Bloomberg Markets: The Close 01/23/2024
Is the thrill Really gone? Live from Studio two here at Bloomberg headquarters in New York, I'm Romaine Bostick and I'm Alix Steel. I told you I was skeptical of the rally. We're just about an hour here until the closing bell in the u.s. let's get check in and our markets are okay. Sure. Another record for the S&P. But this conviction does not feel real.
It's just hard for stocks to go down rather than a conviction for stocks to really go up. The best performing stock, though, in the S&P is for fundamental reasons. United Airlines, we saw earnings yesterday after the bell. But the next iteration of this is the CEO saying that they're not sold on the Boeing Max 737 going forward and that they're looking at internal plans without that plane.
What that means, no one really knows. There's a quick chicken here. Another asset class is the dollar's a little higher. The DOJ with a nothing burger and the dollar gaining some strength here. And the ten year yield trading a little heavy yields up. Tons of supply remain and I mean tons of supply from Europe as well as here in the U.S. with that two year auction.
Yeah, interesting. You got United Airlines on the screen, one of the big individual movers of the day, but the stock of the day and really one way or another, probably the stock of the week, it's going to be Netflix, the streaming service reporting earnings after the bell on the back, of course, a 40% rally since a surprise earnings beat in October. Now, while there are still some bright spots in terms of subscriber growth and ad sales, some investors are really bristling at those elevated valuations. But Wedbush analyst Alicia Reese. One of the key issues is whether Netflix
can keep content spending in check. Content spending right now that's hovering at about $17 Billion a year. We're going to talk to Alicia a little bit later this hour to give us a preview of what to expect after the bell. We're also keeping an eye on housing stocks. D.R. Horton down the most in almost four
years. Purchase contracts were up in the fourth quarter, but they still fell short of Wall Street estimates. And the company suggested that maintaining any type of sales growth would likely require additional price cuts and more buyer incentives. KB Home, Pulte, Toll Brothers and the rest of the major homebuilding stocks down significantly here in the session. But let's start off the show with a look at the broader market and the potential for a broadening of that record rally that is Alex alluded to is on pause today.
Let's just call it catching its breath. Evidence of widening breadth is there, Alex, and take this to you. One of the ten best performing stocks in 2023, only three actually make it three actually make it into the top ten so far for 2024. And in fact, five of those stocks that were the best performers in 2023 are now in the red on a year to day basis. Do you find that really interesting? There's not just going to be. You're welcome. I spent a lot of time looking at I mean,
I had to think about that stat. But it's not just the big tech really leading and I'll do one better. This is a great chart from John Authers. This takes a look at the percentage of the index change since the last time we hit a record high back in 2022 of January and the points that moved right. So basically the biggest contributors to the rally in video, obviously we get that. That's really high on the list as well
as Microsoft. But in this list we have some really boring old school, old economy companies like Exxon, like Merck, like Berkshire Hathaway, Eli Lilly, Visa. These aren't the sexy high flyer names like in video. They're not even part of the Mag seven. And yet those guys contributed a lot to the S&P. So remain we talk about tech leadership, but you have to wonder, is breadth all that bad? Well, that's a good question.
Let's pose it to our first guest as we kick off to the close here on this Tuesday afternoon. Brian Weinstein, head of global markets over at Morgan Stanley Investment Management, joining us right now here on the close. And Brian, let's pick up where Alex left off here. A lot of questions here about the breadth in this market here. Are you finding that breadth there or is there a little bit more to be desired here? It's a great conversation. January markets always make me nervous because everyone comes in with all this bluster.
It's all going to be different. And then you end up in these periods like now there's a lull and it looks like the old leadership's coming back. But I think you guys are on to it. I think I think the leadership is changing. I think it's going to take a little bit more time. It's going to take a Federal Reserve
that does its job, is going to take us going through the malaise that came from high interest rates at the end of last year. But but I think you're right. If you look at energy, if you look at some of the health care drug companies, AIG is not only going to help the same seven companies if this is real, the effects of that are going to spread throughout the market. Not every stock, but there's going to be
a time for this breath to change. And I do think over the months to come, we're going to see that when we talk about potentially widening out of any sort of additional gains here. Do you think that this will sort of be, I guess, more of a broad sector pick, meaning people can look at certain sectors and say, okay, here's maybe potentially where the money goes? Or do you think they need to be even a little bit more selective in that really drilling down into those individual names? You know, I do think you can get some broad based sector rallies here. I mean, that said, are there some smaller companies, if you can pick them out, are going to do things like, you know, the The Magnificent Seven have done. I'm sure that there are some winners here that are larger than others. But my bet would be that investors can
actually go to different sectors, go to some things that have lagged. I'm not sure how far down the cap structure you can go. I don't know if it if it goes of big into small caps or mid-caps, it's hard to say. But I do the from a sector basis the leadership you know yeah you'll find individual names but I think you'll find that your sector rotation is pretty powerful in the next couple of months. A what, Brian? Like, what's it going to rotate to? I was just really struck by the stocks that have led in the last two years, and it's kind of all over the map, really. It is all over the map. It is all over the map. Listen to fixed income yields do kind of
stay low or even fall from here. I think you can look at some of the more boring utilities that that pay dividends. Again, I think there's a commodity play out there.
You know, if a Federal Reserve is really going to ease four or five or six times this year and the dollar can weaken a little bit, some of those sectors have really lagged. And there's, I think, some some broader shortages and other international events going on that could help commodity sectors and energy sectors do well. And and I do think there are winners inside of health care and pharmaceuticals that you guys had mentioned a few names where there can be leadership also. But I think tech. Right. You can maybe it's the Nasdaq 93, right. The other the rest of the tech industry. I mean, there's no reason why there can't be a continued tech rally.
