Closing Bell - Volatile session to end rough week, FedEx and Fed Expectations 9/16/22

Episode Date: September 16, 2022

Stocks fell Friday to end a rough week on Wall Street, though the major averages finished well off the lows of the day. Lisa Erickson from U.S. Bank and Jeff Saut from Saut Strategy debate if they’d recommend buying U.S. equities now. Former CEA chair Jason Furman discusses what fears of a global recession could mean for the Fed’s decision next week. Broughton Capital’s Donald Broughton and China expert Dewardric McNeal break down the major earnings warning from FedEx and what it says about transports and China. Plus the latest on Uber’s hack, Apple’s iPhone on shelves, and GE’s red flag.

Thank you. At the lows of the day, the Dow was down 411 points. We're down 189 right now. The S&P 500 down a percent, adding to a rough week. So for the week overall, we're down about 5% on the S&P 500, about 5.8% for the Nasdaq. There's the Nasdaq. It is also the biggest loser of the day, down 1.25%. And small caps giving back 2%. The only sector that's positive right now, defensive group, consumer staples, a hideout during times of concern about recession. Check out the Dow transports chart of the day getting crushed on that FedEx news hitting levels we haven't seen since February of last year. Coming up on today's show, former Council of Economic Advisors Chair

Jason Furman on the growing recession concerns globally and what he's expecting from next week's all important Fed meeting. Plus, is the U.S. really the best house in a bad neighborhood or should you look for upside abroad? We're going to ask two experts on opposite sides of this debate. Let's get straight, though, to the stock story of the day. FedEx shocking Wall Street last night with a surprising earnings warning flagging weak macro trends in the U.S. and abroad. The CEO saying he anticipates a worldwide recession and the stock is on pace for its worst day ever. Our Frank Holland joins us with all the details.

Frank, not pretty. Not pretty at all, Sarah. You know, FedEx is warning dragging stocks lower like its rival UPS and other stocks that are linked to that Asia trade. On Mad Money last night, CEO Raj Ramanian said yes when he was asked if we are nearing a global recession. Asia is the center of manufacturing in the world. So when you see these things happen,

I feel it's leading indicator of something more profound. The U.S. has been somewhat insulated because the U.S. dollar is the currency of choice for the world. And there's some insulation there. But I do see the U.S. slowing down, too. Well, the huge EPS miss is certainly raising a lot of questions about execution issues as opposed to macro issues. Express, where FedEx gets about half of revenue, that was actually flat when it came to revenue. Ground and freight, those revenues were up. FedEx says a slower China reopening from COVID and the integration of the TNT delivery network in Europe, that hit results as well, in addition to those macro pressures. The profit outlook for Q2, about half of current estimates. Back in June, FedEx actually raised its dividend by 53%, normally a sign of business confidence.

I spoke with CEO Raj Subramanian in June in Memphis during the investor day. He flagged those softer volumes, but he said FedEx held strong pricing power. That obviously changed in recent weeks. Right now, cost-cutting measures will include reducing express flights and worker hours in addition to closing 90 FedEx stores. I even spoke with FedEx today. They say there won't be a big holiday hiring push this year as we've seen in previous years, just a much smaller hiring effort. Sarah, back over to you.

So what do you think, Frank? Like, what are the analysts on this stock telling you? Is it more of a FedEx problem? UPS is down 5%, I guess, in sympathy. Was it just too much capacity during COVID for FedEx and they're giving some back? Or is this really a wake up call that we're heading into a sharp global recession? Well, a lot of analysts I spoke to say that they're flagging execution issues. One of the things, as I just pointed out, revenues were up. It's profit that's falling.

And even the company admitted they took cost-cutting measures, but they did it later in the quarter, and they couldn't quite catch up to what was going on. Another thing to flag, this holiday season, I spoke to Satish Jindal. He's the CEO of Ship Matrix, a data company for the supply chain, a lot of companies like FedEx and UPS Trust. He says that he expects holiday e-commerce to only increase by about 5%, but companies like FedEx, UPS, even the post office, they've increased their capacity by double digits. So this year he's expecting to see a lot more capacity than actual packages, which again weighs on these companies. They spent a lot on CapEx

