Closing Bell - Closing Bell: Market Comeback, Micron's Mess & Link's Top Pick 7/1/22

Episode Date: July 1, 2022

Stocks storming back after early session losses following the worst first half of the year since 1970. Bespoke's Paul Hickey warns the Fed's aggressive rate hikes into a slowing economy is a bad recipe for investors. Bank of America Securities' Vivek Arya discusses his downgrade of chipmaker Micron following the company's weak Q4 guidance and what it means for the rest of the semiconductor stocks. Wells Fargo Investment Institute Sr. Global Market Strategist Scott Wren says investors should be buying long-term exposure to tech stocks on any pullbacks. Hightower Chief Investment Strategist Stephanie Link says Meta is her top pick for the second half because of its compelling risk/reward scenario. And Former Ford CEO Mark Fields explains why a recession will not hurt the automakers as badly as past economic downturns.

Stocks kick off the second half the same way they ended the first with more volatility. The Dow trading in a 500 point range at the high end of that range as we head towards the close. The most important hour trading starts right now. Welcome to the closing bell. I'm Melissa Lee in today for Sarah Eisen. Let's get a check on where we stand in the markets. Right now we're pretty close to session highs in the S&P 500. 3812 is your level there, up by 0.7%. The way we are moving, though, it's a defensive tilt to the market. We've got consumer staples as well as utilities leading the way. Check out the 10-year yield, same sort of theme there. We've got a pullback in yields today, another sharp one, falling well below 3% to its lowest level since May. In fact, for the week, yields have gone down 23.6 basis points, a stunning move. We'll be all over the market action throughout today's show with analysis and ideas for the second half of the year. And also ahead, we will talk to former Ford CEO Mark Fields about today's auto sales numbers and how rising rates are impacting car buyers nationwide. Let's get to our top story,

though. Warning signs on Wall Street. Micron shares plunging after raising the alarm about slowing demand. It is the latest company to warn on earnings. Nike, RH, GM and more anticipating pressure in their next quarter or the back half of the year. And according to a Reuters report, Meta Platform CEO Mark Zuckerberg plans to cut hiring engineers by 30 percent this year as he cautioned employees about an economic downturn. Zuckerberg saying in a Q&A session, if I had to bet, I'd say this might be one of the worst downturns that we've seen in recent history. Joining us now is Paul Hickey from Bespoke Investment Group and CNBC's senior markets commentator, Mike Santoli. Good to see you both. Paul, I'll kick it off with you. You know, we're just sort of on the precipice of

earnings season. And right now, estimates are pretty much either higher or the same level as they were at the beginning of the year. And so there's a lot of wood to chop here going forward. We're just getting a taste of it right now with the companies that I just mentioned. Yeah. So, I mean, I think the last two weeks investors have been looking forward to this coming earnings season. You know, they're just waiting to watch the disaster waiting to happen, it seems. The overall top line numbers haven't been lowered that much. But we have seen more companies get their numbers cut by analysts over the last month heading into earnings season than we have seen numbers raised. And it's in a higher rate of downward revisions than we've seen in the last few quarters. And then if you also look at just the month of June, it's a small sample size, but we've had 21 companies report earnings.

Over 80% have beat EPS forecasts and 80% have beat revenue forecasts. That's the good news. So they've lived up to what analysts were looking for. Guidance has been weak, like you were just talking about in the intro. But we've seen four companies report that have lowered or five companies after Micron that have lowered guidance and two that have raised guidance. But we've actually seen 10 companies reiterate their guidance. So it's not all that bad. I mean, I don't know what the rest of the companies are going to report this coming earnings season, but we were just down 15 percent last quarter. And that market declined, you know, partially because the Fed becoming more aggressive. But it wasn't because of nothing. You know, investors have seen a slower economy.

Two weeks ago, the Fed said that activity appeared to be picking up versus the first quarter. And ever since then, all we've seen are pretty much weaker than expected. Economic reports saw Zuckerberg talking about the worst downturns in recent history. The Fed, Atlanta Fed GDP now report 2.1 percent decline in the second quarter. That doesn't look like picking up. So I think people have adjusted to the diminished expectations in the last two weeks, I think. I think, Mike, what's scary or what feels different about this in these warnings that we've gotten recently is that how close they've come after the companies either

address investors and or gave them guidance. So, for instance, Micron. Micron came out yesterday, adjusted their guidance. They just talked to investors at the beginning of June. Right. RH, it was 28, 27 days later that they cut their guidance. Microsoft, it was a few weeks later. Target, it was a few weeks later. It seems like it's on repeat. It does. I mean, part of that is a relatively sudden stall in consumer demand, obviously reacting to shifting their spending priorities around with inflation,

