Closing Bell - Closing Bell: Rollercoaster Ride, Jobs Jolt & Crypto Bull 7/8/22

Episode Date: July 8, 2022

Stocks struggling for direction following the stronger than expected June jobs report. Moody's Analytics Mark Zandi says the strong jobs growth signals a good chance of avoiding an economic downturn, but Fmr. IMF Chief Economist Ken Rogoff believes the odds of a significant recession remain high. Fmr. Fed Vice Chair Roger Ferguson says the jobs report and jump in wage growth ensures the Federal Reserve will raise interest rates by 75 basis points at its next meeting. Sequoia Capital's Pat Grady explains how the current market volatility is impacting venture capital deals and why he is so bullish on cryptocurrencies despite their recent collapse. And Telsey Advisory's Dana Telsey Levi's will remain a strong performer following its better than expected earnings. She reveals the other retail names she likes in the face of rising consumer spending concerns.

If the S&P 500 does close higher today, it will be the longest win streak of the year. The most important hour of trading starts now. Welcome, everyone, and happy Friday. To Closing Bell, I'm Sarah Eisen. Take a look at where we stand in the market right now. Higher, up a quarter of 1%, though we've been lower today. The Dow's up about 78 or so points. The Nasdaq building on its gains for the week, up a third of 1%.

So nothing like we've seen earlier in the week, but up almost 5%, basically, this week, 4.75%, about 2.25% for the S&P 500. We'll see whether the market can continue to rally. We've got a big lineup of economic and market experts for you to help break down the action, including Moody's Analytics, Mark Zandi, former IMF chief economist Ken Rogoff, former Fed vice chair Roger Ferguson, and Sequoia Capital partner Pac Reidy. Time for today's market dashboard, though, which is where we start. Mike, what are you watching in the wake of the jobs report? Well, just what you say about the possible five-day win streak, which also shows a little bit of a different character of the market. If you look at the five-day look here, you've had a morning dip or overnight dip,

so weakness early in every session and then a rally to finish relatively strong every single day this week. And it also, by the way, goes back to last Friday, which was when the streak started July 1st. So it tells me, if nothing else, that big investors came into the quarter somewhat lightly invested, somewhat defensively positioned after a very bad six-month stretch for the markets and needed to kind of add exposure if the market wasn't going to buckle along the way. So that's encouraging, a suggestion of a firmer tone, suggesting that maybe the market character is changing. But look at the year-to-date chart, and you see, you know, overall we still have plenty to prove because this is about the eighth rally that you can sort of identify here on the way down.

And we're still very close to this point of figuring out whether it's going to get a little more escape velocity, so to speak. Around 4000 on the S&P. A lot of stuff comes together, including the 50 day average. And I'll just point out that we did have a break of the downtrend in that March rally. That was the first Fed rate hike, Sarah. So you basically had this effort to escape the gravity. It didn't really work because to me, this was inflation is out of control and this is we might have a recession more imminent than we like. So the jobs number today, if nothing else, kind of cooled off the imminent recession fears, even if the debate still stands. Well, that's what's been a little bit confusing to watch the reaction today because on one hand, so it was a good report, right?

Better jobs, growth, low unemployment rate, a little bit of wage growth. We have been in this period where good news is often taken as bad news by the market because it's a green light for the Fed to keep on hiking, right, and cool down the economy. So if that's the case, it's interesting to see the market rally. On the other hand, really good news also bodes well for the whole soft landing theory. It does. And I think, first of all, small moves on a net basis. So it's not really necessarily a resounding verdict one way or the other on that question. Also yields up, but not again up toward their highs. So it's in a more comfortable zone. I think one interpretation is the Fed has been telling you they're full speed ahead until they see really tangible evidence inflation's falling apart. So if that's going

to be the case, if that's what we're waiting for, it's better that the economy's stronger along the way because they weren't going to ease off just because of a weak employment number today. We'll see what CPI on Wednesday. That's right. We'll be pretty definitive. Mike, thank you. We'll see you later. Let's get to the recession debate. Joining us now is Mark Zandi from Moody's Analytics and former IMF chief economist Ken Rogoff. Mark, you have been saying it's not a recession with the employment picture so strong. And we got further evidence of that today. So where do you stand right now? Negative growth and strong employment? How does that add up? Well, you know, recession risks are high, no doubt. In a high inflation, higher interest rate world, recession risks are elevated. But, you know, with some reasonably

good policymaking by the Fed and a little bit of luck on the pandemic and the fallout from the Russian invasion of Ukraine, I think we'll be able to navigate through without a recession. And the key is, in fact, the job market, the American consumer, the firewall, so to speak, between a continuing, expanding economy and a recession one is the American consumer. And as long as we're creating jobs, unemployment is low, excess saving, debt service is low. Despite this decline in stock market, house prices are up, wealth is high. I think that firewall should remain in place, consumers should keep spending, and we should be able to navigate through without a downturn.