trying to increase capacity, but they might not have the volumes to support those decisions. FedEx now down almost 40% for the year. Frank Holland. Frank, thank you. So is the world indeed heading for a recession? What does that mean for the Fed's agenda? Joining us now is Jason Furman, former chairman of the Council of Economic Advisors. Jason, FedEx is typically an economic barometer. They have real-time data on what everything looks like way before the Fed chair, Jay Powell. Do you think that that this warning is going to make an impression inside the Fed ahead of next week's meeting? I do not think this warning will make an impression in the Fed. The Fed is focused on one aspect of their mandate right now that is getting inflation down. We had

a terrible report earlier this week. Inflation is just not going to get down as far as they're concerned unless the labor market loosens somewhat. They're just not going to hold off in anticipation of a recession. But if FedEx is right and the economy is even worse than what investors were expecting and especially in the U. S. then. That should bring inflation down and it also brings in the risk that the fed is going to overdo it on the economic side. So far the fed

has underdone it. We just have rates at two and a half now we're heading to a number that's far from crazy- you know a number around the range of four. And in the fours I don't see how you're going to get inflation under control

without the feds staying at it remember when they sent those mixed signals in the July report. Financial conditions loosen. That. Let up some in the fight on inflation that complicated things even more. Better to do more now and if

you need to relax later on you can do it I'm sure that's the way they see it. some in the fight on inflation, that complicated things even more. Better to do more now. And if you need to relax later, you can do it. I'm sure that's the way they see it, too. So are you in the 100 basis point camp? You're sounding very hawkish. I'm in the 200 basis points this year camp, of which probably 75 at the next meeting, almost certainly 75 at the next meeting. There's no reason for that. Yeah. No, I was gonna say, it's almost as important what signal they give if they go 75 at the next meeting

about what comes after that. So you think they should be firm? Absolutely. We had a dovish 75 at the last meeting. That was a mistake. I frankly thought the market might have even been misinterpreting the Fed chair at that time. Regardless, it's going to be his responsibility, their responsibility to make sure the market

knows that the rate could easily be going into the fours. The rate could be going into the fives next year. This inflation is very stubborn. It's very persistent. A warning from FedEx doesn't mean it's going away. So if you were on the Fed you would be. You would be among those. Saying that we need to we need to speak. They are talking tough on

inflation but but signal that four percent isn't going to be. The max on the Fed funds rate which seems to be in the market's mind still that the Fed is gonna pause early next year. Yeah no that's definitely in the market's mind and look

if inflation comes down the Fed will pause in the Fed. Should pause. My view is that the underlying inflation rate is about four and a half percent. So if month after month next year we're getting prints on the PCE of zero point three zero point four zero point five per month. I don't think the Fed's going to be able to say monetary policy has long and variable lags. Don't worry. Sure, we got three prints in a row of 0.5. We're just going to hold off. You just can't hold off when inflation is like that. That's where inflation is going to be based on what we're seeing in labor markets today. Well, I feel like one question that we need to figure out is why is inflation proving stickier than the market is even expecting? Why was that such a surprise? Rent is a third of it, right? And those prices remain high.

But it does appear that a lot of other forward-looking indicators, including what we got from FedEx today, would suggest that it should come down. Yeah, a lot of the forward-looking indicators we have are for goods, and goods inflation is indeed coming down, but services inflation is making up for it. You see that in shelter, but you see that in just about every part of services. What matters for services is wages. Wages are growing at about 5.5% a year. When you see wages growing at that pace, you're going to end up with an inflation rate of about four and a half percent. Productivity can pay for a little of it, but not a lot. How to wage growth slow? Most likely it's for the labor market to cool.

Job openings coming down and a decent chance unemployment coming up as well. Whose fault do you think it is? And not so much to blame, but I did notice that you did criticize the Biden administration's plan on student debt and said that it was going to exacerbate inflation, which I thought was notable because you were in the Obama administration. But do you think it's those policies, the administration's policies, that are making this last longer, expand broader? Do you think it's the Fed's fault for being too late? I think the rescue plan the administration did a year and a half ago now helped start this.

It's not what continued it. The Fed has played a role in continuing it by being behind the curve. The Biden administration has done some things that were helpful. I think the deficit reduction and the Inflation Reduction Act will help a little bit. I think the student loans will hurt. So they've done things in different directions. But primarily at this point, it's a combination of bad luck

and Fed policy that really, I think, finally has gotten itself to a good place. It's just going to take some time to work. Jason Furman, thank you for joining us for weighing in on the topic du jour. By the way, we are recovering, continuing to recover here. The Dow is down only 142. I say that because at the low of the day, we were down 411 points. And as you can see, it's just kind of climbing back up there. Home Depot, Intel, Amgen and IBM are big contributors on the plus side. J&J also is in there. What's dragging on the Dow right now? Goldman Sachs, Boeing, American Express and Chevron. So as you can see, making a little late day comeback here. It's still been a brutal week and not just in the U.S. Chinese

