Closing Bell - More weakness on Wall Street, Kanye West joins live to talk Gap termination 9/15/22

Episode Date: September 15, 2022

Stocks fell in Thursday trading, adding more losses to a painful week for the bulls. Bespoke’s Paul Hickey breaks down the market action and the moves in Apple and Disney. Tech sharply underperformed after Adobe announced a multi-billion dollar deal for software firm Figma and announced results ahead of schedule. Citi’s head of technology and communications banking discusses the deal and the broader landscape for tech M&A. And Kanye West joins live with the news that he’s terminating his retail deal with Gap.

Another up and down session here on Wall Street as investors look for direction. We're currently back in the downswing with the Nasdaq feeling the most pressure. The most important hour of trading starts now. Welcome everyone to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the market. We're down almost about a percent on the S&P. You've only got two sectors hanging in there in positive territory, health care and financials today. Everybody else is lower. Utilities, energy and technology are the bottom performers. That's why the Nasdaq is down 1.2 percent right

now. Remember, we've kind of been struggling for a bounce and for direction post that huge sell off that we saw two days ago. The worst day of the year for stocks, the worst day in more than two years. Check out the chart of the day today. Adobe falling hard. It is dragging down tech stocks in the broader Nasdaq, announcing a $20 billion software deal. Much more on that story in just a moment. Also ahead on today's show, we're going to talk to Luke Ellis, the CEO of asset manager Mangroove, biggest hedge fund that trades publicly overseas, more than $140 billion in funds. He's going to tell us where he's looking for upside in this very uncertain market. Plus, Kanye scraps Gap. We've got the details on the rapper's move to break ties with the retailer, what it means for Gap's future prospects. Let's get straight,

though, to our top story, the Adobe deal and Wall Street's reaction, the tech giant falling hard after announcing a $20 billion agreement to buy software firm Figma. Adobe also releasing earnings, which had been slated for after the bell. Frank Holland covers the company, joins us with more. Yes, it was a guy down, Frank, but this is a pretty big move lower for Adobe shares. Yeah, really big. Adobe actually having its worst day since March of 2020. So basically, since the start of the pandemic, as investors examine its mixed guidance and that $20 billion deal to buy Figma, Adobe CEO saying it's a move that's really focused on long-term growth. We believe that the combination of Adobe and Figma is going to be one of these unique

combinations that completely ushers in a new era of collaborative creativity. But today, investors and analysts calling the deal pricey. This $20 billion price tag, essentially 50 times annual recurring revenue. That's a metric of current customer spend. And that even assumes it doubles this year, which it is expected to do, but certainly not guaranteed in the current macro environment. But it does create some new growth, a new growth driver for Adobe. Its creative segment, think Photoshop and Premiere. It's also largest revenue generating segment.

It's seen this growth really slow as we started to come out from the pandemic. Some of that growth also coming from spending by companies to get into the metaverse. You don't hear as much talk about that. Analysts say the deal is also defensive, keeping Salesforce and Microsoft that both use Sigma and seem to like it a lot from acquiring the company, excuse me, Figma, from acquiring the company and increasing competition. Back over to you. Frank Holland. Frank, thank you. For more on this deal and the broader tech M&A landscape, let's bring in Phil Drury.

He's Citigroup's global head of tech and communications banking. It's good to have a banker in tech on today, Phil, on this deal. So you're not involved. You can talk about it. Why do you think the market hates it so much? Well, I think it's early. I think it tells you two things. I'd focus on Figma

first, which is say it shows you that private companies, good private companies have alternatives. So even though the IPO market for the most part is closed, obviously this is another alternative that Figma chose to sell. I think from Adobe's standpoint, it shows you that large cap public companies with significant cash positions are motioned to move when it comes to strategic decision-making. As it relates to the stock price today, look, it's early. I think the narrative needs to come out. There's a lot of focus on public markets are obviously mark-to-market every day. Private companies are not.

So I think it's early. Analysts will need to digest the news. I think it's a very strategic move by Adobe, and it'll take time for the market to digest. In other words, Adobe's paying up here because they're buying a private company and those valuations haven't caught up yet with public valuations? Well, it's just less transparency. Less transparency in the private markets. We've seen some examples of private companies that either recut employee share options or we've seen institutional investors who've decided to reprice companies that they own in the private domain. But less transparency and less mark to market that you see, obviously, in public valuations.

