Stocks Sell Off Sharply Into Close Following Warsh Presser; Meta and Microsoft Diverge 7/29/26

[applause] The bell's ringing into the trading day at the NOSE T-Row price, ringing the closing bell, not the Nasak. It's first Western financial. Well, the closing bell over time relies on Studio B at the Nasak market site. I'm Melissa Lealong with Mike Santoli, stock sinking. Bonyls rising as the Fed keeps rates unchanged, but Chairman Warsaw's the Fed will not hesitate to act on inflation. The Dow down big over a thousand points. It's worst day of the year, the SB 500 down 1.4 percent little north of that. Nasak down 1.5. Big moves in Bonyls, especially the Longarand, the 30-year jumping to its highest level since 2007, much more on the moving yields and the Fed decision coming up. Oil also jumping higher by 7 percent as the tenuous piece was broke. And of course we're about to get some huge earnings reports. Our team is all over at Microsoft Maddoch Qualcomm, ARM, cluster-poly as well as Starbucks. But wow, what an interesting session today. I mean, we got the decision not much reaction and then as a press conference rolled on, you saw that precipitous move in the yields. The impression left by some of Chairman Worsh's answers after the Fed decided not to move rates was, it's up to the market to control inflation. In a sense, the market is going to read what needs to be done. He was sort of giving credit to the bomb market for kind of having this wisdom about it and maybe perhaps rising yields had done some of the work the Fed might otherwise be doing. So at least the reflex move was fine. I guess that's going to require that in fact the Long and Go higher. I think that a lot of this stuff can be exaggerated on the day of. There's a lot of on-lines of what the embedded trades were in the immediate reaction. But I do think it's kind of telling stock market couldn't find its way to look at the silver lining through all that stuff. And definitely, the idea that you didn't get a hike when you thought there was a one-third of a chance going into the meeting. So I think what that tells you is there was some fragile internals in this market. We keep talking about it. And I think the broadening trade gave people the sense there was some place safe to hide. And sometimes just when you're in correction mode as we've been for a couple of months below the surface, you might need the impression that you don't have an easy place to hide. Exactly. And by the way, that implicit message that wars were sending, I mean, it's in complete opposition to the message that he has been giving the markets. And that is 2% is 2%. It is a firm 2%, it's not a soft 2% and we're going to get there. And yet, we're going to let the markets do what they have to do. Reinterrated that again today for sure. And look, the market is continuing to price up decent likelihood that there is a hike in September. So it's not as if it totally scrambled the outlook. But I think there's a sense that the market feels like it's on its own. It's going to have to find its way to try and navigate this communication. Yeah, but that drop, that precipitous drop in bonds with the yield curve steep. Yeah. And the financials really took it on the chain. The financials didn't like it and semiconductors got wiped out. Yeah, let's get to meta earnings. They are out. Julie Borson's got those numbers. Julia. Melissa, mixed results here. An EPS miss. Meta's earnings per share of $6.18 coming in well below expectations of $7.22 per share. You see shares are now down 7%. Now meta revenues did beat estimates at 60.8 billion versus estimates of 60.17 billion. And we are always focused on capex for meta meta raising the bottom end of its capex range to for this year, this will your capex between 130 and 145 billion. This is a slightly narrower range than what they had previously forecast to of 125 to 145 billion. So not moving the top end of that range, just bringing the bottom end of that range up higher. The company also guiding to third quarter revenues of 61 to 64 billion. The estimate is 63.1 billion. So we're going to continue to dig through these numbers. We see shares now down 8%. But I'm going to throw back to you now, Mike. Julia, thank you. Now down 8 and a quarter percent. The somewhat light revenue guide for the third quarter is a little bit of a trouble. That. And then when you raise the bottom end, you're bringing up the midpoint basically of that capex span. And so in the context of what's happened today, what we're seeing with with Bonyls, there was concern already that meta was paid. We had to pay much more in terms of interest expense in order to fund this AI build out. So not only is it, are they going to be spending more potentially, but it's also going to be costing them a lot more if we are to believe that this moving in yields is a. Yeah, that is a new wrinkle here. Tech is rate sensitive in a way directly in terms of outlay that it never was before. Now let's get to that bomb market reaction to the Fed decision and Chairman Washington news conference. Rick Santelli is in Chicago for us. Rick. You know what a fascinating day. A lot of emails and sources out there scratching their head to the Fed do the right thing. Well, look at 2 and 10s on the six hour chart. You know what that chart tells me the Fed did exactly the right thing and the markets do an exactly what Chairman Wars wants to do it in the future. Two year yields are down and they're down because the Fed did the right thing and long end yields are up. Well, look what's going on in the world and that's also a good thing because the market's doing what it's supposed to. It's looking at the mid east, it's looking at the pretty decent state of the US economy. It's looking at unbelievable amounts of issuance to pay for AI, pay for data centers and