Closing Bell - Rare Interview with Nike CEO, Peltz Takes on Disney, Looking Ahead to Bank Earnings 1/12/23

Episode Date: January 12, 2023

Stocks rallied for a third-straight session after December inflation numbers showed a cooldown from the previous month. Holly Newman Kroft from Neuberger Berman discusses the CPI print and her take on the Fed’s strategy and market impact. Disney shares rallied after billionaire Nelson Peltz launched a fight to gain a board seat at the company. Analyst Peter Supino explains why he thinks Peltz’s ideas for Disney are “reasonable and collaborative.” Meantime Sara sits down for a rare interview with Nike CEO John Donahoe, where he gives his read on inflation and the strength of the consumer in America and China. Donahoe also discusses the decision to part ways with NBA star Kyrie Irving late last year. Plus the latest on chips, the banks, and crypto’s comeback.

Sox higher for a third straight day here as December inflation cools from the prior month. This is the make or break hour for your money. Welcome everyone to Closing Bell. I'm Sarah Eisen. Take a look at where we stand overall in the market. Up 250 or so on the Dow. High of the day was up 319 points. A nice broad rally again for the S&P, up four-tenths of one percent. You've got three sectors lower and those are the defensive sort of safe haven sectors, utilities, healthcare, and consumer staples. Everybody else is up today. Energy is leading. Real estate, another big comeback day for the REITs. The NASDAQ up six-tenths of a percent. It's being led right now by Microsoft. NVIDIA, Meta also helping out. Apple's under a little pressure today. And check

out shares of Disney. Stock story of the day, leading the Dow as billionaire Nelson Peltz launches a proxy fight for a board seat at the company. We're going to talk much more about that in just a bit. Also ahead on the show today, a cannot miss exclusive interview with the CEO of Nike, John Donahoe. Do not hear from him too often. We're going to hear about his latest read on inflation, the strength of the consumer, China's reopening, of course, Kyrie Irving controversy. A lot to get to with Mr. Donahoe. First up, though, let's break down day three of gains over at the market

dashboard with senior markets commentator Mike Santoli. I got to say, I didn't necessarily think the market would be up after core CPI, which the Fed pays attention to, was a little bit hot. It was mostly on target, right? So the core forecast was mostly where it was supposed to be. Well, over the month of a month was in line. So I think that's what we're looking for. And then I think in general, the fact that the forecasts were so close to where it came out, it showed you that this macro suspense over every number maybe is going to ease a little bit. The market was positioned for this continuing story of inflation in retreat, the Fed perhaps getting toward the end of what it needs to do, yields really getting

compressed, and people migrating back to some risk exposures here coming into the year very defensive. Now, where does it leave us? Right at an interesting spot, right? We keep drawing that line. That's the downtrend from the January 3rd, 2022 high. The 200-day average is exactly where we are right now in the 39.84 area at the moment. So clearly, this could be an area where it would make sense to pause. So the equal weight version of the S&P continues to outperform. It's up more than 19% from the October low. It is also blasted above its own 200-day average. So that's a better, firmer-looking story. Now, a lot of talk about some of the speculative stocks, some of the old favorites of a couple of years ago

in high-growth tech having a little bit of a revival. It is true. They have started to run a little bit. Even the meme stocks have. But this puts in perspective, I guess, a representative sample here. Block, Zillow, DocuSign. A two-year chart shows you these just massive waves

of liquidation. And then what's happened is, in the 75% to 80% down area, DocuSign, a two-year chart, shows you these just massive waves of liquidation. And then what's happened is in the 75% to 80% down area, long, sideways, boring, choppy, up and down. Maybe it's a base building. Maybe people are accumulating there. So stable, but definitely not something that looks poised to take off again to the upside at this point, Sarah. So I guess as it relates to the inflation story, even if it was in line, Mike, given the market setup, the market was so excited anyway for a softer CPI,

I think it's surprising to see bonds rallying in the 10-year now below 3.5, because there's plenty in that report that the Fed can point to and say, we need to keep going. We still have a lot more work to do. And by the way, we've heard that from some of the Fed comments.

There's no doubt the Fed might want to throw some cold water at the market if it continues to get overexcited. But if you look at things like, you know, shelter was the only thing holding the core services CPI positive in this week. That's the part of the CPI the market's very confident is on the downswing. So I get it. I understand why the story of, you know, inflation going from nine down below six is pretty well in place. So obviously, maybe the harder percentage points are ahead of us in terms of getting inflation down. But for now, and by the way, the S&P is only back to where it was December 14th. Let's not say that we've gone off to the races just yet. All right. So there, that's the important caveat.

