Closing Bell - Closing Bell Overtime: The Countdown to Big Tech 7/25/22

Episode Date: July 25, 2022

Big tech earnings kick off tomorrow… but what could it mean for the broad market? Avery Sheffield of Vantage Rock gives her forecast. Plus, Walmart cut it guidance and it sent the stock free-falling in Overtime. Instant analysis to that big move – and what it could mean for the rest of retail. And, the Fed in focus ahead of this week’s crucial decision. Nancy Davis of Quadratics breaks down how she is trading the volatility.

All right, Sarah, thank you very much. Welcome, everybody, to Overtime. I'm Scott Wapney. You just heard the bells. We're just getting started right here at Post 9 at the New York Stock Exchange. Coming up, I'll speak exclusively with Quadratics' Nancy Davis on what's in store for volatility this week, given all that lies ahead, including a market-moving Fed meeting, those important earnings reports we've been telling you about. And speaking of, NXP's numbers, they are imminent. Going to give us a good read into the chip space and the health of the auto industry, since a big part of their business goes there. Jim Labenthal joins us with his instant reaction since he owns the stock, as many of you know. We begin, though, with our talk of the tape, the countdown to big tech earnings, which begin in less than 24 hours right here in overtime. Will they confirm this rally or challenge it? Let's ask Avery Sheffield, senior portfolio manager of Vantage Rock, part of Rockefeller Asset Management. And she is here with me at Post Night. It's good to see you again.

Great to see you. It's about to get real, isn't it? Yes, absolutely. So tell me how you're feeling going into this really pivotal week. Yes. So, I mean, I think like we've discussed about before, I think what really makes sense is just to pay attention to the fundamentals and what's really priced into the stocks. Right. So I think there are potentially some of these tech companies that might, you know, disappoint, but are going to be less vulnerable because

they're already pretty cheap, like on fundamental basis. And others where I'd be just much more cautious. Can they afford to disappoint after the kind of run they've had from the low in June? I'd say the stocks that have had a run, I don't think can afford to disappoint. I mean, Snap's earnings last week really gave us a preview of what might be ahead, I think, for many companies. Oh, you think that? You were shaken a little bit by what they reported? I mean, I was worried, I mean, for them, that it might be disappointing.

I mean, so, yes, I think Snap is potentially like the canary in the coal mine or like a warning for many companies that have been driven by narrative for many years, not ever have a proven business model, and seem to be such like secular share gainers that they wouldn't be economically sensitive. And many of these companies have benefited by, I'd say, a largely momentum-driven rally since the June lows. And I think that there are going to be other companies with a similar profile to Snap that could have very significant downside because of that setup.

But you're not talking about the Alphabets, the Microsofts, the Amazons and the Apples, are you? Right. So, well, certainly I'd say, you know, an Alphabet, which we're much more constructive on relative to all those other names, is going to be, you know, in a much better position because it's actually not that expensive of a stock, right? Certainly could see some near-term weakness, but this is a company that is not anywhere in the froth land. You know, Microsoft, certainly a stock to own for the long term. They've already signaled some economic weakness. I don't know. Valuations a little higher might be a little bit more challenging. Some of the other names, you know, I'd potentially be more cautious on,

just given the level of enthusiasm I think it's priced in. So we're seeing that NXP, guys, is out, which just lets you know that Christina Partsenevelis is going through that. And I'm going to jump to her at the minute that she's ready to rock and roll here. But this is a good read, as I've been telling all of you about, not only the health of the chip space, but the auto business. 50% of their business goes there. You can see shares right now are trying to figure out which direction they really want to go.

We'll have more on that coming up. This sort of your headline is that the bottom may actually be in unless the caveat is, of course, unless we have some big recession. Right. Well, I think that this can be a bifurcated market. I think the bottom might be in certain stocks, but is nowhere in others. So it's this actually could end up being one of the most dynamic earnings seasons we've seen in a long time, because we do have very beaten up, you call it traditional more value stocks and consumer discretionary and other sectors that are trading like there's going to be quite a recession ahead. People are thinking, oh, 2019 earnings isn't a good baseline because consumers have inflationary pressure, so they're going to have less discretionary spending. Costs are up higher. Well, that's what's already in the price of these stocks.

And so I think, you know, again, a kind of a potential signal of what might be to come from any consumer discretionary stocks was Bath & Body Works, kind of the mall-based retailers report last Thursday morning, right? They reported, they guided, they pre-released a guy down 30% in earnings. Yet the stock was up on the dayreleased, they guided down 30% in earnings. Yet the stock was up on the day. The stock was up over 20% last week. Why? Because the stock had been trading at eight times the earnings expectations going into that print. It's still at 12 times, right? This is not that expensive. And so I think that is potentially emblematic of what we might see for a host of really beaten up cheap companies that actually have real business models and are facing some cyclical pressure.

