Closing Bell - Closing Bell: Stocks rally into the close, IHG CEO on hotel demand, Target’s profit warning 6/7/22

Episode Date: June 7, 2022

The major averages closed near the highs of the day – making a significant recovery from early pressure caused by Target’s profit warning. Tony Dwyer from Canaccord breaks down his call for a continued summer rally. Jefferies analyst Stephanie Wissink discusses the Target news and the read-through for the consumer and retail. Shannon Saccocia from SVB Private talks about plays in housing and energy. And the CEO of hotel giant IHG group gives his outlook for summer travel and the impact of covid testing requirements on the industry.

Stocks mostly higher right now in another up and down session on Wall Street. Near the best levels of the day, in fact, as we head into the close. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the market, up about 150 or so on the Dow Jones Industrial Average. And you have software working today and technology, and that's really helping out. The Dow, for instance, Salesforce and UnitedHealth, their biggest contributor to the gains.

The S&P 500 up half a percent right now. Every sector is actually in the green except for consumer discretionary. And you can thank Target and the retail trade there right now. Energy is the best performing sector. Industrial strong. So is health care and information technology. The Nasdaq rallying about a half a percent. Remember, this comes off of eight down weeks for the S&P and kind of a week start, week-ish start to the week.

Check out some of the most actively traded names right here, right now at the New York Stock Exchange. Didi. Well, you have been seeing strength in the Chinese Internet names, mostly stronger today. But Didi giving back some of yesterday's huge rally down 2%. NIO continues to be among the most actively traded. The energy names are up there as well. The energy trade is strong. That sector is up 2.9%, bringing the year-to-date gains to almost 65%. Coming up on today's show, the CEO of hotel giant IHG Group.

Here at the exchange to ring the closing bell, he'll join us first on CNBC to talk about his outlook for summer travel. They own everything from Holiday Inn to Intercontinental. Plus, we'll ask Canaccord's Tony Dwyer what is behind his call for a continued summer rally. First up, though, let's get to our top story. Inventory troubles are hitting Target. Earlier today, the company told investors it's slashing its profit margins for its current quarter due to deeply discounted goods so it can get rid of that extra inventory. Target plunged on the back of the news, but shares have recovered throughout the day. Joining us now, Stephanie Wissink from Jefferies and CNBC.com reporter Melissa Repko. Ladies, it's good to have both of you here.

Melissa, I just wanted to start with you because you spoke to Brian Cornell, the CEO, this morning about this big profit margin cut. What did he tell you? Yes, Brian Cornell was saying by taking markdowns and canceling orders now, Target can spare itself from further pain later. He said it doesn't want its stores to be cluttered or to be stale, and so it needs to make room for what customers are buying, things like makeup and luggage and groceries. What does it mean for the rest of the group, Stephanie, if Target is having these kind of inventory markdowns? Should we just expect that it's happening everywhere?

Or with Target, did they make a bigger mistake in terms of estimating consumer demand? I think we're seeing inventory elevated across a lot of different retailers. So I don't think this is necessarily just Target. I think they're just getting out in front of it, making sure that they control their own message. I think it's also a byproduct of their mix. So if you look at Target versus Walmart versus some of the other specialty retailers, they do up index in own brands, exclusive brands and home and apparel. So those are their big categories. So when they buy it, they own it. And I think that's part of this, too, is just the way in which they go to market under their own brands and their own labels. But Melissa, one thing that was so surprising is that it's, what, three weeks after the

company came out with earnings and already had lower guidance on this very issue. So what happened between now and then that they couldn't get a good read on in terms of consumer data and insights? I asked Brian that very question. He said that one of the big influencing factors is hearing from a lot of other retailers. He said he was concerned and the company decided to make changes after hearing that a lot of other companies were facing similar inventory woes.