Mike, thank you. We'll see you soon. Mike Santoli. So let's break down this number. For the sixth month in a row, inflation did cool down, falling 0.1 percent in December. And it is still up 6.5 percent from a year ago, right in line with Wall Street's expectations. Why? Well, gasoline prices down more than 9 percent in December. That certainly helps. Use cars and trucks, airline fares. They also contributed to

the decrease. But as we highlighted in our preview yesterday, shelter and food inflation are still rising. Food at grocery stores rose less than in November, but consumers are still feeling the pain. Areas like bread, cheese, fruits and vegetables all up from a year ago. Eggs up 59 percent year over year thanks to the avian flu in part. Kroger's CEO told us yesterday, remember, it would take months to fix because those new chicks have to be born without the disease. He also gave us a clue that food inflation wasn't going to come down anytime soon. Our expectation is early in the year, the inflation will continue to be higher than what it had been a couple of years ago. But as you get later in the year, the inflation will continue to be higher than what it had been a couple years

ago. But as you get later in the year, we do expect some moderation there. But it's still going to be a while before it really takes some pressure off the customer. And then there's shelter, which accounts for about a third of the total CPI index, continued to rise in December. Take a look at that core rate. It strips out food and energy, went up 0.3 percent. That's the Fed number to watch. That's a number of Fed watches. And it was up more than in November. Now the question is, what is the Fed's next move? Philadelphia Fed President Patrick Harker and St. Louis Fed President spoke earlier today. Both suggested pushing interest rates above 5 percent. Harker is supporting smaller hikes now of 25 basis points. Bullard, on the other hand, and St. Louis Fed president spoke earlier today. Both suggested pushing interest rates above 5%. Parker supporting smaller hikes now of 25 basis points. Bullard, on the other hand,

said the Fed should get there as soon as possible. Let's bring in Neuberger-Berman managing director Holly Newman-Croft, who is now an inflation regular. Holly, seems so, doesn't it? Welcome back to the show. So I take it you've been bearish posture. You're not that impressed with the inflation moderation. I think inflation came in exactly where we, Neuberger Berman, and the market expected it to come in. Of course, we love seeing inflation come down, but 6.5% is still too high a number. It's unsustainable for a healthy, growing, rational economy. I think what's going to be interesting in 2023 is the focus is going to shift from solely on inflation

and inflation coming down to slowing growth and that playing through the system. Okay, before we get to the slowing growth, though, on inflation, I do feel like the jury's still out on how fast it comes down from here. Well, I'm a fan of what your Kroger CEO said. I think it's going to take a little bit of time to come down. The Fed has not increased their target of 2%. We're at 6.5%. We're not going to get there anytime soon. This is not going to be a matter of months.

It's going to be more than a year. You don't think so? Because I mean, some on Wall Street do think it's a matter of months. Like, it'll come down very quickly here. No, I think we at Neuberger think that if we can get down to around 4% towards the end of the year and then watch it come down further next year, that would be a healthy, responsible, slowing decline in inflation. And what is that ultimately going to mean for the Fed? It means that, well, we expect expect just like I think consensus and everyone else that they're going to continue to raise rates 25 basis points to probably three times. I think where the discrepancy lies in the market and in general is when are they going to switch

and start reducing versus just pausing and holding? You don't see the reduction? Not yet, no. In 2023? Probably unlikely. So it brings us to the growth question, because that's the other debate right now, is how much we're slowing. Are we going into recession, and are earnings expectations in the right place? So growth is going to slow, right? We expect inflation to come down.

Growth is going to slow. We're certainly expecting that, but that's the intended consequence of everything that the Fed has been doing. The other thing is that, you know, prices are coming down, revenues are coming down, but the price for goods is also coming down. So that could have some offset, if that makes sense. But growth is going to slow and earnings are going to come down a bit. So you haven't liked stocks. You've liked bonds this year, right? I didn't exit stocks. We're underweight equities. We continue to be focused on high quality companies. We continue to focus on value over growth. And we have a real emphasis

on active management. Active portfolio managers had their best year since 2005. And that's because there's finally a consideration for real research, real consideration for strong management teams, for companies that have a proven track record of operating profitably through difficult markets. I mean, the era of free lunch, where interest rates are going down or even negative and valuations are skyrocketing, that's over. So we're underweight equities. We didn't exit equities. I guess. But do you have FOMO? I mean, we started off, we're starting off pretty strong here. And this week has been strong. And everything you laid out about inflation and the Fed and slowing growth, that's pretty much there in the market. So why not dip your toe back in on the idea that

