Closing Bell - Closing Bell: Choppy Trading Day, Chips Dip & Wells Fargo's CEO On Housing 06/29/22

Episode Date: June 29, 2022

It was another volatile day on Wall Street as the market winds down the worst first half of the year since 1970. BNY Mellon Wealth management's Alicia Levine says a market bottom is not yet in sight and reveals what she wants to see before buying again. JPMorgan Chief U.S. Economist Michael Feroli on how tomorrow's key inflation data could impact the market and the Fed. Wells Fargo CEO Charles Scharf sat down for a rare conversation from the Aspen Ideas Festival and discussed whether the U.S. is heading in to a recession and how rising interest rates are impacting his company's big mortgage business. RiskReversal's Dan Nathan discusses whether beaten down semiconductor stocks are starting to look attractive. And Senator Rob Portman discusses when the Senate will finally move to fund the bipartisan Chips Act, which will help semiconductor companies build new plants in the U.S.

Stocks have been bumping up and down today in another choppy session on Wall Street. The most important hour of trading starts now. Welcome to Closing Bell. I'm John Ford. Sarah Eisen is still at the Aspen Ideas Festival and is going to join us later in the show. Here's where things stand in the market right now. Well, you know, bumpy, like I said. Dow up fractionally. S&P down just a little bit. NASDAQ also down just a little bit.

Russell, though, having the worst day of the four, down almost 1.5%. And check out the action in energy. That is the worst performing sector today with significant drops for names like Devon Energy, Occidental, Valero, and Marathon Oil. Coming up on today's show, we're going to hear highlights from Sarah's panel at Aspen with Wells Fargo CEO Charlie Sharp, including his thoughts on whether the U.S. is heading, yes, toward a recession, and his latest read on the housing market. But now let's get to our top story, Jerome Powell once again vowing to fight inflation. Speaking at the European Central Bank Forum earlier today, the Fed chair said the biggest risk to the economy would be to fail to restore price stability,

but a soft landing still possible. We think that there are pathways for us to achieve that, to achieve the path back to 2% inflation while still retaining, sustaining a strong labor market. We believe we can do that. That is our aim. There's market we believe we can do that that is our aim there's no guarantee that we can do that it's it's obviously something that's going to be quite challenging well joining us now david zervos from jeffries and alicia levine from bny melon wealth management david how are you feeling now about the markets and about the Fed's chances of this soft landing? I mean, he's not saying I feel really confident that we can do it, but he's saying, yeah, maybe we're still hoping.

Yeah, I think his message has been very steadfast, and I don't think there's much that changed here. He really does believe that maintaining that inflation anchor on long-term inflation expectations is the number one goal. I think Loretta Mester also made her speech in a very similar vein, maybe a little bit more forcefully. And I think that's where the Fed's head is. It was good news that the Michigan survey revised down those long-term inflation expectations from a 15-year high. So I think they'll take some comfort from that. But nevertheless, look, we're on high alert for any signs that longer-term inflation expectations are unanchoring. And I think they're going to be quite vigilant against that. And it's going to hurt a little bit. I mean, they're going to have to do QT. They're

going to have to tighten. And we're going to have rates of 3 percent in the front end before you know it. And Alicia, is that why you still seem pretty confident that the bottom is not in? And is this more like a bottom isn't in, but don't try to find a bottom anyway? And you're dipping in and think that people should be looking for bargains here or the bottom isn't in yet. So stay away for a bit until we get some better signal. Look, just a couple of things. First on Jay Powell, he signaled in the last couple of speeches that he's willing to risk the recession because fighting inflation at this point is the priority because you can't run an

economy with high inflation that is ongoing. So the Fed is willing to risk a recession. In fact, the ECB said the same thing today as well. The reason we think the bottom is not in. Is not simply because of the Fed. Also quantitative tightening which we haven't talked about. But also because the earnings estimates really have to come

down first me that's our signal really to where we would be interested in adding risk here. Because we do think there's a slowdown we're probably in the slowdown now. And until we really see some. From some realistic earnings coming out of the sell side, we're just kind of waiting for that to happen.

