Closing Bell - Stocks Slide, Bank of America's CEO & Pulse Of Luxury Spending 12/9/22

Episode Date: December 9, 2022

Stocks falling again with the major averages posting their worst week since September following a higher than expected reading on inflation. Canaccord's Tony Dwyer discusses whether this slow start to December will continue into the end of the year. Bank of America Chairman & CEO Brian Moynihan discusses what the U.S. needs to do to increase competitiveness with other countries, whether he thinks a recession is on the horizon, the outlook for the real estate market and much more. And Saks CEO Marc Metrick weighs in on whether he sees any cracks in the luxury spending market.

A hotter than expected inflation print weighing on sentiment this morning, but investors largely taking it in stride as we await next week's Fed decision. 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 right now in the market, holding up, I guess, the Dow is down about 94 points. We were a lot lower earlier, down 140, but we were also higher, up 63 at the highs of the day. S&P 500 down about a tenth of a percent. You have a lot of pockets of green right now. Real estate, communication services, technology, financials, and consumer discretionary are all remaining positive right now. Energy, health care, and materials under pressure. NASDAQ comp,

sort of up and down around the flat line. It is higher, though, today because technology is stronger. Names like Netflix and Tesla bouncing back. Take a look, though, at the picture for the week. And it isn't a pretty one for the major averages. The S&P 500 down about two and three quarters percent for the week. Dow's worst week since September. And all sectors are lower on the week, led down by energy, which is the worst performing on concerns about recession. That's a cyclical, sensitive group. Coming up on the show today, Bank of America CEO Brian Moynihan will join us. After a rough stretch in particular for the financials as well this week, we're going to get his read on the consumer, the economy, and much more. Plus, we will talk to the CEO of Saks,

Mark Metrick, about new concerns around the high-end consumer. Got that out of RH last night. Let's get straight to the market action, though, with CNBC Senior Markets Commentator Mike Santoli. Yields are higher. The dollar's stronger. You expect both on the back of a hotter PPI, but stocks are holding up. It is true. Stocks kind of idling here. I would say the yield move and the dollar move are coming off of pretty depressed levels.

They were down a lot into the week. So really nothing out of the range. Take a look at the S&P 500. It really has been pretty sticky in this general location between thirty nine hundred four thousand. You can go back a month. You can go back seven or eight months. It has traveled this ground quite a lot right here. Now, in terms of what would represent a break, a significant one, either higher or lower, it's basically plus or minus 200 points from here in the S&P 500. So if you get well above 4,100, that would convince some people this is more than just a bear market bounce. Under 37-ish hundred, and you start to say that that rally is really just a false one,

and you're at risk of breaking down again because that would kind of violate something like that. And this one, Sarah, a lot of conflicting signals about the consumer, right? University of Michigan sentiment bad, but better than expected. Lululemon, a little bit of disappointing guidance. Costco missed, but wages are strong. Take a look at this chart of various retail specialty chains and then the brands that they sell because it's really a stark difference. So you have Ulta and Dick's Sporting Goods, massive outperformers and very similar trajectories for this year, whereas Estee Lauder and Nike, global branded goods, more expensive, favored coming into this, have suffered this year. Obviously, global slowdown, dollar, big pressure points on that. So it's kind of interesting that domestic focus and just essentially playing off the top line of the U.S. consumer has been okay. Ulta, by the way, it makes

a new high every day. Every day. Yeah. New all-time high. And I get that because cosmetics as a category has been very strong. You hear that from all the retailers. And sporting goods as well. But sporting goods, I don't know. You don't see it in other stocks like Nike or Adidas. Pure footwear, not so much. It's a little more other sporting goods, I guess. Activewear. It's all the hockey sticks I have to buy my son. That's right. For his birthday today, by the way. Perfect. Happy birthday. Happy birthday, Sam. Mike, thank you. Mike Santoli. Let's talk more about that PPI print, which we don't do that often, but it came in hotter than expected. Surprised the market rose 0.3 percent in November. The data comes ahead of a huge week

of economic news. You've got CPI consumer prices out on Tuesday and then the Fed decision on Wednesday. Joining us now is Canaccord Genuity's chief market strategist, Tony Dwyer. Do you did it surprise you to see a hotter PPI, which could signal a hotter CPI tomorrow? Market's been so excited about inflation coming down. Yeah, and it is coming down from peak on the back of goods inflation, part of which is in the PPI. And Sarah, what's interesting is the prior month

was revised higher. So if you had actually had that revised print a month ago, we may not have had such a great narrative around inflation. And what's interesting to me is if you look at where the S&P 500 is this very moment, it's exactly where it was November 10th. So even with all the volatility that we've had and the potential, as Mike talked about, breakouts and breakdowns, we got that ramp off of that CPI number and we've been going sideways since.