but also trying to rationalize this whipsaw in inventories that we've seen, whether it's been overordering in semiconductors, whether it was Target thinking that the boom in hard goods was going to be there. So I do think that the interesting issue is how the market has reckoned with some of that already. So if you look at Micron, it was an awful revenue warning. Yeah. And it's down 3 percent. And the stock was down 40% before it coming in. So if that gets repeated in some fashion across the board, it means, well, all the bad stuff wasn't priced in, but a lot of it was. And I think that's what the market's struggling with, is we've been

kind of leaning in this direction of feeling as if things were at stall speed. And we're just not sure if it's going to tip over into outright recession and even what kind of recession that might be. Yeah. And to Mike's point about the inventory issue, the inventory overhang that companies are working through. I mean, Paul, maybe the hope is it's going to be more like GM, where they cut their revenue and profit guidance for the current quarter. But for the backup, they're basically maintaining it for the second half of the year because they think that all those cars that are sitting there waiting for chips to be installed into them so they can get off the lot, that those will clear by the end of the year. And maybe there's that hope that that work through can in fact happen in the back half. Yeah, I mean, so I think companies are dealing with a picture

that they've never had to experience and that no one, frankly, has experienced. I mean, the situation is just so, you know, changing by the day as far as inventory numbers, you know, what supplies are coming in, what's not, what orders are getting changed. You know, I think this coming season, again, it's going to we're looking forward to it, you know, some maybe recognition by the Fed that maybe they are seeing inflation expectations and some signs of inflation in the pipeline lessening. And it's really it may not even matter what these companies report as long as we, you know, because right now investors are so concerned that the Fed is just pedal to the metal, even as the economy is slowing down. And there's a big, you know, when you have the Fed coming one way and the economy pointing the other, that's not a good, very good recipe for things. But if they start to recognize that more, I think, you know, we'll have a we can have a better, more relaxed outlook.

Right. At the same time, we have the overlay of rates subsiding, yields subsiding, Mike. And that really has helped us here stabilize at least. I mean, 3.8? I mean, who would have thought? 2.8. Yeah, absolutely. I mean, that's how fast it's gone. It was 3.5 a couple of weeks ago with a 10-year yield. Now we're at 2.8 or so. And a month or two ago, you would have said all we really need is oil to stop making new highs, gasoline prices come off the boil, and we see yields back up and we'd be fine. Well, obviously, that has come along with or because of some of the slowdown fears. So it's not as if there's kind of an easy off ramp to these concerns. But to Paul's point, most of the financial condition tightening has happened because of what the Fed has said it is going to do. And that's not that hard to double back on if we get to that point

at some, you know, sometime soon. You think we will? No, I don't. I don't think it'll be. I don't think it'll be an overt signal soon. Yeah, but it could be the market kind of struggling in that direction and and maybe trying to over anticipate it a little bit. I think that's there's a chance of that if it's going to be needed. Paul, which sectors need to see the most estimates cut, do you think? Well, as far as numbers getting cut, I mean, I think you have some of these high growth stocks are going to have to see their numbers come in, come in a little bit here. Retail is an interesting issue because the inventory overhangs don't appear to be getting much better, as what we heard from Coles earlier. So I think analysts, but they have been lowering forecasts in these sectors as well.

I think it's more about the expectations game and heading into earnings season, you still have very high expectations for the energy sector. Analysts have been tripping over themselves to raise forecasts in that sector. So I think that's something to look for as these companies report going forward. But as far as looking at the economy again, the Fed, they became much more aggressive because the UMich report, which was revised away, and now the Atlanta Fed GDP model from their own Atlanta Fed district is anticipating 2.1 percent decline in growth in Q2. So that's an acceleration of the contraction versus Q1, not an acceleration of growth. So I think they should start recognizing that pretty soon, I would I would hope. And, you know, the piece of it with Mark Zuckerberg talking about a downturn,

that's the piece of it that's hard to model out based on the economic data or advertising, because Meta is a company that can afford to carry as many employees as it feels like it wants. It can afford it. If they decide the tide has turned and it's basically, you know, we have to rationalize the workforce. Let's get this thing in the correct cost structure to what we are expecting going forward and take the opportunity to kind of winnow the workforce down and be a little more conservative. That's the part of it that you don't really know. That's kind of vibes, and that's just sort of this collective herd mentality of getting away from labor scarcity

towards saying austerity or something close to it. Yeah, which Netflix has done, right? They've done that already. So we've heard it many times so far. Paul Hickey, Mike Santoli, thank you both. Happy Fourth. Happy Fourth. Coming up, a rising race in high gas prices, putting the brakes on auto sales.