competing with countries that need to sell that to pay for all the spending that they continue to do and the face of a market trying to penalize them for doing it. And if we look at the yield curve and its entirety there, that's a 2 10 spread. That's a two week chart. It is big time. That is a huge move. It's steepen about what? A dozen basis points. Not many sessions where you're steepen a dozen basis points. Now, I know many continue to look at the 30 year bond. You know, it's an oddity. The 10 year right now, guess where it's at, right at that special point we've been talking about that old May 19th cycle high close we took out last Thursday, 467. And once again, I think you're going to close the week above it. The long end is still acting as though yields are going to remain firm. Maybe potentially go higher. And finally the dollar index, the dollar index sided with the two year, which makes perfect sense to me. It is moving down along with short rates. And I think that if the Fed really was off sides, there's no way you'd see a five basis point drop on short rates. Mike, Melissa, back to you. Rick, you said that Fed having done the right thing, not hiking here and the long end doing the right thing because of look at what's going on in the world. We'll be kind of knew what was going on in the world before today. Did the Fed or Kevin Worsh's comments do you think caused the 10 year to get a little bit, you know, twitchy on the upside because they have to price in maybe a little bit more of, you know, potential inflation down the road? Well, you know, a 467 isn't all that twitchy when you consider we, you know, we've been up at 470 a week ago. The twitchy markets, the equities. And you know why it's twitchy because it's been glued together with cheap glue. And I think that there's a lot of issues there that need to be resolved and a reset that needs to be taken. But I wouldn't necessarily look at, here's what I think. I think the chairman Worsh and the old time look at a free put for the equity markets long gone. And I think maybe that dawned on some investors today. Yeah, it's sort of getting through Rick. Thank you very much. Microsoft earnings are out. Let's get to those. Kate Rooney has the numbers. Hey, Mike, so it was a beat on revenue from Microsoft. We have 90.1 billion, 0.01 billion, I should say, better than expected. On the gap EPS number, we're not going to compare this one. It's $4.74 adjusted for the quarter on EPS. That does exclude an impact from OpenAI. There's also a $3.2 billion gain related to Anthropics. So the EPS number a bit messier. We're not going to comp, but $4.74 there, Azure growth better than expected. That was 43% growth on Azure revenue. Better than the 40% street was expecting. Want to read you a quote from CTO, Satin and Daly says Azure revenue surpassed $100 billion for the first time. Also mentions Microsoft 365 co-pilot seats surpassing 30 million paid seats. That's a key number. He says it reflects some confidence and customers placing us to power their AI transformation. That is the latest guys. I will keep digging through this for some more details, but it looks like shares more than 3% higher on this report back to you. All right, Kate, thanks. That 30 million paid seat that compares to 20 million at the end of the last quarter. So there's progress. There's some growth there. Yeah. As well as the quarter and quarter as well as year and year. And better than expected growth in Azure. I mean, it mimics what Google Cloud saw, but definitely probably also relief. The shares are exhaling. The month high is like 406 and it's about 404 here. Let's get back to Julia. She's got some more in meta. Julia, yeah, just digging into the result here. As we see the stock dramatically lower after hours shares now done about 5%. Now the daily active people number coming in at 3.6 billion. This is slightly lower than the 3.61 billion that was anticipated, but it was growth up from 3.56 billion in the prior quarter. So we had seen a sequential decline from Q4 to Q1 in terms of the number people using meta's apps. They did see growth again. Free cash flow came in at 784 million. Analysts had been expecting free cash flow to actually turn negative. So this was better than expected. And I just want to flag one key note here. The company is saying we continue to monitor active legal and regulatory matters that could significantly impact our business and financial results. Saying we continue to see scrutiny on youth-related issues in several markets and have a number of youth-related trials scheduled for this year in the US, which may ultimately result in a material loss. Certainly, Melissa, this is something we've been reporting on. very closely and could really have an impact on these results. Sheer is now down about 6% back over to you. Julia, thanks, Julie Worson. As you can tell, busy day of earnings plus the Fed joining us now is Brenda Vingello, Chief Investment Officer at Sandhill Global Adviser. She's brought a great to-have you with us in such a busy day. Let's get to the earnings here and start off with Metta. Why do you think the shares are, I mean, aside from the EPS, miss anything else in the numbers I concern you? Well, I think this is a tape where it's just not the greatest story to come out and raise capex or tighten the range and be at the high end of the range and then have a revenue guide that wasn't really better than expected. Because I think what everybody is wanting to see is some kind of return on these investments. So I think a better setup would have been a better revenue guide number. But at the end of the day, I still think that 3.6 billion daily active users, I mean, it's a tremendous number of people. That is, this company's huge biggest advantage is the eyeballs that they have. And so engagement there is certainly