Yeah, December was supposed to be seasonally a strong month, a month, not so much. So what does it tell you? So as you know, coming into this quarter, we're looking for a year end rally because any year that you've had the S&P 500 down more than 20 percent by through the first three quarters of the year. Outside of 2008, your expected range is set. It's always been seven, seven point nine percent to twelve point one percent. So that's our target range. So coming into this week, it was up 13.6 percent, which means it's honestly, from a trading perspective, a time to get more defensive, especially if you're looking for recession. So at this point now, we've pulled back. We're up 10 percent. We're in the middle of that expected outcome. So it's really not about the seasonals. It's about what history tells us after you've had such a weak start to the year.

So you're leaning defensively, selling rallies, positioning for what? A recession to start really getting priced in here into next year? Yep. And it's so, Sarah, it's very interesting. You know, you know me for how many years I want to be bullish. The problem is that- And you have been for most of them, I think. I know, right? It's always about the money. So here's the issue that we have and preventing me from, you know, wanting to go into 2023 without it, with a more bullish tone. You've never had the indicators like the percentage of inverted yield curves. It's an 87 percent. You've had a recession every time that's happened.

Leading economic indicators down 2.7 percent. Anytime it's been at this level, you've had a recession every time that's happened, leading economic indicators down 2.7 percent. Anytime it's been at this level, you've had a recession. Neither one of those did you have a soft you didn't have a soft landing when these indicators were like this. You've always had a recession. And if you've had a recession, it would be historically if you're going into a recession, it would be historically unique to have already made the S&P 500 low. So we're looking for a new low, obviously, going into the first. It's a consensus call, but sometimes consensus is right. OK, so here's the argument. And I hate to argue against what you just said about the inverted yield curve and recession predictor. But couldn't it also just be a reflection of

the fact that the market expects inflation to come down pretty sharply here? And we are seeing at levels we haven't seen in decades. Well, that was the idea. The fundamental backdrop that produced this year on rally we're looking for is what we've called the temporary sweet spot. The Fed, the initial Fed rate hikes have slowed the economy down enough, especially on the good side. Remember, coming into this year, we're going to transition from buying stuff to doing stuff, goods to services. And that's showing up in the goods inflation coming down, which keeps it below peak. And you don't yet have a recession, which means you can't disprove that there's going to be a soft landing. In an extreme oversold condition, that provides fodder for a really

sharp rally, and we've had it. And again, it's in that expected outcome. Now what we've got to deal with is what happens when all these indicators are telling you to go into recession, but everybody is still, they may be thinking there could be a recession, but they're still hoping for that soft landing. Tony, thank you for joining me with the tactical moves, as always. I was a hockey dad. Those hockey sticks, oh my God, how much they cost. A lot of hockey sticks.

We're still on the little plastic ones that you just play with inside. Tony, thank you. Tony Dwyer of Canaccord Genuity. Bank of America's stock has had a pretty rough week, along with the financial group. It's rallying today, but the group is down 3.4% for the week as recession chatter picks up on Wall Street. Up next, we talk to the CEO of Bank of America, Brian Moynihan, for his read on the consumer, the economy, and much more. Dow's down 63. You're watching Closing Bell on CNBC. Bank of America shares down 10% this week, underperforming the KBW Bank Index. This comes as a number of financial CEOs commented this week on recession looming in the year ahead.

Joining us now is Bank of America CEO Brian Moynihan, who is in Washington today for the Council on Competitiveness event, which he chairs. Brian, it's good to have you. Welcome. It's great to be here, Sarah, and it's great to be talking to you from this important group of people here at the Council on Competitiveness. So on America's competitiveness, the story has been, I would think, a strong one, because our economy has been in better shape than the rest of the world. Do you see that dynamic continuing to play out into next year?

Yes, we do. And so this group is about how to keep that going for a long term. But in the short term, America is a place to be. You know, we've got an economy that's bigger, it's more vibrant. The innovation, the capitalism is pure capitalism that lets things, investments get done. And yeah, we're all facing, we predict a slight recession, a recession early next year, first, second, third quarter, all negative. But on the other hand, we're going to fare better than most economies in the world. And that's because of the underlying capabilities of this country. What's the number one issue that worries you the most on our long-term competitiveness, say, with China? Well, in the end of the day,

we've got a couple of things. Number one, we've got to keep investing in research, and that's what we have here. We have the great research labs, the great universities. We've got to keep investing in the types of things that produced the moonshot, as people say, and all the sundry products that came off of it. We've got to keep investing in that kind of research, and then we've got to provide the incentives for that kind of research to be capitalized, and then we've got to have the people to build it. And the last piece is one of the things we're dealing with in this inflationary debate

