Closing Bell - Year-end rally arrives, Musk’s message to Tesla employees, Top consumer picks 12/29/22

Episode Date: December 29, 2022

Stocks rallied in the penultimate session of the year, with the Nasdaq leading the gains, closing higher by more than 2.5%. Market experts Tom McClellan and Kathryn Rooney Vera weigh in on the rally and their outlook for stocks in the new year. Tesla rebounded from its recent softness, helping lead the Nasdaq charge. CNBC.com’s Lora Kolodny reports on a new memo from Elon Musk, telling employees to ignore the “stock market craziness.” Analyst Sharon Zackfia from William Blair discusses her top consumer discretionary pick for 2023. Plus the latest on Netflix, chips, and reports of coming layoffs at Goldman Sachs.

Hints of the year-end rally. Investors have been promised for weeks. Stocks surging today as we close out the second-to-last trading session of 2022. This is the make-or-break hour for your money. Welcome to Closing Bell. I'm Mike Santoli. In today for Sarah Eisen. Here is where things stand. The S&P 500 is up just about, just under 2%. It's been around these levels in that 3850 zone for a couple of hours. After an early surge. Some of the largest stocks of the Nasdaq are leading the way, playing some catch up. You see the Nasdaq there up about two and a half percent. Check out some of the names leading the rally in the Nasdaq 100 today for now. And some of the more beat up ones here to date. You have Tesla up six percent. Illumina, another

strong one, Align Technology, one of the biggest losers for the year, is bouncing today as well. Now, coming up on today's show, market expert Tom McClellan says there are some encouraging signs for the Nasdaq in the new year. If you know where to look, he will join us soon to explain all that. Plus, the inside scoop on Tesla. Elon Musk sending a letter to staff telling them not to be bothered by stock market craziness. But how do employees feel about it? We've got the details. Let's take a look at how this rally on the day, this comeback that gets us positive for the week, shapes up in the broader context here. Thirty five, thirty eight hundred on the S&P has been pretty sticky in the last couple of weeks. The second half of December, normally strong,

hasn't really shown up until today. Signs at some of the year-end selling of the losers portfolio, you know, kind of manicuring, might have run its course. Some of the pressure coming off the biggest stop. But you see here, we're still kind of in this range we've been in for a little while now, well above the lows, but still sort of struggling to kind of get to the upper end of it right now. The largest stocks are, as I mentioned, getting a bounce today.

Well, that's because they have a lot of catch up to play. Take a look at the top 50 stocks in the Russell 1000, basically the top largest 50 stocks in the market. The XLG ETF over two years against the equal weighted S&P 500. So the typical S&P stock right here at the peak of the market a year ago. They were right in sync with each other. Since then, it's really been the biggest stocks that have been the huge weight on things, carrying the market downhill, the equal weighted S&P well up above the June and October low. So it has been a bit of a bifurcated market and really a mirror image of what we saw last year

when you did have really a surge in some of those big stocks over the pandemic that really did take us to the record highs. So we'll see if any of that's going to continue. We're going to bring in Tom McClellan of the McClellan Market Report to get a setup, Tom, on how things look going into next year. We have what's going on in the indexes. We've had what's happening, I guess, more underneath the surface. What does all that tell you at this point? Well, we're at the collision point of a couple of big forces.

You mentioned seasonality and going into January, which is a seasonally strong month. I'm expecting that seasonality is going to work. But the opposing force is the Fed that is raining on the liquidity parade. And so those two are going to battle it out. And they're not going to be stationary. One side is going to win for a while. The other side is going to win for a while. The Fed's going to win in the long run. But right now, you mentioned the large cap tech stocks are pulling the market down up through yesterday and they're bouncing today. Actually, 39 out of the Nasdaq 100 stocks are above their 100 day moving averages.

So it's not a broad based downtrend everywhere, despite the Nasdaq 100 index itself banging on its October lows. So there's there's a disagreement there. And that's an encouraging sign that seasonality might get a little traction going into January. Yeah, so we do have that chart. So you basically see it once again that there is a little more upside participation in, I guess, the you know, the number of stocks below the top 10 or top five in the Nasdaq. So seasonality into January, you think that there's a bit of a of a tug of war with what the Fed is up to and how that's going to manifest itself. Have we not already felt the effects of that to some degree

with the tightening of financial conditions this year? We've seen that happen. There's a lag in how that takes effect, though. One of the biggest things that's happening right now, the Fed is doing a huge experiment right now. They are shrinking the money supply, and I'm talking about M2, shrinking it faster than has ever happened before in the history of tracking the monetary