Ken, what do you think? Do you think we can be in a recession with a 3.6% unemployment rate? Oh, I think we're not in a recession now. Of course, the numbers are hard to read because there's certainly the output numbers falling. The jobs report suggests that inflation is not that bad, but there are other numbers that suggest it is. I think the question to me is how determined is the Fed to bring down inflation in the, say, next 18 months? How patient is it willing to be to let it stretch out longer? We're also facing a lot of supply shocks in a way we have not seen in 50 years. And that's just a lot harder take.

I mean, yes, if you have a lot of luck, but the luck can go the other way. It can easily be that the Ukraine, Russia gets worse, that China, which is temporarily pulling out of its COVID lockdown, goes back into it, that other things go wrong. I think it's going to be very, very difficult to have a soft landing. So I think if the Fed tries to bring inflation down as fast as they're talking about, the odds of a recession, a significant recession, are high. Mark, how do they achieve a soft landing? It doesn't sound like they're blinking anytime soon. They sound very resolute.

Williams today, the New York Fed president, speaking in Puerto Rico on inflation. They want to do whatever it takes here. They're not positive. Yeah, and they should, right? I mean, if I were at the Federal Reserve, I'd be saying the exact same thing because they have two objectives that are very achievable and so far so good. The first is keep inflation expectations anchored to their target. And they've done a marvelous job. I mean, by talking tough and the aggressive actions they've taken to date, those inflation expectations, the bond market measures expectations, the one that really matter for Fed policy, they've come all the way back in. They're very consistent with what the Fed would like to see. And that's critical to getting actual inflation down

and to the place where the Fed wants to see it. The second thing they need to do, and they can achieve it, today's jobs report suggested, is to slow the growth rate in the economy so that you get job growth that's down to $100K, $150K per month, that's consistent with labor force growth, and you maintain a stable unemployment rate right around the mid to high threes, consistent with full employment. So a lot of script to be written. Ken's right. There's a lot of things that can go wrong here and sentiment's pretty bad. And anything, any small thing that goes off the rails could push us under. So recession risks are high. But I think we've got a fighting chance. It's not, recession is not inevitable. We have a fighting chance to get through this without one. It also kind of depends, Ken, on your definition of recession. The NBER

can, we'll look at things like the labor market, but a lot of people define it as just two negative quarters of growth back to back. And we could very well be looking at that if you believe the Atlanta Fed. What happens, Ken, historically when the Fed, has it ever happened, where the Fed is aggressively tightening into negative growth? I mean, it's a very odd mix of having the employment report good and the growth be negative. Everything after the pandemic is very odd. I think the question about will we have a recession is how easily will they get inflation down? And I'm worried that the Fed, they're talking tough.

I suspect they'll blink. But I'm worried that having made some big mistakes, the Biden administration made big mistakes and the Fed made big mistakes. And I'd say a lot of academic economists supported what they were doing and had it wrong. They're in danger of making a big mistake in the other direction and overshooting and trying to bring it down too quickly. What do you think will ultimately make them blink? A more sizable jump in unemployment rate?

Of course, you know, that a recession opens up. Yes, of course. No, I mean, as long as you're getting job numbers of 300,000, we probably only need 50,000, you know, to pay the employment figure. As long as you're getting eye-popping numbers like that of course they're not going to blink but monetary policy has long and variable lags famously and when things go south i think they're going to start pausing in a hurry and i think would be really embarrassing but they'll do it if they have to as the backtrack i'm just worried they

keep pushing too hard for too long. They've convinced themselves that inflation expectations is everything. It's not. They have a dual mandate. Right. But it is certainly a priority. Mark, the only other thing I wanted to bring up as it relates to the jobs report was participation was surprisingly lower and people are still dropping out of the labor force, which only is to say that the shortage is gonna get worse and it's gonna be harder for the Fed to put pressure on wages and on inflation and ultimately fulfill its goal of fighting inflation without really hurting the economy.

Do you agree? No, I mean, I think labor force growth is actually quite good. I mean, if labor force growth is equal to the participation rate times working age population. And you're right, last month the participation rate ticked down, but working age population growth is improving. So labor force growth is actually pretty good. Over the last few months, it's been on a year-over-year basis close to 2%.

