Closing Bell - Stocks make a comeback, Moderna drags, Rare interview with Ralph Lauren CEO 9/19/22

Episode Date: September 19, 2022

Stocks clawed back from early losses and finished the day with modest gains, as Wall Street awaits this week’s key Fed decision. Morgan Stanley’s Mike Wilson joins with a warning about earnings season, and breaks down the defensive areas he’s recommending now. Meantime Moderna pulled back sharply along with other vaccine names. Jefferies analyst Michael Yee discusses the move and if he’d recommend buying the dip. And the CEO of Ralph Lauren joins in a rare interview to break down the company’s long-term strategy and how he views the consumer in America and abroad.

Stocks clawing back here from early losses, but stalling near the flatline as a key week of trading gets underway. 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've just gone positive on the Dow and the S&P 500. NASDAQ was a little bit farther along there, up a little more than a tenth of 1%, looking to reverse a little bit of last week's losses.

Remember, we were down almost 5% on the S&P. What's working right now? It's materials, industrials, consumer discretionary, and utilities. That's what's leading us higher. Technology is also doing well, as you can see by the NASDAQ. Healthcare, real estate, energy, that's what's underperforming. The chart of the day is the 10-year Treasury yield. This is going to be very much in focus ahead of the Fed, hitting its highest level earlier since 2011, touching about 3.5% as we await Wednesday's Fed decision. Coming up on the show today, Morgan Stanley's chief U.S. equity strategist, Mike Wilson, will join us to talk about the turbulence we've seen in the market and why he thinks Wall Street's earnings expectations are still too high. Sticking to his bearish guns. Plus, an extremely rare interview with the CEO of Ralph Lauren. It is his first TV interview in the role. He's been CEO almost five years. He'll join us off the back of the company's investor day for a closer look at the business and the consumer. The stock is moving higher.

Time, though, to start with today's market dashboard. Senior markets commentator Mike Santoli ahead of the Fed. Mike, kind of quiet. What are you watching? Kind of quiet, Sarah. Yields, as you mentioned, kind of keeping the stock market in check. But this morning, equities sort of shook off that standard post-expiration Friday hangover, tried to get a little bit of traction. But still, last week's decline did break down the S&P 500 chart to a degree anyway. This has been that little uptrend since June that did get broken. Unclear exactly whether it's, you know, on a quick line back to the June lows.

But that is what people are worried about. This is the minus 20 percent levels, about 3850 from the highs. So that, you know, in the past has actually been a little bit of a place where we did pause. Now, in terms of valuation, everyone expecting the Fed to keep the pressure on. The two-year note yield has been racing higher. It's going toward 4%. And there's a lot of talk that equities valuation adjustment has longer to go. Now, take a look at how it breaks down in terms of the forward P.E. of the overall market. It's still in the 16.5 range. If you look at the models based on the two-year note yield, it should be lower. It should, you know, in theory be more like 14, if not below that. But what we really see here is if you break it apart, it's the NASDAQ 100 that's still very expensive, 21 times forward. That has not adjusted that much. It's still near the pre-pandemic highs.

Whereas if you look at the equal weighted S&P, it already is around 14. So arguably, the majority of stocks maybe have taken their medicine, even if the very largest ones have not. Who knows, Sarah, in a in a risk off event, if in fact you're going to make those distinctions. But that's the way it sets up. Well, I think the other question is adjusting to what? So we know that this week, 75 basis point hike, that's the big the biggie is priced in already. I think the question is whether Fed Chair Powell decides to get really aggressive and prepare us for a higher terminal rate than 4%, which he hasn't done before.

And if so, then where market expectations go? He hasn't prepared us for that explicitly. But the April Fed Fund's futures have 4.4% right now. So that doesn't mean stocks get that. It means that's where the Fed Fund's future has been. Next April, right? And that's where they pause. But the higher for longer has been the message, not necessarily how high.

Also, the two-year note yield close to 4% captures what the market thinks the Fed's up to for the next couple of years. So you think a lot of this hawkishness. Well, for the bond market, it's in there. Mike, thank you. We'll see you later for the Market Zone. Morgan Stanley's Mike Wilson out with a new note today, reiterating his bearish call on earnings. Specifically, warning investors, quote, may face a volatile path in the absence of an event to clear the decks. Joining us now is Mike Wilson. You expect more pain here for the stock market

after a pretty brutal week last week. Yeah. Hi, Sarah. It's good to see you. I mean, like I'm going to pick up where Mike left off, which is I think his summary was quite good, meaning the average stock has really taken a lot of pain. That's usually the way bear markets play out. We've written about this a lot in the last couple of months, which is that we think the average stock probably made its low sometime this year, maybe in June, maybe before June. But the index is still overvalued. And that's where probably the majority of the pain will come as we get the final capitulation, which we think will be driven mostly by the growth disappointment now. I also agree with Mike's sort of view that the bond market has priced most of what the Fed's going to do. I mean, the terminal rate is close to 4%.