important. But I think there's some other things that we need to get clarity on. One is there's been a lot of talk about potentially selling excess compute or renting it. I should say not selling, renting excess compute. So this is a question about is this going to be a new direction for the company in terms of building out more of an AI platform or is this simply just an advantageous moment to do that? So I think there's a lot of questions here that still need to be answered. But I think when we look at the real base business here in terms of engagement, it still is a very important resource for advertisers. And I still think that's a very powerful part of the story here. We're looking at Microsoft, Brenda. It's up now just only about one and a half percent, just over one percent. And obviously it's down farther from its highs. It's had a little bit of affirming up in the stock price performance this week. But it's seen maybe better than feared in terms of most of the metrics in the quarter, what's your view from the top down? >> Sure, well I think it's great to see that the Azure growth come through and also co-pilot because I think there's a real view that co-pilot is really all, not all that it needs to be in order to garner more and more growth. But I do think that is really the key for this company is that for many enterprises, I think being able to implement AI in a suite of systems that they're all using is just such a powerful proposition. So last quarter, Sachin Adela talked about how add-ins for Excel and Bird were really some of the most exciting areas. And so I think that's telling that enterprise customers want to be able to use AI in these systems that their employees are intimately familiar with. And so being able to grow that co-pilot business and improve it, I think is an important part of the story. But also when we look at Microsoft, the stock has been such an underperformer that I think that a lot of bad news was already priced in at this point. >> Hang on Brenda, we want to get to Qualcomm. Those earnings are out. We have a mixed quarter for Qualcomm. >> 2 cent EPS, miss at $2.21 adjusted, but a revenue beat at $9.95 billion with both the chip and licensing units, topping estimates, auto posted a record quarter, but they are calling a bottom, specifically in China smartphones for Q3. The guide though, a little light midpoint earnings of $2.15 below the street, the CEO and the CFO that I spoke to just earlier said the smartphone mix is shifting Qualcomm means more premium. And that's really helped them in previous quarters, but they're starting to see buyers trade down within premium driven by higher memory costs. And because of that, their hiking price is double digits to offset it on September 1st, though they say gross margins still dip just below their usual range. Next quarter, we'll probably get those numbers on the call. They also now see Apple revenue falling faster. Next quarter, that's Q4 more than the 20% they had guided before, so that is a concern. I asked the CFO about it and he said he's happy, it frees up supply to use elsewhere. Lastly, the company is diversifying away from smartphones and reiterated that non-handset chip sales should jump from 24% to more than 60% next fiscal year, becoming the majority of Qualcomm's chip business for the first time. So you can see shares though reacting negatively down 5%. Now for arm, that's a different company. Meet across the board, the chip designer earned 45 cents adjusted. Revenue came in at 1.29 billion, a record for a first quarter driven by both licensing and royalties. The guidance slightly higher, sees current quarter revenues of 1.38 billion on EPS of 47 cents, which was just 4 cents higher than estimates. Big drivers, arms, new AGI CPU, so an actual chip, a real chip. CEO saying demand has exceeded expectations and that confidence in beating its $1 billion or CPU target has climbed just over the last 90 days as the company works to lock down more manufacturing capacity, which means it's preparing for more demand. I know Cebo is bringing them also. I'll let you guys go, but you can see shares down slightly. All right, thank you, Christina. And by the way, RMCEO will break down those results. That's tomorrow 9.30 AM on Squawk on the street. Starbucks earnings also are brand and Gomez has those numbers. Hey, there, Mike. That's right. Starbucks and Chipotle, I'll stack them both for you. Starbucks earnings, topping estimates, adjusted EPS coming in at 85 cents ahead of the 66 cents, expected revenue coming in at 9.3 billion, beating the 9.16 that was expected. Now, the fourth consecutive quarter of Combe Growth and second consecutive quarter of margin expansion here, global same store sales, up 7.9% of the ahead of the plus six that was expected, North America same store sales, up 8.1% international same store sales, up 5.7%. Both ahead of expectations, I'll start bucks. Also noting in the release that it is raising fiscal year 2026 guidance, more details will come on the company's earnings call. But CEO Brian Niko so far saying, this was the quarter momentum became truly measurable with shares up about 7% now. And then we got Chipotle too, also a B on the top and bottom line, adjusted EPS ahead by a penny, 33 cents compared to 32 cents, expected. Now, that's on revenue of 3.35 billion ahead of what was expected. Q2 Combe sales, up 2.2% compared to the 1.4 that was expected by the street. Remember, the quarter was wrapped up by the time the cyclospor outbreak really started to hit restaurant foot traffic. So we will look for commentary on the call and any updates there. Q2 restaurant operating margins down from 27% previously still though ahead of estimates at 25.2%. The company is saying it sees fiscal year comp sales growth in the low single digit range that was about flap