is the long-term impacts of low population growth in the United States across the last couple of years. And you hear from the business community often we need people, and I think that's one of the other issues we've got to do to be competitive. So it's fund the research, capitalize on the research, and provide incentives for companies like in the CHIPS Act and others to drive that. And then last, make sure that we have the capacity to bring people into this country over and above what we produce naturally to really help you know this country be what it can be and by the way the great thing about america is we share our success when

we get it that's we continue to provide funds and capabilities all over the world that help the world be successful you you almost sound like a politician brian and and i bring that up um because the the white house press secretary actually took a question today. Your name came up at a briefing about you as a potential replacement for Janet Yellen. Is that something you've been approached about? I've got the best job in the world, and I think that it's not on my mind. But I like what I do, and that's why I'm here doing it today. Would you consider it, ever leaving private sector, going to government?

It's not occurred to me. I've got to run this big company. I'm 29 years with the company. It's a great company. It's an honor to run it. I'm not going to continue to do it. All right, so let's talk about what you're seeing at the company. You said you expect a slight recession next year. What gives you the confidence that it will be slight or shallow as

you're talking about and appears most investors expect to? Yeah. First of all, it's our research team and they're one of the best in the world. And they're a lot of talented people and they've been working this question. And so they have the first three quarters of next year negative, let's be clear, 1% or so, plus or minus, but not a deep recession. So what gives us confidence in that? And it's really the two-way question, which is the toughest thing about what the Fed's job is to slow down inflation, is the best thing about America. American consumers are spending more this year than they did last year. In fact, in the first week of December it picked up a

little bit from November to a little higher percentage, say 6% versus 5%, but it's still strong and consistent with a 2% plus growth economy. So that's that's a good thing because that's what makes America work. Those customers have a lot more money in accounts. They're in great shape from a credit perspective. Our industry is also in great shape from a credit perspective. Our industry is also in great shape from a credit perspective. So the withdrawal of credit just isn't on the table in terms of consumers and households. And so that's what is great about America. Lots of consumers spending, maybe not as much on goods this year. You heard the earlier guest say on experiences, trips and travel, bookings are up strong in our customer credit card and debit card base.

So that's what's good. They're employed, they're getting paid, they're spending. Now, that's what makes bringing down inflation tough because all those things obviously mean that they can pay for things. And so you're starting to see the beginnings of that flattening out in the inflation question. And the question is how long will it take to get that in control? Yeah. What are your expectations there about how fast and how far

inflation falls from here, if it does? Our expectations are that inflation gets in control really at the end of next year, into 24. It gets more normal level. So we start to see the GDP growth rates negative first record, then it turns positive. we also see the Fed funds rate staying higher, you know, really 475 to 5 all the way through next year. And then as the impact of all that slows down the economy, slows down inflation, you'd start to see it normalize into 24. And so this is not a, I think that's one thing that's been clear that people are really focused on now. This is going to take a little longer than people would like. It's not going to be so clear overnight. It's going to take a bit of time for the higher short-term rates to continue to slow down the economy and bring the inflation under control. So whether the terminal rate's five or

five and a half is not as important as holding it there until we're sure inflation is behind us. One part of the economy, though, that it is hitting pretty hard is the housing market, which I know you know very well. Last night, Gary Friedman on the RH conference call said, housing market is collapsing at a level I haven't seen since 2008. How bad is it from your vantage point and how much worse can it get? Well, this is a classic case of if you follow the trend through the global financial crisis, you know, six, seven, eight, you saw the house prices shoot up, then fall down and then get back on sort of the long-term trend. Again, from the end of 19 to now, house prices shot up and now they're coming down and they'll probably get back on the long-term trend.

But, you know, if you've got to think of the housing market in three different components. Component one is people have mortgages, are locked into, you know, I think it's 90% under five, 80% under four, and 50% under three, so they're locked into low rates. And that's good because that's, makes sure their cash flow is consistent. When you go to the people who want to buy a house, that's what's really being impacted.

So the builders and the people who are buying houses, obviously their purchase power is much less now, but that's the intended outcome of the Fed policy. Then if you go to the third part, which is rent, rent increases, you are shooting up and now they they tipped over and some cities are bouncing around and so we got to make sure that's really the part that affects one half of the american households don't own their homes so they don't have a mortgage and you don't own their home so therefore we got to be careful those people can afford their rent and that's what you got to see

tip over ultimately what what are you seeing in the commercial loan book Brian? Commercial real estate? Commercial loan books very strong. There's going to be a long-term trend, a lot of debate about that trend about the occupancy rate of buildings going forward. Not the vacancy rate, that's been the traditional focus, but actually you know how much space a company like ours needs. So in 2010, we had 130 million square feet of real estate. Today we have about 60 million square feet. So we've been on a long-term trend as we trimmed headcount, changed the way people work. And now with the work from home, we're three days in the office a week, you have an additional opportunity and I think that's a long-term trend, but it'll take a while to work through