Two-year notes are the same. And that's probably as far as they're going to be able to go in this cycle. But the stock market has not, because as he pointed out rightly right the multiple for the s p 500 is probably two turns too high and that's before the earnings get cut so yeah we think there's more pain for the index it's going to be more idiosyncratic from here and i think that the job for investors at this point is to find those individual securities that they want to underwrite through this you know slowdown that we're going to have whether it's a recession or not it's probably still not a majority of stocks but there is opportunity and we've been more defensively positioned that's

been working we're focused on companies that have good earning stability you know companies that have probably already lowered the bar on the earnings that have been more realistic i think those are good camps to be thinking about and that's how we're approaching it. So I think the question, Mike, is what kind of recession we're looking at. If the Fed just engineers a recession here to cool down inflation, but otherwise household balance sheets are in good shape, corporate balance sheets are in good shape,

the financial system is in good shape, isn't that somewhat shallow and benign ultimately for the economy and the market? Yeah, I think that's right. I mean, but remember, we still got to go through that, right? And so if you're going to have a recession, and we're sort of 50-50 on that recessionary outcome, that means earnings probably got to come down by close to 20%. So we don't think that's priced by any stretch.

And so we got to go through that process and that revision sort of process. And then I actually agree with what you just said. It's not going to be a long, drawn-out recession in our view. And that means that 2023 could end up being a pretty good year. But the fourth quarter we think is going to be pretty tough. So you don't think it's going to be a deep recession and you think that bond yields may be peaking here, both of those things might suggest the equity market would rebound or it'd be a good time to buy. That's the part that you don't agree with, though. Well, that's right. I mean, I think if the market was more fairly

valued, then I would say that's appropriate, but it's not. So, you know, I mean, even if you're saying there's not much downside, it's hard to get a lot of upside. Like our target for June of 23 is $3,900. That's where we are today. So as an investor, you'd like to see some upside if you're going to take equity-like risk. And that's why we're going to be a lot more interested when we get down to the low $3,000s. That would be a really fat pitch. And whether we get there or not, we want to see this play out. We want to see those revisions come down because historically the market has never done well when the revisions are that bad.

So you think what's going to take us there is the earnings revisions to reflect the economic downturn, even though we may see lower treasury yields, we may see continued disinflation or all-out deflation, all of which would ultimately be positive for companies. Ultimately, that's correct. But, you know, once again, our job is to determine if it's a good risk-reward to take a swing and, you know, to really, you know, risk up here on an index-level basis, we think that's incorrect. At the stock level, I go back to what I said earlier, I think there is opportunity. We've gone through, you know, quite a bear market already,

and this is really a stock- game at this point just understand that it's not it's not like a big like the majority of stocks okay it is not it are not going to work so that's where bull market is when the majority stocks are working this time is still a minority of stocks are going to be working so how do you find the winners you said defensive that is where you've been positioned what what about tearing through some of the rubble here, as you mentioned, where a lot of stocks are 50, 60, 70 percent from their highs, particularly in tech? Absolutely. And so what that really boils down to, as I said earlier, is we're looking for companies that have either lowered the bar. You've probably had two or three

earnings revisions already that are significant. Or you have situations where the business models themselves are more defendable and they continue to have pricing power. They've got a better control of costs. They've managed the situation better than others. And that's the operational efficiency factor. And that's what's been working, you know. So what the market's paying off for right now are companies that can basically, you know, protect the bottom line or they have pricing power in a way that they don't have to worry about that because their top line growth remains superior. It's just harder. In this environment, it's not a majority of stocks. It's a small minority of companies that are able to do that right now. And within the defensive group, utilities are higher for the year. Consumer staples are almost,

and healthcare has been working really well too. So of those, which looks best to you? Yeah. So from a sector standpoint, health care is probably still top of the list for us because it absolutely is cheap and it's relatively cheap compared to its history and compared to the market. So that's still an attractive sector, probably top of the list for us. Secondly would be beverages within the staples environment because they have better pricing power and a better handle on costs. And then utilities is probably third in that regard. And then look, there's things within technology that probably look attractive. But, you know, if I look at the three major sectors, software, hardware,

and semiconductors, you can't say at a subsector level, that's where it gets more idiosyncratic. Mike Wilson, thank you very much. Appreciate you joining us. Chief U.S. Equity Strategist at Morgan Stanley. The National Association of Manufacturers just releasing its third quarter outlook survey. Some key warnings around the supply chain, labor and inflation. CEO Jay Timmons will join us next to share the results. We've got a rally here. The Dow is up 86 points. Looks like we're at the highs of the day. You're watching Closing Bell on CNBC. Getting a nice little jump here in the Dow. It's up 150 points. Maybe it's