stocks getting slammed even after data there came in better than expected. We're going to talk to a China expert about the state of business there and why you should be paying very close attention. You're watching Closing Bell on CNBC. Check out today's stealth mover. It's Roblox, which is getting hit pretty hard, down almost 9%. The company reporting estimated average bookings per daily user last month fell as much as 16% from a year ago. And that news overshadowing some big jumps in August daily active users, hours engaged, and also estimated revenue. Stocks overall heading for a losing week.

It's not just in the U.S. China's having a rough stretch as well. And fears of a slowdown in Asia were a big part of that warning from FedEx. The CEO telling our Jim Cramer last night that what's happening there has him very worried, partly because Asia can be a leading indicator for the rest of the global economy. Joining us now is DeWard Rick McNeil, senior policy analyst at Longview Global and a CNBC contributor. It's hard to get a picture, DeWard Rick, of what's happening in China, given the rolling zero COVID tolerance policies and these lockdowns that we've been seeing? What is your best sense of what's happening on the growth front?

Well, Sarah, thanks for having me. Look, I think you hit it on the head. There are challenges in China, certainly as we go into the end of the year. The August numbers came in better than expected. But Sarah, there's still some bad news in those numbers, particularly around global demand for Chinese goods, which, as you know, has been the booster for Chinese economy over the last several months. It's been the crutch. But those numbers down to 7.1 percent year over year. That's down from 18.1 percent. So, you know, without that growth boost from exports, I think we're in for some real headwinds for China. We've heard some announcements again this week from Premier Li Keqiang talking about ways in which he hopes to boost the economy. A lot of that was through tax incentives and tax

breaks for the manufacturing sector. But yet again, Sarah, the policy prescriptions don't seem to match the problems in that the big issue that we're experiencing is a real slump in Chinese demand. And so there's going to have to be a way to address zero COVID, as you said, and get people confident and spending again in China, because I think as inflation starts to bite globally, they cannot rely on exports to really prop up the economy as we move into the end of the year. Well, I did note that the Moderna CEO this week said that he was having discussions with the Chinese government. Could that be a game changer? You know, Sarah, this one is really interesting. As you well know, you know, China is relying a lot on its domestic produced vaccines, which is not

mRNA vaccine. If something like this were to happen, I certainly think from a psychological standpoint, I want to preference that this could be a real boost for the markets, at least. However, we want to be careful here because what we don't know is what will the adoption rates be in China for this foreign vaccine, whether or not you would need a vaccine mandate and how will that work? And then just how long will it take to get the number of people that need to be vaccinated for this to be advantageous to China? How long would it take for them to do that? And then the final point, Sarah, is zero COVID. We're obviously aware that Xi Jinping is politically tied to this policy. And so how easy will it be to unwind this,

even if we get the MNRA vaccine from Moderna. Good news, but I would be very, very cautiously optimistic that it can happen fast and happen in time enough to have a rebound at the closing of the year here. Yeah, I would also note we slipped past a really key level on the dollar versus the Chinese yuan. Seven shows you some of the pain that you're talking about. So if you're a U.S. investor in a company, international paper today, I don't know

if you saw a huge loser at Jeffries downgraded it. They cited capacity issues and container board. But one of the reasons was also problems with exports from China because of the zero COVID policy. So if you're a U.S. investor in one of these companies exposed either on the consumer side or on the production side, what do you do? Well, unfortunately, Sarah, and I hate to say this, there's not much that can be done in the short term. And I think we're all in a sort of a wait and see game to see just how things will happen on the backside of the 20th Party Congress on October the 16th, see if there will be some sort of policy shifts that can quickly turn things around. I'm doubtful, though. And so I think, unfortunately, we're going to

close out the year with a lot of headwinds in China. And you just have to bite your nails and hold on until we get into 2023, where we're hoping to see some of the policy reversals that we're seeing in the development and property sector and the tech sector. These things are taking time to really have an impact. But let's hope in 2023, we will start to see that turnaround in China. Yeah, I know a lot of business leaders are looking past that Politburo conference to see if maybe she changes his tune on some of these policies.

DeWardwick, thank you very much. Appreciate it. Thank you very much, Sarah. DeWardwick O'Neill, McNeill. Let's give you a check on the markets right now. Show you the S&P 500 heat map. Most sectors are lower. There's only one spot of green.

