Closing Bell - Closing Bell: Late-day comeback for stocks, Buffett’s big stake in HP, and Levi’s CEO on consumer demand 4/7/22

Episode Date: April 7, 2022

Stocks staging a rally in the final hour of trading to snap a two-day losing streak. Allianz Chief Economic Advisor Mohamed El-Erian weighs in on the recent market volatility and whether stocks or bonds are more attractive right now. Levi Strauss CEO Chip Bergh says the denim maker has more price increases in the works and explains why he sees no signs of a consumer spending slowdown in the U.S. Bank of America Securities’ Wamsi Mohan explains why Warren Buffett’s big new stake in HP isn’t a game changer for the stock. And PIMCO portfolio manager Erin Brown lists the three sectors she thinks will outperform during earnings season.

We are in session highs after a big afternoon upturn here in the market. Most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Here's where we stand in the market. Very different picture than where we stood this morning. We're up half a percent on the S&P 500. The Nasdaq has gone positive as well.

It was lagging all day. It's up a quarter of a percent. The Dow is up 133 points. We were down 300 earlier today. Small caps are lagging, still in the red. But boy, what a turnaround just in the last hour or so. What's taking us higher? It's defensive still, healthcare staples, but you've also got financials just popping into the green, industrials too, and consumer discretionary. All doing well right now. Here are my top takeaways

on some big stories today. Berkshire Hathaway becoming the largest shareholder of HP with a $4.2 billion stake in the PC and printer maker, reflecting some Buffett-style attributes. Deep value, trades at eight to nine times projected earnings, yields 3%. And one thing to note, Buffett's own steady value portfolio has been performing well. Berkshire's up 15% this year with the market down 6%. So boring, low-value, cash-generating stocks are working better in this environment. And here's a chart for you for the moment. The size of the Fed's balance sheet compared to the S&P 500. We've got a very strong correlation here. And that makes sense, right? The market

loves liquidity and stimulus. As that rose, as the balance sheet ballooned to $9 trillion, so did the market. When it shrinks, though, the market struggles. Think 2018. The difference now, it is going to happen faster and more aggressively. That's what the Fed told us this week as it tries to tighten credit to fight inflation. Stocks may be in for a bumpy ride, and it's already been that way. Let's get to our top story of the day. The Nasdaq comeback, clawing its way back from a 1.4 percent decline earlier. It is still down about 2.5 percent on the week. Names like Datadog, NVIDIA, and Salesforce are down much more than that. So have we seen a bottom? Is there more pain and volatility to come within tech? Joining us, Mark Mahaney from Evercore ISI,

covers the stock, CNBC Senior Markets Commentator Mike Santoli, and CNBC's Christina Partsenevelos at the Nasdaq. Mike, though, kick it off with the turnaround that we have seen here, which now includes the Nasdaq 100 up about six tenths of a percent. Anything cause it? I didn't see a trigger, except for the fact that the S&P 500 spent a lot of time today and yesterday at the exact same levels. We did not break new lows. We're still talking about like a three, three and a half percent pullback from those highs. You know, the other piece of it that's a little bit hazier and bigger picture is that we've been inundated with so much hawkish Fed speak. We got more today. Yesterday, the minute there was no further ability of that talk in the short term to cost equities any further downside. So to me, it's much more about we've

sort of arrived at a place where we think we know what the Fed outlook is, gearing up for earnings. And, you know, the market bent in the short term, but didn't break. So are you saying it's all priced in? Really? I'm saying it's priced in for the moment based on where we see. I absolutely never know if there's a moment in time where it's fully priced in. But I feel as if the next six months, the next few meetings seem relatively clear. And just based on the circumstantial evidence of the market didn't go down further after we got all this detail. I mean, I'll just take that for what it's worth. OK, so Mark Mahaney has all of this crazy volatility and the underperformance of your group made you think differently about the stocks that you are

recommending to clients right now? I don't think so. I think I still want to be muted and cautious. And I want to stick with the consumer tech. I want to stick with the P.E. names, not the P.S. names. So the stocks that you can buy on price to earnings multiples, not the stocks that you have to buy on price to sales multiples because the futures are in the future. Well, then it's Google, Amazon, probably at the top of the list. Facebook actually should still be in there if you're a 12 month investor. And then I love this sector. And I know you don't like the term. I think I know you find it nerdy, but I like these Venn diagram stocks that are both high quality and they are recovery names. And that's booking and even an

Expedia names that have been bullet testedtested, battle-tested, bulletproof, battle-tested, balance sheets in business models. But we're clearly seeing a recovery in summer travel. Unless Russia-Ukraine takes it off the table in Western Europe, I hope that doesn't happen. I think you're going to have a really robust summer travel season. There's a way to play that. And I think some of those names like booking are a great way to do it. The booking CEO told us last week no resistance so far from consumers to higher prices for airlines and hotels.