on the other side, it could be a shallow recession and the Federal Reserve is done hiking? And we will dip our toe back in. But right now, we're being paid quite handsomely to wait. The taxable equivalent yield on a muni cash management portfolio is close to 6 percent. And our clients, like your viewers, have just suffered a down 16, 17 percent year. And so we're going to sit tight, be paid really nicely, close to long term equity returns to wait. And when we see things start to settle, we'll go back in. We'll go back in the U.S. markets. International equities are going to be a great buy. You know, valuations have been really decimated. But we're not there yet. Not yet. Not yet. But I do think

we're closer to the end than we were certainly last time we spoke. We're getting there. All right, Holly, a few more inflation reports with you. Well, maybe we'll get there. Thank you. Holly Newman-Croft of Neuberger Berman. Look at Nike shares. They're off to the races to start 2023, up nearly 10% so far. Up next, a rare and exclusive interview with CEO John Donahoe on today's inflation print, his read on the American and Chinese consumer, and Nike's prospects in the metaverse.

You're watching Closing Bell on CNBC. We're up about 200 points on the Dow. Nike shares making a comeback after a rough year, up more than 50 percent now from their 52 week lows. I spoke this afternoon with CEO John Donahoe about today's inflation number, started by asking where he sees it going here in the U.S. Sarah, you know, there's a lot of people who are prognosticating on the macroeconomic outlook. And the reality is I have no crystal ball more than anyone else. But I can tell you what we're seeing and then how we're thinking about it. Sure. The simple fact of the matter is we're seeing

continued strong consumer demand for our products and our brands for Nike, Jordan and Converse. We saw that in Q2 and we continue to see that. And so we're just focusing on we have a muted outlook going forward. We're prepared for anything. But our focus is to make sure that we get stronger through this period, regardless of how the inflation and economy play out. And that's what strong companies do. So you're saying you still have pricing power in this environment, basically? I'm saying we still have deep consumer connections.

And the consumers are prioritizing Nike, Jordan, and Converse in their purchases. And that's what we've been focused on continuing to do with that connection with the consumer. And that's what we'll continue to do, to do with that connection with the consumer. And that's what we'll continue to do regardless of the economic outlook. What about China? Since China has begun to reopen, what have you seen from consumers there? Well, as you saw, after two years of disruption, we returned to growth in China in Q2. And for your viewers, our Q2 ended November 30th of last year. So we saw 6% in currency-adjusted growth. And we have invested heavily in China, even through the disruption over the last couple of years. And we saw fruits of those investments. So, for instance,

we invested in building hyper-local product, where we would take an iconic franchise like Air Force One or Dunk, and we localize it so it's relevant for the Chinese consumer. And the Chinese consumer really responded to that and is responding to that. Our storytelling and our brand is more locally, contextually done right now. So whether it's live streaming or on Tmall and on the platforms, they're connecting again with Chinese consumers. And we saw that in how the consumer is responding. So we're still the number one cool and favorite brand in Shanghai and in Beijing. We're really focused on the Gen Z consumer in China. We saw very good response from the Gen Z consumer who

wants the most innovative products and wants brands that are globally relevant. And so that's what we focused on. We saw good response in Q2, and we have the same focus and outlook going forward. Since then, but just in the past few weeks or so, have you seen the Chinese consumer really ramp up the spending since they've opened up the economy? Well, there's been disruption in China. There's, as you know, there's been phases of disruption. For instance, at the end of Q2, when there was a zero COVID policy, we had 1,500 stores closed. Now, with the transition toward an evolved COVID policy, our stores are open, but obviously consumers and our teams are working through

as COVID works its way through that society and that economy. And we factored in some disruption in our outlook, but we view that as transitory. We still believe in the fundamentals of China. We still believe it's a strong market. We're confident it's a strong market and we're confident in our position. What about inventories, John? Nike got slammed, as so many companies did, by the supply chain issues and the ports congestion. And I know you're working through that, but they're still bloated. We saw some progress last quarter. When do you think about return to normalization for inventory levels? Yeah, well, as you said, our inventory's kind of peaked at the end of Q1. And just we, like many others, faced a sort of

bulge in inventory. And so our focus has really been twofold, Sarah, since then. One is to stay ruthlessly focused on our core iconic franchises, our innovative products, where we still experience full price realization. And we saw that through Q2. So the consumer is still paying list price for the Nike products that they know and love. In the areas where we have excess inventory, which is primarily apparel in North America, we are working through it. We're discounting and working through it. Our units of inventory were significantly lower at the end of Q2 than they were at the end of Q1.