We'll ask former Ford CEO Mark Fields right after this break. You're watching Closing Bell on CNBC. Let's check out today's stealth mover, Duck Creek Technologies. Bank of America downgrading the property and casualty insurance software company to neutral from buy, slashing the price target of 16 from 39. Following disappointing fourth quarter and full year guidance, that stock is down three and a quarter percent today. U.S. auto sales out today. GM reporting a 15 percent drop in sales in the second quarter from a year ago. The company also warning investors supply chain would impact its second quarter earnings,

but it is maintaining its previous guidance for full year 2022. For more on auto sales and the state of the auto industry, let's bring in Mark Fields, former Ford CEO. Mark, great to have you with us. Hi, Melissa. Hi, I'm hoping that you can help me understand what GM is saying. And I know that you come from Ford, but I'm sure the dynamics of the industry are similar. Basically, there are all these cars on a lot somewhere and they're waiting for chips because of the supply chain issues. They can't get the chips to install into these cars. They can move them off the lot.

Are these cars all spoken for? Are they paid for? Are they guaranteed sales? Yeah, I think for the most part, you're seeing a very high percentage of sales from dealers now that are pre-sold. All you have to do is talk to any amount of dealers. As soon as the vehicles show up on the car transports, they're gone. I also think GM is saying, listen, it's not only a microchip shortage. There are a whole host of components that are gummed up in the supply chain right now, whether it's because of the COVID shutdowns in Shanghai or the strikes that are happening at ports in Europe.

This is going to be a continual problem, and it's just not microchips. But I think importantly, what GM is saying, they're maintaining, my interpretation of what they're saying is they're maintaining their profit forecast. Because of the tight inventory, average selling prices remain extremely high because of the pent-up demand and the very low amount of incentives, historically low amount of incentives that they're spending. Right. I want to get your take on where you think we are in the U.S. economy in terms of the recession as it relates to automakers. I mean, right now there are great fears about recession. We're seeing it play out in the markets. We're seeing it play out in the treasury market at this point. And there is a thought that by the time the

automakers can get their supply chain issues straightened out, that the demand won't be there anymore. What do you think about the timing of things when it comes to this economic cycle, when you juxtapose that with where the supply chain issues are right now? Yeah, it's a great question. First off, I think we're in an unprecedented time in the auto industry because usually when you're going into a recession, whether we're in one or not, it doesn't matter. I think psychologically, kind of people think we are right now, despite what the numbers say. But nonetheless, it's unprecedented in which you have very strong demand going into a recession for auto. And the reason for that is because of the last two years of

supply chain issues, in an average recession, the industry drops about 20% in volume. Well, guess what? Over the last two years, because of the supply chain, the industry volume has dropped around 20%. So you've already seen inventory come down or volume come down. Inventories are very low. So even if we start to see some demand erosion because of the high gas prices or the higher interest rates or the lower consumer confidence, the car industry still needs to restock from this last two years. So any degree of recession will be more muted than it has been in the past for the industry. And then once we get through the recession, you're going to have probably three to four million units of pent-up demand that are out

there. And so following the recession, however light or severe it will be, will be a very good time for the auto industry. I want to ask you about valuations in the sector. I mean, the valuation just bombed out, I mean, just to put it bluntly, Ford specifically, 3.9 is a current PE. The forward is 5.8. The five-year average is 38. What do you think these stocks are pricing in at these valuations, Mark? Well, I think the valuations are unduly depressed right now because I think a lot of investors are keeping in mind how the auto industry has performed in previous economic slowdowns. As I said earlier, I think we're in an unprecedented slowdown here with very positive implications for the auto industry. I also think the second thing is they're looking at the industry's transformation in

introducing electric vehicles, and they're looking at the very strong increases in the elements, lithium, cobalt, all the input costs for those vehicles. And so the question is, right now you have in the EV market, supply is now a greater constraint than demand in the market. The question is, once they're able to actually get supply up, what does it mean for margins? Because in the auto industry, they're great at working scale economies. Guess what? For elements, they don great at working scale economies. Guess what? For elements, they don't respond to scale economies. Lithium, cobalt are going to be what the market says.

So they're going to have to look at other ways in their operations to improve the overall margins in their EVs. But I think that's what the markets are looking at. And that's what I wanted to ask you because this is supposed to be the growth engines. This is in part why Ford, specifically GM, more broadly the auto industry, got re-rated higher at one point because of the grand EV ambitions. Right now, those profit margins look really in danger. Lithium is up 500 percent over the past year. Nickel is up over 30 percent. The Ford F-150 Lightning, the margin is razor thin, Mark.