That's really very, very good. And so I think people are coming back. And actually, I'd point out, you know, according to the BLS and today's numbers, there's still a fair number of people that are outside of the workforce that haven't come back in because of pandemic concerns. Maybe it's long COVID. Maybe they're worried about their kids getting because they're not vaccinated or their elderly parents. But those folks are coming back in. And I think that will support good labor force growth, solid labor force growth, and help the economy to move forward. I guess the only other thing, Mark, is whether it's a lagging indicator, employment in general. No.

And how much? No, unemployment, now that's a lagging indicator. But employment, the number we looked at today, that is the single best contemporaneous measure of economic activity. Much better than GDP. The GDP numbers, you know, my guess is when it's all said and done, they're going to get revised many times over. These declines we're seeing, they get revised away because there's all kinds of technical issues. I'd love to talk about them, but I'm sure it would bore everybody if we went down that path. We're technical enough right now.

Thank you both. We've got to leave it there. Ken Rogoff, Mark Zandi. Thank you. Good discussion on jobs. Still higher, by the way, on the Dow of 65 points. Up next, Sequoia Capital's Pat Grady joins us exclusively to discuss the outlook for the venture capital market. Why he's so bullish still on crypto right now.

You're watching Closing Bell on CNBC. Like many investors, it's been a rough start to the year for venture capital. Over the last six months, tech startup sales and IPOs are down 88 percent from the previous year. And in a recent presentation, VC firm Sequoia Capital says it's going to be a longer recovery. Joining us now to share where he sees opportunity is partner Pat Grady. He's led investments in names like Snowflake, ServiceNow, Zoom, to name a few. Pat, great to have you on the show. Welcome. Thanks for having me. So you guys at Sequoia are sort of known at this point for some of the doomsday warnings

and presentations that you've shared with your portfolio companies. I'm thinking back to 2008 and 2020 when you said the black swan of coronavirus. A few weeks ago, you called it a crucible moment. What does that mean? What do you think we're in store for here? Well, look, the market is pretty tough right now. But the good news is tough times build strong companies. If we go all the way back to 1987, when Black Monday happened, it was only eight weeks later that we got into business with Cisco Systems, which went on to basically lay the train tracks for the entire internet. Fast forward to 2008, 2009, after Lehman Brothers fell over, before the market bottomed down, the depth of the global financial crisis, we got into business with Airbnb at the seed stage. Fast forward then to April of 2020, 80% of Airbnb's bookings for the month got canceled

because COVID had sent the world into a tailspin. Nobody was traveling. They knew what to do. They'd grown up in a tough time, so they quickly observed what was happening, came up with a plan, executed, and came out stronger than ever. And so tough times build strong companies. It's a terrible time for founders to try to get rich quick. It's a terrific time to go build an

enduring business. So what does that mean? Are you telling companies to slash costs, to slash hiring, preserve cash? How are you changing the advice for this kind of environment? So our advice is simple, but not easy. And what I mean by that is it is somewhat easy to understand, hard to execute. And the advice is go ahead and invest in your business, but don't just spend money. And there's a critical difference between the two. When you invest in your business, you're building an asset that's going to yield a future benefit. If you're just spending money, that's money out the door. So what does it mean to invest?

Well, that's like a snowflake. It wasn't the first cloud data platform, but it is certainly the best. Zoom wasn't the first video conferencing service, but it is certainly the best. Figma wasn't the first online creative suite, but it is certainly the best. So investing in your business means building a great product. Engineers, designers, data scientists, UX researchers, product managers. These are the people who are going to create competitive advantage over a longer period of time. This is where you want

to keep investing. And oh, by the way, there are CEOs who are skeptical about the ROI of all these investments. Go use Amplitude to connect those dots and you can see how what you're doing in product is going to lead to the financial outcomes you want. So what does that say about what you think valuations right now for some of these companies that you've been in earlier are now public, like a Snowflake or an Okta or a Zoom video? How do the valuations look right now? One of the things we've done over the last couple of months is launch the Satoy Capital Fund.

This is a structural change in our business. And I'll get around to why this is really the question you asked this makes us structurally long-term oriented we have a single permanent capital vehicle that funds our entire operation in the u.s europe and latin america what does that mean it means that we can get into business with people like the collison brothers in 2010 at the seed in stripe and continue to invest throughout their life as a private company, we can keep doing that once they hit the public markets and be their partner for literally decades to come. And so to answer the question, in the context of a multi-decade time horizon,

where we're trying to execute on the mission of helping the daring build legendary companies from idea to IPO and beyond, a few quarters worth of turbulence is just noise. Just noise. So you think these companies have gotten too cheap. Is that what you're saying? Again, I think if you look at the earnings potential. Longer term. We have companies like, let's now go back to 2009.