I don't think it's an antique. You know, it's it's definitely tech behind. It's part of the story. Anti tech. It can be more inclusive, for sure.
But what we're not seeing is the dreaded V word, which is value, because that has definitely been a value trap unless you've been trading it really well with small caps, for example, Do you can you not look at it in value versus growth terms anymore? Brian Yeah, it's not something that's why it's worked terribly well and it's not with the way, as I like to describe it. So yeah, I'd stay away from that as, as the simple delineation because I again, I think growth is going to do fine if we have a broad based rally. Investors like it. I like it for a reason. It's where the excitement is.
Again, it's going to trickle through lots of other industries. But I wouldn't I wouldn't couch it in value versus growth as the right way to to rotate out of the winners. Is there a sense here that when we talk about the idea that so much of the rally that we had up until this point was really driven largely by rate expectations and the macro conditions tied into that, is that going to continue to be the dominant narrative or at least for the equity market in 2024? Or do you think we'll shift to more, I guess, of those idiosyncratic stories, those bottom up fundamental type of stories? I think for the next couple of months, it is going to be really important what the Fed does, right, because the expectations are so high. I think it's interesting in the last few weeks that interest rates have gone up and the equity markets have been stable, too, a little bit higher. So maybe we're breaking that correlation where interest rates go go higher and stocks go down the same time moves and the Fed wants to ease rate. The inflation rates have fallen. They want to declare some victory. They want to make conditions easier for
people. So the macro, I think, will be super important as the Fed gets going from there. I think you're right. It goes back to earnings, it goes back back to more idiosyncratic stories. But I think the macro plays the first half of the year. You think the Fed wants to ease, Brian?
I mean, I know the market wants the Fed to ease, but at least publicly, all the members of the Fed seem to be suggesting, you know, just kind of slow your roll a little bit on those rate cuts. I think what the Fed wants is the market not to think they're trying to juice the equity market or they're not trying to. What they're trying to do is say, listen, their rules suggest when inflation goes up, you raise rates all else equal. When inflation falls, you should bring it back towards neutral. No one on that.
Fed thinks neutral is five and a half. They all think it's restrictive. So yes, I believe the Fed wants to ease. They're just trying to pick the right time to tell us because they don't want to be they don't want to be in charge of another bubble. They're just trying to move policy based on their really telling rule. And so, again, I think it's four or five times this year starting in May, but they could just as easily start in March. And it will depend where inflation goes, how far they take it remain. You really want it to be bottom up,
don't you? I kind of do your. You know what? I'm waiting for that, too. That's my specialty. So so when when macro when we get to have that fun day, that's going to be a moment. Hey, Brian, last question before we go here.
Why do you think it's so hard for stocks to go down right now? Now, that might be a silly question. Yeah, I wonder about that all the time. I mean, listen, I think from a broad base perspective, if you're sitting on your five one quarter money market fund and you're saying, well, I know the Fed's going to lower rates, you're trying to time it, I think money's going to start to leak out of some of these safer assets and go into equities. Everyone wants a dip. Everyone knows the Fed is or watch the Fed's, as you said. So I just think that there's a lot of money coming out of safer assets in some fixed income assets to go into risk.
And I'm afraid what's going to happen is it's going to start to happen more quickly. That's when you get your broad base rally. That's why it's not idiosyncratic yet, because that money is going to come into to sectors and indices and then you get your your idiosyncratic later. But that's why I think it's so sticky. I think money is people are starting to realize that five and a quarter, you know, the money markets aren't going to be there forever.
So let's start to get money out in the market and it's only going to continue for the next few months. All right. Well said, Brian. We'll catch up again soon, I'm sure. Brian Weinstein, head of global markets over at Morgan Stanley Investment Management, helping us kick off to the close here on this Tuesday afternoon. And I looking forward to after the bell and results out of Netflix and a big announcement already Netflix laying the smack down on its rivals with a $5 billion deal to air WWE Raw and other wrestling programs here. A big push into live events. We'll have a full breakdown in just a second. But shares at 3 a.m.
close in on one of the biggest drop since 2019. More on those disappointing results fueling that fall. Love this story. It's today's Stock of the Hour. And a closer look at private credit competition for lending heating up. The copier group's be out, of course. You're going to be joining us with more
insight on a corner of that private space that she thinks. Has a lot more room to run that conversation and so much more coming up in just a bit. This is the close on Bloomberg. And.
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Trump is leading by a long shot, insightful interviews. He is the one that has knocked all these other candidates out of the race. And the most informative analysis about what it all means for November's presidential election. What is your path to the nomination? Coverage continues today only on Bloomberg. The Fed has not done well in the past three or four years in terms of or five years in terms of trying to find that magic Fed funds rate that will neither increase inflation or produce deflation. And so, you know, are they wise enough
now to know exactly what the Fed funds rate should be at any point in time or even, you know, 6 to 12 months down the road? No, I'd be very cautious as PIMCO co-founder there, speaking of reminded me yesterday. He also went on to say that the Fed should stop winding down its balance sheet and start cutting rates in coming months to avoid a recession. I get that he's talking his book short, but still, nonetheless, he's not the only one. Bloomberg's Michael McKee international economics and policy correspondent joins us now. Mike, do you think what he said like stop cue, cut and cut rates all at the same time, is that a realistic, like dual tool that they're going to use? Well, it's a debate about what they're going to do, because if you're still doing cutting, even at any amount and you're cutting rates, you're working against yourself because one tightens and one loosens. But the markets are expecting, at least as far as the Fed is concerned, a regular and predictable kind of exit.