Where can the efficiencies be gotten? And how long will that take? Will that only happen with scale? And so therefore, it will only happen with time. Well, I think it'll happen a couple of ways. First, as you're seeing with the automakers right now, they're pulling the pricing lever because they can. So you've seen multiple price increases from Tesla. You've seen price increases from Ford and GM, with the exception of their Bolt, because they want to show some traction with their EVs. They're under pressure for that. But I think first and foremost, they're going to continue to pull the pricing lever until they see demand evening out.

Secondly, to your point, they're going to have to look at all the elements that they usually do to drive cost efficiencies in the auto industry. In the case of electric vehicles, it's working on the battery packs, working on the things like the inverters and the motors and using their scale economies to drive down those costs. The one that's not going to move is the elements, as we were talking about earlier, because that is going to be what the market's going to be. And those don't reduce and cost scale economies and respond to scale economies in the auto industry. So they're going to have to continue to look at ways that the battery chemistry to try and reduce those elements, just like they did previously with catalytic converters and reducing the amount of palladium. So I think you'll see progress, but it's going to take time. Okay. Mark, great to have you. Thank you. Thanks, Melissa. Mark Fields, let's check on the markets right now. Higher on this first

trading session of the first, second half of the year. Let's get that straight. S&P 500, just a couple of points off the session highs, 3814 usual level, up by 0.8%. After the break, a pulse check on the consumer will break down the action in staples versus discretionary stocks, plus new details on Sam Bankman-Fried's latest acquisition in the crypto space. And as we head to break, check out some of today's top search tickers on CNBC.com. Ten-year yields still getting the most interest, followed by Apple, the S&P 500, Tesla and Kohl's. We'll be right back. Sam Bankman-Fried's FTX is making a big acquisition in the crypto space.

Kate Rooney's got the details. Kate. Hey, Melissa. FTX and BlockFi officially striking a deal. FTX now has the option to acquire BlockFi at a maximum price of $240 million. That's based on certain performance targets, no word on a minimum price. It also includes an increase in the lending facility. FTX, if you remember, had loaned BlockFi $250 million. That's bumping up now to $400 million, also saying that it hasn't drawn on that credit facility yet. We reported yesterday that this deal was going to be signed by the end of the week.

One source telling me that the price tag could have been as low as $25 million, which the CEO of BlockFi did push back on. Either way, not a great outcome for equity investors, even if the deal were to get done here at the high end is still a fraction of what the company was worth at its last private funding round. That was around $4.8 billion, according to PitchBook. I'm also told venture capital investors are taking some pretty big losses here, and they're writing down the value of that investment. We also got some news last hour that one of BlockFi's major competitors, Voyager, is temporarily suspending trading deposits, withdrawals and then loyalty rewards as well.

That was effective as of 2 p.m. Eastern today. Latest company, guys, to do so. We had Celsius freezing deposits a couple of weeks ago. But more issues here we're seeing in the crypto space. Back to you. All right. Kate, thank you. Kate Rooney.

Let's get to today's market dashboard. Mike Santoli is back taking a look at consumer stocks. Mike. Yeah. Big change, Melissa, over the last two years. This is consumer discretionary relative to consumer staples. This is an equal-weighted version of either of those sectors. If you look at the market cap versions, consumer discretionary is like 40% Amazon and Tesla.

Consumer staples is 40% P&G, Coke, and Pepsi. This is equal-weighted, so it's a much clearer view of the overall sector. Remember two years ago, that was the early stages of the first reopening excitement that we got after the pandemic. So you did see discretionary really surge, depressed earnings. The results were coming back strong. Consumers have money to spend. Now it's been a complete round trip. They have now converged. And of course, consumer staples living up to their reputation for stability and boredom. And that's actually done okay in the last couple of years. Take a look here at the valuations of the same two baskets. Forward price earnings multiple for each one.

There's been an inversion here, right? We've gone from, oh, close to 28 times earnings. This goes back to the end of 2020. So this is only like 15 months ago or so, down to about under 14. Now, the consumer discretionary sector has not spent an awful lot of time below 14 over the last, let's say, six or eight years. Yes, you've gotten below there in late 2018, but it just shows to the point we were making earlier, Melissa, that essentially the market has been leaning in this direction for a while of saying, look, the earnings are probably in

question for a lot of cyclical groups. Obviously, we don't know if the market is fully accounted for all of that. All right, Mike, thanks. Mike Santoli. Up next, Wells Fargo's Scott Wren reveals the second half playbook and the beaten down sector he thinks investors should be adding long term exposure to. And don't miss the outlook for cryptocurrencies in the second half of the year during a CNBC special report, Crypto Night in America, coming up 6 p.m. Eastern Time right after Fast Money. Thank you. Hi, Melissa. Hi there. So energy, we've seen a pullback more recently just because the trajectory at which energy stocks rose was extremely sharp. You, though, think that energy ultimately will still be a winner? It was an extremely sharp increase, Melissa, but we do think that the energy sector still has some legs. We think oil prices are still going to stay high. We've got a $100

target for the end of this year, $110 for the end of next year. So basically, we don't think there's a lot of downside in the oil market. The demand is there. The earnings and cash flow of these companies are good. So we continue to like energy. I want to ask you about the recent decline that we've seen in the 10-year yield and what you think is behind it. We've seen a decline in a single week of almost 24 basis points, which is a very sharp move in one week. And I'm wondering if that changes the backdrop for equities in any way. Well, I think that equities are more worried about how aggressive the Fed is going to be.