And so he said Target wanted to move swiftly, wanted to get ahead of some of the key seasons, particularly back to school and the holiday season. And he said, you know, if it's dealing with a lot of things in the back room, like bulky patio furniture, then it can't clear the way for things that the customers do want during those key times. And it could snowball into the back half of the year. So he said, you know, it's taking the hit now in Q2. And then hopefully, he said, the back half of the year will have better margins. Yeah, I mean, they literally have to clear the shelves back to the basics. Melissa, importantly, they didn't cut guidance in terms of sales. They

reiterated, which I don't know, says to me that it's not necessarily a huge consumer slowdown, but more of a consumer shift in priorities. Is that right? Or is that coming next? Yes. So Brian has really emphasized that at least what Target is seeing is more of a wallet shift. So he said that traffic has still been strong in its stores and on its website, but people are just spending differently. So they're spending more for a different kind of life. They're not staying at home and shopping. A lot of those popular pandemic categories are not maybe buying sweatpants, for example, or a new toaster oven. Instead, they want to get out again. And so unfortunately for Target and for other retailers

as well, they got a bunch of inventory, in some cases late, and it reflected some of those moving categories. So Stephanie, I think you've been on hold with the Target for several years now, ahead of some of your competitors who had a downgrade on the last quarter. What do you do with the stock now that it's already seen such a big correction? Yeah, I think we need to give this company credit for getting out in front of this from a transparency perspective. It's so interesting to me in the context of modern communication that admitting your mistakes, taking responsibility, doing quick and swift action to remediate it,

and then moving on is kind of the way business has to happen today. So I do think they deserve some credit from a credibility perspective in that regard. It's going to take a couple of quarters to digest through this inventory. So we do want to see not only the quantity of inventory come down, but I think to Melissa's point, the quality of inventory shifting over into higher quality categories where we know there's consumer demand. So this is a bit of a rolling effect. But I think we have to give credit to Target today. I think this is a really important moment in business and in retail to admit, take responsibility, quickly flush and move forward and bring in the high quality inventory that consumers want. So are you saying you would be a buyer on this

news? Stocks only got 3% now. Yeah, I think the stock coming back today to us is a real interesting signal that investors are giving the company credit for what happened, not necessarily liking the operating margin impact, but certainly honoring what happened in terms of what it means to the business in the near term, but recognizing that the long term might actually be better off as a result of moving through this quickly and getting in front of it. Citi also said it's bad for Old Navy, for Levi, Kohl's and Macy's, which sort of go into those categories as well. Some of the home goods and the apparel, which Target said is weak. Melissa, Stephanie, we'll leave the conversation there. Thank you both very much.

Thank you. I also want to hit another big retail mover today because there's new details in the Kohl's sale saga. Last night, the company said it has entered exclusive talks with Franchise Group about a potential $8 billion takeover deal, $60 a share. Many people had to Google Franchise Group today. It is the owner of Pet Supplies Plus and the Vitamin Shop, only about a billion and a half market cap. Kohl's is higher today, clearly on news that there is still a deal to be had here. And $60 price tag actually looks like a good one, but it is off the highs of the day and nowhere near that $60 price. It's trading at $45.51 right now. The market is telling you that this deal still faces some big potential hurdles. For instance, some questions for investors to consider here based on my reporting. Will Sephora agree? Is there preliminary support from LVMH, which is the owner of Sephora? Not

clear whether Kohl's would need that, but there is a strong strategic partnership here for building out 850 Sephoras within Kohl's stores. That has been a pillar of Kohl's CEO Michelle Goss's vision and turnaround. Another question, does Franchise Group have a real estate buyer? It would have to sell the real estate, estimated to be worth $5 to $6 billion or so to finance this deal. And even if so, the debt market, not totally shut down, but it is getting more expensive. So can Franchise get the debt? And is Kohl's going to agree to a highly leveraged deal? And one final question sources are asking, what would be the synergies here? Franchise is two big businesses, pet supplies and vitamins.