And so the feeling is they would announce some sort of taper before they actually cut it off. What actually, I guess, would drive that sort of what would be the catalyst? Because right now, when you look at the communication they've made publicly and you overlay that with the data, I'm not really seeing an exit. Well, it really depends on how things develop the next couple of months, because what they're looking at is for evidence that we're seeing inflation on a strong path to 2%. Now, where does that leave them between two and three? We don't know. But Friday, we should get we will see the headline PC number, which is their target, probably remain at 2.6%. And then we could get the core rate
below 3%. And that'll set up maybe a market reaction as people start to think, well, we're getting closer and closer and March could come back into play. I know that, but but it doesn't matter. I mean, those are the year over year numbers as a matter that the month to month numbers are at least going to accelerate based on economists estimates. Well, the month to month is important in
terms of a trend, but it also matters what is driving it. For example, in the headline number, if it's oil prices, they're going to look through that. And so it'll really be the components and they'll be looking in the core at real estate especially. I just want to mention I look today and we're down to 40% chance of a move in March. Remember, it was 1848 on Friday, it was 80% a week ago. So the markets are finally getting the
Fed's message. Goldman, though, sticking to that march call there for the first cut. Okay. So that's going to happen Friday. But in between them, we got the BOJ, which I call a nothing burger, and then we get the ECB on Thursday. And I'm wondering about the pressure that the Fed is giving to these central banks to do something quickly or they will put the pressure on.
Well, there's a little bit of pressure on the ECB, but not a huge amount in the sense that the Fed goes the if the Fed if the Fed goes in, it means that the euro in theory gets more expensive. And that may not be good for the European economy, but it probably is so priced in at this point, it doesn't make a big difference. Now, the Bank of Japan, they're going in the opposite direction. They have not moved their policy rate for 16 years and they've got the the yield curve control that's been going on for years and years, that they've sort of taken the cap off.
But markets are still respecting it. And basically they said today overnight that we're going to make these changes, we're going to make them some time soon. Now, the debate there is when to do it. And the feeling is they might wait until April, because in March they'll get the results of what they call the Shinto wage negotiations. It's a sort of a countrywide wage negotiations for small and medium sized businesses.
They want the opposite of what the Fed and ECB wants. They want wages to go up. The union representing the union, representing the workers said we want 5%. They got 3.8% last year. And the companies representatives said we want to do at least four. So they're going to raise it from last year. They're going to get some more
additional increase. It's just a question of how far it goes. And then the Bank of Japan, we'll have a better idea of what it wants to do. I'll take three. Yeah. All right. Michael McKee Our Bloomberg
International economics and policy editor. Of course, the discussion about Japan, but also a big focus here on the big economic data points we're going to get this week out of the US, including that first look here at GDP from the last quarter. All right. Coming up here on the big program, a preview of Netflix betting big on live events with a $5 billion deal for World Wrestling Entertainment. Plus, the big earnings after the bell.
Alicia Reese over at Wedbush stopping by the program to give us her take on what to expect. That's coming up next on the close. This is Bloomberg. And. All right. Let's get the view from the sell side with our top calls, the big movers on the back of analysts recommendations. And we start off with Coinbase, Jp morgan downgrading to underweight, saying the biggest U.S. cryptocurrency exchange could fall victim to a slump in the Bitcoin ETF hype.
This marks the analysts first sell equivalent rating on the stock since Jp morgan initiated coverage back in early 2021. Shares down 3% here on the day. Next up, let's take a look at Enphase energy. The sun shining today on the solar power company with an upgrade over a choice to buy from hold. Daniel is saying that while we haven't seen the end of volatility in the residential solar sector and phase will be among the big winners when the Fed moves into a rate cut cycle this year, the price target bumping up all the way to 145 from 85. The shares today bumping all the way up by about four and a half percent. And finally, Sirius XM.
Wells Fargo turning the dial on the satellite radio company with a downgrade to underweight. The analyst says the valuation and stock price have improved since the announcement of that tie up with Liberty Media, but not due to any better fundamentals he sees with weak subscription revenue and higher operating spend. Adding to the static on that channel shares the series, which are already in the tank, moving us basically unchanged here on the day. And those are some of our top calls. All right, Let's turn back to the big story of the day potentially. That is after the bell. Netflix, the streaming giant set to announce earnings after the bell tonight. But earlier this morning, they had
another big announcement, a $5,000,000,000.10 year deal with WWE. That's the pro wrestling Association here. Nick Conn, WWE president, had a chance to catch up with this just a while ago.
Take a listen. We're pleased with the deal and we love the fact that Netflix was willing to take a bet on us for us with Raw. It was yet another test of someone new in the space, obviously an established streaming entity, the streaming entity, if you will.
It was a good bet by us and we think a good bet by them. Nick on their heads. WWE Alicia Reese, who's vice president of equity research over at Wedbush, joining us right now. She has a 525 price target on the stock and an outperform rating. And before we get to the earnings tonight, Alicia, let's start off with that WWE deal. As a recovering pro-wrestling fan, I
have to say I'm somewhat excited about this, but I'm also curious to see how Netflix is really going to deploy this. I mean, live streaming is a much different animal than what they currently do right now with this sort of library of content. How do they navigate that? Yeah, I think it's an encouraging sign that their advertising platform is starting to really peak. You know, it's starting to do really well. They've they've tested some live
programming so far and they're entering the waters with a fairly large sporting event in WWE. I think, you know, this is a great way to test the waters and do something amazing with existing viewership and maybe expand that viewership as well, something similar to what they did recently with the likes of suits, licensed content. They took, you know, an old title and just really burgeoned that with their massive viewership worldwide. So I think they could do a lot with it.
