Closing Bell - Closing Bell: Stocks fall ahead of inflation print, Chips get chopped, SoFi CEO on stock plunge 8/9/22

Episode Date: August 9, 2022

Stocks fell in another choppy session, with the Nasdaq feeling the brunt of the pain, closing lower by more than 1%. Liz Ann Sonders from Charles Schwab and Tom Lee from Fundstrat discuss their outlooks ahead of tomorrow’s CPI report. Meantime chip stocks were hit hard after Micron warned on earnings. Rajvindra Gill joins to make the bull case for the semis, and Commerce Secretary Gina Raimondo discusses the signing of the CHIPS Act. And SoFi CEO Anthony Noto talks about Softbank’s decision to sell some or all of its stake in the company.

Thank you, Kelly and Tyler. Another choppy session here on Wall Street as investors await tomorrow's key inflation report. NASDAQ's under pressure. It's down 1.2 percent as we head into the close. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the market, down half a percent on the S&P 500. You've got strength in groups like energy, utilities, real estate and financials. Everybody else is down and tech is being hit the hardest today. There's the Nasdaq down 1.1 percent. Consumer discretionary and technology particularly weak. A lot of the apparel names and retail

under a lot of selling pressure today. Also, the cruises are hurting the consumer discretionary group. You've got Bath and Bodywork in Norwegian at the bottom of that pack. The small caps given back recent rally down 1.6 percent. And here's a live look at the biggest decliners right now in the Nasdaq 100, which tells you the story of where the weakness is coming from. A lot of the semiconductors selling off again today on the micron warning. Yesterday it was NVIDIA. And you can see the reaction and the damage. Lamb Research there almost at the bottom of the pack, along with Applied Materials down 7, 8 percent on the day. Some of the stay-at-homes, like Zoom Video, also weaker.

Coming up on the show today, we're going to talk to Commerce Secretary Gina Raimondo on the CHIPS Act, which was signed into law this morning by President Biden. And in just a moment, Lizanne Saunders from Charles Schwab will join us with her latest thinking on the market and how tomorrow's CPI report could inform the Fed's next move. Let's get straight, though, to the dashboard. Mike Santoli taking a look under the hood at the summer rebound and whether that's wrapping up today. Yeah, you know, Sarah, pretty indecisive here the last few days. In fact, the better part of the last two weeks, the indexes have been kind of sideways, digesting that big move off the mid-June lows. Now, it was the big growth stocks that did outperform off of the lows.

But on a year-to-date basis, I think it's pretty relevant that the equal-weighted Russell 1000, so basically if you owned a little bit of the biggest 1000 stocks in the market, vastly outperforming both the S&P, and that's because the mega cap growth stocks still have remained underperformers. Most of what's been going on this year, yes, we're pricing in a slowdown, potential recession, Fed tightening. All that is moving in the direction of compressing valuations at the high end. You're down less than 10% year-to-date in the equal-weighted Russell 1000. Whether that's a selling opportunity or just a sign of traction is the debate. Take a look here, too, at the S&P 500's advanced decline line.

This is the cumulative running tally of stocks going up versus down on a given day. And it sort of kind of broke out a little bit. This is coming into today. So it does show you that there's been better breath off the lows. Again, it doesn't mean that the markets proved that that low is going to stick and that we're up and away from here. But it does show you that there's some real demand that has filtered in and we priced in a fair bit of the slowdown. Clearly, the CPI report, inflation is going to be huge tomorrow for stocks, for bonds, which apparently are at a head and shoulders critical level. What is the, to use a Santoli phrase, the field position for the market into this inflation report?

We're expecting a drop, right, because we've seen that in energy prices. So hot number, the market does what? Cool number, the market does what? Cool number, the market does what? I mean, hot number would seem to catch the market off guard because I think peak inflation is part of the basis for what we've seen in terms of this rally. But, you know, what are we talking about with regard to hot? We know what gasoline prices have done. That's the biggest headline. But core, core inflation is going to be key. We're looking for that. I think we're going to be able to say we've seen progress,

but one month is not going to necessarily be decisive because the Fed has told you we need multiple months. Also, we don't know what level we're trending lower to. You know, we get down to 4% core. That's great. That's progress. Is it enough? Mike Santoli, thank you. We'll see you later.