the system. And then the second question for big center cities, and we just had this discussion in the city yesterday, is how do you convert that excess office space to housing? Because there's housing shortages in major cities around the country, still apartment shortages. And that's going to be an interesting thing. So New York and then Boston and Chicago and other places are going to convert those buildings to draw people back

in the city to live, which would be a good thing. Because in those cities, we're still short of core housing units. So it'll work through. It's just we're seeing our commercial estate book is in very strong condition. But it's a long term question that we'll have to keep watching. Yeah, I mentioned the stock price at the beginning of the segment, Brian. Your stock has really taken it on the chin this week, worst week, I think, since 2020. A lot of investors are reacting to what you and some of the others said at the conferences this week and warning of potentially lower earnings. Did the market

get that right? I'm not sure that's what we said. What we said is our net interest rate coming back up, which last year was about $11.5 billion, will be about $14.8 or $14.9 billion this quarter, this year. So it increased to $3.5 billion. But we told people earlier in the quarter when rates were different and the situation was somewhat different that we thought it would grow in a single quarter by $1.2 billion, and now we're saying it's going to grow between $900 and $1 billion. So that's a pretty good growth rate.

So I'm not sure. I agree with you. The earnings are not strong. They're very strong and returns are strong. So we feel good about that. But that's what caused people to be concerned about what the future prospect going into recession with earnings are. What's happening with hiring and layoffs inside the bank and out? Well, we had a management team for a long time that's managed headcount carefully. And so when I became CEO almost 13 years ago now, we had 290,000 people. We have about 215,000 today. So think of that as 13 years we've been able to manage headcount. So in the very near term, what happened this time last year is the attrition rates kicked up and the great resignation,

all the stuff that you guys talked a lot about. And that then caused us to turn on the hiring machine to make up for it. What happens is we come into this year, the turnover rate, the churn rate in our company has dropped dramatically. Half as many people left us in the month of October and less than the month of April. And it's getting back to normal so went from 12% turnover to 6% and 12% 19 6% and 20 about 15% and 21 and now it's working its way back down during 22 that means we just slow down the hiring we could manage the headcount back down to where we want but the the hiring engine because when people get scared they're

not gonna get the people they go out and get them now on the other hand we're investing positions relationship managers our commercial banking business. Technology will spend $300 million next year, bigger than this year, and things like that. But on the other hand, we let the headcount trim out, and you'll see it flatten out and come back down over time. But it won't take layoffs and things like that. It just takes disciplined management. Yeah, I guess what I'm trying to get at is whether there's a belt tightening going on right now as you prepare for bumpier times ahead in the economy. All of us, the corporate world is belt tightening just to make sure,

because if you wake up every day and people tell you a recession is coming, you're trying to do the things you can to make sure that you don't get over, lean too far one way or lean too far the other way. So I think I hear from our clients, I hear from our team and how we're approaching it. We continue to adjust our position as to corporate world. With the opportunities there, you still go. In the other areas, you're more cautious. Who wouldn't be?

What about investment banker bonuses? Everyone's expecting those to be down this year. Well, you guys seem to have a better track on it than I do from other firms but when the business is down 50% to 60% in revenues which it is will be this quarter across the industry you know those teammates to do a great job for us their talented teammates know that sometimes things go up and sometimes things come down. How do you read the the inversion of the of the yield? We were talking about it on the last

segment and the fact that it continues to get more and more inverted. Does that make you think it's going to be a bigger, potentially more long lasting recession? How are you reading the signals from the bond market? Well, you know, we've got lots of experts can give you treatises on what it all means. But the reality is the Fed is trying to slow down inflation. The tool they have is to raise short-term interest rates, and they're doing that. Meanwhile, the world, America is the best place to be. If you have money to put to work, and you can put it in the US at three, a treasury, 10-year treasuries at 340, or look at the rates available around the world and the strength

of the dollar, why wouldn't it come here? So the money's coming here because of safe haven and frankly, the fact that we have real yields and the strength of the dollar, why wouldn't it come here? So the money's coming here because of safe haven and frankly the fact we have real yields and the strength of the dollar. And so if you put that all together, it's just different. The major difference that you all talk about and know is that between prior times when you entered recessionary periods or potential recessionary periods, what you did not have was the massive stimulus that went on in governments around the world around COVID, which is probably more stimulus than in hindsight. And it's unfair to judge it in hindsight, but in factual hindsight, we've ended up a lot more stimulus we needed.