And it's not just the live programming, it's also all that shoulder program, the the documentaries and the, you know, original series that will come out of it. Well, that's what I'm curious about here. Do you think that they would have done this deal if they were still kind of under that old model, just a pure subscription model rather than having that ad tier? No, I think the ad tier definitely gives them a lot more money to play with, a lot more different types of programming to play with, like sports. You know, live sports really do require, especially for the price tag, it requires some sort of advertising capabilities and also just the format of it. It requires breaks and Netflix ability
to support that kind of content does, you know, give us an encouraging sign that its ad tier is starting to really take off. Alicia I didn't think about that because the ad breaks. This is a great point. On the flipside though, are we worried about content spend? Sports are expensive. I mean, they're paying twice the amount that cable was paying for WWE. Well, I think there are two ways to look at that.
One, yeah, sports. It's too expensive, but they're not betting on the NFL right now. I also think that that $17 billion content spend that they had discussed before could be significantly less than it was. And that's for two reasons. One, because they're doing so well with licensed content right now, which is significantly cheaper. They don't need to spend quite as much on original produced content as they had before.
Additionally, you saw just this week also that Netflix, you know, chairman of Netflix Films, Scott Stuber, also is exiting. And that, I think is the signal that Netflix is moving on a bit from its original movies, which are very, very costly and don't bring in a ton of viewership. And when they do, it's for a couple of hours, you know, it's not necessarily rewatchable. So having more licensed content, more content like this, like WWE is going to really get, you know, keep the surface more sticky.
Lisa We're like a week away from Netflix already hitting a 52 week high. Is there any set up? We get an earnings after the bell where the stock actually can move higher here? Yeah, I mean, there's definitely high expectations going into the print. So I think what what investors are really looking for here is one that the password chain crackdown is still you know, obviously it's diminishing what they can still get from that.
But can they still get more family memberships, which is going to drive arm higher? Can they still get, you know, more of those churned out or released bundlers to take their own accounts? And when they do, are they going to pick the ad platform? Our you know, proprietary surveys in the entire quarter are still suggesting that there's still money to be squeezed out of that password sharing crackdown. And a lot of those churned out, you know, customers or release customers are coming back and paying. And more often than not opting for that ad tier. Yeah.
The other portion is when does the ad tier become accretive? And the work we've done, you know, based on all the data points either that we've kept or that, you know, have been publicly provided throughout the quarter? Yeah, it's really encouraging. Yeah. We got to leave it. They're up against a hard break. Thank you so much.
Thanks for checking in. Before the numbers. Alicia Reese, vice president of Equity Research over Wedbush. All right. Coming up, we're going to talk about
private credit, giving big banks a run for their money. This is Bloomberg. And. Beautiful view of New York City, that beautiful skyline. 3:30 p.m. here in New York.
This is the countdown to the close. I'm Romaine Bostick and i'm Alix Steel. I told you yesterday the equity rally was boring. Yeah, well, okay. Boring. I mean, this news fest, a snooze fest. I mean, it makes you wonder, though, when we talk about sort of the, I guess, pause, let's just call it that right now, there was a rally. Whether this is sort of a real
reassessment of valuations or it is indeed a pause and we'll just find some other sort of upside catalysts to push stocks. 100% think it's going to be the latter, but it is fun to have a pause. But have individual stocks have tons of fun reaction all across the board with earnings. I like that. I dig that. Okay. Well, the equity values, we're talking about taking a pause or petering out. You decide. One area that keeps attracting money,
private credit. So deal volumes might not be as strong as 2022 and 2021. It's still a $1.6 trillion behemoth industry. Money flows in our returns. Delivering on Golden Tree's CEO was a little more conservative when he spoke to Bloomberg Television in Davos about how he expects credit spreads to narrow. I'd be surprised if the next five years resembles anything like the last ten years. The historical returns that you've
gotten around 300 basis points of excess return. I'm skeptical you're going to get that in the future. Joining us now is Peter Ker, managing director and chief impact Officer over at the Copia Group, where she focuses on direct lending to lower middle market businesses. Of course, direct lending is a big sub sector space of private credit better. What kind of returns would you be expecting this year? But we still think private credit loans in the lower middle market. So we're focused on companies with even
under 20 million. And I think it's important to point that out because the middle market as 100,000 companies in America. So you can have very big return differences depending on the size of company you're talking about. And with the type of companies that we're targeting at that size in the lower middle market, we still see return opportunity in the 11 to 13% net range, and that is unlevered.
So silver plus 7 to 8 is really what we see as the norms and we acknowledge the gold entry comments around some spread widening and a little bit of lower deal value last year. But again, we're seeing an anomaly in the lower middle market because it's incredibly underserved as the private credit funds have become so big on average that the deal sizes are much bigger than where we're focused. Right. And also, they can compete with banks, too, which is a different kind of world. So with that in mind, be it a, how is this space different than two years ago in terms of the sectors or the type of lending that's happening? Again, I think we have to differentiate between under $25 million ebitda1 and the whole middle market. I think one of the big differences is that there's incredible concentration at the top.