in the company's first quarter print CEO Scott Bo right saying the company is, quote, "focused on the right growth drivers, menu innovation rewards, group occasions, shares you can see popping there as well." Almost 6% now. Guys, yeah, Brenda, thank you. Don't miss Jim Kramer's exclusive interview with Chipotle CEO coming up at 6 p.m. on mad money this evening. Let's get back to Kate Rooney with a little more on Microsoft, Kate. Yeah, Mike. So, digging through the numbers here, one interesting portion of this is CapEx for the quarter. They say it's $41 billion. Important thing is that this is aligned with guidance. So they are on track to hit that $190 billion guide for CapEx that they put out for the fiscal year. Microsoft is in its fiscal fourth quarter. So it seems to be on track when we look at the CapEx number. We mentioned those co-pilot paid seats at 30 million. A little bit of context here. If you look back to Q2 in this fiscal year, it was 20 million. The quarter before that, it was 15 million. So really strong growth. They say net seeds adds more than doubling quarter to quarter. And then M65 commercial cloud. This is core part of the enterprise business. Revenue there. 10%. Xbox, that's been a struggling portion of the business, the gaming unit. Revenue there, decreasing 10%. And then last thing guys, a couple different segments. Productivity revenue, intelligent cloud revenue, and personal computing, all slightly below expectations in a row here. But the overall numbers did beat especially revenue. But shares pairing those initial gains a little bit here up more than 1%. Back to you. Okay, thank you. Let's get more on the moves in. >> And Microsoft joining us now is Brent Thil. He is senior software analyst at Jeffries and has a vibrating on both stocks. Brent, for Metta, a guy very tempting, I think, going into this report to kind of zag and say the pain's been absorbed. It's the evaluations pretty depressed. What did they show? What did they need to show? What do you make of the market reaction? >> Yeah, I mean the quarter itself was kind of blocked, right? Not a great revenue being margin below the street 31 versus 33. Not that extra little higher. You kind of have the trifect of things that could go wrong that aren't great for the stock, right? Not big upside, bigger expense, bigger catbacks. So I think it just fuels this, hey, they've got to get ready for AI. I think the overall ad market, which is driving the most bulk of the revenue is still very healthy. It's just investors wanted more in this market as you know right now. It's just so fickle. >> Yeah. >> This was not it. This was not a good print. >> Yeah, hang on there. Julia Worson's got more from Matt, Julia. >> Hey, Melissa, with Medicare's turning down about 5%, I want to flag two factors that were weighing on Matt's earnings per share in the quarter. The company announcing that it's $42 billion in cost and expenses, which was a 55% year over year increase, includes $2.4 billion of charges related to legal proceedings and $1.18 billion of severance expenses in connection to the May 2026 head count reduction. So just flagging those two factors there. As we look ahead to the call, which starts in about 10 minutes, we are expecting Mark Zuckerberg to share more on the enterprise business. He did say in the quote in the release here that, And AI is accelerating the core business, powering our next generation of products and opening the door to entirely new enterprise opportunities. So looking to hear more from that about him shortly back over to you Melissa. All right, Julia. Thanks, Julia Borson. Still down 5% Brandon and just to sort of build off of what, Julia, I'm just wondering, what can the message be that Zuckerberg and company can give to the street? They're not going to, we're not going to get obviously return on investment number. But what are some of the things that they can say to sort of reframe their story and take control of the narrative? Yeah, I mean, I think everyone wants clarity on what he's going to do in the compute business. He's late. He should show up. There's still a lot of room. You know, are you going to can't involve into the enterprise pool or you're going to do a wide compute build out? So everyone wants to hear, ultimately, what are they going to do on this compute build? And I think that, again, we don't have a lot of details. It's all been speculation. It makes a lot of sense. We know it's a big business for Amazon with AWS, with GCP, with Microsoft Vagia. So we'd like to hear more on that side. I think the other initiatives are on glasses around some of the other AI initiatives. When is that going to pay off? How is it paying off on that side? And then I think obviously the biggest driver that's coming is just the health of all the advertisers and their spend. And that looked good. The revenue upside was okay. It wasn't amazing. Just overall health and why are they guiding below the street for the next quarters? It's just being conservative or is there something that they're seeing in the environment that they don't like? So again, I'd say the compute initiative is probably the number one thing that everyone wants to hear because how he does it is going to define how much money they have to spend. Are they going big into compute? Are they going to just sell chunks to large enterprises with a small team? This is a big, there's a lot of different ways they can go after this. And we need to hear more on his route to market. Yeah. And just a word on Microsoft, Bren, it looked like kind of a cleaner report on most fronts of stock is adding to the little bit of gains we've had this week. What's most important there? It was the biggest being Azure and three quarters. That's the key headline, their infrastructure business, doing very well, commercial cloud, 