Mike Wilson, Morgan Stanley, U.S. equity strategist. He walked back some of that negativity, still said that we could go down to 3,000 on the S&P, but thinks yields are near the top. Doesn't think it's going to be a very deep recession, just that the indexes have more work to do to catch up with earnings and falling expectations. Again, Home Depot, Apple, Nike, Caterpillar, those are the leaders, the biggest contributor to the Dow gains, J&J, Amgen, and falling expectations. Again, Home Depot, Apple, Nike, Caterpillar, those are the leaders, the biggest contributor to the Dow gains. J&J, Amgen, and Merck, biggest drags. Healthcare is under pressure.

We're going to talk about that a little bit later on the show. Moderna, in particular, a big loser. Let's talk manufacturing, because inflation and supply chain issues are still top of mind for manufacturers, according to a new survey out just this morning from the National Association of Manufacturers. The majority of respondents are also expecting a recession this year or next. Despite the tepid outlook, President Joe Biden said in a 60 Minutes interview, manufacturing is making a comeback in the United States. Joining us now is Jay Timmon,

CEO of the National Association of Manufacturers. Jay, do you agree with that? Yeah, well, hey, it's good to be here. And I actually am very pleased with many of the actions of the Biden administration, as well as congressional Democrats and Republicans in terms of adopting and enacting legislation that would be helpful to manufacturing. So you think infrastructure investment, you think about the Chips and Science Act, you think about the Ocean Shipping Reform Act. Those are all great things for manufacturing. But here's the rub. I just wish the president would kind of back away from his insistence that we increase the cost of doing business in the United States by raising taxes on manufacturers and other businesses. That's not going to help

us. And I think that you're seeing that reflected in some of that data that we released today. I thought you were going to say, here's the rub. None of it is happening right now. Like when we talk about a chip renaissance of manufacturing in this country, we're not talking about this year. We're not talking about next year, right? We're talking about several years down the road. So what is the state of manufacturing in America right now? Well, but what you are doing is you're seeing that our government is actually betting on the future of manufacturing, and that's a good thing. But to your point, those are long-term investments. Those are long-term strategies. And what we're seeing

right now is we're seeing the benefits of tax reform that was adopted in 2017, and you're seeing the regulatory certainty that we saw over the last few years. And that has really led to record investment and hiring and wage growth for manufacturers since 2018. However, there are some headwinds. You mentioned them right at the top of this story. You see supply chain shortages. You see workforce challenges. We have 834,000 open jobs in manufacturing. And you certainly see inflationary pressures largely due to increased cost of energy. So against all those headwinds, the good news is manufacturers, three quarters of them are still optimistic about the future of their business. But they cite all of those issues as potential

problems in the future. And that's why you see about half worrying about a recession. Here's the number that surprised me in your survey. Seventy eight percent more than that of manufacturing leaders listed supply chain disruptions as a primary business challenge. Only 10 percent believe improvement will occur by the end of the year. I thought it was getting better, faster and sort of at a bigger scale. It's getting better slowly. And honestly, I hear it was getting better, faster, and sort of at a bigger scale. It's getting better slowly. And honestly, I hear it anecdotally. You know, I hear from, I'm actually at the NAM board of directors meeting right now.

We have 250 of the nation's leading manufacturing CEOs and executives that are here. And I hear anecdotally that the supply chain freeze is starting to thaw a bit. But you have that issue. You have the workforce shortages. You have inflation. All three of those things feed into each other. It's kind of a vicious circle. So as we start to break some of those down, you'll start to see improvements, I hope, in all three of those areas. So related question, Jay, you guys see inflation before we, the consumer, sees it. You're earlier in the supply chain. Is it coming down? What's your prediction for the next few months? Certainly seen it stabilize. There's no question about that. It was really rampant. I mean, think about this. We

pumped literally hundreds of billions. Well, we pumped trillions of dollars of debt into our economy over the last three years. Of course, we didn't know what else to do. It was the middle of a pandemic. And we said at the time, look, this is going to be inflationary. We need to prepare the American people. I don't think our government did a good job preparing the American people for what was coming. The good news is, I think the good news is, we're starting to work our way out of that now. And certainly the actions by the Fed has helped temper inflation. But we still have a long way to go. There's no question. I don't think anybody predicted what would happen on the inflationary front, to be fair, even with the trillions of dollars. Not to that extent. But I will say that we, in the manufacturing sector, we knew that much debt spending was certainly going to have an impact, an inflationary impact. But you're right. We didn't see it coming to this degree. Yeah. Well, good to hear it's stabilizing at least. Jay, thank you. Keep us posted. Jay Timmons, National Association of

Manufacturers. Let's give you a quick check on the markets here where we stand. 40 minutes left of trading. And the Dow has taken a little jump here. It's up 125. So is the S&P 500, which is up a half of 1%. We are near the highs of the day. The Nasdaq is in the lead. It's up a little more than a half of 1%, but it's kind of broad. You're seeing a lot of sectors doing well today, not just tech. Actually, some of the best are tied to the economy, like materials, consumer discretionary, industrials. Remember, all these groups got slammed last week. Still ahead, we've got a rare interview with the CEO of Ralph Lauren, which is moving higher on the back of the company's investor day.