So therefore, our customers have a lot more money in accounts before the pandemic. That's causing it tougher to get to inflation. That may be an inversion, which is different, but long term it should work out and get back to a normalized yields curve. But it may take longer than people think. And that's why I think Chair Powell said last week, and I think that's what our economists think, and that this may take us a year and a half to two years to get rates to really tip over and start coming back down in the short end. The long end will sit more or less where it is. But aren't all those consumer savings dwindling as time goes on here and as people spend money and as inflation? They're

paying so much now for everything, including experiences like travel, which is costing the most in years. We saw for the first time in the last month, those levels of accounts start to come down a bit and so you know because now you're the last stimulus was in March of 21 you're now 18 months plus away from that so of course they're starting to come down now the interesting thing is you look at cash flow of households it's still strong you have to be more worried about median income and down households and whether cash flowing and that's gotten a little less strong but the the credit quality of our customers is very strong. But they still have multiples. And by the way, just year over year, the average account balances by the cohorts of different

cohorts are up 10 percent. So it's not like it's even the last year it's grown. So that's kind of the interesting question. They will spend it down. You're starting to see it a bit. It'll just take a longer time than I think people think. Got it. Brian Moynihan, thank you so much for your time today from the conference. I know it's been a little noisy there. Appreciate it. CEO of Bank of America from the Council on Competitiveness.

It's good to have you here as always. Just show you what's happening. We take a little leg lower here. Dow's down 114. The S&P 500 down two tenths of 1%. Again, tech is still strong today. So are the banks. So are communication services and real estate. Everybody else lower. We're still sharply lower on the week overall. Coming up, concerns about the high-end consumer. Earnings and commentary from RH and Lululemon. Raising some red flags about the environment for

luxury purchasing. We're going to talk to the CEO of Saks Fifth Avenue about what he's seeing from customers this holiday season. And then check out DocuSign as we head to break, sitting at the top of the NASDAQ 100 right now, following strong earnings and better than expected billings. That stock getting a 14% boost, still way off for the year. We'll be right back. News alert on Stellantis. Phil Abou with the story. Phil. Sarah Stellantis is idling the plant in Belvedere, Illinois, which is just outside of Rockford, where they build the Jeep Cherokee. They will be idling that plant, which has 1,350 employees approximately, starting at February 28th.

And the idling is expected to last at least six months. So what does this mean for the Cherokee, and what does it mean for the employees at that plant? Well, they're not shutting the plant down, and the Cherokee is not being discontinued. What you're seeing here is a company, and we're seeing this with other automakers, where they have to prioritize which models are they going to continue building as they transition into an EV portfolio. So you will have some plants, and this is a good example of it, where you have a model that is not really a high seller at this point, the compact SUV Cherokee. So as a result, they're going to idle this plant. And at some point, they'll make a decision about the plant and the Cherokee. But starting on February 28th, they're going to shut down this plant for at least six months. Sarah, back to you. Yeah, more layoffs, unfortunately,

in this economy. Phil, thanks. Bill LeBeau. Up next, we will take the pulse of luxury retail when we are joined by the CEO of Saks. St's down 121. Stay with us on Closing Bell. Luxury spending in focus today after Lululemon and RH both reported earnings last night. Both companies beating Wall Street estimates, but had very different takes on the consumer and the economy. Here's the CEO of Lululemon earlier on Squawk on the Street. We haven't seen any weakness with our consumer. We're well aware of the macro environment. We're well aware that many other retailers in the malls are heavily discounting. We have not. We don't see a need to. Regular price is driving our business.

Meantime, RH CEO Gary Friedman predicting things will get worse thanks to inflation and rising rates, which are hitting the company's performance. Sales are down. So did we plan for sales to be down this far? No. Did we think the housing market was going to collapse this fast? No. Do we think interest rates are going to go up this fast? No. So do we have more inventory than we'd like? Yes. Always so blunt, that Mr. Friedman. Those comments reflecting a new note from Barclays today. The firm says luxury consumers are cutting spending, and they use the word luxury recession in there. For more on the state of luxury and the consumer, let's bring in SAC CEO Mark Metrick. What are you seeing out there, Mark?

Look, Sarah, so far, you know, you think about the holiday season, we've been pleased with what we're seeing. And for SACs, holidays are about two things, right? It's about your self-purchasing and your gifting. And the consumer and the self-purchasing is really about going out and traveling. And consumers have indicated to us through our research, they plan on doing just that this holiday season, and they're spending that way. And we're also seeing, you know, gifting working as well. So really, on the luxury side, that appetite's there to spend. Are you, where are you relative to pre-pandemic levels on spending?

