Musk and ford, a rough road ahead for the automaker. Those shares head for a lower open today well tell you why all this earnings news plus an ecb meeting. The European Central bank expected to lay out the ground work for policy easing down the road and this could put more pressure on fed chair Jerome Powell to do the same. Its thursday, july 25th Worldwide Exchange on cnbc begins right now good morning welcome to Worldwide Exchange. Im dominic chu in for Brian Sullivan the dow looks to be hovering around flat at the open. We would open up around 24 points for the dow if these futures gains hold into the start of regular cash trading. The nasdaq and the s p 500 coming off alltime intraday record highs and closes. The dow is less than a percentage point away from joining that alltime high club as well. On the bond market side of things, were watching yields as we do every morning here a tick lower tenyear note yields moving to 2. 3 thats a sharp move to the down side the twoyear note yield, 1. 81 lets go worldwide a sense of positivity throughout the globe. In asia trading was generally in the green. The nikkei up by a quarter percent the hang seng up by a quarter of a percent a half percent gain for the shanghai composite on the european side of things, that green carries over to that trade. If you look at the major bourses there, the cac in france up a half percent the german dax flat. The ftse 100 in the uk as Boris Johnson takes on his role as prime minister, theyre up bay tenth of a percent lets get to the top corporate story this morning and one of the main stocks well be watching all day today facebook out with impressive numbers after the close yesterday, but warning of slowing growth possibly ahead. Frank holland joins us now with more on that facebook story. Good morning. That warning and mounting regulatory issues are not making invests flinch you can see now facebook up more than a percent and a half this morning. The company reporting better than expected profit and revenue in the second quarter. User growth in line with estimates. Average revenue per user topped forecasts by a wide margin the results did include a onetime 2 billion charge address part of the 5 billion settlement with the federal trade Commission Even as facebook resolves one probe, its disclosing another and said the ftc began an antitrust review in june and also announced a probe launched by the department of justice this week. On the Earnings CallMark Zuckerberg repeated his call about regulation and said facebook is trying to do its part this is a big shift for us, were trying to build trust with the billions of people people care about privacy is always important to the services we provide and now its more central for our future vision of social networking. Its critical we get this right and well build it into all our systems. Facebook said new procedures will raise costs and slow Revenue Growth significantly into the next year dom, back over to you. Were watching shares of tesla. The automaker posting a wider than expected loss on disappointing sales numbers. Deliveries were strong but margins were not that was the primary driver for the huge bottom line loss. Elon musk says he will continue to aim for positive earnings but the main focus will be on volumes. We believe tesla has is now at the point of being selffunding, we expect to be cash flow positive in future quarters with the possible temporary exceptions around the launch of new product. As you can see here, tesla shares are off by 11 in extended hours trading the shares right now 236. 50 well keep a close eye on those tesla shares heading into the opening bell. The parade, the barrage of results marches on today it is the busiest day of earnings season today. We have an estimated 52 companies within the s p 500 reporting results including the likes of 3m, comcast, amazon, alphabet, starbucks, a lot of them joining me now is gina sanchez, a cnbc contributor gina, the earnings trends so far have followed a similar pattern from previous quarters in that expectations were lower going into the season. Is seems as though were having a better earnings season than we thought. Is it too early to say well have Earnings Growth this time around dom, youre right thats a standard playbook, which is to go in with lower expectations and set up for a whole bunch of beats if you look at the degree to which theyre beating and missing, its about the same historically so you could argue that, you know, expectations were reasonable however the actual numbers are slowing. We knew that would happen. We are getting more cautious reads. If those cautious reads are taken into q3 earnings and q4 earnings, well have to actually see a decline in estimates there. Which means that the second half wont be as will be worse than expected. So as we talk about this is still the early part of it. Were not yet at the Halfway Point for earnings season. Are there particular points of positivity that youre seeing now . If so, is it specific to any one or two Industry Groups in particular were looking at a 25 basis point cut priced into the market and largely expected and powell has not done anything to change that expectation i would say thats probably going to happen. I think the biggest beneficiary is the financials. We are seeing some momentum in terms of financials and thats steepening the yield curve even though earnings are slowing, theyre not that bad. Were