Closing Bell - Closing Bell: Plenty of green on the screen, predictions for the housing market, retail relief 5/26/22

Episode Date: May 26, 2022

The major averages added to big gains on the week, with the Nasdaq seeing the biggest jump, climbing by 2.7%. Alli McCartney from UBS and Jim Bianco from Bianco Research debate if the comeback rally can be trusted. Retail expert Dana Telsey breaks down more big moves in the space and the action in higher-end versus lower-end names. Redfin CEO Glenn Kelman weighs in on the fast-changing housing market, as rising rates drive up mortgage costs. And Chinese internet stocks got a lift on positive results from Alibaba and Baidu. Gil Luria from D.A. Davidson breaks down the opportunities and risks in those names.

Stocks building on gains throughout the session. Near the best levels of the day as we head toward the close. The most important hour of the trading day starts right now. Welcome to the Closing Bell. I'm Melissa Lee in today for Sarah Eisen. Here's where we stand in the markets. We are firmly in the green, but we are off the session highs. S&P 500 just about 11 points off the intraday session highs.

We're up 2%. Our 4065 is a level. The Dow is up 1.9%. The Nasdaq Composite is staging a 2.9% gain. Check out the S&P sector leaderboard. Nearly every sector is higher, but consumer discretionary, notably the lead here. We had good guidance from the likes of William Sonoma and Macy's, and that's really helping sentiment in that group. And that is seeing a 5% gain in today's session so far.

Coming up on today's show, housing-related stocks getting a big lift today, even as cracks emerge in the housing market. We'll talk to the CEO of online brokerage, Redfin, about what he is forecasting for the real estate market in the face of higher rates. But let's get to our top story. Can you trust this rally? That's the question being asked across Wall Street today. Strong retail earnings results pushing stocks higher today.

But how long can this last? Joining us now are Allie McCartney from UBS Private Wealth Management, Jim Bianco of Bianco Research. Good to have you both here. Allie, I'll start off with you. And I got to be honest, I read the notes through. And if we played the game, guess the strategist target based on their market outlook. I wouldn't have guessed 4,700 by year end on the S&P 500 from you. Yeah. So, look, we have come in over the course of the year. And, you know, I think that is still a bit bullish. But we do have some signs that there is reason for hope. Now, in answering your first question, should we trust this rally, I don't think you should trust any day more than another, right? Do I hope that we end the week going into not a ninth week of consecutive downs and that we can actually get enough support

to hold risk on into the weekend? You know, we certainly hope so. But look, I mean, yesterday, we had the Fed come out with their minutes. It is clear that they are, you know, having two conversations and trying to manage both on one hand, talking about the need to manage hyperbolic 40 year high inflation with restrictive financial policy. Right. On the other hand, they're already starting to talk about what and when that rate pause will be. We don't think we will see that rate pause within necessarily this year, but I think there are a lot of signs that inflation is moving the direction that we needed to move it. We have labor data starting to hint at not being all in the employee's favor, but actual open positions going down and maybe sort of avoiding that spiral of wage price.

We have preliminary housing data that we got earlier this week that's showing that financial restrictive policy and tightening is already starting to affect the market. And we are already seeing, as we see services starting to take over for goods spending, goods inflation coming down. So this week, although I can't say that a day or even a week at this point makes a trend, I have loved to see the interaction between bond yields and stock prices going up and seeing something like consumer discretionaries leading the day with a true risk on, it definitely feels emboldening for right now. So, so, Jim, I guess, you know, as we stand here at the precipice of the Fed's path towards neutral and in terms of their rate hike plans, we're seeing the grit already in the wheels of the economy, right? As Ali had mentioned,

we're seeing some, you know, slowdown in housing. We're seeing some up already in the wheels of the economy, right, as Ali had mentioned. We're seeing some, you know, slowdown in housing. We're seeing some uptick in claims. The flip side to this is that we're seeing this and we haven't gotten to the end of it and we're already seeing it. And so the Fed really has a needle to thread, so to speak, in raising interest rates, but making sure that you're not destroying too much demand, that you're not slowing, you know, the labor market too much. Yeah, that's right. I mean, the Fed is, you know, the old adage used to be that the Fed hikes until something breaks. But the 2022 version of that is the Fed hikes until enough

things break. We've already broken things. We've got the worst stock market in 52 years. So far, it's through May 25th. We've've got the worst stock market in 52 years. So far, it's through May 25th. We've got arguably the worst bond market in 200 years. And that's because we've got high inflation and the Fed is trying to deal with it. And I think as we move forward, we're going to have to basically see if we get signs that inflation is coming down, not peaking. Everybody knows it peaked. It probably already has peaked at eight and a half percent. But that's not the story. And it's never been the story. The story is how fast does it come down? Because if it ends a year at five percent, the Fed's going to go full on the whole year. And their goal is going to be, as former New York Fed President Bill Dudley said,