Oh, I mean, our sales just for the third quarter at Saks were up about 115 percent online versus pre-pandemic. And the SFA stores who, you know, I don't manage, but we consider an incredibly important part of our ecosystem. They're up about 15 percent versus pre-pandemic. And that was third quarter. Is there any sign of a slowdown? Look, you know, it's very broad because we have a lot of different customers that shop at Saks. And I would say that the trajectory of growth is different across the different customer swaths. The core luxury consumer is proving to be more resilient, while the aspirational consumer, certainly while still growing, is we're seeing a more moderate trajectory on that growth. How promotional is this holiday season for you?

You know, luxury, you're not going to win the promotional war there. So I would say that, you know, around the edges, we might be a bit more promotional, but that's not what's going to win. I'll tell you, though, the consumer is certainly making a choice for the stuff that is promotional over the stuff that isn't. So you're certainly seeing the consumer, and again, maybe not that core luxury consumer, but the consumer at the aspirational end of the spectrum choosing the more promotional goods. So you sort of tied the high levels of spending to travel. What about, I mean, isn't the luxury consumer also tied to

the stock market? I don't know. A lot of people got rich off crypto, which has collapsed. Housing isn't doing well. These factors, how do they, how do they usually impact spending? Sure. I think, you know, and a lot of, it depends on, you know, the customer that, that the pure and the luxury consumer that's been with us, our core customer, you know, they've been through all these different cycles with us. They're here. Okay. Some of that, you know, quick wealth that was accumulated over the last year and a half, you certainly are seeing, you know, that to pull back a bit. But again, I think people overall, once they choose luxury, they stay with it. What about inventories, Mark? We've talked a lot about how it was tough to the supply chain over the last year or two, tough to get everything in, all the sizing. Where does that

stand right now since we've seen some thawing? Yeah, I'm pretty comfortable with our inventory levels now. And I think, you know, job one or job two for every retailer is managing that working capital investment. Everyone's got a different procurement cycle and supply chain. But I'll tell you, I feel comfortable where we are now. And job one right now for us at Saks is about being deliberate and making sure six months from now when you and I are talking that I still feel comfortable. What's the number one gift for the holiday season? Well, if you're buying for yourself, it's jewelry and watches. If you're buying for somebody that you kind of like, let's get some fragrances.

Fragrances. Okay. So if they really like you, though, then they buy jewelry. Got it. Jewelry and watches. But again, a lot of self-purchasing. Shoes, handbags, all luxury. Selling really well.

Got it. I always like to get that color. Mark Metrick, thank you. CEO of Saks. When we come back, we will discuss how investors should be positioning their portfolios ahead of next week's key Fed meeting with a guest who says the risk-reward is skewed to the upside. Positive. We continue to decline here. Dow's down about 200 points. And the only sector that is higher, communication services.

We've seen financials, technology, and real estate all turn red just in the last few moments or so. The Nasdaq has also gone solidly into the negative column, down to the third of one percent, just adding to the losses we've seen all week. Amazon, Lulu and Amgen, some big weights there. We'll be right back. We've been seeing a bit of a deterioration in the market in this final hour of trade. We're now at the lows of the session. There's the sector heat map for the S&P 500, which is down about a half a percent right now. You can see one little pocket of green. That's communication services. Thank you to Netflix, which is up a bunch.

Paramount, Warner Brothers, they're all having a really strong day today, along with some of the other media names. Disney, Comcast, our parent company, all higher on the day. But everybody else is down. And at the bottom of the list, you will see energy, which was the worst performing sector of the week on concerns about the global economy recession, down 2.3 percent. Health care is there at the bottom, materials, industrials and staples. For the week as a whole, every sector is lower. And currently, the S&P is down more than 3% as we look to close out this Friday of trading. Two Wall Street firms turn more bullish

about Netflix's ad-supported service. That's why it's been a standout in today's session. We'll share the details straight ahead. That story plus Walmart gets into the buy now, pay later business when we take you inside the Market Zone next. We are now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, we've got Melissa Repko here on Walmart and Julia Boorstin joins us on Netflix. Stocks sitting right around session lows right now.

We're down 200 on the Dow, higher than expected inflation reading this morning, surprising the market. But Bank of America CEO Brian Moynihan just this hour told us consumer bank balances still look pretty healthy. I spoke with him a little bit earlier. Take a listen to what he said about the economy and the consumer. Year over year, the average account balances by the cohorts of different cohorts are up 10 percent. So it's not like it's it's it's of different cohorts are up 10%. So it's not like it's even the last year it's grown. So that's kind of the interesting question. They will spend it down. You're starting to see it a bit. It'll just take a longer time than I think people think. Mike, he pushed back on a lot of the gloom out there on the consumer,

