Closing Bell - Closing Bell: Stocks fall to start week, Twitter tumbles, Kanye’s retail ambitions 7/11/22

Episode Date: July 11, 2022

Stocks fell to kick off a new trading week, with the Nasdaq losing more than 2%. Tony Dwyer from Canaccord shares his latest thinking on the market, and whether a sustainable bottom has been reached. Jefferies technology sector specialist Jared Weisfeld talks about the big drop for Twitter’s stock following news that Elon Musk is seeking to back out of the deal. Meantime the dollar’s rally rolled on, with the currency nearly reaching parity with the euro. Bruce Richards from Marathon Asset Management discusses the market implications of a stronger dollar. And Sara breaks down the news that Kanye West is looking to potentially expand his retail empire.

The Nasdaq getting hit hard as a week full of data and earnings gets underway. The most important hour of trading starts now. Welcome everyone to Closing Bell. Take a look at where we stand. Down a percent right now on the S&P 500. Dow's down less than half of that. It is faring a lot better. And it's the Nasdaq that is bearing the brunt of the selling today.

Tech-heavy stocks down 2%. Tesla, Amazon, Meta, Apple, Nvidia weighing on the Nasdaq. Small caps down almost 2% as well. And the dollar continues its march higher. There are the laggards right now on the Nasdaq. Some of the Chinese internet names getting hit hard on the week-long shutdown of Macau. New COVID concerns in China. Big part of today's sell-off overall.

There's Tesla down 6.5%. We'll talk about it later. Coming up on today's show as well, Canaccord's Tony Dwyer breaking down whether we have seen a bottom in the market or the bottom in the market. Plus, a rare interview with Marathon Asset Management CEO Bruce Richards, whose firm has more than $20 billion under management. We'll ask him where he's putting money to work right now. Remember last time he was on a few months ago, he was pretty bearish warning of recession then. Let's get straight to the market, though, as stocks pull back following last week's rally. Mike Santoli here to take a look at the recent outperformance, Mike, in defensive stocks.

And that's really the only groups that are working today. Utilities and real estate. Now, health care just turned negative. Yeah, Sarah, it's been pretty consistent since we steered away from inflation panic to worries about the durability of economic growth. It has been a defensive market. The overall look at the S&P 500, look, you can build a case here that there's a shot that mid-June lows might hold. Maybe they have to be retested.

It's down 5% or 6% from here. But it's done nothing to prove that yet. It's not really escaped this pretty clear downtrend from early April. That's been the issue for a while. These rallies have been sold. We were up 7% or 8% from the very lows to last week's highs. But so far, it's still sort of a show-me story, even if, as I said, we're starting from a lower valuation and sentiment point at those lows.

That's a net positive. Take a look at that cyclicals versus defensives trade. And you see it really did give way recently in the last few weeks. This is Goldman Sachs cyclical versus defensive basket. That little tiny hook higher was, you know, last week we got the jobs number. This is coming into the week. I do think it's worth noting that the defensives in this definition, and with many, does include a lot of technology. So it does seem we got a little bit of relief on some of the big growth stocks.

That might have been that hook higher that we saw. But so far, it shows you that the growth outlook is going to be the big toggle, even as we go into CPI and earnings season. I was just going to say that the market feels really nervous about calling a peak in inflation. We've got CPI on Wednesday, and some are expecting a nine handle in front of that number. On the other hand, you've had a lot of people out there saying inflation's peaked. We've seen commodity prices come down. I don't know if you saw Esther George, the Federal Reserve dissenter, actually being dovish, which is very unusual for her and for the Kansas City Fed. She's worried about a slowdown. Worried about a mistake. Absolutely. And I do think it's right to say the market's nervous

about calling a peak. At least the stock market is. The bond market is kind of saying, look, if you look at the, you know, few years out, inflation is not going to be the big problem. It's not always correct, but they've moved on from that. But that could be because they figure a recession will be the ultimate thing one way or the other. There will be victory against inflation. It could be the hard way or the easy way. That's what the stock market is struggling to figure out. Potentially some easing on the other side, on the other right. Mike, thank you. We'll see you soon. For more on the other side yeah on the other right. Mike thank you we'll see you soon. For more on the market let's bring in can accord

annuities Tony Dwyer. So Tony you you expected. A summer rally we we've certainly gone that what are we six percent off the lows right now what happens next. That's exactly right Sarah thanks for having me on. So what we thought we found a

great indicator that can qualify whether it's a bottom or the bottom. And then if you figured whether it's a bottom or the bottom. And then if you figured out it's a bottom, how much should it rally before you retest the low? And what we found is that we should expect about another five to 10 percent from current levels before we reach kind of the bounce peak and then go back lower. So what what is the model? What what goes into that? It's pretty like everything I do, it's pretty simple because I don't understand the complicated stuff. It's a 10-week rate of change on the S&P 500. It's very simple. Anybody can make it. You just do a 10-week rate of change.