if the stock market doesn't go down, the Fed's going to lower it. That was the title of his op-ed last month. And I think that that's exactly the way the Fed is looking at this right now. If we don't see serious signs of inflation slowing, they're out for the stock market. They have been all year. And I don't think that's going to change because I don't think we're going to see enough signs of inflation slowing. I mean, I don't know if they're out for the stock market per se, but it certainly is a side effect that they're willing to risk in their fight against inflation. And Jim, I'm wondering, you know, it sounds like you don't think that we have seen any sort of a bottoming for all the optimists out there. Your message is we haven't been even close to

capitulation. If you take a look, for instance, at the VIX, we've gone not very close to even the 52 week high in the VIX, which is 38. Yeah, I mean, the Fed uses a euphemism. They call it tightening financial conditions. But that's exactly what they mean by it. They mean that they need people to stop buying stuff and they need to make people think about stop buying stuff. And that's lowering stock prices. And so they've been very clear on that. I know it's hard for people to get their their head around.

But you're right. When you look at measures of capitulation, has there been wholesale selling? Has there been a spike in volatility in the options market? The broad answer is no. Now, yes, we had a 100-year string of eight weeks in a row down in the Dow. That's probably due for some kind of a rally for the next couple of weeks, or at least not going down for the next couple of weeks. But was last Friday the low? I would venture guess this to no. Ali, just quickly, because we're almost out of time. What sectors got us to 4,700? That's a great question. So, you know, the sectors that perform well, both in rising interest rates and in above average inflation, those are largely commodities, consumer discretionary and value oriented sectors, which also at this point you can touch and feel, dividends that you put in the bank, real estate that you can touch, commodities, things that you plant.

But again, this is not a short-lived market cycle in terms of volatility. We've seen a lot of volatility this week, whether it's because of pure exhaustion of people like me or of buyers or people on the institutional side, or whether it's just an obsession and a desire to get to a long three-day weekend, has seemed much more calm, and we've all been remarking on it on the street, than the last number of months. And so what happens next week when we're well into summer, when we have tomorrow's print on PPI is anybody's guess, but there is no reason to think that we have, quote unquote, capitulated or reached a bottom or gotten substantial information or lack of uncertainty or clarity to get us to some sustainable level before the next couple Fed meetings and CPI and PPI prints. I can't believe summer's next week.

Guys, good to see you, Jim and Allie. WePI prints. I can't believe summer's next week. Guys, good to see you, Jim and Ali. We appreciate it. After the break, new data out today shows sellers are rushing to list their homes before the market cools off. We'll discuss the outlook for the rapidly changing sector with the CEO of Redfin. That is next. You're watching Closing Bell on CNBC. Let's check out today's stealth mover, Cisco. The food distributor is a top performer in the S&P 500 after J.P. Morgan upgraded the stock to outperform from neutral, setting confidence in the company's ability to continue passing along commodity costs and gain market share through upcoming supply chain and delivery challenges.

The stock is up 4.5%. Meantime, new data out today on the housing front. Pending home sales falling 3.9% month-on-month in April, marking the sixth straight month of declines. Meantime, the 30-year fixed mortgage is 5.25%. That's a 60% rise from the start of the year. Joining us exclusively, Redfin CEO Glenn Kelman. Glenn, always good to see you. Good to see you.

And you're smiling, even though it looks like the housing market is slowing. Tell me, Glenn, in six months, is the market going to be better or worse? Probably the same. Rates are probably going to 6%. Inventory is increasing. Sales volume will be somewhat fine, but prices are going to soften. So prices will soften. So therefore, you're going to make it more affordable, basically. So you're going to make up on the hike in mortgage rates. How about the dynamic, though, of people who have to sell their homes in order to buy another home? If I have 3.5% or 3.25% now, the thought of paying 6% for a bigger house is really tough. That's where the market is really going to be pinched. So many people are locked into the home they're living in now by a 30-year, 3.5% mortgage. So they're going to stay in that property forever.