We had $25 million of run rate revenue when we got into business with them. Now they're ticking along at $7 billion plus that they are with billions of dollars of free cash flow. The earnings potential of these businesses is immense. What's going on with your crypto portfolio? Because you guys have gone very bullish here. At least 10 investments that I can count on the website. And I know a few other of the stealth ones that you haven't named. Have you had any hesitation as we've seen prices collapse and bankruptcies pile up and some of these brokers, people losing a lot of money? Our point of view on crypto has actually been pretty consistent for most of the last decade, and that is we are long term, incredibly bullish, near term, realistic. A lot of times we use the analogy to the Internet in the late 90s. If you go back and look at that case study, the internet had a million users in 1987. Amazon got going in 1994.

The Netscape moment was 1996. Google got going in 1998. And yet, in the year 2000, we had the internet bubble burst. If we apply that to crypto, what does it say? Bitcoin white paper came out in 2008. We're now 14 years into this. The reason it happened with the internet is the expectations associated with the technology got ahead of the reality of the user experience. The same is true in crypto today. The lesson that we can take from this, you wouldn't have wanted to invest in the internet index in the late 90s because most of those companies are going to zero. Similarly, you wouldn't want to invest in the crypto index today because most of those companies are going to zero. That being said,'t want to invest in the crypto index today because most of those

companies are going to zero. That being said, in the late 90s internet, you could have found Amazon. You could have found Google. Today... Who is that? Who is the Amazon of the crypto burst? What Sam Bacon is doing with FTX right now is unbelievable. The way he's become the focal point of the entire ecosystem, equal parts commercial and community oriented, makes savvy business decisions, but also supports the entire ecosystem, including retail investors. Nothing short of phenomenal. Look what Brian Pellegrino is doing with Layer Zero right now, solving the cross-chain interoperability problem for developers so that they don't have to worry about what's going on under the hood and can benefit from all of that innovation. Look at Magic Eden. Look at Starkware. Look at Fireblocks. There are legendary companies in the making. The trick is to be selective. And again, long-term, incredibly bullish. Near-term, very

realistic. Yes. And I know you're a big investor in FTX as well. So, Pat, how has the performance of Sequoia Funds been? A lot has been covered around Tiger Global, some of the competitors, you know, of course, the SoftBank Vision Fund, which has gotten clobbered. How have you held up amid the volatility, particularly in tech? Again, the benefit of the Sequoia Capital Fund is that we are structurally long-term oriented in a way that literally nobody else in our industry is. The amount of money that we invest in any given year is a tiny fraction of the total value of stock that we hold in the public market or the total value of the shares that we hold in the public market and the private market. What does that mean? It means that we can fund all of our ongoing operations with a tiny, tiny fraction of the current holdings. And so whether those holdings are up or down, we're fine. And we can be a long-term partner to our founders for many years to come. Pat Grady, thanks for giving us a taste of the thinking there at Sequoia during all the volatility. Appreciate it. Thanks for having

me. Let's give you a check right now on the markets right now. Going strong, up 75 points on the Dow. Big tech is having another strong day. Tesla, Apple, Costco, that's what's leading the Nasdaq right now. Actually, Microsoft, Amazon, Meta are under a little bit of pressure, though still higher for the week. Nasdaq's up more than 4.5% for the week. It's been a solid one, a big comeback. Healthcare is what's leading the S&P right now for a change. Best performing sector along with energy, financials, consumer discretionary, and staples. So a little bit of a mix there.

Materials, the worst performer. Still ahead, the former Federal Reserve vice chair, Roger Ferguson, on whether he thinks the Fed will raise interest rates by 75 basis points following that stronger than expected June jobs report this morning. Plus, find out why it's not all fun and games for investors in theme park operator Six Flags today when we come back. Check out today's stealth mover. It's Six Flags. Citigroup downgrading the theme park operator to neutral from buy, slashing its price target on the stock to $26 from 41. The analysts there are believing rising ticket prices may be to blame for a recent slide in attendance. Stock down 7.5%. Up next,

former vice chair of the Fed, Roger Ferguson, on whether last month's wage growth surge means inflation is unlikely to come down quickly. We'll be right back. It's been a sort of choppy session here in Wall Street today as investors digest the June jobs report, which did come in stronger than expected, countering some of the recent recession concerns. Joining us now in an exclusive interview is Federal Reserve, former Federal Reserve Vice Chair Roger Ferguson. It's great to have you back on the show, Roger. Welcome. Thanks. Nice to be here. Do you think this jobs report seals the deal for 75 basis points in July?

