Closing Bell - Closing Bell: Dow climbs back from steep losses, Snap cracks and drags on tech. 05/24/22

Episode Date: May 24, 2022

The Dow clawed back from a more than 500 point drop to close in the green, but a profit warning from Snap kept tech stocks suppressed. Analysts Michael Nathanson and Rohit Kulkarni discuss the huge drop for the social media firms and the read-through for the whole advertising market. Nancy Tengler from Laffer Tengler, Sandy Pomeroy from Neuberger Berman and Stephanie Link from Hightower open up their playbooks as the market volatility rolls on. And retail expert Gerald Storch explains why a revolution is needed in some of the country’s best-known retailers, as Abercrombie & Fitch becomes the latest name to tank on results.

Stocks cutting their losses through the session, though the Nasdaq is still under heavy pressure after snaps sent shockwaves across the market. The most important hour of trading starts right now. Welcome to Closing Bell. I'm Mike Santoli. Sarah Eisen is on assignment in Davos. Here's where things stand in the markets. As you said, it came back from the lows about down 2.5% on the S&P 500 at the lows. The Dow had been down over 500 points. It's ground its way back. For the last nine sessions, the S&P has kind of stabbed below the 3,900 level.

It's never closed below there. It's never closed down 20%. So, so far, that remains intact. Check out the biggest decliners right now in the NASDAQ 100, though. Still kind of the epicenter of the selling. See Dexcom down 12.5%. DocuSign, a lot of those pandemic cloud favorites. Datadog, Pinduoduo, and Splunk, all of them down more than 9% on the day.

We have a great lineup to help you navigate this wild market, including Nancy Tengler from Laffer Tengler Investments, Sandy Pomeroy from Neuberger Berman, Chris Harvey from Wells Fargo, Hightower Stephanie Link and tech analyst Rohit Kulkarni. We will start with that profit warning from Snap that sent those shares into freefall. CEO Evan Spiegel said the company will miss its own target for revenue and adjusted earnings, saying the macro environment has deteriorated further and faster than anticipated. Joining us now via phone is Michael Nathanson, Moffitt Nathanson, founding partner and senior research analyst. Michael, I appreciate you calling in.

Great to kind of get your take on this. So Snap says it's the macro environment. You know, to some degree echoes what we've heard from some consumer companies that things really did slow down sharply in the last month or six weeks. But can we take that on face value, that this is really what's happening in the digital ad market as it regards Snap? Yeah, I think it is. I think it's a combination of e-commerce slowing down, you know, retail slowing down, the consumer low-ending hurt is all wrapped together and really killing Snap in terms of what they're seeing.

You know, is there anything about Snap, its particular franchise, its place within the digital ad ecosystem, its exposure to, you know, the TikTok audience, if there's overlap there, that maybe means it's a little bit worse for Snap in terms of advertisers deciding to tighten budgets and leaving them on the outside? Yeah, Mike, those are great questions. So let's frame it. The biggest risk you have is brand advertising. Because brand advertising is hard to prove, right? So when things slow down, brand gets cut.

Snap has exposure to brand. The safest place is search because search is intention. They've got no search. What they focus on is that young audience, right? And if that young audience goes without clicking to buy something, they're really at risk, right? So your point, it's not a bellwether by any means. It's a great reflection on kind of a mini audience. But I want to read that across the search. I want to read that all through Facebook, right? I think

it's a tough problem because of its narrowness of its niche, right? I totally agree. That question makes a ton of sense to me. Yeah. And I guess, you know, we have meta down, you know, 9%. It's still a little bit above its lows. Clearly, there's a much bigger earnings base there. And I guess, you know, we have Meta down, you know, 9 percent. It's still a little bit above its lows. Clearly, there's a much bigger earnings base there. And when it comes to Snap financially, I mean, clearly, you know, it's generally been losing money. There's a lot of, you know, stock based compensation issuance. It seems like it really needed very rapid top line growth to make the model fully work and justify the valuation. Where do you sit with that right now? Yeah, so that's, I agree with that, too. It's a bad on me. We, you know, we've been very skeptical about Roku and Twitter because those companies really don't earn anything. They're not strong cash flow.