14% growth. CapEx was a little bit lighter. It was a good revenue beat and really stable. So I think this is kind of what any hood has been instrumenting the CFO for years. It's just stability and good numbers. We're finally seeing Azure acceleration, which is a signal that they're getting more capacity and AI online. And they are pinning with any LLM, any model you want to bring is a great place to come to them to run this as a safe harness, if you will. So we like the Microsoft story and we continue to be big believers in what they're doing. Right now it's just been a source of funds, investors that just used Microsoft to source moving the SpaceX, moving it into other names, energy, infrastructure. And so I think again, they deserve better. We think the fundamentals are really good there. And I think they're signaling that they don't have to go out and crank the CapEx to drive these numbers. CapEx was actually a billion dollars lower than the street had expected. So it's always been about a good, balanced story. Unfortunately, investors are not dreaming it that way. They're dreaming it as a source of funds to fund other names in tech. >> Thank you. >> Thank you. Appreciate it. >> Thanks. >> Over at Jeffries. Many times you mentioned big moves late in the session and stocks and bond yields following Fed Chairman Kevin Worsh's news conference. Let's bring Steve Leesman for more. So is there, I mean, it seems Steve that there is a disconnect here between what Kevin Worsh is saying today about the markets and letting the markets do what the markets do and his said fast stance against inflation getting out of hand. You mean as he's talking a lot about the idea that he's committed to the price stability and talking about, not doing anything about it, right? That's really what it is. >> Yeah. >> And what I'm hearing from some people, Melissa this afternoon, is the market reaction to the chairman's speech, among the Fed statement, was a thumbs down on Worsh's commitment to fighting inflation by failing to hike despite that strong commitment to deliver price stability. Take a look at the long end. You're getting killed. You'll done the 30-year bond surging 10 basis points. It doesn't really happen all that much or actually it's 13 right there after hours. The 2-10 spread as investors Jeff Gumbach just told Scott Wopner, steepened undoing the flattening from the last press conference that was a positive development. Markets now expect the hike in September, but less than they did from the prior meeting, 62% probability of that hike with 38% hold. It had been in the near 80%. Rich did, however, subtly hinted at a hike, but you have to listen closely to hear it. >> So I think it's a mischaracterization to say that markets haven't reacted because we didn't move today. Markets are reacting in real time. In the period ahead, we've got important decisions to make about the policy rate. Markets in the intervening period, I think, have quite a bit of decisions to make. The question is why that hike didn't happen this month with the chairman's constantly promising price stability and getting back to the 2% target, but not doing anything. Mark Spindell from Potomac, River Fund telling me the reaction to the long end of inflation expectations of gold all during the press, reveals a market questioning the chairman's resolve. These had two opportunities to raise rates and hasn't even as the market building expectations for rate hikes. And just in case you want to know here are the three dissenters that, you know, these folks have credentials. Beth Hammack spending a lot of time at Goldman as the treasurer there, Neal Cushgari was a market guy. And Lori Logan, probably the expert on the Fed of the balance sheet. So guys, you know, we'll have some explaining to do. And I think there was a lot of lack of satisfaction, I would say, with his words today, even though they sounded pretty good. >> Yeah, Steve. I mean, I guess I would say the market, at least, probablyistically, did not expect to move today. >> Right. >> And as a few weeks ago, nobody was really looking for a move today. So maybe the lack of a hike today isn't really the thing. It maybe is some of the other elements of the responses that the chairman gave to some questions. In other words, a lot of focus on, well, one of the reason real yields are up in the long end of the Treasury curve is economic growth is going to be good, right? It's not an inflation alarm necessarily. Again, he likes to accentuate potential for AI supply side driven productivity. In fact, the statement said productivity growth has been strong. So I think if you kind of collect that all, you're saying maybe he's looking for ways where you don't have to hike as much as you might otherwise, strictly based on the inflation readings. >> Mike, you're much smarter than I am because I never listened so hard and heard so little. Now, that may be what Kevin Worsh wanted. But when I ask a question, Mr. Chairman, you said you're listening to the markets, tell us what they're telling you. And you would think that answer would be looking at where the two years was before this, that that would be the rates should be higher. Real rates have served. So, are you listening to the markets or not? And when I said I listened to Harden didn't hear much, I was not alone. I talked to three or four of my favorite Fed observers after the meeting and they had similar reactions where it's just a little bit like he's just talking and we're not hearing a framework. You could hang your head and I said to somebody after this, you know, I could look, did I miss something? Is there some takeaway here that I am not understanding? And the person said no, I didn't hear it either. >> Right. No, I don't think there's anything that's being missed. But in fact, but the lack of the thing, the