For more on the market, let's bring in Charles Schwab Chief Investment Strateg, Lizanne Saunders. Lizanne, what are you telling your clients about what to expect from tomorrow's report and how that might influence Fed expectations and this summer rally we've had? So I think one of the things that we learned from Friday's jobs report is that a significantly outsized print relative to what was expected could be a volatility needle mover. What's interesting about tomorrow's report is that headline inflation is actually supposed to come down relative to the prior month, but core is expected to go up. And I think we're now at that point where it's not just what Powell is looking for, a series of lower readings, but the drivers of headline versus the drivers of core. And given that the shelter components, the combination of owner's equivalent

rent and rent of primary residence represents about 40 percent of core CPI, and they tend to be stickier when they move up. But I think the question near term is how much of an offset is that to what clearly is some downside associated with commodity prices. So you've been pretty defensive, right, in your overall positioning and recommendations. Lisanne, has the summer rally changed anything for you? So, you know, we've had a definitive focus on quality areas of the market. We actually went to sector neutral many months ago, feeling like factor-based decisions made more sense than just trying to make a sector call or

two. I will say that this rally, in many ways, has looked better from a breadth perspective, from an internals and technical perspective, leaving aside some of the low-quality pockets that have not only also rallied, but have rallied to a significant degree. You guys have been touching on it, whether it's the meme stocks or negative earnings areas, heavily shorted stocks. And so to put my trader's hat on for a minute, we've been saying you want to sort of fade the rally down the quality spectrum. There are times where you want to go down the quality spectrum. That's where the leverage is to an economic upturn in that no earnings, weaker balance sheet part of the market. I don't think that's the part of the cycle we're in right now.

So we've been saying lean into the quality areas for leadership, but you want to fade down the quality spectrum. And I think that's the best way to approach this somewhat unique move off the mid-June lows. No, and I know quality, you don't want to go sector specific, but just thinking about the cyclicals here, this is the second day in a row we had a downgrade of earnings expectations from a major semiconductor yesterday, NVIDIA today, Micron. I mean, that's a cyclical group. It's tied to the fate of the economy. So what does it make you think about when it comes to some of the cyclical parts of the market that have rebounded? Well, again, I think if you're really down the quality spectrum, sometimes makes sense if the market is pricing in a significant inflection point back up in the economy, similar to what happened when

we got the news, the positive vaccine news toward the end of 2020. That was when it made sense to go down the quality spectrum to what had been hurt most significantly, to where there was no earnings because the leverage on the upside was there. I think what traditional cyclicals are telling you in many cases, depending on what segment of the market they are, are they global or are they domestic, is that we are in a weak economy, if not a weakening economy from here. And that is sort of additive to the message around be careful about moving into segments of the market that really do require a turn back up in the economy. I don't think Friday Strong's job report is a reason to really take a significant cyclical approach under the belief that we are going to see a turn in the economy. We think weakness is going to continue to be the trend near term. So are earnings

expectations still too high, given your outlook there? So earnings ended up being slightly better than expected, at least so far. We're about three quarters of the way through X energy. You are in negative territory. But given the weak productivity data that was confirmed today with the second quarter release, that bodes somewhat ill for profit margins. And I do think the second half of this year could be a year where the downgrades to forward estimates start to pick up. That is typically the case when you see a weakening in economic growth. The profit deterioration tends to lag that, especially when you've got an inflation-driven deterioration in growth. We have to remember that earnings are more correlated to nominal growth, not real growth. And it takes a while then for that growth slowdown to show up in either profits or profit margins.

But I do think that will increasingly be a story for the second half. So, Lizanne, what would change your view? What would make you more optimistic or feel better about getting into the market or riskier parts of the market? Some people thought peak inflation, and that's one of the catalysts for this recent rally we've had on hopes that that's happening. What would do it for you? Well, I think some hopes for peak inflation, I think, has been part of the rally. But I think it's more than just a peak. To reiterate what Powell has been really pounding the table on, it's a series of lower readings. Mester has talked about it, you know, several months of lower readings.