not going into a recession in the second half so the fact that the fed is cutting rates seems counter intuitive. You see the long end of the curve as pricing in potential inflation. And were actually hearing stories thats true c. A. T. Talked about rising labor space. The consumer is talking about rising prices. Thats keeping the long end up and the fed is cutting the short end, that is great for banks that steep yield curve, we have not seen that in a while banks will benefit from that is it fair to say at this point, with markets now at record highs, because we can see that about the s p, we can say that about the nasdaq composite, is it fair to say that stocks are priced almost for perfection at this point given the trade outlook, given the earnings outlook, Given Central Bank intervention and more down the line or whats anticipated, are stocks now maybe a hold or are they still a buy i think stocks are a hold broadly thats correct when you dig into the markets, some sectors have maybe a little more negative pessimism priced in because of the trade war, which is the one thing that held down valuations. So we saw a big pop yesterday in the semis because you saw a few earnings beats, everybody said great. This is fantastic for the semis that was Texas Instruments a but i think the valuations in the stock market across the board are too high for what we are going to see in terms of just normal cyclical slowdown. Were not even talking recession. Thats not even priced in yet that tells me this will have to moderate i would not be buying stocks right now. All right gina sanchez, thanks for those thoughts. When we come back on the show, the ecb setting the stage for a major policy shift that could put more pressure on the fed to do something similar. Were live in frankfurt coming up next. And built ford tough but not Strong Enough to withstand wall streets wrath as shares of ford plummet premarket. Those details coming up. Later on, what samsung has in store for its problemprone foldable smartphone. Remember that thing . It could be a fix. Pot. Is at some in find out when Worldwide Exchange returns after this fifty years ago, humanity went to a place it had never been. A place without rivals, hostilities, or cultural differences. The eagle has landed that place wasnt 240,000 miles away, one small step for man for a few moments, it was right here at home, one giant leap for mankind over 4,000 people from ibm helped apollo 11 get us there, today, we are ready to take the next giant leap, wherever it may lead. Fun fact 1 in 4 of us millennials have debt we might die with. And most of that debt is actually from credit cards. Its just not right. But with sofi, you can get your credit cards right by consolidating your Credit Card Debt into one monthly payment. You can get your Interest Rate right by locking in a fixed low rate today. And you can get your money right. With sofi. Check your rate in 2 minutes or less. Get a nofee personal loan up to 100k. We like drip coffee, layovers and waiting on hold. What we dont like is relying on fancy technology for help. Snail mail we were invited to a y2k party. Uh, didnt that happen, like, 20 years ago . Oh, look, karolyn, weve got a mathematician on our hands check it out now you can schedule a callback or reschedule an appointment, even on nights and weekends. Todays xfinity service. Simple. Easy. Awesome. Id rather not. The European Central bank meeting today with a policy decision is due out at 7 45 a. M. Eastern time its about 2 1 2 hours away. Theres huge implications for europe and the Central Banks around the world cnbcs Annette Weissbach joins us from europe what can we expect from europe and mario draghi m theres no rate cut predicted for this time around theres a 30 view that mario draghi will act as soon as today. But others think it will be september because they will have more evidence of the cooling down of the economy and what it does for inflation expectations. Mario draghi was so outspoken at the annual gathering comparable to joel, this happens in sintra, portugal, the likelihood for him to preempt a fed move is not zero we can expect at least some fireworks today from the ecb the minimum we should get is a very strong signaling towards the big package in september, but there is the outside chance of a rate cut as soon as today in order to really convince the markets that the ecb is a credible institution and that they have enough fire power to actually combat the very slow inflation environment currently in the eurozone. Annette, the policy is one thing. The policy is driven by people as well. So what can we expect from possibly Christine Lagarde after she takes over as European CentralBank President different than what mario draghi is putting on the table right now the message that Christine Lagarde will be the next president was taken on very well by the markets she stands for more continuation of easing, something mario draghi has done in the past successfully the head of the bundesbank would have been a different signal to the market but also the Banking Industry is cheering shes known as being someone well connected to the banks, and probably someone who would put a tiering system forward, which would alleviate the pain for the banks. So i guess Christine Lagarde being a politician would stand for more easing to come here in the eurozone back to you. Annette is a weissbach, thank you very much for