Closing Bell - Rally On, Apple's Warning & Midterms And Your Money 11/7/22

Episode Date: November 7, 2022

Stocks rallying ahead of Tuesday's midterm elections as investors shrugged off an iPhone shipment warning from Apple caused by China's Covid lockdowns. Bridgewater Chief Investment Strategist Rebecca Patterson, whose fund is up big this year, isn't buying this rally. She discusses why this could just be a bear market bounce. Blueshirt Group Managing Director Gary Dvorchak, who advises companies in Asia seeking to IPO in the U.S., discusses the risks vs. rewards of investing in China right now in the wake of Apple's warning. Citi's Scott Chronert and Wells Fargo's Michael Pugliese unveil their playbooks for how you should be investing in the wake of tomorrow's midterm election. And MKM Partners' Rohit Kulkarni reacts to reports of massive job cuts at Meta and what that means for the stock.

Stocks kicking off the week in the green. We're right around session highs right now with energy and industrials leading the charge. This is the make or break hour for your money. Welcome everyone to Closing Bell. I'm Sarah Eisen live from the New York Stock Exchange. Take a look at where we stand right now at 400 points on the Dow. Maybe you didn't see that coming with the Apple news overnight. Apple's one of the few losers in the session in the Dow right now. Almost every other Dow stock is higher. UNH, United Health, is adding the most. The S&P 500 up almost a full percent. The Nasdaq's also rebounding 8.10. Remember, this comes off of a week where the Nasdaq fell 6.5 percent last week. It is a broad-based rally right now. Every sector except utilities and consumer discretionary in the green. Take a look.

The consumer discretionary story is Tesla, but also some of the cruise lines and retailers are down as well. But here are some of the cruise lines and retailers are down as well. But here are some of the leaders right now, everything from communication services to energy, tech, health care and industrials. Coming up this hour, Bridgewater chief investment strategist Rebecca Patterson on why she is still cautious on this market and the potential catalyst that she thinks could spark a rally. First up, though, a read on stocks here and abroad over at the market dashboard with senior markets commentator Mike Santoli. What are you watching, Mike? You know, Sarah, the setup for this week was not only that Nasdaq sell off last week, but also a market that over the last couple of weeks has absorbed a lot of blows and hasn't

buckled. We had multiple blow ups from the big tech stocks, obviously had the Fed rate hike in a warning last week. And then that jobs number, which was not optimal for either the strong or weak economy camp. However, market is held in there. That's because things like industrials, health care, financials have been resilient. And then today you finally have those oversold mega cap growth stocks. Apple almost flat or green earlier, but the rest of them higher, participating a little bit. So where does it take us? A little bit over 3,800. That's been kind of this key level. The rally raced above 3,800 off of the mid-October lows, pretty much stalled out, not far above that.

Also, just for mental accounting purposes, we were around 3,835 at the end of Jay Powell's press conference last Wednesday. So the sell-off happened from that level. We've almost gotten back to that point right there. Obviously, people positioning for a widely expected or at least people acknowledging the prospect of a post-midterm election rally as well. Now, around the world, there's been some interesting dynamics taking shape, which is really surprising strength in European equities relative to the rest of the world over the last several months, even as that economy is obviously struggling and you're seeing inflation problems, you're seeing an almost certain recession. You see this outperformance on a six-month basis against the S&P 500.

Asia, of course, still really dragged down to date by the China lack of a reopening and the shutdown there. What this really is, though, is a value trade. The European indexes are staples. They're exporters benefiting from a weak euro and their health care and things that are non-tech. In fact, tech is a tiny percentage of it. Well, what's interesting is that is coinciding with euro strength. The dollar today and Friday having on Friday was one of its biggest sell offs in years, which is obviously very helpful for stocks here.

It absolutely is. It's totally taking the pressure off of equities. It's unclear exactly what we're seeing at work in that dollar sell-off in terms of, you know, is that some kind of projection of a Fed pause to come pretty soon? Or is it just, you know, a retracement after this very aggressive Don't think the dollar was as cheerful as the stock market on the jobs number, maybe focusing more on the household survey and some of the negatives under there. Mike, thank you.

Mike Santelli, we'll see you in the Market Zone. For more on the markets and what to do next, let's bring in Bridgewater Associates Chief Investment Strategist, Rebecca Patterson. Rebecca, welcome. Nice to see you. Good to see you, Sarah. So, tough week last week interrupted the October rally

that we saw broadly. You guys are still, though, cautious on this market. You think this is typical bear market stuff? Yeah, I mean, I think we've seen one of two shoes drop. We've seen an unexpected tightening in real yields. The Fed tightened much faster than the market had expected at the beginning of the year. And so that has been the main thing that's been pulling down equities. If you look at earnings expectations beyond 2022, they're still looking very robust.