So a recent statistic around private credit fundraising from last year shows that 70% of the new flows went to for firms. And actually private credit fundraising was up year over year, which was in contrast to private equity. But the number of managers participating was down. So in terms of industry concentration, I think there's more concentration in terms of returns. I think you're seeing more confidence on deals. The pendulum has certainly swung in favor of the lender, the borrowers that we are talking to. You're right, the banks used to be there
years ago, but due to Silicon Valley Bank last year, $1,000,000,000,000 of deposits left the banking system and the banks are even more constrained. Really, the regional banks were more the traditional lenders to the smaller sized companies that we're focused on. So again, we see deal volume up year over year, not down, and we see spreads remaining pretty consistent year over year as well. But does that mean that the types of deals that you're looking at today relative to say, I don't know, a few years say just say prior to the pandemic to draw sort of a line in the sand here? Is the risk reward ratio better now than what it was in or basically about the same? We actually see it as better, which I think may be surprising for some. But we were just looking at the default rates and the Proskauer index. And again here what we're seeing in the in this under $25 million range, the default rate is actually half.
It's currently 0.7% and that is half with the current default rate is for the total middle market deal environment in terms of private credit, direct lending. So we're seeing better risk adjusted yields, we're seeing stronger covenants and we're seeing more volume. Can you carve out a niche in this space
right now, given how big this industry has gotten? But of course, with that increase in size has come also with a huge increase in the amount of people in you're chasing after the same deals. We can carve out a niche. In fact, at the Copia group, we're particularly focused. Our theory of change is on shrinking the
wealth gap, and it's around the idea that wealth is not distributed equally in America and ethnically diverse business owners and women business owners have not had equitable access to capital, and we view private credit in many ways, like a bridge loan. It's like growth equity financing that can sometimes substitute for private equity. And these business owners may not have the same network of available capital or mentorship. And so we really feel like we're filling a void with this population in particular. And so that's how we're carving out a niche in this market where we again don't see, you know, dozens of players focused on this.
We had to go macro for a sec. So you get the Fed cutting rates, let's just ballpark it four or five times. Economy slows, but it's not like a deep, deep recession. We're able to maintain a good job, a good job market. Inflation kind of comes down. What happens to your space? Is this like ignite animal spirits here? What happens? Well, I think that's the perfect environment for our space. I think that's the consensus view on this kind of soft landing scenario where the economy keeps on ticking along.
There's some pressures in some sectors, but as a credit underwriter at the top of the stack, you're always concerned about minimize macro risks, client concentration risks and focusing on the end market and building in protections. So that soft landing scenario, which we think and consensus thinks is really most likely is a sweet spot. Now, whether the banks return to the market will be the question. And at the moment I think the banks, both regional and money center, are focused on more profitable initiatives, wealth management, other types of shorter term lending. But cash flow lending, that's longer term like growth capital and acquisition financing still seems to be a space where the banks are really not front and center anymore. All right.
We are going to have to leave it there. Great to catch up with you. And really the best to success here with the new venture. Give my best to Sean, John and the rest of the team. We the of managing director and chief impact officer over at the private capital firm Copier Group. Come on in, Alex. We talk about this idea to sort of just how big this industry has gotten.
And we've gone from a relatively nascent industry. I don't know, 25, 30 years ago there was really only worth probably a few hundred million dollars. Now, of course, this is $1,000,000,000,000 business. And on its way potentially, as she alluded to, to be more if the banks continue to retrench. I know. But then what happens if regulators want to get in on that? Because the whole point of why banks are retrenching is because they can't because new regulation.
Have you ever posed that question to one of these? Because they always sort of blow it off. They said, oh, don't, oh, it's okay, we're responsible. And it's like you become too big. Well, we've never been for the regulators and they have to do something. Have they test it? Has it been tested in a real crisis in the same way that I mean, the great financial crisis? Maybe. But has it been tested? It has not. But there was an interesting op ed study that actually came out, I think it was sometime late last year where they actually did go back and really stress tests of private capital scenarios here. And they actually found that the risk
there was actually a lot less than I really thought. Yeah, It was interesting that study we did a a whole thing here on the close at the time you were knee deep in the European closed, right? So we did different things. I don't know what goes on over there. There's a storm. There was a really bad storm and some planes got got grounded. No, a nuclear facility is not doing well. Yeah, in France, there's some stuff.
There's some stuff. Okay. All right. A lot of stuff going on here, too, has got you down to the close. A little more than 20 minutes until we get to those bells. We can have a discussion here about 3
a.m., one of the biggest decliners here on the day, the shares in a freefall. That's our stock of the hour. The close on Bloomberg. And. Welcome back to the close. As we count down to those bells, a closer look at the biggest mover of the day.
Ethereum shares tanking after this forecast disappointed Wall Street. Abigail Doolittle joining us right now for our stock of the hour, Triple M here, down 11% on the day. What happened? Yeah, it's pretty amazing. The worst day since April of 2019.
And what really stands out is this degree of the decline. It's not a huge profit guide down that they made. So in terms of the quarter, that was they actually beat, but for they forecast for 2024, they took down earnings guidance by $0.06 and almost $10. So it's $0.06, $0.06
instead of 970, not 975, it's something like 969. Sales was a little bit more 2% growth versus 2.7 growth. But the reason that we're having this huge decline, I believe, is the fact that this company has been in a world of hurt for a while.
They did a restructuring last week. The numbers started to improve last year because they laid off people and they made other changes. Everybody thought this was going to be the bottom, that numbers would stabilize and they still came down a little bit. The CEO is talking about the idea that the end markets are still not great, but there's still weakness there. So they're getting penalized in a massive way.
I love Ethereum because it's an early cycle industrial and it has exposure to literally everything industrial, China, consumer electronics, etc.. They also have some litigation issues, though, and I wonder if that's seen a trough. Well, it's a great question. So last year, yes, the earplug lawsuit, they settled that for $6.6 billion or $6 billion, and then they had a clean water or excuse me, it was forever chemicals in water. They settled that for $12.5 billion.