So it's not just a look back one month and saying, OK, we're lower than we were a month before. The peak is probably and that's not. I also think a basis for the rally was that about a day before the S&P low in mid-June, you had the peak in the 10 year. And from around three and a half, you had the peak in the 10-year. And from around 3.5, you went down to 2.5. And I think that that was a huge tailwind behind stocks. The thing that makes me more nervous than some of all the macro stuff we've been talking about is with this rally has come frothy sentiment again. And I think part of the reason why maybe we're seeing weakness today, even if you don't have some fundamental driver to point to, is we maybe have gotten a little over our skis from a sentiment perspective. So from a trading standpoint, I'd say

watch the sentiment data. I think that has a tendency to be a bigger needle mover and helps to explain some countertre trend moves that might not otherwise be explained by either the macro environment or some particular set of data points. Or you could just watch GameStop, which is still positive for the week, which even though it's given back today, AMC, Bed Bath & Beyond, I think is the current mover du jour in the meme world. Lizanne, thank you very much. Lizanne Saunders from Charles Schwab. You too. Shares of SoFi have been on a hot streak over the last month, but getting hit today on news that SoftBank, its biggest shareholder, is looking to sell some or all of

its stake in the fintech company. We will talk to CEO Anthony Noto about that news and also the company's new investment products focused on Web3 and clean energy. Some announcements there today. Dow's down 83 points. It is off the low of the session. At one point today, we were down 119. The high, though, is up 45. So right in the middle of the range. We'll be right back. Look at shares of SoFi. They're falling today down around 8%, a little more than that, after SoftBank says it will sell all or part of its 9% stake in the company. Meantime, SoFi out with some news of its own today, announcing the launch of two new ETFs. SoFi Web3, which is ticker TWEB, focused on NFTs, metaverse, blockchain, and SoFi Smart Energy, ticker ENRG.

CEO Anthony Noto joins us here first on CNBC. It's good to see you, Anthony. I definitely want to talk ETS, but I feel like we have to start on the stock move today and the SoftBank news, which is sort of overshadowing things. What do you know about this sale? Why? Yeah, I really can't comment on SoftBank's decision to drive liquidity. Obviously, they reported results yesterday, and those results speak for themselves. As do SoFi's results. We had a record quarter again. We've been able to deliver record revenue for the last four quarters in a row, growing

50% year over year, really strong positive EBITDA doubling sequentially. Our first GAAP profitable quarter for the bank, SoFi Bank, that we opened up in our first full quarter there. And really strong growth in members and products, both accelerating. And then what often gets overshadowed is our technology business that also accelerated in Galileo. So we had a really strong quarter across the board in terms of our financial performance, our operating metrics, really validates our strategy to be a one-stop shop and driven diversification of our business. So I'm really proud of what the team's accomplished. And that's really what we can talk to. And those are the facts. Do you have any indication of whether SoFi is going to sell more, or excuse me,

SoftBank is going to sell more of its stake and get out of the name? I do not. All I know is what the rest of the public knows, which is what was in their public filing about the results and the losses that they generated. And, you know, investors have a lot of different needs for liquidity and that may be tied to their decision. But I don't I don't have any other information than that. No, it was a doozy. More than 20 billion dollar loss for the for the Vision Fund, one of the worst quarters ever. So let's talk about your announcement today. ETFs, not not a huge revenue driver for you. Is it growing? Do you have plans to change that? We know it's a really critical element to our strategy. So we want to be a one-stop shop for all of your financial service

needs, whether that's buying a home, paying for college, investing, using a check or savings account, a credit card or insurance. And we're the only digital platform that offers you the ability to buy, save, spend, invest, and protect. But in each one of our individual categories, in this case, the invest category, we also want to differentiate based on selection. And within invest, we think there's an opportunity to be a one-stop shop, to give our members access to investing at an earlier age. And so we've done a number of things since we launched Invest to give great selection, but also access to Americans that typically haven't accessed investing at a very young age. We launched with single stocks without commissions.

We pioneered fractional shares. We launched four of our own SoFi ETFs to give our members an opportunity to invest in a diversified portfolio, like an S&P type of index and SoFi X, the ability to buy 500 diversified companies at a $10 price point so they could diversify their investments and dollar cost average through recurring investments. So what we're adding here today adds the additional selection. So we'll now have eight SoFi ETFs. So we know our members can invest in Web3, the decentralization of the Internet.