That's consumer staples. Utilities wavering up there as well. What's being hit the hardest? Industrials on some warnings there. FedEx, GE, Southwest is at the bottom of the list today as well. It's getting hit pretty hard. You've also got some weakness in energy, materials, financials, consumer discretionary, all the things that are tied really to the economy. It's the safest places, real estate, utilities and staples doing the best. After the break, taking a hack seat, Uber under pressure as the company says

it is investigating a cybersecurity incident. We'll bring you the latest next. And as we head to break, check out some of the biggest losers right now of the week actually in the S&P 500. Some shocking moves. It's a 5% down week for the S&P 500. Look at some of these individual names. Adobe off the $20 billion deal announced yesterday, down 25%. There's FedEx with

its warnings and cuts, down 23%. Nucor, Eastman Chemical, a bunch of downgrades in the chemical sector as well and lowered forecasts, which we'll talk about when we come back. Take a look at shares of Uber under pressure today with a lot of tech and gig economy stocks. The company earlier today saying it is investigating a cybersecurity incident. Our Eamon Javers joins us with the latest. Eamon, what do we know here? Sarah, that's right. The company is still dealing with the fallout from this thing. You can only imagine what kind of a day they've had. We got a new statement this afternoon from Uber updating us on exactly where things stand. As of this afternoon, they say there's no evidence that sensitive user data was accessed in this hack.

They say services including Uber, Uber Eats, Uber Freight, Uber Driver app are all operational at this point. They say the internal software tools that they took down earlier as a precaution, those have come back online. So some progress apparently being made inside Uber to get their arms around this hack, which has been extraordinarily disruptive. We also obtained earlier this morning a memo from Uber security to Uber employees. Here's what they were telling employees this morning. They said that Slack was still disabled. That's the communication software they're using internally. They said Zoom is available for employees to use, but they wanted everybody to keep their cameras on so they could verify the identities of the participants in all the Zoom conference calls

inside the company. Make sure there are no imposters lurking on the Zoom calls with their cameras off impersonating other people. So you can tell the level of security that they're putting in here. And they also said that all employees can go to any Uber office around the world to go to work, Sarah. So clearly, you know, offices are open, business is going on. But this has been a disruptive day over at Uber. Back over to you. Right. But not but it doesn't affect the customers, right? That's right. All the apps are still open and functioning. You can get an Uber.

You can get from here to happy hour on Friday night in an Uber, no problem. Just wondering what it means for me. That's right. Just kidding. Eamon, thank you. Eamon Javers. Up next, U.S. banks. Lisa Erickson says investors should stay away from U.S. equities right now.

But sought strategies. Jeff Sot sees a lot of buying opportunities here in the U.S. We're going to have a bull bear debate when Closing Bell returns. We'll be right now. But sought strategies, Jeff, sought sees a lot of buying opportunities here in the U.S. We're going to have a bull bear debate when Closing Bell returns. We'll be right back. Well, we came into the week with a rally, but that August inflation print Tuesday sent a chill across the market. Major averages looking to close down now sharply on the week, about 5% for the S&P, almost 6% for the tech-heavy Nasdaq. Is it a buying opportunity for U.S. equities, or should you be focused elsewhere? We're here with two sides of that debate.

Joining us now is Jeff Sott of Sott Strategy and Lisa Erickson of U.S. Bank Wealth Management. Jeff, all year long we've been hearing the U.S. is the best house in a bad neighborhood, and you should stick in the U.S. because we have better growth and we have higher yields and we don't have an energy crisis to the extent of Europe. Is that still the case, though? Yeah, I think that's still the case. Secular bull markets tend to last 15 to 20 years. Do you get pullbacks? Yes, we've had at least a dozen 10 percent plus pullbacks this year. And every time we get a pullback, the bear boos come out of the woodwork and tell us we're in a bear market. And it's just not so. Bull markets tend to extend for 15 to 20 years. And we're in a secular bull market.

Wait a second. We are in a bear market, though. We're 20 percent off the highs for the S&P. It's a technical definition. It's felt like that for a lot of investors. That still doesn't mean you're not in a secular bull market. If you go back and study 100 years of the Dow Jones Industrial Average and look at secular bull markets, you'll see 20 and 30 percent pullbacks. And yet you were still in a secular bull market. OK, Lisa, what's your take? We're really more cautious, as you pointed out. And really, the reason why is while, again, there are some positives to U.S. stocks in terms of companies really being able to maintain growth relatively well, even in a tough environment.