that. Still on deck, another china u. S. Trade war casualty. The stars not aligning for one stock set to open down more than 20 today. We will reveal that name coming up next. And dont forget to rate the trip how uber is dealing with the fallout after losing two keyboard members in one day. Worldwide exchange is back after this here you go little guy. A cockroach can survive submerged underwater for 30 minutes. Wow. Yeah, wow. Not getting in today. Not on my watch. Pests never stop trying to get in. We never stop working to keep them out. Terminix. Defenders of home. Welcome back to the show some stocks to watch this morning, ford earnings missing forecasts. Results were hit by charges to restructure divisions in europe and south america. Nearly all of the countries profit came from north america where pickup trucks drove margins there. Ford issuing weaker than expected Earnings Guidance for the year shares of paypal are dropping as well results did beat forecast but the company is lurior luring it revenue outlook for the full year shares are off 3. 5 . Alliant Technology Falling 24 just today in the extended session. They reported better than expected results, but shipments fell short of estimates due to shorter growth in north america and uncertainty in china align slashing its Third Quarter guidance those shares off by 21. 5 . Uber losing two more board members. The company says Arianna Huffington and nat kohler have resigned arianna said she needed to concentrate more on her own businesses those shares just about flat still to come, new developments in the iranian tanker crisis as investors remain on edge over a possible escalation of tensions in that region we will speak with former saudi aramco executive Vice President sadad e Al E Husseini who say irans leaders need a wakeup call thats coming up theres brushing and theres oralb power brushing. Oralb just cleans better. Its the one inspired by dentists. With the round brush head. Oralbs gentle rounded brush head removes more plaque along the gumline. For cleaner teeth and healthier gums. Oralb. Brush like a pro. Welcome back in. Good morning heres how you and your money and investments are shaping up today. Stock futures pointing to a slightly, slightly higher open for the dow, up by 14 points the s p would be up by just under 1 point. The nasdaq down just fractionally there all of this after the s p 500 and nasdaq hit record levels on an intraday and closing basis yesterday. Treasury bond yields there moving to the down side. The tenyear note yield at 2. 03 . The twoyear at 1. 83 . When we come back, why mixed results from facebook has invest scratching their heads this morning weighing slowing growth with a top and bottom line beat. We break it all down coming up next and why the executive exodus and brain drain at tesla may finally be impacting its bottom line and hope for profitability and antitrust risks loom large ahead of amazons big report the numbers you should be watching and much more when Worldwide Exchange returns right after this take prilosec otc and take control of heartburn. So you dont have to stash antacids here. Here. Or, here. Kick your antacid habit with prilosec otc. One pill a day, 24 hours, zero heartburn. They have businesses to grow customers to care for lives to get home to they use stamps. Com print discounted postage for any letter any package any time right from your computer all the Amazing Services of the post office only cheaper get our special tv offer a 4week trial plus postage and a digital scale go to stamps. Com tv and never go to the post office again cake in the Conference Room showing em youre ready. To be your own boss. Thats the beauty of your smile. Crests three dimensional whitening. Removes stains,. Whitens inbetween teeth. And protects from future stains. Crest. Healthy, beautiful smiles for life. F. A. N. G. In focus facebook shares trading higher on better than expected sales. Up next, amazon ready to report Quarterly Results after the close. Geopolitical hot spots Oil Prices Rise amid concerns in the middle east. Plus prescription for lower prices the white house reportedly preparing an executive order to cut medicare drug costs. It is thursday july 25th you are watching Worldwide Exchange on cnbc. Welcome back to the show im dominic chu in for Brian Sullivan lets check the other top headlines. Frances rivera has the latest. Good morning there are growing tensions with north korea after the country fired a pair of short range mess amissiles into the s. This comes ahead of a joint military exercise next month between the United States and south korea. Right now National Security adviser john bolton is in south korea trying to revive stalled Nuclear Talks with the kim jongun regime. After 12 night s of protest in puerto rico, the puerto rican governor finally stepped down. His last day in office will be august 2nd jeffy epstein is on suicide watch, two sources told nbc news he was mysteriously injured in his new york jail cell wnbc reported he was found on the floor in the fetal position semicon shus with marks on his neck reports indicate he may have tried to hang himself while other claims the injuries are not serious and he may have staged a Suicide Attempt as a ploy to get a transfer a fourth source says an inmate may have carried out the attack the investigation is under way to determine what exactly happened his lawyers have not returned any requests for comment hes currently being hailed in new york citys Metropolitan Correctional Center in manhattan as he awaits trial for conspiracy and sex trafficking he has pled not guilty and was denied bail last week. Those are your headlines thank you very much stock futures now pointing to a very stable open if these losses and gains carry over to the opening bell, the s p would be flat, the dow jones up by 16 points the nasdaq bearing the brunt of the negativity, off by 4 points. Results last night from Tech Companies weighing on results. The tenyear note yield, 2. 