We've spoken to you about, you know, various retailers in the past. I mean, how are you assessing right now the consumer? Are you concerned about the consumer in the months ahead because inflation remains high? Absolutely. Even if it's peaked? Yes, yes. No, I'm definitely concerned about the consumer ahead. And it's really just a question of what's priced in.

But the other factor that I've been really thinking about and spoke about with Mike in June was that if inflation has peaked, consumers might have reacted very strongly in June and into July by the shock of gas prices, the shock of food. But as those start to come off, and actually there's survey data that just came out yesterday that UBS released showing that consumers are actually showing signs that they're seeing inflation might be a little bit lower than it was before, right? So if you combine, like if that might then lead to like a little bit more spending than people were anticipating, survey data is showing that consumers are planning to spend more on back to school, planning to spend more on holiday in these categories despite being under pressure. So if you combine that with the potential that also supply chain, well, we do know that supply

chain pressures aren't easy, right? Container ship rates are down. Trucking spot rates are down. Even the contracted rates are still high. A year from now, these companies might have less pressure. The consumer might not be as bad as we think. And they're being priced for quite a significant downturn. Yeah. I mean, speaking of the consumer, you mentioned AT&T with me here back in April. Yes. Yes. And they are negative. At least if you listen to what they said about people putting off paying their bills. Absolutely. Were you taken by that? Yes. So, look, it was concerning to see a company like AT&T with a service that is basically essential living in our modern economy, see people paying their bills two days later in general than they had anticipated and that having an impact on free cash flow. That was concerning.

Verizon did not see the same dynamics, although maybe they saw it, but they didn't need to talk about it because they had other things working well with their free cash flow. We don't know. But, yes, it shows that I think the weakness in the consumer is likely to impact everyone. Now, AT&T is a cheap stock. It was a cheap stock. It's still a cheap stock. It's even cheaper.

It's cheaper. It's cheaper. Down 10%. Look, AT&T might be, it's certainly signaling that there could be some, that the weakness of the consumer might affect everyone. No one is immune. But the stock's reaction I don't think was that as much as the free cash flow in general. Really disappointed. People have been looking for a nice acceleration next year. The truth is it's pretty cheap on new free cash flow guidance.

And I think one thing that might be misunderstood in the wireless space, in AT&T in particular, is that people are very worried about the promotional intensity. Well, they actually said that they did not promote as much their competition. And they actually had the second highest net ads that they've had in 10 years. Their ARPU is up. Like, their revenue is up. The fundamental metrics were fine. The real issue was, one, this extending payments out by two days. We know in the great financial crisis, people paid their wireless bills. Well, sure. But of course, like, two days becomes four days, becomes four weeks, becomes... Hold your thought real quick. Let me go to Christina,

who has more on NXP, which I told you all is out. Yeah, it's out. And there was a small revenue beat. Revenue came in at $3.31 billion, slightly higher than the street anticipated. We can't compare EPS, but that was $2.53. Gross margins, though, for Q2 came in line for NXP as well. Revenue guidance for Q3 was slightly higher, $3.34 billion. So just a little bit higher than what the street anticipated. But there was an interesting quote from the CEO in the press release saying, quote, customer demand within the auto and

industrial as well as internet of things and markets continues to exceed our incrementally improving supply, even as we adjust or risk adjust our long term orders. Again, this is a point that we wanted to focus on, given that NXP has over 50 percent exposure to the auto sector. So the CEO saying that demand is still strong and their supply is improving. Back with you, Scott. It goes, Christina, to I guess you could call it some of the optimism that was going into the report in that they're in the right areas. They're in autos. They're in industrial rather than, say, heavy on PCs, heavy on mobile, heavy on the consumer. Right. That's exactly that's a great point. However, there is there's been questions around the exposure to EV.

So NXP is still building exposure to the electric vehicle market. Just last week, they announced a partnership with Foxconn, great assembler for Apple products, and they're working on EV platforms. So this is an opportunity for even NXP that already has exposure to autos to even broaden that to focus solely, or more so, on EV sales.