And that's why we came out with T-Web in addition to the emerging new technologies and energy. And that's why we came out with Smarter Energy today. Two new themes for them invested in a diversified way, in a responsible dollar cost averaging way. The T-Web one, I find the timing a little bit interesting right now, just given the fact that the market has soured on a lot of these themes, blockchain, the metaverse, NFTs, which is what this ETF is all about. Yeah, one of the things that we've seen over the last three decades in investing is that the emergence of new technologies or emerging companies goes through a boom, bust, boom cycle. And so it's very clear

that blockchain is not going away. It's very clear that cryptocurrency is not going away. Big data is not going away. The metaverse isn't going away. NFTs and tokenization are not going away. Yes, there was an overvaluation of those assets. They've come back to reality. The market's trying to figure out what's fact versus fiction. They're trying to figure out what are the real sustainable businesses, what aren't. The benefit of an ETF that cuts across those four themes that I just mentioned in T-Web is that it gives you the ability to actually diversify your risk by investing in this ETF as opposed to one or two companies or one or two cryptocurrencies. And so these companies fall into those four thematic areas

in a diversified portfolio under the ticker TWEB. And that comes at about $20 a share. So it allows you to get started if you want to invest in that theme at a low price point in a diversified way. And of course, you want to invest over the cycle, set up recurring investments you can do on our platform as well and invest every week or every month. So your dollar cost averaging into the portfolio. I know, Anthony, you started off by talking about some of the strong fundamentals that you're seeing. And we saw that in the last earnings report and we've seen that in the in the stock rebound. I know you were on CNBC talking about that as well.

But then you look at a company like Upstart, which last night, this has gone from bad to worse. The AI lender and now expects bigger losses, a bigger slowdown in revenues. Why should investors looking at that and skeptical of the category growth not worry about you? Sure. We're a diversified fintech. so we operate in a lot of different businesses. We have three segments that we report, lending, which are four different products, home loans, in-school loans, student loan refinancing, as well as personal loans. To the best of my knowledge, I believe Upstart's only in unsecured personal loans. Our unsecured personal loans are much higher quality. The income of an individual on average of our personal loans is $140,000. Their credit score is very high, an average of 740.

So we're servicing the very high end within that one particular product that they're operating in, and we've seen really strong credit performance there. We also have our financial services segment, which consists of SoFi checking and savings. Checking is the only place you can get a 1.8% interest rate with no minimum deposit, no restrictions. Also, the invest product I just spoke about, our credit card product, as well as some other properties. And then we have a big technology platform business, Gallaudet on Technosys. We're building out the AWS of FinTech. So we're a fairly diversified company. It's what's allowed us to deliver strong growth. As I mentioned,

four consecutive quarters of record revenue, eight consecutive quarters of positive EBITDA. And as I mentioned, now we're gap profitable at the bank for the first quarter. And really quickly, just addressing some of the concerns out there about the economy, what is the health of the personal loan business right now? You know, as we discussed in our earnings over the last two weeks and with investors since then is we raised our outlook for the year. We're cautiously optimistic. We've definitely been a belt tightener for the last two and a half years since the student loan moratorium was put in place. It took that business from over two billion dollars of origination a quarter

down to less than 500 million dollars. And we've been able to diversify away from that and still deliver record growth up 50 percent year to year in revenue again. And so we're watching all the credit statistics and macroeconomic statistics for early warning signs. But so far, that business remains strong and the behavior of our higher end higher credit person has performed quite well, as has our credit statistics. Really good to get an update. Anthony, thank you. Thank you for the time.

Thank you, Sarah. Anthony Noto, CEO of SoFi, which is off the lows, down about 7 percent. After the break, Bank of America out with a new spending tracker saying one group in particular is getting squeezed even harder than the rest by rent inflation. We'll bring you the big picture on why that matters next. And then later, Fundstrat's Tom Lee will join us for the Market Zone with his latest thoughts on stocks, inflation, Coinbase, which reports after hours today, and much more. We've got the Dow coming back a little bit, down 60 points. in today's big picture the u.s consumer is hanging in there despite worries about recession and inflation bank of america institute just released a new report based on data like credit and debit card spending some takeaways total payments or money flow increased seven percent about the same

as june meantime card spending per household is up 5.3 percent from last year. But when you factor in sky-high inflation, it's actually under pressure. So those higher prices are driving it higher. Also, higher rents are hurting, especially younger consumers. The median payment for Gen Z on rents up 16 percent in July, versus just 3 percent for baby boomers. Bottom line, Bank of America says it is still pretty positive about what it calls the, quote, steady resilience of U.S. consumers and the lower gas prices in July certainly helping. While inflation is hurting, they also say consumers have not yet shown signs of increased borrowing, something we're all watching.