I absolutely do. I absolutely think so. As you said, it's a little stronger than expected. We've heard a couple of policymakers today, one on the Rafael Bostic, I think distinctly signaling 75. Then you add to it the average hourly earnings, which continue to be strong, particularly for some of the more important subsectors. So all three of those factors suggest to me that the 75 is a done deal for the meeting later this month. But a lot of the other data, Roger, has been coming in a little bit weaker. And some of the inflationary signals have also been coming in a little bit weaker. Mortgage rates, for instance, had a big drop this week from their highs. Commodity prices have fallen sharply, including the price of oil.

So if you put that with some of the weaker economic data, doesn't that argue for going a little bit less strong on the rate hikes than last time? There is an argument that you just made. I think the argument on the other side is if they start to take their foot away from the break, so to speak, they're going to be sending mixed signals to the market. One of the things they're very worried about is inflation expectations.

And I think it's not good enough just to have tough talk. You have to follow up with action. So I think this report gives them the cover to raise by 75 basis points. What happens later in the year might change, but with a Fed that's very data-dependent, this kind of data, I think, is consistent with the 75 basis point move at the upcoming meeting. What's it going to take, Roger, for the Fed to pause, to blink? Well, I think it's going to take a much more consistent showing of slowing,

particularly in the wage area, because what they're very concerned about is wage price spiral, as it's called. And I think we're nowhere near that yet. Now, we also have seen some recent data, including the Atlanta Fed that suggests perhaps with their so-called GDP now that growth may be in the negative territory. Some of that I think is due to technical matters. So I think what the Fed's mainly focused on now is labor market and wage.

And I think they really want to see that growth being very definitively slower. And I think they've used words like clear and convincing evidence. So what do you think happens to the economy from here? What do two consecutive three-quarters of a percentage point basis hike or three-quarters of percentage point hike in interest rates due to the economy? Well, we've already seen a little bit of a flavor of what it does to the economy, right? Because we, to the point you made earlier, some of the spending-oriented data show that the economy is slowing. Obviously, we'll see housing slowing as well.

But remember, all these things are generally starting from a very, very strong beginning. So the momentum is still positive. But what the Fed wants to see is demand coming down to better match supply. And so what we have to see there is things like spending slowing, housing slowing. And then over time, you know, they want to see the unemployment rate rise somewhat, not dramatically, but rise to be above the current 3.6 level, somewhere over 4 perhaps. So I think that's what they're looking for. And at that point, then I think they will think about stopping, taking a pause, see how things are going, but not before then. Do you think they're sounding too confident on this idea about the soft landing?

More Fed officials this week say it's looking possible, probable. What do you make of that? I think some of them may be a little too confident about that. Now, look, they obviously want to project confidence. You're not going to see a Fed official projecting too much pessimism. That's just not part of the playbook. But I think Chair Powell handled it really well. He talked about plausible paths. He has talked about pain. He talked about how difficult it's going to be. So I think they would be wise to recognize that, you know, the outcomes are not fully in their control. And one of the outcomes that many people are projecting

is some form of a recession. I emphasize some form of recession because it may be very short, may be very mild, hard to say. But I think it's wise for them to be circumspect and recognize that their range of outcomes, not all of which are in their control. I guess just trying to figure out this balance, right, of how much the economy takes pain before inflation can come back down to levels that they're okay with, whatever that looks like. Where do you think the unemployment rate, if you had to guess, and I know it's just

a guessing game at this point, Roger, is at the end of the hiking cycle? Oh, I think it's probably somewhere around four, maybe four and a quarter, something like that. Certainly above the current numbers. I don't think it's going to be dramatic. They're not trying to drive that kind of increase in unemployment. But as you say, it's really a guess because the most important number is are we getting to inflation that looks like it's going to hit that 2% target over a reasonable time frame? And that's what they're looking for, I believe. One more, if I could just ask on the QT, quantitative tightening. So they're going to start to shrink the balance sheet really in force here.

And that to me is, it's not talked about as much as the interest rate hikes what effect do you think that's going to have on the economy on the market because at this at this size and speed it's a little bit unprecedented it is certainly unprecedented um i think the effect on the market uh is frankly and i think they're aware it's going to royal the market somewhat because they have been the buyer of last resort and now they have to be other buyers. One would expect interest rates as set by the market to rise not just because of expectations around future Fed policy but in order to bring in those buyers from the private sector. I think with respect to the economy overall

the Fed itself has estimated that the so-called QT is the equivalent of a 25 basis point hike. I'm not sure exactly if that's right, but I would say the effect on the economy is milder than the monetary policy itself. But the effect in markets, I think, could be to increase volatility a bit and certainly reinforce the need to have rates somewhat higher to bring private sector buyers in to replace the Fed. Roger Ferguson, always valuable to have your insight. Thank you for joining us on Jobs Day, former vice chair of the Fed. Thank you. Sayon, 75 basis points in for July. Take a look, we've just turned negative on the S&P. And it's been a tentative rally when we've seen a rally all day today.

