Closing Bell - Closing Bell: Stocks jump to end week, Economic impact of Inflation Reduction Act 8/12/22

Episode Date: August 12, 2022

Stocks jumped in Friday trading, capping off a strong week of gains – the fourth in a row for the S&P 500 and the Nasdaq. Market experts Eric Jackson, Charlie Bobrinskoy, and Lori Calvasina discuss how long the rally can last, and if you should be positioning more heavily in growth or in value stocks. Meantime as the House debated the Inflation Reduction Act, J.P. Morgan Chief Economist Michael Feroli discusses the impact the legislation could have on the economy. And in today’s Market Zone, we break down the resurgence in meme trades, the pop for Peloton, and the latest commentary from the Fed.

Stocks are at session highs here, pacing for another winning week, the fourth in a row for the NASDAQ and the S&P 500. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. Happy Friday. I'm Sarah Eisen. Take a look at where we stand. Fifty-eight points higher on the S&P is the high of the day. As I mentioned, every sector is higher right now, up 1.4 percent on the S&P 500.

The best-performing sector is information technology, but consumer discretionary is right behind. You've got a number of sectors up more than 1%. Materials, communication services, financials, utilities, all up at least 1%. Real estate and healthcare too. Energy is a laggard, but it is still higher by a third of 1%. And then check out some of the biggest winners on the Dow this week.

Spanning a number of industries. Disney was the real winner off earnings and continues to drive the Dow today up 13% for the week. Dow Chemical, Travelers, Caterpillar, and Goldman Sachs. Coming up on the show today, EMJ Capital's Eric Jackson is bringing his growth stock shopping list. He'll tell us whether he thinks the tech comeback has more room to run. Remember, he said we saw bottom a month ago back in June. So far, that's looking like a good call. Plus, J.P. Morgan chief economist Michael Faroli on the economic impact of the Inflation Reduction Act

and whether or not it will indeed help ease inflation. And let's begin right there with the Inflation Reduction Act because the House is meeting today to vote on this legislation, which has already made its way through the Senate. Our Kayla Tausche is in Washington with the latest. Do we expect the vote here, Kayla? Well, we are waiting on that, Sarah. The House is currently debating the bill and is expected to vote to pass it this hour. The impact on inflation of this specific bill is still years away, according to Moody's. An economist at Penn Wharton wrote today, the impact on inflation is statistically indistinguishable from zero. Last week, Vice President Kamala Harris cast the tie-breaking vote to advance what's seen as

the last major piece of legislation before the midterm election, which will begin in earnest when lawmakers return in September. The White House, meanwhile, is expected to seize on these recent wins to push an us versus them narrative on the campaign trail. President Biden's top communications aides in a memo wrote this week. During the recess, the White House will drive home one clear message to the American people. The president and congressional Democrats beat the special interests and delivered what was best for the American people. Every step of the way, they write, congressional Republicans sided with the special interests, pushing an extreme MAGA agenda that costs families. President Biden is still on vacation in Kiowa Island, South Carolina.

He's expected, though, to sign it very soon after it passes the House. Sarah. Keep us posted. Kayla Tausche. Kayla, thank you. For more on the bill and the economic impact, let's bring in J.P. Morgan's chief U.S. economist, Michael Farole, who actually published on the topic. And how about the question du jour, Michael, which is, does it actually reduce inflation? What do you think? So Kayla mentioned a few outside

analysis of this issue, and I would agree with that, which is that at least over the next four to eight quarters, we don't see either a big impact on GDP growth or on inflation. That's not to comment on the advisability or the inadvisability of the act overall. But when we look at the contours of the business cycle, there's just not enough either addition or subtraction to aggregate demand over the medium to near to medium horizon that it would really affect the inflation impact. Nor do we see things like the aspects related to prescription drugs having enough importance to really move the needle big time on inflation over the next, as I said, one or two years.

And you said about GDP as well, you don't expect it to have any impact on growth in the near term? Not a big impact. It should reduce the deficit by, you know, less than one-tenth of one percent over the next year. And when you think about how much that's going to restrain aggregate expenditures in the overall economy, that's really just not enough to really move the needle here on the growth picture either. So, you know, as you look out in the five to ten year horizon, it does become a

little more significant. But I think for most viewers who are more focused on, certainly I am on the next year or two, when we have some visibility on a variety of other impacts on the economy, we don't see it as a big game changer for the outlook. I know you're looking at the macroeconomic impacts of this bill. But one thing I wanted to just run by you is people are trying to make sense of what the impact will be of the buyback tax and whether it will incentivize dividends over buybacks. And BMO, I thought, put out an interesting note from their credit desk saying that it could potentially hurt ratios and lead to ratings downgrades