Because once that starts, then you can get back in because then you have a realistic place on valuating companies. What's that going to look like? Is that going to take a shock? I mean, from from earnings and guidance where companies have still been saying, well, the second half is going to look better. It's going to look better. And then eventually they're going to have to admit if this is the way it pans out, that it's not. And we're all going to have to feign surprise. I mean, nobody on a macro basis seems to think right that things are getting that much better. But on a micro independent individual company basis, nobody sort of wants to admit it. Look, it's hard to believe that the second quarter earnings are up four and a half percent

on estimates and the second half are going to be up ten and a half percent. So that's just not that's not believable. I think what we're hearing from companies now is that they're getting hit on the margin. And as we've talked about, the margin was also increased as a result of the fiscal stimulus. So if you think that everything's going back to where it was before, the historically high margin has to come down as well. That's why you'll see lower earnings. So we think we're sooner to that than later. And that's why we're saying the bottom's not in. In addition, the Fed has really boxed into going 75 basis points in July simply because there won't be enough data between now and then to really convince the Fed to go any

lighter on that. So if you add it all up, it's a tightening Fed into a slowing economy with earnings that are way too high. So, David, who's going to be the little kid in this version of the emperor's new clothes, you know, the new earnings expectation to say, hey, well, you know, maybe there's not as much there as we thought. How does this play out as investors are planning for either earnings reports or what signal is going to come first that reality setting it? So I guess I'm not as I'm not'm not as negative on the earnings outlook. I think we could have some revisions, but I think there's a lot of nominal GDP growth. This is a different kind of slowdown. It's one where there's a lot of inflation, not a lot of deflation.

And because there's a lot of inflation, it does keep prices elevated. And that's tending to be better for an earnings, a dollar of earnings. And I think we haven't experienced that many recessions with inflation and with long term inflation expectations anchored. So I'm not sure that the street is really going to get maybe they will get quite negative and that'll bring it down. That could be quite a nice buying opportunity. But I'm just not sure that the earnings have to come down that much in an era where we have an inflation, not a disinflation. Huh. OK, so I guess we'll see if the consumer cries uncle after this period of time. Alicia, David, thank you. Thank you. After the break, Ohio Senator Rob Portman weighs in on this recession debate, breaks down his push to get CHIPS Act funding through Congress. And later,

Red, Bath & Beyond, we will dive into the major pullback for the retailers. See it there, down 24 percent. And the one high one high profile investor who's feeling the pain today, you're watching Closing Bell on CNBC. Let's check out today's stealth mover like it's got a really good muffler. O'Reilly Auto, the auto parts retailer, one of the biggest gainers in the S&P 500 after D.A. Davidson upgraded the stock to buy from neutral and hiked its price target to $740 from $700, citing potential market share gains, ability to pass along higher costs, and expectations that consumers will choose to fix their current cars rather than buying new ones because they don't have any money left after gas. Meanwhile, the

latest data point in the recession debate, first quarter GDP was just revised a bit lower, falling 1.6% versus the last estimate of 1.5. The slowing economy was a topic in Sarah Eisen's panel today with Ohio Senator Rob Portman in Aspen, and they both join us now. Sarah. Hi, John. Nice to see you, and it's good to have Senator Portman here from my home state of Ohio. Good to have you, Sarah. Hi, John. Nice to see you. And it's good to have Senator Portman here from my home state of Ohio. Good to have you, Sarah. So we just got off a panel together. We were talking about small business. And you said you think we're either in or going into a recession. Fed Chair Jay Powell today still thinks there's a shot at a soft landing. Why are you not there? Well, I'd love to see a soft landing. And I hope that's true. But we just saw the revised numbers in the first

quarter. A lot of people don't realize we actually were at negative economic growth in the first quarter and two quarters of that clothing costs, everything. And so, you know, for working families in Ohio, they're already pulling back and cutting back. And so I think the recession mentality, unfortunately, is upon us. So inflation is the big problem, as you alluded to, for our economy right now. And I know that you can play the blame game, and I know you and your party put some of the blame on President Biden. But what are Republicans proposing to do about it that the administration is not? Well, it's pretty simple in the sense that, you know, demand is exceeding supply still. So we've got to do more on the supply side. On the demand side, the Fed is taking its role. They're raising interest rates. No one wants to see that, but that'll dampen demand.

It's already happening. They'll probably, by the way, have to go higher based on the history of the recession. Do you think the Fed's done a good job? They were slow, as almost always. It's easy to look back in retrospect that they were slow to come to the table. If they'd raised interest rates a little bit earlier on, it would have been better. I think pretty much everyone agrees with that. But with regard to the supply side, we've got to have a more productive economy. So we have to ensure that we are producing

here in America the oil and gas that we need for our economy. When we do that, you'll see gas prices begin to go down. We talked about worker retraining. We've got to ensure we are a more productive economy. We've got to reskill people quickly, ensure we're competitive in the global marketplace. We've talked a lot about semiconductors and being reliant on other countries around the world that don't like us much for some of the essential products that we have. China. So this new legislation on the Competition Act, it's called, or USICA, is about semiconductors, the CHIPS Act, but it's also about this broader issue of making our economy more competitive. I would also argue that the infrastructure bill is going to be good because it will actually be counterinflationary as you begin to build long-term assets.