We thought Snap could outrun its cost-based and its stock- comp. We really believe that the company could compound growth at a very high rate the next few years. They're under-monetized relative to their peers. So we've been on the bullish side of that trade, obviously terribly wrong. And to your point, the risk you have now is if it's slowing down to these levels, there's no valuation support, right? There's no cash flow. There's no earning power. It's really a growth story that has to be a proven-to-me story. And to your point, if you keep falling, there's no earnings support here. There just isn't. And, yeah, I mean, is there anything that, you know, would you expect Snap

to be doing strategically to try to get around this? Or is it just about, you know, maybe cutting back on costs and waiting for things to firm up? Yeah, you know, you heard, I think you saw in the memo that Evan Spiegel outlined slowing down spending, looking to be more thoughtful on expenses. You have to do that, right? So the problem they have is that, to your point, the cost structure is based on a vision of forward growth. That's not achievable right now. There's not much they can do. You know, they can't cut their way to profitability. They need to invest in growth.

So to me, it's just it really lengthens the timeline to be rewarded by owning Snap. You have to wait now for whatever cycle we're going to see to get to the other side. The selling is probably overdone, but I get the mood of the market. I understand what's going on. And now you have to prove that there's growth here, and you have to wait two, three, four quarters from here to see what happens. Yeah. And just quickly, you covered, two, three, four quarters from here to see what happens. Yeah. And just quickly, you covered the traditional media companies as well.

Anything to cause you to rethink digital or general ad trends there? Yeah, well, we've been channel checking, and we've been hearing about, you know, we had a conference last week, and all the companies presented said they didn't see anything in April. But what we were worried about is a slowdown in June, right? So no one wanted to go ahead to June. So our challenge checks are kind of suggesting that the quarter may end a little bit softly. So, you know, this data point, and since TV is more about brand, I think there's just realistic concern about what it means for TV and for broader media. I think we'll find out more by the end of June whether or not this is

going to hit other companies as well. Yeah, I have to monitor that. Michael, again, thanks very much. Appreciate the time, Michael. After the break, we'll talk about the renewed pressure in the market and whether or not you should buy the dips when we're joined by Nancy Tengler from Laffer Tengler and Sandy Pomeroy from Neuberger Berman. You're watching Closing Bell on CNBC. Let's check out today's stealth mover, Insulet, the company which makes an automated insulin device is reportedly in talks to be acquired by Dexcom, which makes glucose monitoring systems.

The deal will create a huge player in the diabetes treatment industry. You see their insulin up a little more than 6% with Dexcom giving up almost 12%. Take a look at the S&P sector heat mat. Tech, consumer discretionary, and services getting hit the hardest. The utilities and staples are holding gains as the overall market actually claws back. The S&P only down a little more than 1% at the moment. Joining us now is Nancy Tangler of Laffer Tangler Investments and Sandy Pomeroy of Neuberger Berman. Thanks to you both for being here. Nancy, you know, obviously the

inflation panic has morphed to some degree into a full-on growth scare. I mean, obviously, consumer cyclical is getting hit pretty hard. People concerned about exactly what we might be looking at in terms of potential recession. Does that seem well grounded to you? Does it explain how the market's acting? Well, yes, I think it does explain it, Mike. And thanks so much for having me. I mean, we you and I have had this conversation for the last year that we were going to slow in 2022. I mean, that is just the math. We knew this. But I think what you're seeing now is this extrapolation of recent data out to infinity. So we have a negative GDP print, which was driven largely by an increase, a dramatic

increase in imports as we unclogged the ports. And that had a negative effect on GDP of 3.2%. If that were backed out, you would have seen a 1.8% rise in GDP. But underneath the numbers as well, you saw a strong consumer and you saw consumer saving to the tune of one point two trillion. And that was against one point three nine, I think, in the fourth quarter when transfer payments were still in place. So the historical data is not as bad as as is being stated. And I hear people sort of say with impunity, oh, we had negative GDP in the first quarter. But there was a lot of good that was going on underneath, including an earning season with real companies that that was pretty darn good as witnessed by them raising their dividends. So I'm happy to use this as an opportunity to step in and buy the higher quality names for the next three to five years. Sandy, you focus on dividend stocks, equity income fund mainly, and they've held up rather well, in fact, better than other companies that, you know, more focus on buybacks. Do you expect that this type

of environment, which is going to foster outperformance of dividend stocks, is going to continue? What are you finding in terms of, I guess, what you have to pay for some of the favored names? Yeah, so we've been running an equity income fund for 25 years. My team has run the same strategy for that long, so we have a lot of experience in this area. These stocks were as cheap as they were back in the late 1990s, early 2000s, during the tech wreck that happened back then. We were at the same position at the beginning of this year. They were very, very cheap. And so I think that because they were cheap to begin with and they've got growing dividends because free cash flow is growing and they are cheap, you have all those things

combining together to set them up to be very good investments during this more inflationary period where the growth is a little less certain and you know that you're going to get a good return, a dividend return plus the free cash flow growth. Are there areas, Sandy, that you're finding, you know, stocks come into your zone in terms of valuation or dividend yield or anything else just because of the market volatility? Absolutely. So we have done a couple of things. We run our screens every week looking for companies that have sold off where all of a sudden a high quality name like, say, Home Depot, for example, which had traded down at its heights below 2 percent dividend yield, all of a sudden has a dividend yield that's closer to 2.5 percent. That's very interesting to us.