So the removal of those lawsuits is very good. But interestingly, to pay for it, this company is a dividend rich company. They may have to take that out of the dividend. So from the investors standpoint, you have the removal of the overhang, but you might not have the financial help out for earnings. So, yeah, so it gets back to a question now, right when we talk about sort of whether 3 a.m. is a bellwether for, I guess the rest of the sector and more importantly, some sort of bellwether for the economy at large, is that correlation there at all? I think that it has to be.
I mean, I haven't done specific work on it to know. But just in terms of what Alex was just saying, they do everything. I mean, I'm a Post-it fan. I Post-its everywhere, all over may not surprise me about you, by the way. I know a little little notes, little
quotes everywhere. It's my favorite and favorite way to go, but they are in every end market. And so the idea that the CEO, who knows, maybe he's taking advantage of the weakness and trying to say that it's the end market, it's really not a cause and effect. But he very clearly said the electronic market is starting to stabilize, but the industrial, the retail, not so much. So it could be and if you think about it from the same. Yeah, but that raises a lot of
questions, too. I'm sorry to cut you off there. It's just kind of about that sort of conglomerate model. Yeah, because the whole idea was that when one thing is doing bad, yes, the other exposed to help out. And I don't know if it's really good.
Well, it's such a good point because you have G.E. here and they actually didn't have a great quarter either. But they're spinning out. They spun out health care.
They're spinning out energy and aerospace. The age of the conglomerate might be going away. It's going to be interesting to see, like, what if thorium doesn't happen like that? I think it has meaning the overwhelming statement as it has. But 3 a.m. didn't do that and then is supposed to be to be diversified. But that hasn't played out. Yeah. I mean, how many of these big industrial conglomerates are really left in the running in the truth, in the true sense of that? And even Honeywell at or even at Honeywell when it used to be.
Yeah, 100%. Yeah. But still it just shows to me too is that if you, if you miss and your stock was already doing well, you were just going to get hammered even if it's by $0.06. So there's definitely a management expectation game that hasn't been played well yet.
And this one, I think it really was the fact that analysts were saying that this was the bottom. But the bottom clearly from a technical perspective, it actually does look like the is not so far out, but from a fundamental standpoint, they wanted numbers to stabilize and they simply couldn't do that. All right, Abigail, thank you. Appreciate it very much. All right. Coming up, the main event right now, you got earnings from Netflix, Texas Instruments, Baker Hughes all out after the bell. Plus, more on expectations this earnings season.
And Leo Kelly, CEO over at Verdant Capital Advisors. This is the close on Bloomberg headline level. Markets pretty much doing a whole lot of nothing but underneath the hood lots of interesting stock stories that are moving bond market sell off a little bit yields climbing modestly higher, particularly on the long and the close. Coming up next, this is Bloomberg.
This is the countdown to the close. Romaine Bostick alongside Alix Steel 10 minutes, Alex, until we get to those closing bells. You wanted a pause in this record rally in equities, and I guess you got it today here. The S&P only up fractionally on the day. The Russell in the Dow lower nationally on the day. But look underneath it and it's actually really cool stuff going on.
What's going on underneath the hood you've got the homebuilders B because a Di Horton just getting slammed today down by 3% when you had to give more concessions to sell your home. That's not really great. But is that a housing issue or that. D.R. Horton That stock has run a lot issue, which brings us to that margin expectation and the management of expectations, And that brings us to 3 p.m. that stock having a worst day since
2019. We just talked about it. But the idea is like, why aren't we warning now? Like, and there's already a run into the stocks. You really have to manage that expectation carefully.
And Verizon, Verizon doing really well, adding a lot of subs. Who would have thunk it? Yeah, actually, a lot of these are kind of old school telecoms have actually been doing well over the last few weeks here. That is the search for value. That is the search for dividend. The fact we talked with PIMCO co-founder Bill GROSS. You were here that day.
I believe that was yesterday. Yeah. Yeah. All right. Well, we talked to him and actually got his thoughts not on fixed income, but on the equity markets and where he's seen value. Perhaps you should be a little more conservative, but you need to be invested, you know, a 5% Treasury bill. Yes, that's attractive. And I have some.
But basically, you know, there are certain stocks with higher yields, relatively safe dividends that are more attractive to me than the Magnificent Seven. Tobacco stocks like Altria yield nine and a half to 10%. And, you know, the dividend has been raised every year despite the problems with the, you know, the tobacco industry. There are stocks like Verizon and AT&T that yield six and a half to 7%. And so you can go to areas where there's perhaps still some growth like with Verizon and AT&T and high yield at the same time, it just seems like a better bet for an investor that wants to conservatively, you know, earn perhaps double digits going forward. Of course, I was Bill GROSS on the big program yesterday right here in The Hero now. Leo Kelly joining us.
He's the CEO over at Burton's Capital Advisors, live with us here in Studio two. And aleo, I mean, Bill, growth is looking for value. I feel like every investor we talk to these days is looking for, I guess, what they determined to be value. Do you find that out there? Well, I think absolutely. If you think about last year, the S&P 500 great year, but the same 500 stocks equal weighted, had about half the return. And that was actually saved by the last six weeks of the year.