But we need to back off on the stimulus, which causes the demand and overheated the economy. The $1.9 trillion from last March was a real problem. So I disagree with the Biden administration on that. But we also have to do much more on the supply side. So the CHIPS Act, because you're like right in the thick of this. Intel wants to build the two plants in Ohio. He delayed the groundbreaking ceremony. We talked about this. Pat Gelsinger on this show said yesterday it's game time for Congress and he wants to see it before the recess, the August recess. What is the likelihood of that right now?

Well, I hope it happens. I've spent most of my time out here rather than being with you at these great panels and trying to help on that process. But I think we'll probably get it done because it just makes so much sense. We're falling way behind. Semiconductors are in everything. They're essential to our economy. We used to produce a lot of them. In fact, we came up with the whole technology. 30 years ago, we had about 37 percent of the production here in America. Now we're down to 12 percent. Ninety percent the high-end semiconductors are being produced in one country in Asia, Taiwan. So we're reliant on other countries right now. You see this with the automobiles

where people can't get a car because they're lined up in a parking lot somewhere waiting for the semiconductors to be added. But it's about electronics. It's about everything we do in our lives. It's more digital. And then it's about our national security. And that's incredibly important to me

that we have a semiconductor industry here in the United States we can rely on for our F-35 fighters, for all of the more sophisticated military technology that we need to keep that qualitative advantage. It seems like a no-brainer and it is a bipartisan issue. So what is the holdup here? Well, it's bipartisan, but the House bill and Senate bills were very, very different. I would argue that the House bill should have looked more like the Senate bill because we passed the Senate bill 15 months ago. It was entirely bipartisan. We negotiated with Democrats in the Senate. As a Republican, I was one of the people negotiating, but also negotiated with the White House. We came out with a bipartisan product.

The House, over 11 months of adding to it, came up with a bunch of stuff that could get virtually no Republican support and send it back. And now we're in conference with them trying to figure it out. So it's been made more complicated, in my view, by not understanding that, you know, this is an essential and urgent matter for us to address. And the bipartisan compromises have largely been worked out. So my hope is we can come together. Right, because Gelsinger threatened, and others too, that they'll put that money overseas into Europe, where they are getting now subsidies. Europe and Asia. We just had a silicon wafer company say that they're going to actually

produce in South Korea rather than in Texas because of the CHIPS Act not being passed. So we do need to pass this. And generally, we need to be sure we have a competitive economy here And there's more than just the chips act in this legislation including protecting our research from China Because over the last two decades unfortunately China has identified the best researchers the best research and taken that back to China often Helping them to leapfrog us. So you think it gets done before the August recess not before the Not we don't have to wait till after the midterms. I think it's got to get done quickly. If not, these companies are going to make decisions to go elsewhere.

You mentioned the fact that Germany's put euros on the table, and so have countries in Asia, a lot more than we're putting on, by the way. So we're not going to be as generous with our incentives as they are, but we're doing enough to be able to incentivize these companies to produce here. We've got to bring things back and reshore it to America, things that we need that are essential. Well, I know you're in the thick of it. I know you've been taking calls

the whole time. Senator Rob Portman, thank you very much for taking the time. John, back to you with the latest there on the back and forth over the CHIPS Act, which Senator Portman says there's a chance. There's hope. And you would hope and expect to see hope out of Ohio on this one, as you mentioned, Sarah. Exactly. Thank you. Yeah. Let's check the markets. The Dow right now still in the green by just about 100 points. The S&P, Nasdaq and Russell all negative. And after the break, Wall Street analysts making an unusually high number of calls today. It's not just Rob Portman. We're going to break down the biggest stock moving notes, and we will explain what the high volume of earnings revisions could tell us about the market's next move. As we head to break, check out some of

today's top searched tickers on CNBC.com. The 10-year yield on top, followed by Tesla, Bed, Bath & Beyond, Carnival, and Disney. We'll be right back. Here are a few upgrades and downgrades today. Three upgrades for Goldman, McDonald's, Ulta, all getting moved higher because of their resilience during economic slowdowns and customer loyalty. On the other hand, there were a number of downgrades based on weakening macro conditions on Upstart. Morgan Stanley writing rising rates will hamper demand. Morgan Stanley also cutting Carnival, saying it sees a zero dollar per share bear case if the company has to endure another shock. Plus three chip names taken down at Bank of America, citing maturity of the smartphone cycle and elevated inventory.