Mark, I wanted to ask you about Amazon because I know it's one of your top picks. And it's been a little shaky. You know, today Barclays recommended Target as a defensive play if Americans are going to cut back on discretionary spending. Is Amazon that as well? How big of a component is the staples for Amazon buyers? Well, look, Amazon's more discretion than staples, but that's changed over the last five to 10 years. We've all kind of lived through that, if you will. Look at what's happened to your average Amazon bill. We've clearly brought in more staples into that. Why I like Amazon right here right now is that there are going to be top line issues.

Currency is a big issue across tech, no doubt about it. Weakness, consumer discretionary weakness may be in Western Europe. Inflation is an issue for retailers, no doubt about it. But I think Amazon still holds as a margin expansion story this year. If I'm right about that, that's the unlock on the stock. They freighted that expense, that P&L last year with so many one-time expenses related to COVID and supply chain inefficiencies. I think they've largely worked through. I think margins rise. I think the stock works. I also think that with that two years of massive investment that they put in their shipping infrastructure, I think we're finally going to see an R on all that I, a return on all

that investment. I love this concept of shipping elasticity. The faster they ship to you, I think the more people are going to buy from Amazon this year. So I like it fundamentally, and I think you've got a great value play, really, in the Internet space. Here's your chance, Amazon. Christina, while we're talking about opportunities here within the beaten-down tech sector, you flagged cyber and some of these stocks that have gotten mixed in with all the selling around technology and high-valuation companies. What are you hearing from the street on this group? You have a lot of people that are saying maybe it's a little bit

too low for the cyber stocks selling off, especially given the near term with tax on the horizon and the push into the cloud. So maybe it's oversold. I know some people are quoting Dan Ives because he put out a note saying that cyber is one to get into the same thing with software stocks. And maybe as a point when it comes to software is this big push. But to Mark's point right now that he just mentioned those Venn diagrams, those stocks that overlap, then that pretty much says companies like Datadog and the ones that aren't profitable, you need to get out of, right? Because these high flying growth stocks that we've been in and reaping the benefits for so long may no longer sustain. You want to move over to those large cap companies with free cash flows

that can play this volatility in the near term. So I don't know. I think maybe it was more of a question for Mark to stay away from these high-flying stocks because they don't overlap in your diagram. No, I think that that's the point. HP maybe, Christina? It's hardware, but steady cash flow. Warren Buffett likes it.

Okay, so then it's a value play like you mentioned, but HP is an excellent example. Where is this transition to software? Where is this transition to make chips? You could argue that HP has just fallen behind the curve. They need to speed up. They don't have the ecosystem like Apple does to keep the customers on par and locked into

their system. So it's a big question mark. Some people think it's a great value. Warren Buffett does, of course, and a lot of analysts. But long term, where's their transition? Right. Or maybe his deputies. We don't know. But either way, Berkshire Stocks shareholder, it's up 15 percent. Mark, Mike, Christina, thank you all for joining me with this rebound continuing up 150 on the Dow. Up after the break, Mohamed El-Erian weighing in on today's market comeback gives us his take on the hawkish turn we've seen from the Fed. Are they doing enough? He's been worrying about inflation for a while. You're watching Closing Bell on CNBC. Climbing session highs right now, Dow up 181.

We are looking at the best levels of session after we were down 300 at the lows. Today's stealth mover, Constellation Brands, the Modelo parent, near the top of the S&P 500 today. After earnings and revenue both topped estimates, beer was actually a bright spot. The company says distributor inventories have returned to more normal levels. Constellation also announcing a $500 million accelerated buyback. And that stock responding well, up 5%. Overall, big comeback today, but we're still pacing for losses on the week. This comes as we continue to hear much more hawkish commentary from Fed officials.

St. Louis Fed President Jim Bullard today saying that rates may still need to rise 300 basis points. We know he's a very hawkish of the hawks. Joining us now is Mohamed Al-Aryan. He's the president of Queens College, Cambridge, and advisor to Allianz and Gramercy. Always great to have you, Mohamed. I think the key question for equity investors right now is how much of this new tightening talk and plans, which is very hawkish, is already priced into the market. Bonds are getting it, but the S&P is only 6% off the highs. Is that priced in?