We're going to get more read on inflation tomorrow when, of course, we get the CPI report in the morning. When we come back, stock market down about 41 points. Take a look at the semiconductor space. It's the hardest hit in the technology area today. President Biden signing the Chips and Sciences Act into law on a day when this space is getting wrecked on that profit warning we got from Micron. Up next, we will talk to Commerce Secretary Gina Raimondo about the bill and about the increasing concerns of demand in this sector. We'll be right back. Welcome back. Chip stocks getting hit hard today after Micron became the second semiconductor company this week

to warn about earnings. But Micron also announced a $40 billion investment in U.S. chip manufacturing, which, of course, comes on the same day that President Biden signed the bipartisan Chips and Science Act into law. I spoke this afternoon with Commerce Secretary Gina Raimondo from the noisy White House lawn. She was at the signing, and I asked her how the administration plans to hold these chip companies accountable to use the billions of dollars the way they're promising and follow through. We will hold them accountable. This is not a blank check to industry. This is us partnering with industry. We're going to make sure that the money is used to build factories in America, hiring American workers, and we'll take the money back if they violate any of these rules.

This isn't for stock buybacks or investing overseas. This is for investing in research and development and manufacturing in the United States. By the way, the President and I were just with the CEOs of Intel and Micron, and they're being true to their word. They said that once this bill was passed, they would have the confidence they needed to make these investments in the United States, not in Europe, not in Asia. And that's what they're doing, and that's what this is all about. As it relates to American manufacturing and jobs, we talked to the National Association of Manufacturing CEO Jay Timmons yesterday, and he said the CHIPS Act is two steps forward, but the Inflation Reduction Act is one step back. He's concerned about the higher taxes and says it's going to hurt economic growth and hurt manufacturers' ability to pay higher wages and invest. How do you respond to that?

I could not disagree more. And I think he's out of step with most business leaders. The president and I were just with dozens of business leaders. They are for the Inflation Reduction Act because it's the biggest investment in climate that we've ever had as a nation. It's going to bring down prescription drug costs. It's not only going to reduce inflation over the long run, but will increase productivity. You know, I think some folks who aren't for it, they believe in an old-fashioned, outdated mode of economic theory which says all you have to do is cut taxes and you'll have prosperity. It's not true.

It's wrongheaded. What we believe in the president's leadership is, of course, you need competitive taxes, but you need investments, and you sure as heck need to fight climate change. So I'm confident that Pelosi will get this done in the Congress on Friday and we'll have another great bill signing soon. You mentioned that you've just been with the CEOs of Micron and Intel. Both of them, you know, Micron today and the announcement alongside the investment warned on the current quarter they cut their guidance. They warned about negative free cash flow for the quarter afterwards. Intel had an awful quarter.

I'm just wondering if you're concerned about what you're seeing right now from America's semiconductor industry. It doesn't paint the picture of the healthiest, most vibrant industry right now. Well, look, the supply chain challenges are affecting every industry and especially affecting them, and so they have their work cut out for them. They also need to continue to invest in innovation and research and development. But that's another reason this bill is so important. You know, it's a multi-billion dollar investment in this industry where we plan to work with them in partnership, not just to build a few more factories, but to invest in training partnerships, apprenticeships, basic research and development. This is really a new day in America, investing in ourselves,

our R&D and our manufacturing and partnering with these companies to do that. A big part of the framing of this bill, Madam Secretary, has been to counter China and all the money that they've invested in their own semiconductor industry. And I know that the industry lobbied to take out that provision that would prohibit them from investing in advanced semiconductor production in China. So is that final in the law? And do you expect China to retaliate or respond to that? It is final in the law. As I said, it's not a blank check.

The purpose of this money is for these companies to invest in the United States of America. And there are prohibitions. Companies that take this money cannot make leading-edge investments in China. And we plan to be very strict about that. Look, this isn't about hurting China. That's not what this is about. This is about investing in America. This is about making the necessary investments in America, in our workers, in our research and development, so we can compete, so we can lead the world in this cutting-edge technology. It's about believing in ourselves and about strengthening American competitiveness.