You can see them there, Skyworks, Corvo, and Teradyne. And now, Mike Santoli is here taking a closer look at the changing expectations from Wall Street in today's dashboard. Yeah, and John, that sort of preponderance of negative versus positive ratings changes reflects the fact that, as of 10 days ago, Faxet said we still had an unusually high number of buy ratings. 57% of all ratings were buys. That's above the five-year trend of about 53%. This, though, tracks earnings changes.

So this shows you the net revision to earnings. Basically, for every six companies having their earnings estimates increased, you have 10 that are now decreased. That's your kind of net minus four number. What I find interesting is when we've been here before, right? So you take this back, obviously deep, nasty as 2011, kind of the sovereign debt and U.S. debt default crisis, and all this time here in 2018 and 2019. So, in other words, a lot of talk out there, John, that basically analysts have been slow. They're complacent. They're not reckoning with the fact that we've had a slowdown.

They're not cutting numbers. That's because, in aggregate, the S&P estimates are holding up because of energy. Under the surface, I do think we're seeing an expectations reset to the downside. We'll see if it's enough. And is it going to take like a demand shock, like the demand easing off perhaps on the individual level for this to really change if it does change? I think you probably do need something like a sudden stop in some areas. Now, look, it's gotten rolled through various sectors, right? You did see after Target had its big bombshell of very slow demand in one month, too much inventory. Everybody swept down their estimates for other retailers.

So I don't know if it's going to happen across the board. But right now, as David Zervos was saying, with nominal growth high, you have sales growth that doesn't seem to be that much in question because of inflation. We'll see what happens to margins as the reporting season gets going. Yeah, we'll see how people feel when they get those credit card bills from the summer fund. Mike, thanks. Up next, highlights from Sarah's panel at Aspen with Wells Fargo CEO Charlie Scharf, including how rising interest rates and economic concerns are impacting his company's big mortgage business. We'll be right back. Welcome back. Sarah Eisen sat down earlier with Wells Fargo CEO Charlie Scharf at the Aspen

Ideas Festival for a rare conversation. And Sarah joins us now with some highlights. Sarah. Hi again, John. I moderated a panel today about small business with Scharf, CEO of Wells Fargo and Senator Rob Portman of Ohio, who just said, as you heard, he sees recession happening. So I asked Scharf about what he is seeing in loans and banking for small business and, of course, for the rest of the economy. Listen. I would say small business mirrors what we see in terms of the consumer, in terms of the fact that they're still incredibly strong. They've been incredibly strong now since all of the government aid that was so important to help so many of the small businesses get through COVID. And all of the metrics that we look at in terms of just credit quality, when we look at the flow of funds that are coming through small businesses, it's just very hard to see any weaknesses.

And we're looking for them to make sure that we're not missing something. But having said that, I would say we're still extraordinarily concerned. And based upon some of the things that we're starting to see in the consumer space, do expect to see deterioration. And then the question, obviously, is how far does that go? Do you agree with the senator? Are we going into recession? Are we in recession?

Listen, I'm not an economist. So again, I'll tell you just what we see versus... Do you see a hurricane? What I'll tell you, listen, what we see is that on the consumer side, those with less wealth have much more pressure than they ever had. Their balances are declining. Their balances and their deposit accounts are below what they were pre-pandemic. So on average, everyone looks fine. But when you look at those at the lowest wealth levels, it's not surprising that their deposits

are actually going down, because when you look at what they're spending through their debit cards, they're having to spend 25% more on fuel, food prices are up. They're just starting to see increases in rent and those who have adjustable rates in terms of mortgages. So, you know, when you start to see that, that's the outlook where you say, you know, it's going to spread into higher wealth levels,

won't go all the way up probably, and we should be really concerned about that group because, you know, that group has the least amount of options. So Scharf wouldn't use the word recession, but definitely flagged the warning symbols on the lower end consumers. Of course, I also had to ask him about housing as well as Fargo is one of the country's largest home lenders with mortgage rates spiking, sales starting to really slow and the Fed continuing to hike rates. Listen. We're seeing a huge decline in terms of just mortgage applications. We actually said recently publicly that our mortgage revenues will be down 50 percent from the first quarter to the second quarter, of which part of it is price, but part of it is just

the decrease in applications. And so, you know, refis have come way, way down, which you'd expect with the rising rates, and given how many people have refied up to this point. And at the same time, what you're seeing in the purchase market is the purchase volume is down because there's still a limited supply. Rates are up, so it's financing is more expensive for people. And again, you know, that is a, you know, that has some ripple effects that are difficult. But I do think, you know, one of the issues that we have, which we're going to have to solve, is, you know, the affordability of housing for a very broad group of people. And, again, I hate to sound like a broken record, but it's, you know, the people who are at the lower end of that are the ones that have, you know, it impacts the most.