We also have taken advantage of the volatility in written puts against many high-quality names where we not only get the premium from the put, but we are able to, if we have the stock put to us, acquire the stock with a dividend yield that meets our criteria. So we're able to target that 3% total investment income return that's on our fund plus another 3% to 5 call it three to five percent appreciation on top of that for a total return of seven to nine percent, which is what we're targeting. Nancy, you mentioned your willingness to buy some of the higher quality ideas for three to five years. What's come into that strike zone for you? Yeah, some of the same names that Sandy

mentioned. We do we have been shifting our portfolios over the last quarter. So we added to Microsoft and Taiwan Semi, both dividend payers, but we exited 3M and we added to the defense names in the first quarter, as well as Steel Dynamics. And we also added a position in public storage. All of these are dividend growers. And that's important, Mike, because the dividend growth has been material. We've seen companies come in like EOG Resources with three special dividends and a doubling of their existing dividend. But then there's Steel Dynamics, a steel company that raised the dividend 20 percent last quarter. And so those are the names that we look for. I, too, I'm older. I think that, Sandy, I've been running equity income portfolios since 1984. And they're not always the star of the show, but they are a great workhorse when you're in an environment like this.

Yeah, I guess part of the argument for why dividend growth stocks can do well with inflation higher, guys. So thank you very much, Nancy and Sandy. Appreciate it. Let's check the markets now. The S&P 500 down less than 50 points at the moment, 1.2 percent. The Dow not too far from the flat line there, down one fifth to one percent. The Nasdaq still where a lot of the pain is, down 2.8 percent. The Russell 2000 also suffering, down 2 percent. Abercrombie & Fitch is the latest retailer to fall out of bed on the back of earnings, losing a third of its value today. We'll talk to retail industry expert Gerald Storch, who says a revolution is required to turn around some of America's best known companies. As we head to break, check out some of today's top search tickers on CNBC.com. Snap, no surprise, getting the most interest, followed by the 10-year Treasury yield, which is lower than NASDAQ, Meta and Tesla. We'll be right back.

Shares of Abercrombie tumbling after reporting a first quarter earnings loss and cutting its sales outlook for the year. Companies said freight and product costs weighed on sales. The stock is on pace for its worst day ever, going back to its IPO in 1996. Other retail stocks like American Eagle, Urban Outfitters also falling in sympathy with Abercrombie. Joining us now is Jerry Storch, CEO of Storch Advisors and former Toys R Us CEO. Jerry, great to have you to kind of sort through really a tangle of issues here that's affecting these retailers. So on the one hand, you know, a little bit of maybe consumer fatigue, but overlaying all that, you know, the big box stores ending up with too much inventory. Maybe they were too good at getting shipments when we thought it was going to be really particularly tough.

And then I guess maybe some strategic blunders along the way, too. How do you assign responsibility for what we're seeing in retail among those issues? Look, I think people are conflating different issues as if it's all one thing. First of all, the consumer is clearly healthy. I can't give you a warranty on that, Mike, for the rest of the year until next year. But for now, the consumer is healthy. They're just spending it in different ways, including at these retailers, by the way. They don't know what you paid for things. And just because your margin's trash, they don't know that. So they're still spending money in stores. They're still spending money

out of stores. They have shifted, you know, away from spending things for their homes where they were spending all their time cocooning to spending for products that are more related to going out and living a life. Nevertheless, consumers fundamentally healthy. Anyone who says any of this data from the retailers says anything else is not paying attention. One. Two. There are real supply chain issues and inflation issues. And different retailers have done better or worse at that. But they aren't all the same. So people talk like Target and Walmart is if the results were identical. I mean, they were hugely different. I'd so much rather be

Walmart right now than Target. Why? Target's issues were they bought the wrong products. They have huge amounts. They're way over inventory. Their gross margin deteriorated by over 400 basis points in the quarter. You know, Walmart's gross margin deteriorated by 38 basis points, less than one-tenth as much. Both companies had supply chain issues, but they're going to fix those. Trust me. Being over inventory, that's a disaster. That's where Target is. Walmart is not there. Many other companies we've seen, like TJ Maxx, didn't have any problem with any of this. They managed their way through it. Finally, there are other companies that are, their strategies just stink. They've been wrong for decades.