because companies are likely to be slower to reduce dividends than to cut share buybacks and do more dividends than share buybacks. And I was just wondering what you make of that. I mean, at the margin, it should incentivize dividends over buybacks. It shouldn't be a student body left in terms of moving everything from buybacks to dividends. There are a number of other timing advantages still to buybacks from a timing perspective and it will on net lead to a modest increase in the cost of capital for for corporations but again the impact should be pretty limited so when I said the impact over all of this bill should be limited that's also I think in that same category which is yes

it's a modest increase in the cost of capital, but not something that we think is a big, you know, another big game changer for the capital spending outlook for corporations. But I hadn't really thought of that, the increasing credit risk. So, Michael, here we are, fourth week in a row of solid gains for the stock market, which continues to cheer signs that inflation is easing. At the same time, it does feel like investors are fighting the Fed. What do you think? So, look, what I would say about inflation is that this has been a good week,

not a great week, right? So we had a nice surprise on, downside surprise on CPI. A lot of that seemed to be driven by some of the more volatile components. And when we look at the more persistent underlying components of inflation, we still have an inflation problem. And when we look back at last Friday, we still have wage inflation growing well in excess of productivity growth. So, you know, the battle isn't won here. Now, are investors fighting the Fed? Hard to say, right? If you price in some risk of a recession next year, which doesn't seem crazy, then you're going to have a downward sloping yield curve, I think, over the near to medium term.

But I certainly see the Fed remaining pretty aggressive here. And I think you heard that in the rhetoric coming out of them from even since the CPI report. So they know they have a lot of work to do here. The CPI and the PPI and the import prices, they were all nice, but we shouldn't kid ourselves that we still have a lot of work to do, I think, in restraining aggregate demand, getting some slack in the labor market to put it in better balance. And we haven't really even begun with that, particularly if you look at last Friday's jobs report. So hard to know exactly. Do you think the market is wrong, thinking that the Fed pivots after this year and starts cutting?

So what I would say is the Fed, I think our view is still 75 basis points looks likely for September. I don't think they are going to be cutting at the first sign of weakening in the economy. And I thought actually President Barkin's remarks today were a good reminder of the lesson from the 1970s, which is that at that period, one of the mistakes was the so-called stop-go policy, where at the first sign of weakness, they would cut rates. And I think they have learned that lesson and they will, I think, be pretty patient here in watching the economy slow and waiting for real definitive evidence of inflation slowing before they do cut rates. So in that respect, I guess I think the market may be a little optimistic about how friendly the Fed is going to be with respect to growth and to

perhaps the market itself. I think they realize the number one job here is getting inflation under control. And doing that is not going to be consistent with cutting at the first sign of a payroll number that's below 100,000 or even a negative payroll number. I think they're going to be able to be pretty patient and look through that for a number of months. But you're also out of step with just even the September expectations, which have gone down after the CPI report to 50 basis points. You're hanging on to 75. Why?

Because didn't Powell tell us last time that we were at the neutral rate? So I guess I would say three things. One is it's a close call between 50 and 75. Two is there's a lot of data between now and the September meeting, including the August payroll report, the August CPI report.

And three, as I said, while this was a good week for inflation including the August payroll report, the August CPI report. And three, as I said, while this was a good week for inflation and hence a good week for the 50 basis point camp, I don't think it was a slam dunk week because, as I said, some of the more persistent components of the CPI are still running pretty hot. So, you know, we'll see between now and mid-September how things shake out. I wouldn't be surprised if perhaps we have to adjust our views again in one way or another.

But there is, as I said, a lot of data between now and then. No, and another CPI report and another jobs report, but both for the month of August. Mike, thank you very much. Have a good weekend. I appreciate it. Michael Faroli from J.P. Morgan. We have a news alert here on Meta and DoorDash. Julia Boorstin with the details. Julia. Sarah, DoorDash has confirmed a report that it is

teaming up with Meta's Facebook Marketplace. This partnership will enable drivers for DoorDash to deliver items sold in Facebook Marketplace up to 15 miles away. Now, the deliveries will have to fit into the trunk of a car and they would be made within 48 hours of miles away. Now, the deliveries will have to fit into the trunk of a car, and they would be made within 48 hours of a purchase. Now, this aims to be a win-win. DoorDash, we know, has been looking to expand beyond food, and it could also help grow the appeal of Facebook Marketplace and get it to use the service more often by offering that delivery after purchases.