And let's face it, the bond market's been pretty wild here, whether it's on the way up or, you know, the bid that we've seen that brought yields down. I think the market, the bond market anyway, at least when I look at it, it's saying, you know, inflation is not going to be a longer term problem. There's some flight to safety there because there's a lot of people on the recession train now and that growth is going to be a longer-term problem. There's some flight to safety there because there's a lot of people on the recession train now, and the growth is going to slow. So I think there's some buyers in there at yields that we hadn't seen for a while. And I will say our fixed income group, when the yield was closer to 320, they brought up to neutral a very underweight position that we had been carrying in long-term fixed income. So I think there's been a lot of interest at the yields that we have seen recently,

but certainly there's some safe haven buying going on here and just looking for some slower growth. Right. In addition to energy, like healthcare and information technology with a focus on big caps and the market cap of these stocks and quality for information technology with a focus on big caps, so the market cap of these stocks, and quality. For information technology, what source of information technology are you looking for? We already got a negative data point from Micron, which you can argue would apply to a lot of the semiconductor industry. And then for a lot of the online sort of commerce names and online ad names, I mean, those are very highly correlated, the revenues are, to GDP, which might be slowly. Yeah, I think that, you know, certainly tech's been hit harder than the S&P 500 overall. And

you have to ask yourself, is this an opportunity or is there something there? And we do think it's an opportunity. You know, if you have a 12, 24, 30-plus month kind of timeframe horizon, we think you need to be in here buying these names, these quality names. And that's a word people use all the time. But for us, it means good balance sheets, good cash flow, easy access to credit, buying back shares, lots of products, all those kinds of things. So that's what it means for us. We think the earnings growth rates are still going to be good. They tend to be less cyclical. We don't have a lot of interest in companies that aren't making money and don't

have cash flow. But if you look at technology, things that deal with automation, things that deal with efficiencies, companies know that these labor shortages that are out there are not going away anytime soon. And they're looking for ways to make up for that to some extent. So I think those automation and efficiency areas and technology, those are good ones to take a look at. Scott, great to see you. Thank you. Scott Renn, Wells Fargo. Have a good weekend. You too. Let's take a look at where we stand in the markets. We're actually very close to session highs in the S&P 500. We're up almost a full percentage point as we head into this close.

The Dow is up by more than 300 points right now. Kohl's calling off sales talks with Franchise Group. And the retailer stock is getting hit hard. The latest details on what is next for Kohl's when Closing Bell returns. coal shares getting crushed today after announcing it has ended sale talks with franchise group today on squawk box the retailer's chairman explained why he and ceo michelle gas abandoned those talks we both felt that the price offered was too low and that we also believe did not have conviction that that transaction could actually close. The complexity of the financing involved, the lack of commitment papers that we received, frankly, even with that transaction,

led us to believe, and certainly in this environment, that we were actually trying to catch a snowball going down a hill. CNBC.com's Lauren Thomas broke the news of the deal falling apart. She joins us now. What's next, Lauren? Yeah, that's a great question. I think that's a question that a lot of people are wondering as we kind of have this culmination of what's been a month's long, back and forth between Kohl's and potential bidders.

Of course, ultimately, Franchise Group rose as the top bidder, and now we're learning that that has fallen through. Kohl's has said that, for the most part, its long-term strategy, including Sephora, Shop and Shops, at Kohl's, and this partnership with Amazon, all of that will remain intact. Of course, this company still has to navigate a lot of uncertainty in the near term, particularly as we roll through the back to school season and the upcoming holiday season and these larger inventory issues that retailers are facing. You know, Kohl's is not immune to any of that. So I think that the, you know, the pressure will certainly be on Michelle Goss, certainly after the company has gone through this process, maybe has a bit more to prove for itself. One thing that I think will be most interesting to watch, and we have a separate story up on CNBC right now, about the fact that the retailer now says that a real estate sale is potentially on the table and it's something that the board is actively reevaluating. Kohl's had