03 we have complete Team Coverage deirdre bosa joins us from Silicon Valley dom, Facebook Trading slightly higher in extended hours after the company beat on the top and bottom line and it disclosed yet another regulatory roadblock facebook confirming it faces an anti trust investigation from the ftc, thats after the ftc 5 billion settlement that was finalized yesterday. Excludeing a 2 billion charge as part of that fine, facebook still reporting profit above expectations revenues were 16 16. 9 billion in the second quarter, representing 28 growth year on year. Facebook executives did say that costs associated with regulation and with changes to ad targeting could slow down Revenue Growth going forward. Mark zuckerberg highlighting those efforts on the price call. This is a major shift for us. We built services that billions of people trust every day to communicate with the people they care about privacy has always been important to the services we provide, now its more central to our future vision for social networking its critical that we get this right. Well build it into our systems. Now zuckerberg also sounding upbeat on the companys push into payments including with its cryptocurrency project, libra. At this point regulatory and security concerns not doing much to dent facebooks revenues or its share price. The stock is up more than 50 so far this year. Tesla is a different story. Thats stock thats down huge this morning it is 10 in extended hours here this is a story about growth versus profits tesla wanting to be profitable, but now saying they might take longer than expected you can see in the share price investors not loving that so far. The margins are being squeezed here essentially the profit was the sales were lore than wer thn expected its continuing to focus on production and the question is when it can deliver on that front. Its not looking good going into trading with tesla elizabeth schulze, thank you very much for those updates. Were also watching amazon today as that company prepares to roll out Quarterly Results after the close. Deirdre bosa follows that stock closely. What should we be looking for in light of what weve seen from netflix already and facebook as well its interesting. You were talking about tesla this growth over profits amazon has shifted the narrative over the last few years. Weve seen more profit, less growth but this year the cfo earlier this year said they would be going back to growth mode, spending mode. They rolled out oneday shipping that happened in the past quarter. We are really going to want to hear how that is either getting consumers to purchase more, enter more of the prime ecosystem, and remember this is an initiative they said would cost 8 800 million this company has been given a lot of latitude and runway by investors over decades to show profitability. Is it now fair to say as a Mega Cap TechnologyRetail Company that profits will be a key focus . It will be very interesting this quarter there has been a string of record blockbuster profits we are not expecting the same. We expect them to come down to earth. The question is are invest heor looking for growth to ramp back up its been a long time since amazon recorded Revenue Growth will that be enough to justify the Massive Gains weve also seen from amazon its very pricey valuation the promise is it can pull off oneday shipping this company made a lot of big bets in the past aws to become a cloud leader there. The eco devices, the leader in the Smart SpeakerMarket Investors have given amazon a lot of leeway to fulfill these and execute these tasks. You brought up what i was going to ask next. How much of that growth is driven by amazon web services. Thats one part of the business that is a huge focus for people. It seems to be less about the retail operations, nmore about growth and cloud when you talk about profit, thats certainly the cloud thats amazons profit engine that enabled it to make so many risky bets and go into new businesses interesting over the last few quarters, were talking more about advertising. Its in the other revenue category its been growing very, very quickly and taking on, you know, the duopoly that is google and facebook so it will be interesting. Thats a high margin business as well well see what happens there we cant get away without mentioning regulatory scrutiny amazon typically plays it quiet. Doesnt respond or talk a lot about this i wonder if they can get away with it this quarter with the scrutiny ramping up. Deirdre bosa, thank you very much joining us now is joel kalina, head of technology and Media Training over at web bush securities we heard what happened with regard to amazon in the preview. Deirdre bosa laid it out for us. Is amazon key to maintaining that tech com Services Leadership in the second half of the year good morning. Thanks for having me on. Yeah i think 