So to me, that says the market is overly narrow and that that means there's opportunity, there's a potential maybe for this broadening out, though someone pointed out to me that a lot of times when we start to see that broadening out, that also tends to signal the end of the bull market run. Well, I do think as you as you as you take a step back and look at what's actually happening, there's a lot of optimism around the Fed, six rate cuts where that came from, I have no idea. To me, if you take a step back and you think about, okay, asset prices are making all time highs, inflation is starting to slow down. The consumer has a lot of confidence and we're going to get dovish. We're going to cut six times. We're really just now past neutral. And so, yeah, maybe they bring it a
little bit closer to neutral. But these rates are not historically high. They're kind of at the low end of normal. Yeah.
And so I just think people aren't used to this, and that's part of the challenge. So you bring up an interesting point because if you have, say, six, seven, five rate cuts sort of priced into the market, but then you have earnings expectations still really strong. So one of those two things can't be true, right? Because either you're going to cut six times because the economy stinks or earnings expectations have to come down. It sounds like you're thinking it's the latter. Yeah, I still think that we most of the
market gain last year was PE expansion. Earnings just started to go positive at the end of the year. I think when we take a step back this year, earnings are not all that exciting coming into the year. So the Fed tends to get what it wants and the Fed wants to slow things down.
I think we have to be really careful here. Inflation can come back. There's still at the end of the day, M2 grew by 40% over two years. That's third world country stuff. Okay. So if we act too quickly on the cuts,
money supply is still very, very strong. And the concern is inflation comes roaring back. So your base case, is that your base case? Our base case is absolutely. If the Fed gets overly dovish, we have inflation coming back and it comes back unexpectedly. So I think this is a time the way we're looking at portfolios is be disciplined. Keep your portfolios exactly where they should be. We're neutral weighted on equity, so
we're not running away from equity, but we're also not chasing this thing. Look at valuation. Some of these names have really exploded to the upside. The valuations are very, very high. Be disciplined. I do want to go a little bit deeper into
that sort of risk of a potential acceleration of inflation. You mentioned money supply. We should also be point out this is an election year in the U.S. where typically you will find politicians trying to exert a certain level of of a pressure onto the economy in order to make things look good here. And I'm wondering if that becomes maybe sort of that inadvertent roadblock here for any sort of additional rally. Yeah, This is going to be an unusual election year, more so than any other year, Right? We have a we have mixed Congress right now and the president's numbers are not very, very high.
So the bully pulpit may not be as strong as what has been traditionally. And so I think I don't know that I would look to that. I think this is a case of money supply starting to slow a little bit.
The Fed is starting to slow things down a little bit. Right now, they have Goldilocks. Goldilocks is it's very rare. Yeah, it's very rare. So I think, again, this is not a case where you should run from the market, but it is a case where you have to be very careful not letting your allocations get out of line. So is that the biggest risk that you're looking at right now, that the potential for a real acceleration? Yes, I think I think the Fed not cutting as much as people think. Yeah. I still think there's recession risk out there.
Yeah, right. The Fed is purposely. Look at the ISM data. There are some data is showing a little bit of weakness in jobs. It's still pretty slow.
Housing still hasn't come back. Commercial property sales have been resolved. This is we're not out of the woods yet. It's just the market movement seems to have people believing that we are. But you still have a conviction just to remain invested in the market just a little more selectively. Yes. To go underweight equity, we would have to see a run up in valuations across the broader market that says this is a little too high. Let's back off and find a cheaper asset. We're not quite there on the broader
markets. Again, those those those growth stocks, that high growth stocks are starting to get there. But other than that, no, I think you can own equity. Just don't chase. All right. Going to have to leave it there. Leo, great to see you in person here.
Leo Kelly, CEO over at Burden's Capital Advisors, live here in the studio. Alex, help us count down. Until the closing bell. Stocks pretty much where they've been now for us since we started the show here. A mixed bag here with the S&P, a Nasdaq
in the green, everything else in the red. We're waiting, waiting for Netflix says definitely in it. Set the tone for tomorrow as well. It had a huge run already. So can it actually beat and then get even more of a run? Are we going to have a cool down no matter what? Yeah, no disrespect to the banks and the other things.
I always felt like Netflix is like the true start of their earnings season, at least in this modern. And I'm just saying, I guess in the old days it was Alcoa and you use the Alcoa now definitely. It's kind of look the Netflix is set the tone again given techs. All right we are moving closer to the closing bell.
Our full market coverage right here on Bloomberg. It's coming up as we take you to the bell and beyond. Beyond the Bell. Bloomberg's comprehensive cross-platform. Coverage of the U.S. market. Close starts right now. And right now, we are 2 minutes away from the end of the trading day Romaine Bostick alongside Alix Steel. We're counting down to the closing bell.
Here to help take us beyond the bell. It's a global simulcast. We're joined right now by Scarlet Fu here in studio to Carol Massar and Tim Stanwick in our radio studio. So welcome to all of our audiences across all of our Bloomberg platforms here, Carol. On this Tuesday afternoon, a bit of a breather from that record rally that we saw over the last couple of sessions. Absolutely. Such a tight range today. It really has been earnings focus. So if you've had a good earnings report, you tend to rally.
If you haven't, you go to the downside. I've been looking a lot. We have really I'm assuming you guys, too, about the airline sector. If I look at the S&P Cooper Composite Airlines Index, it's off its highest, but still up about 3%. All nine names have been really trending higher for the whole day. So we know they have United Airlines to thank for that really upbeat in terms of their outlook.
So that is really some outperformance in today's session. Do I see that you guys just spoke to Leo Kelly? We did. He did actually. He we spoke to him earlier today. You know, we send our guests over to radio. Have you warmed them up for us? Yeah. Well, did they tell you that? Did he? He gave us all the good stuff.
