Closing Bell - Closing Bell: Stocks rally, Danny Meyer on consumer spending, Kellogg splits 6/21/22

Episode Date: June 21, 2022

Stocks rallied to kick off a shortened trading week, following the worst week for the major averages since 2020. Tony Dwyer from Canaccord and Charlie Bobrinskoy from Ariel discuss if they think the bounce is sustainable. Meantime famed restaurateur Danny Meyer shares his thoughts on the summer spending environment, and what he’s seeing right now from consumers at his restaurants. And Sara breaks down the decision by Kellogg to split into three separate companies – and what it could mean for shareholders.

Stock succession highs here firmly in the green as the shortened trading week kicks off on a high note. We are sitting up about 755 points right now on the Dow. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand broadly here in the markets. S&P is up about 2.75%. Keep in mind, we're coming off of the worst week for stocks in about two years, and we're still down sharply up for the month of june

but having a nice big bounce back today the nasdaq up 2.8 percent is broad the dow as i mentioned up about 2.4 percent look at the s p 500 sector heat map right now you'll see that every sector is seeing nice gains energy is leading we've got a one percent rise in crude oil prices consumer discretionary is right up there along along with health care and staples and technology materials. The worst performing sector, it is up about 1.6 percent. So you've got a mix here of growth, value, cyclical technology, everything that's been beaten down in the last week or so. Coming up on today's show, Canaccord's Tony Dwyer breaks down today's bounce. Whether he thinks it's the start of a broader market comeback, he's been calling for a summer rally.

Plus, all week long, we are taking a look at where Americans are spending their money this summer. And we're starting off today with famed restaurateur Danny Meyer for an inside look at the state of the restaurant industry. Let's begin with the rally, though. Mike Santoli here with a closer look at the action in the S&P, Mike. Yeah, Sarah, you know, we talked last week that there was a chance we'd have a little bit of tension release coming into this week, mostly because we got through so much. ECB, Fed meeting, big options expiration on Friday,

and then just historic oversold conditions, very rare extremes. Now, we've been worse than we got to after this 11% drop in the S&P over two weeks, but we definitely were in the zone where the market should have responded with a bounce. So the first step is in the books. We did respond to oversold conditions, but this is a one year chart. It puts it in context. All we've really done is risen to this point. We're still below

the levels we were hoping we were going to hold going into last week, which were the May 20th intraday lows, 38, 10, something like that. So you still have plenty of steps along the way before this is anything more than a bounce. I would say 4000 area is probably, you know, the minimum to say that this is maybe the start of something larger, because that's where a lot of things come together technically. And also, again, it gets us back into this, you know, before this breakdown zone right there. So take a look, though, for this historical comparison of what we've been going through this year. This is from Stephen Suttmeier at B of A. Compared to two other bad bear markets in midterm election years, because that cycle sometimes seems to matter. Obviously, we're underperforming to

this point in this year. But here's the reason that a lot of folks look toward, you know, the back half of a midterm election year is when things start to firm up. Obviously, these diverge right here. So this is sort of where, you know, the Fed sort of was mission accomplished back in 1982 in August of that year. That's the great bull market took off. So this is a somewhat maybe reassuring comparison because, you know, if you go a year later, you were kind of higher no matter what. I would just caution that coming into these calendar years, the markets era was already going down for a year. So we started this year at a peak. So we're not as far into it time-wise. And nobody

says it has to match up, but it's an interesting comparison. Again, the midterm cycle, there haven't been that many election cycles, but it's been one of the more reliable patterns. No, but some people think that could be a bullish catalyst if we really get a divided government. More than 80% of the time after the election in a midterm year, you're up the 12 months later. 80 percent of the time. Yeah. Well, I guess, you know, for a given year, you're up 60 percent of the time on average or so. So it's still better, though. It's better with the midterms. Mike, thank you. Let's talk the Fed. Another 50 or 75 basis point hike at the Fed's July meeting feels reasonable. That's according to Richmond