It's been quieter, very quiet this year, certainly in software, which was ripe for dealmaking, the Salesforce Slack deal last year. Do you think this indicates more is on the way? We do. We do. And when you look at M&A activity year to date, it has been the bright spot. So M&A is actually universe wallet is about flat year over year. And obviously, 2021 was peak level M&A activity. So M&A has been a spotlight. And I think enterprise software in particular will continue to see prettyA activity. So M&A has been a spotlight. And I think enterprise software in particular will continue to see pretty strong activity. The companies are durable. They cut through the cycle, good levels of growth. And let's face it, companies are always going to have to focus on how do we get more efficient? How do we get more productive? So we do think we'll see more activity in the software sector. You think public companies will be scooped up, smaller ones, because we've seen

valuations come down so much. We do and obviously that level of transparency can make it easier in terms of judging the premium for boards to assess whether that premium is appropriate or not. And as I said you've got large public companies sitting in big cash positions. We've also got private equity with record fund levels, a lot of cash, and they can put that cash to work right now at stock prices, which are meaningfully lower than they were 6, 12 months ago. We also have interest rates rising, cost of funding going up, and a potential recession on the horizon here and globally.

Yeah, which I think is probably impacting maybe the Internet sector or some of those stocks. Six to 12 months ago, we're getting high multiples for hyperbolic growth. I think we're in an environment today where investors are much focused on reasonable growth and importantly path to profitability. So companies that are profitable, companies that are going to be profitable in the next 12 months and are very durable, we think are particularly attractive to private equity in today's market. What about IPOs?

Is that shut down for the moment? Well, we priced one today. So the AIG. So yeah, so Corbridge obviously priced today. I think we'll start to see corporate repackaging open up the IPO market. So obviously, Volkswagen and Porsche has announced their intention to float. So I think we'll see large companies with seasoned subs potentially look to illuminate value through the IPO market. And we'll start to see a little bit more activity in the fourth quarter.

But what would you tell a tech company looking to go public in this environment? Well, a lot of tech companies that are private today are starting to adjust their models, maybe slow down some of that growth, maybe approach profitability earlier stage. And then I think make sure you're out speaking to institutional investors. There are a lot of means to do that through testing the water,

and don't actually launch until your advisors, such as Cydia, are giving you a level of certainty around execution. Yeah, of course, shameless plug. My final question has to do with the jobs market because and what the competition for talent is like for you. We hear in these banks, especially in technology, it's very competitive. And that's why part of the reason why costs are going up at some of these big firms.

We think we have a great value proposition. As Jane has said on Invest Today, we're going to continue to invest in those areas where we see growth. As the head of tech and comms banking at Citi, we continue to make strategic hires. And in this environment, we think we're, given the globality of Citi and given our value proposition, we think we're a very attractive home for great talent to come to. But how competitive is it? How tough is it? It's competitive, absolutely, in the growth areas. Phil, thank you.

Great to see you. Thank you. Great to see you, and especially on a day like today. Phil Drury from Citigroup. Up next, Raytheon and Arconic, both warning about results this week. And there could be much more pain ahead in quarterly numbers, according to our next guest. We're going to hear from a top strategist about why earnings could be the next shoe to drop right after the break. You're watching Closing Bell on CNBC. We're down 133.

The low of the day was down 190, got as high as 142. We'll be right back. Check out today's stealth mover. It is Allstate, and investors are in good hands with the stock today, up 4%. The insurance giant announcing in a regulatory filing that it is planning significant auto insurance rate increases during the second half of the year because of, why else, inflationary pressures. Allstate, currently the fourth largest auto insurer in the U.S., roughly 10% market share. Shareholders like it. Not so good for consumers, of course. Reinforces the inflationary environment. Check out these three industrial names today, Raytheon, Nucor, Arconic. They're all lower after trimming guidance this week. And that could be just a taste of what is to come this earnings season, according to our next guest. Joining

us is principal global investors, chief global strategist Seema Shah. Seema, a lot of folks, especially bearish investors, have been waiting for the cuts to guidance and to expectations on earnings. They haven't really come yet. Are you saying that that's going to change? Yeah, that's exactly what it is. You know, as you said, I think the results that we've had today have been quite impressive. They showed really steady growth. Companies, I think, were held up by very, very strong balance sheets. But you can see in the guidance that there is caution creeping in. And certainly when you think about the economy, you think about the

drop in consumer sentiment, the fact that consumers are becoming a little bit more deliberate with their purchases. And of course, the impact from rising wage costs, those margins are going to get compressed. So we are expecting a bit of a slowdown in earnings, but certainly not as quick as maybe we would have expected earlier this year. One reason the optimists say that we really haven't seen the cuts in earnings yet is because inflation has been good for corporate America. They've been able to raise prices. We just talked about Allstate. They've been able to increase and preserve their margins because they have that kind of power in this healthy environment where everything is going up? So I think that will certainly be an argument for a number of companies.