They'll be lower at the end of Q3. And our goal is to be back to normalized inventory levels by the end of our fiscal year,'ll be lower at the end of Q3. And our goal is to be back to normalized inventory levels by the end of our fiscal year, which is May 31st, as you know. Got it. On the direct-to-consumer story, that's been really the growth engine that investors have been paying attention to for you for years. This last quarter, it was interesting to see the strength in the wholesale business. How should investors think about that direct-to-consumer business? And is it still the engine of growth for this company in ways that we've seen in the past? Well, Sarah, we have a very clear approach to how we connect, which is view it through the

consumer's eyes. And you've heard me say before, consumers in this day and age want to get what they want, when they want it, how they want it. And in our industry, they've been very clear they want a premium and consistent shopping experience regardless of channel. It's interesting, consumers don't really differentiate digital purchases from physical purchases. They don't necessarily differentiate purchases that are from our model brand apps or stores versus those from our partners. And so we've developed our priorities and focus so that we can offer consumers choice. So that starts with our unmatched digital apps, right? The Nike app, the sneakers app, our digital properties are strong. You saw 34% growth in Q2.

So that's still very strong digital performance. But our strategic wholesale partners, partners like Dick's Sporting Goods or Foot Locker or JD, are very, very important because consumers want to be able to try on products. They want to be able to touch and feel. And so we've invested in strengthening those strategic relationships. And we're doing something no one's ever done before. We're connecting our membership programs so that we can deliver a personalized experience to consumers, whether they're shopping digitally, shopping through our partner stores or our own stores. And so our strategic wholesale

partners are very, very important to our future. And we're thrilled by the progress we're making around this connected membership proposition. You mentioned consumers anywhere. Digital has been huge for you, obviously, with your background, ServiceNow and eBay. And you bought Artifact. You were talking about early days of Metaverse and NFTs. Nobody's talking about that anymore, John, in this bear market. And a lot of these private companies' valuations have gotten wrecked. So where are you in that transformation? Is Metaverse still the future of retail to you? We never thought it would be the future of retail, Sarah.

Here, look, here's the way we think about it. There's the physical world. Nike was a leader in the physical world. There's been the digital world. And as you say, we're a leader in the digital world. And then there's going to be the virtual world, which we think is an incremental and augmented thing. And so we want to be a leader there in our industry, just as we have been a leader in physical and digital. But we view this with a long-term orientation. So as you know, we acquired Artifact.

We created Nike Virtual Studios. And we're taking a long-term view where we want to be able to offer virtual goods to consumers in a more democratic way than has been done to date. So Nike's always been a very democratic brand. Jordan's a democratic brand. Commerce is a democratic brand. And so whether it's launching virtual goods that you can use in gaming or other environments or whether it's for collectors, we're taking a long-term view. You saw we launched our first Air Force One virtual good. And so we're going to take a very long-term approach and that's still going. Absolutely. We're going to have more from my interview with

Nike CEO John Donahoe, who doesn't see any slowdown in consumer spending in the U.S. after the break, including his thoughts on the split with Kyrie Irving. Also ahead, Nelson Peltz making his case for a Disney board seat. My goal is to reduce corporate overhead to a point that the company gets better. We'll talk to an analyst who says Pta's ideas for Disney appear to be, quote, reasonable and collaborative. Dow's up 200 points, and Disney is very much a part of that story, adding the most to the Dow. We'll be right back. Dow component Nike moving up the rankings this year on the Just Capital, Just 100 list, which evaluates companies on American employee priorities like job creation and wages.

Nike coming in this year at number 97, which was a big jump from 154 last year. The higher score coming in part from pay equity, diversity targets and wages, things that matter to workers. So I asked CEO John Donahoe what he's done, because this is a company that has faced controversy in recent years over its worker culture. Listen to what he said. You know, Nike's a very purpose-driven company. It always has been. Phil injected that into our founder film.