Fed President Thomas Barkin, who spoke earlier today. His comments come after a weekend of statements from other Fed officials. Everyone comes out now after the June meeting. At a conference on Saturday, Federal Reserve Governor Christopher Waller said he supports another 75 basis point hike at the July meeting next month. And on the face of the nation, Cleveland Fed President Loretta Mester warned it will take a while to get inflation back down to 2 percent. She is also not predicting a recession, but noted recession risks are going up. Joining us now on the news line is Canaccord Genuity Chief Market Strategist Tony Dwyer. Tony, good to talk to you. Can you buy into this rally with Fed officials still coming out like that and sounding very hawkish,

talking about three quarters of a percentage point rate hike again in July? Sarah, thanks for having me again. Great to talk to you. Of course, you've got to be the most nimblest of traders. We're not, as you know, we've expected a summer rally or a pretty good balance, as Mike said so appropriately. You have this historic oversold condition. But ultimately, when I think back to when I got into the business in May of 1987, I can't remember a real market, a for real market correction, not just a couple of week kind of crashy type things where the Fed was getting more hawkish as the market was going down. So typically we try to differentiate between a bottom, quote unquote,

and the bottom. And for us, until we see the Fed signal, not necessarily change interest rate policy, but signal a change is coming, I think we're going to just stay on the sidelines unless you're super. So what about that summer rally that you are all excited about? It's still, you know, I think it's happening. There's a bunch of stocks that are up from where they were two weeks ago. It's a pretty broad rally. But like I said, the question becomes, we always ask what's good for the average investor. And what's good for the average investor is to have some kind of confidence that there's a significant sustainable turn.

And I think that only comes with money availability improving. And it's actually gotten worse lately, not better, and another rate hike isn't going to help. So, Tony, what if the market gets ahead of the Fed again, though? What if inflation numbers start to come down? Would that be enough to convince you, or you have to hear a clear change in tone from the Fed? I think you've got to see a clear change in tone from the Fed. And by the way, that's our call going into end of year. At this point, as you know, we've been talking about... And then happens when? Yeah, the Fed's in a box. Their dual mandate are working on lagging indicators. So you're already starting to see some pretty dramatic weakness in economic activity,

especially interest rate stuff. And as rates go up, that's not going to help it. But the good news for that, going probably post-election into the end of the year, is that's going to really create an environment where the Fed's going to start focusing more on the economic weakness. Because if you follow the National Federation of Independent Businesses hiring plan index, that leads unemployment by four months. And that's having a pretty dramatic downturn. So, in other words, unemployment into the end of the summer should be starting to pick up. Inflation should start to come down.

We're already down 22 to 24 percent. So our call at the end of the world this year, because the Fed's tightening monetary policy, is that you don't have to do something on the next hit until you figure out, until we see signs that the Fed is actually changing their tune, which will allow for that money availability to improve. So what do you tell investors to do now besides sit and wait? Is there anything? Are bonds attractive? You know, this rally is happening alongside another sell-off in bonds.

If we're right, bonds are attractive. You know, you're already down from peak. And what's very interesting is, guess when the inflation break-evens made their peak? That would be March. So the market and the inflation break-evens believe that the Fed is going to be successful and that inflation is going to be coming down at some point later in the year. But the actual bond yields have gone up, which is helpful. What about recession, Tony? How far along do you think the market is in terms of pricing that in? And what will happen if we do start to see more recessionary indicators?

I think you're going to get them, right? I think, again, we go by the data series, you know, and when we see the core PCE, which is what the Feds say they use in measuring inflation when it's between 3% and 4%, a 16 multiple is average. So I think that the price-to-earnings ratio is about right, given the trajectory of inflation as we see it going into year-end. But listen, the Fed is raising rates and tightening financial conditions in an extraordinarily levered system with bloated inventories and slackening demand. So, you know, that's why it's so important to see a change in the tone of the Fed so that the market can look through it, see money availability improving. And at this point,

with the Fed talking, each Fed governor talking about 75 basis points, it's pretty hard to imagine that that's going to be good for money availability.ay powell's up on wednesday he's going to be testifying tony dwyer thank you for jumping on the news line with your latest thoughts appreciate it up 757 on the dow tesla diamondback and exxon mobil leading the s p unlikely threesome there after the break we're kicking off our summer spending series with an inside look at the restaurant industry, which is dealing with issues from labor to inflation to supply chain. Danny Meyer will join us to break down how he's navigating all those headwinds and the spending trends that he's seeing right now from consumers. You're watching Closing Bell on CNBC.