So I think stocks have been incredibly resilient. And there's several reasons why they've been more resilient than the fixed income market. One is they are comforted by the strength of the labor market. And we got another very strong jobless claims number today. Second, financial conditions haven't actually tightened that much, Seraf. As much as we talk about it, we still have very loose financial conditions overall. And third, where do you go? You may not like stocks, but they are the cleanest dirty shirt. Where else are you going to go? So for now, the resilience is totally understandable. I think the market is yet to fully grasp the extent to which the liquidity regime will change. Therefore, you've heard me say this is a good time to take some chips off the table. Take your chips off and move what,

to cash? To your point, where are you going to go? Move to the short end of the table. Take your chips off and move what, to cash? To your point, where are you going to go? Move to the short end of the curve. Take some chips off. Keep most of your exposure still in, but have some dry powder. We've seen the sorts of moves we can get. Look what happened to the Nasdaq earlier. So far, it's been all about interest rate risk, and the equity market has navigated that very well. But keep an eye on credit risk and liquidity risk, because those are much harder to navigate for equities. Are you talking about the trimming of the balance sheet? What was your reaction to what the Fed announced on that front and how the market could react? So I think the market is pricing in much more now QT. Two stands is an

example of that. The reversal there has been significant. You know, one trillion a year, which will not just be passive, there'll probably be an active part to it, is a significant number. So that's something that you've got to take into account. And the reality is we don't have a playbook for this. So we're going to have to stay incredibly got to take into account. And the reality is we don't have a playbook for this. So we're going to have to stay incredibly agile to navigate through it. You're sounding bearish, Mohamed. Are you in the recession camp? So you've known for a long time, I've warned that the longer the Fed is late and the Fed

is very late, the greater the risk that stagflation becomes the baseline, that the right tail of Goldilocks gets pushed way out and that recession develops into your left tail. And I think that's where we are. Stagflation, lower growth, persistently high inflation. That is not the baseline, unfortunately. It didn't need to be, but it is. And recession is a tail risk. That is not the baseline, unfortunately. It didn't need to be, but it is. And recession is a tail risk. It's not in my baseline, but it's certainly in

the distribution of possible outcomes. So do you think the risk at this point is that the Fed does more or less tightening than what the bond market is expecting right now? So if you put a gun to my head, OK, I would tell you the most likely outcome is that they will try to validate what's priced into the bond market. So they're going to slam on the brakes, including 50 basis points in March. In May, talk about 50 basis points again. Later in the year, they're going to realize that's too much. So they're going to loosen up again. And then they're going to tighten again in 2023. So I think you're most probably going to see a flip-flop.

They're going to try to validate what's in the marketplace, but then they're going to find that the real economy cannot absorb these tighter conditions. Maybe that's why the equity market has been so resilient, Mohamed, because it's looking on the other side of this, as Paul McCulley said yesterday, and it sees an easing and not a tightening

once they overdo it on the tightening. But remember, I said easing, then tightening again. Okay, you've got to get rid of the inflation issue. We cannot live with this inflation overhead. So, you know, I think there are easier reasons to explain why the equity as market has done very well. And most importantly, it is where else do you go, Sarah? You asked the question yourself. You're going to cash with inflation at 8 percent going to 10. You're going to bonds. Well, bonds are yielding more now.

They are yielding more, but that journey isn't finished. That journey is not finished. We've come from very repressed levels. This is payback for years of Fed intervention in markets and artificial valuations in the fixed income market. We haven't finished the repricing of the fixed income market yet. How high do you think the 10-year goes? I suspect you'll see another 25, 50 basis points. You'll see, but what I can't predict with confidence

is what the shape of the curve looks like. And at the end of the day, the shape is going to be as important as the levels. Right now, there's a price discovery process going in fixed income. Depending on which bit of the curve you're looking at, you get a different answer. There's also price discovery going on in the oil market. There's so much uncertainty about demand, about supply, about liquidity, that we are in discovery mode right now. Mohamed El-Erian, thank you very much. The right gas for the moment.

Advisor to Alianz. Let's check on the markets. We keep building on the gains. A stunning turnaround that we've seen. The Dow is near session highs, up half a percent. S&P 500 going strong now, up three quarters a percent. Most sectors turn green except for real estate, communication services, and. Small caps still lagging, but climbing toward the flat line and the Nasdaq building as well on the tech comeback up half a percent right now. Up next, banks turning higher

along with the rest of the market. We'll take a closer look at valuations in the sector as the firms gear up for earnings next week. Plus, check out shares of Levi giving up a post earnings pop after last night's results topped estimates. CEO Chip Berg will join us here at Post 9 to talk about the quarter and Wall Street's reaction. Bank stocks still under pressure this week. The KBW Bank's index down nearly 3% just since Monday. As the big firms are set to report results next week, Mike Santoli taking a closer look at bank valuations in the dashboard today.

Mike. Yes, Erin. The valuation specifically of the bellwether of the group, JPMorgan Chase, it's down more than 15% year to date. Obviously, concerns about investment banking and trading revenues on top of the whole credit story. The forward PE for JPM now is down around this sort of floor since 2019. You know, call it 12 times, a little bit under that. Obviously not as cheap as it has been at some points over the past seven years or so.

