Closing Bell - Closing Bell: 3-Day Win Streak, Fed Up & Tapestry CEO on Luxury Spending 9/9/22

Episode Date: September 9, 2022

Stocks staging a big rally to cap a 3-day win streak and help the major averages snap a 3-week losing streak as investors get less skittish about the potential for another 75 point interest rate hike by the Federal Reserve. Former Council of Economic Advisers Chairman Austan Goolsbee says he's worried the Fed could cause a recession if it continues to raise interest rates. Evercore ISI's Mark Mahaney discusses today's tech rally and the two stocks he thinks are cheap right now. Morgan Stanley's Jim Lacamp is skeptical about this week's gains and reveals his top short ideas. Tapestry CEO Joanne Crevoiserat discusses the outlook for luxury spending and whether the company has pricing power in this environment. And Kroger CEO Rodney McMullen on the grocer's big earnings beat and whether inflation is prompting consumers to trade down to the company's private label brands.

Yes, we've got a strong rally to finish the week. We're just about at the highs of the day. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the market, up more than 400 points on the Dow. It's broad, 11 sectors all green. The worst performing sector is utilities, and that is up almost three quarters of 1%. You've got the Nasdaq Composite up two percent on the week now. The Nasdaq Comp is up four percent. The S&P 500 is almost up four percent. We're breaking the three week losing streak. Take a look at the best performing sectors right now. Energy tops the tape today as crude oil prices rise, along with communication services, technology, discretionary

and materials rounding out the top five. Big show today. We've got a pair of CEOs on the strength of the consumer. Tapestry CEO Joanne Cravoisierat will join us here at the exchange to discuss the state of luxury spending. They own Coach, Kate Spade, and Stuart Weitzman. And then Kroger CEO will be here to break down the grocery company's strong earnings and guidance, give us his outlook for food inflation and what he's seeing from the consumer, that stock is up more than 6 percent. We'll kick it off, though, with the market dashboard. Senior markets commentator Mike Santoli is here as always. Stocks are rebounding again, Mike.

Can this last? You know, some progress is actually being made here, Sarah. We do have a very broad rally, which you mentioned all sectors up more than 90 percent of all volume to the upside. We clearly had a lot of people leaning toward the bearish side. Coming into this week, three down weeks. And I think there was a general sense out there maybe that the June lows were going to be in sight. Also a little bit of a potentially positive formation here. You're going to see a lot of attention on this type of thing right there when you have, you know, a higher low.

It kind of bounced at the same levels that was a prior base in a sense. We'll see if that, you know, a higher low. It kind of bounced at the same levels that was a prior base in a sense. We'll see if that, you know, holds together. We'll see. We've gotten us back into the intraday range from the day two weeks ago when Jay Powell at Jackson Hole promised pain. OK, we closed that day at 4057. So we're above the close of that day. And it really takes us back to, you know, these levels back in, again, major. It's been a four month trading range. It doesn't feel like it. But in the beginning of May, May 10th, we were basically right at this level. The high of the day was 4068, I think. So we're

knocking around these these levels. I think valuation perceived is perceived as still a headwind. Take a look at, though, how it breaks down. Yes, the overall market never got dirt cheap. The S&P 500 still has elevated P.E. multiples. But this from Goldman Sachs shows you that the 100, the one fifth of the S&P 500 that are the most expensive are particularly expensive based on history. You see right there, that's well above average, whereas the bottom 100 are basically at the average forward multiple. This is the next year's multiple. The point being that the overvaluation in the overall index is still mostly about a

cluster of very, very large stocks that have not had their valuations come down as much as the overall index. So maybe that means it's better for stock pickers. Maybe it means this is why the equal weighted S&P has been outperforming the market cap-weighted one. But it's not as simple as saying, well, the whole market has to get super cheap before we can bottom. Yeah, big differences there, I guess. Huge disparities in theory. If you're a long-short hedge fund manager, this should be ripe hunting. I just want to mention the dollar because I do think it seems to be the center of the world right now in terms of the market mood, the barometer.

It's weak today, really weak. The euro's back above parity. The Japanese yen is getting a percent stronger. Absolutely. And that's been the case for three days or so. And that's when we've gotten upside and stopped. It helps the market. The question is, is that a dead cat bounce or at least? Yeah. Is that just the other way? Because it just got so strong. Is it just an overbought consolidation? Yeah, that's a big question. Look, over the long term, the level and direction of the dollar is not that big a swing factor. But to your point, recently, it absolutely has because it sort of distills a lot of the things the market is worried about, from global tightening to obviously the U.S. being the only bastion of growth in the world.