And so that, I think, is getting largely priced in. But the second shoe to drop is going to be when growth continues to slow. And I think we're still in the very early days of this. But the Fed needs to see wage inflation come down significantly as part of getting to its inflation target. To do that, it has to get the unemployment rate up. Reducing the job openings is not going to be enough in itself. And so as the economy slows, as the Fed continues to tighten to meet its goals, we think we're going to see growth continuing to slow in the United States. And that's going to bring down earnings expectations and actual earnings. So why do you think the market has remained relatively optimistic on this front around a soft landing, around, you know, not a sharp earnings slowdown,

when the message from the Fed has been we've got a lot more work to do and even the bond market is pricing in more than 5% peak rate. Yeah, I think we're still seeing investors extrapolating from the previous regime that, you know, the Fed is going to be able to get inflation quickly under control without engineering a recession and we'll just go on our merry way. And you see that reflected still in market pricing around rates. You know, the market is expecting discounted interest rates are expecting that the Fed peaks around mid-year next year. Then we get 100 basis points of easing between mid-23 and early 24. And think about that. If we have that easing, you could see investors saying, oh, that's going to be a great lift for stocks. But to get that kind of easing, you're going to have

to see growth absolutely collapse for the Fed to react that way. So be careful what you wish for. If you get to a world where the Fed is adding liquidity again, it probably means we have a much deeper recession than anyone's expecting. And that would be a major hit to earnings. So right now, what the market is discounting doesn't add up. It's like the market would rather have stimulative policy and a recession than vice versa. More afraid of tighter, restrictive monetary policy. So do you also think, Rebecca, the dollar keeps making new highs and will continue to go up? It's been a pretty significant two-day sell-off here. Well, I caught your comment earlier about the Friday move in the

dollar. Yeah, it was striking. I mean, this whole year has been striking. We haven't had Bank of Japan intervention in how many decades. So it is an interesting time for currency markets. And obviously, that has so many implications for equity investors all over the world. We don't think the dollars rally is done. We might be getting to the latter stages and it moves more into a range trade. But we still think the bias of risk is for a stronger dollar. What I think we've seen in the last few days, in part, is these hopes around a China reopening, perhaps early next year, leading to a bounce in activity there as consumption can get some momentum and that leading to a stronger renminbi and that's starting to work its way through global currency markets. The question is, how likely is that reopening? How smooth is it

going to be? Are they going to get vaccinations out that quickly to so many millions of people around the country? We're getting hope priced into those markets very quickly. It's absolutely possible, but I certainly wouldn't make that a high confidence bet right now. You wouldn't buy China? I was going to ask you guys, because I think at Bridgewater, you guys have liked China for a long time and have liked it also as a diversifier lately. We do like China as a diversifier. I'm saying specifically putting a lot of eggs on a reopening basket wouldn't be where I would lean. I think that China is in a very different place in its economic cycle than most of Western countries today in that it does have low inflation. They do have policy room both to cut interest rates to ease monetarily and fiscally. And we're

seeing the government after the party Congress signaling that we're going to get more infrastructure stimulus as we go into 2023. So between the valuations, how much negativity is discounted in that market, the lack of positions and this continued stimulus, we do think China offers some very positive diversification benefits for our portfolio. If we get the reopening, that's another tactical positive catalyst for China. I'm just saying in and of itself, specifically, I think it's hard to have a lot of confidence. You know exactly how that movie is going to play out. You know, we're expecting a lot of Fed speak, even this afternoon, expecting some Fed speakers. And

we're going to get a lot of them because the window is open now. And the market has been pretty sensitive, especially around some of these hawkish comments, Rebecca. I wonder, though, how much it really matters, because we know they're not going to panic and pause until something really ugly happens, right, in the economy or they break something, as the old adage goes. And then it doesn't matter what they're saying now or how hawkish they're feeling now, does it? No, it's fascinating to me how you'll get these little wiggles in the market intraday on the back of different comments from different Fed policymakers, even former Fed policymakers who aren't even influencing the votes directly today. At the end of the day, Sarah, I agree with you. I think as long as inflation is still so far above

target and as long as the unemployment rate is so low, we're still only at 3.7 percent. The Fed is going on. We're going to keep getting hikes, maybe at a slightly slower pace, but we're going to keep getting tightening as well as tightening of the balance sheet. And that's going to continue to exert a drag on the economy. It'll get a lot harder for the Fed next year when the labor market does start cooling and we see more and more people unemployed. Then it starts getting to be a harder tradeoff. Do you want to get to your inflation target for credibility at the cost of a deeper recession? And you could also see an environment where that gets some political

pressure as well on the Fed if the Fed's actions in the interest of inflation credibility are causing voters, households to be out of work. So I'd say it's going to get a lot more divisive next year than it is today. Well, I know the Bridgewater Alpha Fund is up big, more than 30 percent this year, and you guys have been pretty negative. It looks like you're sticking with that call. Rebecca, thank you very much for the time today. Thanks, Sarah. Rebecca Patterson.