But I do wonder if it could help spark a broader battle over technology between the world's two superpowers at an already tense time. For instance, Taiwan and its semiconductor manufacturing. Is that the heart of this issue? It's not a zero% chance that China invades Taiwan, as we've all been talking about lately with the House Speaker's visit. So what is the plan then for semiconductors? I mean, look, that's the whole point of this. Right now we buy the vast majority as a country, the vast majority of the most sophisticated chips from one company in Taiwan. It's very vulnerable, and that's what we have to fix here. We have to make these investments

in the United States. These chips should be made in, you know, Ohio, Michigan, Arizona, Pennsylvania, this country with our workers in partnership with our research and development institutions. So, you know, the best way to compete with China and secure our future and our national security is to invest in our own country. We invented the chip industry in this country. Silicon Valley is Silicon Valley because of the silicon chips. We took our eye off the ball. We stopped investing here and everything went to Asia. And that's why I said this is a new day in America where we're bringing it back to our

shores and strengthening our own competitiveness. But it doesn't happen overnight, Madam Secretary. How long will it take before America gets up and running as a manufacturer for chips in a way that protects our national security? We're dealing with some of these issues right now. We're starting right now. I'm leaving you. I'm going back to my office. We're putting the team in place and we're getting to work. This will take a long time, as you correctly say.

It takes a couple of years to build one of these facilities. So it's urgent. It won't happen overnight. It absolutely won't. We didn't get here overnight. But the fact that you've already seen Micron, Intel, this week making these announcements, Qualcomm and Global Foundries, they've been waiting for chips to get over the finish line. And this is just a great day for America because they are saying, we believe in America, we're

making investments here. And I think the next decade or more, you'll see an explosion in manufacturing and research and development and innovation in the United States. But before you leave us, one final question. The news today, of course, a former President Donald Trump's FBI search of his Mar-a-Lago home. Is that overshadowing some recent legislative wins for the administration, including this act being signed into law today? I don't think so.

Look, this one bill today, the Chips and Science Act, is a once in a generation. It's a Sputnik moment that we are meeting under President Biden's leadership. I think next week there will be a similar bill signing with the Climate Act and the Inflation Act. So, you know, Department of Justice can answer your questions as it relates to former President Trump. I'm not — that's not my lane. But I think these are huge, huge, huge investments. And it's a great day for America.

Our thanks to Gina Raimondo. She is the Commerce Secretary joining us from the White House. We're going to talk more about Micron and NVIDIA's warnings this week and the sell-off in the chip stocks happening right now when we are joined by an analyst who has a buy rating on both names. Also up next, YV Shine is coming off Cignet Jewelers today. That stock down almost 13.5%. Closing bell will be right back.

Dow's down 47. Check out today's stealth mover. It's Signet Jewelers losing some luster today. Company announcing it is buying online retailer Blue Nile for $360 million in cash. Blue Nile is a big player in bridal and fine jewelry. But the news that's hitting the stock, Signet is cutting its forecast for the second quarter and fiscal 2023. The CEO, Jenna Drossos, telling me in an email that the company is seeing, quote, heightened pressure on consumers' discretionary spending and increased macroeconomic headwinds. However,

Drossos says that guidance still represents 25 percent higher revenue growth compared to pre-pandemic levels. So overall, still a win. Up next, Fundstrat's Tom Lee here with a preview of tomorrow's inflation report and how the number could impact stocks, which have had a nice run over the last month or so. That story plus a look ahead to Coinbase earnings and why Ralph Lauren is out of fashion today when we take you inside the market zone. We are now in the closing bell market zone. Fundstrat's Tom Lee is here to break down these crucial moments of the trading day. Tom, it's good to have you. Welcome.

Just took a little lug lower here. The Dow's down about 100 points. S&P down half a percent, and the Nasdaq is a loser today, down one and a quarter percent. Obviously, those semi-warnings, including today's from Micron, didn't help. You've been bullish. We've come pretty far in a pretty short time period, 20% rally or so in the Nasdaq. Is this rally still intact in your view? Sarah, I think in the short term, I wouldn't be surprised if the markets pause a little bit. And that's something that our technician, Mark Newton, is calling for. But I think that there was a fundamental capitulation in June.