Some new targets for the next few years that they're putting out. We're going to get his read on the luxury consumer both here and abroad. And then check out shares of Moderna. I mentioned sinking today. They're at the bottom of the S&P 500, now down 50% on the year. A top analyst will join us to discuss what's behind that move. Closing bell. We'll be right back. Check out today's stealth mover, Synopta. Investors are going nuts for this stock.

Cowen naming the maker of almond, coconut, and oat milk a top pick $15 price target there, suggesting oats standing upside of nearly 60%. The analysts there are saying consumers are thirsting for those products because cow milk prices are rising even faster than plant-based alternatives. Synopto, which has more than 1,400 employees in three countries, has been a big winner this year. Take a look. Shares rallying more than 40%.

Retailer Ralph Lauren outlining its sales growth and outlook. And investors are liking the new plan. The stock is up almost 3%. Up next, the company CEO joins us exclusively to discuss his new pricing strategy, targeting younger consumers and more. We'll be right back. Luxury retailer Ralph Lauren hired today on a day that the company presented a positive three-year financial outlook during its investor day. Joining us now in his first interview since joining the company in 2017, Ralph Lauren CEO Patrice Louvet. Welcome. Good to see you. Sarah, it's great to be here. So you're out with a new three-year plan, mid-teens margins, which I think a lot of the analysts were excited

about, a step up in sales. What's giving you the confidence? Listen, we have three key messages for our investors today. First, our reset is complete and we have built what I like to call a fortress foundation. Second, we have a clear game plan with diversified growth drivers. North America, women's wear, digital. And third, with early momentum under our belt, we are poised to accelerate growth in value creation. The company has momentum. Our ambition, which we stated this morning to investors, is to be the leading luxury lifestyle company in the world. And across brand, product, go-to-market, we have immense runway in terms of growth opportunities. Fortress strategies, a little Jamie Dimon-esque with the Fortress balance sheet,

but how much of the strategy, Patrice, is dependent on AUR, or the ability to continue to increase prices and pricing, which I know has been very key to your strategy? Yeah, so AUR is part of it, but if you step back, you're really focusing on three key drivers. New consumer recruiting.

We recruited 20 million new consumers over the past four years. Higher value, younger consumers. Unit growth, select unit growth in specific categories and channels. And then continued AUR growth. AUR, you're right, has been an important driver of our performance over the past few years. I like to think of AUR as an outcome of more elevated product, more elevated marketing, more elevated distribution. As a result, we have the ability to then drive AUR. What's been really exciting for us is we've driven AUR 64% over the past four years while

achieving the highest ever value rating among consumers. So the consumer is seeing the value and that's why we're delivering the performance that we're delivering. I'm trying to figure out how much of it is just the fact that we are in an inflationary environment and people have been, consumers have been willing to pay more, especially for luxury items where they're not as sensitive to inflation. And there's still, you know, this big tailwind from being locked down in COVID. And how much is the individual strategy that you've been implementing? How do you think about that? I think about that in the following way. We started our elevation journey a little more than four years ago. So we are on, I believe

the correct number is 22 consecutive quarters of AUR growth. So this does not start during COVID. Exactly. So what are you seeing from the consumer right now? Any slowdown? So as you look around our key markets around the world, no, we're not seeing a slowdown. Actually, we're seeing our consumer in the U.S., in Asia, in Europe, continues to be solid, continues to be engaging in our products, including our higher priced items. So at this point, we're feeling good about where our target consumer is. Now remember, over the past four years,

we've done a lot of work to elevate our consumer base. How do you do that? What does that mean? You do that both from the way you present your brand in communication, so our range of marketing has evolved dramatically from four years ago, engaging including a younger consumer. You do that from a product standpoint.