Now, Facebook Marketplace has reportedly been quite popular with younger users who, of course, are a key demographic for social. And it comes as Facebook and all the social platforms try to push more into e-commerce. It is valuable in no small part because e-commerce makes it easier to measure the impact of ads. Sarah, back over to you. Julia, thank you. Julia Boorstin. Up next, the Nasdaq pacing Sarah, back over to you. Julia, thank you. Julia Boorstin. Up next, the Nasdaq pacing for its fourth straight winning week.

It's now at more than 20% off the lows of the year, 23% to be exact. We're going to ask EMJ Capital's Eric Jackson whether the tech rally has more upside and why he says one household name could triple in a year. He will name it for us.

You're watching Closing Bell on CNBC with the Dow up at the highs of the day, 368 points. Look at the Nasdaq. It is up more than 20 percent from the June lows. But will the rally continue? Joining us is tech investor Eric Jackson from EMJ Capital. And yes, Eric, we remember a month ago that you told us that you thought we had seen the lows in June. And clearly, that was a really good call. But there are still some saying the market's getting ahead of itself on the Fed. We just heard from Michael Rowley of J.P. Morgan said it doesn't look like the Fed is going to cut anytime soon and that this is just a

bear market rally. What do you think? Well, yeah. I mean, two weeks ago, we kept hearing that, yeah, it's a short covering. It's a bear market rally. We haven't seen capitulation yet. That's if I had a nickel for every time I've heard that from someone over the last couple of months. And yet, you know, the market keeps going. And so I think there's another favorite was wait for the E and PE to come down for earnings season. And we're pretty much done tech earnings at least now. And I think we can just say unequivocally it was a fantastic earnings. Now, part of the reason why

stocks have done so well coming out of earnings is because they just were sold off so much in the first half of this year. At some point, price matters. And we don't know when that point comes, but it appears that for some tech stocks, it was May 12th. For others, it was June 16th. And I believe that those were the bottoms. Was it a fantastic earnings or was it just a less bad than feared earnings

with a pretty good setup? I mean, obviously it's case by case carvana you know basically you had- probably a majority of folks thinking that they were going to tip into bankruptcy. Any you know anything that proved that they weren't going

straight into bankruptcy- was what's good enough to get the stock rallying and to you know to get to 30 percent of the float or whatever it was short to start covering. But that stock, I think it's, it's, it bottomed around 20 bucks and it's up in, in mid-July and it's up 150% since. So other names have had stellar earnings, you know, names like an Apple and people like that. Some of the bigger tech stocks, I think have had solid

earnings. So it's, it, it, it varies in So it varies in terms of each individual story on why they've rallied. But the rallies are here. Bad news is being met with rallies, which is obviously much different from the first half of the year. Well, let's hit Carvana, because you have liked this on the show before. I don't know if you're still in it. And I don't know what your price is, Eric, which matters, because as you noted, it hit 20. It's at 50 now, which looks good, but it was at 315 a year ago. So this has still been a disaster.

Yeah, I mean, it dropped something like 75 percent. And then, you know, when people thought the coast was clear, it dropped another 75 percent. So I do own it. I still own it. You know, I think at $. I still own it. I think at $20, it was too cheap. Even at $50 here, it's something that I'm still holding. And I think it can still rally from here because, again, there's this sort of specter of bankruptcy hanging over it. And if they can skirt that, they can continue to do well. They've invested in this infrastructure across the country

that services used cars today, but they could get into new cars. They've invested in this infrastructure across the country that services used cars today, but they could get into new cars. They could get into fleet management. But they have to prove it. I mean, one of the other things I think I said to you previously, Sarah, is that forget about profitless tech. You really want to think about what stocks might be losing money today, but a year from now or two years from now, they could be major free cash flow gushers. Carvana, you know, the jury is still out. They've never been a free cash flow positive company since they came public five or so years ago. But they say they have religion now. They've got commitment to do so. They have a number of insider buys at 20 bucks. So, you know, we'll have to see,

but I'm holding it for now. Well, another group you like, you like Uber and Lyft for this reason, right, where you see the move to cash flow positive. And they've had great recoveries, but I wonder if people are still convinced on whether these companies can pull off the balance between growth and profitability? Well, I think when you look back at some of the best returning stocks in the history of the stock market, it's been these cases where a lot of people thought there's a company that is a bad business, it's going out of business, and suddenly they they proved the market wrong and so i point to amazon in 2001 where after years of losses suddenly they they flipped to free cash flow positive and the stock took off and never looked back uh then tesla in 2019 in 2018 we

thought that the company a lot of people thought the company was going under 2019 was a record free cash flow year for them uh and the stock had a major upswing. So I think those are the kinds of stocks that you want to look for. And for me, you know, when I look at the stock universe today in tech, I would definitely put Uber at the top of the list. I also own, I own Uber, I own Lyft because I think they're going to, you know, come along for the ride. They're less close to being free cash flow positive. We'll have to wait for next year for Lyft. But in the recent earnings report from Uber last week, Dara showed that this is a company that now has firmly moved into being free cash flow positive. I think he's made commitments that it's going to stay that way and it's going to grow from here. And so it is one where, you know, typically when that happens, there's a serious re-rating that happens in these stocks.