Maybe they will rent it out. But if they actually want to move up, they are going to have a hard time affording the next place if you combine interest rates with what's happened to home prices over the past year the mortgage payment for a median price home in the United States is up 43% so buyers are saying I've had enough and sellers are starting to freak out a little bit is now the time to buy I mean mean, if sellers are freaking out, if you're opportunistic, maybe now's the time to take advantage of that before rates really go to 6%. I think so. Obviously, I'm bound to feel that way because I'm a real estate broker. But the

honest truth is, if you're going to stay in a house for five years, you're going to do just fine in this market and you're probably going to get yourself a good deal. If you plan on flipping the property or you're trying to make money as an investor, I think that proposition has gotten more dicey. Can you give us some nuance in terms of where the biggest slowdown can happen? We've gotten some data points over the past couple of days. Toll Brothers had better than expected earnings. Those buyers tend to be higher end, higher income buyers. Williams-Sonoma, a guided hire, they tend to cater to a higher income household. What are you seeing in terms of the type of home buyers that will stay in this market that is more expensive? Well, it's the secondary markets that have been hit the hardest. So if you look at Tacoma, Washington, or Sacramento, California,

refugees who leave the Bay Area or the Seattle area looking for value have been going to those markets and just sent prices through the roof. And now those prices are taking a step back. We're also seeing affordable second home markets like the area in Sarasota, Florida, really taking a step back on prices. So that's where the price reductions are most common. One reason that the Federal Reserve hasn't been able to limit demand probably as much as it planned to is that when Charlotte gets too expensive, people look at Charleston, South Carolina. When San Antonio gets too expensive, people look at El Paso. We're seeing homebuyers being much more omnivorous about where they live and what kind of home they want to buy than they used to be because remote work has untethered them. So that's the one silver

lining in all of this, that when one market gets too pricey, people look at another. The flip side to that, though, Glenn, is that if the Fed is taking a look at the market and saying what we are doing is not really having an impact in the housing market, that might, you know, argue for a harder and more aggressive rate hike path than we're expecting. That's probably true, although I think the Fed is taking note that pending home sales are down 9% year over year. New home sales are down 17% year over year. If you look at the number of people touring properties, that's down 29% year over year. So there has definitely been a step back in demand. The only reason we haven't seen prices fall faster is because inventory was so low coming into 2022.

So, Glenn, I want to talk a little bit about the company. The second quarter guidance was disappointing to some analysts out there. And I'm wondering, you think that the market is going to be about the same in six months. Does that make it easier for you to navigate in terms of offering the mortgage product, for instance, when we've seen that mortgage lending has not been that profitable this year for most players? Well, I think we must be the only lender in the United States that's growing. So refinance has fallen off a cliff. It used to be about 40% of our lending was refinanced through Bay Equity, and now it's about 5%. But we've made that up from all the originations through Redfin's brokerage business. And that lending business is growing. But otherwise, it's a bloodbath in the lending industry. There are layoffs and profit compression in almost every lender. So

we are glad to have combined these two products because otherwise we would be toast. And I started the interview, Glenn, with saying, where do you think the market will be? The housing market will be in six months. Where do you see it in 12? Oh, I don't have such a good crystal ball. I just think that any concern about a full-blown bubble, a 2008 meltdown, is overblown. And the reason is that people were buying houses with funny money a decade ago. And now most of the folks who are buying houses were using stock market gains to do that. They were paying in cash. So I don't think you're going to see people get over their skis and have to sell in a foreclosure or something like that. There's not going to be some rapid loss of value in price. So I think the market's going to be just fine. We have to figure out where rates are going to settle and then people are going to

keep moving. There's a millennial generation that's fairly large and there's still a bunch of people who want to leave the big city. So I'm not totally optimistic, but I'm not crying in my tea either. It's going to be OK. I feel like you're the type who would never cry in his tea. Glenn, it's always good to see you. Thank you. I'm Melissa. Thanks for having me. Bye, Glenn. Nice to see you. All right. Let's get a check on where the Dow and the S&P stand still holding on to those gains. S&P up by one point nine percent. Nasdaq higher by two and a half percent. Up next, Mike Santoli will break down the chart to see if this week's big rally is sustainable. And as we head to break, check out some of today's top search tickers on CNBC.com. NVIDIA in the top spot, followed by the 10-year Treasury, Tesla, Macy's,

and Apple. Stocks are rallying, adding to strong gains on the week. Mike Santoli is taking a look at the market's move since the start of last year for his dashboard today. Mike. Yeah, well, listen, trying to put this rebound in context here. This is now the fifth bounce that we've gotten since the January highs of at least 6% using intraday highs and lows. So you see this one from late January. Remember that? Almost 9%.

February intraday actually got almost to 7%. This was a real good one in March. Got almost to 11%. Is there anything different about this one? While we were up at the highs of the day, 7% above last Friday's lows. A couple of things maybe give this one some merit. We've poked above this four-week high just at the highs of the day. It's also happening, arguably, rallying on not-so-great news when it comes to some of the earnings and things like that.