Still much higher for the week, more than 2% for the S&P, more than 4% for the Nasdaq. But the gains are slipping for today on this final hour of trade. You've got materials at the bottom of the market. Staples just turned red. Still some strength in financials, energy, and health care. But technology also just turned red as it relates to the S&P. The Nasdaq 100, though, still higher by just a few points. Two analysts, two very different takes on the outlook for Microsoft, which is one of the bigger drags on the Dow today.

Details on that coming up. And do not miss tonight's CNBC special, Taking Stock. Frank Holland and Josh Brown breaking down the second half investing playbook. That's tonight, 6 p.m. Eastern on CNBC. Huge down day for Upstart. Look at that, down 18.5% after a revenue warning. That is resulting in a lot of analyst criticism. We'll share the details straight ahead.

Plus, health care rallying and investors loving Levi's. I told you I've been buying jean shorts. We'll hit that and more retail when we take you inside the Market Zone next. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here, as always, to break down these crucial moments of the trading day. Plus, Steve Kobach with us on Microsoft and Telsey Advisory Group. CEO Dana Telsey on Levi's and what it means for retail.

Mike, we'll kick it off with you on the broader market, which is kind of wavering between positive and negative. The 10-year Treasury note yield, it is above 3 percent again. The dollar just continues its march upward. Where are we getting direction from right now in the equity market? Well, it seems, Sarah, that the numbers we got today with the jobs report, but also all week, we didn't give incremental new fresh cause for people to get more worried about what they've already been worried about, is the way I would view it, which is to say, yes, the economy might be losing steam. The Fed might be willing to risk recession if it has to. But we're not really here and now with that fear.

The jobs number showed that. And then the yield move now from two all the way out to 10 years is basically a little over three percent right now. So you have a flat yield curve, but credit is not blowing out in the last two days. So it seems if the macro worry has just cooled enough to allow the market to gather itself up, we're about seven percent off the lows in the S&P 500. We've had these rallies before, but this one seems a little more consistent for now, although the entire week's move in the S&P was within the high and low of last week. So even though it seems like progress, it's still very familiar ground we're walking on. And Morgan Stanley, Mike Wilson, the equity strategist there who's been bearish the whole

time and right, basically put out a note today, don't be fooled. He said the bear market will not be over until recession arrives or the risk of one is extinguished. And we don't really have clarity on either of those things. We don't. And that is pretty much how the historical textbook tells you to think about these things. You know, there is a potential for some kind of soft landing, as you were talking about. But it's still a ways before we have confidence that that could possibly take hold. It is months and months. So I don't think anybody's particularly comfortable on either side of the trade. But, you know, we are hovering up off the lows. A lot of valuation work has been done to try and sort of reduce the expectations

that are embedded in equity prices so far. Let's hit health care because it is the top performing sector right now in the market. Biotech names are working. Novavax, Moderna, Biogen, Amgen, on the green. Moderna aiming for its seventh straight up day. And then there's the insurance stocks like UnitedHealth, Humana, Centene, and even Cigna doing even better. UnitedHealth is the top performing Dow stock in the last 30 days. Cigna touched an all-time high today. Healthcare suppliers, take a look at some of these names. McKesson, Cardinal Health, Amerisource, Bergen, all moving higher as well, Mike. It's certainly a defensive sector, but there's growth too within biotech. Is that why it's kind of in the sweet spot right now as the market tries to figure out which way it wants to go? Yeah, there definitely is a blend here. It's defensive, but it's not without top line growth,

without secular tailwinds. And so I do think that's one of the reasons. It definitely is an end of cycle playbook to start to overweight health care. If you looked at the subsectors, I mean, pharma has been the best performing one. That is really value and definitely defensive. Biotech just got beaten up so much and now it is really value and definitely defensive. Biotech just got beaten up so much and now it is reviving a little bit. It's almost like doing what you might expect broader tech to do from a very low starting point. But it just has because the big profitable biotechs also have that that valuation support.