I injected that into Nike from the very beginning. And we've always been a leader in things that we align with our values. So, for instance, diversity, inclusion, and belonging, or racial justice, social justice. There's always been a leader externally in standing up for that. And we made a clear goal to make sure we're doing that internally as well, that we're a leader in providing a work environment where everyone can thrive. And I think some of the results you're seeing is progress we're making in that front. We're not all the way there yet. It's a never, we say there is no finish line, and that's certainly

the way I feel. But I think we've made some nice progress. And similarly, you know, we invest in sustainability, the other dimensions that are in that. Sustainability is another one of our core values. We're the largest in our industry. So we have to not just do the easy stuff, but we have to invest in things that drive true sustainability around materials and methods to make. That requires innovation.

So we're investing there. And then we invest in youth sports, youth participation in sports and wellness and health. So our values-based or purpose-based agenda has been there, and we'll continue to put that forward because it's core to who we are. The Just Capital rankings give you good marks for climate as well. But just on these issues of ESG, you mentioned speaking out. ESG has become so politicized, And I wonder if you get labeled as a woke company, which you do, if that has hurt the business at all, being able to speak up as a values-oriented company.

You know, Sarah, Nike is one of our hallmarks is we focus on the long-term. We want to build a great, enduring, long-term company. And I think every company has to think about what are the core values that are core to who we are. And for us, as I mentioned, our pillars of purpose are around diversity, inclusion, belonging, building an inclusive culture, both internally through the sport. Sport's a very area where it brings people together. Inclusion's critical around sustainability and, as I said, around youth participation. So those are the issues that we'll speak out about. And we're going to do that in a very thoughtful way and do it over time. And we think that strengthens our brand and deepens

our connections with consumers. So those are issues we're very involved with, other issues we care about, but we're not going to take the lead in speaking out about them. Speaking of the politics, I mean, U.S. is your biggest market. We had that disastrous House speaker vote. I'm curious, John, how you look at the political landscape in the U.S. in this new Congress. I know you don't necessarily want to comment on politics, but it influences the business environment you're operating in. Well, I'm basically, and this gets to be maybe a personal perspective, Sarah, so I think there are probably as many opinions as there are people, but I'm basically

an optimist. I'm an optimist and believer in democracy and the checks and balances of democracy. And so I thought the elections were encouraging and showing that our electorate does care. And they obviously different points of view, but an engaged electorate will produce, I think, a better political environment. And so I'm an optimist over time. All right. Well, while we're on the subject of issues, we haven't spoken to you since the Kyrie Irving breakup, which you made a point to do after the anti-Semitism. And I'm just curious what those conversations and what that decision was like for you. Well, Sarah, it goes back to being a very values-based company

or purpose-driven company. And in this case, we always try to balance standing with the athlete. That's a deep value of Nike. And yet also trying to do the right thing, consistent and live out our values. And we didn't always get that right. But in this case, we tried to balance those things, came to the decision we did. And now we're moving forward. You saw that on Christmas Day, we launched the John Morant shoe. He's one of the most exciting next generation players.

And so we're very confident about our basketball portfolio. And we just continue to try to balance doing the right thing. Mark Parker in the news today in a very big way, appointed chairman of the Disney board. No shortage of drama there with a proxy fight coming. He's also the executive chairman of Nike. What is his role and involvement at this point in the company? Oh, Mark is a very strong presence. I tell you, every CEO would love to have a kind of chairman like I have with Mark Parker.

Mark and I meet every Friday. We sit down. He's a wonderful counselor and advisor to me. As you know, his background in sneaker design and innovation is unmatched, and I tap that all the time. So I'm very blessed to have Mark as an executive chairman, as is our board and our team. And I'm told, Mark, I'm just thrilled for him. I'm thrilled for Disney. I'm thrilled for Bob Iger that they get to share in the extraordinary person Mark Parker is as well. John Donahoe, the CEO of Nike, explaining the Friday meeting still happening between Mark Parker and himself. Mark's got a new second job that's going to keep him busy

now as chair of Disney. Speaking of activist investor Nelson Peltz launching a boardroom battle up next, we will hear from an analyst who says Peltz's fix, the fixes that he's proposing to unlock shareholder value seem, quote, reasonable and collaborative. Dow's up about 200 points. S&P 500 lost a little bit of steam. It's up a third of 1 percent. And still most sectors are higher, except for utilities, health care and staples. We'll be right back.