Session highs up 750 on the Dow. What is Wall Street buzzing about today? A storied American consumer giant is splitting up. Kellogg will become three public companies. You've got snacks and the global business in one, U.S. cereal in another, and then a pure play plant-based food company as the third. The stock was up 9% in pre-market this morning. It's lost a lot of those gains up about 2.5%. CEO Steve Cahillane will lead the larger snack company, which will move its headquarters to Chicago. I spoke with him earlier today on Squawk Box in an

exclusive interview. He called it the growthy company. And then there's the U.S. cereal company, which has been a drag overall on the business. And cereal in general has been in a longer term decline. Here's what he said about the prospects for that one. When you have a Kellogg company that is 100 percent focused on cereal and just its cereal brands, doesn't have to compete with Pringles or Cheez-It for resources. Its management team is wholly focused on the industry and its place in the industry. I think you'll see greater innovation. You'll see more brand building. You'll see bright days ahead of it. I asked Kay Helene about M&A. He said it's possible the plant-based company gets taken out. That's the smaller of the

three. But as for the others, the goal here, he said many times, is to unlock value and operate with sharper, independent focus for each company. Breaking up, obviously, is trendy lately. We've seen splits announced by J&J, GE, IBM, XBO. The last big food split like this was Kraft and Mondelez back in 2011, which separated the global snacks company like this from the domestic grocery business. This one will take about 18 months to move forward and get done. No word yet for the names of each of the three companies or the management teams for the cereal and the plant-based business. Mike, and we don't really have proof of concept of each of the three companies or the management teams for the cereal and the plant-based business mike and we don't really have proof of concept of some of those recent

splits they take a while to get done and they're all sort of ongoing but but clearly the the goal here is to unlock value sort of in a sum of the parts kind of analysis what what what do you think about in general it's a pretty it's a pretty well proven maneuver over time um especially when you find that the parent company trades at a bit of a discount. You're not getting credit for the parts of the business that are growing. So this is not a unique solution, but it usually is pretty effective over time. It's a long wait. The other problem is you don't always know which companies are going to be the ones to be in favor afterward. If you remember when Viacom split into

Viacom Cable Networks and CBS years and years ago, before they recombined again, everyone said CBS could be the boring, slow growth dividend company. Viacom's the sexy growth company because it's cable. And guess what? CBS was the outperforming stock after a while. And so you can never know how it's going to play. The other thing is spinoff stocks tend to be good outperformers. They have over the decades. But that's because when they do the spin, they're kind of orphaned. Nobody wants them. The indexes get rid of them. Somebody who owned the parent company didn't want. So you have to go through this period where they don't do well before they start doing well often. That's pretty interesting. Also, I'm thinking of craft. Remember when there was so much excitement about Warren Buffett and 3G and merging it with Heinz?

The special formula. And that's been one of the worst before. Absolutely. Absolutely. Too much, yeah. Speaking of tomorrow, we're going to talk more about the consumer when we are joined by the CEO of Mondelez, which just itself announced a pretty big deal over the weekend, a nearly $3 billion purchase of Clif Bar. We'll talk to him about that deal, the business, and, of course, what's happening with food inflation.

Let's give you a check, though, on the markets. Up 741 right now on the Dow. Every sector higher in the S&P, energy leading the way. Tesla is the best performer. And the Nasdaq rallying almost 3%. Coming up, we'll talk to Michaela Edwards, partner at $10 billion asset manager Capricorn, about why she says a recent crackdown on ESG funds could actually be a good thing for socially responsible investing. We'll be right back.

All this week, we're looking at summer spending. And today we're diving into the restaurant sector with restaurateur Danny Meyer. He is the CEO of Union Square Hospitality Group, which owns some of the most well-known restaurants in New York City, including Gramercy Tavern and Union Square Cafe. He's also the chairman of Shake Shack, and he joins us now. Danny, always good to take your temperature on the spending environment. I just want to mention the restaurant ETF, Eats, is down worse than the overall stock market this year, 27%. Are you seeing any big changes in spending? Well, the irony is that in the full service restaurant industry, at least from the New York standpoint, we're seeing more demand today than we've seen for

well over two years. And, you know, it's kind of a it's a weird thing because there's no question that we are probably the third tick on the inflation train And we're absolutely experiencing inflation and the prices have gone up across the board at every single restaurant I'm aware of. And yet there seems to be just so much pent up demand for people to be with people. And especially in a city like New York, where that was not really possible over the last two summers. Tourism is up right now. The demand, the telephone lines are ringing like crazy. Private party demand is up like crazy as well. So we're trying to make heads and tails of it. We think it's the social emergence after two years of really not being able to be with people.

What about the labor shortage? That has been a big problem for you over the last year. Is it getting better? Are you having an easier time bringing folks in it's it's something that we call a talent shortage and the reason is that while so many restaurants talk about trying to cap their labor costs we think about a talent investment and so I want to try to use that expression from now on but the talent is coming back right now. That's another good thing. And possibly, again, it's another thing we're scratching our heads over.