Mike Santoli, well put. Thank you very much, as always. We've got some Fed speak earlier today. It is the last commentary we'll get before the blackout period begins next week ahead of the upcoming FOMC meeting. Fed Governor Christopher Waller was the last one to talk, making headlines saying he supports another significant rate hike later this month, saying there's no convincing evidence inflation is moving down. Kansas City Fed President Esther George also echoing concerns over inflation, but saying weighing in on the peak policy rate is just speculation at this point. Joining us is Austin Goolsbee, former chairman of the Council of Economic Advisors. Austin, thanks for joining us.

I feel like the debate that folks in the market are having now is, so the Fed was late to get on top of inflation. Are they late to getting on top of the peak of inflation and getting too hawkish at a time where it's really starting to come down? Oh, yeah. Well, they might be, you know, as you say, because they felt like they were behind the curve. They've got to talk tough now. And they have been and all the governors have been have been and chair Powell has been. But we've gotten two months of CPI numbers that were, at least the new information, quite positive. And if next week we got more good news on CPI inflation, you have to think there's going to start to be a little pushback where people say, whoa, whoa, wait a minute. You know, should we be raising 75 basis

points at every meeting if the impulse of inflation is not what it was six months ago? So is your view that they should not, that they should start to calm down a little bit? Well, I think now is a moment where for the next three months, the new month to month core inflation is going to be hugely important. And they should be data dependent and keep their eye on that. I think the pre committing that we should just raise rates as fast as as really we've raised them in decades, regardless of what we see from the data, that seems a little extreme to me. Well, we know it's going to come down at the next. The average price of gasoline in this country is 373. It was, I don't know, almost five, almost five a month ago. So headline inflation is going to come down, Austin. The question is, what kind of damage is going to be done in the meantime

to the economy? What do you think? Yes, I agree with that. But as you know, the Fed doesn't really look at headline inflation. So even though for everyday consumers, they care probably the most about gasoline and food, that's not in the Fed's calculation. They're looking at core inflation and they're looking at what are those new month-to-month inflation rates. And we don't know those new month month to month inflation rates. And we don't know. Last month, that improved a lot. Some of the months before that, that core measure was actually getting worse. And that's when the market began to freak out because they thought the Fed was was going to go to town. They just that the Fed needs to be data dependent now. It's more important than ever.

What is your what is your expectation for what happens to the economy given higher interest rates, which do hit us with a lag? Right. QT, the shrinking of the balance sheet, which they're finally getting going here in force. These price shocks, what's happening around the world. How is the U.S. going to hold up? Partly that depends on are we truly going to put the COVID era behind us? If so, we're going to get a nice tailwind from that, which is a thing which has just been dragging us down over the last two years, but we get a positive. But don't kid yourself. If the Fed keeps raising rates, that's been the most common cause of recessions in the history of the United States since we've been keeping the data. And the sectors that will be

hardest hit, you've already seen them get hit. Housing's going to be hit, automobiles, consumer durables, all the things that are interest rate sensitive. That's where the Fed is going to tighten the screws. If they need to cool the economy, that's who's going to be hurting the most. And that's not necessarily the same people that led to the problem, if you were, of overheating. The overheating is going to be coming from the service sector as everybody goes back on vacation because they haven't been able to go out of their houses for the last two years and go get elective surgeries and stuff like that. So the balance of the who's hurting and who's overheated, those discussions are going to get a little more heated themselves.

Absolutely. Austin Goolsbee, thank you very much for joining us. Great to see you again. Well, we're going to get a good read here on inflation and consumer tapestry, unveiling its three-year growth strategy with the goal of hitting $8 billion in revenues by 2025. Up next, you will hear from the CEO about what will drive that growth and what she's seeing right now from the consumer. We're up 4.09 on the Dow, more than 1.5% rally on the S&P. You're watching Closing Bell on CNBC.

Take a look at Tapestry shares rising today. The company outlining its 2025 growth strategy at its investor day here in New York City. Goals include hitting $8 billion in revenue by 2025 and returning some $3 billion to shareholders via repurchases and dividends. Tapestry owns brands like Kate Spade, Coach, and Stuart Weissman. Joining us here on set is Tapestry CEO, Joanne Cravois-Ferrat. It's good to see you in person, Joanne. Welcome. Thank you, Sarah. It's great to be here. So investors like what they heard today. It's also a nice day in the market. What is changing at your company that's not just sort of a healthy luxury consumer?