So this is a good move from them. And we don't often hear about EV comments and the auto comments. But in this report, we're finally getting some commentary on it. All right. Good stuff. Christina, thanks so much. That's Christina Partsenevel. It's really on the case there with NXP. And I told you, Jim Labenthal is coming up in just a little bit. He owns the stock. He talked about it in halftime today going in. Let's find out what he thinks going out. What do you think about the chips? Because there's a good battleground argument seemingly every day about the chips. Yes. Well, I think NXPI, to your point, is in one of the better spaces, right? We know that the auto production

is increasing, so they're in a better place than others. And, you know, and they're not as expensive of a stock as some of the other chip manufacturers. So again, like chips as in other areas, you still have some chip manufacturers that are quite expensive, more exposed to those areas that, you know, could be experiencing more of a pullback in demand. So I think we could see very different reactions to the different chip manufacturers. Yeah, I think you're right. Let's broaden the conversation, if we could, and bring in now CNBC contributor Brenda Vangelo of Sandhill Global Advisors, Eugene Proffitt of Proffitt Investments. Great to have both of you with us. Brenda, I'm going to go to you first. Sandhill Global Advisors, you're right of Profit Investments. Great to have both of you with us. Brenda, I'm going to go to you first. Sandhill Global Advisors, you're right in the heart of the valley, Silicon, that is. What are your expectations for these big text earnings this

week and the importance that they not only, you know, are OK, but now that the bar has been raised because of what the stock has done? Yeah, I think it just differs by company. Certainly after snaps reported last week, I think expectations for digital ad spend are probably pretty low at this point. But we also have to consider the different players in that market and the fact that that market has certainly matured. It's become the overwhelming majority of where ad dollars go. So it's going to grow more like the industry overall. And that means that in a period of economic slowing, everyone's probably going to hurt. But I do think that, you know, both Google and Meta remain in our view more relevant as a step in that space,

especially for advertisers when they're looking to spend dollars. But I think more importantly, and this is a little bit to Avery's earlier point about just how these stocks have acted. If we look at both Apple and Microsoft, they have held up remarkably well. And with Apple trading at 25 times forward earnings, I do think that they in particular need to have a decent solid quarter and need to see that perhaps supply chain issues are beginning to be alleviated. And they do have a product availability. So I do think you know it definitely differs by company but overall I think that in general you know the expectations have come down during the second quarter investors got incredibly bearish things have changed a little

bit since that time and it's been nice so far in this earnings season to see that the reaction to earnings is certainly different than it was last quarter, the reaction to decent earnings. So I think that collectively for all of these companies, we need to have a quarter that at least meets expectations. And as I said, in some cases, I think those expectations are pretty low, but not across the board and not for every company. Yeah. So maybe people have become a little less bearish. This bounce back, Eugene, has some thinking that the worst, in fact, is over. Are you among them? I'm not necessarily thinking that the worst is over, Scott. I do agree that a lot of the damage has already been taken out of the stock things. But I also haven't seen a lot of analysts taking

down earnings estimates and so um even though the companies are coming in with higher revenue because they've been able to enjoy pricing power um you generally are seeing margins compressing a little bit doing due to inflationary considerations i'm quite curious with nxp um what's going on with the comparisons and earnings because the expectation consists of about 335 and we're seeing 253 at least that's what I saw coming from the screen and essentially if in fact that is an accurate comparison I think that's going to be problematic and kind of in line with the thesis that even though they're in a good space an automotive space that those deliveries haven't

been impacting order backlogs may be going up, but not necessarily deliveries. So longer term, it's OK. But I think in the near term, there's still a little bit of an issue. So, Avery, what about Eugene's point here that you can't say the worst is necessarily over, you can't necessarily say the lows are in because earnings expectations have yet to budge for the most part? Right. Well, again, I think it just really depends on the stock.

We do have a fair number of stocks that are so beaten up, like the bottom really might be unless this becomes like a really horrible, like massive, you know, massive recession. But there but I would say it's almost like more stocks than not, though, do not have the bottom priced in. This was likely kind of a dead cat bounce, a bear market rally. And that's why there's there's just so much potential downside this earnings season for companies that disappoint. Eugene, this big tech in general, are you are you bullish going in because in part of the rally off the lows that they've had? Or does that make you more nervous that now the bar has just simply gone up too high for them to be able to meet it? Well, I'm bullish going into big tech. I know that they've come a little bit off of the lows, but essentially their earnings power and

cash flow generation has continued to be quite strong. And I know a lot of analysts are starting to be a little concerned about Microsoft and Apple specifically due to kind of supply constraints and whether or not they're delivering iPhones and Macs and the like. But I actually think that Apple is going to come in pretty solidly. I don't like the fact, just looking at numbers, that they're only down 13 percent from their bottom, right, up 13 percent. But I think that their delivery over the last five years has earned that premium, and I think it will continue. Brenda, you own all of them, Meta and Apple and Alphabet and Microsoft and Amazon, though it's interesting that while you have ownership in all,