And so I think Uber was just sort of forgotten about. It's majorly under-owned by a lot of institutional investors and hedge funds. And I think a lot of people, you know, over these last two weeks are saying, hey, this thing went from 23 to now 33. Where's it going to go a year from now? And it is the stock that I think could triple a year from now. So if they keep up the free cash flow positive. Big call. Eric, thank you for joining us with some of your recent ideas. Appreciate it.

Great to see you. You too. Let's give you a check of the markets right now. Zooming ahead, up 372 on the Dow and nice more than 1.1% gain, almost 3% gain for the week. The Nasdaq's up 3% for the week. It's the big winner again today as information technology leads the S&P 500 up 1.5%. So you just heard the case for some growth stocks. Coming up, Ariel's Charlie Bobrinskoy will be here to talk about the value trade, why they prefer that. Plus, we'll tell

you about the news that sent Peloton shares sharply higher midday trading. And as we head to break, check out some of today's top search tickers on CNBC.com. Tenure still takes the top spot, gets the most clicks. We're seeing buying today with yields under a little pressure, 2.846. Amazon, AMD, Tesla, and Disney, those are all the winners. In fact, it's Apple, Tesla, Microsoft and Nvidia leading the Nasdaq right now. We'll be right back. We are sitting near session highs, time for the market dashboard. Mike Santoli is here taking a look at how financial conditions have really loosened over the past few weeks. Maybe not what the Fed would like to see in this inflation fight.

It seems to be running counter to what they're attempting to do. The question is, is it too much? There's been a massive tension release. It continues today. Investors realize they could take on more risk or just didn't own enough risk if markets are going to rally. This is the six-week rate of change in the Goldman Sachs Financial Conditions Index, so a proxy for that risk appetite and liquidity and you see basically down here it's rarely gotten looser faster over the last couple of years it rivals November when the NASDAQ peak obviously yields are down credit spreads are tighter and equities are up and volatility is down and that is the question Sarah is it going to be too much of essentially accommodation by the markets that counters what the Fed's going to do far, it seems like investors feel like there's room enough to take on some more risk and have conditions loosen without necessarily threatening a further hawkish turn by the Fed.

Dollar's been weakening, too, which also loosens. Big part of it. Mike, thank you. We'll see you next hour. Up next, the CEO of Wheaton Precious Metals on the outlook for silver prices and why his company can give investors exposure to the fast-growing solar industry. We'll be right back on Closing Bell with the Dow 352. We've got some news to tell you about on the FBI's search of Mar-a-Lago. Let's get to Kayla Tausche in Washington for the latest. Kayla. Sarah, the Department of Justice just filing a notice saying that President Trump, the former president, and his legal team do not oppose the unsealing of a search warrant related to the search of Mar-a-Lago earlier this week.

Once a judge signs off on that, then that document will be unsealed. But in the meantime, NBC News has obtained the document. It's a four-page search warrant authorizing specific searches of the residents at the Mar-a-Lago resort, which they state as the 45 office, as it's known, any storage rooms and any other rooms currently being used by the former president. The document directed the seizure of any documents noted as classified or boxes in which classified documents might be stored. Specific information related to national defense in particular was being sought. Now, the two-page search receipt shows at least 33 documents or boxes itemized in that list that were retrieved from the residents.

They include the clemency documents for former aide Roger Stone, information about the president of France, and miscellaneous documents categorized as sensitive or for those with top secret security clearance. In all, 11 sets of documents deemed classified were retrieved, 20 boxes in total, and also several binders of photos. Sarah, more as we know it. Yes, thank you very much. Kayla Tausche with the story unfolding, waiting for that judge's ruling on the motion before the warrant is officially unsealed. Thank you, Kayla. Shares of Wheaton Precious Metals, hard turn here in the green right now, after initially falling last night when the company reported lower production than

expected and lowered the long-term production guidance. Joining us to talk a little gold and silver is Randy Smallwood, Wheaton Precious Metals CEO. It's good to see you, Randy. Welcome. Great to be here, Sarah. Thank you. I actually wanted to start with you on the other unfolding story right now in D.C., which is the potential House vote here this afternoon on the Inflation Reduction Act and the help that would give to the solar industry because silver, as I understand it, is critical in production. Is that something that you are hoping for, using in terms of the demand? Definitely following.