What are you changing in terms of the strategy? Well, what we talked about today was rolling out our future speed, which is what we call our next phase of our growth agenda at Tapestry. And future speed is about getting closer to our consumers and driving innovation and moving with agility and being responsive to change. Because in the environment that we've been in in the last two years and where we see it going forward, that's how we win. We have three iconic brands that you mentioned, Coach, Kate Spade, and Stuart Weitzman.

And we're powering their growth and accelerating their growth with investments that we've made in the Tapestry platform. So our focus is on powering our iconic brands to move at the speed of the consumer. So what's different about what you were doing before? We have a maniacal focus on our consumer and we're leveraging data and analytics across our platform to know our consumer better. And then leveraging a digital platform, which we've also invested in, to meet that consumer where they are.

And that consumer, their behaviors are changing, they're more omni-channel, more omni-connected, more digitally connected. Over the last two years, we've grown our digital business to scale. Our digital business now is about $2 billion, which is triple where it was pre-pandemic levels. But importantly, on these channels, we're acquiring new customers. We acquired 15 million new customers in the last two years because we're better at engaging those customers and meeting them where they are. Who are those new customers? Well, they're increasingly younger, which is maybe not a surprise because the younger customer is so digitally engaged, but that customer is increasingly younger and they're coming to each of our brands in the core categories. So our core

handbags and footwear categories, and they're spending at higher than average AUR. So it's a healthy customer that's coming to our brands at high average retails, and they're coming back to our brands with more frequency. So we see this as healthy growth. You know, this new customer acquisition I like to talk about, it's oxygen for our brands. As you bring new customers in, we can acquire them, we can meet them, and we can keep them coming back to our brands. The AUR you mentioned, which is sort of the industry word for pricing, and you definitely

delighted Wall Street today when you said that you weren't going to sacrifice margins for promotions. Is it just because, though, I go back to this, the luxury consumer right now is holding up really well, and you don't really need to get into a promotional environment at this time? Well, we've increased the number of ways that we can reach our customer and we know our customer better and we've pivoted our company fundamentally to be consumer centric and focus on brand building and when you focus on brand building and have the capabilities that our platform

offers with the digital tools and the information that we understand about our consumer we can talk to the consumer about the great value we're delivering in our product we're taking that consumer input and using it to inform our creative process so we're we're bringing great and new and innovative product to the market and we don't have to we have so many levers to talk about the value of the product that we don't have to rely on price. Your stock is down double digits this year, along with competitors like Coors and Ralph Lauren. Markets increasingly worried about recession. Do you see any kind of indication of that? Well, our categories, I'll talk a minute about the categories that we play in. The category

handbags, small leather goods, footwear, those categories have proven to be durable over time through downturns, even through COVID, because they fulfill a functional need for consumers, but also an emotional, they have an emotional connection to these categories. And again, over time, it's proven durable. And even the research that we show, that we've fielded recently, shows the consumer has a higher intent to spend in the next 12 months. So these categories are very durable and we have much better capabilities at engaging consumers in these categories. We deliver tremendous value. And if you think about the market overall, European traditional luxury have taken prices up. And our products represent tremendous

value in the marketplace. And we see plenty of white space that we can take our prices up. In fact, we've proven pricing power across all of our brands in the last few years. And we expect that to continue. So no signs of a slowdown, it sounds like, in consumer spending in the U.S. What about in China, where you do, where coach is big? That's been a problem, hasn't it? Well, we've been in China for over 20 years, as you know, Sarah, with the Coach brand. And the one thing that has been consistent throughout that time is the resilience of the Chinese consumer. And as you touched on, we expect over our growth plan, we expect to drive growth in every region. We see growth, continuing growth in North America and continuing growth in China. And again, in China, we've also fielded research

that shows that that consumer has a high affinity for our categories and a high intent to spend in the coming 12 months in the category. And our brands are also well positioned. So that consumer engages with our brands. Our brands have some of the highest positioning in their categories in China. And our brands target that large and growing middle class. So we see a lot of runway ahead in China. So opportunity despite the shutdowns. And then finally, you know, we've seen this issue with retailers and inventories are bloated right now because they're so out of whack from COVID and the supply chain

was all messed up. How is that impacting you at this point? Well, we have a globally diverse supply chain and our teams have done a phenomenal job navigating through all of the shocks in the system over the last two years. We have the proven ability and agility to deliver and meet what we see as growing demand for our brands. We've had shocks to the system where demand shut down and we were able to navigate through that and shocks where we had more demand than we expected and we were able to deliver and drive growth. Over the last two years we have a proven model and we continue to leverage that model to deliver and I have confidence that we'll be able to navigate that. We feel really great about our inventory position particularly this year and as