you're still underweight technology relative to the S&P 500. We are. But we've had a lot of conversations about just the next stage of this economic cycle. And if we truly do see more slowing, then I do think some of the cyclical sectors, not all, and that's where we've had more of our weight in those cyclical sectors, but I think some of them are going to have a tougher time. And they've held up really well in this market correction that we've seen. So I think we could see some more money flow back into growth. And we've certainly seen that over the last several weeks. But I think there, you know, within the energy sector, for example, there's a good solid story that I think will continue to persist. But in some other

parts of the cyclical sectors that are really much more dependent on economic growth to fuel their own growth may be more challenged. So we may see some money transition in back into these growth names that in some cases are really beaten up and are presented have presented a really interesting opportunity for long term investors. This Fed meeting, by the way, you know, I know earnings are center stage, but Fed meeting starts tomorrow. What are they going to do? Seventy five. I mean, that's where consensus I don't. yeah, I do not have a view separate from that, but it does seem like they're trying to signal that they're not going to be more aggressive than that, right? So I think that

it seems like a base case of 75 makes sense. And then they're going to continue to look at data and decide what to do from there. I, yes. So, you know, unclear to me that they're going to do much different from that at this point. If that's what they do then, say 75 and then they're not more hawkish, say, moving forward, that helps this rally? I think, well, I think it helps the rally, especially in stocks that have solid fundamentals, because the reason they would be pausing is because things are getting worse, right? And so if that's happening, companies with unproven business models and driven by momentum could still go down a lot, even if it's 75 and we don't see an acceleration in rates up from here.

There's sort of a conundrum, right? It's that inflation has, in fact, they think inflation has peaked and it's starting to come down, but the economy is also worsening at the same time. Yes. It makes it really tricky for what they have to do. It's always good to talk to you. I'll see you soon. That's Avery Sheffield here, Post 9, New York Stock Exchange, Eugene and Brenda Vangelo. Thank you so much. We'll see you soon. Let's get to our Twitter question of the day. We want to know which tech stock will have the biggest upside surprise this week. Is it Apple? Is it Microsoft, Alphabet or Meta? Go to at CNBC Overtime on Twitter. Cast your vote. We'll bring you those results

at the end of our show today. We do have some breaking news out of Washington. Kayla Tausche has that for us. Kayla. Scott, President Biden just said a few moments ago that he expects to plan. He plans to speak to China's President Xi Jinping at some point this week. He said his team and the Chinese team are in the process of setting that up and they are just finalizing details at this point. The president has long said that he expects to engage by phone with the Chinese president. And on Friday, I asked the chair of the Council of Economic Advisors whether the White House would make a decision on rolling back certain tariffs to essentially be the backdrop to that conversation. Chair Cecilia Rouse would not

say whether, in fact, a decision is close on that front. President Biden made those comments at an event to tout the passage of the $52 billion CHIPS Act by Congress, calling it a national security issue. But when asked by reporters about whether he expected a recession, he says he does not expect to see a recession this week, and that while he is still suffering from COVID, his symptoms have eased and he expects to be back at work in person by the end of this week. Scott. OK, Kayla, thank you so much. Speaking of the economy, I want to give you a headline here that Walmart let's throw up Walmart shares in overtime because they are on the move

and they are sharply lower. Walmart has lowered its profit outlook for the second quarter and for fiscal year of 2023. We are working on that. I will have more information from you for you, excuse me, momentarily, but at least want to bring you a headline which is causing movement in that stock. They see their second quarter sales growth about seven and a half percent. Now, I don't have what the original estimate was for them, but I promise you that we are working on that and I'll get that for you. Nonetheless, I do want to bring you that information. They've got a currency headwind that they've been dealing with. You've heard about supply chain issues and inventories and things that have affected, you know, competitors of theirs like Target, for example. So we'll have

that for you momentarily as we continue to watch shares of Walmart in overtime selling off as that company has cut its guidance. We have more coming up next, much more on NXP's results. That stock is on the move after reporting just moments ago. Investment Committee member Jim Labenthal is invertime. We told you just before the break, Walmart has cut its guidance and you can see the stock is reacting quite negatively to that announcement, down more than 6 percent. Serity Partners, Jim Labenthal joining us to discuss NXPI and the earnings. But let's react to this first, Jim. This is what we understand to be primarily due to pricing actions aimed at inventory levels, improving them, i.e. cutting prices because they got too much inventory. It's as simple as that, Scott. It really should

surprise no one. I mean, you know, when they when they had their last earnings report, along with Target, I think both companies expressed some optimism that this inventory issue would be over quickly. I mean, anyone with sort of half a brain would realize that it wasn't going to be over quickly. There was too much overordering. For the consumer, this is actually good news. For the CPI, this is actually good news. For Walmart shareholders, it's not good news. But frankly, the response is somewhat muted, which reflects the fact that people should have seen this coming. I mean, part of the issue is that these retailers, whether it's Walmart or Target, they have too much stuff that people don't need. I'm thinking of big screen TVs, which they sold gangbusters of during the pandemic when all of us were at home. And now