previously said that it was really opposed to selling a lot of its real estate and then leasing it back as a way to come up with extra capital. But we have seen activists really put on the pressure in recent months for Kohl's to do such a deal. That was going to be part of this franchise group agreement. Franchise group wanted to come in and sell a lot of real estate. So I think it's likely that the company ultimately maybe was able to learn the value of what it could get for some of its stores and distribution centers. So that's something to watch. And I think that could come more imminently. And, you know, over the long term, we'll have to see how Kohl's performs from here. All right, Lauren, thanks. Lauren Thomas, cbc.com. Micron dragging down the chips after issuing a weak sales outlook. Up next, an analyst who just downgraded Micron

to neutral and cut his price target on the stock. That story, plus the outlook for fintechs and banks in the second bell market zone. Hightower Chief Investment Strategist Stephanie Link is here to break down these crucial moments of the trading day. Plus, Bank of America Securities' Vivek Arya on his Micron downgrade and Kate Rooney on FinTech's. Markets fairly range-bound today in the first trading day of the second half of the year and also before a long holiday weekend. Steph, we had a big decline in the 10 year yield. We're at session highs in the S&P. What are you watching here? Well, the good news is that the first half of the year is over. The bad news is that we still don't have a lot of visibility in terms of the things that got us down 20 percent for the first half of the year. It's inflation, it's the Fed,

it's, I don't know, is it recession? Is it a slowdown? Is it stagflation? But all of these things are still top of mind, and I don't think they're going away anytime soon. And Melissa, I really was disappointed in the economic data both yesterday and today. The core PCE numbered the deflator at 4.8%, sorry, 4.7%. Even though it was down from the prior reading, it's still a ways to go from the Fed's goal of 2%. And of course, you got the ISM number. And even though it was expansionary, the new order number fell into contraction. And new orders we know are leading indicators for earnings and CapEx.

This is not stuff we don't really are surprised about, but it is certainly something to watch. So now the Fed has to tighten into a slowing economy. And now we have and then we have to get through the nonfarm payroll numbers next week. And then we have to get through earnings, which is going to be, I think, a very wild ride. I don't think you're going to see really big disappointments in demand, maybe certain sectors like we saw in semiconductors. But I do think we're going to have to get through this cost inflation and supply chain issues. All right, let's get to Micron shares. They are slumping today in the back of their forecast.

The company issuing weak Q4 guidance with the CEO Sanjay Mehrotra saying smartphone and PC sales will decline meaningfully this year. Joining us now for more is B of A, a security senior, semiconductor analyst Vivek Arya. He downgraded the stock to a neutral from an overweight while trimming the price target to 62 bucks. Vivek, great to have you with us. Thank you, Melissa. How are you? Good. Do you think this reset is big enough for Micron? I mean, what's interesting, what I thought was interesting about this was that we just heard from the company at an investor

conference at the beginning of the month, and then here at the end of the month, we're seeing the guidance being cut, citing deteriorating conditions effectively. Yeah, Melissa, so the message here is that the semiconductor industry is finally feeling the heat of the cycle, that the downturn started on the consumer side in PCs, partly because of the tougher compares from when everyone bought a lot of PCs during the lockdowns. So PC market was going to inevitably slow down, but it's slowing down much faster. And then the smartphone market started to slow down, partly because of the turmoil we have in Europe, partly because of the pressure that the consumer is under, and then the lockdowns in China.

And some of that consumer weakness is starting to now spill over into parts of the enterprise data center and eventually some of the auto and industrial markets. So as we are starting to see the rollover in these different end markets, you're seeing different companies start to express that caution as Micron has done. So this is a painful but necessary adjustment process. And I would say the silver lining is that we are now starting to get to a point where consensus expectations for next year will start to maybe over-reflect that downturn. And that is usually the point at which these stocks start to

bottom. So we are cautious on demand, but I would say we are actually incrementally a little more positive on some of the semiconductor stocks as this process works its way through the system. Steph, the read-through is not for an Intel. The read through is not good for AMD and certainly not good for chip equipment stocks. Where do you stand on the sector? Yeah, nor is it good for lab research or applied materials, and they're getting hit the hardest, right? So yeah, it's the whole food chain within semis. I don't own any semis. I sold all of my semi names about two months ago because I was afraid of the potential to see double and triple ordering. And I think that that's what you're seeing.

And today, not only is it Micron, but it's TSMC that's saying that orders are slowing. And that has big, big implications as well. So for now, I think we just stay away, get through earnings. I do agree that maybe we're getting closer to the bottom because these things are already down 30, 40, 50%. But I would pick my spots carefully. Broadcom is a name I have my eye on, but I've owned Lam Research in the past as well as NXPI. And those are names that are starting to get,

at least on the valuation side, more interesting. We just got to get through the E part of the earnings and the valuation story. Vivek, how can we think about the double ordering issue that so many investors are concerned about and that maybe when that's all through, on the other side of it, demand is even weaker than what we're seeing right now? Sure. So, I think there are pockets of semiconductors where there could be double ordering risks.