lack of the response that would have been, yeah, obviously we have to be vigilant about inflation. That's what the market's telling us is kind of the answer. Anyway, we get PCE tomorrow. And I both know sometimes you get exaggerated market moves in the moment. And we'll see how we digest these going into the rest of the world. >> I want to underscore that, Mike, what you just said is sometimes you do get these exaggerated moves in the market, re-think it tomorrow and think it's a better deal. Obviously, stocks have a lot of other mind. Bonds and the 30 year focused on that inflation story. And if they don't get that right, that's going to be a problem. >> For sure, Steve. Thank you. >> Well, President Trump, just making some comments about the Fed. And Kasele has the details, Megan. >> Guys, just in the last hour we got the president's first reaction to this Fed decision to hold rate steady. He was asked specifically whether he was surprised by the decision and whether he's disappointed at all in Fed chair Worsh for not cutting rates. Here's what he said. >> Kevin is fantastic, but he's got a board. >> Yeah, Kevin's got a board. He's fantastic. He said, "Brillian guy, smart." I know I'd love to see lower interest rates, but he's got a board. He's got a board. He's got a board. >> I know he's got a board. He's got a board. used to a completely different style from a Fed share. We had eight years of Powell who during that time, the Fed was really over-communicative and would really tell the market ahead of time what their plan was gonna be in so many words. This is completely different. And so I think that it's gonna take some getting used to. However, I think if the Fed had hiked rates today, I don't think the market would have reacted well to be honest. So I think the market outcome may have been bad either way, but I do think it's just gonna take time for the market to get used to his style. And his style sounds more to me like he's using the market coming to its own conclusions. Almost as one of the data points that the FOMC is taking into consideration when making their ultimate decisions. And that's quite different than telling the market and having the market react ahead of time. >> Yeah, and as we were discussing here earlier, Brenda, there is this nexus point between the prevailing AI obsession of the equity markets and what the Fed is gonna do and just the cost of capital. Because right now we have an economy in a market that is voraciously consuming capital to build things for the near or distant future and we're just not sure how to value those efforts. >> Yeah, that's absolutely right. I mean, we think about inflation that's being caused by this spending as well as a debt that might be taken on to fund more of this spending. That certainly makes interest rates more important to large-cut technology companies than I think it ever has been. I mean, in general, it used to just mean that they would earn a little bit more on the cash sitting on their balance sheet if interest rates went higher or that the valuation of their stock might be a little bit lower. But now it's real in terms of the potential impact to earnings for these companies. So that's exactly right. Although I personally think even if we get a quarter rate hike this year, I don't think it's gonna be significant enough to really move the needle a lot. But we'll have to wait and see. And I think the next question, of course, what the Fed is going to be, is the Fed really gonna raise interest rates ahead of the midterm elections in September. We will see how that plays out. Yeah, it seems like you can ever escape those considerations for long. Brenda, thank you very much. Good to talk to you. - Is it your company? - Thank you. - All right, the cash cows ETF, hitting an intraday high today, up next. Why investors have been moving into this trade? And what it could mean for the ongoing market rotation? Did I not sell it properly? - Moving and talking like lean into it. - Yeah, I did my best. Closing bill overtime will be right back. (upbeat music) - Lamar search earnings are our Christina Portsnowals. Has those numbers? Christina? - Yeah, the stock is moving higher, about 6% after a strong quarter of the company beat on both the top and bottom line. With revenue coming in, add $6.67 billion in earnings, just well ahead of expectations, helped by stronger than expected gross margins at 52%. There were, though, a couple of mixed points, systems revenue came in a little light, but customer support revenue easily beat estimates, showing chip makers are just spending, or still spending to keep existing tools running efficiently. And that's a little different from what we heard from KLA last night. KLA's quarter was more about strength and process control, while Lam got a bigger lift from its services business. So even if spending on new equipment isn't firing necessarily in all cylinders, with all this cat-back spending, customers are still investing in their install base. And that could be seen maybe as an encouraging sign for demand across the chip space. She has up 5% now. - All right, Christina, thanks. Christina, part of the nevertheless. Check out the cash cows ETF ticker COWZ appropriately, today hitting an all-time high. Dating back to its inception in 2016, the fund seeks to invest in undervalued companies with high cash flow. Today, the index being boosted by forward bio-genments of energy names popping along with oil. - Along similar lines. I mean, so free cash flow is now scarce in the markets, or the price of those companies that provide it, goes higher dividends. So also somewhat scarce dividend yields for the S&P and generation of those. The DIVI is a select dividend ETF. IPOs, obviously the opposite, kind of untested brand new companies, not established ones that pay cash. And here