Easier to see synergies with a J.P.C. Penny or Hudson Bay. Those parties, I'm told by sources, either got out of the bidding process or have been on the sidelines since Kohl's reported a few weeks ago. The bottom line, it is not a done deal. Far from it. Companies certainly coming out today, making it clear it's serious about the bid and the whole process. But is this bid really realistic and probable? That's a question for investors to be considering. Up next, we'll talk to today's bell ringer, the CEO of IHG Group, about his outlook for summer travel and whether inflation is taking a bite out of people's hotel budgets. You're watching Closing Bell on CNBC. We are looking at session highs with the

Dow up almost 200 points. Check out today's stealth mover, United Natural Foods. The stock initially soaring this morning after beating Wall Street's earnings estimates and raising its guidance thanks to inflation-driven sales. But shares of the wholesale food distributor, which counts Whole Foods as one of its largest clients, turned around on investor concerns about a nearly 12% increase in operating expenses driven by those higher transportation and labor costs. Look at that intraday move. Pretty dramatic. Down 3% now. Investors are ready to travel again this summer. A new report today from the data specialist site Forward Keys shows international bookings from the U.S. for the summer at 97 percent of 2019 levels.

And just yesterday, the CEOs of Marriott and Hilton both told me they are seeing very strong demand. I think we'll have the biggest summer we've ever seen in our hundred and three year history this summer. The forward bookings look extraordinary, really everywhere but greater China. Joining us now, IHG Resorts and Hotel CEO Keith Barr. Keith, great to have you on. You were also on the panel yesterday. You were also feeling quite bullish about the consumer. What are you seeing?

You know, I remember on the height of the pandemic, we were talking about what the future of travel was going to be be and travel is back. And I don't think we should be surprised by that at all. When you think about the impact of the pandemic on the consumer, it was the greatest demand suppression event our industry has ever seen. People couldn't travel, they couldn't leave their homes, but it was also a demand creation event for goods. So people couldn't travel, so they bought a new television,

they renovated their home, and now we're seeing as things normalize, demand's normalizing. Going back into services, going back into travel. So you think about how many— So you're explaining the Target guidance cut today and the fact that your business is booming. It's true. People just—they're not—they're prioritizing, right, where they want to spend. Without question. I mean, think about how many family reunions were missed, how many weddings got postponed two years, how many meetings that took place every single year that got moved and conventions. That's all beginning to happen now.

But the question, Keith, is how long that sort of pent up demand surge can last, because it was temporary on the way down. And there are thoughts that it could be temporary on the way up, especially if we go into a slowdown or recession. When you think about how healthy the consumer is, you know, two and a half trillion dollars more on their balance sheet. Corporate balance sheets are still quite healthy. And we're still early days of the corporate travel recovery and those meetings and events and conventions. So we're really seeing a lot of forward momentum in the business. It's going to be a great summer. I think we're going to continue to see for the rest of the year that demand continue to grow here in the U.S. Now it's accelerating in Europe, Middle East, and Asia.

And the only really big challenge right now, of course, is greater China. What is it like there? You've got, how many hotels do you have there? We have 600 hotels open and another 400 or 500 in development right now. Are they open at this point? We have the vast majority are open, but some are quarantine hotels. But I've talked to the team regularly. Shanghai's reopened.

Beijing just reopened. We're seeing our bookings come back. And what gives me confidence, if you remember when Shenzhen shut down in southern China, business went away. But in about 90 days after it reopened, business was back to normal. And so, when restrictions are lifted across China, it's going to be a real strong market again. So, the question, another question is international travel and cross-border travel into the U.S. We talked a little bit about this yesterday. Seema Modi has been doing great reporting on intentions. The idea that you have to test to get into the United States,

how much do you think that is hurting demand for travel into and out of the U.S.? I think it hurts demand to some degree because it's quite frustrating. We were talking the other day, the fact that you're having to sit at home, do a video test, and then upload it and fill out different forms, that's out of step with the rest of the world right now. And it's easy to get into Europe, and that's why you're seeing demand to Europe is booming. London is back. Paris is back. New York's doing quite well, but it's domestic in orientation right now. What about pricing? We've talked a lot about how you guys certainly have pricing power. The demand is there.