40% of our revenue comes from silver, and silver has one unique attribute. It conducts electricity better than any other metal. And so we need silver in our smartphones. We need silver in our electronics, our electric vehicles. If you want your batteries to last long, if you want more processing power, more capacity, silver is part of the equation. And it really plays a role in solar panels in terms of making sure that the solar panels generate as much energy as they can. So for the effort that goes into that, silver is bound to outperform based on these increasing demands all the time.

I was going to say, silver has underperformed gold lately, even with that industrial use. You know, all I can do is look at the fundamentals. We don't see any increasing silver production around the world. Most silver comes as a byproduct from lead-zinc mines, and we just don't see new lead-zinc mines coming on. And so what we see is supply side pressure on the silver side. But then on the demand side, we see increasing industrial demand. More than 60% of silver is now consumed in high efficiency electronics, like solar panels,

in antibacterial applications like water purification systems. And so overall, you know, we just see all the fundamentals are there. But you're right, it hasn't had its move yet. It always lags gold, and we have seen some strength in gold. And I'm happy to see gold up over $1,800 again today and showing continued strength. Silver always lags gold, but it has been a long time coming. But just look at the fundamentals. They're there to support it.

It doesn't help that you've had a stronger dollar over the last year or so, at least. Randy, what about gold? What are the prospects for gold if we do enter recession? Usually that isn't that's pretty strong demand for gold time, right? Exactly. It's a it's it's proven. And, you know, looking across all the different metrics out there, gold has proven yet again to be the solid measure of value, the solid store of value. We have seen a strong U.S. dollar for the last six months, which has taken gold from $2,000 down to the, you know, the 1700s. But we're on our way back up again. It really looks like a new basement for gold. And it wouldn't surprise me at all to see gold well over $2,000 within a

couple of years here. Randy, thank you for joining us with some of your bullish outlook on gold and silver. We appreciate it. Good to check in. Thank you. From Wheaton. Here's where we stand right now in the market, up about a percent on the Dow. S&P 500 up one and a half percent. We're just off the highs of the session. It's a broad rally. We've got every sector higher in the S&P. A number of the sector's higher than one percent right now. Technology leads, along with consumer discretionary. And the Nasdaq is up almost 2% with Tesla and Amazon and Nvidia leading the way. It's been a big week for meme stocks as well, Bed Bath & Beyond and AMC. Coming up, we'll discuss whether meme mania is back for real or not. And reminder, you can always listen to Closing Bell on the go by following the Cl closing bell podcast on your favorite podcast app back in a moment

check out today's stealth mover mr carwash down 10 or more the company reporting sparkling quarterly sales and gross margins but the stock getting washed out that's because mr carwash is slashing its full year earnings and revenue outlook due to higher expenses and softening demand. Though I learned 1.8 million people subscribed to its unlimited wash club. It's down 10.3%. Up next, Ariel's Charlie Brinskoy and RBC Capital Markets' Lori Calvacina debate whether investors should be buying value or growth stocks right now. Plus, meme stock mania rolls on and Peloton pops. All of that when we take you inside the market zone. Dow hanging in with a 350-point gain.

UnitedHealthcare, Microsoft, Disney, and Apple driving us higher. We'll be right back. We are in the closing bell market zone. Ariel's head of investment group, Charlie Robinskoy, is here to break down these crucial moments of the trading day. Welcome, Charlie. Plus, we've got CNBC.com's Lauren Thomas on Peloton with some new reporting and RBC Capital Markets' Lori Calvacina on the growth stocks. Charlie, I'll kick it off with you in the broader market here. It looks like strong finish to a fourth week in a row of gains, up more than 20 percent from the lows on the Nasdaq. S&P 500 is up almost 15 percent or so off the lows. And it's predicated on this idea that we've seen the worst of inflation and that the Fed is going to react to that. Do you think

that's right? Sort of right, sort of wrong. I do think people are over focused on the direction of change, what I call derivitis, which is too much focused on the derivative. So inflation is commutative, meaning 2 percent followed by 3 percent, followed by 4 percent, followed by 5 percent is just as bad, but no worse than 5 percent, followed by 4, then 3, then 2. The order doesn't matter. And so people get too excited about a change in the rate of inflation. We still have very high inflation. We still have very negative real rates of interest. And negative interest rates prop up growth stocks and are relatively good when they change to value stocks. I said a lot there, but people are too positive

about a decline from very high inflation rates. You don't think it's more important that the inflation rate is falling than the absolute level that it's still high? I'm so glad you followed up on this because this is one of the real misunderstandings that people have. If your daughter graduated from eighth grade last year, in four years you're going to have to write a college tuition check. If inflation goes five, then six, then seven, then eight, it makes no difference if it goes eight, then seven, then six, then five. It's exactly the same, because multiplication and inflation are commutative.