They don't have reserves. They can't stretch. Harder for them to get credit. And so they're the ones who are going to be the most impacted right away in an environment like this. But, you know, real estate values, you know, moderating in the long term are a good thing. For inflation? I think for, absolutely for inflation because it's a part of it in terms of just increased rent payments and increased mortgage payments, because it all filters through. But again, it'll it'll be messy going through it. Not a good thing for his business, as we talked about, but he said they've been in mortgage rates and mortgage business for a long time and they know it's cyclical and they expect the good times and the bad. As far as the Fed, Sharpe did say we should expect, quote, significant hikes still from the Federal Reserve, 50 or 75 basis points. He said could see even more if the data changes

and that it's not all in the market. For instance, he still sees rents with room to come down. Also says the stock market and bond market will be messy because he says, John, we're going to act surprised, even though we shouldn't be, that the Federal Reserve is going to have to raise rates here a bunch. Yeah, Sarah, I mean, it sounds like the poor are in recession already. The lower middle class is already in recession effectively. Yeah. So can you really count on them spending just as much or more on Christmas gifts? But, you know, we'll see. Sarah, thanks. Here's where we stand in the markets at this point, kind of running in place a little bit. The Dow just a little bit higher than flat, up about a

third of a percent. The S&P and NasdaQ about flat, and the Russell still down more than 1%. Bed Bath & Beyond shares plunging on a C-suite shakeup, and that's costing high-profile investor Ryan Cohen a lot of money. Details in closing bell returns. Welcome back. Bed Bath & Beyond getting wrecked today on news of a management change. Apart from ousted CEO Mark Tritton, one man feeling big pain is Ryan Cohen of Chewy and GameStop fame. Leslie Pickers got the details in today's Wall Street Buzz. Leslie. Hey, John. When Cohen first revealed his stake in Bed Bath & Beyond back in early March, shares soared 34% that day.

They gained again later that month when the two sides agreed to a settlement that put three of Cohen's director designees on the board. Since then, Bed Bath & Beyond stock has decelerated, culminating in today's 24-plus percent losses, thanks to slumping sales and a management shakeup that ousted CEO Mark Tritton, as you just mentioned. Now, I spoke earlier with a source familiar with Cohen's thinking who said that Cohen

had actually been pushing for Tritton to depart as the two disagreed on strategy for Bed Bath. I'm told he's also continuing to push for that spinoff of Bye Bye Baby, which was part of his initial activist push. Cohen declined to comment when reached out for comment. I'm told Cohen owns about 12% of the company through RC Ventures, which doesn't manage outside capital. His settlement from March included a one-year standstill, which means he can't run another proxy contest until spring 2023. Shares, though, down about 70% since he revealed

his stake on March 7th, which at the time was said to be worth about $150 million. Current market cap, John, is about $400 million at these levels. Yeah. I mean, heck of a time to be trying to make something happen in retail, right? With everything that's happening with interest rates with the consumer um i don't know if you got any historical perspective on uh activist moves that are perhaps suspect to the timing um well with this situation mark tritton initially took the role as part of one of the different activists plight at the company and different activists that were looking to shake things up that added four directors to the board at the time. That was a group of activists. McCallum was one of them. And so this company has seen its fair share of turnover and it's seen its fair share of activist activity. And that's true across the retail space,

especially recently, as a lot of investors are trying to determine kind of the best path forward in this uncertain environment, especially as it pertains to the consumer. This situation, though, I mean, strategically, you could do the spinoff of Bye Bye Baby, but then it comes to, you know, how do you really turn this company around as well? They currently have an interim CEO at the helm at Bed Bath & Beyond. And so part of it's going to be what you're doing with strategic alternatives. The other part is going to be finding a permanent CEO for this company. Well, we'll see if they can spin the bye-bye baby out with the bathwater here at Bed Bath & Beyond. Leslie, thank you. Up next, JPMP. Morgan chief U.S. economist Michael Ferroli on how tomorrow's key inflation data could impact the Fed and the market.