It could be that because the costs are going up in everybody's day-to-day life and because perhaps some of the stimulus has run out, that there are more people who are joining the labor force. Let's be candid. Our industry led the league, unfortunately, in the labor force. Let's be candid. Our industry led the league, unfortunately, in the great resignation. We had more people leave the hospitality industry than any other industry. And we've also been slower to come back. So to the degree that we're not just crushing the numbers right now, it's generally because we're still a little bit short in terms of the number of talented bodies that we can staff in the restaurants, but it's definitely at a better pace.

We just hit the exact same employment numbers in my company, Union Square Hospitality Group, as we had right before coronavirus started. And so that's a hopeful sign. No, it's good that it's getting better. I did want to ask you about Shake Shack. I know you're not involved in the day to day. You're chair of the board there and founder, of course. But that stock has gotten hit so hard, down 60 percent over the last year. And more broadly,

with concerns about recession and expenses and the changing market dynamic, I'm wondering, Danny, if the growth story is hurt, is still intact for this stock? Yeah, the growth story is the first thing you said is true. I mean, that's just a fact. The stock market has has not been kind to Shake Shack over the last several months and or just about the entire food industry. And of course, it's going to come back. This is a great moment for a company like Shake Shack that is actually poised for the greatest growth we've ever had with a strong balance sheet. And I often remind myself that in the very, very early days of Shake Shack, when I was back when I was running the company back in, you know,

late 2008, 2009, right when the Great Recession hit, That's when Shake Shack first started to grow for the first time. We didn't have a second Shake Shack until about 2009. And it was the recession somehow that brought people out. Why is that? Because Shake Shack's price point, while it's definitely more than fast food, it's a splurge for people who wanted the inexpensive calories that you get from fast food. But for somebody who's used to eating in fine dining restaurants, it's a big, big discount for the exact same ingredients. So sort of a value play. That's interesting. Finally, Danny, on the markets, I know that you launched a SPAC last year and you were going to take Panera Public.

What's going on with that? Is that deal still happening? Well, as soon as you open up the markets for us, I'm sure it'll be ready to go. It's not up to me. So IPO market just closed. No insight into when that might happen. It has not been a lot of fun watching no IPOs for the last handful of weeks. But Panera is a great company and we remain incredibly hopeful that the market will reopen quickly. Got it. Keep us posted. Danny, thank you. Always good to check in. Thanks, Sarah. Danny Meyer.

Coming up, is the ESG love affair over? ESG funds seeing outflows in May. It was the first time in years. And a majority of those funds are actually lagging their benchmarks this year. We'll look at what's behind the change in sentiment for ESG next. We've got the Dow still holding on to gains up 750 at the highs of the day. We'll be right back. Sentiment for ESG funds may be shifting. Seeing outflows in May for the first time in more than four years. Pippa Stevens is here with a closer look at what's behind the change. Pippa. Hey, Sarah. Flows and performance are down across the market, but for ESG funds, it's notable given how much money had been chasing the space. Investors yanked money from ESG and

sustainability-focused funds in May for the first time in years. And this follows a period of what RBC calls weak relative returns. Drilling down on the data, the firm found that 18 percent of global large cap sustainable funds are beating their benchmark this year compared to the 44 percent of traditional funds that are outperforming their benchmark. In the U.S., about one quarter of large cap sustainable funds are beating their benchmark, while half of traditional funds are beating theirs. Now, looking longer term at three and five year performance, ESG funds have outperformed. But RBC said the gap has narrowed meaningfully. And much of this is thanks to minimal exposure to areas of the market that have surged, most notably, of course, oil and gas companies,

as well as overweight to underperformers, including clean energy stocks. Regulators are also pushing for more scrutiny of these funds, which is no doubt playing a role here as well. Sarah, back to you. Pippa, thank you. A lot to discuss there. Joining me here at Post 9 is Michaela Edwards. She's a partner with Capricorn Investment Group and the Sustainable Investors Fund.

Capricorn is one of the largest mission-aligned investment firms managing $10 billion in multi-asset class portfolios. It's great to have you here. Welcome. Thanks for having me, Sarah. So outflows and underperformance makes you wonder if the tide is turning for ESG. Well, we've been through a period of a few years now where we've had record growth in ESG flows. The last numbers I saw from JP Morgan was that we'd had 40% growth in the dedicated ESG universe in the past year. So that means we're literally having thousands of funds managing trillions of dollars in ESG. So you're saying it was bound for some sort of correction? I think so. Another point to that, though, which is a bit concerning, is that we saw from Goldman Sachs is that about 60% of the ESG growth has come from existing funds being relabeled or rebranded.