These tend to be exposed more on the commodity side. So, for example, memory, there are greater double ordering risks because you can exchange between products from different suppliers. But there are other parts of the semiconductor market, such as in cloud, such as in parts of enterprise, such as in semi-cap equipment, where it is harder to double order. But still, the demand outlook from a number of those customers was based upon the assumption of a certain macroeconomic outlook. The semiconductor industry doesn't operate in vacuum.

It is exposed to a certain broader macroeconomic environment, and that environment is being influenced by the decisions of the Fed, by what's happening in Europe and what's happening in China. So the industry is trying to adjust to what that new outlook is. And I think that is really what's showing up in the estimate reductions with these companies. But I agree with what Stephanie also mentioned, that in some cases, the estimate reductions and especially the PE multiples are now getting to a point where they have corrected more than what we have seen in prior downturns.

So it's a matter of waiting for the catalyst when these macro forces start to at least stabilize or abate. I think that's the point that these semiconductor stocks will become a lot more attractive going into next year. All right. Vivek, thanks for joining us. Appreciate it. Vivek Arya. Thank you. And a reminder, don't miss Micron CEO Sanjay Marotra Tuesday on Squawk on the Street. All right, a number of analysts publishing their best ideas list for the second half. We've got a few standouts for you. Deutsche Bank highlighting several names it says are near bottoming out, like Las Vegas Sands, American Express, and Amazon. The bank also says Honeywell and Uber

will be resilient in a recession. Over at Bank of America, top ideas include Kroger, Meta, and Pfizer. Steph, you had a couple of them, American Express and Meta. I want to talk about Meta first. It is a market underperformer today. It has been a market underperformer for a while. And we got this warning from Mark Zuckerberg about some fierce headwinds. Yeah, it's been a really hard stock to own. I've been totally wrong. So just to throw it out there, it's a humbling business and you've got to call it a spade a sp wrong. So just to throw it out there as a humbling business and you've got to call it a spade a spade. So the stock is down now 53 percent year to date. It trades at eleven point nine times earnings. I do think earnings have been reset,

though. I think they're also there are areas within Meta that they can cut costs and it clearly they're going to cut headcount. But there's other things that they can do as well. And recall last quarter they did lower their OPEX guidance for the full year. There's a good chance they can do it again. In the meantime, you've got two to three billion monthly average users, daily average users. You've got size, scale, 10 million advertisers. ROIs are still very attractive in digital advertising. Even if that slows, it's better than traditional advertising. They got a boatload of cash. They're buying back stock. I think they're going to fix reels and that will be your cattles. But that's not until maybe back half of the year, fourth quarter kind of thing. So I'm sticking with that. I'm

staying patient. I just think the risk reward from here is too compelling. And AXP, we've talked about this before. I mean, being so exposed to travel and that bouncing back, is that still the driver? Yeah, I mean, like they've done a really good job in terms of card growth and new customer acquisitions, meaning the millennials and Gen X's, Gen Z's are signing up faster than expected. It was actually 60 percent of their card growth. So they're broadening out their customer base. Fee growth is actually on the rise. And the balance sheet is still very good. Net charge offsoffs actually fell in May year over year.

Delinquencies were flat year over year in May. Now, that might change. It's probably going to change for all of the financials. But I think they're so well capitalized at this point in time. And the stock trades at 14 times earnings. So I still like this one. I would be a buyer on weakness. But, again, waiting for the earnings. And if you get a drop on earnings, that's that's when I buy more.

All right. Let's get to fintech here. The Wall Street Journal is reporting. Buy now, pay later. Provider Klarna is nearing a deal to raise six hundred and fifty million dollars from existing investors that values the company at roughly six and a half billion dollars. That's a huge decline. It's nearly forty six billion dollar valuation a year ago and shows just how rough the environment has been for fintech stocks this year. Kate Rooney joins us. Kate, buy now, pay later seems to be one of the worst performing groups right now. What are some of the themes within fintech that analysts may be a little more optimistic about? Yeah, Melissa, lending has been by far the toughest sector within fintech, especially buy now, pay later.