100 amazon is handsdown one of the most crowded longs within the Hedge Fund Community every institutional manager is a big holder as well the thing with amazon, its always in its own little world as well. I think deirdre touched on it, we are approaching a big spending cycle for amazon. My thinking is the higher margin cloud and increasing push towards ads will offset some of the spending concerns. I think jeff bezos is arguably one of the best puppet masters of our era any time we have kind of approached or headed into one of these big spending cycles, which hes well telegraphed, it will pay off in the longterm from a profit point of view as he has been ahead of the curve as far as innovation and then translating that in the profit force the company. Weve seen now results from a lot to of these large cap tech and com Services Companies now has the tone been set . It seems mixed given what we heard from netflix and facebook especially about future prospects for growth at those companies. Is it enough to change sentiment with regard to technology and that trading there potentially f. A. N. G. Was a big headline grabber over the past five to six years when the acronym came about. I think now as the company has become more mature, thereyre al separating weve seen amazon and netflix, other than in 2019, outperformed facebook and google. I think netflix is in its own world. Theyre facing their own issues. They missed some guidance by about a mile they are facing questions around the Pricing Power left in the model. In the face of increasing competition from larger players. Facebook is doing its own thing. I think the impressive thing with facebook ive been voekvoek vocally negative as far as zuckerbergs handling of it, but users are staying. As long as thats the case they will continue to attract the advertising dollars. And then throw in google at the end. Google is in its own world up 10 , 11 year to date a massive underperformer people call it the cheapest of the group, i think it will remain the case until we see signs of reacceleration in the core business and more from cloud, waymo and those types of things has the threat of increased regulatory skrucrutiny in washington, d. C. And europe and other jurisdictions, has that changed the trading dynamic for those stocks you deal with those clients. Are they changing their behavior because of the threat of that regulatory scrutiny . Yeah. You would think that would be the case, you go back to tuesday evening. Had a couple of short sellers on the desk, but you look at the price action yesterday yes, i did. Morning stocks were around the lows, they grinded higher all day with the tape from the Institutional Investor point of view, pretty much shrugging it off that the companies have the Balance Sheets to kind of withstand any regulatory fine. People just want to break them up because theyre too large youll have to see laws thing that for that to play out. Investors are mostly shrugging off any of the regulatory headwinds. It creates a lot to of good talking points and headlines for right now its noise until we see some actions or implementation thank you very much for those thoughts top u. S. And chinese officials are preparing to meet next week in shanghai. Joining me is the former australian trade and investment minister, steven, its great to have you here in person to talk about all things trade is this going to be a big deal if any headway can be made we recall the g20 meeting last year where we saw evidence that there was a desire to do a deal off the back of this years g20, we have seen that recommitment once again with lighthizer heading to china next week, can they get across the detail to such an extent that they can build consensus or build an agreement ultimately i think its a political decision, right . President trump feels this trade dispute with china will work for him or against him with respect to the fourthcomi forthcoming election depending on how you sit on that question depends on how you think they will compromise and reach a deal who do you think between the u. S. And china President Trump and president xi, who has relatively more leverage so to speak with how they can craft a deal in this situation i think were in new terrain. One of the clever things i think President Trump has done is hes thrown a lot to of things up in the air. Certainly domestically in the u. S. Theres a strong feeling that standing up to china to intellect waual property issuess welcomed i think where it starts getting messy is around the periphery, seeing tension around tariffs imposed on autos or wont there. We saw, of course, the friction around the negotiations with the u. Usmca and both around korea and japan. Unde fundamentally in terms of leverage, that leverage is slanted towards the u. S. I would say that because were on new terrain a lot of people are not used to engaging on these terms. New terrain also has china having power with regard to the Economic Situation you dealt with it fully back in your old job how important is that chinese econom economy to the region and is it the only power willing to stand up to it its because of the sheer size of the u. S. That theyre standing up to it. Theyre the largest economy in the world. Theyre unrivalled in that respect. From australias perspective the view was always that china was our number one trading partner of course the u. S. Is an ally of australia. Were always