on the economy, sounded a lot more positive than some of his fellow bank CEOs, but and also on the economy sounded a lot more positive than some of his fellow bank CEOs, but and also on the stock price, which has been hammered this week. He said that with misinterpreted comments from that bank conference. What did you make of all that? Yeah, the general message seems to be that the things that seem like their challenges are relatively in control. Banks have been relatively conservative and, you know, provisioning for credit losses that assume that unemployment's going to go up a little bit. But I don't think he can really look past the fact that, you know, provisioning for credit losses that assume that unemployment is going to go up a little bit. But I don't think he can really look past the fact that, you know, account balances are higher than they were pre-pandemic. Debt obligations among consumers are lower than they were relative to disposable income pre-pandemic. So, yes, you've seen all these stress points

around the consumer, but that's not really the center of where the economy is struggling, obviously, if you look outside of the mortgage business. No, he did confirm the U.S. will fare better than most world economies, which was very much the story this year as well. Mike, he also said that it hadn't occurred to him to not, excuse me, I want to get the wording right. When it comes to Treasury Secretary, which, of course, the White House press secretary was asked about, he said, I got the best job in the world. Replacing Janet Yellen is not on my mind. Yeah, I don't know that that would be the job he would rush to.

It's been a long run he's had at Bank of America, so I'm not sure he has to necessarily look for the next thing. I don't also know if bank CEO is going to be the profile of the Treasury secretary whenever one comes to succeed Secretary Yellen. Leaving Bank of America has not occurred to me, according to Brian Moynihan. That stock down 0.3%, but a rough week, as we mentioned. Look at Walmart. Walmart, it is near the bottom of the Dow right now. The company is getting into the buy now, pay later business through a startup called One, which is majority owned by the world's largest retailer.

According to a source, One is planning to launch the service next year and can be used at Walmart and other retailers. Our Melissa Repko joins us. Melissa, why would Walmart want to get into the buy now, pay later business right now after all of these stocks have been brutalized in the market? Sarah, there's really two reasons. Walmart's been trying to get into newer businesses. One of those is advertising, but another one is financial services. And of course, it's got a lot of reach. It's the largest grocer in the country. It's the largest private employer in the country. And right now, buy now, pay later feels like a market that it may want to be in because it is seeing that its consumers are stretched and are feeling the pinch from inflation. And it's another way to kind of build upon its relationship with them through this startup that it created.

Where is Walmart in general in some of these moves to go into financials, payments? Because it's always been sort of a player in this space, or at least trying to dip its toe in. Yeah, it's important to remember that for years, Walmart has had these money centers at many of its stores where people have turned for kind of the services you associate with a bank. Many of its customers don't have traditional relationships with a bank. They also may not qualify for a credit card. And so they've used the store to get prepaid cards in some cases or to wire checks, get checks printed off, things like that. And so in a way, this is kind of a modern spin on this. Walmart also had layaway, which it did away with before last holiday season, and it rolled out

Affirm. So now, you know, with this startup, it is really planning to go head to head with Affirm and some of the other services and cater to those consumers who may need other ways to pay for purchases. Yeah, Klarna is in there. Apple is in there as well. Thank you very much, Melissa Repko. Stocks really losing steam here. Dow's down about 300 points right now, almost at that point. But look at Netflix. It's holding on to gains. One of the big winners in the S&P today. Wells Fargo upgrading the streaming giant to overweight from neutral, hiking its price target on the stock to 400 from 300. And then Cowan naming Netflix its top large cap pick for next year, $405 price target. Julia Borsten joins us. Julia, is this all about the

ad-supported tier, which analysts are increasingly getting more excited about? I think that's really at the center of both of these analysts' calls, this ad-supported tier, which Netflix launched at the beginning of November, is driving this optimism for a couple of reasons. Number one, this idea that it could really reduce turn. So instead of dropping the service entirely, if people want to save some money, they would just pay a little bit less and watch some ads. I also want to point out that Wells Fargo projects that this new ad-supported tier will drive around 23 million incremental subscribers by 2025. So the idea is that you're going to get a whole new bunch of people who wouldn't be paying for the service otherwise. And then also another thing which Cowan really delves into is that they're going to be making sure that these new ad supported subscribers don't earn Netflix any less than if those subscribers were not watching any ads.

So that you'll start to see incremental revenue from the ad supported subscribers starting in 2024. That's according to Wells Fargo. One other thing that Cowan points out is the financial benefits of paid sharing. Netflix has talked about how it's cracked down and it's going to continue to crack down on this password sharing that has been so rampant. And they hope to turn some of those people who are watching Netflix for free into new subscribers through this paid sharing model, Sarah. So that's really what's behind this. The stock was up even more earlier, but now it's at more than 3%. Yeah, it's a split picture in tech. Netflix and Tesla on one side,

Amazon and Microsoft are lower. Julia, thank you. Let's get to Mike Santoli. What are you seeing, Mike, in the market internals here? We've deteriorated throughout this final hour and the sell-off is picking up here into the close. Yeah, they've softened up along with the indexes. So you see it's just a little bit less than 2 to 1, declining to advancing volume. Overall volumes rather light right now. Also, the S&P still within the range of the last three days. The lows of the week have been just above the 3,900 level. U.S. dollar index has been part of the story. Earlier today, it made a low that was at a level first reached back in May. It is basically flat right now, but under that 105 mark.