That story plus Jim Chanos' big news short and semiconductor slumping when we take you inside the Market Zone. We are now in the closing bell market zone. Risk Reversal Advisors Dan Nathan is here to break down these crucial moments of the trading day. Plus, Christina Parks and Evelis on the semiconductor slump. And J.P. Morgan, Chief U.S. Economist, Michael Ferroli on inflation. Stocks struggling for direction today. Dan, Nathan, what are you focusing on? Yeah, interesting, John. You know, if you look at each month of this year,

the S&P 500 has had dips in the first couple weeks of each month, you know, about average, about 10%. And here we are, we've had these kind of late-month rallies. We're still down 20% of the S&P 500. But we are, like you said, struggling to find direction into the end of this down twenty percent the S. and P. five hundred but we are like you said struggling to find direction. Into the end of this month into the end of this quarter and so the

rally just kind of petered out here so. I guess kind of suspect that we're losing some steam into what's going to be. A very dicey July with probably some earnings pronouncements. Early in the month and then obviously some

downgrades to guidance for the back half of the year so I think. Investors are really still trying to parse out what is the proper multiple in such a difficult environment where the visibility is so low, where interest rates are going to stay high. And we really, you know, this inflation thing is just going to be sticking around, at least for the back half of this year. I can't help but wonder that there was this rally, you know, March heading into April

end of the first quarter. Now there's a bit of a rally that we saw June heading into July, though that's faded a bit, you know, finishing up the second quarter. What to make of that, right? What does that say, if anything, pattern-wise about the year or what might be in store in the second half? Yeah, I think that's a really good point, John. And I would just say that what's changed, be it like quarter over quarter, is that the Fed started raising interest rates. They were talking about it early in the first quarter, but in mid-March, they really did. They had their first 25 basis point hike. And since then, we know that there's been a couple more and they've been very steadfast about what they're going to do in July and then again in September. So I think

the rates, the fact that we have a 10-year above 3%, the second quarter started the 10-year at 2%. So you'd think the quarter over change in that. We also have a dollar that's very near multi-year highs here. So, you know, and then again, you know, inflation readings, we're going to talk about it a little bit. They're not letting up anytime soon, although we're seeing many signs that inflation might have peaked.

Well, but we've heard that before, too. Dan, hold on. Chip stocks, meanwhile, getting chopped again today, plunged more than 30 percent this year. Christina Parks in Nevelas joins us. Christina, signs then that customers might have bought too many chips, filled up on chips before dinner in the past year? Well, you're talking about inventory levels that seem to be quite high. And there's also concern that manufacturers keep building out new capacity that could lead to a glut of components and possibly risk overcapacity. But you're saying, hey, no, that's a few months out.

That's not a problem right now. We are right now starting to see the price of graphic processing units. So those GPUs, they've been decreasing. There's been an improvement in supply chains, and there's been a decrease in demand by gamers and crypto miners. So that's putting some pressure on prices, and it could affect companies like AMD and NVIDIA

that create these GPU units. And then you also have the next generation of cards that are just around the corner for both of those companies. And then the second point, too, memory chip prices. That is starting to decline. TrendForce, which is one research firm, predicts prices could drop anywhere between 3% and 8% in the third quarter of this year.

And that number actually accounts for inflation, so that would hit companies like Micron. And Micron's out with their earnings tomorrow after the bell, and it seems like Wall Street's pretty downbeat on it. So you've got a cyclical nature for chips. You've got a weakness in the end consumer or user market, like 5G and smartphones. And then the question, where does the spillover happen next? Could it be cloud and enterprise services?

There's a B of A today in their know after they downgraded a bunch of stocks, seems to think so. Christina, thanks. So, Dan, pricing weakness in GPUs and gaming cards. I mean, how important is that? Because that was the area, right, premium, high margin that was doing so well for several quarters. Yeah. So, you know, this space very well, John, was doing very well. And it was also being applied to a lot of new technologies right over the last few years and then when you think about the pull forward in some of the demand for some of the products that those GPOs were going into during the pandemic you know this is something we're seeing in lots of different parts of technology here so I just say this about NVIDIA I think we all agree that this is a company that's done you know tremendous