aggregates and that goes back to 1959 we have never seen this big of a six-month rate of change in m2 that uh takes away the the excess money which was working to lift stock prices you know if you if you produce a bunch of money and it doesn't have anything thing to do it goes looking for a job and so it boosts stock prices. But it does that with about a one year lag. So we haven't even yet felt the lag go by for this big shrinkage in M2. And we're going to be feeling that all this year. At the same time, the Fed is still doing quantitative tightening. We're in the third ever round of quantitative tightening. So QT3, the first one they did was in 2008. and that didn't work out too well for

the stock market. The second one they did was in two thousand eighteen and that was counter counteracted by some tax cuts which help lift the stock market. So it kind of cut the cost a draw for two thousand eighteen as the

Fed was pulling away liquidity now we don't have the tax cuts we have a drop in him to we have a we have QT three meaning the Fed is selling off their bonds and their mortgage-backed securities. So you've got a perfect storm. And seasonality is going to try to fight against that storm. And it's probably going to be able to win for a while. I'm looking for an important bottom next week, the first week of January. We're going to be a little bit

disappointed. We're not going to go up right away on January 3rd. A little bit more bottoming action next week. And then the rest of January should be great. It's going to get everybody excited about, yay, the January barometer. We're going to have a bullish year. And once the market can succeed in getting everybody shifted over to the bullish side of the boat, then we start sinking again. All right. I do have to go back a little bit to that M2 chart because for one thing, I mean, that chart looks broken by the pandemic, right? I mean, money supply raced so high and at absolute levels never imagined before at the top. And so we're contracting from there. If you look at things like M2 relative to total stock market cap or M2 relative to GDP, nothing looks too dramatic

there. It's kind of middle of the road in terms of those types of indicators. I guess I'm just struggling with what the information content is in just the base money aggregates out there that we now measure in the form of M2. It's a good point that you raise, and it's the proper point of way to look at it. And actually, M2 versus GDP is shrinking. We've never seen this big of a drop because gdp is still growing uh we've still got inflation growing at seven or eight percent depending on who you believe and so that's raising gdp in nominal terms uh it's normal that m2 grows because you when you have an economy that's growing every year you need more money in it

for every transaction that takes place every payroll payroll item that takes place. That money has to move around. So you need a little bit more to lubricate all those transactions. When you have GDP growing, but you have M2 shrinking, then suddenly you have a musical chair situation where there's just not enough money to go around and people go scrambling for it all at once. And where do they go scrambling from? They pull the chairs out of the stock market. Where that excess money has been lifting up the stock prices up through the late two thousand twenty one top. Now all that money supply coming off all the cutie coming off. And the expiration

of all the of all the. The stimulus the fed was doing. Is underway and it's still going to be underway we're not done with it. I wish I had better news for you Mike. Yeah now that's all right I mean we call as you see underway and it's still going to be underway. We're not done with it. I wish I had better news for you, Mike. Yeah, no, that's all right. I mean, we call it as you see them. I mean, now, in terms of the way the year might play out or the first part of the year, if you think we get a little bit of relief in January, if we roll over from that point, is your assumption that the indexes make new lows or go back to the recent October lows or where might it settle out? Well, 2022 has been an official regular downtrending bear market year.

23 is going to be more of a sideways year. So it'll be a great time if you can be a short term trader. You can buy low, sell high, buy low and repeat it a bunch of times. January should be a great month and it should get everybody excited. February should be an awful month with as all that excitement wears off and I'm I come to this conclusion because we watch. The secured

overnight financing rate futures the S. O. F. R. futures. Those are what the big banks do. To offset their interest rate and lending risk and. They don't do it in an even way that their their ownership and their trading in

that and so the ripples that they. Show in the way that they trade the SOFR futures show up with a lag in the stock market. So we're getting a big heads up, about a year leading indication that I've shared with my subscribers, talking about what the big banks are going to do in terms of the liquidity surges and flows. And they're saying big month in January upward. And that all pays back in February and March and going to be a choppy sideways opportunities abounding for trading all during 2023. But the time to buy and hold is still not coming up yet. All right. Well, some early excitement and then maybe some range trading thereafter, Tom,

for 2023. Appreciate your thoughts. Thanks very much. Always a pleasure, Mike. All right. Take care. The consumer discretionary sector is down nearly 40 percent this year. But should you bet on a consumer comeback in 2023, even as recession worries swirl on Wall Street? Well, we'll get top picks from an analyst in the space right after the break. You're watching Closing Bell on CNBC. Starbucks announcing changes to its loyalty program.