we go into holiday. Joanne thank you for coming by. Thank you, Sarah. And sharing the story with us in person here for Investor Day. Joanne Kravoy-Sarat from Tapestry. Thank you. Thank you, Sarah. Let's check in on the markets right now. The rally's going strong here, capping off up a week on a strong note, up more than 400 points on the Dow, 1.7 percent on the S&P. So we're really adding to gains in this final hour. The Nasdaq's the real winner, though, 2.2 percent higher, more than 400 points on the Dow, 1.7% on the S&P. So we're really adding to gains in this final hour. The Nasdaq's the real winner, though, 2.2% higher, more than 4% higher on the week. We're seeing strength in names like Microsoft, Apple, Amazon, Tesla, Meta, Google, all the heavyweights. Kroger's one of the top performers in the S&P 500 right now after reporting better than expected earnings and guidance.

Up next, CEO Rodney McMullin on that big beat and what is driving the increase in margins. And as we head to break, check out some of today's top search tickers on CNBC.com. 10-year Treasury takes the top spot, as it always does. It's selling off today. Yields are a little bit higher. That is not hurting, though, tech, as we've seen in the past, perhaps because it's nothing extreme. 3.32 on the 10-year. Tesla, S&P 500, Apple, and DocuSign having a 10% up day after a good quarter, rounding out the list. We'll be right back. Take a look at shares of Kroger soaring today at more than 7% after the grocery chain reported earnings that beat on the top and bottom lines with strong sales leading the company to raise its full year guidance. Joining me now in an exclusive interview

is Kroger CEO Rodney McMullin. Rodney, welcome back. Nice to see you. Nice to see you, Sarah. So what drove the gains that came in better than expected and gave you confidence to lift the outlook? It's really solid performance across the whole company. Every division was strong. We continue to connect better with the customer and it's really the whole package of offerings that we do. Great everyday price, great promotional price, incredible rewards and a way to do that in a seamless way where a customer can shop online delivery or just shop in a store. So it's really all those things together just so proud of the

whole Kroger team and what they're getting done. I did notice the 10.2 percent rise in the R brands, the private label brands. What does it say overall, Rodney, about how the consumer is doing right now? If you look across the customer base, it's really different customers are reacting differently. Customers that are really trying to stretch their budget are aggressively looking for ways to do that. If you look at our coupon downloads, we had downloaded 750 million coupons. Customers moved to our brands. And what we find over time is when customers move to our brands, they love it. And then afterwards, they continue to stick with our brands and what we find over time is when customers move to our brands they love it

and then afterwards they continue to stick with our brands. The other thing that our team has done a nice job on is introducing a lot of product innovation in our brands and that's also showing up in that north of 10 percent growth as well. So what is it recessionary type behavior? Is it because of the inflation? How would you characterize what you're seeing outside of the grocery store. They're cooking more at home because it allows them to have a meal they want. And from a healthy standpoint, to be able to manage it to their preferences. Customers that aren't even feeling any type of recession, they are a little concerned. So they are making sure that they're stretching their budget and cooking more at home. So, you know, it's a great question.

It's something that we look at every single week. I would say that people are nervous, but they're still managing through higher inflation, managing through the economy as well. Well, they're clearly prioritizing food, as we all have to. It's such a basic staple, and that's where the household spending is going. Rodney, what's happening with food inflation? Are they paying more? Is that continuing to rise, even as overall inflation may be coming down? Yeah, if you look at inflation, certainly during the second quarter, it continued to increase. As we look through to the balance of the year,

we will be starting to cycle some higher inflation a year ago. So we would expect a little bit more modification, a little bit slower inflation. The balance of the year, if you look at some of the raw materials in terms of corn, different grains, the inflation there is starting to come down a little bit. So we expect to still have inflation, but a little bit more manageable through the balance of the year. What's happening on pricing from the food manufacturers? Because they continue to talk about price increases, household products makers, price increases. Are they just trying to protect their margins and sort of take advantage, or are the costs really not coming down? They're really trying to manage their margin. And it's one of the things that we feel so incredibly important to have such a strong R Brands.