You know, investors panicked, thought this inflation narrative was going to lead to years of pain. And I think that that capitulation is now being unwound. So we think that the bottom is not only in that you really want to be buying dips in the second half. And I think we'll be surprised at how much markets recover before year end. Why? Because, you know, you have changed your view. You have you have actually had a lot of conviction around this bullish narrative. But most of the strategists out there, Tom, they're not convinced. They say it's still, this is a bear market rally. And the fundamentals point to a weakening economy. We heard it from Lizanne Saunders at the top of the hour, a weakening economy. And even if we have seen

peak inflation, it's not clear that the Fed is recognizing that we're going to slow down anytime soon. I think there's still a lot yet to be determined. And that's why when people are choosing how they come out, they're coming out bearish because the bearish narrative works better when you're uncertain. But if we have a softening economy, that doesn't mean we have a recession. We could just have a soft landing. Markets have not only rebounded and responded pretty well to inflation, but I think a lot of leading indicators for inflation are telling us that the hard data, like the CPI prints, aren't really reflected of underlying trends. Gasoline is a great example. In July, gasoline might subtract 33 basis points from CPI. But on the current trajectory, it's going to

subtract almost 80 basis points. So you're, you know, into August, I think inflationary deceleration pressures are accelerating. And then from a duration, I think people think this bear market's been too short. We're going to publish a piece tonight for our clients. But when you look at the duration of a bear market, it's typically 21% of the length of the prior bull market. This bear market has already been 146 days or 164 days. That's 25% of the prior bull. So we're already in the zone where a bear market could end. And we had that type of breadth thrust that took place.

We wrote about how the percentage of stocks in bear markets was over 74%, really the fourth highest in the last 30 years. The three other prior times it was this high, it was actually a bottom in the market. But what hasn't come down, sorry to interrupt, but what about earnings? What hasn't come down relative historically to some of these other bear markets, especially at peak inflation, is the earnings growth rate. Yeah, you're spot on. I think earnings is a risk. I don't know if earnings are going to fall as much as people expect because we still have nominal inflation. So I think 250 still could be a safe number for next year. But if you look at how markets are responding to earnings, you know, we've had some huge negative

pronouncements from the semiconductors and the stock market's off one or two percent. If this was in May or June when positioning was different, we could be down 10 or 20. So I just think what we're seeing on the downgrades to earnings is showing people aren't really risk on. So that makes this even more constructive. And again, in 82, the bear market, the entire Volcker era bear market was erased in four months. I think that's what could happen in 2022. Well, let's talk about some of those warnings from the semiconductor, some individual stock stories here. Micron, take a look. It is falling more than 5% today after issuing a revenue warning for its current quarter due to weakening

demand. It came just a day after NVIDIA's warning. Micron CEO Sanjay Mehrotra telling Squawk on the Street this morning about the impact the company is seeing in inventory. In the near term, certainly, we are seeing due to macroeconomic headwinds, as well as, you know, in certain market segments, customers not being able to secure constraint components, non-memory components.

That's impacting inventory adjustments, which have broadened since we last spoke. Instead of just being inventory adjustments on the consumer side, we are seeing some inventory adjustments occurring on the data center side and also some adjustments in automotive and industrial. The company also announced it will invest $40 billion through the end of the decade to manufacture chips here in the U.S. Joining us now is Rajvindra Gill from Needham. Likes the stock.

Do these warnings come as a surprise to you? They do come as a surprise. I think we entered into the week thinking that a lot of these companies, Micron or Intel, might have kitchen-sinked the estimates, meaning that they guided so far below the street. In the case of Micron, there was a 50 percent cut to the estimates for next year that the results would be better than those estimate cuts. And then we saw kind of NVIDIA echoing something very similar yesterday, a significant cut to top line and earnings. However, today, with Micron saying that they're going to come on the low end of the range for this quarter,

and then the number is going to come in down further for the next quarter, I think that's going to kind of retest that idea that a lot of these semiconductor stocks are kind of kitchen-sinking the numbers or clearing the decks. There could be larger estimate cuts than what investors are anticipating, definitely more than the sell side is anticipating. So are you still recommending these stocks? I think what we need to see in the case of Nvidia, because Nvidia is going to report in a couple of weeks, the same thing with Micron is going to report later this month, is to get a better sense of kind of where we are with the overall inventory level situation,

where we are with gross margins. Semiconductor stocks can work in an inventory correction period. We saw this in 2018 when the former President Trump started the trade war with China, and there was about a four- to five-quarter inventory correction across the semiconductor stocks. It lasted for almost a year. And we saw a lot of stock selling off in 2018, the end of 2018. Yet in 2019, that the semiconductor index was up 60 percent. So a lot of the stocks priced in that inventory weakness already and while the industry went through an inventory correction. But I do feel that there's probably more risk to the estimates than what people are expecting. The weakness in demand has been concentrated primarily in smartphones, PCs, consumer