They were wrong before the pandemic. They're wrong now. They'll be wrong forever. Look at the department stores, a Macy's, even Nordstrom's. What a great name, you know, a Nordstrom, a Kohl's, you know, take a look at Bed Bath & Beyond. These companies, you know, hit their peaks a decade ago. Many of them, their stocks now are at the same levels they were at in the 1990s. They've been dead money the whole time. Don't they see that what they're doing is not working? Well, when it comes to a Macy's, did they not make some progress on Omnichannel during the

pandemic? Wasn't there a sense out there that, you know, we use the stores themselves as distribution centers and it seemed to get some traction? And then Kohl's, you know, very cheap stock. Nobody's saying that they're killing it, but somebody wants to buy the company here. And they've done some some good things. They're smart people. They've worked hard, but it's three yards in a cloud of dust when they need to be throwing some hell marries here. They need to fundamentally change the nature of the business. Their customer is is, you know, generations away from today's customer. It's grandmothers, and it's old people that are shopping. I'm sorry. These companies do not have today's millennial who are going, I want to go to Macy's. Oh, my gosh, I want to go to Kohl's. That's just not

happening anymore. I'm sorry. So they really need to think about who they're going to be in the future. Instead, they're thinking about who they used to be, and can they make it a little better, add a little internet sauce to it, you know, and change where they are. But it's tinkering and that won't change one thing. They're only going to go backwards. Well, in terms of, you know, companies that are targeting younger people who don't remember the 90s, I mean, Abercrombie, we just talked about obviously, you know, whether they're doing it right or not, that is the demo there. Is it just a clothing issue right now that we have to just sort of go through this lull in demand for apparel?

Mall-based specialty apparel has been dead for a long time and it will continue to be dead. Abercrombie, their stock hit their all-time high in 2007. The kids that were shopping there now, they're parents now. You know, they're not kids anymore. And they were at the same level of stocks that today in 1997 is yesterday's news. I can't believe we're talking about it's not even worth a billion dollar market cap. It's dead money. You know where it is. Small based special apparel is not where these people want to shop. They want to shop on the Internet, online. Look at Revolve.

You want to see a cool, a cool shop, a cool site where they're shopping? That's where they're shopping now. Jerry, appreciate the sharp-edged thoughts today. Thanks a lot. My pleasure. Talk to you soon. Up next, Wells Fargo Securities Head of Equity Strategy Chris Harvey reveals where he sees value in this volatile environment. And don't miss a special report on the technology sector tonight at 6 p.m. when John Fort hosts a CNBC special, Trading Tech. Markets in the red, although well off the lows of the session.

The Nasdaq taking the brunt of the pain today, down more than 2.5% still as the sell-off deepens there. Where can investors find opportunity? Joining us now, Chris Harvey, Wells Fargo head of equity strategy. Chris, good to see you. You know, we've done a fair bit of work, I guess, that needed to be done on the downside, you would expect. You know, S&P down just about 20%, not quite. NASDAQ down 30%. I think the average NASDAQ stock down 50.

S&P multiple from 22 to 16 and change. Is it enough? I think so. So today, Mike, something about today, maybe it's just a feel. I'm not really sure. But today I'm actually encouraged for the first time in a long time. You're right. We're off the lows. But more importantly, the market's beginning to discriminate. In addition to that, you're beginning to see rates react. Rates are going down. And one of our mantras, one of our comments is when equities go down, usually stock prices and bond yields don't go down together forever because it's a self-correcting mechanism, right? Stocks go down, you start to

create more value, bonds go down, and your discounting mechanism makes your terminal value higher. And all of a sudden, we find a bottom. And that's what we're beginning to see. Also, you're getting encouraging news out of the JP Morgans of the world. You're getting encouraging news from some of the Fed officials. Yesterday they talked about it or maybe even today they talked about, hey, when we get to 2%, maybe we need to look around. We need to think about what we're going to do going forward. We need to see if inflation expectations are coming down. And they are beginning to come down. So I'm actually encouraged for the first time in a while. We still tell people to buy stocks, not the stock market. But I think this price action, even though we are down over a percent, is actually encouraging.