you see on a one-year basis, they've now crossed in performance. I would also note right around here, the peak in the IPO ETF, which has recent IPOs, was the SpaceX deal. So just general excitement over the new big deal. Got a little bit over its keys, and we've given back a lot since then. - But of course with dividend stocks being up this much, then yields are down. - Those yields are going to be lower, absolutely. - So you see high yields. That's a real rate. - High absolute yields, maybe you have to look twice for sure. - Yeah, all right. Coming up, we will get back into the other big things the markets are focused on today, the Fed keeping rates unchanged. But a quarter of the voting members wanted to hike. A former Fed Governor Daniel Terrilo will join us next with his take on overtime. (upbeat music) - Welcome back to Closing Bell. Over time, we're live from the Nasak Market site, selling, late in the session, sending the Dow down 1150 points. It's worth a day of the year. S&P 500, down 1.5%, Nasak losing 1.3 quarters. Meta is down in the App Hour session, missing on earnings, raising full-year capex guidance, slightly boosting the low end by $5 billion. Microsoft, we're not comparing earnings to a special item, but it did beat on revenue, better than expected growth in Azure and Copilot. And Copilot seats came in better than what analysts had expected. - All right, building a little bit on those gains, up 3% for Microsoft. Those big moves in the markets coming as Fed chair, Kevin Worse reaffirmed his commitment to 2% inflation while leaving rates unchanged, double on Capitol CEO Jeffrey Gunlock, on Closing Bell said inflation is not going to get to 2%, unless the Fed raises interest rates. Buying yields popping on Worse's comments, the 30-year getting to a highest level in nearly 20 years. Joining us now is former Federal Reserve Governor and Harvard Law School Professor Daniel Turulo. Daniel's great to have you. The new chairman has set out a pretty interesting task for himself, both kind of changed the communications style of the Fed, remake its procedures in various ways. What did you think of sort of today's back and forth and how the markets responded to it? - Well, Mike, I think that Chairman Worse is now engaged in a real-world experiment. He's trying to remake the mode of communications the Fed has with markets in the public. He's taken some pretty significant steps on his own just in his first couple of months, gone to a minimalist Fed statement at the end of the FOMC meeting. He wouldn't participate in the economic projections exercise in June, and he is studiously avoided giving any detailed economic explanation for the Fed's moves. I think that he's trying to calibrate how much he can change the degree to which he can in his mind get market signals that are a little bit free of Fed noise, while not having some undesirable consequences. And I think we saw it today in what he said in the press conference. He was quite happy with what happened between the June meeting and today with rates going up somewhat and a little bit of tightening. Whether he's going to be happy with what happened today will remain to be seen. Because now he's in a situation in which the case for an interest rate increase is fairly strong in the minds of many people, including three Fed-reservant presidents. And by not giving an explanation, he's leaving everybody to guess, you know, on hold for a long time. And he's just a few things clarified. I think he will give us more over time. But as I said, I think he's in this experimental mode right now, trying to figure out how to achieve his aim of getting real market signals while at the same time not having undesirable consequences with volatility. He was quick to jump on a reporter who asked me about a pause saying, "Oh, this is not a pause." And by any stretch of the imagination, I thought that was very interesting. But do you think that Kevin Worsh in some way gave up a little bit of credibility by not showing his handled a little bit more? I mean, to say so many times that 2% is 2%, we're going to get there. We are going to, you know, fulfill the remit of given to us by Congress, et cetera. But not doing anything here, which indicates necessarily that that is happening. Yeah, I think Melissa, that's part of what I mean by him having to figure out. And just let's be a little bit patient, because if you look at the track record of new central bank governors, new finance ministers, new Treasury Secretaries, either they make a mistake early on and send markets curfewy, or it takes them a little time to get their footing. And I think that's what maybe going on with Kevin Worsh right now. I think it is the case that it's going to be a little harder to sustain a position of not saying very much of anything. And that's kind of what he got today. The market reaction obviously seems to be about expectations of future inflation. But you know, I'd say let's wait till tomorrow, because as you know, Melissa, oftentimes, you get one market reaction when the statements released, another during the press conference. And then the markets rethink things overnight. You get another move the next day. Yeah, for sure. And maybe it's worth reiterating. I mean, this is a 9-3 vote. It's not as if everybody wanted to hide. and Kevin Worsh said no, I mean we don't really know how the discussion went in the room. But in the other thing is, part of Worsh's worldview about the Fed has been that historically it's been two transparent, it's been kind of coddling the markets. The balance sheet is too big, which he believes somehow has an exercise markets on some level or at least inflated them or suppressed volatility. So if you think those are bad things, you want to move the Fed towards something which has more volatile markets obviously as they