And actually, those are the ones that you really want to seek out, the ones that have actually got that pricing power that can actually thrive in this kind of environment. But of course, that isn't going to be the case for the majority of companies. So this is really where kind of active management, really stock selection starts to become very, very important. But if you're looking at the overall picture, high inflation can only take companies so far. Once it starts to really hit the top line and actually the bottom line, as consumers, households, companies really start to struggle with those higher costs,

both on the input side and, of course, on the output side, that's when things start to turn. So I think this is a bit of a, you know, this is the kind of the happy stage. But that will very, very quickly turn into a slightly uglier picture. Well, the other problem, of course, is the strong dollar. And it's strengthening again today against a number of other currencies and big ones that we do a lot of business with, like Europe and Japan. Do you think that's factored into the stock market at this point? Well, it is to some extent. I mean, for example, if you just look at the looking at large versus mid and small cap, you can see that although large caps actually have, you know, they do have the biggest balance sheet. The problem with them

is that they have significant exposure to companies outside of the U.S. And these are the companies that are being really severely hit by the strong dollar. So, from our perspective, actually, you know, large cap is not the place that you want to be in. You want to be hiding out as more of the mid-cap space. And certainly, that is the area that has outperformed. And even if you're looking at, for example, in the United Kingdom, which of the companies that you want to be exposed to is the companies which have exposure to the U.S. So I think it is starting to play through. It's quite gradual. We would expect that if the dollar continues to strengthen,

then you are going to see some more challenging problems in parts of the emerging markets, but I don't think we're quite there yet. So overall in the U.S. stock market, within this bearish view that you have on earnings, where are the bright spots? Where do you want to be? Who's got pricing power? Who's less exposed? Well, specifically, I mean, you know, as I said,

mid-cap, I think, is a bit which is, at least from a global perspective, a little bit more less vulnerable to the various challenges that are going on globally. If you're thinking about sectors, though, I mean, it gets a little bit more difficult. So, you know, we think that you should be a little bit more defensively positioned in this kind of environment. So that's stuff like insurance, utilities, MLPs. And then the other part of the market, which actually has performed really well, and which is the bit which is holding up your high-level earnings growth estimate, is energy. And energy can need to outperform.

It's still quite undervalued as well. So from our perspective, energy is still one area that we want to continue to have exposure to. Seema Shah. Seema, thank you. Principal Global Advisors. Appreciate it. As we head to break here, we've got 43 minutes left of trading. The Dow is moving south as we speak, down 200 now.

We're at the lows of the day. The S&P 500 losing 1.3%. Healthcare and financials are hanging in there. Everybody else is down. Energy, utilities, technology, and real estate at the bottom of the pack. The Nasdaq down 1.7 percent. Yes, Adobe's 17 percent slide is certainly hurting, but you're seeing pretty broad weakness. Apple, Microsoft, Amazon, Google, all lower.

After the break, Wells Fargo says it is anticipating a modest recession next year, and one crucial segment of the workforce could be hit particularly hard. We'll bring you up to speed on the big picture next. And later, do not miss our interview with the CEO of Man Group, which has more than $140 billion under management. He'll tell us on his latest thinking on the market and how he's positioning after this week's inflation shock. We'll be right back. It is the first day of Hispanic Heritage Month. And in today's big picture, we're taking a look at a dire new warning about Hispanic workers. Wells Fargo predicting a modest recession for the U.S. economy in 2023. The firm out today saying during downturns like this,

the Hispanic unemployment rate tends to rise disproportionately to the national average. It's because they're exposed to high cyclical industries like construction, the Hispanic unemployment rate tends to rise disproportionately to the national average. It's because they're exposed to high cyclical industries like construction, which is dealing with so many headwinds, including higher interest rates, mortgage rates today climbing above 6 percent. Hispanics, turns out, make up one third of construction workers. Hispanics also represent a disproportionate share of the workforce in goods-related industries like transportation and warehousing, retail and wholesale trade, manufacturing. Wells Fargo is expecting a sharp cut in terms of jobs in these sectors as households shift their spending to services, part of that post-COVID phenomenon. Who else typically gets laid off at a higher rate during