job as far as market share and innovation but it's a $400 billion market cap company that has been cut in half over the last, let's call it seven or eight months or so, that trades at 11 times sales. So if we're in an environment where investors are still really concerned about cyclicality, about inventories, about overordering, you're going to be really kind of careful about a stock trading at this sort of multiple. AMD is also down about 50% or so, but trades a little less than five times sales. And they've also done a really good job on some of these other technologies, emerging technologies, and also taking shares. So I think that until we get a better read on the back half of the year, I think some of these stocks are going to continue

to come under pressure. And the last point I'll make is that B of A, look what they just did with their price targets. I mean, they haven't moved anything in a long time. I suspect you're going to continue to see numbers come down, especially as we get back half of the year guidance from these companies the next few weeks. Yeah, maybe reality setting in as opposed to realty setting in. Moving on, shares of Equinix and Digital Realty are under pressure, although off the lows of the session after famed short seller Jim Chanos revealed data center operators are his big short right now, citing increasing competition from hyperscalers. Big tech companies like Amazon, Microsoft and more. Leslie Picker rejoins us. Leslie, interesting thesis from Jim. Yeah, it certainly is an interesting thesis,

especially since, as he describes it, there's been almost an investor simplicity to the trade in recent years. This idea that you've got growth in cloud, therefore you need growth in data centers and people should be putting more capital to work in these data centers. There's also been just a lot of real estate capital that had to go somewhere. And as you've seen, kind of the declining value of malls and of traditional real estate opportunities, a lot of those types of investments have shifted and focused more on technology as that's been the growth area in recent years. And so basically what Chanos is saying is that there's not a one-to-one correlation

just because there's a growth in cloud right now. There's no second derivative benefit necessarily to these REITs and to these data centers that provide services for the big guys because the big guys can create their own centers or they can ask for lower rates in order to use their services. And so he's basically saying the market's got it wrong here. Yeah. And earlier on Tech Check, we were talking about this and I said, hey, to all the investors out there, be careful on this short because it's not like it's, you know, if you believe in cloud, then it's necessarily against these data center REITs because the hybrid cloud story in part relies on co-location and some of these facilities that these folks have. And Chanos tweeted back at us about that.

Let's have a look at that. Dee Bosa suggested that maybe he didn't have the sound on and recognize the nuance of the argument that we were making. He said, I have the sound on, guys, but would stress the financial reality versus John's narrative. Yes, there will always be some demand for hybrid solutions, but at lower rates is negative 27% EBIT growth worth over 100x EPS. I haven't gone through the numbers, Leslie, and clearly he has. But I'm just saying not all of these data centers are built with the same technology. And some of them might be bridging to hyperscalers and public cloud in a way that allows them to fare better than others.

Yeah, it's not necessarily a pair trade where you'd say go long big tech and go short these data centers. It's a little bit more nuanced than that. It's more complex than that. And to your point, a lot of these data centers do have contracts with their tenants, which tend to be longer term in nature. So this seems like it's more of a trade that would take place over the longer term if it does pan out. And it seems like that's something that Chanos is betting on as well as he's raising an SPV to bet on it. So it's not something that I think needs to be, you know, and maybe I like what we've seen with his recent trades and say Coinbase or Carvana, which have paid off handsomely this year. I think he's up like 30 percent this year as the market has obviously plummeted. Yeah. Return of shorts weather. Dan, Nathan, is this mostly about

sentiment, though? Have people gotten and remained too bullish, too excited about these data center providers? And so is there perhaps opportunity there? It might be. Listen, Jim's a friend and I will tell you this. He is literally one of the best investors out there, one of the best that I've ever met. And I've been in the business for 25 years. And when I say investor, I know that we always introduced him as famed short sellers because he's nailed some of these things, especially over the last year, year and a half or so. So when I look at this and I looked at this tweet thread here and I see what's going on a little bit, I think it makes perfect sense when you think about this REIT that is actually, you know, let's say the EQIX in particular,

why should this thing trade at eight times sales when that's not far away from Amazon's AWS, the multiple that's put on that by investors and expectations for this year and next at 30% earnings growth seem a bit high. So to me, this stock is only down 23% on the year, right? And so when you look at an Amazon that's down 35%, yeah, retail is kind of weighing on that, and investors are going to place more emphasis on that higher margin AWS business, but it doesn't make any sense why that stock, EQIX,

should trade at a superior multiple by any means, in my opinion. Okay, you agree with Chanos. So let's get some key inflation data. We're going to get that tomorrow. Core personal consumption expenditures expected to rise 4.8 percent versus last year. That's the Fed's preferred inflation gauge. Could hold some clues for the market on whether or how big Fed's going to hike rates next month. Seems pretty sure that they're going to. More question of how big.