Starting in February, customers will have to accumulate more reward stars to redeem a free item. The loyalty program has nearly 29 million members in the U.S. The coffee giant seeing shares higher today, up 46 percent, too, from this year's lows. Joining us now is William Blair analyst Sharon Zakfia. Starbucks is her top pick for 2023. And Sharon, obviously, this change to the rewards program may be just kind of taking a little bit of pricing by Starbucks in a less visible way. I know that's not core to your thesis, but how does it fit in with your general view of why you like Starbucks? Yes, I think there are a lot of things to like about Starbucks right now. You know, we've got what you just referred to, which is the loyalty program change,

which is not what we had anticipated, but should help gross margins. But really what we like the most about Starbucks is the momentum they have in their business. We are seeing continued strong traffic trends at Starbucks really globally, with the exception of China. And now with China starting to ease, we're expecting China to now accelerate as well. So really positive traffic momentum at Starbucks. And that ought to lead to pricing power, which we've seen them execute. And we expect them to continue to execute, as you alluded to, in part through this loyalty program change. And how does the valuation stack up of a Starbucks? So many growth stocks have really suffered valuation compression. I guess Starbucks is off the highs.

But what do you think is already built in to the stock in terms of further anticipated growth? Yeah, sure. So I think the company really surprised people with their outlook that they gave in September, looking for acceleration across the board. And with that outlook, where they're looking for accelerated earnings growth, accelerated comp growth, accelerated unit expansion, we have seen the multiple come back up. And the multiple is more or less in line with where it's been historically over time. But we think we're going to see upside to expectations. We think we're going to see this company grow at a 15 to 20 percent bottom line clip. And I think,

you know, as you look across the broader, large cap landscape, there aren't too many companies where you can have good clarity on growing the bottom line at 15 to 20 percent. We think Starbucks is in there and we think they have more control over their own destiny right now than a lot of other consumer names. And you do cover a pretty broad selection of consumer related stocks. What's your general view of how things will hold up in aggregate next year for U.S. consumers? Yeah, I mean, I've actually been really surprised about how things have held up in 2022. You know, the consumer has thrown a lot of curveballs this year, and we've generally seen consumer spending hold up pretty well. I think as we look out to

23, certainly rates are having an impact or will have an impact, but inflation is coming down, I think the key wildcard is unemployment. If unemployment can stay 5% or lower, I think we have a good chance that the consumer hanging in pretty well in 2023, maybe better than the streets currently anticipating. What's interesting in another one of your top picks for the year, which is Planet Fitness. Again, one that was viewed, I guess it got swung around by pandemic dynamics. But how is it positioned right now? Yeah, sure. So we were all supposed to be on Pelotons and never going to fitness clubs. Right. I mean, that was the 2020 thesis that many held.

And what we've seen the consumer largely do in 2022 is go back to what they were doing in 2019. That includes going back to fitness clubs. So we've seen a planet really recover the vast majority of its fitness club usage. And we've seen, this is consistent with Starbucks as well, really cross-generational appeal and more appeal the younger the consumer is. So it might surprise you, but 9% of all millennials and Gen Z already belong to a Planet Fitness. And that's a nice tailwind

as we continue to see more generations come into the fitness club arena. I also like that Planet has this $10 entry price point, which today, I don't know what you can buy for $10 other than a monthly subscription to Planet. And that is encouraging and that that should be fairly recession resilient. We look back at the Great Recession, Planet Fitness comp double digits the entire time. So wait, 9% of people 40 years and under are members of a Planet Fitness, not just a gym?

Yes, provided they're of age to be in a Planet Fitness, right? Yeah, of course. So part of Gen Z is not yet, you know, of the age to belong. But yes, of those 18 and older, 9% belong to a Planet. Wow. All right. I guess that's, it shows that they have traction brand-wise, if nothing else. Sharon, great to talk to you. Thank you very much. Good to see you.

All right. Let's get a check on the markets here. You see the Dow. It is up still about 336 points, holding on to most of the gains. Just a touch off the highs. The S&P hugging that 3850 area. NASDAQ and small cap Russell 2000 continue to outperform. Tesla stock looked like it was going downhill into year end,

but it is rebounding today as Elon Musk looks to reassure employees. We'll break down his message to staff next. And as we head to a break, check out some of today's top search tickers on cnbc.com. They are Tesla, Apple, and Amazon. All those are among the top five, along with the 10-year yield and the S&P 500. We'll be right back.