This down here, under 10 or so, was around that so-called diamond bottom where Jamie Dimon bought shares in the company and then the market and the stock shot up from there. Also, the dividend yield back above 3%. Obviously, this is the COVID crash when the yield shot higher because the stock crashed. But it does show you that some value is being rebuilt if you can have any confidence

about the outlook for the consumer and obviously markets in general, Sarah. Overall, financials have held up better than some of the other groups, down about 4% on the year. Mike, thanks. Up next, Levi Strauss CEO Chip Berg, fresh off earnings on what he's seeing from the consumer right now and how much flexibility he has to keep raising prices. Take a look at shares of Levi Strauss, initially higher after its earnings last night, beating expectations on the top and bottom lines. The stock, though, reversed course earlier today and is now rebounding but still lower. Joining me here at Post 9 is today's closer, Levi Strauss, CEO, Chip Berg.

Welcome. Nice to see you. The only person who's allowed to wear jeans to the stock exchange here. No, they changed the rules just for us. Just for the day. No, no, no. They took the sign down.

Oh, totally. Yeah, the sign is no longer at the door. Did not know that. It may come in in jeans tomorrow. That's right. You've got to be frustrated with the market reaction after putting up a quarter like this. Well, we're in it for the long haul.

And, you know, we've got a ton of confidence in the business. We had a very, very strong quarter. It's our first quarter, so the year is off to a good start. A lot of headwinds, a lot of uncertainty out there. But we, you know, we beat our own internal expectations. We also beat consensus across the board on every metric. And we maintain guidance despite all of the challenges and headwinds that we're facing.

Supply chain, costs. Supply chain, Russia, you know, there are a number of, and inflation, just cost inflation in general. Is all that getting worse, better, the same? Well, let's just say that there's still quite a bit of uncertainty. But this company has a track record of navigating through the uncertainty really, really well.

When we gave guidance at the beginning of the fiscal year, the war wasn't happening in Ukraine. We've seen costs get a little bit more challenging over the last couple of months. Cotton is continuing to go up. And, you know, the macro picture is a little bit more uncertain today than it was three months ago. But despite all of those challenges, we've held our guidance in part because of the strength of our brand. I mean, the Levi's brand today, I've been saying for probably two years that the brand has never been stronger. I think I can say confidently now the brand is the strongest that it has ever been. And you see that in our gross margins, record gross margins of 59.4%. And it's because pricing is sticking.

Will you continue to raise prices? We have more price increases baked into our plan. We don't have our head in the sand. We're watching the consumer very closely, but the consumer is robust right now here in the U.S. Demand is very strong on a global basis. We've got a big global footprint and our business is healthy across all regions of the world. So we've got confidence that we can continue to take prices if needed to offset continued cost pressure. Your stock took a hit and a lot of the retail stocks

took a hit today after the Macy's CFO, you can blame him, made some comments at a JP Morgan conference where you were suggesting maybe at the lower end of the income scale consumers might opt for spending on travel and vacations and services instead of at department stores on clothing. Have you seen anything like that? No, and in fact, MasterCard released data today that suggests, and they said in their release,

that the consumer is still very robust, very healthy here in the U.S. We haven't seen any evidence of any softening of demand here in the U.S. And in fact, we were in our New York sales office yesterday, and I was talking with a couple of the sales folks and demand remains really, really strong. And I think it gets back to the point that Levi's is such a strong brand. We're not seeing our open to buy budgets getting cut by our key customers. We're seeing demand in our own store being very, very robust. The brand is hot and consumers are willing to pay higher prices. Our business

was up 22 percent this last quarter. Half of that was through pricing. The other half was through unit growth. So demand is not abating, despite the fact that we've been successful passing along pricing. Well, I think one thing that's helped has been the denim cycle, right? We all threw out our jeans after the pandemic, threw out the skinny jeans, have to get mom jeans and taper jeans and flare jeans. How long does that kind of thing last? So you're right. There are two tailwinds that are really helping our business.

One is this continuization of casualization. So the casualization dynamic, which used to be just a U.S. phenomenon, is now a global phenomenon. That is a tailwind. And then the second thing is we led a new denim trend to these looser, baggier fits, which is the new style. Unlike the last big trend, which was skinny jeans, skinny jeans was really a women's business dynamic. The new denim cycle cuts across both men's and women's business, this looser, baggier fit. The last cycle lasted over a decade. I'm not going to predict that this is going to go a decade, but there's still a lot of momentum behind this new denim cycle. It gives consumers,

as we come out of the pandemic, a reason to go update their wardrobe, a reason to go out and buy. That combined with casualization and economies starting to reopen, people going back to concerts, going back to parties, going out for dinner, you know, that's driving consumption. Really quickly, any softness in Europe or China?