When it hits minus 15, in other words, the S&P goes down 15% over the course of 10 weeks. Believe it or not, Sarah, it's really pretty rare. It's only happened 16 times since it's been a 500 stock index since 1957. So it goes down 15% and then pivots back up to minus 10% or better. So you hit an extreme and you start to bounce. And when that's happened in the past, there's only one occurrence I can find where it just whoosh, just kept going down. And that was early 1974.

So you see a few more percentage points higher from here. And then what? And then back south? It's interesting, Sarah. 37% of the time, 6 out of the 16 times, we found that the market never retested. So I went back and looked to see if there was anything consistent about that. And of course there was. It was the Fed. What we've talked about before, a major signaling change from the Fed. In other words, you know how people refer back to 1970, which is the only time the

first six months of the year were worse than now? Well, the Fed had already started easing in September, October of 1969. That's why you get that second half recovery. So the consistency is you don't retest. And I made this mistake in 2020. You don't retest when the Fed is fully backing and easing already. But we're expecting a lot more rate hikes, right? And we haven't seen any signs, really, from the core of the Fed that they are pivoting, even if the market is starting to move on. So it's interesting. There's as you know as you know, there's two ways that rates move up. You have market driven rates. And in this cycle, what has been a little bit different is the Fed told us where they thought the terminal rate was very quickly. So guess what the two to 10 year did? It went

right there. So you already got the affordability index in housing having come down really hard. So that's tight. That's already shutting down the housing and real estate market. But then there's also the variable rate debt that's tied to LIBOR, which is, of course, tied to Fed funds or SOFR, if you want to use the new one. So every time the Fed moved, we've already discount by discount. We've already reflected the Fed's aggressiveness, but we're having on that variable rate debt. And that's where there's two kind of legs that can hurt you in rate hikes. It's the market driven rates and then the variable rate driven by the Fed. And as you said, Sarah, that has yet to see its peak. We're going to go up another 75 basis points in a couple of weeks.

So how would you be positioned right now as far as sectors and what leads this market higher in the near term and what you hang on to in the longer term, given some of the carnage we've seen? Well, as you know, when we started calling for this, we thought that the growth stocks would outperform. Basically, it's anything that is so extremely oversold and levered that got hit so hard in the first six months. That's what's going to bounce them off. Right. And it's going to be at this. And now not the time and we've said this you know for the last month and change now it's not the time to chase energy when the demand side of the equation or materials or those areas that are deeply cyclical it's very i always said it with this it's not good when you're spiking rates to a historic degree into a generationally levered

system with increasing inventories and weaker demand. That's why it's so important to really get the bottom. You need that change in the Fed that allows investors to look through that statement and know that the other side has some legs. We haven't, we just, we simply have not gotten there yet. So to what extent do you think the cyclicals have priced in a recession at this point? Well, I looked at copper, right? So copper is the one that everybody like me comes on and talks about.

Five weeks down, down again today. Five weeks down, but it's nowhere, it's basically back to its prior peak. I went back and I looked at any recession. Copper goes to 200, 250. But it's currently, as I look over on that five week downturn, it's 342. So, you know, if you're going to go into a recession, what we've done is that and it's the three things that we're going to cause the summer rally. It was an oversold condition check. It was the idea that the Fed is already discounted on the market driven rates

check the 10 years back to a 298. And then the perception that they can generate a soft landing. And that's where we're at right now. So those three things are still in place for a rally. And I think all three of them are probably unlikely to continue, which is why it's a bottom versus the bottom. Tony, thank you very much. It's always good to talk to you. Great to be with you. Updated thoughts, short and long term. Tony Dwyer, the euro and the dollar just a whisker away from hitting parity. Another 1% plus move. No signs of slowing for this stronger dollar. We're going to discuss what the currency moves could mean for your portfolio with Marathon's Bruce Richards next. You're watching Closing

Bell on CNBC. Dow's down about 160. The parity party is imminent. The dollar is in the middle of a relentless and dramatic march higher, and it is crushing the euro. Look, another big move today, falling to almost one against the dollar. One to one, something we have not seen here since 2002. The latest trigger,

an increasingly deteriorating outlook in Europe. Yesterday, France's finance minister saying that Europe should prepare for a complete cutoff of Russian gas, calling it the most likely scenario. Scotiabank says energy rationing and a partial shutdown of European manufacturing would likely trigger a recession in the Eurozone, and the euro looks at risk, they say, of falling to the mid-90s in the months ahead if Russian gas is suspended. For the U.S., the stronger dollar means cheaper European vacations for Americans, for one. It also helps us fight inflation because it makes imports cheaper, but it's a double-edged sword because that strong dollar also hurts our exports and slashes corporate profits for companies from P&G to Pfizer to Salesforce, anyone that does business overseas.