If the consumer product goods companies pass along costs more than what the real economic costs are, R Brand always gains share. And if you look right now in many categories, our brand is gaining share. So it's a fine balance. They're certainly dealing with some inflationary pressures and they're passing that along. But it also allows our brands to have an opportunity to gain some share as well. You also sell fuel, which I don't know if a lot of people realize. How much did that help the quarter, and what sort of trends are you seeing with that

as energy prices have been so volatile? If you look at our fuel margins in the second quarter, they were stronger than we expected, and basically the higher fuel profits were offset by the higher LIFO charge that we had. Looking forward, we would expect fuel margins to actually be a little bit lower in the balance of the year than what it was last year. If you look at gallons, there was a short, small decline in gallons. Our market sharing in gallons continued to increase. In our fuel rewards program, we had over 600,000 incremental customers engage in our fuel rewards and significantly higher percentage of our customers redeemed rewards as well. So our fuel

rewards is something that's incredibly important. And when we look at the cost of the fuel rewards that shows up in our supermarket business as opposed to our fuel margins, so you really have to look at both of those together. Yeah, it's telling that everyone was signing up for those savings. Melanie Rodney, you're such a major employer in this country. I wanted to get your read on what's happening in the labor market. Does it feel as tight as it was? And are wages, do you think, continuing to rise?

What are you experiencing on that front? If you look in terms of the number of applicants that we're seeing, we did have an increase in the number of applications during the second quarter. If you look at our turnover during the quarter, we also saw declines in turnover as well. Now, we've continued to aggressively increase average hourly rate. Our average hourly rate now is north of $17. And if you include benefits, it would be north of $22 per hour. And we continue to manage costs and reduce costs where we can to invest it in associates because we think it's really important. And it was great to see the decline in turnover during the quarter as well.

Hmm. Good color. Rodney, thank you so much for taking the time. Thanks, Sarah. And it was great to see the decline in turnover during the quarter as well. Good color. Rodney, thank you so much for taking the time on a busy day. Appreciate it. Thanks for the invite. Rodney McMullin, CEO of Kroger. Stock is up more than 7%, more than 14% for the year. Up next, Evercore ISI's head of internet research on today's tech rally and the two stocks he thinks are ready to take off. The Dow is up 415.

We'll be right back. Evercore ISI hosting a two-day tech conference this week with more than 30 companies from the internet sector. Joining us now with his takeaways and top picks, Evercore's Mark Mahaney, as we watch the Nasdaq comp up 2.2 percent, near the highs of the day and more than 4 percent higher. Mark, your takeaway from the conference is two names that really stood out to you. What would you tell investors? Uber and Spotify. First, Sarah, it was just nice to be back in New York in one of these conferences again, seeing real investors in real person. But the companies, it was almost 40 companies we actually hosted. I thought Uber and Spotify were particularly interesting. Uber, we had their head of their ride sharing business. And I think there's something really interesting being rolled

down now called upfront pricing where drivers and it's a supply challenge business right now where drivers are given upfront pricing and they're told where the fares, how much the fares are and where the rides are going to. I think that will increase driver satisfaction. You've got to get more drivers. I think this can really move the needle for them and in Spotify I think is an inflection point story I know that I said that a year ago Sarah but and it didn't happen but I think you know I was gonna remind you too yes you would but it going into 23 I think you get gross margin expansion for the first time ever for this name and for a variety of different reasons but I think there I think they're finally reaching

scale I think they're starting to get a lot of advertising revenue from artists and labels. That really helps. And then they're finally moving off the heavy investment phase that they've been putting into podcasting. All of that comes together, I think, starting next year with gross margin expansion. And then they've had this user acceleration this year, I think, that can convert into paid sub acceleration next year or strong growth next year. I think you want to be long Spotify before that happens. And that's now. So I could go a lot of places, but I guess the thread there in terms of the pushback on both of them would be a recessionary environment. Right. With mobility, with Uber and with the ad spending with Spotify,

especially if a large part of your thesis on Spotify is that what it's going to be almost a quarter of revenues. Yeah. Yeah. The pushback's right. And, you know, the the the the good or the bad on the good for Spotify is, you know, unlike all those video streaming services, people only sign up for one music streaming service. And so you're probably, you know, even even in a tough recession, you may cut your video streaming package from four to four to three to two video streaming companies. But you're probably going to keep that music streaming package at, you know, 10 bucks a month. So that part of the business is probably reasonably recession resilient. You know, knock on wood, reasonably recession resilient.