Overall, we still see a lot of headwinds for U.S. equities. And chief among them really is inflation pressures, which is then causing the Fed really to be quite resolute in tightening its policy, whether it's through where interest rates are headed, as well as with the quantitative tightening program that's going on. So in that kind of environment, we just see it very difficult for stocks to continue to maintain positive momentum. And in addition to that, when you do look at the growth characteristics, whether it's either on a macro basis or what is actually happening in terms of underlying corporate earnings, what you see again is while some are still in, again, that positive territory, they are decelerating. So we are seeing that

negative momentum in terms of the underlying operations as well. Yeah, I mean, I didn't bring up Huntsman, the chemical company, just the latest today. They cut their EBITDA guidance by 20 percent, talked about all sorts of weakness in demand markets, polyurethanes and performance products. So the problem, Lisa, is that everybody in the world, if the concern is that the Fed has to tighten and weaken demand and to fight inflation, isn't that happening all over the globe and in places that don't have as strong of a base as the U.S.? Absolutely. So when you're looking within U.S. equities, again, certainly U.S. equities still relative to other equities do have some momentum and some advantages.

But when we're looking at overall how to position the portfolio, our best advice to clients at this point really is to head towards asset classes that have a higher component of ongoing income and yield. And so those would be areas like high quality fixed income as well as global infrastructure. And when you just have a tougher economic environment where there is quite a bit of volatility in prices, again, these types of areas where you get more of an ongoing cash flow stream from diversified sources can be fairly appealing for the portfolio. Jeff, are you worried about some of the corporate earnings and margins starting to buckle here amid some of these warnings we've been getting from industrial companies, chemical companies, FedEx today? Yeah, I think estimates are going to come down. I don't think they're going to come down a great deal. Margins have been wide. I think they'll probably narrow a little bit, but not enough to cut off the strong earnings stream we've had. And again, I think pullbacks are for buying in secular bull markets.

And I think she makes a good case. But I've been in this business 54 years and I've been looking at equity markets for over 60 years. And I've seen secular bull markets before. And that's what we're in. And it's probably got another five to seven years to play out. No matter what the Fed is doing, no matter where inflation goes, no matter what the economy does, Jeff, all these factors are weighing on stocks. You could have an accident. If you have an accident, you know, all bets are off.

But I think while the economy is going to slow a little, I don't think it's going to hurt the stock market that much. I think earnings are going to slow a little. I don't think that hurts the stock market that much. You could get a policy accident out of Washington, D.C., where I lived for 20 years. I would not rule that out. Like what? That would be my biggest worry. They make a policy error on taxes or some other event. So you think a tax change policy could be more impactful for the market than the Fed raising rates? I don't think the Fed is going to raise rates that much. I think they're going to continue to raise rates at the margin. I think they're going to raise rates, you know, very shortly.

And then I think they're going to stand back for a while and see how the economy reacts to that. And I don't think they've raised rates enough to hurt the economy. And I've been in this business since Fed funds rates were 22 percent. And you know where we are right now. They're not high enough to really hurt stocks. All right. Fair enough. Jeff Sott, thank you for joining us. Lisa Erickson, good to get your take as well. Opposing views. Here's where we stand right now in the markets, down 212 on the Dow. So we've lost a bit of steam. Looked like we were going to recover. And we're kind of hanging in there now, down 1% on the S&P 500, again, down 5% for the week. Consumer staples are still positive, just barely. They're up there with utilities and real estate

as the better performing sectors today. What's under pressure the most? Industrials, energy, materials. Those tied to the economy and some of those corporate warnings we've been talking about. Wall Street is buzzing about Kanye West's interview right here on Closing Bell yesterday after terminating his Yeezy deal with Gap. Don't bring a leader in and have them not lead. Why would I argue with people who are getting paid by the gap? I'm sorry. I'm not going to argue with people that are broker than me about

money. Such a good line. Adidas could be next. A closer look at his future with corporate partners straight ahead. What is Wall Street buzzing about? Yay, on closing bell. There's fallout. Gap officially now out of the partnership. We got a hold of a memo that the head of the Gap brand sent internally. It says, in part, quote, while we share a vision of bringing high-quality, trend-forward, utilitarian design to all people