By the way, did he tell you that he thought that the market is ahead of itself when it comes to rate cuts and he thinks that they're only going to see one or two rate cuts this year. He did say one or two. Do you say what he said want to do? Does he say one or two? Okay. I mean, that's like that's very much below what the market is expecting. Scarlett He's definitely in the camp of inflation re accelerating and that being an issue for the market, something that we haven't priced in just yet. As much as we say the market's taking a breather. We're still at record highs.
Guys, any time it's green on the S&P, right? Yeah, I guess that's how it works. But you don't want to sell that to Alix Steel. No, I can't get a rally all day way, guys. What? What kind of get what kind of increase gets you excited? All right, well, we got a lot going on here. Remember, we're going to get Netflix here after the bell. All seven of the Magnificent Seven stocks are in the green here on the day.
Netflix, a modest bid as well. Netflix earnings right now crossing the wire. Let's get right to it here in after hours trading. The headline number coming in in the fourth quarter. Streaming paid net change in subscribers, 13.1, 2 million net subscribers added in the fourth quarter. The Street was looking for 8.91 million. So that's a huge beat on the streaming
side. As far as the actual dollar figures goes, EPS in the fourth quarter, $2.11 a share. The Street was looking for 219, so a miss on that number.
Revenue coming in to 8.83 billion, a slight beat over street estimates of 8.7 billion. Here's your forecast going forward. For the first quarter, the company is projecting EPS of 4.49 and change the
street was looking for on average guys, $4.09. Wow. That's it's really good. You're looking at the stock kind of pop after hours as also trying to settle out here. But we're up over 5% at this point. What I'm also super interested in, the operating margin came in at 24%. The estimate was for 22.7%. So if you're worried about content spend, maybe you're not as worried about it right at this moment Carol.
Yeah, and it's interesting, as you said, the stock was popping around a little bit right after the results. Right now, it's up about 6.7%, 7% here. So, Scarlett, we're seeing investors certainly buy into it and they like what they've heard, at least initially. All right. We also have earnings coming out from Texas Instruments, the chip maker. And what we can tell you is that fourth quarter revenue trailing analysts estimates $4.8 billion. Analysts were looking for $4.13 billion. So this is yet another quarter of revenue declines when it comes to the first quarter revenue forecast that two misses analyst estimates 3.4 or 5 billion to 3.75 billion. The consensus was above $4.9 billion.
So this would mark the sixth straight quarter of revenue declines for Texas Instruments. When you include that outlook. When it comes to the bottom line, fourth quarter EPS is a dollar 49 versus $2.13 last year. And fourth quarter CapEx was just shy of what analysts had been anticipating $1.15 billion. Texas Instruments says it sees increasing weakness in price across the industrial sector, and that's similar to what it had said last quarter. And it says sequential decline in automotive, which is interesting.
So that really I'm looking at the press release right now, increasing weakness across industrial and see a sequential decline when it comes to automotive. I mean, that's kind of like what we saw Ramon with Mobileye, right? They were talking Mobileye got hit really hard earlier this year because of a decline in the automotive business. I mean, yeah, and we kind of saw this coming too when we got some of those auto sales data at the start of the year, the start of January, it was very clear that we're seeing a material slowdown not just in EV sales but really in auto sales overall here. This is the bread and butter for a lot of these companies in terms at least in terms of profitability. And so if that's waning here, you have to adjust that model pretty significantly to the downside. Yeah, Looking a little bit at that fourth quarter, I'm going to go back to Netflix or stay with Netflix for a moment.
Looking at their fourth quarter letter to shareholders, they say there's plenty of room for growth ahead of streaming. Expands. They just talk about, you know, entertainment improving Netflix faster than their competition. So they seem pretty upbeat. And it certainly looks like investors feel the same way about Netflix here. In the after hours stock still up almost 7% or at 7% here.
I think it's worth, though, going over for a second. Streaming paid memberships it's well all right and 60 million. Yeah I mean that is a big, big number. Also, I should point out the content
spend is actually up about 17. I just had the number and then I went away 17. They're moving track on the billion. I mean, they're definitely doing it like you're doing well. Better playing well. Hang on.
That's 17 billion though is actually below where they've been for a while. Remember they got down. Yeah. It's better in terms of obviously from a cost perspective.
But I mean I hate to poo poo this, but at the same time, like, where's that content going to come from? I mean, we were speaking with Alicia Reese over at Wedbush. WW and she was yeah, she was very bullish on this WWE deal and saying that the cost structure of that, particularly given the ad component that's baked into that, might actually be the new model. You overlay that with the resignation though, that we learned about yesterday of Scott Stuber, who headed the film division, and maybe that is the future here. Well, it's also going to come from
games. I mean, these are all places where a few years ago. You see that one? Yeah. Yeah. That's a new part of the business. Here's what they said and here's what they said in the in the letter with a better slate, easier discussion, and thinking about establishing ourselves in new areas like advertising and games, we believe we have a lot more room to grow. It's a $600 billion opportunity revenue market across pay-TV film games and branded advertising.
And today Netflix accounts for only roughly 5% of that addressable market. I mean, if you were to go back in time and show this to someone five years ago and say Netflix would get into sports, Netflix would get into live Netflix sports, the games, I mean, you got to put in a certain data. I mean, it goes after, right, a different audience like if you think about the potential they did this they did this with just call the experiment off a little bit. They're doing it a little bit with tennis. So they're getting we're dabbling in sports a little bit. I mean, this is like never say never
when it comes to Netflix, because this the Netflix that they're building right now is so different than what they were building just a few years ago. And remember, that's the thing they're building. There are advertising tier, whereas the other streamers