The ads business, though, it's still only about 15 percent of total revenue. That won't be recessionary resilient, but it's smaller. So that's kind of your hedge there. And on Uber, so far, we haven't seen any signs. You know, people still got to be mobile. They still got to get to work, got to get to the airport, et cetera. And, you know, in many ways, in some markets in New York, Uber is expensive. But in a lot of other markets, it's very comparable to taxis and generally considered safer and more convenient for a variety of different reasons. So I think that part of the business can hold up. The issue is going to be the delivery

business. That's what I'm most concerned about for Uber next year. Well, you need a few more good days like this and the NASDAQ. But both price targets are double the price of where the stocks are right now. Your target for Uber at 75 and Spotify for 230. Mark, we've got to leave it there. Thank you, though, for the quick takeaways from your conference. Mark Mahaney of Evercore ISI. Thank you, Sarah. Take a look at where we stand in the markets right now. We're holding on to gains, in fact, building a little bit, up 423 on the Dow. S&P up 1.6 percent. Every sector is stronger right now. Energy's in the lead. It's up almost 3 percent. Communication services, technology and consumer discretionary right behind it with some of the big cap tech especially shining today like Apple, Microsoft and Amazon.

Roblox announcing plans to get into the ad business. Coming up, we'll discuss whether that will help jumpstart slowing sales growth. Market likes it. Stocks up almost 8 percent. Plus, take a look at Bitcoin rallying past the key 20K support level following Sam bankman freed's big stake in skybridge capital don't miss much more on that deal and the outlook for crypto during tonight's cnbc special crypto night in america 6 p.m eastern right here on cnbc we'll be right back check out today's stealth mover it is virgin galactic sitting out the rally falling down to Earth.

Bernstein downgrading the space tourism company to underperform from market perform, cutting its price target on the stock to $4 from $7. The analysts there citing a pattern of flight delays and concerns about possibly needing to raise more cash. Adding we now have less confidence in the success of this business. The stock is not too far off the lows. Remember, this was a stock that was above $55 a share just last year. It's about six bucks right now. Up next, a top strategist who is skeptical of this week's market rally. Find out his top two short ideas straight ahead.

That story plus cyber stock surging and a big day for Caterpillar and 3M. When we take you inside the market zone with the Dow surging, it's up more than 430 points. We are in the closing bell market zone. Welcome, everyone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day, as always. Plus, we've got Seema Modi here on industrials and Jim LeCamp on the market rally. We'll kick it off right there. We are looking at session highs right now, pretty much across the board. Look at the Nasdaq.

It is really zooming forward up more than 2.2 percent. Nasdaq 100 up 2.3 percent. The Dow at 442 points higher. Mike, is this the market fighting the Fed again? You know, it's the market at least expressing that it believes it's in tune with where the Fed has to go. And there's definitely an element in here of expectation that inflation is going to become friendlier. It's going to give the Fed a little bit of maneuvering room next week, perhaps when we get the CPI data. So I don't think it's fighting the Fed. It's just

basically inured to all this hawkish talk that we got this week because it didn't sound particularly new. I think another element of it, as you mentioned, the dollar coming in, yields have not raced to new highs. That's helped out. And, you know, the big companies that are out there talking at the investment conferences, there's been no real scary message. I don't feel as if you had a reason to believe fundamentally that this week was treacherous after we already did, you know, unwind half the rally that was off the June lows. 1-0 in here on industrials, which are getting a boost today. The sector's up 1.5%.

Big gains from Caterpillar and 3M. Caterpillar higher after reaching an agreement with the IRS to resolve a multi-year tax dispute. And UBS upgrading 3M to hold from sell, hiking its price target on that name to 126 from 118. Seema Modi joins us now. She covers the sector. How significant is the Caterpillar lawsuit, Seema, and the overall strength we're seeing in the sector? Well, the lawsuit, Sarah, is significant. This tax dispute settlement reached has no penalty payments, and that was the fear on Wall Street. The company also saying it can avoid the cost and burdens of further disputes with the IRS. So that's fueling shares of Caterpillar up about 3%. Another stock, as you mentioned, getting some love is 3M after

UBS upgraded the stock to neutral. The analyst there, Chris Snyder, he's been relatively downbeat on the stock ahead of this report, saying that the litigation liability tied to the alleged defective earplug lawsuit is priced in. The stock has been trading sharply lower after a judge ruled it can't put the specific business into bankruptcy, which would have shielded 3M from litigation. The stock, yes, higher today, but still down about 16 percent over the past month. It's been a key laggard compared to the industrial sector, which is down about one percent in that same time period, Sarah. Yeah, down about 10 percent year to date. Seema, what are you hearing from some of these big companies, which were which is they're as cyclical as they get, very tied to the fortunes of the global economy. What kind of commentary are we hearing from them about a slowdown around the world? Well, during the earnings season,

it was a mixed picture from the industrial CEO, Sarah, GE CEO talking about how supply chain concerns could start to ease. That was a similar message from the CEO of Cummins. But then the Caterpillar CEO, Jim Opelby, telling Jim Cramer on Squawk on the Street a couple of weeks ago that he could not forecast when the supply chain issues would calm down. So a slightly mixed commentary from the industrials as to when the picture will improve. But the question is whether next quarter we could get that clarity. Yeah, we'll wait for some updated comments here. Thank you, Seema Modi. Wanted to hit Roblox shares as well. They're rallying today after announcing plans to diversify from in-app purchases by debuting advertising.