feeling pragmatic about our engagement in the region the same could be said about a number of countries in asia. Theres not a desire to have conflict for the sake of conflict theres not a desire for there to be more friction than there needs to be. You see an overlap between what china is doing in particular with respect to some of the positions they have taken surrounding the South China Sea and some of the Economic Policy that china pursues as well on each of these fronts theres a desire to use multiple levers at their exposure, be it economic, social or the encroachment of a more Strong Military presence in the South China Sea. Thank you very much for those thoughts good speaking to you. Coming up on the show tensions continued to bubble in the middle east. Is an Oil Supply Squeeze on the horizon, the latest from that hot bed region coming up next. And later on, record closes for the s p 500, record close for the nasdaq composite and our market guest has a call on large cap stocks youll have to hear dont go anywhere. Tethldwide exchange is ba ck ck afr is cake in the Conference Room showing em youre ready. To be your own boss. Thats the beauty of your smile. Crests three dimensional whitening. Removes stains,. Whitens inbetween teeth. And protects from future stains. Crest. Healthy, beautiful smiles for life. They have businesses to grow customers to care for lives to get home to they use stamps. Com print discounted postage for any letter any package any time right from your computer all the Amazing Services of the post office only cheaper get our special tv offer a 4week trial plus postage and a digital scale go to stamps. Com tv and never go to the post office again the iranian president hip hinting yesterday that iran would be open to a ship swap for the iranian tanker that was captured iran saying they dont seek tensions with some european countries. Britain offered to release the iranian ships so long as iran guarantees it will not unload its contents, oil, in syria. Oil prices are up slightly wti at 56. 20. Joining us now is Sadad Al Husseini former saudi aramco executive Vice President for upstream operations. Good morning is the iranian situation as dire as some analysts are predicting now, sir well, good morning, dominic it is dire any time you attack four tankers at anchor and you set on fire two other tankers on the gulf and then you insist on restricting traffic through hormuz, the straits of hormuz which is where all the oil comes out of the gulf. That is dire i think the oil prices are fine. The markets are very well supplied so theres no economic issue right now. But the geopolitics is a source of concern the iranians have been the gorilla in the living room for a long time. Theyve been attempting to impose control on the gulf, six arab countries producing millions of barrels a day. Im sure theyre worried about what theyve done. They may have painted themselves into a corner. How much fear is there of a real military conflict in the region it seems oil prices are not factoring that in. Is there a likelihood that could happen look, we have been through several wars here. Theyre extremely tragic they have terrible results for everybody. Nobody wins in a war i dont think anybody would like to see any more violence in the region but on the other hand what is iran doing building up its Nuclear Capabilities and Ballistic Missiles what are they worried about . Nobody is going to invade iran that an their attempts to destabilize governments, whether its in the gulf or yemen or elsewhere, these are situations that have to be corrected. Nobody wants a war you would have to be insensitiv to get into more violence. But iran needs a wakeup call. What is the biggest fact their will drive oil and Energy Prices as a whole going into the back half of this year look, there are Economic Issues, there are geopolitical issues the Economic Issues demand is soft supply is abundant opec did reduce its supply in total by 2 million barrels, in part because of iran an venezuela. On the other hand the u. S. Has increase td its open production. Economics looks stable the geopolitics, we hope that the alignment of western and middle eastern leaders will get iran to get back to a rational Foreign Policy and domestic policy, and, you know, everybody benefits the iranian people benefit but this idea that youre going to impose restraints on an International Shipping lane doesnt make sense its not an iranian strait of hormuz, its a gulf strait of hormuz all right a complex issue indeed Sadad Al Husseini, we appreciate it. Coming up, remember when samsung announced a first of its kind foldable smartphone there was a ton of excitement, but then problems with the screen delayed its launch. Well tell you when its now expected to hit store shelves, stay tuned, youre watching Worldwide Exchange on cnbc y s. Fixodent ultramax hold gives you the strongest hold ever to lock your dentures. So now you can eat tough food without worry. Fixodent and forget it. Fixodent and forget it. Applebees all you can eat is back. Now thats eatin good in the neighborhood. We like drip coffee, layovers and waiting on hold. What we dont like is relying on fancy technology for help. Snail mail we were invited to a y2k party. Uh, didnt that happen, like, 20 years ago . Oh, look, karolyn, weve got a mathematician on our hands check it out now you can schedule a callback or reschedule an appointment, even on