through unique, omni-exper experiences with YeezyGap. How we work together to deliver this vision is not aligned, and we are deciding to wind down the partnership. This, of course, comes after Ye himself terminated his contract with Gap. He joined us here on this show yesterday to confirm that and explain why. Honestly, there's always like struggles and back and forth when you're trying to build something new and integrate teams uh so we designed uh um we designed an entire collection and uh actually uh i wasn't able to set the actual price uh that i wanted for this collection and then they actually took one of the shirts and sold it for 19 so didn't price my stuff price myself like 200 and above their whole price point normally and then did the exact shirt for uh for twenty dollars pricing disagreements he was upset they

didn't do a yeezy store, as promised. It's weighing on Gap. Look at Gap stock this week, down 8%. Compare it to the retail ETF. It's only down about 5% for the week. Analysts who cover Gap say this was a big missed opportunity and a sign that Gap itself is struggling for direction and for leadership. Remember, the CEO is out and Old Navy, which is the crown jewel of this portfolio, has started slipping. We're also watching Adidas, which is still not commenting today after Ye indicated he's going to pull out of that deal, too. We did the shoe that this knit runner and I told them this needed to be a marathon shoe and it ended up being the most uncomfortable Yeezy ever on purpose change because people, anyone that's worn a Yeezy, they say, oh, this is the most comfortable shoe that I've ever worn. Just one in a litany of problems that he talked about with Adidas. It's a bigger issue for this company because Yeezy is actually a revenue driver for

Adidas and has grown exponentially and helped Adidas turn around its whole business and cool factor going back to 2016 when Kanye first signed on and the hits started coming. CEO Casper Rorsted has called him the company's most important partner. And Adidas recently announced Rorsted himself is leaving and they too are looking for a new CEO. It's also been struggling lately. The stock is down more than 40 percent this year. Ye told me he is done with corporations and will grow Yeezy as a startup on his own, including fashion, real estate, and education. As for investors in Gap and Adidas, both have been under a lot of pressure lately. Cannot be thrilled that they are also now losing

a cultural icon. When we come back, it's been an ugly week for Apple despite today's iPhone 14 release. Find out whether it's more than a sell the news event straight ahead. The stock is down another 1%. That's story plus more on the FedEx fallout and GE getting crushed when we take you inside the market zone. Down 111, back kind of on the upswing here as we head into the close. We are now in the closing bell market zone. Aerial head of investment group, Charlie Berbrinskoy, here to break down these crucial moments of the trading day. Plus, Broughton Capital's Don Broughton on FedEx,

definitely someone we need to talk to today. And Seema Modi on GE, which is also under pressure. We'll kick it off, Charlie, with the broader market. The Dow's down 163. Looks a lot better than at the lows of the day when we were down more than 400. But it's been a pretty ugly week for the market overall, down 5 percent on the S&P, about 6 percent on the Nasdaq. That inflation number, hotter than expected. Some areas for concern about the Fed having to do even more. Have you recalibrated your expectations, Charlie?

I would say I had to adjust them a little bit. I was surprised by that inflation number, which I thought would probably cool from where it had been the month before. This is all tied together. If inflation remains high, the Fed is going to be worse than expected. The Fed caused this problem with their quantitative easing. Now they've got a crazy method of getting out of this problem, which is crushing the economy. That's not why we have inflation, but their intent on doing it. And so we'd all love for them to stop, but that's not going to happen until we get better inflation numbers. So this is all tied together. And obviously, then we got FedEx saying today that they had seen a global recession. And obviously, the more we dig into this, the more we think this could be company-specific information. But there's no doubt about it. The last couple of weeks,

the news has generally been not positive. Sure. So let's talk about FedEx, because it is the stock story of the day. It's the worst performer by far on the S&P. It's actually having its worst day ever. The CEO yesterday highlighting weakness in Asia the S&P. It's actually having its worst day ever. The CEO yesterday highlighting weakness in Asia as a big concern. Our next guest says if FedEx is falling by this much, UPS is in for even bigger trouble. Let's bring in Don Broughton, managing partner at Broughton Capital. I'm sort of surprised to hear that this is your view, Don, because a lot of folks point to, as Frank Holland reported earlier, execution problems at FedEx, which is why it's getting hit a lot harder than a UPS. Well, it's very simple for us on Wall Street. Did our ivory tower just look over and say,

oh, well, they're probably having execution issues or UPS is executing better? When the truth of the matter is, it might just be the underlying freight flows. Why do you say that? Hasn't FedEx struggled more than UPS in the last few quarters? Well, if I look at what happens internationally with both UPS and FedEx, and for that matter, the global express transportation market, in most of the major regions, there are two dominant players. So in North America there are two dominant players so North America the two dominant players are undoubtedly FedEx and UPS uh in Asia it's FedEx and DHL and in the Eurozone the two dominant players are DHL and UPS so when you see what's been happening in

Asia the the drops are much more dramatic because the Chinese are arbitrarily closing things. Our government is not the only one that can use the policies they've used in the past, failed and decide just to continue to use them, which is what the Chinese are doing with their COVID containment policy. But that affects Asia more than it does anyone else. And since that is where FedEx makes most of its, the greatest incremental margin on its express business, on its international express business, it gets hurt more. Right. So there's that. He also warned on the U.S.