Mike Wilson, the bearish U.S. equity strategist at Morgan Stanley, who's been right on lately, says the 16 percent climb in the dollar index over the past year signals an 8 percent headwind for S&P 500 earnings per share growth. And unless the Fed pivots or inflation really turns weaker, it's hard to see what stops the dollar from marching higher. Another huge move. Joining us now is Bruce Richards of Marathon Asset Management, a global credit manager with approximately $23 billion in assets under management. Usually has some good macro views. Bruce, do you think the dollar continues to climb higher? How much so? It's remarkable to see. Hi, Sarah. It's remarkable to see this 20-year high in the dollar. And it's

versus the euros versus the basket of other currencies as well. So let's start with the euro. It's not only weak GDP and the weakness in the energy markets, or the weak ability for Europeans to procure energy, but it's also the fragmentation that we're seeing in Europe. And you see that through Italian bonds, Italian spreads, as well as other peripheral spreads. And in general, Europeans are becoming more risk adverse. And so what you're seeing in Europe, you're also seeing at the Bank of Japan, and as it relates to the yen, it's a 20 plus weakness there as well because they've capped rates in Europe and people are bailing out of euro assets and Japanese assets and coming to our markets to buy our treasuries and our U.S. dollar. And so the Fed has a more complex equation here because our treasury rates have not

moved up as much as they probably should have. I think it also speaks to the weakness in crypto assets, why our dollar is stronger. Do you see all this continuing? I do. And I think the dollar strength will continue to keep our rates lower than it probably otherwise should be. To your point, I think that U.S. companies which rely on S&P 500, for instance, relies on 25 percent of its revenues from overseas sales. We'll see it continue softening in their international sales and their global revenues. So I think the trend is well in place. But the Fed has only gone from zero to one point seven75 today, where it is now in terms of Fed funds, on its way to 3.5 percent.

It's only halfway there. And so if you're going to continue with this trend of much higher rates here in the States with higher, you know, Treasury rates and supportive action by our central bank vis-a-vis other central banks, you're going to continue to see the flow of capital come into our currency. So, Bruce, you have been early in the recession, and I believe recently told your investors that that is the base case scenario right now when it comes to your underwriting of deals. So what are you expecting at this point? When and how severe of a recession? Well, we think the recession begins sometime in the first half of next year. And we think the European recession starts in the second half of this year, either this quarter or the fourth quarter.

In terms of S&P earnings, for instance, we think we're already moving towards a earnings recession. So here's a fact for you. I just want to speak before coming on the call. I went back and looked at the last four recessions and earnings have dropped. S&P 500 earnings have dropped between 20 and 30 percent in each one of the last four recessions. And so companies are getting squeezed on all sides. You're getting squeezed in the cost of goods and the wages and all things that go into input for not only manufacturing, but also services. And on the other end, we think revenues are starting to flatten before turning down at a time when interest cost is going up. Particularly for the high-yield companies,

interest charges are rather significant. There's more leveraged loans in the system than there are fixed-rate high-yield bonds. And when you look at Fed funds up or so far, a library of 300 base points from where we started to where we're going to be at year end. That's a lot of downgrades and a lot of potential defaults coming through the system as a result of higher charges. So are you seeing interesting opportunities right now in distress or not yet? You see it's still coming. It's coming. And we've seen a couple of companies fall for bankruptcy in this last week or two. But generally speaking, the high yield market's gone from overly rich, 425 basis points to 8.5% yield where it is today.

We think it's a good time to start dipping your toe and buying really high quality double B high yield bonds. And we think ultimately it will get to 10 percent and then we'll start to back up the truck. So looking forward, again, it's all about the faults. It's all about the downgrades that come first. The rating agencies react after the fact. They don't project forward. And so when you see these higher cost of goods, you see revenue start to turn over. You see the higher interest charges starting to bleed cash flow. You'll start to see the downgrade cycle and this big credit cycle begin. And we're looking at triple C's right now. And

we're just avoiding triple C's. It's a bit early to go into what we think is the next. You think those junk bonds, the yields need to jump up still even higher? It all sounds like a bad recipe for stocks, Bruce. It does. And, you know, and we don't think the equation for stocks is going to change. The average, you know, earnings decline again, 20 to 30 percent in recession and the average stock market decline for recession around 30 percent. And we're about two thirds there on the stock decline, but not even begun to see earnings start to roll over. And it will. And so I'm singing a song right now. I used to sing the song Lean on Me, referring to Bill Weather's song regarding the Fed. And right now it's all about ain't no sunshine when she's gone. Ain't no sunshine when the Fed's gone.