Check out Tesla getting a boost today, up about 7% after weeks of downside pressure. Elon Musk sending a letter to employees yesterday saying, don't be too bothered by stock market craziness. Let's bring in CNBC.com's tech reporter, Laura Kolodny, who obtained that memo and follows the company closely. So, Laura, a little bit of a pep talk. I mean, a lot of CEOs say, hey, just focus on the business. Don't worry about the stock price. But there's been some extreme moves. And I would imagine maybe some extreme swings in employee sentiment at Tesla.

I think some employees are concerned about the share price because a long-term reason to stay there is to earn stock options. And others have a feeling of, hey, if my options vest when the price is low and then we can focus and execute, it's a benefit to them. There are mixed reactions. You got to understand a lot of Tesla employees try to, like, ignore Elon Musk's other business and his politics and all this stuff and just stay focused on the environmental mission and making really cool cars.

Yeah, that certainly wouldn't, I guess we shouldn't lose sight of that, that they are kind of in a long-term project here. Although I do wonder what the general feeling is, given that he, by all appearances, is dedicating an enormous amount of time to running Twitter as sole proprietor of it and maybe less so day to day at Tesla. Elon Musk has repeatedly claimed that, you know, Twitter is like 10 percent of the complexity of Tesla and it's not taking that much of his time. But it has certainly caused him to sell, you know, tens of billions of dollars worth of his Tesla, but it has certainly caused him to sell tens of billions

of dollars worth of his Tesla shares. He told Twitter employees he sold Tesla to save their business. He's bringing some Tesla employees over to help him at Twitter. And so that is definitely a concern. Many shareholders and some of the employees would prefer that Elon focuses on Tesla. And it's for sure a concern. I think it's probably one of the reasons he sent this, although he does kind of traditionally send these end of quarter, you know, encouraging emails to workers. I think employees at Tesla also after layoffs earlier this year are feeling kind of overworked. And it's a really big ask. One thing in that email Elon wrote, he's asking for volunteers to help with end of year deliveries to get customers

their cars. And again, it's a really big ask, especially considering. Yeah, for sure. No doubt about it. And, you know, and we do know based on some of the pricing incentives and things we're hearing about that they are, you know, in one of those end of quarter rushes to try to get those deliveries up. Do you think there's a sense out there and some folks on Wall Street have expressed this, some analysts, that there's just Tesla as a brand has become a little more controversial and politicized to some degree based on what he's doing in Twitter with Twitter. Is there any feeling that that's pervading the employee ranks, that idea? Yes, you're definitely correct. Like the market research from organizations like YouGov

is finding that Tesla has become, and Elon Musk more so, has become sort of a partisan brand. So he's losing the liberals, basically. People who hold liberal ideologies are feeling differently, more hesitant about Tesla and about him. I would say when you look at the data on who employees from which companies and who they're donating to, a lot of Tesla employees donate to more left-leaning

politicians and causes. But again, I want to emphasize that the employees I've connected with are focused on either the environmental mission or designing and making cool cars. And so they try to ignore, right, the CEO's kind of political dramas and how he's needling some followers on with all of this. Yeah, I'm sure they're somewhat used to having to keep their heads down and uh and tune things out uh laura it's great to catch up with you thanks a lot thank you for having me happy almost a year all right you as well thank you after the break should wall street be bracing for layoffs goldman sachs is reportedly looking to cut headcount as soon as january we will ask bank analyst gerard Cassidy if he thinks more firms will slash jobs when closing bell returns.

Some 4,000 jobs may be on the line next month at Goldman Sachs, according to a new report. In his year-end message to staff, CEO David Solomon reportedly told employees there are several factors impacting the business landscape, including tightening monetary conditions that are slowing down economic activity, adding that headcount reductions could come in the first half of January. Joining us now is Gerard Cassidy from RBC Capital Markets, Doug Goldman and the banks in general. Gerard, it's good to have you here.

You know, investment banks in a tough year like this, probably no surprise there'll be some trimming of staff. Is there anything else going on at Goldman in terms of, you know, a restructuring, a reorientation away from some businesses that this reflects these potential layoffs? Thank you, Mike, for having me. And I think you did put your finger on it. I think obviously 2022 has been a very difficult year for the investment banking business, in particular for the ECM business. That being said, though, Goldman has the added challenge of restructuring their consumer banking business.