Disney shares in the green today as Tryon's Nelson Peltz launches a proxy fight to gain a board seat at the media giant. He spoke earlier to CNBC's David Faber and Jim Cramer about what changes he wants to see. My goal is to reduce corporate overhead to a point that the company gets better. I'd like to see this company stop running like a matrix and start running like the companies we've been involved in, where they have real CEOs of businesses with real P&Ls, real cash flows, and real projections. I know it's hard in the movie business, but it's not that hard in the streaming business. Okay. And they've got to be able to do that. Let's bring in Wolf Research senior analyst, Peter Cepino, who wrote about Disney and Peltz today, thinks that some of those proposals sound reasonable. Peter, as someone

who covered the PNG proxy battle with Nelson Peltz, that soundbite, that's exactly what he argued for and what they did accomplish at Procter & Gamble. Is that what is needed at Disney? Warren Buffett has often referred to markets as being both a weighing machine, a voting machine in the near term and a weighing machine in the long term. And Trinan's history is that they're very invested in the result of the weighing machine. Trinan's a genuinely longer-term oriented organization, and they focus on intrinsic value and long-term cash flow and really the defensibility of consumer brands.

And that's what I think they bring to Disney. So why do you think Disney's board is so reluctant to bring him on board, literally? Well, seldom does a company welcome an activist into the boardroom. And while it try and rightly calls its own strategy constructivism, because they do believe in trying to create brand health and sustainable growth instead of the more the slash and burn strategies employed by some activists. Nonetheless, it's an opinionated, engaged voice in a boardroom, which has been pretty deferential to senior management for quite a long time. What about some of these proposals, like what he just laid out, getting away from a more matrix organization into a more accountable place where you have different business leaders accountable for their P&L, like what we saw at Procter & Gamble.

Is that something that can work at Disney? Is that a reason for the underperformance? 24 hours, much of the feedback from investors has been both welcoming an engaged, shareholder-driven voice and Tryon's track record to Disney, but also observing that the Tryon deck and press release were heavy on observations and light on prescriptions. And I think that's quite deliberate. They're sophisticated and they understand that they're dealing with a highly capable senior management team. They want to be a collaborative voice in the boardroom to try to help make sure that the next few years go better than the last few. But we're not trying to micromanage the media strategy dynamics here.

So what is your expectation right now for the stock and how this will play out? I know you like Disney and have a $117 price target. Is that no matter what happens? No. All of these recommendations are probabilistic bets. In this case, I'll build it for you. We think that Disney's underlying earnings power is about $7 per share, and that the question over multiple years is not whether Disney gets there, but how they get there. And the stock looks expensive in the near term. Our estimate for 2023 earnings per share, a conventional valuation metric is $4.30. However, the contribution to that earnings number from all the businesses that are at theme parks, $60 billion of revenue

is just $4 billion of operating profit. So the whole portfolio, all the video businesses, the movie businesses, excluding theme parks, has an operating margin on the next 12 months basis of about 7%. There's nothing like that in the S&P 500, a business with $60 billion of revenue, differentiated global brands, and a 7% operating margin. Why are the streaming margins worse than Netflix's then? There are a few reasons. The first is that Disney launched recently and aggressively trying to drive volume. And as a result, they spent like they were a mature business while they charged low prices to try to drive subscribers. Over the fullness of

time, that may or may not prove correct, but where we find ourselves today is that they've got low revenue per sub and a big budget. And so there's an opportunity to drive price and advertising revenue to drive margin. The other reason is Hulu. Hulu is not consolidated. Disney owns 68% of it. It does contribute $10 billion of revenue. And we think there are well over $2 billion of duplicative costs with the DTC assets at Disney, which show up on Disney's income statement and can be eliminated once Hulu is fully owned by Disney. Yeah. Got it. Peter, thank you very much for your quick take. Certainly in support of Nelson Peltz there. My pleasure. Thank you. Wolf Research Senior Analyst, $117 price target. Bitcoin is on pace for its best week since July.

Coming up, we'll discuss whether the crypto comeback is for real. As we head to break, check out the airlines. They're getting a big boost led by American after the company lifted its four quarter revenue and profit estimates, citing strong demand. Some big gains in this sector led by American up almost 10 percent. We'll be right back. Check out today's stealth mover, Cinemark. Shares of the movie theater chain are really popping. J.P. Morgan upgrading the stock to overweight from neutral, $15 price target implying a nearly 60% upside from Wednesday's close. The analysts there projecting the success of the new Avatar movie, as well as a strong slate of upcoming films, could lead to a box office boom, a nice 9.4% gain today. Big banks are set to kick off earnings season tomorrow. A top analyst

up next on his favorite names to own going into those reports. That story plus semis surging and Bitcoin bouncing back when we take you inside the market zone. 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, Christina Partanedoulas is here on the chip stocks rallying and Kate Rooney on crypto. We'll kick it off at the broad market up 144 on the Dow. High of the day, Mike, was up more than 300, but it is a broad, solid rally. Reaction to the inflation report, which comes in, what, softer for the six months in a row,

shows a moderation and leading. The market does suspect that the Fed will have to do less. Is that the right take? Yeah, that's certainly what the market has repriced after those numbers this morning. And it's allowed, I mean, just in the short term, allowed volatility to drain out of both equities and bonds. And it's in part because the numbers came in so close to forecast that there's a sense out there that, OK, we're tracking exactly what's going on.

