot over the last

12 to 18 months has been energy, but the way it's run makes it seem like it's not value anymore. Do you still think that there's momentum for the energy trade, or are you staying away? This is very tricky. Obviously, the reason why energy continued to do well, you cannot discount the factor of the war in Ukraine. Of course, energy prices have fallen. I think the view is that with the geopolitical headwind, energy prices won't come down, you know, significantly for a while. But at the end of the day, you know,

when economy slows down, demand will fall. And I think, you know, when you think of a normalized earnings for energy, I think they could be vulnerable, too, if we have a real slowdown in 2023. So we are cautious. All right. Ellen Lee at Causeway Capital, thank you very much for the thoughts. We'll see you soon. Thank you. All right. As we talk about what's happening with the markets right now, we've seen both sides of unchanged. We've seen red and green so far today. The Dow Industrials are losing a little bit of steam as you head towards the closing bell right now, just up about 90 some points. We were just up about 150 to like 10, 15 minutes ago. Call it one quarter of 1%. This S&P 500 is now just about flat on the session. It's been pretty flat, marginally so, fractionally higher or lower for most of the session.

The NASDAQ composite has been kind of the underperformer, if you will. It's going to close the day right now, pretty much flat on the session well, $10,545 for the composite index. And for small caps, if you want to view it as that, they are the outperformers on the day, the Russell 2000 up about one half of 1%. So as we kind of see what's happening here, we do have at the New York Stock Exchange, raising the closing bell, Women in Securities Finance at the NASDAQ. It's Triumph Financial. That does it for us here on the closing bell.