Look at Apple. It is underperforming the Dow today, but as Mike Santoli said, it's really come off the lows and is almost flat. The big news, it issued an iPhone shipment warning caused by COVID lockdowns in China. But despite those concerns, blue shirt groups Gary Dvorak says there are now deep value investing opportunities in China.

We'll tell you the details next. You're watching Closing Bell on CNBC. Welcome back. An iPhone shipment warning taking a toll on shares of Apple today. Steve Kovach here with the details. So is it a supply or demand warning? This one's a supply warning. So let me break it down for you, Sarah. Apple warning last night it won't be able to ship as many iPhone 14 Pros as originally expected due to those latest COVID shutdowns we've been hearing about in China. So here's why this is so important. Now, before today, the hope among investors was that extra demand for the more expensive Pro

models would offset any drop in unit sales that we saw versus a year ago. But now Apple's at risk of missing even its own modest growth projections for the holiday quarter. The company has expanded production elsewhere, such as India, but it's not going to be enough to make up the difference. Not to mention its services division already under pressure from foreign exchange headwinds and a drop in App Store sales. And by the way, Mac sales are expected to fall year over year, too. Now, the iPhone 14 Pro was supposed to be the bright spot for Apple's quarter, helping it reach growth targets in a tough macro environment. But this warning we got last night, Sarah, will make it that much more difficult to pull off. But of note, Apple also saying demand for those pros are still really strong. And that's likely why we haven't

seen shares punish as much as they normally would have been today, Sarah. They just turned positive. There we go. To your point. Steve Kovach, thank you, as you speak. And by the way, it's coinciding with session highs. We're seeing both on the S&P up over 1% and on the Dow right now, which is up 463 points as we head into the close. For more on the China question, let's bring in Gary Dvorak of the Blue Shirt Group, who advised us that Asia-based companies seeking to IPO here in the U.S. He's currently in China right now. So maybe you can help clear all this up, Gary, about what's happening as far as any potential easing of the COVID zero policy. Is that what's really happening?

So, Sarah, thanks for having me on. I appreciate it. As is often the case, we're getting a lot of mixed messages. And as you mentioned, I'm here in Beijing right now, and I've been back in China for about a month, and I had been out for nine months. And the changes over the course of nine months have really been stark. And the mixed messages are really coming from two directions. One, there's a general support by the people for the Communist Party because they've delivered the goods over the last 30 years. Economic growth has been fantastic. And China has really emerged, you know, as an economic player. At the same time, they need to continue that, right? And the government understands that. And one of the

rays of hope, if you will, over the weekend, there's a very large trade show in Shanghai, an import trade show. And President Xi gave a speech in which he really emphasized the fact that the country needs to open up, revive the economy, et cetera. So they understand that and they're giving that message. At the same time, the biggest challenge internally is the COVID restrictions. And I can tell you just in the nine months since I was gone and came back, they've gotten a lot more challenging. It's very difficult to do the most basic things like traveling. It's difficult to plan ahead because out of the blue, there'll be an outbreak. People will get locked down. So it's very challenging and discouraging just to operate your business or even operate your life on a daily basis.

And again, there was some hope. There were some rumors going around that they were going to reduce the COVID restrictions. But very recently, the health ministers have said, no, the COVID zero policy is one that we're going to stick with. So it's hard to it's it's hard to really see what's going to happen. Yeah. The KWeb ETF that we track here that follows these Chinese companies is up 18.5% so far this month on a lot of that optimism. It fell overnight. So I guess, Gary, as someone who advises Chinese companies on whether to go public in the U.S., what exactly are you doing right now? Because we're not seeing any of that happening. That's a great question. And the answer is we also work with them after they're public. So we have a whole set of clients that are traded in the U.S. now. And we continue to work with them