Dan Dolev of Mizuho told me that he really sees valuations right now pricing in what he called an apocalypse in consumer credit. So anything other than that in the second half could result in some upside. The other thing people are focused on in Wall Street in particular, profits. So any company with free cash flow, more established companies, PayPal would be a name in that category. And then Block as well, formerly Square, depending on who you ask. But that name has gotten beat up a bit more than the others and some of its peers because of its association with cryptocurrencies. Coinbase, of course, another crypto proxy, but has a lot of cash on its balance sheet. That seems to be

what people are focused on right now. Six point five billion dollars in cash, potentially in a good position to ride out this storm. Robinhood as well, a name people are focused on right now, $6.5 billion in cash, potentially in a good position to ride out this storm. Robinhood as well, a name people are focused on. I'm told there may be an artificial floor on some of these fintech names because they're now seen as M&A targets, Robinhood being one of the big ones there. So the risk reward looking slightly better for a lot of these fintechs as multiples come down. Melissa. I don't know, a thesis of it might be bought doesn't seem like a good one, a reason to own a stock. Steph, do you like any of these fintech names? Oh, no, definitely, definitely not. Not when I have something like a Bank of America,

which has just spent $30 billion in technology over the last decade, and it doesn't get really any credit for it. So I'd rather own the financials, and we're going to talk about them in a little bit, but I'd rather own the financials that have earnings, that have cheap valuations, good capital ratios and positioning. All right. Thanks a lot, Kate Rooney. Meantime, closely watched bank analyst Mike Mayo from Wells Fargo out with a big call on the banks, Mayo lowering price targets across the entire sector, citing tough year-on-year comps, weak investor sentiment, and the marks to book value. But Mayo does say regional banks should fare better than Wall Street banks while keeping Bank of America as a top pick. What's your top pick, Steph, in the banking sector?

Well, after the capital tests, the stress tests, I think Morgan Stanley was the winner, hands down, in terms of then turning around and increasing their buyback and the dividend. The only company to do both, by the way. So they really look like a shining star. But I like what they've done in terms of the M&A and really diversifying away from the yield curve. Sure, they still have exposure to the yield curve, but much less with E-Trade and Eat

and Dance. And you're going to see synergies there. And they just continue to have excellent, flawless execution. And the stock trades at 11 times earnings, and it's going to yield 4 percent. So that one I like. I like the turnaround in Wells Fargo. And also, I mentioned Bank of America is the hidden fintech play. Are there any banks that we're talking about right now, Seth, you know, institutional banks that could add a fintech company? We were just talking about fintech. Is there sort of a, I don't know, a matchup that you see in the cards, possibly? I mean, it's possible, but I still look at these valuations, though, Melissa,

and they're still pretty high. And what do you get for them, right? You've got kind of a declining sub base, if you will. So I think that these companies have all been investing in technology. I think, again, Bank of America is the standout. And so they can make a tuck in, but they have such size and scale now that they can just grow de novo what they have. So I don't necessarily see an M&A situation, maybe a one-off, but they've already been making so many small acquisitions and, again, some really good growth initiatives on this front. You mentioned Morgan Stanley in the context of diversifying away from the yield curve, and that does look like where the strength in the banking sector right now is, the companies that are not dependent on loans, they're not dependent on deposits. And they can sort of trade. They can do other things away from that all. And I'm wondering

if there is another bank that might fit that in your view. Well, and that's why Morgan Stanley has an ROTCE of 20 percent and their target is 20 low 20s right for the next couple of years. Look, I think everyone seems to be kind of piling on Goldman. Goldman is actually much cheaper than Morgan Stanley. And they will they, too, have kind of been diversifying. I mean, Marcus is still so small for them, but perhaps maybe they do something there or continue to build it out. But, you know, these two companies, I think, are going to do better than the traditional banks. That being said, the 10 year started the year at 151. And even though the 10 years now at 288, that's stillyear started the year at 151. And even though

the 10-year is now at 288, that's still a big move. And so the net interest income numbers are going to be the bright spot, I think, for those traditional banks. For example, Wells Fargo, net interest income there for every 50 basis point move in the Fed funds, that's 16 percent to earnings and 7 percent to net interest income. So that's a big beneficiary. And they've done a good job in terms of cost cutting on the side. So I think we don't want to be too negative on the banks, especially when these stocks are trading at one times book or less. I'm going to say goodbye to you and have a good weekend, Steph. Before you go, what's your top pick going into the second half? Just one ticker. Give me a ticker or sector.

Let's go with meta. Why not? It's down so much. I mean, I think the sector is energy, the stock is meta. How's that? Okay, excellent. Steph, have a great weekend. Thank you.

You too. All right, we're close to the close here on the first trading session of the second half of the year. We're close to session highs right now. Leadership coming from consumer discretionary right now up by almost 2%, as well as utilities up 2.5%. Again, the move on the 10-year yield for the week has been stunning. Down about 24 basis points in a single week as we close this session out. That's the S&P 500 closing out a 1% gain on this Friday.

I'll see you tonight on Fast Money at 5. Meantime, let's send it over to the overtime with Mike Santoli.