And for that matter, just the fact that we've kind of ground valuations down to a fair degree. Also, the breadth numbers are good. Final point, credit is playing along. That had been definitely a worry point in this market. If you take a look at the high yield ETF, HYG, relative to treasuries of a comparable maturity, that's what's in the IEI. You see, they have mostly been tracking each other all year. So the rise in yields on junk debt was mostly about treasury yields until

recently. That's when high yield really started to underperform. People worrying about spreads gapping out. So we have a comeback. It's still not back to, quote, normal, liquid, stable conditions, Melissa. But I would argue that there's at least a shot that this gets some traction out there. Some traction, but that doesn gets some some traction out there, some traction. But that doesn't necessarily mean that we've seen the bottom. I mean, it never feel like we ever had a capitulation. Well, I do grant that, that if we needed one, we didn't get it. It's not that unusual for a subsequent low not to have the same panicky readings as the first one. That's been some work. Morgan Stanley was doing that.

The VIX usually actually trails off a couple of months into a downturn as opposed to making fresh highs. But I agree. There's no way to say, except in retrospect, that this was the one. All right, Mike, thank you. Alibaba and Baidu booming after topping earnings estimates and helping other Chinese internet stocks rally. Up next, the top analyst tells us whether he thinks this bullish sentiment will continue. Stay tuned. Check out shares of Alibaba and Baidu up double digits and now performing the Crane shares China Internet ETF. The company is enjoying a relief rally after reporting earnings. But our next guest says this is not the result of a positive outlook. It's a reaction to the businesses holding up in the face of lockdowns.

Joining us now is Gil Luria, a technology strategist with D.A. Davidson. Gil, good to see you. Good to see you, Melissa. And more specifically, BABA didn't even give an outlook. So there is no outlook to even think about when it comes to BABA. You know, these are stocks, Gil, that have been just bombed out over the past year plus. I mean, first it was the Beijing technology crackdown, and then you had the worries about delisting. And now you have the COVID lockdown, economic growth slowdown. What are you most concerned about at this point? Well, all of the above. Mostly that China is in a slowdown and the lockdowns are unpredictable and probably not ending anytime soon. Both of these companies

have declining revenue right now. Their fourth quarter may have been flat, but as they talk about April and May, they actually have declining revenue. What we liked about these results and the market likes about these results is a conversation about deep cost cuts. In Alibaba's case, they make money in their China commerce business. They lose a lot of money in their other businesses. And so their willingness to cut down on costs, especially in those other ancillary businesses, is what we liked in the results today. How do investors view the technology sector, Gil? I mean, when you're taking a look at the tech sector and you're seeing some of the pressure

on big cap tech names here in the United States. Investors are clearly questioning what their holdings are here. How does that translate when you take, you know, when they say, oh, I've got a tech allocation to make, maybe I'll put it in these names, which are already down, what, 55% on BABA over the past 12 months? Maybe that's for a trade, a better thing to do. Well, I would say the preference needs to be to U.S. big tech. U.S. big tech may have concerns about some slowdown, some regulation. But in China, you're also adding these other concerns about lockdown impact, political concerns. And then in addition, the ability to possibly be delisted from the U.S. So unless you have a really inexpensive

stock, which Alibaba, by the way, is, U.S. big tech looks better. Apple at 22 times earnings, Microsoft at 26 times earnings looks better to me than anything in China. Alibaba starts being interesting because they're trading at nine times EBITDA in spite of the fact that they lost 50 billion RMB on their ancillary businesses. If you take those out, they're cheaper than eBay. That's when it starts being interesting. Do you think on the U.S. side that we have discounted, investors have discounted the worst case scenario for technology? I mean, as you take a look, I mean, your concern about the Chinese economy is the economic slowdown. Here in the United States, we're entering a rising interest rate period. You know, there is a move

away from long duration and so therefore technology. And I'm wondering if you think we factored in maybe a tightening that needs to still be done among U.S. tech companies, layoffs, budget cuts, et cetera. Yeah, I think we factored for a bad scenario in the U.S., not a really bad, not a real downside scenario, not an economics collapse. We're not expecting an economic collapse, though. The consumer is still mixed as opposed to all over weak. And so the companies in the U.S. have a little bit more visibility. By the way, we know how to get through a business cycle. In China, they've never gotten through a business cycle. The economy there is centrally managed.

It was very investment-based. The consumer was supposed to pick up the slack there. But right now, the consumer in China is really suffering. Retail results are already declining in China almost across the board. And so I would argue that we have better visibility. That's why these companies, American big tech, are still guiding. The Chinese companies have very poor visibility. That's why Alibaba, for the first time as a public company, did not guide for its next fiscal year. Right. I think that's an interesting point about a business cycle and not having lived through one on the Chinese side.