Would you hope to see, you know, some of the other, I guess, sort of dominoes fall in this process of trying to kind of make the market outlook more realistic, such as earnings estimates being cut down or even, you know, you hear a lot of people saying they would want to see another climactic flush lower or something tactical that says that we've gotten to further extremes. So, Mike, coming into this year, we were at 47.15. So coming into the year, we're third or fourth lowest on the street after being the bull on the street last year. And we're expecting a 10% correction. We got that and more. And the reason why we were somewhat negative coming into the years, we thought you needed multiple compression. You got that. We thought interest rates and especially real rates needed to normalize you got that we thought that the fed had to get motion whether it's related to the um to the balance

sheet or it's related to raising rates that's been happening and now with that 20 15 20 pullback depending on what part of the market you have uncovered value the last the two last things we needed to see we need to see rates come down and we needed to see some softening of the Fed rhetoric, which is what we seem to be getting in the short term. So I think there's a lot more value out there. It is actually encouraging. It's actually encouraging because you're not also seeing indiscriminate selling like you were for a few days over the last couple of weeks. And that's telling me that things are getting better. And your last point about some sort of cathartic puke or some sort of big washout day. One of the things we will point to is MSCI is rebalancing at the end of the month, end of the quarter.

And if you have the opportunity or if you need to reposition, that's the time to reposition. So I'm not quite sure you're going to see another big volume day because there's going to be a massive volume day on the 31st. And if you have to reposition your book and some people do, that's the time I think it's going to occur. Yeah, that rebalance, I mean, it's going to affect a lot of different types of portfolios. But what specifically do you think the opportunity is going to be that's created? Well, a couple of things. So we are seeing the momentum index rebalance, and it's just a wholesale change. What you're beginning to see is more than defensives become Moe stocks. You're beginning to see energy become Moe. And I think the real opportunity is with

energy. I think there's a spot for energy in a lot of portfolios, whether it's an inflation hedge, whether it's because they've improved their balance sheets and they are more quality, or because they're one of the few sectors where you're seeing margins expand, not contract. Gotcha. Chris, we'll keep an eye on it. Thanks a lot for joining. Thank you. All right. Here's where we stand in the markets right now. Less than a half hour to the close. You see the S&P 500 down about 41 to down just a little more than one percent. NASDAQ still getting hurt by the growth tech selling down two point six percent. The Dow been flirting with the flat line just below it right now in the Russell 2000, down about two percent.

Monkeypox cases continue to rise around the world. Up next, a look at which companies make vaccines to fight this virus and how their stocks have been faring. As we head to a break, check out the homebuilders. They're getting hit hard today after new home sales fell in April by more than 26% year over year. That's the slowest sales pace since 2020. We'll be right back. More than 131 cases of monkeypox have been confirmed globally. The World Health Organization says the outbreak is containable,

although it is unclear whether a surge in cases is on the horizon. Meg Terrell joins us for a look at which vaccine makers are able to target this virus. Hi, Meg. Hey, Mike. Well, the good news here is that there are already vaccines that exist for monkeypox, mainly because we had them for smallpox. So a very different situation than we were in at the beginning of the COVID pandemic. There is one vaccine that's cleared both for smallpox and monkeypox in the United States. It's made by

a company called Bavarian Nordic. Then there's another smallpox vaccine that's older. It's now sold by Emergent Biosolutions. You can see both of those stocks have had quite big run-ups over the last week as we've had all these news of more cases mounting. We spoke with Bavarian Nordic CEO this morning about the kinds of incoming inquiries they're getting from governments around the world about their vaccine. Here's what he said. It's been crazy, to be honest. We've been inundated with calls. We're trying to work with the authorities in different countries to try and help them deal with the current situation.

We're ramping up production as we speak, and hopefully we'll be able to provide doses. Now, there are also a couple of drugs out there for smallpox, some of which are cleared also for monkeypox, at least one of which is that's made by Sega Technologies. You can see that stuck up almost 30 percent over the last week. Chimerix, a very small market cap company, had a drug for smallpox that it then sold to Emergent Biosolutions. That one had seen quite a run up, although it's come back a bit as well. And the main names that we know from COVID, Mike, they're not completely sitting this one out. Moderna tweeting this week that it is investigating in the early stages potential monkeypox vaccines. And Regeneron, I reached out to as well. They say they're following the situation closely and

evaluating whether there's a role for monoclonal antibodies here, too. So this is something the drug industry is watching very closely, Mike. Well, it's good to hear there are options out there, Meg. Thank you very much. As the Dow has turned positive, actually, it's up over 100 points at the moment, but Snap remains in free fall and on pace for its worst day ever after a profit warning. Up next, an analyst who just cut his price target on the stock but still thinks it's a buy. That story, plus a check on the chips and why cruise stocks are sinking when we take you inside the market zone. We are now in the closing bell market zone. Hightower chief

investment strategist Stephanie Link is here to break down these crucial moments of the trading day. Plus, MKM partners Rohit Kulkarni on snaps sell off and Simamodi on the fall for travel stocks. Stocks climbing into the close with the Dow turning positive in the last few minutes. The NASDAQ, though, still under selling pressure, down more than 2%. Steph, we're obviously seeing a little bit of discernment here in terms of what investors are willing to buy the dip in. A little more downside follow-through for the NASDAQ.