Very good. And that's like that's how we all feel in the credit markets and the equity markets. It's a phenomenal opportunity, I think, to have a lot of dry powder. And that's how we're set up, with a lot of dry powder to take advantage of what we think is this massive dislocation coming. But last week there were whiffs of the Fed might be max hawkishness. The Fed might be about to pivot. The Fed might have to ease on the other side of this as these recession fears continue to heat up. And as there are signs in the commodity market that prices are coming down, this could all change pretty quickly. Yeah, one very interesting dynamic is what you saw on Friday

with employment. And we're seeing a very funny thing happen. As we move towards what we think is going to be a recession, we increased job gains that we've seen, it just puts further inflationary pressures. So I wouldn't be so quick to draw that conclusion because we think that Fed funds are going from one and a half percent where it is now, one and a quarter percent where it is now, to three and a half percent. That's a whole lot more. And it takes you into the early part of next year before you can count on that belief bruce richards thank you did not know you could hold a tune like that either that was fun so depressing marathon asset management's bruce richards thank you to give you a check on markets right now we're down 200 or so on the dow s p is down one and a quarter%, so we're losing a bit of momentum here in this final hour of trading. Only a group that's positive are utilities.

It was utilities, real estate, and staples, but they've all turned red except for utilities. Communication services getting beat up the hardest in the market today. Some of these social media names, Twitter, not surprising, down 10%. Meta is down as well, a lower price target. Consumer discretionary is also not faring well. But keep in mind, all of those stocks having a good week last week. Still ahead, why Jeffrey's tech analyst says Twitter is facing a perfect storm as Elon Musk tries to pull out of the deal. Plus, we'll tell you about the analyst call that is sending shares of Lululemon and

Under Armour both sharply lower. And as we head to break, check out some of today's top search tickers on CNBC.com. Ten-year yield getting the most interest. There's buying today of treasuries, and that means the yield is a little bit lower. We've dropped below 3%. There's Twitter, of course, with all the news around Elon Musk. Tesla is not feeling, is feeling the pain as a result. It's down more than 6%. And crude oil loses 1% on concerns about the economy in China, with the S&P down 1.2%. We'll be right back. Check out today's South Mover. Contour Brands up about 3% bucking the market trend. Wells Fargo initiating coverage of the maker of Wrangler and Lee jeans with an overweight rating, a $40 price

target. The analysts there believe Contour's free cash flow and more than 5% dividend yield make the stock a good place to hide in this choppy market. And we know we're in a pretty good denim cycle off of Levi's results last week. All about the jorts. Twitter shares falling sharply in the wake of Elon Musk abandoning his $44 billion deal to buy the company, at least his attempt to. Up next, a top analyst discusses whether investors should be avoiding this stock with Musk. Trying to get out of the picture. We'll be right back. Take a look at shares of Twitter plunging down more than 10 percent as Elon Musk tries to back out of buying the company. In a letter disclosed in an SEC filing,

Musk's attorney said Twitter has not complied with its contractual obligations. So what's next for Twitter and its shareholders? Let's bring in Jared Weisfeld, the Managing Director and Technology Sector Specialist for Jefferies. Jared, it's good to have you. How do you even begin to tell investors right now what to do with this stock?

For sure. Thanks for having me on, Sarah. So it's a nuanced situation, to say the least. And I think the best way to describe it is it really is a perfect storm and a combination of multiple factors, including a worsening macro environment, ongoing distraction of this transaction, and loss of key leadership and personnel over the last few months. They're really in a tough position. So I think we all need to put that in context. And we also need to keep in mind that despite the recent correction in shares,

especially today, Twitter is still trading at a pretty significant premium relative to its trough valuation, as well as a significant premium to both Google and Meta. What is the trough valuation? So historically, this has troughed at about nine times forward EBITDA. And if you look at where Twitter's trading right now, it's at about 14, 15 times 2023 EBITDA. You put things in perspective,

Meta's trading at six times EBITDA. Google is trading at around 10 times EBITDA, right? And the macroeconomic headwinds continue to be pretty significant. You saw Snapchat negatively pre-announced with a month plus left to go in the quarter. So they're in a really difficult position right now. So what is this company worth as a standalone without Elon Musk, if that's where it ends up? So if you use historical valuation in terms of where it's troughed in the past, you know, that would put it at about $25 a share in terms of if this were to trade at nine times EBITDA. You know, there are really three potential outcomes that I think investors are trying to go ahead and grapple. Does the company close on existing deal terms?