Gil, great to see you. Thank you. Thank you. Gil Loria. Let's take a check on where we stand in the markets as we head into the close. The Dow is still up by about 548 points at the highs. It was up 650. We're up by 1.7 percent right now. S&P 500 holding on to an almost 2 percent gain. Wall Street is buzzing about a major Silicon Valley venture capital firm warning its portfolio companies about a potential death spiral. We got the details straight ahead. And do not miss tonight's CNBC special, Inflation USA, hosted by Brian Sullivan. Find out how the spike in energy is impacting everything from farming to trucking in the heartland. That's tonight, 6 p.m. Eastern time. What is Wall Street buzzing about today? Tech venture capital firm Sequoia Capital's warning to its portfolio companies to cut costs or else, or at least get ready to cut costs. Kate Rooney's

got the details. Kate. Hey, Melissa. Yeah, that is Sequoia's advice to founders. Preserve cash, cut costs, or you're really not going to make it through this current slowdown. I got a copy of Sequoia's 52-page presentation to founders. People really tend to pay attention to these memos. It's one of Silicon Valley's most successful firms and investment firms in recent decades. Sequoia calling this right now a crucible moment for founders. It doesn't see the economy bouncing back anytime soon, Warning startups to tighten their belts in the meantime. We had Alfred Lin, Roloff Botha, some of the other big names, Sequoia partners, talking about inflation, geopolitical conflicts, limiting what policymakers can do.

They say unlike 2020, this correction won't be followed by a V-shaped recovery. Sequoia also warns of what they call a death spiral. Companies that grow too fast without slowing spending. You can see that in the chart there. They say growth at all costs is now over. Investors are rewarding discipline instead. Back to you. Growth at all costs is over. I mean, that's what the public markets have already told us, Kate. And you've got to wonder what Sequoia Capital looks like in terms of where they're putting their money right now and how they're looking at the companies, the new companies that they're onboarding.

It's interesting. They point to some of the public stats. They talk about the NASDAQ down 28 percent and some of the deep declines that we're seeing in public markets. And there is a thought that a lot of founders out there and people that are running startups are not as attuned to what's going on in public markets. It's something that we talk about constantly. We've seen this play out. They're really trying to remind founders that you have to look at the long-term trajectory here, which for most of these guys is an eventual IPO and that they're just not going to get rewarded in the same way. Valuations have come down. So really hammering that home and saying, guys, you're probably not worth what you might be worth on paper right now. And then as far

as this strategy going forward, they've talked about cutting costs, not necessarily job layoffs in all instances. We have seen that play out in a lot of the big tech companies and some private companies. But one of the points is that if you can actually make it through this, if you can tighten your belts, be more disciplined, it's actually a time for opportunity if there's other startups struggling as well.

If you can make it through this, you'll probably want to be one of the strongest and potentially best in your category. So they are kind of framing it as a bit of an opportunity as well. All right. Kate, thanks. Kate Rooney. Retail stocks soaring today after Macy's, Dollar Gen and Dollar Tree reported stronger than expected earnings. Up next, we'll talk about whether that momentum can continue amid mounting headwinds. That story, plus confusion in cloud stocks and a countdown to Marvell's earnings when we take you inside the Market Zone. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli is here to break down these crucial moments of the trading day. Plus,

Frank Holland on cloud stock earnings confusion and Christina Parts-Nevelis on Broadcom's massive deal for VMware. We start off with the markets, of course, in rally mode into the close, led by the NASDAQ, all 11 S&P sectors currently trading in the green. And, Mike, it's interesting because we saw a huge market decline based on Walmart and Target, and here we have a revival of stocks thanks to the likes of Macy's and William Sonoma and some other retail names. Yeah. One indication there, Melissa, that maybe the market had just sort of softened up enough in response to some of those numbers. And then,

you know, the accumulation of all the retail results seem to leave investors with this impression that it wasn't so much consumer traffic or the top line spending that was the main issue. It was essentially mix and, you know, obviously frictional costs, inventories, things like that, which don't necessarily mean a macro slowdown. You also had a market that was probably poised for some relief, almost no matter what, refusing to go below $3,900 on the S&P. Nothing has changed the fact that we're still in this downtrend. We can go up 5% from here on the S&P and still be in that pretty defined downtrend. But I think

you have to evaluate it each step of the way. And it seems as if right now, based on the breadth of this rally the last two days, you know, there's something to, you know, there's some merit to the idea that this rally might be worth, you know, thinking it could last. Ten-year yields easing off, Michael. we're still seeing financials latch on to hope that the economy is good, that the consumer is remaining strong because we've got, what, a 2.4 percent gain on financials so far. Right, exactly. I mean, it's sort of, I think, at a comfortable range in terms of yields right now. As everybody is saying, the Fed didn't say anything really new in the minutes, except it conveyed a sense of perhaps a glimpse of flexibility after July in what they're going to do. And there's some offsets with bonds performing based on how they're offsetting the volatility in stocks, at least for the last three weeks.