What's happened is there's been a massive erosion of the purchasing power of a dollar. Last year, seven and a half percent. This year's eight plus is going to mean you can buy 15 percent less stuff than your money with your money than you could two years ago. That's what matters, not the direction in the rate of change. Well, I think I think a lot of people do disagree that the direction of travel is important. But I do want to bring in some sound to this conversation, Charlie, because earlier today, Richmond Fed President Thomas Barkin discussed on CNBC what the Fed will have to do to get inflation to a comfortable range. Listen. We're happy to see inflation start to move down, and I'd like to see a period of sustained inflation under control. And until we do that, I think we're just going to have to continue to move rates into restrictive territory. Which sort of goes to both points, but the obvious point from the Fed,

and his message is the same as some of the messages we've heard post that inflation report, is that they have a lot of unfinished business here. Absolutely. And they're right about that, finally, after having been very late to the game. But they're taking and there have been all kinds of articles in the last couple of days taking way too many victory laps over a decline in the rate. That is the point. And I'm glad we're spending a lot of time on this because it is important. It is much worse to go from eight to seven than to go from two to three. It is not the rate of the change in the rate. It's the purchasing power of the dollar that matters. Understood, Charlie. So you're still investing for an inflationary environment is the bottom line.

That's a great way to put it. And a 3 percent 10 year or 2.8 percent 10 year when we are going to have absolutely north of 5 percent inflation next year. And we're going to have more than, in my opinion, 2.8 percent over the next 10 years means we've got negative real interest rates. And that's got big implications for whether you should own bonds. It's got big implications for growth stocks, which clearly have a tailwind of this very low real interest rate environment, which I think is going to revert back to meme. Yeah. And meme stocks, too, have been enjoying the party as well. Let's talk about those. Shares of Bed Bath & Beyond soaring again. Loop Capital isn't buying the rally. The firm is showing a bearish note, reiterating its sell rating and $1 price target on the stock. Analyst

Anthony Chukumba believes this week's huge rally is likely a meme stock short squeeze. Meantime, AMC also having a pretty decent week with a more than 10% gain. The stock lower right now, but did pop earlier in the session after CEO Adam Aaron tweeted this to promote the upcoming launch of AMC's preferred equity, which will trade under the ticker symbol APE beginning August 22nd. Frank Holland joins us. Frank, what a week for the media. Just when you thought they were down and out, the meme stock traders are back. What do you hear? Well, you know, they're back on Wall Street bets. They are sending out memes and talking about different stocks, but it's not really clear if it's a full-blown reversion to the meme, if you will.

But certainly a similar formula is at play. You look at Bed Bath & Beyond and GameStop. Those two stocks are outperforming the S&P. Then you look at U.S. Steel and AMC. Those are two other stocks that are the top four most mentioned stocks that are memed and mentioned on Wall Street Bets. Well, U.S. Steel is trading in line with the S&P. AMC is actually in the red. You mentioned it popped earlier off that tweet.

So you're seeing kind of a mixed response to everything that you're seeing out there. You also look at each of the top four stocks that are the most mentioned and memed on Wall Street Bets. You're going to see that high short interest. According to our data team, anything above 10 percent short interest, that's elevated. Above 20 percent, that's extremely high. But the volume trading you associate with the meme trade just not as consistent with only Bed Bath & Beyond. Seeing trading volume you would normally associate with retail traders looking to do that short squeeze, much less that mother of all short squeezes. Short squeezes haven't said that phrase in a while that we saw during the Reddit rebellion. What we have seen in recent months is retail trading getting excited about so-called meme stocks and spurts are when there's specific opportunities like the elevated short interest in Bed Bath & Beyond, but really not a full-blown

return to that movement. So what do you think, what do you hear, Frank, about whether it has legs, whether this rally can continue off the 55, 56 percent jump we've seen in Bed, Bath and Beyond this week. And does it just depend if rates stay low or if we march back higher on interest rates? Then is this is this thing wiped out again? You know, I'm not sure about that, that and the fundamentals there. I mean, even that loop capital note says it's not clear if this is moving any direction on fundamentals.