Mike, I guess joining the club along with Netflix and everyone else that wants to make more money these days. Yeah, eventually any business that is in the game of attracting eyeballs tends toward advertising. Obviously, Amazon made it a big business. Apple, which for a long time didn't really want to make that much of a game, has done so. When it comes to Roblox, I think it's sensible to probably do it in a limited way. But anything coming from Xero as a new revenue source is seen as a net positive. Overall, obviously a big retrenchment in the valuation of this company. It's down 65 or so percent from the highs. Still a big question as to what we're looking at in terms of long-term profitability. Lots of investment they're doing all the time.

It's all about bookings, not about real earnings. So, you know, we'll see what fruit it bears. But I don't think anyone has really questioned the franchise. It's just about how it can be monetized over time. Right. And don't miss Monday. Roblox's CEO is going to be joining Squawk Box. It's a CNBC exclusive at 8.30 a.m. Eastern time. Meantime, cyber company, cybersecurity company Zscaler surging.

Best day for that stock since December 2020. After topping estimates in the latest quarter and also giving upbeat guidance. Total revenue for the fourth quarter up more than 60%. CEO Jay Chowdhury talked demand today on CNBC earlier. Listen. In today's tight environment, budgets are tight, but businesses still need to go on. So they need to be able to make sure

the security and connectivity to application happens and cyber must happen at the same time. Zscaler provides all three. Zscaler, given its peers of POP2, the CIBR cybersecurity ETF, take a look. Up 4% tracking for its best week since June. Mike, clearly an area of strength that sometimes investors, it feels like, have to be reminded of how this sector is in a secular growth phase when these earnings come out. Right. I mean, within software, application software, a lot of the stuff, especially back in the boom times of early 2021, got lumped in generically to a SaaS company or a cloud company. And there are distinctions. I think the market is attempting to make those.

Still, I look back at a kind of a price to sales valuation ratio for Zscaler. It's given up at the big kind of bubbly premium, but it's back to where it was right before the pandemic. So I don't think it's necessarily like it's been completely abandoned, more just rationalized and maybe not so overdone in the short term. But I still think it's tough to pick among these names that are all down 60%, 70%, 80%. Right, which is why it's hard to read anything into Zscaler, DocuSign. They're not necessarily bellwethers. What's happening overall to tech earnings expectations? They're definitely on the downslope, but moderately so.

I mean, semis, of course, has been the area where you've seen the most dramatic downscaling of earnings forecasts. We know the big companies have essentially got it down. So aside from that, I think it's mostly about foreign exchange, mostly about trimming estimates of enterprise services software type spending. It's not been falling apart, but, you know, it's so concentrated. The Apples and Microsofts really do have a huge role in bolstering overall tech earnings, and they've been mostly stable aside from some of the foreign exchange trimming. Yeah, both big outperformers today.

Number of the day, $31.2 billion. That is how much money left European equity funds through the first eight months of the year. It's the most since Brexit back in 2016. This, of course, comes as European recession fears grow. Our next guest counts himself among the bears. Jim LeCamp, Senior Portfolio Manager, Senior Portfolio Management Director at Morgan Stanley, joins us now. Jim, not going into Europe for investment anytime soon? Yeah, I mean, it fails almost every test you could give it.

I mean, first of all, Europe fails the sixth-grader test, which is look at the chart and tell me, is it going up or going down? It has just been trending down, as have most global markets. Second test is what is the central bank doing? And the central bank in Europe, despite a very obvious move towards recession in Europe, is very, very aggressively hiking interest rates over there. The biggest problem, though, isn't either one of those. The biggest problem is what's going on with energy there. European countries are facing a 2% to 700% increase in energy costs. They're already having to shut down businesses, whether it's steel factories,

whether it's aluminum and fertilizer companies, and they're really worried they're not even going to be able to heat homes during the winter. Now, these countries are going to stimulate to try to offset these costs. But that might be inflationary as well, as we've seen a lot of the stimulus around the world has been inflationary. So they've got a real serious problem over there. No pro-growth policies, an aggressive central bank and runaway winter heating costs that aren't really changing. I mean, Putin hasn't softened his rhetoric at all and has suggested that they're going to have a very, very difficult winter. So this is not an area where I would want to be.