So we're enjoying some month-end tailwinds here. This was a very strong week, supposed to be a strong week, after options expiration before Memorial Day. So we'll see if it has carried through tomorrow and into next week. You mentioned on Monday of this week when I was here, Mike, that this is, you know, it's a strong week in general. People are feeling good. They're going to go to the barbecue. They're going to start summer. And so usually we see this sort of drift higher.

Is there anything to you that indicates that maybe this is a little stronger than just the normal drift higher into a three-day weekend? Yeah, I would say that, you know, we're tracking for more than 80 percent upside volume in the New York Stock Exchange. I think even more new 52-week highs than lows on the big board. That would be two days in a row with 80 percent plus. That, you know, checks off a box for some people that say, OK, maybe this is real demand as opposed to just kind of the short covering and allowing the market to lift. And, you know, we scrutinize these things a little too closely. I don't think we're talking about any kind of a V from here, but certainly sentiment positioning got defensive enough that you can feed off of that for a little while longer. And as I said, we're in this zone where you can go up a few more percent and still have the bull bear argument on the same terms you're having it right now.

Let's get to CloudSox here, sending some confusing signals about the IT spending environment. Snowflake beating earnings estimates, but warning customers face a, quote, challenging operating environment. Box, meantime, missing on the bottom line, but reporting stronger than expected revenue. The company, though, noting overseas customers are reducing spend because of the strong dollar and Splunk rallying after saying its customers are not reducing spending or canceling deals. Let's bring in Frank Holland. Frank, is there one sort of takeaway, one, you know, common thread that we can take away from these results? Yeah, absolutely. You know, I think everybody realizes right now that cloud growth and cloud stocks, things are slowing down a bit, whether it's because of IT issues, excuse me, slow down in IT spending, supply chain issues,

fears of a recession. There's just a lot of concern about there, about these stocks. However, and I want to show a chart right here where it looks at the sequential growth of the three companies you named, plus another one, Nutanix, that reported yesterday. And across the board, we're seeing slowing of revenue growth, or it's kind of flat, nothing eye-popping to the upside here. But analysts say investors are really rewarding optimism. Now, we talked, we looked at the stock performance of two of these stocks, Splunk and Box. They're both trading much higher today. They also both raised their guidance. Box even missed on EPS, where Snowflake gave what a lot of analysts are calling pretty tepid guidance and wasn't really clear what their path forward was. They talked about a lot of issues and the Nutanix actually lowered its guidance. Analyst I talked

to says this is really a test of management of both customers and supply chain and stocks that have really good management and at least appear to have a plan to get through some of the headwinds in Asia where it comes to COVID and getting supplies out of there and also just a changing environment and spending. They're really being rewarded today. Those raises of guidance really being rewarded when it comes to both Box and then also Splunk. And I guess the question, the bigger question, though, Frank, is even though we're going to, we're expecting a slowdown in growth, have we already factored that in? When we take a look at a snowflake that's down more than 60 percent year to date, have we already re-rated this group to the point where even a slowdown that we're learning of now, forecasted by the companies, that's already in the price? You know what? That's

just really not clear how much further these companies can go. But one thing we do know is that the companies that are the so-called top of the stack when it comes to cloud names, those are the app names. We're talking about a workday, a data dog. They're the most sensitive to some of this slowdown. I want to show you another graph right here of cloud spending so far this year. This is from KeyBank. And it really shows the slowdown that we're hearing from the companies now. Here's the real data. We were seeing sequential growth in cloud spending just earlier this year. And it just kind of came to not a halt, but it really slowed down when it came to April. That was one of the things that Snowflake mentioned. So is it priced in? And let's say it's not really clear, but we know that the companies that are on top of the stack, again, those app names like a Workday, a Datadog, a

CrowdStrike, they're going to be the most sensitive to that. And so if we continue to see this trend, those are the companies that have the potential, at least, to continue to fall. You know, Mike, some might take a look at the stock reactions to these earnings reports and think that's a real silver lining. That's a positive when it comes to determining or trying to answer the questions to whether or not this rally is sustainable. Yeah, at least in the sense that there isn't the continued pile on effect in these names. I'd be very surprised if we were suddenly going to go back to game on, buy all the software as a service stocks and kind of revive that entire trade. But there's a lot of room for relief. Again, the entire cloud group, if you look below the sales forces of the world,

are down more by more than half in value from their high. So it's a salvage operation. You'd like maybe to see some M&A come in there and see if it it places some kind of strategic value on some of these stocks. But for now, it seems like it's a little bit more just reducing the negativity as opposed to, you know, a brand new story. All right. Well, meantime, moving on to chip stocks. Thank you, Frank, by the way. Frank Holland, chip stocks rallying after Broadcom officially announced it is acquiring VMware for $61 billion, one of the biggest deals ever in the tech sector. Christina Parts Nevelis joins us with more. What does this tell you about the state