We've invested a lot more in new, higher AUR categories. Auto wear, now we're gonna focus on home, accessories and handbags. And then you also do that by really resetting your distribution, and where we've done that most acutely is here in the US, where we have now shifted the company towards really being DTC focused 63% of the company is now direct-to-consumer I don't know people realize that I think that they think of you as a department

store yeah you're absolutely right and and we talked we talked about that earlier this morning actually I think sometimes there are some old tapes the well Ralph Lauren used to be indeed anchored in department stores but we have completely pivoted from that. Our focus and our future trajectory is really to be driven by DTC. We have pulled back our U.S. department store doors by two-thirds over the past four years. We've reduced our off-price presence by 50%. So clearly this focus on digital, focus on DTC is what is the driving force for us. Do you think the market understands the story? It is still down 20% or so this year and has

underperformed some of the other retailers. Yeah, I think obviously the context is not particularly supportive for the industry that we're in right now. So we will certainly continue to one, educate the market on what our strategy is, and then, two, continue to execute on the key elements that we committed to. One of the messages I had for the investors this morning is if you look at our investor day four years ago and you compare it to where we are today, the headline thought is promises made, promises kept,

both from a brand elevation standpoint, profitability standpoint, consumer recruiting standpoint. You also get dinged because you're very international and Europe is sort of a mess right now in terms of, I don't know if you're seeing that, but with the energy crisis, inflation and rising interest rates, and then China as well, you're exposed there. And what's happening in China? Yeah, so we feel really good about our international business, right? A little less than half of it. China specifically, so we are committed long-term to this market. It's only today 5%, 6% of our business.

Our business has been incredibly resilient through lockdowns. Consumer coming right back, bouncing back as we reopen, continue to engage on our digital site. So I feel really good about the momentum that we have in China, and I'm excited about the future growth. Europe, I mean, you saw our earnings release last quarter, a few weeks ago. Europe was quite strong for us, right? We were up constant currency, 25% versus a year ago.

Of course, the context is volatile, but we're focused on navigating that successfully and staying focused on our core strategies of elevating the brand, reinforcing our core, and expanding our go-to-market footprint. How big of a role do stores play going forward? Because every company, including yours, got a bigger chunk of e-commerce during COVID. When you think about the future, what does that balance look like? When I look ahead, stores still have a role to play. Remember this conversation that says retail is dead? Yeah. Malls are dead. Stores are dead. Exactly. Boring retail is for sure dead. The consumer is looking for an experience, is looking for service. And that's what we look to offer in our stores.

I like the way Ralph has developed initially our store concept because it is not just a trading location. We invite you into our home and the idea is that you're coming into Ralph Lauren home. So from that standpoint, stores will continue to represent an important part of our mix. I think we'll continue to see increased penetration of our digital business. Right now it's about 26% that will likely go to 30, about a third of the company, 30, 33%. But fundamentally, when you see how consumers are shopping today, we no longer silo by channels. And I would argue today every single sale is a digital sale because to some extent there's been some work online prior to the sale happening, whether that's in the store or on our digital space. And what's happening, Patrice, on inventories and supply chain?

Because it's been all out of whack all over retail lately, trying to figure out where it settles. Yes. So we have done a lot of work on our supply chain, diversification, localization, platforming, digitization, so much so. And I mentioned this to investors earlier today that i really believe our supply chain is a competitive advantage and we have seen that through covid both the strength and the agility of our supply chain so there's a lot of conversation about inventory we feel

like we're well positioned going into the holidays on inventory and you know the the situation is improving from a sourcing standpoint in our supply chain. Lead times, reliability is improving. Logistics is still complicated, but also progressively improving. So I am cautiously optimistic that things will improve. And you're optimistic on demand for holiday, it sounds like. You don't see a slowdown? The market is worried about a slowdown. I understand that.

From what we're seeing, what I can tell you is what we're seeing in our stores and our sites, we're pleased with the consumer response we're getting to our products. Patrice Louvet, thank you very much. Thank you, Sarah. Don't wait another five years. We appreciate it. Last interview was 10 years ago when he was leading Gillette for Procter & Gamble. Take a look at where we stand right now in the markets. We've got 23 minutes left of trading and we're lifting higher here. We've seen that throughout this final hour of trade. Look at the NASDAq. It's up three quarters of 1%.

You've got almost every sector going positive in the S&P, except for real estate and healthcare. Everybody else is higher. So the Dow is up 176, again, near session highs. Remember, we're coming off of a pretty ugly week where we were down 5% on the S&P. President Biden declaring the COVID pandemic over. That's hitting shares of the vaccine stocks hard.

Coming up, a top analyst on whether the sell-off is a buying opportunity. Look at Moderna down 7.4%. And a reminder, you can listen to The Closing Bell on the go by following The Closing Bell podcast on your favorite podcast app. We'll be right back. We've got a news alert for you on Uber surrounding that hack we told you about on Friday. Eamon Jabber is here with the story. Eamon. Yes, Sarah, that's right. Uber is out with a new statement this afternoon providing a little bit more detail on that disruptive cyber attack that they had last week. We all remember that that attack was sort of disruptive to internal operations.