Other things finding traction. We still haven't had that down 20 percent close. How do you read it in terms of today and how we're absorbing these new growth fears? It tells me how much technology and comm services are still over-owned, Mike, right? Because they're the ones that are getting hit the hardest. And for good reason. Snap was really a big surprise for just about everybody. But look, I think that we're in just really challenging times. I've been saying, like, we're going to be in a choppy environment all year long, right, because there's so many unknowns. We've talked about them, Fed, inflation, war, China, etc.

The reactions that we're getting, though, are so extreme. If any company misses, it's really just mind-boggling. But there are a lot of moving parts, as I mentioned, a lot of unknowns. There's chatter about recession, which I think are very premature. What I'm looking at is the last two weeks, what did we learn from these companies? What happened in April? What happened in April is the consumer changed their behavior from goods to services. We had two big box retailers, Walmart and Target, double and triple order back in December of the wrong stuff. So there's tons of inventory. And that's why it was such a big surprise, because these are really well-run companies. But we also learned that inflation and higher interest rates are hurting not only the consumer, but these companies, too. They

weren't prepared. All of this wrapped up. April also showed us that the economy is still on solid footing, Mike. I heard you and Nancy Tengler talking about the GDP report. I totally agree with that. Inside the GDP report, services was up 4.3 percent. But we also had good retail sales numbers. They grew 8.2 percent. Industrial production rose 6.4 percent. Capacity utilization was up. So to me, the economy is still solid. Is it slowing? Yes, it absolutely is slowing. But that was the premise that we talked about back in January. We knew 2022 was going to be a slower growth year.

I still think it's growth, though. Maybe it's 2%, but I still think it's growth. At the same time, I still think inflation is going to stay high as well. So these are the challenges that the market's going through. Yeah, these are expected trends, but obviously maybe sometimes painful to build them into the market. Let's move on to Snap here. Shares getting pummeled, down more than 40 percent today. The company warning it won't hit its revenue and earnings numbers for the current quarter. That's bringing down other ad-related names as well, like Meta, Roku, and Pinterest.

Joining us now is Rohit Kulkarni, MKM Partners Internet Analyst. Rohit, what can we take from the Snap warning here about its own position in the ad ecosystem and whether, in fact, we've sort of misjudged how levered this company was to the macro environment? Hey, I think what Snap told us yesterday was essentially there is slowdown, but we still don't know. Their commentary was very vague and unclear how broad based of a slowdown they are seeing. E-commerce, we know, is slowing down. Online gaming is slowing down. Streaming is slowing down. Mobile gaming is slowing down. All these things is where Snap plays the most and and whether that is applicable to everybody else in the industry it remains to be seen today's

reaction feels that market believes that okay across the board everybody else is slowing down so let's just uh shoot first and think later um i think that leads us to more opportunities as we digest what what has happened in May, what will happen in June. Probably there may be a realization that there is a slowing down. There could be a tale of two cities here that could be slowing down in certain pockets in Internet land, where a certain pockets in Internet land may start to actually act better. You know, I think the big picture fear, perhaps, that kind of shadows this entire market is a version of what happened after 2000. And not just the valuations came down a lot, but also that, you know, tech startups couldn't raise more capital or they were tightening their belts.

And one company spending is another company's revenue. And there was a little bit of a downward spiral in the fundamentals as the stocks kept going down. Is there anything across your Internet coverage to suggest that we have this dynamic replaying? Obviously, we will start seeing that. There is going to be a lag effect in there. Startups tend to buy first advertising on Facebook, Instagram, and Google. And startups tend to buy cloud computing on google and amazon web services those are the two kind of 40 to 50 percent of the costs that startups tend to

have outside of uh hiring engineers so we'll probably start seeing that later q4 maybe early q1 next year that is that is probably going to happen but in the meanwhile i think as stephanie said we are in this price discovery mode of what of what 10 times price to sales is going to look like in this high inflation, high interest rate environment. You haven't seen that in the last 20 years, to be honest. So that is what is going on right now, where the 10 times price to sales is going to be like a 30 times EBITDA. So there are some there are some ways to go for some companies. Given they're burning cash, they still have negative operating margins. They're issuing a lot of stock-based comps. So there is still going to be more volatility, even if the macro environment turns out to be not as