they're stuck with high inventory levels and people don't need that. You remember back to Target when they spoke of those fuel costs impacting the price of of their trucks and just the cost of getting goods from here to there, not to mention the currency headwinds. So it's a perfect storm, if you will, Jim, of a scenario affecting Walmart, at least at this moment. And who knows what we hear from some of their competitors down the road? I think you expect to hear the same thing from their competitors down the road. And, you know, you went through a very good list there of what's causing the inventory problem. Also, what's contributing, and you didn't mention this, is certainly there was some overordering. You know, the worries being that with the supply chain bottlenecks, companies like Walmart and its competitors thought they wouldn't get enough of what they ordered on time.

So they overordered. And guess what? It showed up. Yeah, Jim, sorry, I was I was just looking at something here. They've got food inflation problems. Courtney Reagan, our retail gurus with us now. Court, what can we make of this? What's your first reaction as you go through this and you look at the same headlines that we're trying to make sense of? Yeah, I have to say, actually, Scott, I'm a little bit surprised that Walmart did this only mainly because we don't normally hear from them inter-quarter. So that does, of course, suggest that these changes happen potentially very, very swiftly, even though we all understood what was going on with the pressures of inflation.

And I think you make a good point that the mix is really what's important here. So it looks like their comp sales are trending higher than expected, about 6%. But it's because it's a heavier mix of food and consumables, and those are lower margin goods. So the sales of general merchandise, it looks like they're sort of taking down the expectations there for the full year, even though they say that some back to school does look pretty good here, at least in the early going, it's probably not enough to move the needle. They talk about the impact of food inflation. So yes, the profit is being lowered, the lower profit for the full year because of what's going on here in the second quarter, even though it looks like revenues and comps are higher than expected because of what is being sold. So to your point earlier, Scott, sort of the wrong mix of the wrong stuff at the wrong time

and just really tough to turn around these inventory orders for a retailer as large as Walmart that does have all of these different categories that they have to flex at any given time to meet this waxing and waning of supply and demand. Yeah, I'm also looking at, you know, apparel is of particular concern here. Court, you cover so many different apparel retailers. Can you just give us some context in what you've been following from some of these other companies out there who have and are facing some similar challenges? Not everybody is in the same boat, of course. It depends on what mix of apparel you have. But this is by far not the first company to have these sorts of issues,

particularly with apparel. And then you find yourself having to discount so heavily that it cuts into your margins. Absolutely. And I think that's such a good point, Scott, about apparel, because it's not apparel across the board. It's what kind of apparel. Remember during the pandemic, we were all sort of flexing up our athleisure wardrobes, but now that people are returning to the office, they really want to get back to workwear. I know it sounds crazy, but we talked to a lot of people, you know, whether it's sort of the fashion director at Macy's or Bloomingdale's or Nordstrom that say suiting is actually selling pretty strongly. So are dresses. And we actually saw that in that retail sales number.

When you look at a company like Gap, they, Gap Inc is what I'm talking about, they were really over-indexed sort of in the casual, especially at that Old Navy division that is so important for them. That's sort of their sweet spot anyways, is casual, family, kids, athleisure. And that's just not where people are buying right now.

Sort of the pendulum is swinging the other direction. And for a lot of these companies, if you have a multi-category mix, clothing is going to be higher margin. So for a Walmart, for a Target, it does help offset, you know, the lower margin categories like the food. And so that's going to be particularly difficult if you're trying to balance out that mix. We know that Target is already discounting some categories of apparel and some home goods that weren't selling as quickly as they had hoped. And they sort of made that announcement with their inventory, and perhaps some consumers are taking advantage of it. So maybe we'll see, again, an uptick in the revenues, but it's going to hit the margins. Yeah. Jim, you know, the elephant in the room here is inflation impacting how people

are shopping and how much they're spending and on what. And Walmart does mention that food and fuel inflation are affecting how consumers are spending. You have to wonder how long it was going to be before you get big trade downs from name brands to private and off-label stuff. It sort of flies into your bullish thesis on where the consumer is, where the consumer may be going. And I can only imagine what Jay Powell and his pals on the Fed are thinking about inflation and the impact it's starting to have on consumers. So I get you, Scott. Perversely, I think this is very much a lagging indicator.