How much of it is driven by higher costs? You're having to pay higher wages to attract people and prices for energy and everything else is up. And how much is just the fact that you are able to do so because demand is so strong? It is the true basic economics. The demand is so strong in so many markets that we're having the ability to price. But effectively, we haven't even been keeping pace with inflation, though. So on a real basis, we actually aren't even there. So there's still more pricing power in this business moving forward. And demand will continue to come throughout the summer, I think, into the autumn as well. Across. So you have Holiday Inn. You also have Six Senses. Very different price

points. Is it across the spectrum? Are you seeing a weakness in the lower income? Actually, some of our strongest brands throughout the pandemic were Holiday Inn Express, Stabridge Suites and Candle with those mainstream brands where it's actually kind of non-discretionary travel. People who have to travel to do their jobs, going to a manufacturing plant to go work on it and do those repairs. And at the top end of luxury and lifestyle, there is no pricing resistance at all. I have never seen resorts in destinations be able to price like this, and that's going to continue for the foreseeable future. You're going to continue to raise at the luxury end. I think you're going to keep seeing rates go up. How much does it cost to stay

at a six census right now? Oh, I've seen some prices $5,000, $6,000, $7,000 a night. Wow. Keith, thank you. Thanks. Great to see you. Very good to see you. Let's give you a check on the markets right now where we stand. We're holding near the highs of the session, up 173 or so on the Dow. It's been quite a turnaround day. We started out weak and we were down 273 at the lows of the day. Every sector is strong right now. Energy leads along with industrials and healthcare. Consumer discretionary is in the red.

But even Target, which was the big weight there, has really come back. It's only down 3%. It was down 9, more than that percent earlier. Etsy's down a little bit. But really, it's overall a strong day. Shopify, speaking of retail, is rallying as the company hosts its investor day today, though it's still down a whopping 70% on the year. We'll tell you what's sending that stock higher today. And later, Canaccord's Tony Dwyer explains his thinking on the market, why he says

conditions are still ripe for a continued summer rally. We'll be right back. Welcome back. Shares of Shopify getting a bit of relief after a brutal year of trading as the company hosts its investor day. Our Kate Rooney has a look at some of the big takeaways. Kate. Hey, Sarah. Yeah, Shopify shareholders gave the go ahead for a couple of big proposals at that annual meeting this morning. First, more control for CEO Tobias Luque. He's also the founder and he'll have something called a founder share that guarantees him at least 40 percent of the voting rights, even if his ownership stake drops. And there are certain conditions he's got to stay at the company. For example, he and Shopify's director already have voting control, but they could lose that in the future if the company were to issue new class A shares. This structure is pretty common in founder-led tech companies,

though it's usually negotiated at the IPO. And as our Leslie Picker put it, this really is reserved for companies that have performed well enough for shareholders to give founders what they see as sometimes a hall pass for something that could be seen as poor corporate governance. There were some big opponents to this, advisory firms Glass Lewis and ISS, urging shareholders not to vote yes on that founder share. Going forward, though, Shopify will be a little bit less exposed to potential unwanted takeovers, like we're seeing play out right now with Twitter. Shareholders also approved a 10-for-1 stock split earlier today.

It comes as Shopify shares are down more than 70 percent this year, although they are rallying a bit today, Sarah. I wonder if it's the stock split, Kate. I don't know what you're hearing just because we've seen Amazon have this sort of unexpected run-up on its 20-for-1 stock split in the last week or so. That seems to be driving the gains here, although the shareholder meeting, we really didn't get a lot of commentary. Sometimes I'm thinking back to Square or Blox shareholder meeting, where you really get sort of this forward-looking vision of where the company is going. This really was just not a lot of Q&A. It was sort of this formality of we're going through the voting proposal. We didn't get a ton out of that that would give analysts or investors really anything other than just these

approvals. I would think it's got to be the stocks. But although now with fractional shares, they talked about this really opening up access to the stock. It seems like people want to buy in smaller dollar amounts. As far as retail trading goes, that's pretty available across the board. Yeah. Kate Rooney, Kate, thanks. Up next, a top credit market portfolio manager on whether target slash profit margin outlook is another sign the economy could be heading toward recession. We'll be right back. Stocks holding steady here near the highs of the day as we head into the close, trying to shake off targets. Profit warning earlier, the news had brought down major averages this morning. Joining us now is Purnima Puri. She is governing partner of HBS Investment Partners.