nights and weekends. Todays xfinity service. Simple. Easy. Awesome. Id rather not. President trump is reportedly considering an executive order that would cut the prices of drugs sold to medicare and other Government Programs reuterse says the decision could come as soon as the next few weeks. Samsungs first foldable smartphone will go on sale in september. There were issues of broken screens, the company says they made improvements to the device. L brands hired an outside law firm to look into the relationship with jeffrey epstein. He was arrested earlier this month and charged with trafficking dozens of under age girls. He had ties to the l brands founder, lex wexner. The board wanted the company to hire outside council dowcounsel the ties the dow right now would open up about 21 points the s p up by 1 point. The nasdaq off by 5 points historic highs yesterday joining me is darrell kronk. This market at record highs, does it deserve to be there . It probably does deserve to be there its difficult to make a case strongly that we should go a lot higher in the nearterment we think the markets can go as high as Earnings Growth will propel it this quarter we will finish tracking about 2. 5 to the positive on Earnings Growth. For the full year youre talking about somewhere around 3 to 4 Earnings Growth. Next year still projected, if you believe consensus, at about 12 , 13 Earnings Growth, which looks too high we think that number has to come down its more like a 6 , 7 number so valuations have been going higher, but not near bubblicious type territory what gets investors and traders to pay more in stock price for every dollar of earnings a Company Generates . Youre spot on right. If you break down the numbers this year between where have those 21 s p returns come from, Earnings Growth, multiple expansion hors doeuvre deo or v come from multiples expansion. Thats not the healthy way to get returns. You want it from Earnings Growth whats interesting when you go a layer down into the sectors, theres only three sectors now that are beating the s p 500 this year meaning theyre carrying all the water and weight its tech, Consumer Discretionary and industrials. The other eight sectors are all broadly underperforming. As we saw with the headlines with technology, its like teflon tech. Nothing seems to affect tech these days, even when it has bad headlines or some shaky earnings numbers. The bulls would say thats where you want to see the leadership, in cyclical, economic sensitive areas is that a good thing or are things getting stretched because of those valuations and runs in cyclical sectors i think at this point in the cycle, to us you still want to pay up in the cyclical sector, if youre going to pay up anywhere thats where you can still drive top line growth. As input costs go up, as wage costs go up, as more pressure comes on margins, what you want are sector exposures that will be able to drive that sales and top line growth. We think thats cyclicals over defensive. Weve been saying thatall year cyclicals have outperformed defensive by 800 basis points this year. That trend looks intact, it would be consistent with late cycle or mid to late cycle stages of an economic recovery mid to late cycle doesnt sound good what are the biggest risks out there. The bulls have played out. What should markets and traders be watchful for . Two things we think are most important. We got done talking about you have to see a resurgence in Earnings Growth. 3 to 4 this year if we get that again in 2020, thats not going to allow multiples to expand or people to pay up in this type of environment. Probably the other thing that most concerns us is what the market and bond market is pricing in for Interest Rate hikes over the next 12 months. If you believe fed funds futures, they believe the fed will lower rates by 100 basis points in the next 12 months that seems too aggressive to us. Theres a risk that could disappoint markets if they dont follow through with four rate cuts or 100 basis points of rate cuts huge moves for sure thank you for breaking that down for us that does it for Worldwide Exchange. Markets stable historic highs for the s p and the nasdaq squawk box picks up the market coverage you need on this busy day of earnings season right no now. A lot of earnings three big ones this morning. Among others to tell you about, ford and tesla shares are both sharply lower. Facebook has seen some whipsaw action after warning of slower user growth. Speaking of all these earnings, well hear from 3m and dow inc this hour. And southwest airlines, american airlines, and most notably perhaps to some people our Parent Company comcast all before the opening bell. Plus were less than two hours away from the latest ecb decision, well tell you what the central bank could do that could put pressure on fed chair Jerome Powell. Its thursday, july 25, 2019, squawk box begins right now. Live from new york where business never sleeps. Th this is squawk box. Good morning welcome to squawk box here on cnbc we are live from the Nasdaq Market site in times square. Im becky quick along with joe kernen and andrew ross sorkin. Lets look at the u. S. Equity futures. Yesterday a down day for the dow, that was because of boeing, caterpillar and disappointing news out of boeing we saw the s p 500 and the nasdaq up. Those two indices have been up for two Straight Days in a row this morning dow futures up by 27 points