But when you go on Wall Street best, you want some of these other sites. There's a mix of people saying, hey, let's try to do another short squeeze. And some people just pretty incredulous, like what's going on? Why are we piling into AMC? Especially because the idea is that AMC is going to have a preferred equity offering and not the AMC ticker itself. If you want to get to that preferred equity offering, it's going to be APE, not AMC. So a lot of confusion even about exactly what's going on. But of course, you get people going on these sites and these different retail traders and you can pile into a trade with some people maybe not being fully aware of why they're doing it. Yeah. OK, Frank Collin, thank you very much. And you can catch more on the meme trade tonight.

We've got a special return of the retail trader. Six p.m. Eastern time right here on CNBC. Let's hit Peloton shares. They're popping after CEO Barry McCarthy wrote in a memo to employees that the exercise equipment company is cutting nearly 800 jobs, closing an unspecified number of stores, and raising the prices of some products. CNBC.com's Lauren Thomas joins us. Lauren, I feel like this happens every few months for Peloton. No. Yeah, absolutely. No, it is a bit of deja vu. You remember back in February, massive overhaul at Peloton. That's when now CEO Barry McCarthy took the reins from founder John Foley, who at that time was CEO of the company. And

Peloton announced this eight hundred million dollar restructuring plan. It says it was going to cut about 2,800 jobs. You know, like you said, just fast forward a few months later, and here we are again with more cuts. You know, Barry McCarthy has made it very clear, though, since taking the reins at Peloton, you know, achieving profitability and getting Peloton back in the position where it is making money and it has free cash flow. You know, that is a top priority for him. So today, almost the easier question to ask is where is Peloton not making cuts? Like you said, about 800 jobs are being removed. The company is also going to aggressively close its retail stores. It has about 86 of them today. It's also getting out of last mile logistics. On the flip side, it's actually raising the price of its bike plus and its tread treadmill machine.

But certainly a lot of changes. And again, all with that goal of getting Peloton back to making money. Is there any evidence that that is happening, Lauren, that McCarthy is actually succeeding in turning this around? Definitely. I mean, in this memo to employees today, McCarthy did say that the company has seen progress since it announced that sweeping overhaul back in February. You know, they, for example, recently started a new subscription plan where rather than paying full price upfront for a bike or a bike plus, you can now rent that equipment and you can pay a monthly fee that includes both your equipment rental and the access to the workout classes. And we don't have good numbers on

how that's performed so far, but McCarthy has said it's going well. And certainly that ultimately will mean over time, you know, it's better margins for Peloton. The company does report its results for the fiscal fourth quarter in about two weeks time. So I think we're definitely expecting to get many more answers just to your question of how things are going when they do announce. Lauren Thomas, thank you for the update. Appreciate it. Let's go broader market now because our next guest says rebound trades and growth names will be leading the market higher. Joining us is Lori Calvacina, RBC Capital Markets, head of U.S. Equity Strategy.

And, of course, we still have our value investing stalwart, Charlie Bobrinskoy, for an old school debate here, growth versus value. Lori, what is your case? Because already we've seen that it's been working. NASDAQ's up 23 percent from the lows. Why does it continue? Yeah, so look, what we've seen since May 24th in the market, you've seen the growth trade start to outperform the value trade. And you also started to see the most popular names of hedge funds start to outperform the broader market as well. And I think what happened around that point in time was, to some extent, the hedge funds selling the degrossing simply got exhausted.

We had already also seen that if you look as far back as 1Q, hedge funds had gone back to mid-2016 levels of positioning and things like consumer staples. And when you look at defensive sectors more broadly, they were at peak valuations relative to both cyclicals and secular growth. So I think we got to a moment in time where the sort of defensiveness just simply got overdone. And that is something that we do typically see at market bottoms, that the defensives just get so overbought, you can't't stomach buying them anymore and people simply don't need any more of them. And so what you have to ask yourself is what is the next thing investors need to do where investors have not been positioned is for the rebound. And they simply haven't had enough exposure to the growth stocks relative to where we think things are going to be heading long term in terms of overall economic

growth expectations. I think you also got to this point in the reporting season. Look, I do think that numbers still need to come down in dollar terms. But if you look at earnings sentiment, the rate of revisions to the upside, a lot of these big growth sectors and some important subgroups like Internet retail, there were simply no upward revisions anymore. So earnings sentiment looked pretty washed out. That's something we also tend to see at market bottoms. And that really spelled opportunity, I think, in some of these growth names. Charlie, take the other side, which I know you want to. Absolutely. Well, obviously, since May, growth has outperformed.