They said, though, they were able to keep all the Uber services functioning throughout the cyber attack and today offering a little bit more detail, including what they know about who's behind the attack. Uber is saying, we believe that this attacker or attackers, plural, are affiliated with a hacking group called Lapsus, which has been increasingly active over the last year or so. Now, that group is also allegedly potentially behind a hack of Rockstar Games over the weekend involving the Grand Theft Auto video game franchise. We need a lot more clarification on exactly who did that and why. But in this case, Uber telling us a little bit more about how this happened, saying that the hacker here apparently bought credentials for a contractor of Uber on the dark web, credentials that had

been stolen at some point and then were for sale on the dark web, purchasing those and then trying to access the system again and again and again they did have two-factor authentication in place that contractor though ultimately did accept the access code on their phone or their device and that let the hacker in they say some data has been stolen here they're working through all of it to figure out exactly what's been stolen and exactly what the long-term implications are. But some new information there from Uber, Sarah. Yeah, I mean, good to get any information. Sometimes we don't even know about these hacks. Good to get the transparency, I guess, so that people can safeguard. Eamon, thank you. Eamon Jabbers. Take a look at Bitcoin. It's falling again today, dipping to its lowest level in three months and bringing down crypto stocks as well. It's coming off the lows, but it is still down 1%,

even though the market is rallying here. Up next, we're going to discuss whether cryptocurrencies can bounce back for real. That story plus homebuilders rallying and vaccine makers plunging when we take you inside the Market Zone next. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli back with us to break down these crucial moments of the trading day. Plus, we've got Diana Olick to talk homebuilders and Jeffries. Michael Yee on Moderna's pullback, along with everything we're seeing in health care right now, which is pulling back.

Mike, take it off with you. Nice little comeback here in this final hour of trading. What's causing it? You know, I don't know if there was a particular news trigger, but the ingredients you can observe, which is treasury yields were in off their highs from the morning. The market did get some traction there on a Monday after a Friday options expiration. Sometimes you get a little bit of a relief there. Also, the general sense out there. We also had a late day rally on Friday that folks are under positioned in stocks.

We've had this nice slide into a Fed meeting. So squaring up means buying as opposed to selling. I think all those things together probably account for it. We're still sort of knocking around these levels. A lot of bulls we're hoping we're going to hold even a slightly higher. So I think it mostly says that people didn't have a huge urgency to sell. The market was falling of its own weight as long as yields were going up. Well, and yields, we made new highs, highest since 2011 on the 10-year. I thought it was straight Mike Wilson saying

that he thinks we're peaking in yields, but the market still has a long way to go down. Because if you think we're peaking on yields, that might make other people very bullish for stocks. Yes, so it's unclear if there would be just this perfect sinking of yields peaking and equities finally bottoming and rallying hard. It could very well happen. A lot of folks are looking at the fact that real yields, so inflation adjusted yields, are quite positive right now. In

fact, about as positive as they've been in years. And that usually feeds into the idea that nominal yields, which we look at all day, might be peaking or at least have built in most of what the Fed has to do. I agree with you. It would probably be a bullish reflex for stocks, even if it wasn't, you know, the one thing that touched off a new uptrend. Well, speaking of rising rates, make it nine straight months now of declining homebuilder sentiment. Confidence falling three points for the September read. That was the lowest since 2014, not counting the pandemic spring of 2020. But then on a positive note, KeyBank did double upgrade the sector today, saying early pain equals early gain. KeyBank picking out names like Pulte Group, D.R. Horton, and Lenar as top performers with 20 percent upside. Our Diana Olek joins us now. Diana, builders previously had the upper hand due to low supply. How is that now changing given these market dynamics? And are we flat out calling a housing recession? Is that what's happening? Well, several economists have already called a housing recession. In fact, the builders did that last month and just reiterated it again

in this report today. But really, the builders are sitting on a ton of inventory suddenly. 10.9 months supply at the end of August. It was five and a half months supply just in December. day. But really, the builders are sitting on a ton of inventory suddenly. Ten point nine months supply at the end of August. It was five and a half months supply just in December. Meanwhile, the existing home market is still has a lack of homes for sale, not only because homes aren't selling, but because sellers are afraid to now put their houses on the market because they're not going to get what they thought they would have. And again, it's like that chart you had of the 10 year Treasury. That's the one that the 30-year fixed mortgage rate loosely follows. And you have mortgage rates went up over 6% last week.

They hit 6.42% today. So when you're facing that and you have a huge amount of supply on the builder's backlog, you know, they're starting to say things like amenities, like buying down the mortgage rate, and again, lowering prices. You saw one quarter of builders in the report today reported that they were lowering prices. And that's difficult to do given their high cost for land, labor, materials. And I think you're for sure going to start to see that showing up in the earnings reports. We get a couple of those later this week, Sarah.