Because you are global. I know you pulled out of Russia, but there are more concerns about the global economy than even the U.S. So China is soft right now because they're dealing with COVID and the number of the big cities in China are shut down or locked down. We have about 60 doors in China that are closed right now. So China is very soft. And in fact, since the beginning of the pandemic, we haven't seen traffic return to normal levels in China and still off pretty significantly versus pre-pandemic levels. But for us, China is a relatively small part of our business, only about 3% of total revenues. We haven't pulled out of China, out of Russia yet. We've

temporarily suspended our commercial operations there. But that also is a small part of our business, 2%. Western Europe, which is a good chunk of our business, is very, very healthy. And it's because, again, the brand is resonating there with the consumer. Stock is maybe off the lows, still lower, given the forecast you had. I'm sure you're puzzled by that reaction. Give it time. I've got a lot of confidence in the long term of this business, the strength of the brand, the strength of our portfolio. We're going to be just fine. Now may be a good time to buy.

Schoenberg, CEO of Levi Strauss. Thank you. Nice to see you. Thank you, Sarah. Inflation taking a bite out of ConAgra's earnings and guidance, despite price increases. Up next, the big picture on why that could be a big warning sign for investors in food stocks. We'll be right back. Dow's up 157, building on those gains into the close. The big picture today is ConAgra, the stock only slightly higher after some earlier losses. In big picture, we try to glean a macro message from a stock story. And this one is inflation, taking a bite out of earnings,

out of the economy, and it's getting worse for the food companies. ConAgra is the one behind Slim Jim's and Duncan Hines and Frozen Foods Company, Marie Callender's. It had a good quarter because it was able to pass along higher prices. But ConAgra is saying it now expects gross inflation to rise 16 percent. That is up from 14 percent for the year and lowered its earnings expectations as a result. Conagra Company did say that it would pass on higher prices to consumers, but that would take time. The bottom line, inflation is wreaking havoc. And just because companies do have pricing power and see a stronger consumer, it's still a major increasing cost for these firms, not just consumers. If the stock does close higher, it could be a signal that investors

are looking past it and see a peak. Don't miss the CEO, Sean Connolly, of ConAgra on Mad Money tonight. When we come back, we'll get another read on inflation and consumer spending tomorrow when we speak exclusively with, not tomorrow, that is, with Chipotle CEO, Brian Nicol.

When we come back, shares of HP surging today after Warren Buffett's Berkshire Hathaway takes a big stake in the company. We'll talk about the move with an analyst who has an underperformed rating on that stock, which is soaring today. That story and more when we go inside the Market Zone. Plus, during April, we are celebrating Financial Literacy Month. Here is CNBC.com contributor Jim Laventhal on what financial literacy means to him. Financial literacy to me means that an investor understands not just the potential returns from an investment, but the risks.

And when I say investment, it could be more than just a stock or a bond. It could be an entire investment plan, an entire asset allocation. But it's very important that an investor through financial literacy understands the returns and the risks that are inherent in any

investment. Eighteen minutes left in the trading day we are now in the closing bell market zone. High tower chief investment strategist Stephanie Link here to break down these crucial moments of the trading day with us. Plus, Bank of America's Wamsi Mohan on Warren Buffett's new stake in HP and PIMCO's Erin Brown on three sectors she's bullish on right now heading into earnings. Let's kick it off with a broader market. What a comeback in the final hour of trade. Or just before that, we saw stocks turn around and go higher after being deep in the final hour of trade, or just before that, we saw stocks turn around and go higher after

being deep in the red. The Dow was down 300 points. NASDAQ was down 1.4 percent at the low. It is now firmly higher. The S&P is up three quarters of one percent, and the NASDAQ is gaining ground to the tune of half a percent. Stephanie Link from Hightower, where she's the chief investment strategist, joins us now. I don't know what's more impressive, the resilience that we've seen in the stock market, given everything the Fed has thrown at us, or just these crazy swings and the magnitude of the declines and the losses and the volatility stuff. Yeah, no, I mean, we're in a trading range market, and it's going to be this way for some time. And it's really because we just have so many unknowns to deal with. I mean, this week,

it really has been focused on a very aggressive Fed. But we have unknowns to deal with. I mean, this week, it really has been focused on a very aggressive Fed. But we have had to deal with inflation and still the war is in the background, too, which shouldn't be because we know we're one headline away from the market spiking up or down, depending on progress, if they make any. But I think with regards to the Fed, I mean, they know they're behind the curve and they're acting like they should. They should have done this 15 months ago. Sarah, you know that we've been talking about they're acting like they should. They should have done this 15 months ago. Sarah, you know that we've been talking about that for that long. So if you add up what they're talking about doing all together, the balance sheet runoff, as well as the 11 rate hikes, that gets you to a Fed funds of about 3.5 percent, 3.7 percent by the end of next year.