So why do you think UPS will get hit harder? Because, well, I'm just simply saying that if FedEx deserves the markets today is saying FedEx shares need to be deserve to be down by more than 20%, yet UPS's only deserve a 4% discount. Bottom line is that Europe did not have as much recovery. It's still down as well. It's down, what, 15-plus percent right now, Eurozone air freight. From a percentage basis, it basis not down quite as much simply because it didn't grow as much.

Europe got worse than it did during COVID than it did back in 08. And it never got back to previous peaks since 17, 18. Asia, on the other hand, never got as worse as it did, bad as it did back in 08 or 09. And it made all new highs last year. So we're coming off those and understand that if the declines are happening in Europe, they're going to impact UPS and just think that they're immune is just as just being blind, flying blind. So here's my other question that I've heard today posed as a theory. How much does FedEx get grouped in with the COVID winners camp where like a Peloton or

Teladoc? And I'm not necessarily comparing it to that, but just they they they increased capacity so much because people were at home and they were shopping online and we were getting so many packages and they expanded the business so much and then just were caught off guard when things turned around and they've turned around pretty quickly and pretty robustly. I think that critique might be fair when the stock was $300 a share. But today, that's not really the story. The bottom line is that when markets go over a long period of time, go improve, they don't go in a straight line. The rate at which they improve changes gets better, gets a little bit less better, then it gets really better. And we're seeing that happen. So are we going to buy more online than we ever have? Yes. Are you going to see as big of a percentage increase as we did

during the COVID period? Well, probably not. But that e-commerce is growing, is continuing to grow, and FedEx serves that market, as does UPS. And so will, over time, they profit from it and will shareholders benefit from it? Absolutely. Just the amount of that growth will vary over time. Got it. Don Broughton, thank you for the perspective. We always turn to you on UPS and FedEx. FedEx isn't the only company raising a red flag today. GE, take a look. One of the weaker performers on the S&P. The company warning free cash flow and margins remain under pressure because of ongoing supply chain issues.

Sima Modi joins us. Sima, is GE just the first shoe to drop for the industrial sector, or is it an outlier, what we've been debating about FedEx? Yeah, well, GE is a highly diversified company, Sarah, that uses a lot of key raw materials and parts that other industrials do. The comments from the CFO, Carolina Happ, overnight, she did say that those supply chain issues were highly contained to aviation, and there are other companies that certainly have exposure to the broader aerospace market.

Honeywell makes an engine, but for the business, Jets business. Cummins, another engine manufacturer that services the trucking market. Pratt & Whitney, that's also a key player in the aerospace market. So that will be one area to watch. The timing, of course, is unfortunate because demand is ramping up for planes as travel rebounds from those pandemic lows. Just another warning that we received, Sarah, was from Huntsman, a key chemicals company today, cutting its third quarter guidance, CEO blaming the surging cost of energy in Europe. So clearly not a unique problem, one that is more of an industry-wide issue. So many chemicals, even materials like plastics, are derived from oil. And 3M, that's the big leader in the chemical space.

Yeah, they're getting killed on the cost of energy in Europe, especially. Seema Modi, Seema, thank you. So, Charlie, what to make of some of these warnings? GE, Huntsman, FedEx? They're all they're typical economic barometers. They're global. They're diversified among a number of end markets. Warnings like this. Should we be really concerned about the global economy or company specific? Yeah, I would be lying if I said that I wasn't less optimistic about the economy than, say, six months ago. I mean, and I again will point to the Fed. I think that taking interest rates from 162 10-year to 340 is going to have an effect.