So I'm wondering how much bad news is in these stocks to the call, the Wall Street call that early pain equals early gain. They want it. People want a bottom pick here because it's been one of the hardest sectors of the hit sectors in the market. What are you hearing about just what is in these prices, Diana, at this point in terms of whether it's all baked in or we could see a few more shoes to drop here in housing? Well, look, you see homebuilder stocks at incredible lows of 40 percent from where they were year to date. And so that, of course, you're going to have bottom feeders in there looking at it. Is there further down to go? Well, that's going to depend a lot on these builder earnings that we have coming up, how much the losses are, how much those stocks continue to fall.

But if you're talking about having the pain now and the gain later, there's definitely pain now. You talk about a bottom in this market. I don't think we're at the bottom yet because, again, we're looking at home price declines. And when you see this kind of demand falling out of the market, people are saying they've never seen this kind of volatility in housing in 40 years. It's just hard to make that kind of pick. Right. Pulte Group trading at three and a half times next year's earnings. Diana, thank you. Diana Olick. Look at Bitcoin. It is under pressure today, trying to recover from its slide that began over the weekend. It did briefly touch a three-month low early this morning and then recovered a bit, as you can see, along with stocks. Kate Rooney joins us. Kate, what are traders saying is the biggest price driver

right now for overall crypto? Ether had a terrible week with all the excitement about the merge. I know. And that's a great example, Sarah, of this macro news really driving prices. Bitcoin's been playing this role of an extreme risk asset for a lot of investors. So it's one side effect of crypto becoming more mainstream. And as a result, some of the global macro news is really driving the narrative. And analysts I'm talking to say it's the only thing that matters right now. Things like the Fed, rising interest rates, that's really outweighing any positive industry news. And the merge was a really good example of that. It was this highly anticipated software upgrade for Ethereum, seen as great news for the industry,

but it came the same day as that CPI number, that inflation number, which took the wind out of Ether's rally. It's down about 20 percent since then. And a lot of analysts are also now watching the U.S. dollar for a leading indicator of what's going to happen with Bitcoin. We've seen a pretty strong inverse correlation there really tends to be what's driving crypto. And there's analysts out there, Fundstrat being one of them, that's bullish long term, but say it's going to be volatile in the near term, get some downside protection. They're talking about options. It's driving a lot of the options activity. And it

seems to be that a lot of traders are just looking to hedge their positions at this point. Kate Rooney, Kate, thank you very much. Mike, as far as crypto is concerned, has the air come out of it? If you look at some of these crypto related equities and their valuations, obviously one and the miners and the early adopters on the other. And somehow that there's some tangible value level that's been reached. No, I don't think that's what this is at all. I think most of the activity, if you look at a volume weighted level of excitement in this asset class, it was a year and a half ago. And it was based on mostly price momentum. I don't know how much it has to unwind.

It's underperforming now, the Nasdaq 100, which had usually been kind of in lockstep with. So, you know, again, there's a lot of activity going on. I'm not sure that it's something that you can really believe in unless it is about. I mean, why should the Fed matter to this if it was as promised, you promised, this kind of new monetary infrastructure that was being built. We kind of moved on there. Even the Bitcoin believers aren't talking about the inflation hedge so much,

or they are saying the market is sniffing out the Fed hikes, which are going to put pressure on inflation just really, really early. But clearly there's some liquidity benefit there from the Fed policy. Let's hit Moderna, because it is the worst performer on the S&P 500. Healthcare stocks overall are a drag on the market after President Biden said the pandemic was over in a 60-minute interview.

Let's break down these moves with Jefferies biotech analyst Michael Yee. Michael, is that why Moderna and other vaccine makers are down so much? Well, hey, great to be here with you, Sarah. Two things going on. One is, as we've talked about previously, you know, the market is going to have to accept that the biggest wave of COVID injections are behind us. And, you know, certainly the U.S. and other countries are going to want to move forward. And therefore, the demand and the promotion of these vaccines is going to continue to wane. And certainly, I think Wall Street's care about vaccine sales is going to start to wane. And certainly, I think Wall Street's care about vaccine sales is going to start to melt out of the stock. You talk about air coming out of stock,

and I would say that that has to more fully come out of the Moderna stock price. The second is really interesting, too, is that next year, Biden is talking about, you know, going to a commercial market and government not paying for these vaccines as well. Another sign that, you know, the focus on paying for all this in the pandemic is moving behind us. I have to give you a chance to do a victory lap because this has been your case even on those days where Moderna was running higher. People were so excited about the recurring revenue of multiple boosters and targeted boosters like Omicron. So you've been on hold forever and have a $170 price target. We're now at $127. So