In my opinion, clearly, there is some level of issue on the supply side as well as a likelihood of greenwashing. So this is what SEC is now going to look into this when it comes to some of those Goldman funds. Do you think that is important for the growth or could it backfire and make people more skittish around ESG? Well, I welcome the scrutiny. I think we as an industry should be open around what we're doing and how we're doing it. And I can't comment on Goldman Sachs in particular, but we know that regulation needs to come to bear here. Because there is no standard for ESG, how to report it, when to report it, the frequency or the materiality across sectors. So I would welcome more regulation, more scrutiny, and hopefully we can get to a standard as we're seeing with the accountancy rules where we're having the gap and the IFRS coexisting.

So you're saying you want to see a world where the SEC can, we'll go after companies and find companies for misinforming, misrepresenting information around ESG? Is that the goal? Well, I think there needs to be a global standard and consensus about what ESG really is. But beyond that, there's an opportunity here to integrate sustainability in a broader sense. And that goes beyond just using third-party data. We've seen low correlations between the largest data providers on ESG, which shows that even the data providers

can't agree what is material. Well, Elon Musk called it a scam after he was kicked out of one of the prominent ESG, I guess, funds. Is that legit? Because they are such a clean energy company. Well, what I can say is that I think Tesla has been just a revolutionary company to push all the incumbent automakers to jump on the EV bandwagon.

And the impact of that in the broader auto industry and bringing down global emissions in the transport industry will be huge. But I think the point you're making is around the differences between the ESG data providers on how somebody sees a Tesla versus an oil and gas company, and that they can be so divergent on those views. So how should investors actually tackle that? Well, what is the right answer? And just to add to that, this war is also making us rethink what ESG is, right? Because of the dependence on fossil fuels is creating huge problems for Europe and our dependence on Russia. Now we need the oil companies to go the other way and pump more. If anything, I see this as a great opportunity to secure our energy supply and not just be reliant on oil and gas. So how can we secure renewable

energy sources across the U.S. to not be so reliant on oil and gas going forward? Yeah, we need it fast, though. Michaela, thank you. Thank you for having me, Sarah. Michaela Edwards from Capricorn. Take a look at where we stand right now in the markets. Up still more than 700 points on the Dow. We're having our best day in about a month, but we're coming off of our worst week in two years. Keep that in mind.

We're still down 8% or so for the month of June. Energy is leading. It's up almost 6%. Speaking of, oil prices rising again. Consumer discretionary right behind it. Tesla is a big part of that story, but you're seeing broad strength in retail as well. Coming up, shares of the homebuilders are also higher. Lenar today topping earnings estimates, but the company said it is starting to see the impact of higher rates. We'll talk to an analyst who just ran a homebuilder stress test about the names most exposed to an economic downturn when we come back. Stocks holding strong gains as we head toward the

close with the Nasdaq leading the charge right now up almost 3%. Here's a look at the top search tickers right now on CNBC.com. The 10-year yield getting the most interest. That's where it's been pretty much all year long. And interestingly, this stock market rally is happening alongside a sell-off in bonds where yields are going higher. Usually that's been a little unsettling for the markets lately. $3.30 on the 10-year, followed by Tesla, which is on top of the S&P 500 right now. Some back of some bullish comments on EVs from Elon Musk at a conference over the weekend and also some cost-cutting. Apple's up 3.44%. All the tech stocks that have really been in the eye of the storm lately are rebounding today.

The S&P up 2.6%. The ARK Innovation ETF, if you want to look at some of the more growthy, unprofitable tech stocks, it's surging almost 5% today. And there is WTI crude oil up a percent, energy leading the S&P. Speaking of oil, this whole sector is seeing a sharp rebound today after posting its worst week since 2020. We're going to ask a chart expert where he sees the sector heading next when we take you inside the market zone next. We are now in the closing bell market zone. Ariel Investments Vice Chairman Charlie Brinskoy is back to break down these crucial moments of the trading day. Plus, we've got Jeff DeGraff on the outlook for the energy sector and the charts. And Kate Rooney on the latest wild ride for crypto.

We'll start with the Nasdaq outperforming today. But all three major averages are up significantly, more than 2% right now. This follows, of course, the worst week for stocks since the start of the pandemic. The S&P is up a nice 2.6%. Charlie, inflation is very much a problem, as you have predicted for a long time. The Fed is trying to catch up. Are you now satisfied that that's what they're doing and they're going to get it under control? So I hope you're sitting down, Sarah, because I am going to change. I'm standing a little bit here. Oh, that's not good. For the first time in about two years,

I am going to be just a little bit less bearish about inflation. I think for the last two years, we've had nothing but a straight up line in the money supply. We're up 42 percent in M2. That was going to have no result other than inflation. Now, finally, for the last two months or so, we're seeing that flatten out. We're now getting a Fed that not only is increasing rates, but is not behind the scenes flooding the market with more cash. And you can see on this chart that even in the Great Depression, even in the Great Recession, the money supply only went up by 9 percent or so in 2009. Right after COVID in February of 2020, the money supply went up by 42 percent. It's never, ever done that before. And that couldn't have done anything but cause inflation.