because there's no IPOs happening and they're not going to happen for a while. And even if there weren't the really big issues around IPOs, which is the audit issue that's outstanding. Companies are looking for a plan B, right? They're looking at Hong Kong, they're looking at Singapore as places that they can do an IPO if the US is closed off to them. But most of them are sitting and waiting. But having said that, there's a whole set of companies that are traded in the US markets now. There's over 160 China and Hong Kong based companies that are traded in the U.S. markets now. There's over 160 China and Hong Kong-based companies that are traded in the U.S. And we're finding that the fear factor is so intense right now. And look, we talk about it every day. You have folks on your shows that talk about it. You

can see it in the charts. The fear is unbelievable now in terms of no one wanting to take China risk and even look at these stocks. Right, because there's the zero COVID policy. There's the nationalistic policy we just heard from President Xi. There's the geopolitical tensions. There's the real estate bubble. I mean, it's such a laundry list of issues right now. So what is the biggest in your view? And where does that audit situation stand? Do these companies risk getting delisted? Well, absolutely.

So there's two elements to it. One, the countries at the highest level need to come to an agreement because both sides have legitimate claims about access and who can see what. And so they're going to have to compromise on that. Having said that, we did have a test case where, and this is, you know, to your point about the optimism, the PCAOB sent some inspectors to Hong Kong last week, and they actually wrapped up their work sooner than they expected. So the interpretation has generally been positive on that, that that means that there's been some progress there. But that issue needs to be resolved above all else without resolution of whether the audit firms are compliant.

If they're not compliant, if there's not inspection of the audit papers, then there will be a delisting. And the bigger element now is that they're actually potentially accelerating this. There should have been one more year for resolution, but now it may happen this winter. So it is going to break one way or another. And that is the key overhang to most, but not all, China stocks. This Wednesday? It's going to happen this Wednesday? No. We've just heard rumors. There's legislation or regulation in process that could accelerate when the whole problem has to be resolved. So it moves it up by a year, but it would be this winter. Winter. Sorry, I heard Wednesday. I hope not.

Thank you. Thank you, Gary Dvorak, for the report from the ground in Beijing. Let's show you what's happening with markets because we are now higher and we've accelerated in this final hour. Dow's up 452 points or so. S&P 500 also in a broad rally. We've got every sector higher except for utilities and consumer discretionary. Communication services and energy are tied for the lead, up almost 2%. NASDAQ up almost a full percent. Look at Palantir shares. They're plunging despite earnings that looked OK at first glance. Up next, we will break down the numbers to explain what is behind that sell off. And then check out shares of Beatrice, which is the top performer

right now on the S&P 500. This is the company formerly known as Mylan Labs. Today announcing plans for an ophthalmology franchise after acquiring Oyster Point Pharmaceuticals and Family Life Sciences. Investors like it. Up 13 percent. We'll be right back. Check out today's stealth mover. It's Palantir, which is plunging today. Done almost 11 percent. The big data analytics software company beating Wall Street's revenue estimates but missing on the bottom line. Analysts raising some red flags. Citi citing concerns about sharp revenue growth deceleration. While William Blair pointing out margin erosions.

Stock getting hit today. Up next, the midterms and your money. We will discuss how you should be investing depending on the outcome of tomorrow's election results. And tomorrow we will get the latest read on consumer spending. We've got an exclusive interview with the CEO of Kimberly-Clark, Mike Hsu. We'll be right back here on Closing Bell with the Dow up 450. Republicans have a 70 percent chance now of winning the Senate, according to online prediction market PredictIt. It's a big jump from two months ago when the odds hovered around 30 percent. If

that holds, how should you be positioning your portfolio for divided government and potential gridlock? Let's bring in Citigroup U.S. equity strategist Scott Cronert from Wells Fargo and economist Michael Puglisi. It's great to have both of you here. Scott, are you telling your clients to do anything differently given the odds have changed about Republicans taking more control, certainly the House and potentially the Senate? So the answer is no. We've been of the view that going into the Q4 that we were set up for a risk on rally into the year end, which is consistent with our 4000 end of the year target. The midterms were part of that calculus and and the ongoing assumption that you'd have a split Congress,

we thought would be sort of a modest tailwind. The math is that over the succeeding year post midterm elections, you do tend to see stronger S&P moves on average up 20 percent or so. But we think that's more of a positive tail risk relative to the ongoing discussion around interest rates, earnings and valuations as a result. Which none of which is positive, right Scott? Well, we still have a few issues that we have to contend with. I'd say the Q3 earnings season was what we expected, earnings resilience with some fraying around the edges,

expectations for earnings for 23 still need to come down. We think that happens pretty aggressively going into Q1 with Q4 earnings reports. So again, the midterms have important context on this. We just don't think that they're going to be the ultimate market driver in the near term anyway. Michael, I wonder what you guys at Wells Fargo are telling clients and investors. If the key drivers are the Fed and the economy, how the midterms and what Congress looks like will impact any of that, if at all. Yeah, well, thanks for having me on, Sarah. And I agree with what Scott just said.