They're working. So I think it makes a lot of sense. It's only down less than 9 percent, I think, year to date. The question is whether it really is just a place to park while you get confidence about other things in terms of the cycle or if, you know, this is a longer-term move. And there's deal speculation always heating up here. Well, it's been quiet lately, but with Merck, Cgen, for instance, in advanced stages, according to reports, maybe potentially some deals to be had. Interesting split in technology right now. Apple and Tesla are leading on the Nasdaq.

Microsoft and Amazon are lagging. On Microsoft, Piper Sandler cutting its full-year estimates for Microsoft, reducing its price target on that stock to 312 from 352. The concern, the stronger dollar and the outlook for IT spending during a potential recession. Analysts at Deutsche Bank, though, say Microsoft screens as the top name in the software space in terms of both quality and price to quality. Steve Kovach joins us. Steve, how's Microsoft able to combat the currency headwinds and the negative outlook for IT spending?

Is it a safe bet in this environment or not? It depends on who you ask. If you ask Satya Nadella, he says it's a safe environment. In fact, that's what he said, Sarah, on the earnings call just when they reported last quarter. And what he said was he just does not see cybersecurity and IT spending really going away. He didn't necessarily say it's not going to slow down. It might. But he sees that as such an important thing for literally every business out there to be spending money on even in a recession so he's if not maybe in the short term optimistic he's very long-term optimistic and i'll just say microsoft is in good company with these price target cuts uh earlier this week we saw cuts for

apple we saw cuts for netflix we just call cuts for alphabet and by the way those those names are having great weeks uh microsoft is kind of the laggard of the of the big tech that we've been talking about all week. But yeah, Microsoft. It feels like the analysts are just late to the party. These stocks have been selling off for weeks and months now

on concerns about the recession. Steve, the big question, I think, for tech earnings is whether IT spending will really slow. Because in previous recessions, right, it always does. Yeah, it slows,

but it's also becoming more important than ever to keep spending, at least to stay aware and alert for what's going on in cyber right now. And, you know, last recession, we didn't have these strings of ransomware attacks, for example. We didn't have Russia doing cyber attacks all over the place, which is something Microsoft is very involved in monitoring. And at the same time, you've got to look at the pricing power Microsoft has for some of its products, especially Office 365, which it already started raising prices on last month.

And it can do that again if it needs to. We've seen for these foreign exchange headwinds, Sarah, we've seen companies like Apple kind of tweak pricing in international markets. They raised the iPhone price, for example, in Japan. So it'll be interesting to see if they do that, if Microsoft does that rather in their Office business. they can't necessarily do it in cloud as much because they have so much competition with Google and Oracle and all those other and Amazon, of course,

for those clients they're trying to get. But for the most part, they have pricing power in a lot of their other software. Good point, Steve. Thank you, Steve Kovacs. In fact, some of the best performers of the week in the S&P are related to tech. Alphabet's up 10 percent. Qualcomm, Micron, after that disappointing earnings results last week, up more than 10 percent this week. What else is selling off today? Upstart. Remember that company, the lending company that does AI? It's down about 18.8%. Warning, Q2 revenue will come in much lower than expected. That's leading to a slew of harsh commentary from the analysts. Take a look. Citigroup writing it had overestimated its assumptions for Upstart's loan performance and that it lost the forest through the trees.

And then Piper saying the company faces a perfect storm of headwinds. Stevens saying Upstart originating loans on its balance sheet that it can't pass on to its funding partners, quote, breaks the thesis it had for that company. And the stock is now down about 80 percent in 2022. Mike, this was one of the poster children for the high flying technology focused stocks that had stories during the, I don't know, post-COVID period of ample liquidity. Right. And that story in this case was that they actually had sort of hacked the credit underwriting process. So they had an AI-powered solution that was just going to give them an advantage essentially in selecting more creditworthy borrowers that was not going to be

locked into the standard credit rating type of framework. And that's obviously fallen by the wayside. It happens almost every cycle. There are these direct consumer lenders that can grow really fast in a good economy when you do have rates friendly and you have the wholesale bond market willing to buy up your paper so that you can keep growing. And that sort of always hits a hitch when we get tougher times, rates go up, risk appetites go down. And then you realize that there's really no reinvention of making personal loans, making auto loans that's material

enough to overcome those powers. They might be better than others, but it's not showing through in the near-term results. Yeah, such a momentum name. That totally unwound. Take a look at Levi Strauss getting a boost today after reporting strong numbers yesterday on Q2. Gene Maker beating the street on both the top and bottom lines while hiking its dividend and reaffirming its full-year outlook. That was important. For more, let's bring in Telsey Advisory Group CEO Dana Telsey. Stick with Levi's, Dana, off this report?