Joining us now for more is J.P. Morgan Chief U.S. Economist Mike Ferroli. Michael, last time we got an inflation reading that was higher than expected. The market sure did react. Yeah, I mean, one thing I would keep in mind about the PCE, it's kind of a regurgitation of CPI and PPI data that's already been reported. So I think we kind of know what's coming tomorrow with a fair degree of precision. I think what's probably more important for that July meeting that you referenced is the June CPI report, which we'll get in a few weeks. And if that's another hot one, it looks like 75 is probably in the bag. I'd also

keep an eye out, however, tomorrow you mentioned the PCE data, I'd keep a close eye on the initial claims data. There are some signs that the economy is slipping pretty quickly here in some of the business surveys we've seen. And the claims data is a very high frequency and very, well, somewhat reliable gauge on when we're losing momentum on growth. So I would also keep an eye on that at 8.30 tomorrow. So, Mike, would you say initial jobless claims more important than PCE? There's been a lot of talk about PCE today, but if it's mostly just a derivative of what we've seen already, and the argument that I've been hearing is, oh, well, you know, while there's still so much employment,

how can we really have a recession if employment looks like it's backing off? Is that more likely to cause people to reconsider? Well, look, I mean, I think if employment slips here, the Fed probably will be patient for a few months before reconsidering their, you know, hawkish path. But I do think, you know, look, the PCE number we'll get tomorrow, I think we'll get it within probably a few basis points, just given the way the number is constructed. We have no idea what the claims number is going to be. And as I said, you know, this week and last week, we've seen some business surveys that suggest that perhaps, I'm not trying to say, you know, I'm not trying to be alarmist here,

but there have been some signs that business sentiment is slipping pretty quickly here. And that's why I want to keep an eye on those gauges. Well, help me understand what to expect here then, because the way I was thinking about it, if initial jobless claims are higher than expected, oh, well, that could mean there's a greater risk of a recession because employment isn't holding up as well as some people had hoped to sort of bolster the overall economic situation. Yet you seem to be saying if initial jobless gains are higher, the Fed might actually hike less,

which the market might have the opposite reaction to. What do you expect? I don't think the Fed's going to be jumpy here on a single number. I mean, mindful of how they react to the Michigan inflation expectations number. But I do think for thinking about the path for the next few months, if the labor market shows signs of slipping, then that really changes the story. I mean, we already know the trajectory on housing is down. It looks like the trajectory on manufacturing is down. Consumers slowing a little bit, but holding in.

And they're holding in because job growth has been, you know, three, four hundred thousand per month. And that's the expectation that it'll remain pretty solid for the next few months. If those expectations start to slip lower, then I think this, you know,

narrative that we'll dodge a recession start to look a little more up in the air. And again, I'm not saying that. I'm just saying that there are some signs. Right. Yeah. Michael, thank you. Okay. Nathan, tomorrow's the last day of the quarter of the first half and we're getting PC and initial claims. How are you going to position heading into all that? Yeah, listen, I think that, you know, we kind of hit on this before. We're kind of petering into quarter end. We're going to have two consecutive negative quarters in the stock market, which we have not had in a very long time.

I think that discussion about some of these prints are really interesting to me. It's going to be this push and pull between these hot CPI or these hot PCEs, so hot inflationary pressures, versus stuff that are telling us that the economy is weakening. And I think you are 100% correct to keep an eye on those employment data, because if it starts ticking up and we start seeing a weakening consumer like we've seen this week in that consumer data that was consumer confidence that was at 16-month lows, I think that push and pull is going to be the thing that obviously causes the Fed to stop raising at the pace in which they have. But it won't be good because the economy will have slowed. It's going

to likely put us into a recession. And that stagflationary environment is not going to be great for stocks so. I'm not expecting. A Q three that's going to be that much better. Than what we've seen so far in twenty twenty

two but I do think that investors start to have to think. Past twenty twenty three what's a more constructive environment once rates have normalized. So to me I think you want to start dollar cost averaging. stories that thinking about 2023 and beyond. Oh, all right. Averaging in, dipping your toe in the water, perhaps encouraging.

And hey, Dan, Nathan, thank you. And as we head into the close, the major indices treading water as they have been for most of the day. The S&P and the NASDAQ just about flat. The Dow up maybe a quarter, a quarter of a percent, but we'll see how it settles out. A couple of big names are ending the day pretty strong. Amazon, Apple both up better than 1%. With that, I will turn it over to my friend Mike Santoli for overtime.