So clearly having rolled over. The volatility index not doing a whole lot. It's been in the low 20s, perked up just slightly on this sell-off, but still under 23. It's sort of tame, but it is getting the look on the chart of potentially putting it a little bit of a bottom as we brace for the Fed, Sarah. All right, Mike, thank you. We'll let you go and get ready for overtime at the top of the hour. I know you're hosting it today. Let's talk more about the markets ahead of the very pivotal week with the Fed and an inflation report. Adam Crisafulli joins us, founder of Vital Knowledge.

And Adam, what I like about your notes is everybody's warning about earnings headwinds and weaker earnings, pricing in a recession. You're talking about a number of earnings tailwinds in the new year. Why? Yeah, I mean, I think that you're going to see companies have aggregate demand problems as the economy slows, and that's certainly going to weigh on earnings. But I think there are three big tailwinds that are going to help earnings for next year come in better than I think people fear. The first one is supply chain normalization. You've heard a lot of companies this week talk about that. I think

most notably, Sienna, which reported earlier in the week, a Smithcap networking company, came in much better than expected, and largely because they were able to ship more products than they had anticipated because they're getting more chips, more components. And the supply chain is just operating in a much more smoother fashion. You had a lot of other companies talk similarly about improved supply chain conditions. I think that's going to be one tailwind. The U.S. dollar weakness, the U.S. dollar is off relatively substantially from its recent high. The dollar has crushed earnings for the last year and a half.

It's been on a relentless rally. And so to the extent you see that continue, that's going to be another tailwind. And then the third one is just very aggressive cost cutting. You've heard on any given day you have a slew of companies coming out with either hiring clauses, layoff announcements, aggressive operating expense reductions. I think that's going to be a much bigger theme going into next year. That's going to contribute to some of the softness in the broader economy, but it will help preserve earnings for companies for next year. So do you think expectations are getting too low here for earnings? Do you think there's too much pessimism creeping in?

Yeah, you have some pretty dire numbers getting thrown around for next year. So for the S&P 500 EPS, you know, you have the numbers are kind of all over the place. The consensus among sell side strategists is about 220. Another bottoms up forecast for S&P is around 230. But a lot of people are mentioning figures as low as 200 or $205, you know, which would take just a very dire economic scenario, you know, with ongoing margin compression a very dire economic scenario, you know, with ongoing margin compression, et cetera. And just I don't think you really see the evidence for that taking place.

So I do think that the narrative around earnings for 2023 has become a little bit too pessimistic. So are you generally you're upbeat on your market outlook for 23? Sort of. I'm not I'm not really too bullish. I just think that the combination of disinflationary forces, which I think will grow more intense, and some of those earnings talent, which will help preserve earnings estimates for next year, I think that's going to avoid some of these steep sell-off forecasts that people are making. But I do think that the S&P is going to face a ceiling essentially around where we hit earlier this year, around 4,100. That's just going to be a very tough level to break

until you really see a sustained downward trajectory in inflation, until you really see the Fed not only really pause, but start to outline possibly dialing back a tiny bit, you know, the tightening policy that they've been pursuing for the better part of the year. Adam, we'll leave it there. Thank you very much for joining me. Into the close here, Adam Crisafelli from Vital Knowledge. As we head into the close, we're near the worst levels of the session. S&P is down about three quarters of one percent, which we're adding to losses for the week. We're breaking two straight win streaks for the S&P 500. Looks to close down about 3.4 percent. So actually giving back a lot of the gains

over the last few weeks or so. Only sector positive here under the close are communication services. I mentioned Netflix. We talked with Julia about it, but also some of the media names that are doing well today too. Paramount and Warner Brothers

are at the very top of that list. What's not working? Energy continues to sell off. Tough week for energy stocks, down 8.5% for the sector. Healthcare is also lower today. And of course, for the week, materials, industrials, staples all around. The only new highs we're actually seeing, which we continue to see new highs almost every day, it feels like Hershey, Campbell Soup, Conagra, three consumer staples. A lot of people

say that's positioning for recession because, of course, the staples do better. Merck is also at an all-time high. There goes the bell. NASDAQ down three-quarters of a percent as well. And the Dow closes at the lows of the day, down 310 points. That's it for me on Closing Bell. Have a good weekend, everyone. I'll see you Monday.

Now into overtime with Mike.