You and I have spoken in the past week or so about where gasoline futures are and also wheat, corn futures, and that these price declines in all of those commodity futures have not yet fully shown up in the prices being paid by the consumer, but they are soon going to fully show up, and that will help in terms of the income that consumers can spend on other things perversely- this news from Walmart is actually welcome because it places more downward pressure on inflation. So it actually perversely helps the- consumer- it may not feel that way to Walmart shareholders today of which I am not one. But this is actually positive for inflation. I mean, positive in terms of inflation coming under control.

Yeah, I hear you. I mean, in court of all the companies that have pricing power, Walmart ate in that ballgame. Right. It's not their their consumer is not one that they have the ability to raise prices on. So they have to eat more of that margin. Right. Yeah, I mean, yes. But I was I was also thinking that's sort of a two headed coin, right? Because they do have some pricing pressure when it comes to their suppliers, right? I mean, nobody wants to take that cost increase the cost of inflation. But if you're selling into Walmart, you want to make sure that you can still get those products on Walmart shelves. So maybe those

suppliers are having to eat some of that cost. We know Walmart's been looking to charge sort of extra charges where they can when it comes to storage or fuel or delivery to try to maintain that pricing for their shoppers because yes, they are very sensitive. And it does seem that Target and Walmart, and at least the most full quarter that they reported in the commentary that came along with it, they were trying very hard to hold prices in many categories as they could, especially in those areas where they compete and they know that they win shoppers. I mean, look, if you're Walmart, at least you do have grocery gains to call out in this release, right? At least you're able to say, look, we provide value for American families when inflation is high.

Yes, prices are higher across the board, but we can win here. And perhaps that then helps that flywheel when they're trying to get more people to sign up for Walmart Plus and the grocery delivery, that this big part of their budget that doesn't necessarily change when times are tough because you got to eat, you can still go to Walmart to get there. So at least there's that that they can hang their hat on. Jim, lastly to you, this this can only embolden Jay Powell and those on the Fed. Isn't that right? I mean, how can they look at something like this and not say we have to continue to keep our pedal on the floor to fight inflation because it is taking a terrible toll on the consumers of this country. So I agree that Jay Powell and company are going to continue to put the pedal to the metal because of inflation in general. It's funny, Scott, I see this report as being the exact opposite effect, though, on the margins, just on the margins. This is an anti-inflationary report in terms

of inventories are going to cause price cutting at Walmart, Target and all of its ilk. But of course, this does nothing to increase the supply of crude oil, natural gas, et cetera. That's the reason that Jay Powell and everybody has to keep their pedal to the metal. Yeah, well, because apparel prices, frankly, are not one of the issues that have become the big problem with inflation. It's food, it's fuel, it's rent and it's wages. And there lies the issue that the Fed has to deal with. Jim, I appreciate you being here.

We'll talk to you about NXP another time. I promise you that. But I'm going to run on this breaking news. Courtney Reagan, my thanks to you as well. If you get anything else, please pop back on here in overtime. It's time for a CNBC News Update with Shepard Smith. Hi, Shep. Hi, Scott.

From the news on CNBC, here's what's happening. Firefighters near Yosemite say they now have the Oak Fire 10% contained. It burned out of control with what they call unprecedented behavior over the weekend, doubled in size, sometimes not enough time to launch evacuation orders before the fire just swept over homes. Fifteen of them destroyed, more than 6,000 people evacuated. Winds are not so strong today. Cal fire officials say they hope that gives them the upper hand. Pope Francis apologizing to Canada's indigenous people today,

saying he was deeply sorry for the church's role in running what they called residential schools where native children suffered widespread abuse. Those schools operated from the 1880s through the 1970s. And actor Paul Sorvino has died. One of the most famous roles is Big Paulie in Goodfellas. Sorvino was also a one-time member of the Law and Order cast and won a Tony nomination for his work on Broadway. Paul Sorvino, dead today at 83. Tonight, a look ahead at this week's huge economic data. The January 6th committee drops new deposition testimony. And whales take the spotlight back from the sharks on the news.

Right after Jim Cramer, 7 Eastern, CNBC. Scott, back to you. All right, Shep, I appreciate it. That's Shepard Smith. Thank you very much. Up next, you're set up into the Fed. Quadratics, Nancy Davis joins us exclusively. We'll find out how she's positioned ahead of Wednesday's critical decision. Overtime is right back.