The way I think about this is, you know, I don't think you're going to see major revisions to economic forecasts like ours on the other side of the midterm elections. When I think about what happened in 2020, we did get major revisions to the economic outlook. Once it became clear that Democrats were going to have unified control of the House, the Senate, and the White House on the other side of those Georgia Senate elections, we made really big changes to our forecast for growth, inflation, the Fed, as a result of the American Rescue Plan, which ended up being nearly $2 trillion just two months after the Georgia senators were sat and Democrats had unified control. I don't expect those kinds of major election outcomes this time. And as a result, I don't see us making big changes to, say, our Fed forecast or our inflation forecast on the other side of Election Day tomorrow.

Yeah, Scott, a lot of people say that it's a tail and that's positive that republicans do take some kind of control back and and moderate the bottom is straight energy divided government is that the doesn't it also increase the chance of a fiscal fight a potential debt ceiling debacle and and another clip you know yeah there's still a lot to unfold on this but what i would say is that i think the markets appreciating that too much fiscal stimulus isn't a great thing when you get the Fed trying to fight inflation. And so I do think this divided a government aspect of it to the degree that it takes some of the edge off of

that is really what we want to focus on in the in the shorter term. Michael, there are also important read throughs in the midterms for the 2024 presidential election, why Wall Street's going to be watching races like Ohio and Pennsylvania to see how the Trump handpicked candidates do and whether he'll potentially announce that he's running. How would the market take that? Yes, I mean, there's still a long way away before we get to 2024 in terms of who's going to run, what's the economic environment going to be, right, what's going to happen with the Fed and its fight against inflation. But I think that point is absolutely right, Sarah. When I think about the 2022 midterm elections, I'm not expecting a big shakeup, but 2024 could be a very different story with the potential, right, for first and foremost,

you have a presidential election. We'll see what happens on the Republican side, of course. And then when you start to look a little bit past that in terms of policy implications, just to name a few examples, you have the Tax Cuts and Jobs Act, big parts of that expiring on the other side of that 2024 election, or the makeup of the FOMC, as an example. Over the next two years, you just have one governor, Governor Cook's term up in January 2024. But come 2026, you've got Chair Powell, Vice Chair Brainard, and a lot of other members that are going to have to be reappointed. So when I think about 2024, I do think that could be really market moving. And I think that's going to come into investors' focus next year. We've got a lot of time to talk about that. Scott, thank you. And Michael as well. It's good to see you both. And do not miss CNBC's Election Night

special, Business on the Ballot, tomorrow night, 7 p.m. Eastern, featuring a great lineup of guests, Scott Miner, Dan Niles, and many, many more. Here's where we stand right now in the markets as we head out to a quick break. At the highs of the day, up 480 points on the Dow. We're continuing to build on those gains throughout the session here. The S&P 500 up more than a percent. The Nasdaq has now gone up more than a percent. It's Microsoft, Meta, Alphabet, Adobe leading the charge there, even though Tesla, Amazon, Netflix are still under pressure.

Carvana shares crashing again today after last week's huge sell-off. And now Wall Street is buzzing about the future of the company. Details straight ahead. What is Wall Street buzzing about today? Carvana running out of gas. Shares briefly halted this morning due to volatility, down as much as 24% at one point to below $7 per share. Currently, they're about $7.50, down 14.5%. This comes after the stock had its worst day ever on Friday on news that it missed Wall Street expectations for the

third quarter as the outlook for used cars falls from record demand and record pricing. Over the last 12 months, take a look. Shares are down 97% or so. Carvana CEO Ernie Garcia described the coming year as a, quote, difficult one on the company's quarterly call this past Thursday. For more, let's bring in our own Phil LeBeau. Phil, what is going on here that bonds are trading this distress and the stock market is crushing this one? It's got to be more than just used cars, our sales and prices going down. It's more than just used cars. There are

some specific issues that have analysts as well as investors worried about the future of Carvana. When you look at really what's driving it, the used car angle is getting the most attention because the market is weakening. We've known about that for a couple of months. So that's one headwind that Carvana is facing. Another one is that it's less affordable for people to buy a used car right now, whether that's the high prices, which remain elevated, even though they've come down a little bit, then the higher interest rates. But the real issue for Carvana, the debt load and whether or not this is a company that A, can get back to profitability, and then, B, has a runway to pay off the debt. Remember, they bought the wholesale retailer Adessa for a couple billion dollars last year,

and a lot of people at the time said, OK, you're loading up some debt. Will this pay off? And they believe that it ultimately will. If you listen to the conference call, they believe that they can get out of this, though there are more than a few, like Adam Jonas, who have said, I don't know. I mean, the bear case Adam Jonas laid out, 10 cents a share, Sarah. So that is at the end of the day what is hitting shares of Carvana. Doesn't mean these guys are going under right now, but there are a lot of questions about the headwinds that they're facing.