You don't have these wild surprises. Maybe that in the short term is helping. And now it's going to give way. We're sitting on like a 3.5% year- year to date uptick in the S&P 500, giving way to earning season where you have a lot more two way action under the surface. It's company by company. Expectations have been beaten down to some degree. So it just seems as if maybe in the immediate term, the stakes are being lowered, even if the market might need to consolidate a little bit here. Let's hit the chip stocks. Taiwan Semi leading the chip makers higher after reporting better than expected fourth quarter earnings.

But those gains coming despite a warning of softer demand. The Apple supplier forecasting a drop in Q1 revenue and cutting full year CapEx. Gartner also reporting weakness in the fourth quarter PC sales, recording the largest ever quarterly decline in shipments. Christina Partsenevelos joins us for more. I guess the rally shows a lot of the bad news has have already been in these stocks. Yeah. Yeah. And it seems like we're just celebrating the not as bad as expected mantra. And that's exactly what happened with TSMC today. You talked about Q1.

They did warn that it's going to be weak in this current quarter because of PC sales, because of smartphone sales. But 2022 was a record year for them. And they continue to do, I guess, a little bit better than a lot of other peers, where peers like Micron, as well as Intel and AMD are putting out profit warnings and saying that it's going to be a little bit rougher over the next several months. You have TSMC that's saying, hey, no, it's going to be difficult in the first quarter of this year, but don't worry, in the second half of this year, we might even see a V-shaped recovery. And so the market is celebrating that and the fact that TSMC is really pushing forward with their smaller, more advanced AI chips that

are going to be launched this year. Apple is a customer and most recently Broadcom as well. So this is what they believe will be their driving force heading into the following few years, even with PC weakness. Christina, thank you. Christina Partsenevelos. Bitcoin is rallying, too, on pace, actually, for its best week since July. This as FTX co-founder Sam Bankman-Fried wrote in an online post that he did not steal customer funds and that a, quote, very substantial recovery remains potentially available. Kate Rooney joins us. Don't mean to sound like I'm connecting the Bitcoin rally off of Sam Bankman-Fried's comments, but both are notable. What do you think? Both are definitely notable, Sarah.

On the Sam Bankman-Fried side, he's really outlining his defense, trying to make the case once again that he didn't steal billions of dollars. He leaned in to the idea that this is a leverage problem, that it was too much financial risk. He likened it to Lehman or MF Global, despite really what's been said by FTX and those now responsible for restructuring that company, absolutely trying to shift public perception. FTXO has been a big story around Bitcoin prices, although analysts I'm talking to now say a lot of the bad news has already been priced in. As far as Bitcoin's rally, it seems from those I'm talking to that it's quite correlated to what's going on in the macro environment. Things like CPI, they are running out of sellers.

A lot of the bad news has been priced in. And Fundstrat, for example, was looking at the bottom around $1,500, $1,550 to be exact. And they're really looking right now at rates, things like the dollar and Bitcoin's beta to tech stocks. So that seems to be more important in terms of driving the crypto price narrative than Sam Bankman-Fried, despite it being absolutely newsworthy and still catching headlines in terms of what's going on in crypto. No question about it. The Nasdaq's up 4% this week. So Bitcoin tracking that ARK Innovation Fund, it feels like it's all been correlated. Thank you, Kate Rooney. Let's hit the banks, kicking off earnings season tomorrow with Bank of America, JP Morgan, Wells Fargo and Citigroup

all set to release their fourth quarter results before the bell. A drop in dealmaking and IPO activity expected to weigh on their performance, while loan loss reserves could climb to hedge against a potential recession this year. Let's bring in Jason Goldberg, who covers the U.S. large cap banks at Barclays. Jason, what do you expect? Yeah, no, it should be an interesting quarter coming out with all these big banks on Friday the 13th. But bottom line, we expect record net interest income performance aided by both loan growth and net interest margin expansion as the banks benefit from all the rate hikes we've seen. Some of that will likely be overshadowed by some softness in fee income due to weak investment banking fees. But we do expect pretty solid trading results, higher expenses, which is typically seasonal for the