Does Musk truly want out and then have to pay about a billion dollar termination fee? Or did they renegotiate the deal at a lower price? If that is the case, if they settle and renegotiate the deal at a lower price, where would you see that price? Somewhere between $54.20 and where we are now? Yeah, no, it's unfortunately impossible to answer.

But I think the key message is going to be that litigation is going to be messy. Both parties are going to be incentivized to go ahead and settle. Twitter, especially, with the Musk overhang. And we've seen this rhetoric before. We saw this during COVID when LVMH tried to back out of Tiffany and they resettled that, settled and renegotiated at a lower price. So I think at the end of the day, resettling or settling and renegotiating at a lower price is likely the best outcome for both parties. In the meantime, what do you, you mentioned employee turnover, morale, loss of jobs, the CEO. What can you tell us or what do you know about what's going on inside

of there as this company hangs in the balance? So, yeah, I mean, listen, they lost the head of products. They lost the head of revenue. And this is in a time of turmoil where the entire industry is facing so many significant headwinds. And the company is also in the process of reshaping their technology stack, right? This company has been trying to go ahead and shift from brand to direct response. So they've been revamping their entire tech stack. So, you know, it's a lot of headwinds that the company's facing.

And that's sort of what we're dealing with right now. Any implications for Tesla that you feel strongly about? It's interesting that that stock is down six percent you may think that Tesla shareholders would be happy if Musk. Walks away from this deal though it doesn't seem like it's gonna be that easy. Yeah I think that's a fair

conclusion I wouldn't necessarily extrapolate today's trading action in Tesla relative to what investors ultimately want today's obviously a pretty. Pretty nasty day in the markets you're seeing high multiple stocks really get- under a

significant amount of pressure today across the board and Tesla's certainly getting caught up in that but in general pretty pretty nasty day in the markets you're seeing high multiple stocks really get um um under a significant amount of pressure today across the board and tesla's certainly getting caught up in that but in general i would certainly agree with your premise that you know there's only 24 hours in a day musk has obviously got his tentacles in so many different operations and uh if he's lit if he's less distracted with a twitter acquisition that would certainly uh i think be uh be a positive outcome from a Tesla standpoint. Since you mentioned the high multiple sell-off, NASDAQ's now about 30 percent off the highs. Jared, how do you think we are set up for tech earnings season? Where are the best opportunities? Yeah, for sure. It's such a great point here. So the NASDAQ has pulled back

significantly. And, you know, you look at the retracement in 10-year yields across the board, you know, from three and a half percent just a few weeks ago it feels like years ago we're now back down to three percent that's generally a positive backdrop for secular growth um i think at this point i think your prior guests said it perfectly in terms of this really is a tale of two cities in terms of calendar 2022 the first half was about multiple contraction and now the question is how much do earnings need to get revised down negatively into the back half of the year. And into twenty twenty three so in terms of pockets of

opportunity. We want to look at areas that- we think would be more resilient including software especially cybersecurity. More area areas of spent are least likely to get cut from a budget standpoint. Got it

Jared thank you very much for joining us Jared Weisfeld of Jeffries. Here's where we stand right now in the market Jared mentioned what we're seeing in the Nasdaq Nasdaq one 100 down about 2% right now, and it is communication services and consumer discretionary that's weighing on the S&P overall. Nasdaq comp down almost 2.15%. Wall Street is buzzing about Kanye West again, reportedly taking a big step,

building his retail empire. Details straight ahead. And then Wednesday, do not miss CNBC's Evolve Global Summit, featuring an interview that I'll be doing with the CEO of Chevron, Mike Wirth. Super interesting right now, as we have seen oil prices fluctuate and the energy companies, which actually sold off pretty hard last week. You can register still for the event, CNBCEvents.com. We'll be right back. What is Wall Street buzzing about today? Kanye West, Yeezy, and his team have filed trademark applications with the U.S. Patent Office

to protect Yeezy Supply, though it's spelled without the vowels, for retail stores, online ordering services, and online retail services. The latest filing includes shirts, shoes, socks, hats, accessories, even lingerie and underwear. Of course, Kanye already has major deals in place with Adidas and Gap. Unclear whether this filing could include those brands. Usually does when he releases stuff on Yeezy Supply Online. Could also be some kind of pop-up store. And there could be trouble brewing between Kanye and Adidas. Last month, Kanye called out the brand and CEO Kasper Rorsted directly

for copying his designs with the new Adidas slide. No comment on this new patent when we reached out to Adidas. However, don't get too excited just yet about a Kanye retail store coming because according to trademark attorney Josh Gerben, West has filed for trademarks 465 times since 2004. Of those filings, only 15 have come to fruition. Some of West's filings that haven't quite made the cut in the past include Half Beast, Red October, Kanye Travel Ventures. Gerben says this is not uncommon with big brands, but most of his filings never materialize and become abandoned. Still, the sneaker world, of course, is buzzing. Casino stocks are getting crushed today. Why that group is falling on hard luck straight ahead. That story plus downgrades hitting shares of Meta, Lululemon and Under Armour when we take you inside the market zone.