Now it's finally leveling out. The Fed now finally gets it. Now there is a lag. So we're not this is not going to show up tomorrow. It's typically a lag of about six to 15 months, call it half a year to a year and a lag. So we're not this is not going to show up tomorrow. It's typically a lag of about six to 15 months, call it half a year to a year and a half. Over that time, I think we're going to moderate inflation. We're still going to have it for the rest of this year. But we can finally see the other side of inflation. And that will be very helpful. I love an old M2 chart that doesn't get

enough airtime. So clearly the liquidity tide is changing, right? It's starting to peter out and will come down as the Fed tightens policy. Isn't that bearish for the stock market, Charlie? Or is it a good thing? Because inflation, in your view, it sounds like it's peaking. Yeah, I still think we have fundamental strength in the economy. The Fed can squash that if it's not careful. But the underlying balance sheets of consumers, the unemployment rate is very low. There's a lot of pent up demand for people that would like to buy cars and houses. So there are a lot of good things that are still in place. I think eventually we obviously get an end to the war in the Russian Ukraine. That'll be good for

the economy. So there are enough positives. The one big negative, I'm not the only one to say this, is the Fed raising rates quickly is not helpful. But I think we have a chance, about a 50 percent chance, to get through this without a bad recession. There you go. Let's hit the energy sector, Charlie. It's up 5.6 percent today. Shares of Exxon in particular getting a boost. Analysts at Credit Suisse upgrading the energy giant to outperform, raising the price target to 125, writing that the company is well positioned because Exxon maintained investments in oil and gas projects as some of the other global majors cut back while embracing the energy transition. Let's bring in Renaissance Macro Research Chairman Jeff DeGraff. Jeff, as we try to figure out just how much more this sector and names like

Exxon can run after being up 40 percent so far this year, what do the charts tell you? Well, the charts say the trends are still in place. And I think as important as anything, Sarah, is that the relative trends are still in place. They were extended, no doubt about it. They were sort of the only game in town for a while. And they're correcting. And we had, in fact, our note this morning just noted that we had over 90 percent of the energy constituents oversold in our proprietary work. So we were looking for some type of rebound and, frankly, probably a resumption of the uptrend. But I do think, importantly, what viewers should keep in mind is that the energy sector on a relative basis will peak roughly six weeks prior to the peak of the inflation data. So it's a really important sector to watch because it does tend to be a window into the soul of inflation. And if we

start to see deterioration in the relative performance, which we really haven't seen yet, that would be an indication that the headline inflation and the things that the market worries about from an inflationary standpoint are probably very close to peaking. Okay. Let's talk broad market because we're seeing a pretty nice sizable rally today, Jeff. 2.6% on the S&P. We're back above 3,700 on the S&P. NASDAQ back above 11,000 and the Dow is back above 30,000. Not sure if these round numbers mean anything to you, but what do you do? Is this a tradable bounce? Is there more to it than just, you know, a day when a lot of people look at it and say the fundamentals haven't changed and they're still feeling very bearish?

Yeah, I think the trick here, and this is so endemic of a bear market, you'll get these nasty, vicious rallies that obviously are great if you're long. I think there's a couple of things to watch. One is energy is leading today, right? And so if we're really seeing some type of seismic shift, I wouldn't expect energy to be leading. So that does make me a little uncomfortable that this is more of a bear market rally than not. I thought the best thing that we've seen in the last week is a spike in some of the put call data we look at. So the bearish positioning had swelled to a point where historically, if you look at the stats, give you pretty good reversionary data and returns. And I think that's exactly what we're mired in here. Look, I think we can rally to 4,100 without changing anything on the S&P. That's a

little more aggressive than what our call is. But I certainly think that the oversold condition that we had is producing this reversion all within the context of this downtrend. And I think your guest just before me was talking about this deflationary period with the money supply. And look, we're seeing it, right? We're seeing it in crypto, we're seeing it in concept capital,

we're seeing it in these things that it should be happening in. And I think there's more to that story for 2022. We're also below average volumes today, just looking at some of the numbers on this rally, though many more advancers than decliners, about 2,500 to 800. Thank you, Jeff. Jeff DeGraff. And tomorrow, don't miss David Faber's exclusive look inside ExxonMobil with unprecedented access to executives, workers, and facilities inside ExxonMobil with unprecedented access to executives, workers and facilities. ExxonMobil at the Crossroads premieres tomorrow night at 8 p.m. on CNBC. Speaking of Bitcoin, which Jeff just mentioned, it is getting some relief today, along with some of the other assets that tend to correlate with risky things like stocks.