Right. He gave up his rating right on the stock on Friday, which is notable. That's the reason why, because it's unclear. Yeah. Bella Bo, thanks. We'll keep an eye on it. Look at MetaShares. They're surging today on reports that the company is on the verge of announcing major layoffs. Up next, a bullish analyst on whether the stock can keep rallying. That story, plus Elon Musk heading back to court and a countdown to Lyft's earnings when we take you inside the Market Zone next. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here as always to break down these crucial moments of the trading day. Plus, MKM partners Rohit Kalkarni here to talk a little bit meta. Mike, let's start off broad, though, because we've seen a nice rally here and it's gone up to highs during the final hour of trade, up 450 or so points on the Dow. The S&P

is rallying more than a percent. The Nasdaq joining the party. It's all notable. I know you said that we had a rough week last week, which is the context, maybe a snapback here. But interest rates continue to rise. The 10-year yield at 4.2, the two-year yield at 4.72. Usually, technology is the first to get hit on that. You're seeing a little bit, you know, the impact in the market. Utilities are underperforming, perhaps on those higher rates. But tech is OK. Well, last week, I mean, really, yields didn't do a lot last week. And NASDAQ was down 6 percent. So it's not really a fixed one-to-one relationship. I do think it's much more about the mega caps really did have

massive underperformance in the short term relative to the rest of the market. They are snapping back a little bit. The meta news about cost cutting is probably helping the notion that they have their profit margins somewhat under their own control, not entirely, but somewhat. And so I do think that's just a little bit of a short term tailwind. At the same time, you have things like energy making a new high. So the tape gathering itself up, 3,800, very familiar level for the S&P. That's exactly where it is. Yeah, 1.6% on oil.

EQT up 8%. Baker Hughes up 5%. These are on top of such strong gains we've already seen in this sector. Let's focus, though, on Tesla because it's not joining the rally today. While Elon Musk has certainly been focused on Twitter, Tesla's stock has tumbled. It's down around 12 percent since Musk took over as the head of Twitter less than two weeks ago. That's more than double the losses on the Nasdaq 100. And a lawsuit scrutinizing Musk's Tesla compensation package is now heading to trial. The suit alleging that the company set low bar targets as part of

his $56 billion pay deal. Not sure that the comp thing is what's moving it, Mike, but it is interesting that he has seemingly been very, it's hard to tell where his focus is, but if you look on Twitter, it's on Twitter. Right. I mean, they're even, you know, they're calling these teams within Twitter, like the 24-7 team. He's bringing engineers over from Tesla and some of his other companies. I don't think that that's necessarily something where somehow the Tesla operating strategy and outlook and investment plan is at risk. It's just one of those things. It seems like massive distraction. He's already sold a bunch of Tesla shares.

The stock itself already was topping along with a lot of the other you know big cap growth stocks it takes the stock back to where it was almost two years ago right before it got that huge ramp on inclusion into the S&P and a stock split so really big round trip over almost two years right now and it was underway already but I do think it's just accelerated this sort of idea that the valuation had to come down to some degree to meet the current level of the business. And by the way, it's like a 35 forward PE multiple right now. It used to be well over 100, not even a year ago. Wow. Tesla shares down another few percent today. Meta, on the other hand, is rallying. It is helping the Nasdaq, as you mentioned. Reports of looming layoffs possibly affecting thousands as soon as this week.

Investors taking that as a positive sign that the company is serious about cutting costs after multibillion dollar spending on the metaverse. IAC Chairman Barry Diller talked about the evolution of Facebook to meta on Squawk Box earlier today. Here's what he said. If he just paid attention to his basic businesses, I think all is well and maybe better because of TikTok or whatever, but all is well. Those businesses are great. They're great. I mean, built from nothing. They're just fantastic businesses. If you change the name of your company to something that doesn't yet exist, to bury what does wildly exist successfully. Something is quite odd in that. Here to discuss MKM partners, Rohit Kulkarni. He has a buy rating and $140 price target on Meta. Name change aside, it's clearly indicative of what the market has been worried about lately, Rohit, which is all

the spending on the metaverse and changing the company's entire focus and not focusing on the core business, which is weakening. Does the reporting today out of the journal signify that, look, they are in control of the margin story and cost cutting? I think what's positive in the journal story today is they get the message from the street loud and clear. We aren't clear about what Metaverse return on investment would look like. Having said that, if you can control costs in Metaverse, I think that would be a positive. What they said on the earnings call was exactly the opposite. What they said was, Metaverse losses will increase next year while we are investing in the core business.