recessions? Junior workers with fewer years of of experience making it harder to find new employment in a weak jobs market the median age of Hispanic workers in 2021 around 30 years 10 years younger than non-hispanics companies and executives should take note the 2020 census showed that the overall US population through 7.4 percent between 2010 and 2020. In that same period, people who identified as Hispanic or Latino rose by 23 percent. They accounted for two-thirds of the growth in the U.S. labor force in the last decade. They will absolutely be a critical source of labor in the coming years. When we come back, the CEO of asset manager Mangroup on where he's finding opportunities amid all this market volatility. Again, we're making lows here for the day, down about 210 on the Dow.

We'll be right back. Check out shares of Gap today. We've been watching them all day. Under pressure, down more than 4% after Kanye West, now known as Ye, said he is terminating his deal with the retailer for failing to meet obligations in the agreement, including product distribution and opening Yeezy Gap stores. Joining us now to discuss, we've got a surprise guest for you, is Ye himself. It's good to see you. Thank you for joining us. Absolutely. Thank you for having me. So talk to us about what happened here. Why are you terminating this deal with Gap? Well, it was always a dream of mine to be at the Gap and to bring the best product possible to the masses.

And I always talk to them about doing products for $20, like the best product in the world, designed at the same level of the top fashion houses in the world at $20 for the people. And so we went through three years. And, you know, obviously there's always like struggles and back and forth when you're trying to build something new and integrate teams. So we designed an entire collection. And actually, I wasn't able to set the actual price that I wanted for this collection.

And then they actually took one of the shirts and sold it for $19. So didn't price my stuff, price my stuff at like 200 and above their whole price point normally. And then did the exact shirt for, uh, for $20. Also they did pop-ups and, uh, I signed on with them because they had in the contract, they said they were going to do stores. And they just ignored us about building stores constantly. And it was very frustrating. It was very disheartening because I just put everything I had. I put, you know, all of my top relationships. I went and got Demna, the head designer of Balenciaga, which is one of the hottest brands in the world to come.

He does couture. And with that relationship, he ended up, you know, working on a Gap collection for me. There are a lot of like things, colorways that I didn't approve. There's a lot of places that the product went to certain sites where they just it was like they were just dog, dog and pony. And the idea around town and sometimes i would talk to the guys the heads up the leaders and it would just be like i was on mute or something and they totally our our agenda it wasn't aligned and i know you know my family we're we're garmentos you know my my family we we made the first louis vuitton uh bootleg jogging suits and they used to confiscate the bags at lax that's actually literally my family that would cut up uh cut up those bags

and make jogging suits we literally would make cross colors yeah you know this is a because people always think of things like the celebrity this kind of i i wouldn't have been so uh influential in uh clothing language i like that but i like the word language better than aesthetic because the language is the base aesthetic is just a style it's a language that me and virgil and demna and jerry lorenzo and matt williams brought in street wear, in this like Marc Eccles complex idea of what it is today, what high schools look like today. And everyone knows that, you know, I'm the leader, I'm the king, right?

So a king can't live in someone else's castle. A king has to make his own castle. Well, you say that and it makes me wonder what's the status of your Adidas relationship. I followed that for many years. I saw how you came in when the company was struggling in the U.S. and there was a big turnaround. By all accounts, it seems like Yeezy and Adidas has been a strong partnership, but lately you haven't sounded too happy about it. So they haven't responded to me.

What can you tell us about where that stands? Well, you know, being that Casper was let go, they could take all the stuff they were involved in and just blame it on him if that's what they want to do. But any of these relationships that I'm in, like, I have to have a say-so, you know, on the colorways. They were doing colorways. They were naming things. They were sending guys and telling me, don't tell your audience that you didn't name that. And they were slowing down, you know, my allotments and then

copying the ideas that took, some things took us two years. And it's not just the things you could see. They would take people from the team that did production that was quality control. We did the shoe that, this knit runner, and I told them this needed to be a marathon shoe and it ended up being the most uncomfortable Yeezy ever on purpose changing. Because people, anyone that's worn a Yeezy, they say, oh, this is the most comfortable shoe that I've ever worn and then they also were supposed to do stores and never did stores and this company grew like by 80 85 percent um last year um and uh basically became you know people could compare it to to Jordan. And I 100 percent respect what Jordan did,