But it's been a wild few days for the entire crypto landscape. Bitcoin, the price plunged below $18,000 over the weekend, lowest level since December 2020. And even with today's bounce, it is still down more than 50% on the year. ProShares looking to get in on the downturn in crypto sentiment, announcing the launch of an ETF that allows investors to short Bitcoin. Kate Rooney joins us. Kate, what kinds of fees are associated with an ETF like this? What do investors need to know? Hey, Sarah. Yeah. So like most actively managed ETFs, this one's going to come with a fee. ProShares here is charging less than 1%. It's about 95 basis points. That's higher than most actively managed funds, but it's a lot lower

than what it would otherwise cost to short Bitcoin or any of the Bitcoin futures ETFs out there. S3 Partners has some numbers out there showing the cost of shorting some of those Bitcoin ETFs to be as high as 13 percent. So it's not easy to take the other side of the Bitcoin trader. It historically hasn't been. Interesting, though, Sarah, ProShares is the same company that launched the Bitcoin strategy ETF, which is BITO. That was really the first U.S. ETF that was linked to Bitcoin back in October. That was right around the top of the crypto boom, which happened in November. So who knows, Sarah, maybe this inverse ETF will mark the bottom. You never know. I was wondering where you were going with that. Thank you. Kate

Rooney shares up. Certainly the Bitcoin bulls would hope so. Shares of Lennar getting a pop today after beating earnings and revenue estimates this morning. However, Lennar chairman Stuart Miller telling Squawk on the Street the company is already seeing an impact from higher rates. Listen. As interest rates go up, it becomes a little bit more difficult for people to afford that down payment or afford that monthly payment. And so we're going to see some adjustments, some rebalancing between price and interest rate. And as customers process what has been an extremely sharp rise in interest rates, it's almost doubled in six months. As they process that, it's natural that there'd be a little sticker shock, a little bit of a pause, and there'll be some reconciliation.

Joining us is John Lovallo from UBS covers the homebuilders. John, what do you make of those comments next to the set of data that Lenar gave us, including new orders, which also were better than expected? Thanks for having me, Sarah. Look, I think Stuart's exactly right. Things are moderating. And look, it should have been fully expected when interest rates go up, especially by this magnitude in a short period of time. There's a reset period for investors. Our view is that we're going to moderate sort of at a high level, and that's going to allow the builders to have elevated earnings for quite some time. So you think the market's overdoing it when it comes to some of these declines? I'm just looking for the year down. D.R. Horton down 43 percent. Lennar's down

also about 43 percent. Yeah, 100 percent. I mean, not to be a sensationalist, but the market is discounting a great recession, the GFC. I mean, think about it. We're trading three turns below on a PE basis when we were in 2005 heading into the GFC. One and a half turns on a price to book basis. The builders have half the leverage. The market is running at half the pace that we were in 2005. And the builders have twice the market share. It's a whole different ballgame. But we're trading as if we're going into the end of the world. Charlie, how do valuations look to you? Any value here?

The market is acting like there's a 75% chance of a recession. And I think that's a little overstated. And so cyclical names, housing names are acting like it's a very high chance of a recession. I think that's a little overstated and therefore there is value in these names. But I'm not going to try and kid you if we do really have a recession. And if it's not the shallow one that I'm predicting, then it's not a great time to on cyclical names, not a great time to on housing names. But this is not the same as a great financial crisis. Retail investors, homeowners are in much better shape. We don't have the mortgage problems that we had before. So I think any kind of problems in housing will be relatively short-lived.

All right. Two optimists when it comes to housing, even though the Fed is really raising rates and that is squarely in the crosshairs. John, thank you for joining us. One also had shares of Target because they are getting a big lift today on comments from CEO Brian Cornell at the Economic Club of New York and a panel moderated by my colleague, Becky Quick, reiterating a strong outlook for the second half of the year. Listen. We're going to get back to a more normalized environment where we're delivering solid profit and we'll continue to invest in growth. So we're certainly expecting to continue to see strong top line growth to continue to hold and and grow market share, and to see our profits normalize in the back end of the year.