electronics, but it is spreading to the cloud, to data center and automotive and industrial, we are seeing elevated inventory levels in those markets. So we need to get more clarity on what's happening with those markets. I think I got it. So you like the stocks, but think there's more downward estimates to come. Raji, thank you very much for joining us. That's it, Ralph Lauren. Shares falling. All of retail is getting hit right now. Better earnings and sales this morning, rising 8 percent. Double digit sales in Europe and Asia. Earnings guidance was lowered on the strong dollar. Sales outlook was unchanged. I did speak this afternoon with CEO Patrice Loubet on the consumer. He says our consumer is more elevated and proving to be quite resilient, even in Europe, he says, where the environment is more

challenging. Loubet also says that they are not immune to macro challenges, but is just not seeing much weakness in spending and, in fact, is seeing increased brand awareness, higher brand scores, more new customers. They added 1.3 million this quarter. Louvet said China is starting to rebound, and he's, quote, optimistic about it and investing in that country. And he's been able to offset some of the weakness in the quarter when 50 percent of their stores were closed in China, with better online sales and also increased sales in the region, like Japan and Korea. His main message, though, on RL and the stock is Luve feels good about where the company is because it's so diversified across categories. They offer sneakers, everything from that to tuxedos,

and also in geographies. And the brand is very strong right now globally. The stock is down today. It's down about 20 percent for the year. But look at that. It's actually outperforming the overall retail ETF, XRT, and outperforming today as well. Some investors were disappointed by the margin decline. LeVay blamed it on foreign exchange and investment in freight. Tom Lee, any reason to worry about the luxury consumer? The companies keep telling us that everything is fine.

Well, I mean, you know, the U.S. economy has always been a world of multiple consumers and demographics. I'm not surprised if someone's a little worried about the upper-end consumer being worried because they've been hit

by the wealth effect and they are clearly cautious and they tend to be, you know, even though they have a lot of accumulated wealth, they're going to be responding to market conditions. But I mean, I just think that there is a lot of noise in anything that we're seeing because there's also a bullwhip effect that's taken place, whether we're seeing it in semiconductors, a lot of durable goods, retail items. And so things that might be considered soft could just be other effects. And of course, with some luxury items, you know, the crypto crash, I think, has actually created some weakness in demand because, you know, that that was a very different type of consumer as well. We've got a news alert right now on Google.

Julia Borsten with the story. Julia. Yes, the Justice Department is readying to file an antitrust suit against Google over its dominance of the ad market, and this could be happening as early as September. This according to a new report from Bloomberg. We have reached out to the DOJ and to Google for comment, have not heard back yet. But it is worth noting that the scrutiny of Google

has been in the works for a while. Google is by far the largest player in the ad market, and it is reportedly looking to sell off parts of its business as it faces this regulatory scrutiny. Back over to you, Sarah. Nothing on size and scope, right, Julia, of this investigation? All right. We'll stay tuned. No, you know, we're waiting to hear more, but we know that, yeah, we know that they've been looking at the size and scope of the company for a while.

And this idea that Google could be looking, sorry, Alphabet could be looking to spin off some of those ad tech assets would be a way to relieve some of that regulatory scrutiny. But it'll be interesting to see whether this pushes a sort of breakup of those Alphabet assets. Just looking, you know, this past quarter, Google Search was so successful at bucking the overall downward trend in advertising. And then they have all these ad tech tools as well. Really worth looking at the reach and scope of that ad business. Got it. Julia, thank you. Alphabet off about a half a percent or so. Tom Lee, quick final word on crypto with Coinbase reporting after the bell. Is it safe to get in? You know, these crypto equities are beta to underlying Bitcoin and the other crypto assets.

They look like they've bottomed. You know, Bitcoin's back above its 200 day. I would think that if Bitcoin makes a meaningful move here between now and year end, any of the miners and the exchanges will actually outperform Bitcoin. So it might be ugly numbers because I'm sure volumes are pretty weak. But I think investors are going to look forward and realize, you know, enthusiasm may be coming back if Bitcoin starts to rise. Well, it's been quite a nice run. Tom Lee, great to have you here for the Market Zone. Thank you very much from Fundstrat. As we head into the close, down 71 points on the Dow. Traveler's the biggest contributor on the upside. Salesforce, the biggest drag. S&P is down a little less than half a percent. And the NASDAQ down 1.2 percent. It is weighed down by NVIDIA, Tesla, Amazon,

and AMD. That's it for me. I'm closing, though. I'll see you tomorrow. Now into overtime with Mike Santoli.