The firm oversees $84 billion in assets, $24 billion in public credit. Purnima, it's great to have you on the show. Welcome. Hey, Sarah. Thanks. I'm curious, as someone who looks at the credit market and the bonds of some of these companies, what you made of the Target warning and what some of the ramifications could be for the economy and for earnings estimates. So, you know, we're seeing this a lot with a lot of companies which are talking about some of the cost pressures which are impacting margins. So, you know, there's been labor cost pressures, freight cost pressures as a result of energy prices,

shifts from discretionary spend and non-discretionary spend, shift from goods to services and experiences. So I would say a couple of takeaways. One is we've seen a lot of it. We've seen labor sort of, you know, reduction in labor needs. We haven't seen a lot of layoffs yet. So that would be one thing. I think two is we have seen some margin pressure. Companies have hung in there, but their outlooks are a little bit more, they're a little bit more concerned around

their outlooks. And we've seen that pretty consistently. And three, we've started to see some of those shifts and their inability to pass through pricing entirely. So it's hitting margins. So we're seeing a lot of that. And, you know, we focus on credit over here, but we're watching all those trends. No. What is the credit market telling you? Is it as sort of pessimistic about the economy or at least does it feel as pessimistic as what the equity market has been doing lately? It doesn't feel as pessimistic as what the equity market has been doing lately? It doesn't feel as pessimistic. Credit market spreads have not moved so dramatically. So I think everyone knows high yield is down 7 percent this year. Treasuries are down 10 percent.

So most of that high yield move has been a function of the Treasury market move. In terms of actual credit spreads, you haven't seen credit spreads move out so dramatically. And in fact, if you look over sort of the cadence of time in the range of post-GFC, most asset classes in credit, whether that be investment grade, high yield bonds, levered loans, are still trading, you know, inside of their median spreads. And the market has been open. Yesterday, I think, was one of the busiest days, right, of the year. It's like I have 12 borrowers pricing $15 billion across 15 tranches. What does that tell you? It tells me that the market's very orderly and functioning. So the credit markets are definitely functioning. There's been some hiccups along the way and there's been some

weeks along the way where the market has not been open for issuers to do financings but in general i would say you know with with some minor concessions and repricings uh you know the market the market's open and we're seeing a lot um certainly an investment grade market i would say the high yield market and loan market is less open so the levered credit market is less open but definitely the investment grade market you're seeing um you're seeing a lot of deals get done so not not super recessionary, it sounds like, from your view. Not super recessionary from our view. Not yet, anyway. That's not what the credit-levered markets are pricing at.

So what do you do in this kind of environment where financial conditions are tightening and we still see inflation? What would you guys be doing to protect yourselves in that environment? Yeah, so as a firm, and I can talk about liquid credit, I can talk about the firm, but I would say one is, you know, floating rate versus fixed rate has been one theme. Two is duration management, so shorter versus longer to protect against some of these rate hikes that may come our way. And three, certainly we have a very large private credit business where we've just put a lot of emphasis on documentation and structures to protect our to try to do the best we can to protect our investments.

And finally, Pranima, what do you expect from the Fed versus where what the market is expecting at this point? Yeah, I think the Fed's been pretty transparent, we think, and advertised kind of what they're looking for. And it seems to us that the Fed's looking for signs that inflation is going to, the inflation reads are going to sort of temper a little bit. And the next big meeting is in September for all of this reads to come through. So I think our view is, you know, we're watching all these numbers carefully. It seems that inflation numbers are flat-ish still and are not coming down dramatically. So we think the Fed will stay on course. We think that we'll reach this sort of where the Treasury markets price it in, but we kind of think we'll

reach this 3 percent plus or minus number, which is kind of where we are. And the Fed is likely to reassess. And we think that reassessment likely comes towards the end of the year. Friday will be interesting. Big CPI report to tell us whether we peaked or not. Purnima, thank you very much. Good to talk to you from HPS. We are getting some breaking news on COVID vaccine maker Novavax. Meg Terrell has it. Meg. Hey, Sarah. Well, FDA's group of outside advisors have just taken a vote to recommend Novavax's COVID-19 vaccine. The vote was 21 yeses, zero no's, one abstention. So really overwhelmingly in favor of recommending what would be the fourth COVID vaccine to enter the U.S. market for emergency use authorization. Of course, the FDA now takes the recommendation and will make its own decision potentially within the next few days or weeks.