All right, welcome back. We're gearing up for some potentially major market-moving events this week. Pretty much, maybe we just got one, in fact, and Walmart taking down its guidance. We've got those tech reports on top of that. We're also going to hear from the Fed on Wednesday. All of that could have major impact on market volatility. So how should you trade it? Joining us now is Nancy Davis, the founder and CIO of Quadratic Capital Management. It's good to see you. I'm going to have you and ask you to react to this news at the moment, if you would, and just what you think an announcement like this from a retailer as large as Walmart means for what the Fed might be thinking and what they may do and say now. I think it's great news for the market. Bad news right now is good news. So I think bring it on. The more companies that can pre-report and say that there are too many inventories and that

prices are coming down, the more the Fed can ease off this ridiculous rate hiking path that they've been on. It's too much right now. We have 177 additional basis points fully priced in by the rates market before the end of this year, Scott. That's crazy. It's five months. So I think bring it on. We need more companies to say that prices are going down so the Fed can get with the economic data and not be behind the curve again. Rate volatility has largely subsided. I think you would agree with that. The question is, is it going to kick back into high gear this week? Yeah, this week is super exciting, Scott, because we have so much economic data on the table. And I think the rate volatility will likely pick up again. Just remember, the Fed has been doing QE really nonstop since the financial crisis. We've just started quantitative tightening. June 15th was the first

Treasury maturity. I think since QE has been vol reducing in fixed income, QT should likely be vol increasing. So I think it's a good opportunity because the market is so complacent to back up the truck, own some fixed income volatility right now. It's a nice diversifier. Yeah. What if inflation has peaked? What if some of the more dire calls like, look, frankly, the kind of thing you're suggesting here, that the Fed is so far behind the curve, that inflation is so much more of an issue than the Fed is willing to admit and has the fortitude to truly do something about. What if, in fact, it's getting better? I think it is getting better. I mean, the year over year changes are what matters. And I think CPI is just one index, just one measure of inflation. And I think there are things that are getting better. I know when I was on

your show on the Halftime Report with you, I think that was June 16th. That was actually the low. Remember, we were talking about how it was a good time to not be so bearish, not be so, you know, I think bad economic data would actually be really positive for markets right now, especially for interest rate markets. So let me, and I got to run in a moment because, and I apologize, and I do because of this breaking news we do have on Walmart. But when you were with me on June 16th, right at the low, you said equities were attractive. Now they've had this nice bounce. So what now for stocks? Well, I think now is a time to actually be owning inflation protection because expectations are for a deflationary, a disinflationary environment.

And that's fully priced in by the rates market. So I think owning inflation protection outside of commodities, I would use the interest rate markets, the bond markets. Those markets didn't even exist in the 70s because think about it, just even tips, the Treasury inflation protected securities, they weren't even created until 1997 by the U.S. Treasury. So I think a way of diversifying away from commodities since they're near all-time highs and adding more rate sensitivity assets for inflation is a good,

is my next market call, Scott. All right. And we'll follow up on it. Nancy, I appreciate your understanding of what we have going on here in overtime today with this breaking news on Walmart. We'll talk to you again soon. That's Nancy Davis for from Quadratic. Up next, we'll have much more on Walmart's move to cut its guidance. The stock is falling big in OT. There you see it on your screen there down about eight and a half percent. Overt overtime is back after this. We're back. I want to show you another look at Walmart shares,

along with some of the other big box or retailers. You've got Amazon, of course, down on this news, too. There's Target. There's Costco. Everybody seemingly falling who's related to this stock, falling in overtime after Walmart cut its profit outlook. That warning dragging a number of stocks in that area. Decatur Capital Management's Degas Wright is joining us now.

Degas, you own Amazon, you own Costco. Your thoughts on what Walmart has just done. Well, what we're seeing at Walmart is that they were having problems with their inventory. And so one of the things that we monitor is something called the cash conversion cycle that measures the day's inventory outstanding, the day's sales outstanding, and also the day's payable outstanding. We started noticing that the day's inventory cash started to slow down. A company that we own, Costco. Yeah. Go ahead. Yep. That's where I was going. Go ahead. Yeah. Yeah. So Costco, for instance, if we go back to January of 2020, their cash conversion cycle actually has reduced since the beginning of the pandemic. They've become more efficient in managing their cash, that inventory.

Also, what we're seeing is that on the sales side, customers are starting to start to look at taking longer to pay their credit bills. And so that's going to be impacting this measure also. So we really say that you want to focus on this cash conversion cycle to manage through this inflationary environment. Yeah, I'll tell you what, it's so interesting how fast things are changing for this business. If you take a look at the guide for earnings growth, forget revenues, just pure earnings growth, adjusted EPS for the fiscal full year down 10 to 12 percent. Their prior for was for a decrease of one percent. That gives you exactly. And so a real interesting look at the visibility is so poor for those retailers, Degas.

It is. And so you want to really focus on, as you just mentioned, what's the growth in earnings expectations. And as we see with Walmart, that coming down, you want to be very aware and you want to focus on those companies that can increase earnings even in this environment. All right. Degas, I appreciate it. We will talk to you again soon. That's Degas Wright joining us, Decatur Capital. Up next, we're tracking the biggest movers in overtime.