you know, but, you know, Phil Knight's worth 50 billion dollars or something like that. And Michael Jordan's worth like four billion or six billion dollars or something like that. And, you know, this is the this is the day of liberation right here. This is the day to not be just valued on my cash flow, to be valued on the equity that we bring. You know, we've seen the influence that we've had on two Fortune 500 companies. Also, there's a lot of stuff where they have a lot of commitments to China. And, you know, when we wanted to do localized manufacturing, which is completely possible with some of the factories that I'm buying here in California, we can actually bring industry back to America. I feel that in a lot of ways, Europe has been the head of prestige and

with the luxury brands and luxury vehicles, And China's been ahead of manufacturing. But America, we invented rock and roll. We are the most inventors. We are the youngest startup ever, America itself. So, you know, we invented Apple. We invented Ford. And now we have Yeezy here. And it's not going to be any board members that won't even

pick up the phone that their kids are wearing my shoes that get the opportunity to just dismiss me this way. Like, for instance, like I'm moving my money from JP Morgan over to, you know, Bank of America, possibly, because I go and move $140 million over to J.P. Morgan. Jamie Dimon never calls me. I found out Gene Ulrich is one of the heads on the board at Adidas and one of the heads of the board at J.P. Morgan. So if they're already treating you a certain way at Adidas, it doesn't matter how much money you move over there. They're going to treat you like you meet like they meet you. And then people say, well, you know, the Asiaia division to

be fair at jp morgan i think and yeah she's a board member of adidas but go ahead that's about the amount of information i have because i can only find out about the board from what i can google online because i've never got to meet any of them even though you know i've been the strongest partner that they've had i'm 60 easiest easiest, 68% of their online sales. And they've even gone and specifically hired people from my team to do collaborations with to attempt to make fake versions or to try to dilute my message and to colonize, you know, my audience as opposed to as opposed to empowerment for instance it's like a friend of mine jamie salt just bought reebok reebok is worth less than yeezy but due to the positioning that i was in in the contract instead of us taking reebok as the infrastructure for yeezy jamie salter is able to take that. And I'm over here sitting and,

you know, supposed to be this, you know, little plant in the front of the little shop of horrors, you know. So we know Jamie, he comes on the show as well, Authentic Brands. He's done a bunch of deals. So I guess what I'm wondering, so it sounds like you're trying to break up with Adidas too. And it sounds like you're trying to forge your own path here when it comes to easy... I don't like the word. My mama said trying is failing. We're not going to fail. We will succeed. We are succeeding. I'm trying to figure out what it is. So you're starting your own company independent of other big corporations. Is that the plan? Absolutely. You know, I got to, you know,

I only had the resources I know. Like, I can sit with people. I can go and sleep at David Simon's house. I can go to Jamie Salter's ranch. I can go to Francois Pinot's house. I can go to Bernard Arnault's house. I can go to Elon. Elon doesn't really have a house anymore, but I can go to Elon's house. I can go to Bernard Arnault's house. I can go to Elon. Elon doesn't really have a house anymore, but I can go to Elon's house. And, you know, but are people really

handing over the information? So sometimes it's harder to find the information, especially, you got to understand, it's like I'm operating like a 5X version of Bo Jackson or something. I'm like operating at the top in music, the top in influence, top in clothing, the top in shoes. And now we're going to go in and become the top in real estate and the top in education where, you know, my school, Donda, we're on our third year of school. It was started off as Yeezy Christian Academy that we opened during the pandemic. And now we're on our third year. And this school is going to focus on bringing the American economy back, starting with our children. You know, they try to say, oh, just stay on your phones. Just do this.