And this business, which they diversified into about three or four years ago, was expected to try to smooth out their earnings from the cyclicality of the investment banking business. And they've struggled with that business ever since and jumping into it. They've been very successful with their Marcus deposit product, but it's the lending side that they've struggled with. And as a result, there's going to be a reorganization. They'll give us more details when they announce their fourth quarter results in January. For sure. And, you know, I was just looking ballpark numbers in terms of things like revenue per employee at Goldman. And, you know, it's actually up a little bit this year,

tracking higher than it was, let's say, 10 years ago. You know, you can't really look back to the heyday of 06 or something like that. But in general, does it seem like Goldman is staffed correctly for its ambitions and its and its franchise looking ahead? Well, it's interesting. You know, we're coming off of two record-breaking years for the industry in 2020 and 2021. In 21, we had record ECM business in terms of IPOs and follow-on offerings, and then DCM broke records in 2020. The advisory business last year was also record

breaking for the industry and for Goldman. And Goldman also had some very significant private equity and equity gains in 2021, which added to their bottom line. They also hired, I think, over 10,000 people since the end of 2019. So now their revenues are going to be down meaningfully for them this year, as well as the street. It's just revenues are going to be down meaningfully for them this year, as well as the street, it's just naturally you need to cut expenses. And as you can imagine, Mike, the biggest expense for any investment bank is people. So that's why we're going to probably see these layoff announcements, not just for Goldman, but for the street in general. For sure. And more broadly, Jordan, looking into next year, what are your thoughts about the banks and where you'd prefer to play?

Clearly, there's an overhang. People worried about the consumer and corporate credit worthiness going into some kind of slowdown or recession, hard, soft landing, whatever it might be. Is the banking sector prepared for that or the stocks priced for it? It's a great question that investors are asking all the time and I think it's a little too early to jump on the investment banks we need to get. A better clarity on the feds policies going into the

you know in the middle of next year we know they're going to be tightening going into the spring. With raising interest rates and pursuing Q. T. so I still say we stay on the sidelines. For the investment banks for the time being but

you bring up a good point. The regular commercial banks, the banks that have good core consumer deposits, which for 15 years, Mike, nobody ever looked at. Now, with the Fed funds rate maybe getting to 5 percent in the spring, imagine how the banks with the good core consumer deposits that don't pay any interest, for example, on consumer checking accounts, these regional banks and even Bank of America, for that matter, will be able to have very attractive margins well into 2023. So I think the banks that take in deposits and make loans will have enough revenue growth here to handle the increased cost of credit. And we no doubt will see higher credit costs next year, 2023, as the slowdown hits or recession hits. But the banks, I think, are very well prepared for it and have this revenue growth from that interest revenue that should be able to handle it,

assuming the slowdown doesn't turn into a recession of an 08-09 severity. And it's more like an 01 severity if it does happen at all. Yeah. I mean, and that seems to be, I think, the working assumption that it would be more like the early 2000s downturn. Aside from Bank of America, any particular institutions that you do think are attractive here in particular? Yeah, Mike, I think when you take a look at the regional banks, that's where investors should be looking, particularly names like Key Corp or Fifth Third. These are companies that had very difficult times during 08, 09. They're out there trying to prove to investors they have changed themselves, and we believe they have. And then for the stronger banks that went through 08

and 09 without much trouble and are doing very well today, names like PNC, U.S. Bancorp, and M&T are all names investors can look at, particularly when the Fed stops and reach that terminal rate. History has shown that's been a pivot point for the bank stocks to do better. So that could come as early as March if the Fed hits its terminal rate on Fed funds. Yeah, pretty much coming into view. Gerard, thanks very much. Happy New Year. Thanks for joining us today. You're welcome. Happy New Year, Mike. All right. And here is where we stand in the markets with about 25 minutes left to go. The S&P 500 still around that 3850, 1.8 percent gain on the day.

The Dow's up 1 percent. NASDAQ and Russell 2000 continue to be the leaders after lagging into into today's action. Up next, we'll tell you about the stealth mover in the food space that is up nearly 30% on the year. And later, why one analyst just gave Netflix a rare double upgrade from sell to buy. We'll break down that call when Closing Bell comes back. Now for today's steaming hot stealth mover, Campbell Soup. It is lower today, but an absolute superstar this year.