Anything can happen between now and the end of next year. Anything could happen between now and the end of next year. Anything could happen between now and the end of 22. But I will tell you that I think 2022 is fine and that we're not going to be in a recession. I don't think that the 11 hikes that the Fed is planning on doing, nor the balance sheet runoff, is going to slow inflation. How do you slow inflation when you have health care inflation and you have education inflation. Rates are not going to change that by anything. So maybe they'll be able to impact housing, maybe somewhat on auto. I doubt that as well. And I also don't think that the rate hikes are going to lead to a lot slower growth because you still have a lot of momentum in the economy. You have great jobs, good jolts

numbers, and you have the services part of the economy doing very, very well. If you look across the spectrum in the jobs market, services are coming back. In the nonfarm payroll numbers, you saw it. In the ADP report, you saw it. In the ISMs, you saw it as well. So that's 70 percent of the economy, and that needs to stay strong. And I think you're just beginning because that's travel, leisure, hospitality, et cetera, et cetera. Russell 2000 just went positive, by the way, the small caps joining the other three major averages. Steph, just to play devil's advocate and take the other side of the argument, the way they get at it with higher rates is is by demand. They weaken demand. And that is something that is expected in this economy. And if you look at cyclical parts of the market, the transport's just the latest, the airlines, the retail stocks, some of the consumer electronics.

You like cyclical groups. These groups have not been performing well, and they are signaling economic weakness. Do you stick with them? I do like cyclical groups, but, you know, I've been talking about this for the last two months that I have absolutely balanced my portfolio to have some of the cyclicals, especially reopen names, Sarah, because I really believe in that theme. I just mentioned services. But I also have been buying some of the defensive growth names, some of the staple like names that you know so well. McDonald's, you know, I own and I've owned it forever. Coke as well. TJX is acting better. Target, my well, McDonald's, you know, I own and I've owned it forever.

Coke as well. TJX is acting better. Target, my goodness. But those are slowdown stocks. Isn't that why they're doing well? Well, I don't know if Target is a slowdown stock. I mean, I really don't. But the point of it is, is I think you're going to have to be more balanced. I do not think you're going to see a recession. And that's why I don't want to be overweight all of these cyclicals. But I do want to have some exposure to them because I don't think you're going to see a recession. And that's why I don't want to be overweight all of these cyclicals. But I do want to have some exposure to them because I don't think you're going to see, again, recession. You're going to see slower growth, in my opinion. And I think the consumer will surprise to the to the upside. Fifty five percent of Target purchases are discretionary, according to Barclays today. So it's a good question. Steph, stick around if you would

want to hit HP because it is surging today after Warren Buffett's Berkshire Hathaway revealed it has purchased a $4.2 billion stake in that company, about 11 percent, becoming the largest shareholder in HP. HP releasing a statement about the Berkshire stake saying today Berkshire Hathaway is one of the world's most respected investors and we welcome them as an investor in HP Inc. Let's bring in Wamsi Mohan, Bank of America Securities Senior Analyst. Wamsi, does this change the thesis at all? I know you have not been a big fan of HP. Yeah, thanks for having me, Sarah. No, this really is not a thesis changer. When you look at HP, this is a stock that has held in extremely well because of the fact that they were a huge pandemic beneficiary. You saw a big uptick in both PC spend. You also saw a disproportionate amount of value come from the hardware side within printing, which is very unusual. In fact, if you go back in time, PCs were 25% of profit. Through the

pandemic, they became 40% of the profit. Now, there's going to be some mean reversion on this. We fully expect PC trends to start to decelerate. We've already seen that on the consumer side of things. We think it could even percolate to enterprise over time. Spending on the print side has been, you know, it's mixed, right? Like you're back to the office for toner, but at the same time, you have a lot more of the higher profit margin ink at home that's going to come under pressure. So we think the earning stream itself is going to renormalize lower. And that's what keeps us cautious on HP, despite the fact that obviously Warren Buffett is taking the stake in the company. But Wamsi, the counter argument, isn't that already in the price? The valuation on this stock is pretty low.