Dow's down about 170. We'll be right back. We are now in the closing bell market zone. CNBC Senior Markets commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Contessa Brewer on casinos and Julia Boorstin on meta. We'll start broad, though, because stocks are under pressure as we head into the close. We're near session lows right now. The Nasdaq's down more than 2 percent. Dow's down nearly 200 points. And Mike, never a good sign when Kraft Heinz is one of the few winners in the Nasdaq, but tells you what the concern is, economic growth. Exactly. It is a

growth issue. And of course, you know, coming into the day, somewhat exacerbated by, you know, new talk of restrictions in China and this idea that there's this sort of global economic gloom that pervades in the morning. You know, we've been able in our markets to get a little bit of a bid later in the day. And today was one where there was the attempt to firm up toward midday. Then, you know, backed off from there. The big tech stocks that had actually carried part of the load last week also not doing great. Of course, Apple is China-related on some level. But inconclusive, but definitely a heavy market today.

So a lot of warnings about earnings. You heard Bruce Richards of Marathon saying that that sort of earnings recession is not fully priced in yet. We heard it just from Jeffries on the Tech Analyst when I asked him about the setup. What's your feeling as we kick off with bank earnings toward the end of this week? It's interesting. I could not argue with anybody who says there's downside risk to earnings forecast for the second half of the year. They haven't moved very much. We really do need to hear from companies how they're kind of setting things up and what their guidance is. Analysts really will track company guidance more than anything

else in terms of the macro and the dollar and everything else. On the other hand, the market doing what it's done in the last six months is extremely unusual, leading into the peak of earnings forecasts. If you look at past cycles, when you had a downturn in earnings estimates, the market was pretty much up in the six months prior to that peak. Now, you could say it was because it was so expensive this time and rates are going up. Maybe so. I just don't think that investors are being caught entirely flat-footed by the prospect that the numbers are going to be coming down to a large degree. Let's talk Costco, posting strong monthly sales in June, up 18 percent compared to last year.

Another data point in the recession or not debate taking place right now. Costco CEO Craig Jelinek was on Squawk on the Street earlier today in an exclusive. He said some people are in a personal recession right now, saying they can't buy as much as they did a year ago. But he also said the Costco consumer seems to be doing pretty well. Listen. Overall, I think the consumer is not doing bad.

As you can see, unemployment is down significantly. If people want to work, they can work. So, you know, my view at the moment, things aren't so bad. Mike, Costco is one of those that kind of does well in a consumer discretionary boom and then also times of recession because it's a staple stock. Has that been reflected in the valuation? And what else is behaving that way? It is pretty much reflected in the valuation.

The chronically expensive stock kind of waxes and wanes to a degree, but it's definitely not specifically the lowest end consumer. That really is what Costco depends upon. Of course, the small business component is in there as well. I think it's I think he's kind of right. I mean, there is a squeeze going on, although if you look at checking account balances and credit card delinquencies, they all look better than they did pre-pandemic, even in that sort of lowest 20 percent or so of income of the income spectrum. That might not last for long, but that's where we are. It doesn't seem like it's going to be a consumer led economic soft patch or downturn if that's what we have anyway.

By the way, these staples, General Mills makes a new high now every day coming off of earnings. A lot of these companies, Procter & Gamble, Campbell Soup, Walmart, all higher today. I guess that's the classic recession trade. It is the classic trade. Whether you say, oh, go toward quality, low volatility stocks or economic kind of resilient or non-cyclicals. Yes, it takes you right there. They look really expensive. If you look at cyclicals versus defensive on a valuation basis, people are paying a premium for that safety.