are you going to take it lower from here? Well, look, a stock has come way in. What I will tell you is I've had a lot of dialogue with investors to say, look, I wish we could get past the COVID stuff. I wish we could pull all of the COVID hoopla out of the stock and at some point trade with hopes of a pipeline and all of the other things that they have, which they hosted in R&D Day and Analyst Day a week ago, of which we did put out a note saying there is a lot of stuff coming. We need to move past this COVID. I think we've got to get past the winter, where basically we're going to find out there's not that many jabs going on. And as we turn to 2023, you start looking at the stock price around 100, 115,

which is about cash of 20 billion and a little bit 10, 20 billion of COVID in there. And you're basically getting 43 programs for free. So look, I think there's still more that can come out of the stock. However, at some point, people are going to pay an interest to everything else coming on that RSV data, flu data, cancer data, all of this stuff next year. But I think you're right. We're getting close. We're getting close. Forty billion. I think you want to see it get to 40 billion market cap. Then you'll be interested. Is that right? Below 40 billion. I can see value. Got it. Michael Yee, thank you very much on Moderna. Another upgrade for Netflix, this time from Oppenheimer, giving an outperform rating,

$325 target on the expected launch of its ad-supported tier. The analyst behind this call on CNBC earlier today betting Netflix can charge premium prices for some of its biggest shows. Listen. Netflix can aggregate a very large amount of audience over a few day period when they launch a new show like a Stranger Things or an Ozark, you really get a premium there. So we actually think Netflix has the ability potentially to move around the timing of new releases for the biggest advertisers around product launches. And we think that's not something people are talking about yet, but will be over

time. Mike, it's been kind of a delayed reaction from the street on this ad tier, and it seems to get more exciting with every little whisper that comes out around it. How does it change the Wall Street view around Netflix and as a factor in evaluation? Yeah, I think you're getting a little bit more clarity or at least some clues about exactly how they're approaching the ad business, the partners they're going to have. And obviously, they're talking to the street to some degree on their expectations. I don't know that we know yet exactly what the ongoing demand is going to be. I don't think anyone has any doubt that it's going to be a great initial sell.

A lot of advertisers will want to experiment with it. You have to make some assumptions about how many people will trade down to the ad tier, what it's going to mean for net revenue changes. But it seems like the stock has sort of built a bit of a base above the recent lows. It's certainly in a better position than most of the competitors that are subscale, going from where they are to being no ads but having a vast user base, to adding ads. It seems more additive than other people trying to build scale. So I get it if you're going to own one, it's either this or Disney. But, you know, it's

a long way up to where it fell apart. And this price target's interesting at $325 because that's basically the level of the really last leg down in that crash move from April. It would basically be just getting back to that level, which is still vastly below the highs of just a few months earlier. Yeah, look at that gap at the Disney outperformance. Didn't realize it was that stark. Yeah. Crude oil, I should also mention, is higher today. It just hit $85 a barrel. The dollar is a little bit weaker and treasury yields, while higher, are off the highs of the day. We're just about two minutes here in the trading day. What do you see in the internals right now as we head into the close? Yeah, they're pretty sturdy, actually, Sarah. They've improved throughout the day. It was looking like something like 3 to 1 positive to negative volume. It's basically still there

on the New York Stock Exchange. At least NASDAQ had been a little bit weaker. So definitely firming up, small caps outperforming. That's what often happens on a good breath day. Take a look at financials or banks specifically on a month-to-day basis. Well outperforming that's what often happens on a good breath day. Take a look at financials or banks specifically on a month to day basis well outperforming the S&P that's just opened up recently maybe they're finally latching on to you know the short term yield improvement also value in general has had a decent little comeback against growth in the last several weeks so that's manifest there as well volatility index it's probably not going to really buckle too much ahead of the Fed in a couple of days but it's in this sort of no man's land going sideways in the mid-20s. Still showing, you know, it's concerned. It's September. We're not too far off the lows, but really no panic in

these stats just yet, Sarah. No, but I just want to point out Microsoft because it joined the 52-week low list, which is just interesting and sort of surprising. Trading at the lowest level since May. Microsoft and Alphabet have been catching down to a lot of the other weaker NASDAQ stocks. There you go. And the index feels pain on some of these bigger stocks. Yep. Mike, thank you. As we head into the close, take a look.

We're up 200 points now on the Dow Jones Industrial Average. We're at the high of the day. So we continue to see improvement throughout this final hour. Nike is doing well. It's adding a lot of points to the Dow. But actually the biggest benefactor here is Home Depot, Apple, and then Nike. Goldman Sachs is strong as well. What's holding it back? J&J, Merck, and P&G. S&P 500 up about six-tenths of 1%. Again, highs of the day. Most sectors actually going to end up positive here. Materials,

industrials, and discretionary are the highest performers. Real estate and healthcare lag. And the NASDAQ, the biggest winner of all today, closing up three quarters of one percent. That's it for me. I'm closing bells. See you tomorrow, everyone.