Christina Parts and Novelos is standing by with all of that action. And I guess we have some new ones to add to your list. Of course we do, or else why would I be here? A cybersecurity firm stock now is soaring on an earnings beat despite the, quote, more cautious environment. And like you talked about, Scott, inflation concerns hitting some under the radar retailers after the Walmart cut its guidance. I'll have those different names right after this break. Mentioned we're tracking the biggest movers in overtime. Christina Parts and Nevelos has that as always. Christina? Well, given what we saw with Walmart cutting its quarterly and full-year guidance

because of inflation, product mix, and weaker discretionary spending, retailers are falling in sympathy. Names like Best Buy, Dick's Sporting Goods, even Etsy right now, down over 2.5%, and you can see them all dropping in the OT. Let's switch over to Whirlpool shares climbing right now on a mixed earnings report. Even the title of the report reads, quote, delivers in a challenging environment. Earnings per share came in, was actually a beat of about by 75 cents per share,

but the company missed on revenues. Full year revenue guidance was a little bit light too, but the stock is up over 2%. Then we got software firm Cadence Design Systems moving higher on a Q2 revenue beat. Q2 earnings guidance came in a little higher as well, too. The CFO saying, quote, our strong performance is emblematic of the megatrends of the long-term strength of semis, and that would be semiconductors, system companies investing more in silicon, and the convergence of system and chip designs. So in other words, semiconductor demand helping cadence stock jump over 4%. And then shares of cybersecurity firm F5 soaring over 12%. Look at that, 11.5% now.

The company beat on the top line at $674.5 million. 72% of its revenue comes from reoccurring sources. F5 says system revenue, though, declined 18% from a year ago because of the semiconductor shortage. The $1 billion buyback, though, helping shares bounce from a year ago because of the semiconductor shortage. The $1 billion buyback, though, helping shares bounce as well. Back over to you, Scott. All right, Christina, appreciate that. Thank you, Christina Partsanovalis. Up next, a shareholder standing by with reaction to that bombshell out of Walmart. Cutting guidance will join us in our two-minute drill. And coming up at the top of the hour, big tech in focus as we enter the busiest week of earnings season, The Fast Money crew breaking all of that down.

Four key issues companies will need to address. Overtime's back after this. Welcome back to Overtime. Let's get the results now of our Twitter question. We asked you which tech stock will have the biggest upside surprise this week. The big winner, Alphabet, with 32 percent of you voting for that stock. Another check on Walmart. Meantime, shares hitting fresh lows now in overtime after the company cut its profit outlook. Joining us now for more in our two

minute drills, Jeremy Davis, grading and investments portfolio manager. He owns Walmart's Jeremy Bryan, I should say. Jeremy, welcome. Itcomes good to see you good to see you sir uh your reaction first and foremost to walmart we knew they had too much inventory now i guess we know what they're going to do about it right cut aggressively um yeah i mean that seems and what the the bigger question for me now is what does this mean for the rest of the industry is this are they the last to see this, right? Because Target went through this already. Now is Target going to go again? That's the big question right now. And so from our perspective, I mean, clearly they have the wrong stuff and they have

to sell it more aggressively to clear that out, which looks like it's going to take a pretty dramatic hit as a result of that. The question is, how does this relate to the rest of the discretionary space? You know, what we tend to own is much more restaurant focused. And then we do have Walmart. We have a little bit of Target. And then we have TJ Maxx as well, which tends to kind of benefit from this discounted space. So we have some sides that could benefit from this overall. But certainly this is this is painful aftermarket. There's no question. Do you want to still hang in there with those kinds of stocks like the one that you have in in walmart or do you want to just sell it now no no uh no you know people tend to overreact to these things what we

want to see is because they've already talked within the guidance that back to school is starting to look a little better so can they clear this, have this be kind of a one-time flush, if you will, and then start to rebound and re-rally? Did they set the bar low enough? I mean, the stock price would suggest that it's going to be pretty difficult, but we'll see what they do going forward. But no immediate reactions to sell it out right now. Okay. Monster week, as we all know. Big earnings coming. Alphabet among them. You own that stock. Give me your thoughts going in. Yeah, we'd be buyers into it. We think that there's an overreaction to what the ad cycle is going on right now. We think Snap had a bad quarter, but Snap has competitive issues. We think Google's space in both search and then YouTube is still going to be just fine over the

long term. You're not paying a real premium to the market. In fact, you're paying close to a discount at this point right now. We'd be buyers there. All right. I've got to run. I appreciate your time, Jeremy. Thank you so much. And we'll have more, of course, coming up in Fast Money on a Walmart cutting its guidance, along with a look ahead to earnings. It begins now.