Both Dell and HP have been driven lower even lately on concern about enterprise spending. So is that not already there and what you're left with is. A strong cash generating for value tech stock. Which is why it might be appealing to a Berkshire Hathaway but also appealing in

this kind of environment. Yes it's a great question and and if you look at Sarah like what the free cash flow generation has been they're tracking about five billion dollars or so in free cash flow can that be rate lower to four five? I think that that's not in consensus numbers. I don't think it's even in the buy-set estimates at this point in time. The reason that the multiple

in the stock has been so low over time is because the people don't have the confidence entirely that this company will be able to alleviate and walk through some of the secular pressures that they have. But that said, I think that some of what is reflected in valuation is a slowdown on the PC side. What is not reflected in valuation are more dire scenarios of a larger slowdown, either in PCs or on the print side. So free cash flow goes between $4 and $5 billion. The rate and pace of buybacks has to come down. The capital return cannot sustain $7 billion every year. They're not saying that it's going to sustain that in the near term. And going into next year, since they've already done this

acquisition of Poly that's underway, it's going to leave even lesser room for capital return. So the capital return thesis is predicated on strong free cash flow. PCs turn negative with a negative free cash conversion cycle. For the cash conversion cycle that's negative, that puts even more pressure on the free cash flow. PCs turn negative with a negative free cash conversion cycle. For the cash conversion cycle that's negative, that puts even more pressure on the capital return story. Wamsi, taking the other side of the Berkshire buy today. Thank you for joining us with the $33 price target on HP. Let's go to the other side of the tech spectrum. Talk fintech because names in the space are well off their worst levels of the session,

but it has certainly been a rough week for these stocks. Affirm, Toast, SoFi, all down double digits. Kate Rooney caught up with Kathy Wood earlier at the Bitcoin 2020 conference in Miami and discussed, Kate, her positioning within broader fintech. What did you learn? That's right, Sarah. Yeah, Kathy Wood still very bullish on fintech. She's bullish on Bitcoin itself and Block in particular, formerly known as Square. It's ARK's sixth largest holding. At the conference, Block's cash app announcing it would let customers invest their paychecks directly into Bitcoin, as well as implementing something called the Lightning Network for instant transfers.

But Cathie Wood, not as bullish on another fintech name, ARK recently selling all of its PayPal holdings. Wood says PayPal may still be one of the winners in fintech for the long term, but she says ARK analysts had a lot more conviction on Block, in part because of Bitcoin. I think the way Cash App is growing organically, as opposed to more of a top down, let's get this thing moving stretch, stretch, stretch. I think there's an organic movement. I think it's going to be fired up now by Bitcoin. She compared ARK to a publicly traded venture capital fund. She says it's very much a long term bet. And the retail crowd tends to understand that vision better than institutional investors, as she put it.

And regardless of ARK and the ETF's underperformance this year, Wood is still very much a celebrity with his Bitcoin crowd here. People were lining up for selfies with Cathie Wood before we started the interview. There was a line of 10 or 12 people really looking to meet the great Cathie Wood. Back to you, Sarah. That's funny. Good color on that. Kate, is she still planning to launch,

isn't she launching a Bitcoin ETF of her own? Bitcoin ETF. That has hit a couple road bumps. We talked a little bit about Gary Gensler, and she actually had some compliments for Gensler, and she was on stage with the CEO of MicroStrategy talking about the idea that he's actually been a good thing for Bitcoin because he's provided some clarity. Not as much on the ETF side.

They're looking to launch a spot ETF. That seems to still be a ways away. It's looking more like the futures ETFs or the near-term thing. But she's still very much hopeful for an eventual ETF. But no progress to speak of quite yet. Kate Rooney, thank you. And Miami for the big Bitcoin conference. Stocks continue to steam here as we go into the close after two straight days of selling. This as earnings season kicks off next week. Joining us now, Aaron Brown, PIMCO Managing Director and Portfolio

Manager. Take your pick because there's been a lot of damage, Erin. Which sector setup do you like the best heading into earnings? Right. Well, firstly, I think that earnings really is going to be the pivotal key for markets as we look forward. Right now, we're at a really inflection point for stocks. And I think stocks are waiting to see how much has the bite from higher energy, higher food cost inflation really hit the bottom line, as well as how companies are managing to deal through this sort of conflict and much more challenging operating environment in terms of demand and whether there's been any signs of demand destruction thus far. So I think what you want to focus on right now is first companies that are not big, that don't have commodities and food costs as big inputs into their costs.

And secondly, being really focused on which can continue to drive demand in a difficult environment. And so I'm focused on companies that have high free cash flow growths, really solid balance sheets, are a little bit more defensive in nature and are not as cyclical. And I think large cap tech does really well as a screen, as well as the health care sector, which has really been forgotten about for several quarters. And I think you'll start to see that really shine and outperform as we move through the rest of this year, particularly into first quarter earnings season. The other sort of angle that I continue to want to own in my portfolio is commodity exposure. So being long commodity inputters.