struggle to find the right price for things. I'm more of a market that's on its own and maybe has to build in more of a risk question in valuations. >> Yeah, Mike, I'm sure that's part of Kevin Worsh's thinking, but there are limits to that kind of thing and I'm not suggesting that you're saying there are any limits. But I think there are limits to that kind of thinking because if for example, by being totally quiet, markets misread the FOMC and think that it's just going to be accepting of indefinite, say, 3% inflation, then the long bond may go a lot higher, yields may go a lot higher than the Fed wants it to. I mean, there is a reason why beginning with Chairman Greenspan, the Fed moved towards more communication and more transparency. I mean, let me say though that I think there is not a little amount of sympathy among central bank alumni like myself for the proposition that maybe there's been a little bit too much communication, not as disciplined as it might be. And I think we need to distinguish here between forward guidance in the technical sets. You're at the zero lower bound, you say we're not going to raise rates until unemployment is above x%. That's kind of a hard commitment. Then there's a forecast, which of course people would like to hear. Then there's the reaction function which says if x happens, we the central bank will do y. Myself, I think there's a pretty good case for saying something about the third. I understand why you don't want to say too much about the first and second except if you really are in the zero lower bound. But I think where Kevin Worsh may diverge a little bit from perhaps the consensus of a lot of central bankers is not giving an explanation for why you took the move today. Yeah, exactly. So if you had the reaction function out there, the market responses to data will probably be more accurate to what your purposes and intentions are down the road. I guess Daniel Torello really appreciate you sharing your thoughts with us today. Thank you. Sure thing, Mike. All right, caterpillars huge AI fueled rally hitting a major speed bump today. Well, explain why and what it could signal about the AI trade when closing bell overtime return. Caterpillar by far the biggest drag on the doubt today, bear downgrading the stock to a neutral from outperform cutting the price target to 900 from $1200. The analyst there saying the increasing backlash against data center construction could hurt demand for cats power generation equipment. Caterpillar has been a huge winner from the AI boom was shares soaring more than 80% over the past year. So basically just some doubts really sparked by this one year moratorium here in New York state. The highest profile example of this sort of backlash that can happen on the state as well as the local level. So if that happens across the country, time frames will be pulled out and that will jeopardize projects. Between that and just a lot of the, you know, the financing frictions that are going on and just local pushback, it just people are concerned about a little bit of a stall in the growth rate of the hardware build up. By the way, Caterpillar month to date stocked down 27%. So although if you send index down 27%, it's really just become that trade at this point. Up next much more in this wild hour of earnings as we monitor Meta's call with analysts which kicked off a few minutes ago closing bell over time live for the Nasdaq Market Siphon right back. Welcome back shares of Meta falling after hours after missing on earnings. The company's conference call is underway. Let's get to Julie Boreston for what we've heard so far, Julia. Hey, well, Mark Zuckerberg on the call hinting further at the company potentially selling compute capacity to other tech companies saying what we're getting a lot of offers for compute at a significant premium over what we paid for it and we have more coding and productivity tools on our roadmap as well saying we'll have more to share on all of this soon. Zuckerberg also saying as the company raised the lower end of its capex guide for the year to now a range of $130 to $145 billion, quote, "AI usage in our products and businesses continues to ramp. We continue to invest aggressively in infrastructure to meet demand." Now, by going back to Meta's big miss on earnings per share, CFO Susan Lee just saying on Meta's earnings call, quote, "excluding the Q2 legal charges and severance expenses, our second quarter operating income would have increased 9% year over year. You guys looking at those comments not helping the stock and he's still down about 7.5%. Melissa? Yeah. These are after our session, Julia, when you hear Mark Zuckerberg say there's more to hear about this to come in. I don't know what are you thinking that this is going to be a real business that's going to compete with the likes of GCP and Azure? I mean, there is a perception from analysts. The reason 90% of analysts are bullish on this company is in part because of an expectation that they will figure out a new revenue stream to monetize AI, offering enterprise services to businesses, but also selling this compute. It could be really a cloud AI business as well, but no specific details on it yet. Yeah. All right, Julia, thank you. Julia Borson on 7.3%. It's fascinating. One of the bullish points about the durability of the AI buildout is that rental rates for everything is still very high. So maybe it's just kind of this opportunistic arbitrage that medicine, we don't need the capacity right now, we can sell it. But yeah, we're going to have to really work through the implications of all this. We're going to get PCE data in the morning just to maybe fill in some of the blanks on this whole Fed reaction that we got today. Violet moves. That does it for overtime. Fast when you start to write off this quick break.