fourth quarter. And while loan losses, we think, will remain near historic lows, as you alluded to, we do expect banks to continue to build loan loss reserves, you know, to get ahead of potential economic slowdown that many anticipate for 2023. Which one's best positioned? Who do you like? Yeah, I mean, among the biggest banks, you know, coming in tomorrow, we think, you know, JP Morgan's, you know, well positioned. You know, I think two of the knocks on the stock in 2022 were higher than expected expenses and some capital pressures. And we think about 2023, we think there'll be a tighter rain on expenses. We still think they'll benefit from the full year impact of, you know, this year of 2022's rate hikes. And we do foresee that building capital throughout the year. Mike, that's a bullish case generally on what the environment we're in right now. On the other hand, people have been worried

about net interest margins peaking, loan growth slowing, a worsening economy. How are the banks set up? Well, I don't think there's particularly high expectations for the near-term numbers, but there is an overhang of just people not being convinced that we can avoid a recession and therefore deterioration in credit conditions. So I don't think it's necessarily people looking for a particular adverse surprise in the numbers we're going to get here. It's really about until there's more certainty that the economy is going to muddle through, the banks are properly reserved, then I think maybe it just becomes hard to put a much higher valuation on some of the stocks. But it doesn't mean that they're not operating well. And if I

just look at it in aggregate, the KBW banks index, I think it's just trading at like book value as a whole. And that's about the average of the last five, 10 years. So it's not as if they've been washed out, but clearly not also being counted on to deliver some stellar numbers. What, Jason, do you expect earnings growth across the banking sector this year, even in the face of a slowdown or possible recession? We do. You know, we think as we think about 2023, we do think the group will grow earnings. I think partly because they built reserves in 2022, which should help them in 2023. But you enter kind of this uncertain backdrop from a position

of strength, right? So pre-provisioned net revenue was a record in the third quarter. We think it'll be a record in the fourth quarter and potentially another record into the first quarter. At the same time, revenue growth is succeeding expense growth. And while loan losses will likely increase as the economy slows, they're rising off of 50-year lows. And the industry has pretty strong capital and liquidity. So we do think they can grow in 2023, despite the fact that the economy will most undoubtedly slow. Jason, thank you for helping us pregame the bank earnings. Jason Goldberg. And tomorrow on this show, we've got a pair of big executive interviews that you won't want to miss. Bank of America CEO Brian Moynihan will be here to break down his company's latest results in an exclusive interview.

Plus, a first on CNBC interview with Wells Fargo CFO Mike Santamassimo. That's all tomorrow, 3 p.m. Eastern time. We're all over the bank earnings story. We've got just about two minutes to go here in the trading day. Mike, what do you see in the market internals? Yeah, it's another strong day. If you look at the volume split, Sarah, it's been pretty consistent the last few days. It's been broadly strong. You look at about three and a half to one advancing versus declining volume on the New York Stock Exchange.

As I mentioned yesterday, also starting to see a lot more new highs swapping new lows, in part because we're well more than a year past the market peak. But it's a good sign that some demand is showing up out there. The volatility index has really come in. It's now under 19. Mentioned before, we're done with this sort of big macro swing data releases for a little while. The Fed meeting's not for three weeks. And you have earnings out there, which has some offsetting currents based on company by company news. So that has been the time when you wanted to lighten up on stocks when the VIX has gotten below 20 over the last year or so. That's been the bear market rules since the start of 2020. We'll see if that still applies. It's not

necessarily going to be forever, a ironclad rule. In fact, in bull markets, VIX goes a lot lower than this. Talk about what's working. Nearly bankrupt Bed Bath & Beyond up another 51% today. As we head into the close, take a look at the Dow. High of the day was up more than 300 points, but overall, it's still a positive day, even though we're off those highs, up 232 points or so. Biggest contributors right now to the Dow gains, Boeing, Goldman Sachs, Salesforce, Caterpillar, Honeywell, and Disney is also in there amid the boardroom drama. S&P 500 up a third of 1%.

You've got almost every sector higher. Energy's in the lead. Real estate, communication services. It's cyclical groups, and it is technology. What's not working is defensive stocks like healthcare, utilities, and staples. The Nasdaq going out with a gain of almost three quarters of one percent. Again, for the week now, up almost more than four percent for the Nasdaq.

For the S&P, up 2.3 percent. That's it for me on Closing Bell. See you tomorrow.