So examples of that are energy and MLPs as well as copper names as well that I think will really stand to benefit from continued appreciation of the underlying commodity. So large cap tech, health care and energy. Got it. The only the only question I would have, Erin, is is this a market that is going to be driven by earnings? I look at what happened with Levi's today. They put up really good numbers and did not change guidance. They reaffirmed it despite the worsening inflation picture and all the headlines, headwinds on the supply chain. I just heard from him, no slowdown in consumer demand in the U.S. and not even in Europe. And yet the stock is lower because macro headlines and concerns about economic slowdown. So is that

just going to be pervasive despite what we hear from the companies, which so far you haven't heard a lot of slowdown type commentary from companies? I think that's right. But I think the market is also discounting what the forward estimates are and projections are of corporate managers, because in the past we found that a lot of times companies are the last to be able to see, you know, the writing on the walls. And so I think for certain sectors where you have, where everyone knows that there's really high input costs and that they're going to hit and that they're exposed to the consumer, which is waning, particularly on the low end side,

I think the market is going to allow the macro to drive the narrative as opposed to corporates driving that narrative. But I do think that earnings will be important, particularly for differentiation. And particularly as we start to see more names and more companies report and we get a broader macro narrative being driven by corporates as opposed to one-offs. Erin Brown, thank you very much. Just want to point out the Nasdaq, we're losing a little bit of steam heading back toward the flatline. Dow also lost a chunk of its gains, up 91 points, remains positive.

Keep an eye on it as we head into the close. We're also watching EV stocks. Senior officials at the White House hosting major auto leaders yesterday, and that includes Tesla's Elon Musk. That's a first. Also, Mary Barra was there from GM. The administration saying there was a broad consensus that charging stations and vehicles need to provide a seamless user experience, regardless of which brand or car that you have. Let's bring in Phil LeBeau now. Phil, how important is the building out of the charging network, and what can the federal government do about it? Oh, it's critical, Sarah, because what the biggest impediment is to mass adoption of EVs is people realizing,

A, if they go somewhere, they can do a charge, hopefully a quick charge at some point in the future. And B, you need more vehicles, more EVs out there so that the cost comes down. That's not going to happen unless the federal government continues to pump money into the EV infrastructure. Charging stations is one way that they can work with the automakers and say, where do we need them? How quickly can we get them installed? And let's make sure that regardless of the model you're driving, you can use that charging station. Phil, you also drove the Hummer last week. Got to ask you about it. What was your impression and how big it can be for GM when it comes to EVs? It could be a real halo vehicle. In other words, it could be a vehicle that makes people say, wow, GM can compete with Tesla when it comes to EVs.

Look, it's impressive. It has the acceleration, the performance, the power, everything you're looking for. And it's a true off-road truck. I mean, if you wanted to do bouldering to go out into the mountains, into the desert areas out in Arizona like we did, you can do that. They realize, however, most people are going to be driving this in the suburbs. It's a pricey EV, but it's an EV that they believe can turn heads and they believe that it has momentum. Phil LeBeau. Phil, thank you. Just two minutes to go before the bell. Hightower Stephanie Link

is still with us. And Steph, let's stick with the autos for a second. If you look at a Ford, for instance, which is a really popular stock for retail investors, it's lost so much of those gains, the EV hype gains that it had over the last year, which just shows really how painful this correction has been. We talk a lot about tech and the Nasdaq and the index holding up. But, I mean, take a look at a company like Ford. Just how much is priced in here in terms of tightening Fed, weakening economy? Yeah, they're always cheap.

That's the issue with these companies because they're very cyclical. And up until recently, they haven't been able to execute. They're getting so much better at executing. They do have great long-term stories within an EV. But that's more of a speculation kind of a play. And that's not what this market wants right now. Sarah, the big news next week, earnings and inflation. So we have banks that report they're at 30 RSIs right now.

They're down 10 to 20 percent year to date. Like the setup there, CPI, PPI, retail sales. It's going to be a really busy week. And you're sticking with the cyclical and big cap tech sort of defensive theme and some staples in there as well. That's the link portfolio. The link portfolio is barbell. Absolutely. I think that's the way to go for now. Got it. Stephanie Link, thank you from Hightower. As we head into the close, take a look at the Dow. We're still up 94 points or so. We've lost a little bit of steam, but not too far off the session highs.

What's working today and taking the Dow up higher? Names like UnitedHealthcare, Stephanie Link, favorite in healthcare. Home Depot, which is coming back. It's had a rough ride lately. McDonald's. So it's still pretty defensive as opposed to cyclical. Visa, Goldman Sachs and Honeywell, the biggest drags on the Dow. S&P 500 showing some strength here in this final hour of trade. Still up about four tenths of one percent. Health care is your leading sector, along with energy staples, materials, consumer discretionary, technology and financials. So a recovery here off the worst levels. And for some of those hit groups, real estate, the worst performing sector, the Nasdaq also recovers barely positive on the day. but that is a big comeback from where we were

at one point down 1.4%. That's it for me in closing bell everyone. See you tomorrow.