One of the best performers on the S&P 500 outside of energy, currently trading near its highest level since mid-2017. It is also up a cracking 20% this quarter, tracking for its best quarterly gain in nearly seven years. The company able to pass on higher costs to customers without seeing a dip in demand. Campbell reporting 15 percent organic growth in its most recent quarter, but also hiking 2023 guidance. Chip stocks making a comeback today, but as a chip shortage turns into a chip glut, should you avoid the space in 2023? That story plus a double upgrade for Netflix

and the CEO of Booking Holdings on China Demand when we take you inside the Market Zone. We are now in the closing bell Market Zone. Let's kick things off with tech. The Nasdaq is the big winner in today's session, but of course, it is also the big loser on the year, down more than 30 percent. Christina Partsenevelos, what stands out to you in today's bounce back? I guess maybe some people finally see Santa, or you can say, oh, it's the jump in initial jobless claims, or maybe the China reopening and what that means for growth and inflation, or just good old-fashioned hunting, you know, since we've seen this Nasdaq drop so dramatically over the past few days. Volume, though, is a little bit lower. On the actual Nasdaq, it's the biggest rebound that

we're seeing out of all the indices, but still tracking for its worst year since 2008. Right now, there's roughly less than five names that are in the red on the Nasdaq 100. Walgreens is an example, and Phase Energy because of the drop in oil prices. But we are seeing, and that's what you're seeing on your screen right now, barely falling, not even half a percent lower. We're seeing a turnaround in fintech and payments. Affirm, SoFi, Block, eBay, all at least 4% higher or so. Affirm seeing the largest jump, over 8%. And I know some of our viewers will be like,

oh, not again, we've got to bring up Tesla. And I say I have to bring up Tesla, not because of musk and everything but because it's having the largest point impact on the nasdaq 100 it's jumping over seven percent i did get some research from s3 partners that says tesla was the most profitable short of 2022 so the shorts are definitely making some money off of there and i'll end mike mega cap tech, also because we're talking about the biggest point impact on the NASDAQ. These names you're seeing on your screen are really contributing to the drive higher meta, Netflix, Microsoft, and Amazon. You know, you mentioned, Christina, the profitability of Tesla as a short recently

really does also probably apply to some of the other stocks that are up big today. You mentioned Affirm, the fintech stocks, some of the most beaten up ones. So I guess, you know, if nothing else, the market action today is suggesting that that sort of end of the year, dump the losers type, you know, action that probably has been weighing things down on the Nasdaq for a week or so now maybe has just run its course. Yeah, so then are you implying that given this rebound, we're starting to see a little bit of short covering

because these are heavily shorted stocks? Is that what you're implying? Heavily short covering as well as the end of the tax loss-related selling that we probably were also seeing. Yeah, we did see that, yeah, over the last few days. So we'll see if we get more than one day in a row of action like this. Santa's here. Tomorrow as we close things out for the year. Yes, well, he's shades maybe early for next year.

Christina, thanks. Netflix rallying today after catching a double upgrade from CFRA. Analysts, they're changing the rating to a buy from sell and boosting their price target thanks to the streamer's launch of its ad tier, among other factors. Julia Borson is with us. And I mean, Julia, other media names also having a strong day. What seems to be behind the action? Well, look, this is a bounce back after a year in which we've seen a massive media sell off and also a total shift in the way that these companies have been valued. I mean, it's worth noting that netflix

had this big bounce higher today obviously this double upgrade but this is a stock that's still down about 50 year to date and we've seen all of these media companies including netflix for so long they were were valued based on how many streaming subscribers they had how fast that streaming growth is has been and now everything has really shifted to their average revenue per user and also their profitability. And I also think that one reason there's this new enthusiasm about Netflix is another reason we're seeing a little bit of a bounce back in Disney as well. And that's this idea that Netflix has this new ad-supported streaming model, and they are taking steps to better monetize their user base. That's something that Disney Plus is doing as well.

They've talked about being more judicious and determining what kinds of content they're going to be backing. But also they have this ad supported option. And I think across the board, we're seeing an increased focus on these ad supported streaming options, as well as even these free ad supported streamers called fast channels. A lot of the folks in the industry are talking to me about lately. For sure. And Julie, I also wonder if part of the thinking around Netflix and maybe to a degree Disney as well, aside from trying to get average revenue per user up, is the fact that if consumers are maybe going to be trimming back, if they're going to be canceling some streamlining what they subscribe to, it does seem as if Netflix seems to be at the core

and maybe is the last one perhaps that folks might consider canceling. In other words, a stickier subscriber base, even if it isn't growing as fast. Sticky. And this analyst note from CFRA cites some of the new shows like Emily in Paris, the fact that they have Glass Onion, which was a success at theaters and certainly is valuable to them on the platform. But this idea that it's sticky if you're a subscriber, but even if you want to pay less, now you have an option. Now you can say, I'm going to pay less and agree to watch some ads. I think there is an assumption that people might be cutting back on the number of subscriptions they pay for, but they might go from five to three. They're not going to get rid of everything.