If today's news comes out to be true and they're actually going to be reducing headcount, which I feel is going to be a little bit harder for a company of this size and scale to do, I think that today's gains would stick. And as Barry Diller said, the core businesses was hit last year but it's recovering and I think it's recovering the in the right direction the main issue is about costs and margins into next year. But it doesn't get at the problem which is that the metaverse still seems very far away and for a for a market a bear market focused on discipline and show me profits right now it's still kind of an elusive idea yeah absolutely i think but the core business is strong enough for getting to a point where it can sustain um so long as they are going willing to

spend no more than say five to ten billion dollars of cash burn every year and and every growth company should do that a certain proportion of their profits should go towards moon shots so long as only a certain proportion happens that way but uh what we heard in the earnings call was that proportion would grow to more than 20 maybe 30 percent of our profits so that's where people were of the opinion that look your core business is slowing down. You're taking moon shots. And there is absolutely no line of sight as far as what the return could look like. Could be three, five years. And we need some sort of a cadence to control those costs. So that's where I think the issue is with the stock. And I feel today's news

is a step in the right direction. Well, I mean, the other factor for a bullish analyst like yourself has to be the valuation and just how far shares have come down and what is being factored in there. Yeah, I think as in no matter which way you cut it, the valuation is extremely cheap, whether it can get cheaper based on the margins, based on more deterioration of the core business. Yeah, it is possible, but this looks like a trough-trough valuation, as in people are assuming lower earnings and assuming lower multiple. That's where we would be aggressive buyers, so long as you can look beyond, say, six months from today. So I think that's where a stock around $90 feels that way to be. And then we would be

aggressive buyers on valuation, whether they can show margin expansion next year depends on proactive steps like layoffs that they are announcing today. Yeah. Well, it sounds like you're not 100 percent convinced on that, but would appreciate seeing it. Rohit, thank you. Rohit Kulkarni of MKM Partners. IEC Chairman Barry Diller's comments on meta on Squawk Box this morning, not the only thing on our radar. He talked advertising,

an area, of course, of his expertise. Top of mind, social media and technology companies recently pointing to a big slowdown in ad spending as a headwind. But Diller says it's not that bad. Listen. There is a slowdown in

advertising. It's always first out and then first in, which is to be expected. I know about my stuff. My stuff is advertising, which is suffering, not disastrously, but somewhere between 5 and 10 percent. It's not hideous. Diller also commenting on the sell-off in media stocks and the potential for further consolidation among the big players after the Warner Brothers-Discovery merger earlier this year. But when it comes to streaming, he says there is already a clear winner. Netflix won. Get over it. Netflix won. Get over it.

Of course. Netflix will never be displaced as the leader in streaming. If you say, who leads streaming? It is Netflix. And it will continue to lead streaming. And eventually, they'll pare their costs down. Look, they shut their costs up in order to build their business. And so they put a lot of money in programming. costs down but they shot their costs up in order to build their business and so

but a lot of money in progress is it i don't know mike markets on a different story on netflix and on on advertising with his own stock and some of his portfolio company well for sure i mean on netflix i mean i think it's pretty acknowledge it may be the races for number two i don't think anybody says they're going to displace netflix it's all acknowledged that maybe the race is for number two. I don't think anybody says they're going to displace Netflix. It's all about how big is the ultimate market.

Can you get to scale? Disney's not that far behind Subwise. So that's interesting. But on advertising, his direct exposure to advertising within IAC is dot dash Meredith. So that's kind of a lot of consumer interest websites as well as the old Time Inc. magazine. So, yeah, there's wear and tear on those businesses. The other stuff, the Expedias that have been spun off, Angie's List, LendingTree, that's really a lead generation business.