of the semiconductor industry, given this is a diversification into enterprise software? Yeah, I guess this pretty much tells you that we need to, you know, diversify away from semiconductors and head into the software space, especially given the CEO saying that the new company, which would be rebranded under VMware, would have half of its annual revenue come from software. So it's showing that maybe there is not as much growth in this space as we believe. We talk about everything becoming connected, and yet there's downgrades that are happening. You have even the CEO. I was on the call at 8 a.m. this morning, the conference call,

and he said that you are probably, quote, dreaming if you think this current trajectory will continue for the semiconductor space. And more specifically, if you look at NVIDIA, they had their Q2 guidance that was lower than expected, not by much, but still. And you had the stock fall. Then you have several semiconductor equipment makers like Applied Materials, LAM. All of them had guidance lower than estimates. So that's telling you something here, that the space is probably shifting, you know, to echo Frank's comments. We're starting to see this growth wear off.

We're starting to see still weakness from the supply chain, still weakness from China. And here's one large company that is diversifying. And then to just add, we have Marvell that's coming out in maybe about 10 minutes or so. And so we're expecting some strength, though, for them from data center demand and 5G infrastructure. Maybe auto wasn't the case for NVIDIA yesterday, though. Yeah, data center was strong for NVIDIA. And, Mike, just to home in on NVIDIA, it was interesting because in the after-hour sessions, Christina had mentioned the stock's reaction was to the guidance, which was a little bit light.

And so we did see a decline. I mean, at one point in the after-hours, it was down, what, 10% or so. And here we are, a good day for NVIDIA just being helped by the overall tape. It absolutely is. Although, you know, even by this morning, it was only down a few percent before the market opened. So it seemed as if folks were able to sort of absorb the actual message from NVIDIA and willing to make the bet. There's a lot of people out here probably who remember wishing they owned it back when it was twice yesterday's value. And so maybe there's a bit of a muscle memory at work right there.

A lot of sell-side analysts have $400 price targets on this thing. I'm not saying they're right, but it shows you why there's a willingness to believe that a stock that went from 60 times earnings down below 30 times earnings finds a little bit of buying interest when it's able to say, oh, these are extraordinary factors that are responsible for our revenue guidance to the downside. All right. We'll be looking for Marvell. Christina, thank you. Christina Parks and Nevelis. Retail stocks having a strong day alongside the broader markets. Macy's beating on both lines while raising its full year earnings

guidance. Names like Burlington Stores, Ralph Lauren and Kohl's also up big today. And the S&P retail ETF is up nearly 5%. Joining us now for more, Dana Telsey, Telsey's advisory group CEO. Dana, investors were absolutely depressed when Walmart and Target reported, and now it's a party. So what is the message from the retail group in your view? I think some of the message in my view is that you look at the demographics and the bifurcation between the low-end consumer and the upper-middle to high-end consumer. What you're seeing is a return of occasion wear with dresses and shoes that's out there that's working. Plus the fact that when you think about these discretionary items, you look at some of the teen retailers didn't do as well. Hollister and the Urban Outfitters Division didn't perform as well.

So it's these consumers who have the money who are going out to occasions that's working. And guess what? You now have inventory. But keep in mind, the setup now, given how depressed these stocks were at trough multiples, some even below trough, watch for the promotions as we move forward because inventory levels are building. Yeah. In terms of the inventory levels, I mean, we heard it from Walmart with a staggering 32% increase in inventory.

We heard it from Macy's, too, in terms of not having the right inventory. They were, you know, too heavy on casual wear when the shift was very, very quick to office as well as occasion. And that category will be discounted, the casual wear. Does a retailer like a TJ Maxx, the off-price, will they be the ultimate beneficiary? Yes, they certainly are going to benefit. They're getting better brands, better categories, and it's all three of them that are going to benefit. So I think the off-pricers are certainly going to win because the value that they offer, the longer this inflation goes on, the greater ability for the off-pricers to capture share, like TJX.

There's a lot of hope being put into the higher-end consumer, Dana, and I'm wondering what indicators you look at in order to give you an idea of whether or not they are starting to crack. When I'm looking at the higher-end consumer, take a look at tourism. It was interesting that Macy's commented today that tourism is coming back from Central South America and from Europe, just no Asians, that you're getting here in the U.S. I'm also looking at what's the innovation and price points. It doesn't seem to be a high in terms of high-end accessory price points, and you're hearing that at LVMH and also at the Chanel's of the world. When I look at all-marching tourism, all-marching inventory levels. And I look at their ability to pass on price. So far, the product innovation is driving demand in luxury goods.