For sure. Yeah. And of course, Netflix also trying to crack down on password sharing, things like that. So maybe just earning a little more on the on the audience that they they now hold. Julia, thanks very much. Talk again soon. Chinese travelers meantime getting ready to head overseas for the first time in years as covid restrictions ease. This comes even as the country grapples with a wave of new infections. Booking CEO Glenn Fogle saying on CNBC earlier today that the travel industry should brace for a huge surge in demand. You have hundreds of millions, literally hundreds of millions of Chinese customers who want to travel. They've been wanting to travel for a couple of years. They've not been able to get out of the country.

They want to go. So what's going to happen to global travel into the global travel industry when several hundred million Chinese people start traveling outbound to the U.S., to Europe, to Southeast Asia? In terms of demand, it's going to be a spike. Let's get to see Momoti for more on what Fogel had to say and really how we have this another perhaps reopening effect hitting travel. Yeah, Michael, you heard Glenn right there say he's betting on that China rebound, not so concerned about the restrictions placed on travelers from there. He also called the restrictions more political in nature, while also acknowledging the lack of transparency on China's front. But back to the demand story,

he also shared with us that his team is now trying to figure out how to accommodate the anticipated surge in travel from China. His timeline is spring of 2023. That's when he's expecting a significant pickup from east to west. What Booking Holdings is trying to solve for, Mike, is a supply issue, making sure there's enough hotel rooms, flights available on their platform. It's going to become more competitive between the online travel giants over the next few weeks here, especially around the Chinese New Year, which is on January 22nd, Mike. For sure. And Seema, how does that stand up against what I guess a lot of folks are anticipating might be a little bit of waning demand in terms of domestic travel. I mean, I'm not sure there's a lot of evidence of it. It's

much more just an anticipation that perhaps folks got a lot of travel out of the way and consumer confidence is down and other clues like that going into next year. Yeah, this is a big wild card. While the economy is expected to slow down and take travel down with it, we have this one bright spot emerging, which is China. 1.4 trillion people, 1.4 billion people that have not traveled for nearly three years because of stringent lockdown lockdown. So, yes, it's sort of an uneven story or forecast rather going into 2023 for the domestic story is travel is expected to remain strong going into spring or summer. That was the latest estimate provided by Expedia. But for home rentals, Mike, average daily rates are expected to fall compared to this year. That's the latest data from AirDNA.

That's sort of reflected in shares of Airbnb. If you can pull up that chart, you'll see the stock is now trading at its lowest level since going public, down nearly 50% this year. You compare that to Marriott, which is down just about 3 percent. That really tells you a story about how we're seeing that shift back to hotels and how pricing power is starting to dissipate when looking at home rentals there. And you can see booking definitely faring better than Airbnb. For sure. Interesting split for sure. Seema, thanks very much. The VanEck semiconductor ETF rebounding today after closing in the red yesterday,

but still on pace for its first monthly loss in the past three. It is also on pace for its first annual loss in four years. Let's bring in Ed Snyder from Charter Equity Research. And Ed, I'm sure nothing in particular changed today versus yesterday in terms of the larger picture for semiconductor supply and demand. But has this year done a lot of the work that might need to be done to to get the sector valued in a way that that that makes more sense based on what we might expect next year from demand? Yeah, we certainly have moved in that direction, of course. The question is, is it enough to compensate for what we think lies ahead?

I don't think so. I think you're going to see 2023 is going to be kind of a rough year for semiconductors in particular, largely because the Fed has not finished raising rates yet. So the only proxy we have for what we're going through right now is probably the 1980 recession. If you go back and look at all the metrics from that recession, you'll see that you had to get to what's called real positive interest rates. That is a Fed fund rate exceeding inflation. Once that occurs, then you get a sustained rally. Between where we are now, which is the Fed funds rate is well below inflation still, and that position, you're going to get a number of rallies, but a number of steep sell-offs. you could see even the last two or three months, we've had another big sell off,

too. So this is going to be, I think, the typical behavior you're going to see is certainly in the first half of next year, maybe in the full year. All depends on how how inflation reacts to to the Fed's moves. For sure. Now, Apple is bouncing today and there's talk of restarting production in terms of Apple suppliers or just handsets in general, they've been a tough area. But how does it look from here? I think handsets will have a tough year this year, certainly in the first six months. You've already seen the fallout in the Chinese OEMs. Samsung is already talking down handset unit volumes.