Match.com, you know, it doesn't sound romantic, but that's a lead generation business. And so you do see the pricing change in there and general consumer kind of looseness with their wallets and their attention span is obviously not what it was a couple of years ago. No, it's been a volatile trading session for Lyft. Let's hit that one because it will be reporting earnings after the bell today. It comes just days after rival Uber did beat revenue estimates and also issued strong guidance. Deirdre Bosa joins us. Deirdre, what's the key number investors will be watching for,

and how did the Uber report change expectations? Well, the Uber report typically does change expectations, but they've really been moving in different directions over the last few months. So it may not be as good of an indication as it used to be. We are certainly looking for guidance is going to be key as usual, as well as its progress towards profitability as seen through adjusted EBITDA. Now, Lyft has been a major underperformer over the last year. Like you said, not just relative to the broader markets, but to Uber as well. Investors have sold out of Lyft more aggressively because they think that management has been maybe a little slower to react to the changing macro environment. Ridesharing, though, it is part of the services economy that has held up relatively better than other areas. Uber CEO said a week ago that demand

still remains strong. So will Lyft echo that? The bar, though, Sarah, is low for this. Yeah. I mean, look at the gap, Mike Santelli. Deirdre, thank you. Mike, between Uber and Lyft, it's really widened lately. Absolutely. There's always been that gulf. One, obviously, Uber more globally, more diversified in terms of the delivery business that they have. Lyft more of a pure play. That's been a story for a while. I think there is, though, been the big question that's hung over the group, which is, does this business truly scale? I mean, I think that's still an open question. Uber has somewhat better financial economics at the moment.

But if it doesn't necessarily scale that we're positive about, Lyft scales, you know, is at the moment. But if it doesn't necessarily scale that we're positive about, lift scales, you know, is much more subscale. So I think that's why you have that underperformance that we've seen recently. And, you know, we talk about adjusted EBITDA, talk about all the kind of asterisks you have to wade through to go through the numbers in companies like this. I think the investor base is a little bit less willing to do so right now in this type of environment to kind of give those allowances to a company that's still giving out a lot of stock-based comp and is not really one-for-one profitable on a bottom-line basis.

Yeah, it sort of used to be the opposite, where Uber underperformed because it was global and scaling more complicated and had the Eats business. This is pre-COVID, of course, when they went public. Mike, just looking at the broader market here, we're holding on to gains. We've come off a little bit right now. Utilities, now real estate, consumer discretionary, all in the red. It's interesting that so far what we've been seeing over the last month to date, which has been a week or so, energy, materials, industrials, financials are your leading sector. So there's like reassertion of the value trade. I'm curious what you're

watching and what you think is driving that. It's interesting. It doesn't really feel as if the industrial outperformance explicitly is saying we're in for a great macro environment. There is a little bit of resilience in some areas of capital spending. Industrials in general, you know, they're relatively well managed. It's also not a sector that's dominated by one or two companies. So it's been better. In terms of financials, they're finally capturing a little bit of the yield story. But I also think that was just beaten down going into this phase. They're getting a bit of relief on that. It's somewhat encouraging that you are finding the value sectors continuing to work better. Value over growth is in

a pretty solid uptrend. So all those trends are made an attack. Now, energy and materials is interesting because, you know, commodities have not really fallen apart. If you're looking for help on inflation, you've stopped getting the tailwind from sharply lower commodity prices in the last couple of months. Well, especially oil with Brent crude back to 98 and WTI up to $92 per barrel. We've got two minutes to go here in the trading day. What do you see in the internals? They turned positive all morning. It was pretty much 50-50. If you look at the market graph, it has gotten a little bit better. It's certainly not an overwhelming dominance by the bulls today, but you see well over $2.2 billion versus $1.5 billion declining volume. Look at energy on a year-to-date basis.

The XLE sector ETF, the energy sector ETF, today on an intraday basis, came up three cents short of the prior intraday high from about five months ago in June. Still could be on track for pretty close to a closing high. So we'll see if it can break through that. It's a pretty aggressive move, but you're seeing it still outperform the commodity itself over the last few months. It's one of the few areas of the market with any earnings momentum whatsoever. Volatility index is settling back below 25. It's been kind of making these efforts to pop higher in the morning and then sell off because the overall equity index has remained bid. And you do have that divergence among sectors,

which helps to kind of calm down index level volatility. Yeah I mean I've had transports to some of the list of the other cyclical stocks that have been working lately up again for the best day since October 24th or so the Dow transports. Take a look at the Dow as we head into the close at 430 points or so biggest addition basically biggest adder to the Dow is Amgen today. And on the downside, it's Nike, which is actually taking the most out of the Dow. Look at the S&P 500, which is higher by almost one full percentage point. Again, Mike noted energy. It's climbed to the top of the list, up 1.7%.

Technology, though, is having a strong day. So is communication services. Actually, that's in the lead right now because you've got a big rally in some of these names. It's not just Meta. It's Dish Networks, which is up 10% today. Paramount, Live Nation, Match, and Alphabet. Dantex up more than eight-tenths of one percent, second day in a row for gains for the Dow and the S&P. That's it for me on Closing Bell. See you tomorrow.