Yeah, the ability to pass on price has been key, Mike. It's interesting, Mike, that we haven't seen much of the wealth effect happen, translate into the consumer and how they're feeling in terms of what they're spending. Yeah, not yet. I mean, obviously, the total spend includes price. So, you know, inflation is in there, and maybe people aren't happy about spending it. But you're right. Spending is not nearly tracked with, say, consumer sentiment,

which is completely, you know, in a trough state right now. It's really depressionary levels. So, yeah, I agree that's the effect. The wealth effect, to me, in terms of the stock market going down, translates much more quickly into corporate sentiment. And that's why you're hearing a lot of belt tightening. We're going to cut back on investments. Maybe we're going to reduce staff and things like that.

Maybe it kicks into spending a bit later. Dana, good to see you. Thank you. Thank you. Dana Telsey, Telsey Advisory Group. Kraft Heinz, take a look at this one. Worst performer in the S&P 500 today. UBS downgrading the food and beverage giant to sell from neutral, trimming its price target to 34 from $40 a share, setting inflationary pressures and the threat of consumers trading

down to private label brands. There's also a shift in 3G, which has been the owner of Kraft Heinz, Mike, which would effectively make it easier for 3G insiders to sell their shares. That's putting some additional pressure on here. Absolutely. You know, really kind of thorough and I think sharp edged downgrade here or sell rating where they kind of detail exactly why Kraft Heinz is somewhat uniquely disadvantaged in terms of their positioning and their product mix. Things that are challenged by private label and pointing to the comments by Walmart in particular last week of how they're going to treat the pricing in different grocery categories.

So, I don't think really Kraft Heinz had won the benefit of the doubt the way some other food producers and consumer staples stocks had. It's been a little bit of a serial disappointer and probably explains part of, you know, this move lower, especially on a day like today when, you know, it seems like people want to buy the riskier, seeming more cyclical or growthy stuff. Yeah, we even heard about the

trade-down effect in Macy's earnings, interestingly, on the conference call that lower income consumers were trading down at Macy's. All right, we got, what do we have here? Four minutes to go to the trading day. Michael, what are you making of? Four minutes to go to the training day. Michael, what are you making of this market, of the market internals here at this point? It's, you know, it's somewhat governed by the rules here. And what I say by the rules is we got up to about a 7% gain off of Friday's lows. We have still, on the S&P 500 today, not gone above last week's highs. That's from about nine days ago. So this entire week, as jumpy as we've been, has been within last week's range. So it's sort of unresolved,

indecisive, even though it's definitely a plausible short-term low. As I was mentioning earlier, in terms of the actual internal breadth figures, more than 80% of volume today, as yesterday, on the New York Stock Exchange, is to the upside. And there are all these systems and models and traditions that say two 80 percent upside days is the equivalent of a 90 percent up day. And that wins the market a little bit of credence in terms of the real demand coming in. So that's one positive I would look to as well. In general, energy strength, even on a day when everything else is going up, continues to stand out to me. It's up more than 1 percent today.

Arguably, the margin of outperformance versus the rest of the market has gotten way excessive. But that's not stopping it. It seems like the cash flows are going to be strong enough if the commodities remain at these levels. So I do think that's one thing that you would pull out of the week's action as well. Yeah. Consumer discretionary, we mentioned before, is the big winner on the session, up by 4.6 percent. But consumer staples still winning in a day like today, Mike. I mean, it seems to tell you that there's not a willingness to say, you know what, we're off to the races here. We still want to play it safe. That is true. There may be another wrinkle in that. We do have the big momentum strategy ETF that's rebalancing at the close.

And there's been a lot of eyes on this because it's going to start buying and all these momentum strategies are going to start buying energy and staples because they've been the big outperformers. There have been these turnovers in years past when they essentially chased the recent winners. So some folks have been looking at this as a sign perhaps of short term, you know, culmination of some of the demand for those sectors. We'll see if that was a factor or not, but definitely worth keeping in mind. It's sort of weird to think that the momentum strategies are buying at this point after the big runs that we've seen. Well, that's the definition of momentum, right? And, you know, it happened in 19 to 2019. All these funds essentially bought the defensive quality type stocks because, you know, we had just had that huge drawdown led by growth. Yeah. All right. Mike, we'll see how this settles out here.

We are on track here to add to our gains for the week. The Dow could be on pace to snap an eight week losing streak here. We are up right now by just about 1.6%. The Nasdaq holding on to a 2.7% gain with 36 seconds to the closing bell. As we mentioned, retail, the real winner here. So consumer discretionary, the leading sector on the day. But finances aren't too far behind here. We're up by about 2.25%, even with rates sort of cooling off here

into the close on the session. 4.057, that's the level on the S&P 500 that we are looking at right now. Strength in semiconductors, too. We've got to highlight that. Up 3.8% ahead of Marvell Technologies' earnings, which will happen in the overtime.