Not saying too much of a premium yet, but there's no doubt they're paying up. Yep. Some of the biggest winners today. Molson Core is actually doing quite well. JM Smucker and Kraft Heinz. Macau closing all of its casinos for a week here as it tries to slow the spread of a COVID outbreak and casino stocks are getting crushed as a result. Contessa Brewer joins us. Contessa, will these companies be able to weather the storm

of persistent COVID restrictions? How do you trade these names? Well, it's kind of like that old song. They'll get by with a little help from their friends, or in this case, their parent companies and profits from these other locations. You know, Sarah, Sands benefits from Singapore's rebound. The restrictions have largely been lifted there. Las Vegas is, of course, booming and fueling MGM and Wynn. And in fact, Wynn has not only Nevada, but it's Boston property. This is a real reversal here. Boston is out earning any individual Wynn property in Macau. And that was crazy because, of course, Macau properties were fueling Wynn's profits before the pandemic and certainly before this

total closure this week. S&P Global ratings just put Wynn in sands on Credit Watch, by the way, with negative implications because of the pressure of China's COVID policies. Bernstein predicts gaming revenue for July in Macau, 3% of 2019 levels. Still, Wynn's CEO told me he's optimistic. It's a difficult time to be there. But if you think about the latent demand across the border, you think about the importance of Macau, frankly, within the greater Bay Area, we're huge, huge bulls on Macau. This was the first time that Craig Billing, CEO of Wynn, sat down with MGM's Bill Hornbuckle and Sands' Rob Goldstein. You can see more of this epic, exclusive conversation at the CNBC Global Evolve Summit on Wednesday. You don't want to miss that. Meanwhile, Sarah, you know, here at home, we're focusing on the impact of rising gas prices,

on inflation. And I asked those CEOs, you know, talk to me a little bit about what do you see as the canary in the coal mine for whether we're heading into recession? And it was interesting. They said, look, the pandemic may have made Las Vegas somewhat recession proof in that even though gas prices are soaring, the cost of food and housing and all of that interfering, that people just now view experiences differently than they did before the pandemic. No, they're prioritizing it. But I think the question, Contessa, is how long does that last? They can only be recession proof for so long if people really start to get hit and we start to see unemployment rise. MGM's former CEO, Jim Murren, had told me a couple of weeks ago, look, in the lead up to the recession in 2008, I totally missed it, he said, because our fourth quarter of 2007 was gangbusters, our best ever. He said, I was looking at what was coming in through Borgata and from Bellagio, these luxury properties across the nation. He said, when I should have been looking at Circus Circus. And we've already heard, Sarah, some of these casinos say at the very entry level, that bottom demographic, that isn't that profitable anyway.

But that's where you start seeing chinks in the armor. Right. The high end holds up better. Well, Contessa, always interesting when you get competitors to sit down together. Kudos. It's not easy to do. Looking forward to that interview on Wednesday. Contessa Brewer. Meta, take a look. One of the biggest losers right now in the S&P 500.

Needham downgrading the stock to underperform from hold, cutting its full year revenue forecast. Earlier on Power Lunch, analyst Laura Martin discussed her concerns that it may take too long for Meta to see a return on its enormous investment in the metaverse. Listen. Why own this stock in 2022 if the return on the investments he's making today are in 2030. Let's go somewhere else and come back in five years and see if his metaverse reality is actually going to turn out to be the right one and whether he's going to be the hardware that's winning. Julia Borsten joins us. First of all, Julia, is that timeline right? Is that how long investors have to wait before they're seeing returns on their investment here? Well, look, maybe Zuckerberg is being cautious here, but this idea that he doesn't expect the metaverse to be generating significant revenue on the scale of some of Meta's other businesses,

like Facebook and Instagram, until 2030, I mean, analysts are accepting that. They're saying, we have to understand that for the next five years at least, the metaverse business is in investment mode, expensive, expensive investment mode. And I think there is some sense that we'll be getting indications of different ways that you're going to be able to make money there, the types of commerce, the revenue that Meta is going to be generating there. But in the meantime, they have to deal with their core business right now. And there are issues there, like with other social media companies, right? Exactly. Look, any ad-supported company right now is looking at an ad contraction.

There's a question of how brands are pulling back. One of the CEOs I spoke to last week in Sun Valley said all of the major brand advertisers see yellow lights flashing everywhere saying, slow down, watch out, be careful about how you're spending your money. And of course, Facebook meta is navigating those issues at the same time as it's also navigating Apple's operating system changes, which make it harder to show advertisers exactly what their return on investment is. And so they're busy working to figure out new ways not only to have accurate measurement, but also accurate targeting. And even as they make progress there, there are more potential challenges ahead with the

EU and others trying to use privacy as a priority and therefore limit the way targeting and measurement can be done. So a lot of challenges here. Meta, Facebook is trying to figure them all out at once. And obviously they have massive reach and a massive ad business, but certainly a lot of balls in the air as they have this long-term plan to generate revenue on Metaverse. And Julia, do you think there's a spillover effect at all? Any effect on some of the competitors from what's happening at Twitter, all that drama? Well, you know, I would actually say if there's any company that's having big impact and a spillover effect on Facebook and its parent company, Meta, it is TikTok.