Remember, Target warned in its earnings report last month that higher costs and inventory issues had weighed on profits, sending the stock sharply lower. And then there was that additional piece of news, Charlie, that we got a few weeks after earnings marking down inventories even more and lowering profitability. So it's interesting to hear Cornell actually sound fairly bullish. Yeah, he's been all over the place. He has not been helpful to us trying to figure out what's going to go on with the market. Look, they had company specific problems with employment, with having too many employees, with having all of a sudden too much inventory after having had no inventory. So frankly, I hope he's right that things are going to normalize, but it's been tough to follow Target's outlook. It's been changing with the calendar day. Absolutely. Charlie, just overall, I'm looking through some of your picks. It doesn't look like you've made any big changes, still betting on the reopening play with Madison Square Garden. Still still still in some of the

fertilizer names and smucker. Anything change for you in terms of the outlook, given the fact that you are changing your tune on inflation? Yeah, the holdings are actually hanging in there. But I will say what's changed is that the possibility of a recession is higher today than I would have said a month ago. So while I still think that there's value in cyclical names, in economically sensitive names, I have to admit the consumer has gotten less confident than he and she were a month ago. So Madison Square Garden is still incredibly cheap, but the probability of there being a bump before we get to where I think it should trade is higher than it was a month ago. So what does that mean for value over growth? You're a value over growth kind of guy, and that has outperformed during this downturn.

Does that continue if we go into a slower growth period, especially if inflation peaked? Wouldn't that help growth stocks like tech? Absolutely not. Value stocks are incredibly cheap. I was going to say ridiculously cheap, but I don't want to be dismissive of the market. We've got names like Mohawk, a very high quality carpeting company trading at seven times earnings. We have Goldman Sachs trading at less than book. We have Messinsware Garden, which is trading at less than book. We've got high quality value names trading at very reasonable prices. Growth stocks have gone from ridiculously expensive to moderately expensive. So value is still going to outperform. And frankly, it's also going to outperform because rates are going to still keep going up. The 10-year Treasury should be over 4%

in this kind of inflationary environment. As rates go from 3.4% to 4%, that will be good for value versus growth. All right. As we head into the close, Charlie, we're holding on to gains up almost 2.5% on the S&P. NASDAQ bouncing as well, pretty hard. How do you look at this? Is this a bear market rally? Should you take this opportunity to get more defensive if you haven't done already? What would you tell people? First, I would tell people not to focus on one day. I mean, I know it's hard to do that, but you have to take a longer term outlook. People always get in trouble by trying to predict

where we're going in the next couple of months. The worst thing you can do is after a downturn that we've had like this is to now get more defensive. So the right thing to do, first of all, is don't look at your portfolio every day. Secondly, buy companies that are going to be fine in the long run. Third, look for names that have strong balance sheets that are going to do fine when interest rates go up because they are going to keep going up. And buy those quality value names that over the last hundred years have outperformed growth, even though the last 10 years growth has done so much better.

And your favorite pick right now, the cheapest name in your portfolio is what? Is actually Apache, trading at four times earnings. They had a very nice discovery in Suriname this morning. Their reserves are going to be heading up. There's no reason a quality oil and gas name like Apache should be trading at four times earnings. I did not expect you to mention an oil name for the cheapest. Inflation is still going to be with us there for the next year. I didn't say it was gone tomorrow. I said we can see the end of the tunnel. But inflation, real assets hold their value in inflationary times. That's why our

second favorite name is Mosaic, the fertilizer company assets in the ground. Demand for oil and gas is not going away anytime soon. In fact, if anything, the trends have reverted a little bit in the last couple of weeks. As China comes out of its recession, we're going to have more demand for oil and gas. I think oil and gas are going to be above 90 a year from now. And a name like Apache is going to make a lot of money in $90 oil. Well, energy working well today at 5.2 percent. Charlie Berbinskoi, thank you. And by the way, speaking of this whole growth versus value, we've got a big interview tomorrow with Cliff Asness of

AQR Capital Management. It's his first appearance on CNBC in more than a decade. He has very strong views right now on value outperforming growth. It's coming up tomorrow, 3 p.m. Eastern time. By the way, his fund is killing it this year, well outperforming the market. It's up like 40 percent. As we head into the close, the S&P 500 with a solid rally of about 2.4 percent. Every sector higher. I mentioned energy is in the lead. You're also seeing some big gains in consumer discretionary, consumer staples, health care, information technology. That's all working today.

What's leading the Dow? UnitedHealth adding 181 points to the Dow. Only Home Depot and Disney are losers right now. The NASDAQ surging 2.5%. It is the best day of the month. Still down sharply on the month and coming off of a down week, but we are breaking the trend at least for today.

That's it for me.