Well, we're not making practical. They took all of our practical engineering skills away from us. So we're focusing on engineering for our species. What's the thing you need the most food? Engineering food. And I'm telling you this as the answer being like, our focus is the school. You know, my mom was an Albright scholar. I knew Vice Chairman Shervin Peshifar was appointed the head of the Albright scholars. So let me tell you what this curriculum is. It's engineering food, engineering automotive engineering, engineering shelter, computer hardware and software, financial literacy and financial engineering. And shout out to Elon rocket science, just so we could say, you know, our kids understand, but that's the bait, you know, the normal reading and writing and all the stuff that,

you know, the old guards a hundred years ago put up for what our curriculum is. But now we live in this post-Steve Jobs world. Another thing, if you look at TikTok, like in Korea, you know, it's got all kinds of things. It's not just indoctrinating and sexualizing, you know, you know, children, it's actually educational. So we're really into the idea of embracing TikTok as an educational tool because you're not going to, you're not going to touch, you're not going to be able to communicate unless you use the way the kids communicate. So a lot of schools are, hey, you know, don't use technology in this way and just only do that after school. America, we are the thought leaders and there's a lot of strong Americans. Obviously, you know, I'm a conservative also. I'm a Christian. And there's a lot of strong

people who really believe in family and believe in, you know, monitoring the type of content that our children receive and also monitoring the type of food that we receive. You know, we... Go ahead. What were you saying? No, I'm sorry. Sorry to interrupt. I just... While we have you, you know, we're showing the stock right now of Gap and Adidas, and they're...

Gap got hurt today on that news. And in general, it's been a struggling retailer. They lost the CEO, Sonia Singhal, the one who you, I believe, made the deal with to begin with, and they're trying to stabilize the overall business. You've always liked this company, and you talked about how you had high hopes for the partnership. Do you think that Gap can ever sort of regain its cool again and be a big player? They only have one opportunity to be able to be a big player. What do you think it is? I feel like you're not happy with them today, so you're not going to be able to be a big player, what do you think it is? I feel like you're not happy with them today,

so you're not going to be too optimistic. No, I'm saying they have one individual on the planet that could save the gap. Who is it? I'm asking you who do you think it is. Sometimes the answer is sitting right in front of you. Well, there was a lot of potential in this deal, but it sounds like you're terminating. Well, don't bring a leader in and have them not lead.

Why would I argue with people who are getting paid by the guy? I'm sorry. I'm not going to argue with people that are broker than me about money. Understood. Yeah, we thank you for the time today and for joining us on the show. All right. There we go. We'll continue to follow the easy story. No question about it. Kanye West or Ye. Thank you. Take a look at where we stand right now in the market. We're down 1.3% on the S&P 500. NASDAQ's getting hit a little bit harder. It's down 1.6%. Yes, you have Adobe in there, $20 billion deal. Investors not loving it today.

The stock is down 17%. Also, it was guide down on the fourth quarter. But you've also got weakness in Microsoft, Salesforce, Home Depot, Visa. That's what's weighing on the Dow right now, which is down more than 200 points. Lows of the day. Up next, the head of $140 billion asset management group, Mann, on this week's market pullback and whether he sees it as a buying opportunity here. We'll be right back on Closing Bell. After an indecisive day of trading, we have gone lower and accelerated the losses this afternoon. Saw a little bounce yesterday. We're on track, though, still for a sizable weekly loss after yesterday, or Tuesdays, I should say. Big sell-off.

Joining us here at Post 9 is Asset Manager, Man Group CEO, Luke Ellis. Luke, it's nice to see you. Tough act to follow, but welcome. It's nice to see you. Tough act to follow, but welcome. It's good to see you. I haven't got my sunglasses on, but I'll try. It's while you're here in person. So that's good. How are you navigating all of this volatility? How is Mann positioned? I think the oldest market heuristic out there is don't fight the Fed. And it's been pretty much true this year. The Fed is, you know, is trying to do something about inflation. And while they stick to that course,

they've got to make financial conditions worse. And so it's pretty sensible to be sure bonds and long the dollar and, you know, while there's some trading opportunity in equities that they're not going to go up until the Fed takes their foot off the neck, which may be some time. So you're not of the view that inflation has peaked and they're going to have to stop earlier than they think they are? So we are somewhere at a local peak on inflation, whether it's this month, last month, next month, somewhere there. And by next summer, inflation will be lower.

But at the moment, they haven't done enough to get inflation anywhere near their target. So if they stop now, we're going to end up getting to something like a 4% inflation number next summer. And then it's going to start creeping up again. And so, you know, they've got more heavy lifting to do if they really want to drive inflation out. It's in wages. And when it's in wages, you have to do stuff to take it out of wages. Otherwise, it just keeps going through the economy. So you're not too hot on U.S. stocks. What about Europe?