TikTok, of course, you don't have a stock chart to show you, but I feel like anytime I talk about TikTok, we should be showing the stock charts for Twitter, for Snap, for Meta, even for Pinterest. So much attention has gone into TikTok and TikTok is building an ad business. So right now you have TikTok stealing the eyeballs. They're going to generate more and more ad revenue every year. By some estimates, their ad revenue this year will be more than three times what it was last year. And so, yes, Twitter, I think, has raised attention to some of the fundamental challenges facing these platforms, even the issue of bots. But I think more broadly speaking, TikTok is the one that is really posing a threat. And here's another thing about Meta that Laura Martin pointed out, and that is that they have this new Reels format, which is very successful but not fully monetized yet.

So Reels is, of course, their alternative to TikTok, and it's great that they're getting people to come over. They need to continue to grow that Reels engagement and then really make money from it. They've done it before. They've managed to adapt to these new formats before. Yeah. No, we know it's a priority from Zuckerberg. I was going to say, sorry, I didn't mean to cut you off there. I was into it. Julia, thank you. Julia Boorstin with Meta down about 5% today. Turning to another downgrade we want to hit, Jefferies cutting its rating on Lululemon and Under Armour today. Those shares both moving lower. On Lululemon, Jefferies says

it was one of the biggest beneficiaries of pulled forward demand from the pandemic. Adding competition is rising and headwinds are growing, including lower margins in its new sneaker category and tough comps. And then with Under Armour, sort of a different story. Jeffries is concerned here about management volatility. Remember, they don't really have a CEO, and lagging fundamentals. Nike remains a top pick for that Jeffries retail team. I think, Mike, that the most controversial one there is actually the Lulu pull forward because we haven't really seen evidence that that necessarily is the case in recent quarters. Not yet, no. In fact, the list of the concerns really looks familiar to anybody who is skeptical about Lulu's ability

to keep growing as fast as it was in recent years. So it's not so much new. I do think there's an argument to be made. The company's been over-earning. They talk about their sales per square foot at their stores just off the charts high, and maybe that's not sustainable. And there was an inventory bulge in the early part of this year. So it does seem as if some of that premium valuation out of Lulu has continued to compress just a bit. The street still likes it, though, whether that's a positive or negative, or that's just people kind of clinging to hopes that it's going to find its former glory. Just in the last hour, some headlines here from Rafael Bostic, the Atlanta Fed president,

saying the recent inflation data has not been as encouraging as I would have liked, and that we're still pointing to another 0.75 percentage point increase in the Fed funds rate in July, worried about inflation. And I highlight it because even he's been one of the more dovish ones, worried about the impact that's going to have on the economy. And even he is talking tough. Yeah, we'll see what Wednesday brings. Well, he had been more dovish, but then, you know, last week he did say he expects a 75 basis point hike in the July meeting and then maybe 50 from there on. So I think he expresses concerns about the possible impact. But it does point out that inflation, the data itself are not cooperating with the market's view that we've moved past the peak just yet, at least not to the Fed's satisfaction.

And others are saying that the economy can handle this tighter policy. We're at the two minute mark here. Mike, what do you see in the internals? Increasingly ugly for NASDAQ. Yes, absolutely. And for the New York Stock Exchange as well. Actually, it started out pretty rough there, as you can see. It's almost 6 to 1, declining to advancing volume on the New York Stock Exchange. So pretty much across the board, it is a down day. Take a look at gold, actually. It's kind of breaking down here. If you look at a one-year chart, it sort of bottomed a couple of times in the 1720s. Here you have it at 1730. If you want to look at pre-pandemic, it was closer to 1600. So clearly,

rising real yields perhaps are a factor here, just a general kind of longer-term waning of interest in gold, certainly not an inflation hedge. The volatility index, not doing much, still in that range, mid-20s. It's the bottom end of where it's been since around April, picking up today on a Monday, which is not unusual, especially with the market down more than 1 percent. Well, gold is getting hit by that stronger dollar, which just continues to strengthen. 1 oh oh eight four is your euro dollar quote. Watching it carefully ahead of parody. Mike, thank you. As we head into the close here, take a look at the Dow Jones Industrial Average.

It's actually faring better than some of the other major averages, only down about one seventy two points or so. Caterpillar is the biggest drag, along with Goldman Sachs, Microsoft, Nike. So it's the cyclical trade. What's working today? Health care is doing well. Merck and Visa at the top of the Dow, along with P&G, IBM and McDonald's. So very defensive tilt. In fact, the only new highs of the day today come from the pharma and healthcare sector. Utilities are the only sector that is positive right now in the S&P, which is down one and a quarter percent. Everybody else is negative. Communication services is the worst. The NASDAQ down 2.3%.

They're reversing some of last week's gains. That's going to do it for me here on Closing Bound.