But if we look at longer periods of time, value has crushed growth this year. The Russell 1000 value index is down only about 7 percent, and the Russell 1000 growth index is down over 17 percent. The value has outperformed growth this year by about 1,000 basis points. And then over longer periods of time, if you go back to 1926 when University of Chicago developed the Center for Research and Security Prices, value has beaten growth in every 10-year period, except for the last 10 years when growth beat value. And as I said earlier in the show, the reason you have to look at what's the anomaly that caused that, it's this crazy low interest rate environment we've had that discounted future growth from growth stocks, the future earnings that are way in the distant, back at very low discount rates. And so that's been very helpful to growth stocks. But that's an anomaly that's going to revert

eventually to the mean. With a normal interest rate environment, value will do better. I think also what's relevant here is just to define what you both are talking about. Lori, what are growth stocks right now? Are you talking about unprofitable stocks that are in the ARK Innovation ETF? Are you talking about Apple or Alphabet and Meta, some of which were classified as value a few months ago? Right. So I think that generally, you know, we like the sort of large cap growth part of the market, the technology sector, consumer discretionary, the communication services sector. And yes, some of that weight has been shifted into value. But at the end of the day, what we typically see with those three sectors, if you bucket them together, what we tend to see is that they outperform when economic growth is

sluggish. And we typically really only see the value part of the market, which is driven by things like financials, commodities, also the industrial sector. They tend to outperform when the economy is hot. And so all the things that we just heard about how great the value stocks have been over the past year or so, year to date, that is really a function of a hot economy going above trend. Trend is about two and a half percent. And that's really fading into the background. If you look out at where economic expectations are for next year, they're hanging out at about one and a half percent. My economist is a little bit more conservative. But over the last few decades, and this is not a short-term anomaly, over the last few decades, if you think the economy is hot, you want value. If you think

the economy is going to be cool, and that's frankly where I think it is heading, even if we avoid recession, you do want to be in those longer-term secular growers. I do feel, Charlie, that that is the biggest point that growth investors have, is that we're heading into a slower economic period, potentially even a recession, where usually you want growth in that time. Well, that's clearly the consensus that the analysts and money managers by many metrics were never as bearish as they've been the last couple of months. The calls for a recession are everywhere. I admit that's the consensus view, but that's, of course, exactly why value stocks have gotten so cheap. I mean, my portfolio is trading right at 10 times earnings. Names like Goldman Sachs trading at nine times earnings or

Warner at nine times earnings or Apache at four times earnings. So they are cheap because everyone agrees with you that we're going to have a recession. We may have a short one, but you have to invest for the long term. And it's a mistake to invest trying to predict a recession. It was a good discussion. Good debate. Lori Calvacina, thank you. Have a good weekend. And Charlie, before we let you go, we're looking at another strong rally. Just to recap the week we've had of 3.2 percent on the S&P 500. It's the fourth week in a row of gains. We're down still for the year. Only ten and a quarter percent. I say only because it was a lot more than that. Remember, we were in a bear market. So so what are we in now?

We're in a bifurcated market. I'm sorry to be a little repetitive here. But the numbers you just quoted were for the S&P 500, which is dominated by big, large cap growth stocks. Value stocks aren't down nearly that much. I think my fund is going to be down about 3% for the year. So huge bifurcation, different kinds of popular stocks. Everybody wants to own Amazon and Google and Meta. There's a lot of opportunity in value, which is holding up very well. Still great valuations in that part of the market. Still very expensive in the technology growth space. What's your favorite name right now? If I had to pick one, and it's always hard to make me pick among my children, I am going to say, and this is sit down, Madison Square Garden Entertainment.

You say that every time. Well, I'm consistent. I'm a long-term investor. They are going to open up time. Well, I'm consistent. I'm a long term investor. They are going to open up the sphere in Las Vegas. They just signed U2 is going to be the anchor tenant. It is going to be a spectacular place to watch a concert and people are going to go by the boatload. Charlie Brabantskoy, thank you very much. Always consistent. We appreciate it. But never dull. Heading into the close, we've got an S&P 500 rally, bifurcated market. Actually, everything's up today. 1.7 percent growth and value. Consumer discretionary is right on top. It's up 2.3 percent. Best performing sector in the market right now. Technology right below it. Everything's higher. As I mentioned, energy is the worst performing sector. It's up almost a full percent. So we've actually rallied to even newer highs of the session. Just in the last few moments, it's been a steady climb here into the close. And we are at the highs of the day, up one and a quarter percent, three quarters percent on the S&P 500.

The Nasdaq also, it is charging higher right now thanks to strength in big cap tech like Apple, Tesla, Microsoft, NVIDIA, and Amazon. But also some of the other tech, ARK Innovation ETF closing up 4% on the day. So really just continuing to cheer these lower inflation numbers. And overall, a fourth week in a row of gains for stocks. That does it for me on Closing Bell. Have a good weekend in overtime with Mike Santoli.