Apple has not done it formally yet. So that shoe is going to drop in the first quarter, certainly. And then we might reach a bottom, depends on what happens for the rest of the year. But if the economy continues to get worse, and raising the Fed funds rate is going to increase unemployment, it's going to lower GDP, you're likely to see lower native demand for handsets. Now, that said, handsets are a product that you can't really go without. So if you break your phone or you crack it, you'll put it off. So whatever demand we don't fill this year will be stronger than expected demand in 2024

or late in the fourth quarter of this year. So we'll see. All right, we will. Ed, thanks a lot. Appreciate you popping on. My pleasure. Ed Snyder. Let's get more on the markets on the penultimate trading day of the year. Joining us is Catherine Rooney Vera, Baltic Capital Markets

head of research. Catherine, good to good to catch up with you now. Big debate going into next year. Hard landing in the economy, soft landing. Has the market already had the you know, the bear market that we should expect around a recession? You're pretty confident that we will, in fact, get a formal recession next year. Well, Mike, if the Fed is serious about its 2 percent target, which apparently it has become, then, yeah, I think recession is inevitable. One of the primary drivers is the demand side. So salary growth of five and a half, six percent is not commensurate with 2 percent inflation. The Fed realizes this. And the unemployment rate at 3.7% is not close to what we estimate the NARU,

the non-accelerated inflation rate of unemployment, which is the neutral rate. Below that rate, which we think is about 4.9%, the labor market remains inflationary. So the Fed has to force, as your previous guest said, rates higher. The unemployment rate will likely follow suit. Consumer confidence drops as a result. The consumer, as you know, Mike, has been remarkably resilient. And that's primarily because they still have jobs, right? Everyone has a job. Salaries, maybe they're not equal to inflation, but they're rising. That makes you feel good. And if you have a job and you don't like it, you can find another one. So that's kept consumer confidence pretty resilient and consumption strong.

When we do get that turnover in the labor market, however, that's when I think the equities are going to take a further leg lower and the economy does roll over into recession. The good news, of course, is that brings inflation down. I have inflation ending next year close to about three and a half percent. So one difference now versus a year ago, in addition to valuations, in addition to the fact that the Fed was just going to be starting tightening, you know, last year, is that bonds now offer a little bit of yield. There was no cushion in bonds a year ago. Is that an attractive area or is that a little bit of a trap? I think it's the most attractive area right now. I think going into 2023 and the unknown of when the recession will hit, I think it's generally consensus that there will be a contraction in domestic demand, private investment and consumption.

But when that happens, I think keeps me more on the cash and private investment and consumption. But when that happens I think keeps me more on the cash and cash equivalent silence you can get T. bills like. Three months six months. Commercial paper. Four and a half percent to five percent investment grade paper. That's pretty attractive for

the for the foreseeable months going into later in twenty twenty three. As the fed reacts to a higher unemployment rate dropping inflation. Then we can add duration then we can look for more risky assets. But for the near term, I like short term paper. I like investment grade and I like cash and cash equivalents. And within equities, would that suggest that you would prefer to just sort of stay defensive, which is essentially, you know, what has what has done relatively well this year?

Yeah. And that was my call coming into this year. And it's done very well. In stagflationary and recessionary periods, generally the sectors that have done well, relatively speaking, year to date in 2022 are those that we should stay overweight into 23. Those are, of course, energy, utility staples and health care. So I still like them. I think we should have overweights there. Start to accumulate fixed income. I think fixed income is there is, you know, the famous Tina is no longer. So we do have alternatives. And thank goodness for that, Mike. Yes. Unlike a year ago, perhaps there are some relatively safe alternatives. Catherine, thank you very much. Appreciate it. My pleasure.

All right. As we go into the last minute of trading here, we still have the S&P 500 tracking around that 3850 level up 1.8 percent. Take a look at the internals. Might be getting about a 90 percent upside volume day on the New York Stock Exchange. A little nip and tuck there. We'll see how it closes out. That's sometimes significant. Look at Berkshire Hathaway relative to the market. That's been quietly breaking out on a relative basis of both value and quality as well as some financials in there the volatility index pretty subdued

as you might imagine coming back in under twenty two- and that's obviously reflecting a relatively gentle pace of trading going into. The final trading session of the year S and P five hundred about to go out with a one point seven

percent gain it is again. Up for the week. And it also is rating session of the year, S&P 500, about to go out with a 1.7% gain. It is, again, up for the week, and it also is down less than 20%. That's been one of the marks we've been riding for about a few days. That's going to do it for Closing Bell.