But the DAX is the German stock market. It's already down 20 percent from the highs and euro has collapsed below parity to the dollar. I guess what I'm wondering is, is there anything that you just said that investors don't already know or you're just saying it's mispriced? It's a very good question. And you could say that about just about any market in the world. But we haven't seen any sign yet, Sarah, that any of the central banks are ready to have weak knees or to buckle here, whereas over the last 20 years they always have. In this case, you still have interest rates that are negative, meaning real interest rates that are negative, meaning the inflation rate over there and over here, for that matter, is still much higher than interest rates. And that creates a major, major problem for those central banks. And so I don't think we're going to see the knees buckle on these central bankers until at least you see real interest rates turn positive. And if you listen to their rhetoric

and you look at where inflation is, it feels like we're a long way away. Now, are we in the first inning or the eighth inning or the ninth inning? I think we're probably somewhere six or seven. I think a lot of the move has been made. I just don't see any signs of a major bottom yet or any policies being implemented that would suggest that we're going to have a bottom. So what do you do about U.S. stocks in this environment that you, this dire environment that you just painted? Do you stay away because of the exposure and the spillover, or you go in as an alternative? So, no, look, normally I'm a really optimistic guy. And the bottom line is the U.S. is probably still the prettiest horse in the glue factory, which means

I don't really think that we're done yet. I think we have more bottoming, more of a bottoming process to go through. But I'd still rather be here. And I think that's why you're seeing the dollar rally so much as well. Our countries are doing much. I mean, our companies are doing much better than their global counterparts. They're going to be negatively impacted by a strong dollar. On the other hand, it does mean money flows into the U.S. And as you mentioned, money's flowing out of Europe. So what do investors do? I think they'd be patient and they wait to see some signs of a bottom in the market. We all we're seeing right now is a lot of volatility. These rallies have had major

short covering components to them. so i i think you can't trust them as last time i was on i said this looks like a bear market rally to me and it still does so i think uh investors just be patient uh we would and we're entering that time frame a year sarah uh late late october through april uh that the market does tend to do better. But September and early October historically have been very choppy, very volatile. And I just don't think we're done yet. Haven't seen the wash out. Haven't seen a spike in the VIX. We just haven't really seen enough signs of a bear market bottom yet. Jim LeCamp, thank you for joining us. Not your typically cheery self on the markets. Appreciate it. From Morgan Stanley, Mike, what do

you think about that last comment that we just haven't seen the washout? We haven't seen the spike in the VIX. We haven't seen the lows taken out from June. Do you buy that? Well, at the lows in June, there were enough indicators that we were very, very washed out and people had basically spent five months purging their exposure to most risk. So, yes, we didn't see any kind of textbook sequence that so many people were looking for based on lots of V bottoms of the past in terms of volatility spiking and things like that. But I don't think it always lines up in the exact way, especially when people have spent months backing away from the market. They just don't need to hedge on a short term basis in a way that would necessarily

drive the VIX higher sometimes. Looks like we're going to go out near the highs of the day. We've got less than two minutes to go. What do you see in the internals? Yeah, actually unusually strong in terms of the internal breadth of this rally today anyway. It's more than 90 percent volume to the upside, just about 90 percent. That's often a tell of a kind of a one way action type of day. Some significance perhaps in that, although we have had a couple of 90 percent down days recently as well. Take a look at oil over two years. We do get a little bounce today and the level it's bouncing off of is basically the highs from late 2021 right there in the mid 80s. So kind of trying to protect itself from going below that range, at least for

now. There is a short term downturn. It has to fight off as well. The volatility index is coming in, not particularly hard given the strength of the overall market. We're down in the 22s. We do have that CPI. We obviously have the Fed meeting in 10 days or so. So that's probably going to keep it a little higher than it would otherwise. Yeah. CPI out next Tuesday. As we head into the close, take a look at the Dow. It is up about 400 points right now. What's contributing the most? Caterpillar. Seema mentioned the lawsuit that's helping. Microsoft, though, also adding 40 points. Salesforce strong. Goldman Sachs, American Express, a lot of winners today. United Health and Travelers are the worst performers on the Dow. Every sector right now higher in the S&P 500.

Energy the strongest, along with technology, staples, financials. Everyone's having a good day and a good week. NASDAQ 100 up 2.2% right now. We broke the three-week losing streak, and we're actually tracking. This is our best week, it looks like, for the S&P 500 since the end of July, which was the last time we were in that upswing in the market. That's it for me on Closing Bell. Have a great weekend, everyone.