Are there any? Because for all of that, the problematic scenario you just laid out, it's even worse in Europe because of the energy crisis. So the good news in U.S. stuff is everything in the U.S. looks better than everything in Europe. I mean, they have a real challenge, you know, double digit inflation already and they really haven't got ammunition. Your rates are very low, but they can't I mean, they need to push them up. But, you know, the stresses within the European system are a challenge with that. So,

you know, I certainly wouldn't favor Europe over the U.S. at all at this point. Short the euro has been, short the euro and short the yen have been the most profitable trades of the year without any doubt. And stick with it. It's been pretty good so far. Luke Ellis, sorry to cut it short again. Thank you very much. You'll have to come back soon. Thank you for the ideas from the Ant Group. And don't miss many more investment opportunities when CNBC's Delivering Alpha returns in person September 28th, featuring some of the biggest names on Wall Street. You can still sign up. Scan the QR code to register now. Up next, much more on today's market pullback when we take you inside the market zone.

Down 194 on the Dow. We are now in the closing bell market zone. Bespoke's Paul Hickey is here to break down these crucial moments of the trading day. Plus, Bernstein's Tony Saganagi on Apple and Bank of America Securities' Jessica Ehrlich on Disney. A lot to get through here. Let's start with the broad market, though, because we're down a percent here on the S&P 500, Paul. It's been kind of a deterioration throughout the day, which is a little bit like we saw yesterday. But the big takeaway is no bounce or real buyers stepping in after Tuesday's massive sell off.

What does that tell you? Well, I mean, it just tells you that there's a ton of uncertainty in the market. It's as wimpy as a a market as we've seen since COVID and before that the financial crisis. So there's tons of uncertainty. People don't want to, you can't read into much of the market when Apple's moving 4% on Monday and down 5% the next day. It's just, there's not a whole lot of rhyme or reason to it. We're in a seasonally, one of the worst half-month periods of the whole year in the second half of September. And that CPI report really freaked people out. And then now we're in a Fed blackout period until the meeting next week. So there's really nothing to, you know, propel the market or stabilize the market until we get to that meeting next week.

I think Luke Ellis summed it up really well. CEO of Man Group, biggest public hedge fund. Don't fight the Fed. Fed wants it lower, tighter conditions. Don't fight the Fed. Fed wants it lower, tighter conditions. That's what's happening. Let's hit some stock movers. Move over Tesla because Apple has now taken the lead as the stock with the most short interest by total dollar volume on Wall Street.

Short interest in the tech giant surpassing $18 billion this week. Its shares hit hard in the sell-off. Down again today, falling roughly now 12 percent over the past month. Let's bring in Bernstein analyst Tony Sakonagi. He has a market perform rating on the stock. Why do you think the short interest is piling up so big on Apple? Is it just because it's outperformed? Good afternoon, Sarah.

Well, typically, Apple has this, you know, unusual and predictable trading pattern, whereby the company always announces new iPhones in September. In the markets typically anticipatory in advance of that new iPhone announcement. And then after it announces which it occurred about a week ago. The markets

really uncertain it's trying to figure out is this going to be a good cycle or not a good cycle. And typically the stock doesn't do very well. And so I think you could have some people who are putting on incremental short positions following that strong seasonal trade into the iPhone announcement. Do you think that's the right move? How are you expecting this

cycle to play out? Yeah, that's obviously the huge question around Apple stock, I think, for the next six months. The big question is, you know, Apple is a consumer company and it did really well during COVID. Its operating profit went up about 60 percent during 2021 and 2022 relative to pre-COVID levels. And so we do think that Apple was a COVID beneficiary. And to the degree that people bought forward on iPhones and iPads and Macs, we think the next year could be lower growth for Apple. So we're a bit more conservative and below consensus estimates, both for the iPhone and for Apple overall over the next year. But you're still at 170 on the price target, right? So how does that work? We are. Valuations are already pretty high,

aren't they? Markets move around a lot, Sarah. So we we've had somewhat of a static price target, despite the fact that the market moves so much. And otherwise, if we'd be we try and anchor our price target to somehow to the market. But when the market moves so quickly, we simply can't change it every week. But but on balance, I say we believe that risk-reward is neutral to modestly negative on Apple at current levels. Got it. Thank you for joining us, Tony Saganagi, with the take on Apple. Disney shares are slightly lower today, down about 8 percent since the company announced a price hike for its streaming service, Disney+. That's about the same as the broader market. And CEO Bob Chaypak told our David Faber this morning that he still sees the service as