feared. Rahul, thanks very much. Snap now down about 85 percent from its highs. Chip stocks are dragging on the overall tech sector today as well, down more than 2 percent into the close. Micron, no exception, one of the worst performers in the group today. Sarah sat down with Micron CEO Sanjay Mehrotra in Davos today, and he gave a bullish outlook for Micron amid supply chain challenges. I think overall supply chain is getting better for semiconductor availability, but it is not out of the woods yet. I expect it to continue to get better. Some of the shortages may still last into 2023, particularly on some of the foundry capacity as well as some of the analog legacy kind of nodes. Staff, Micron, you know, down by a third, I mean, probably in line with many other semi-companies. It always looks cheap. You know, it's super cyclical. How would you play it here, if at all? Yeah, I mean, I think what he said about supply chain is very consistent with what other technology

companies, CEOs were saying. Intel said not until end of 23, maybe 24. IBM said a couple more years. The Cisco, Chuck Robbins said probably end of 23. So the point is, I don't think any of these CEOs really know. I don't think it's impossible to know. But it's going to take a while. And this leads us back to the inflation story, why it's going to remain elevated, because I don't think that the Fed raising rates even to the neutral rate, whatever that number is, is going to be impactful to inflation. So we have to live with it. I thought actually his comments about memory and storage and it being a secular grower is sort of interesting because, again, they have exposure to AI, 5G data data center, and that sort of thing. So if this were to come down a lot more, I might take a look at it because the total addressable market is going to be a $332 billion total addressable market by 2030, up from $260 today. All right. Meanwhile, don't miss more

coverage from Davos tomorrow on CNBC, including Sarah's interview with Salesforce chairman and co-CEO Mark Benioff. That's at 10 a.m. Eastern time on Squawk on the Street. It has been a tough day and a month for retail stocks. The S&P retail ETF down more than 3 percent in today's session. The worst performer is Abercrombie after reporting an unexpected loss for the first quarter and giving a slower outlook. It is the latest retailer to get hit hard last week. So Target and Walmart sell off after a week of that expected results. Joining us now is Oppenheimer and company's Brian Nagel to talk about some of these trends. Brian,

good to speak with you. What's your main takeaway from, let's say, what Target, Walmart, Best Buy had to say? We knew there was going to be a shift away from goods purchases towards services. Obviously, there's inventory issues. And how is that filtered into your outlook? Well, good afternoon. Thanks for having me on. Look, I think Stephanie brought up the perfect point. And that's what's happening here is as the economy is moving away from the COVID-19 pandemic, consumer spending is shifting. You know, we we we start talking to our clients about this a couple years ago. We were obviously very early with the call, but nonetheless, it's happening.

And I think right now, from an investor standpoint, the market is very much on recession watch. And any signal of weakness from any retailer or brand is being taken as an indication the consumer is slowing but i oftentimes and as i'm looking at this data i think that at least initial interpretation is probably not correct but i think the underlying consumer here is in good shape but you're definitely seeing shifts in consumer spending as the economy moves away from the pandemic we see best buy actually able to stay green today. It's up about

one percent on the back of its results. And, you know, they were mixed, I suppose, but it's all about what was already priced into the stock down by nearly half. Is that encouraging at all? Does it imply something about how, you know, these stocks have already accounted for some of these issues? I think it does. You know, I think there's a lot now, I think, that's discounted in these stocks. I think, look, I looked at Best Buy and the note we put out to our clients. We basically said the title, it was soft, but it was very much better than feared. The big issue for Best Buy is they were here in Q1 of 22, you know, they were lapping an extraordinarily strong Q1 of 21, which was fueled by, you

know, you still had these trends, so to say, you know, the stay-at-home type trend was still in place, but probably more important than that was stimulus-fueled spending. You know, so on top of that, you know, Best Buy sales were weak, but they actually held up better than feared. Steph, I mean, as you pick through these, right, Target's gotten very little relief after its, you know, shocking drop on its news. You see Abercrombie today. Is there is you catching any of these falling knives, I guess, is the question. No, I'm not. I am. I mean, I own Target. I'm just going to let the dust settle on that one

because I think it's going to take them a time for them to kind of fix this inventory, 75 days of inventory. But who benefits from that is TJX. And that stock is still down 20 percent on the year, trades about 18 times earnings. They benefit from all of those excess inventory. And they had a very good quarter. And they actually raised their margin forecast because they have a pricing initiative underway that actually is working. And this is a treasure hunt, right? It's also a little bit of a reopen. People want to go to the store. And they do have housing exposure, which I also think will stay strong

and the comps will remain elevated. Brian, thanks a lot for joining us. Appreciate it. Travel stocks are significantly underperforming the broader market, and the cruise line stocks getting hit especially hard in all that. Seema Modi joins us. Seema, so why are travel stocks underperforming so much today? We thought this was a problem with good spending. Yeah, well, clearly not, Mike. Travel getting caught up in the broader sell-off and consumer-facing names. It follows that disappointing guidance from Best Buy and other retailers.