It's going to have an effect on mortgage rates. It's going to have an effect on home building. It's going to have an effect on consumer confidence. So, but I want to just point out that there are a lot of other data that doesn't look bad at all. Consumer confidence, again, was up this quarter. Inflation expectations were actually down this month from a month ago. And supply chain issues are generally getting better. You can see that most easily when you look at the cost of shipping, which has come down dramatically. So I think these are mostly situation specific. FedEx, you nailed it. They benefited from COVID. They were one of the

companies that benefited from everybody staying home. Now that that's unwinding, they're on the other side of that. And I would be very careful about buying stocks that did as well in COVID as they did. The highly anticipated release of the iPhone 14 not helping Apple shares today. Take a look, one of the stocks dragging down the Dow and the NASDAQ. Steve Kovach joins us from an Apple store in New York City. Steve, Apple's now down 4% this week.

Is it a sell the news event? Yeah, Sarah, that typically happens with iPhone events that there's a ramp up in the stock going into the event and then selling off after the announcement and after the release of the phone. But Monday was an exception, wasn't it? It was up 3%. Then we got that hot CPI number and everything fell apart. I'll tell you what people are talking about here today, though, Sarah. It's, you know, we've been talking all day about this looming recession and the warning from FedEx and so forth. It does not feel like a recession here on Fifth Avenue in Manhattan. The line is still around the block over there. People are still paying up for these $1,000 iPhones. So at least

the Apple consumer seems to be doing fine, Sarah. I did not realize people still line up for iPhones. That's sort of old school. Yeah, especially because it's pretty easy to order online. And I was chatting with a few people throughout the day, and they tell me they just wanted a guarantee that they'd be able to get the new phone on day one. Some people are the fans, some people are the people being paid to wait in line and then resell it. But the vast majority of people are either here waiting to pick it up that they already ordered online, or they're really excited and are willing to wait a few hours to get the new iPhone. Steve Kovac, thank you for that report. See the line behind you in a recessionless Fifth Avenue of New York City.

Charlie, how do you look at Apple? I know you're a value guy and you don't like any growth stocks. By the way, I'm looking at Meta now making a new low since back in March 2020. But Apple, is that a tell of some kind and is it appealing to you? Of all the FANG names, this is the one that was the most tempting. It's a very, very real company with real products, with real barriers to entry. It got in June to a level that we got very close to buying it and then we missed it and it had a big rally. So, you know, we never were tempted by Facebook or Amazon or Netflix or these names. But we Apple got very close to being viable, even for a value investor like me.

We've got a little over two minutes to go here in the session. I will point out we're seeing a little recovery here in the major averages. You've got now real estate joining consumer staples in positive territory on the day. Again, for the week, everybody's down, but it's happening right now. There's the Dow, and you can see we're climbing a little here back toward the flat line into the close, down 124 on the Dow. The biggest drags are Boeing, Goldman Sachs and Chevron. Charlie, have you been adding on these weekdays to some of your favorite positions, taking new positions? What's the strategy for you? It is to add to the names that are most below intrinsic value. And we're finding that's clustering in housing related names and in financials. Goldman Sachs absolutely adding to trading right at that one times book level. Some of the home related names that we love, Resigio, Mohawk Carpets, anything that's related to housing has gotten very cheap here, as everybody is predicting, obviously a horrible economy. That's where we're seeing real opportunity. Financials also, Northern Trust getting very

cheap here. We've been adding to that. You're adding to housing stocks. As mortgage rates go above 6% and the Fed continues, it's not stopping anytime soon. Because everybody hates them. Everybody hates them right now. We've got names like Mohawk trading at about eight times earnings, Residuo trading at eight times earnings. This is going to, this too shall pass. And when it does, the consumer is actually in very good shape.

The consumer still has a lot of equity in his or her home. And they're going to do remodeling, add new carpeting, new luxury vinyl tiles. A lot of the housing names are very cheap. Home Depot down thirty three and a half percent. Don't don't see that too much for the year, I should say. Charlie Verbinski, thank you very much. Always good to check in with you and get your thoughts. As we head into the bell, again, we are well off session lows, and we are having a little bit of a recovery. We're down 121 on the Dow, which is actually near the highs of the day.

The lows of the day were down 411. Just continued selling. We never really got a bounce after the big slide we saw on Tuesday, which was the worst day in more than two years for stocks. S&P 500 right now is down seven-tenths of a percent. When we started the hour, it was down a full percent. But it is still down about four and three-quarters percent for the week. We're looking at our worst week for stocks since June, so about two months.

The Nasdaq comp down even more for the week. It's down about five and a half percent. That's it for me. I'm closing now. Have a great weekend, everyone. I'll see you Monday. Into overtime now with Scott Wapner.