Yes, I would stick with Levi's off this report. I think as we go into retail earnings season this month and next, being able to maintain your guidance is going to be few and far between. And keep in mind what Levi said, there's an incremental eight cents of expense pressure that's in there, and they're still able to maintain their guidance with that. So that trend of casualization with hybrid office plus the new innovation that they have is driving the business. And don't forget the 20 percent hike in the dividend, which is important also. Levi is on trend right now. People are buying jeans still. Anecdotally, it feels that way. They're buying these jeans, which I keep talking about. Yes. And the whole Western trend, I think, is still very much a thing. I was in Aspen last week. It's hot. So my question is,

does it say anything broadly about the consumer? Because it's in a good spot in terms of the trend, but I'm not sure if it actually means anything for the rest of the retailers that are about to report. I think you're right, Sarah. I think Levi's is going to be differentiated from the others. I think others have more excessive inventory. Earnings estimates are going to need to come down. I think Levi's is going to look like a strong retailer and a strong brand in this marketplace because I think that the headwinds of rising inventory, rising promotions, a lower income consumer that's pressured is going to be the theme of earning season for the second quarter. Who else has got it right now? Who else is like that on trend? I'm looking at some of these consumer discretion. Nike's at the bottom of the consumer discretionary

basket today, this year, up down 35 percent. Isn't Nike still on trend? Yes, I think they are on trend, but I think you are having a slowing in sneakers right now. I think fashion footwear is stronger. You look at Steve Madden and some of the things they're doing. You look at Kalaris and what they're doing. It's working. But take a look at Aritzia last night, who also is on trend. And cosmetics is on trend.

Estee Lauder and Ulta remains very much on trend. And who are the losers this earnings season that you predict? I mean, I think overall, we're still seeing the weakness in some of the lower end retailers where it's definitely a pressure point. I think the weakness is coming from, look at what's happened with the gap. It is pressured out there with Old Navy and it's not going away in the near term. I don't think that's a story that will come back for a couple of years right now. Mike Santoli, where are expectations for this group? They're pretty low. You know, if you look across the apparel retail or the apparel makers, valuations have taken a hit. I've seen some people point to the fact that, you know, it's a small and a short-term effect,

but cotton prices are down huge, like 35 percent in the last few months. They're about flat year over year. So what maybe people thought was going to be, you know, just an additional headwind. I know there's going to be margin pressure out there, but that's at least slightly easing up on some level. But, you know, again, tough consumer environment to start to make a bold play to say that they're, you know, that they're going to come back strong. Really quickly, 30 seconds, Dana, have we moved from inflation to deflation in apparel in some of these retail categories? Not yet.

You're still seeing inflationary pressures out there, and I think the stocks have anticipated the weakness in earnings, but I think I'd be cautious on the group right now. Got it. Dana Telsey, thank you very much. Always good to hear from you. Two minutes to go in the trading day. Mike, what are you seeing in the market internals?

Struggling for direction overall. Yeah, and that's borne out in the internals as well. It's kind of indifferent, definitely not the broad rally we saw yesterday. It's actually more declining volume than advancing volume. There is outperformance today by the NASDAQ 100, which kind of tells you sometimes the mega cap's doing more of the work. On a week to date basis. A lot has been made about the aggressive riskier stocks outperforming. Take a look at the high beta stocks within the S&P 500.

Those that are more volatile and move faster. Big outperformance this week relative to low volatility ones. Obviously, in a longer term basis, beta has been a bad underperformer. Now you have one of these bounces that goes countertrend. Volatility is really compressed. We've seen some gentle moves over the course of this week. You see it down in the volatility index, down below 25. I'd call it the bottom end of the range that's been in place since April.

So, you know, not exactly relaxing, but also finding no reason to get overexcited going into a summer weekend, Sarah. Still thinking about cotton prices down 35% from the highs. I didn't realize it was that sharp. Yeah. Talk about inflation coming down. As we go into the close, take a look at the Dow Jones Industrial Average. It's UnitedHealthcare that is the biggest contributor to the Dow today in terms of positive, which Dow has just gone negative.

It's had a few attempts at positive today. We've also got strength in Amgen, Visa, American Express. Goldman Sachs is the biggest drag, along with Disney, 3M, and Caterpillar. In the S&P 500, which is unchanged, the strong groups today are healthcare, technology, and energy, which actually just went negative. Materials are the worst performers, down about 1%. Though on the week, very strong overall. Communication services, the winner of the week, along with consumer discretionary and technology. And the Nasdaq is just positive on the day. It is the biggest winner on the week, up more than four and a half percent to close out the week. That's all I'm going to do for Closing Bell. See you next week.