Even though Marriott's CEO told CBC today that bookings are holding up, it's a concern around what happens post-summer. Now, as you said, the cruise line's among the worst performers today. It's one of the reasons I'm told by sources that Carnival is in preliminary talks to sell one of its cruise brands. Seabourn, one suitor, is the Saudi Sovereign Wealth Fund, which currently has a 5% stake in Carnival. And it comes less than a week after the cruise operator raised about a billion dollars in debt at a yield of 10%, which did raise some eyebrows. You'll see shares of Carnival have dropped about 40% in the past three months. These stock prices can, of course, have an effect on the type of deals that come to market, Mike.

Yeah, absolutely. And as we've discussed several times, these companies have big balance sheet issues based on what they had to do to get through the pandemic. Steph, what about you? I mean, in terms of maybe some of the hotels or any of the other plays in here? Yeah, I wouldn't touch the cruise lines or the airlines, by the way. They both have balance sheet issues. But I do like something like Expedia or Bookings Holdings, where they are sold out. And they have been for quite a while. But I like Expedia because they actually have a margin recovery story as they cut costs and restructure the company. And then they eventually generate free cash flow. I think Marriott has held in remarkably well

in this downturn. Hilton is an interesting opportunity. I sold that higher a couple of months ago, but it's now down about 18 percent on the year. And they're doing all the right things and they're seeing fee growth. So and they have pricing power. So those are the areas that I would focus on less on the on the on the ships and the airlines. All right. Thanks to SEMA. Now, Steph, as we get toward the close here, you know, the bank stocks have held up OK. They were up four percent yesterday. They seem like maybe they have some traction. What other thoughts would you pull out of today's action? Yeah, I mean, it is encouraging. The banks have been like the second worst sector year to date.

So it was encouraging that people actually listened to what Jamie Dimon had to say, that the economy is quite strong. Brian Moynihan talked strength about the consumer, sort of the CEO of Citigroup. So I think that's definitely a place that you could see catch up trade. Remember, they're so tied to rates. And JP Morgan raised their net interest income numbers yesterday that the whole group is going to have to do the very same thing. Wells Fargo has the most exposure, Bank of America the second. So I still like the banks. That's where I'm overweight, a little bit overweight. I still like health care as a more defensive area as well. And I remain underweight in technology. Let the dust settle. It's going to take a while for those

to recover, I think. Anything to read from the reaction of Meta to the to the snap news here? It's trying to hold above its lows. Obviously, people have been saying for months that it looks inexpensive. Including me. I mean, I own it. I have been adding to it. I kind of think 14 times earnings, the stock is very earnings, you know, not price to sales. It's actually very, very cheap. And they have size and scale. They have two to three million daily active users, monthly active users. They grew those numbers sequentially last quarter. They're generating a lot of free cash flow, $48 billion in cash, by the way. So I kind of feel like if they can get reels right, and they have to get reels right, but it does sound like they're making some progress, and that's going to be a second half of this year.

So I'm staying patient with it. I do think for the long term, this will be a winner. All right, Steph, thank you very much. As we head toward the close, less than two minutes to go right here. Closing in on the highs of the day here, the advancing versus declining volume still skewed pretty far to the negative side, as often happens when you have an early sell-off. You've got basically two-to-one declining volume to advancing volume. We did have Treasuries rallying today, yields coming in. That's been a story the last few weeks.

Look at a month-to-date basis. The aggregate bond index has outperformed stocks by about five percentage points. A lot of talk going into month end that this might create a little bit of rotation toward equities out of fixed income, just based on monthly rebalancing. J.P. Morgan trying to make that case. And then the volatility index remains in this frustrating zone right around 30, not showing fresh alarm, but also not collapsing. So we're kind of stuck right here around these indecisive levels, I would argue. And as we get into the close, the Dow Jones Industrial Average

remains higher, just slightly. Some of the more defensive Dow stocks have been leading the way there, including McDonald's and UnitedHealth, Amgen, Procter & Gamble have been responsible for it. The S&P 500, I mentioned, has spent parts of four of the last nine days underneath the 3,900 level. We have not yet closed under there, not yet closed at a down 20% number either. And so that shows you perhaps there's a little bit of traction being attempted there or there's some program buying interest down in that level. But the Nasdaq composite really has not had very much relief. It's down 2.4 percent on the day.

It's on pace to close down more than 30 percent from its all-time high. And that would be a fresh low, not too many 30 percent declines in history out there. That's it for Closy Bell. I'm going to hand it on over to Scott for Overtime.