undervalued, saying the value of the service is increasing and the price needs to trail that value in what he called the price step function. Joining us now for more is Bank of America Securities Senior Media Analyst Jessica Ehrlich. What do you do with Disney stock as they raise prices and Chapek comes out talking more about the value proposition? We like the stock. We have a buy on the stock. And they did raise prices pretty significantly by 38 percent for the subscription service. And the AVOD service, which is the ad-supported service or the ad-light service, will have a subscription price of $7.99. Our view is that the advertising or the ARPU that they generate,

the revenue they generate from advertising, will exceed the subscription service over time. This demand seems ginormous. What about some of the other factors that kept Disney underperforming for a lot of the, I don't know, last year or so? Macro issues, concerns around Florida and how that situation was being handled. Not necessarily that that was so material for the stock, but clearly it's been there's been a cloud over Disney for a while now. Absolutely. But a lot of these challenges are behind them. Bob Chapek has a three-year contract and he's firmly in control with his management team.

The parks are on fire. And finally, the international parks are all open, every one of them. They just launched a new cruise ship, which is 100% occupied with a lot of, two more ships coming, a lot of growth in the theme parks. And then film, people are finally starting to come back to theaters. And the most

talked about movie in the industry right now is Avatar 2, which comes out right before Christmas. So they're really getting their footing. They've had a very tough time in the pandemic. But most of what's going on in the current environment is extremely positive for Disney. One of the other things I saw that came out of David's interview with JPEG was he talked about Hulu and he said he'd love to own all of Hulu tomorrow but the chances of a deal an early deal before that deadline are slim. What are Wall Street's expectations here? I think we're all waiting for the you know the put call in early 24. Our expectation is that Disney does buy in Comcast's interest. And when that happens, it will be significant because they'll be able to consolidate the ad tech platform, the marketing.

And so there should be really good cost savings, good savings on marketing, on SAC, on churn as they put it together. And the big driver for them, I'm sure Bob spoke about this earlier, has been general entertainment. So they're really expanding that offering as well and burdening the base of subscribers. Disney will hit its content cadence at the end of this calendar year, which is their first quarter. So not the September quarter fiscal year end will be okay,

but the first fiscal quarter or fourth calendar quarter should really actually be a very strong quarter for TIS. Jessica, appreciate it. Thank you for the hit on Disney there, recommending the stock. We've got just over two minutes to go in the trading day. Paul, I wanted to point out amid the sell off today, and yes, it is concentrated in big cap tech, there are some pockets of green, and one of them in an unlikely place. The ARK Innovation ETF is up 2%. You've got names like Roku up 8%. A lot of those biotech names that she's in are higher draft kings, Robinhood, some of the most beaten down parts of the market, the ones that are down, I don't know, 60%, 70% from their highs.

I just thought that was interesting, given we're sort of wondering where we are in this bear market. What do you think? Yeah, no, I mean, you look at some of these most beaten down stocks, they're at levels they were at back in May. You know, they haven't kept declining. ARK stocks really peaked way in mid-2021. And so they've been in the bear market much longer than the broader market. So as you start to see those names, they're starting to stabilize, it looks like here. So that's something to watch. A stock like Square is at the same level it was at in May, even on this negative buy now, pay later news. And the stock was up last I looked. And, you know, when stocks stop going down on bad news, that's something to watch for. Are you a buyer on weekdays like today in any parts of the market? Yeah, in certain areas of the market, we're buying certain individual

names, but you got to take it on an individual basis. You know, the whole market, buy the market, sell the market, you know, that's this whole all or nothing approach is, you know, I think you have to avoid that and focus on individual names. We were talking about Apple before. It's not like Apple. It deserves to trade a premium to the market, but its premium now is the highest it's been in 10 years. So understandably, investors are starting to question that heading into an earnings reports next month. You know, so they're taking more of a wait and see approach, understandably cautious. Thank you very much, Paul Hickey.

As we go into the bells here, I just want to show you what's happening. It's Microsoft and Apple and Adobe that are weighing the most on the NASDAQ, which is down 1.4%, the most of the big three. There's the Dow. It's down 157. So we're off the lows of the day, but certainly well off the highs. Could not hold the morning gains that we had just for a little bit earlier. UnitedHealth and Goldman are the biggest contributor higher on the Dow. It's Microsoft, Salesforce, and Home Depot

dragging lower. That's it for me. I'm closing now. See you tomorrow, everyone. Into overtime now with Scott Wapner.