We will see what happens with that. But the argument here really has been an interesting one. This is a company that conducted the clinical trials, was part of Operation Warp Speed. A lot of the data it was using to support the application were from last year before the Omicron variant even emerged. And the argument from a lot of the committee members is these data look very similar to the data we used to clear the Moderna and the Pfizer vaccines initially. And if we're using the same standard, then it should be cleared. And there's a hope expressed even by the FDA that perhaps that this being a different vaccine technology will get the last few people who haven't yet gotten the vaccine potentially over the finish line with one they

might be more comfortable with than one of the newer mRNA vaccines, Serap. So the stock is still halted. We'll let you know what it does when it opens back up. Meg, how many years have we been talking to Stanley Erk, the CEO? He's been on this show. He's been with you a bunch of times. They thought they were getting approval like two years ago. I guess the question now is, is there a market for this? Because the CEO of Moderna in Davos was saying they're throwing away vaccines at this point. Yeah, that is a very big question. You know, the CDC noted there are about 27 million Americans over the age of 18 who have not gotten their primary series in the U.S. We don't have good data on how many of those people might have been waiting for a more traditional vaccine technology and might consider getting this one. There isn't a huge amount of optimism that this is going to dramatically change that picture, but perhaps it

could change a few people's minds. We'll have to see. Of course, this isn't even looking at it as a booster dose. We need more data on that for that to enter that part of the game, but it could potentially get it out there at least as the first vaccine for Novavax, first product for this company in a long time working on it. Yeah, that's a milestone for sure. Meg, thank you. Meg Terrell, take a look at where we stand right now in the market. We are higher.

In fact, we've just taken another little leg up, up 228 on the Dow. We're making new highs into the close. S&P 500 up almost a percent right now. You've got energy in the lead. A strong finish for oil, by the way. Highest price since March. NASDAQ up eight-tenths of a percent. So technology is really working. A lot of those beaten down software names are higher. Big cap tech is higher. We'll hit it all in the market

zone. Also still ahead, Canaccord chief market strategist Tony Dwyer on why he thinks the market may be getting ready to heat up this summer. And a reminder, you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. We will be right back with the Dow up now more than 200 points. Check out some of today's top search tickers right now on CNBC.com. Ten-year Treasury is in its top spot where it always is today. And by the way, there's buying today. Yields are a bit lower, falling below that 3% level. We went above there yesterday. Maybe some pressure on stocks. Maybe that's alleviating some pressure today. There's Target down only 2.2%. This stock at the open at the low of the day was 147.15. It's now rallied back up to 156. Amazon gives back of a nice sort of week-long rally it's enjoyed after

a 20-for-1 stock split. Apple's higher today. So is Tesla. So are most technology stocks, which is why the Nasdaq is up almost a full percent here into the close. Robinhood, though, sinking as investors brace for possible changes to payment for order flow by the SEC tomorrow. We will explain that story, plus a big upgrade for Exxon and a bullish market call when we take you inside the market zone next. We are now in the closing bell market zone. SVB private chief investment officer Shannon Sekosha here to break down these crucial moments of the trading day. Plus, Canaccord's Tony Dwyer on his bullish market call and Bob Pisani on Robinhood's rough day.

First off, we'll hit the broader market because we've been gaining steam here into the close, rebounding after trading in the red earlier. Dow was down 274 points at the session low. We're up 252 right now. Shannon Sikosha joins us, SBB private chief investment officer, and Tony Dwyer, chief market strategist at Canagord Genuity. So, Tony, it seems like this is the kind of action that you'd expect in the summer. You've been saying the conditions are ripe for a summer rally. Right, Sarah. So there's three reasons that we started making that call. Remember,

we've been on the sidelines for the entire year up until we made that call to dip our toe. And I think on the show about a month ago, and it centered around three points. Number one, you had an extreme intermediate term oversold condition coupled with high pessimism. That still exists. It's reversing a little bit. It's pivoting higher. But that typically, you get a little bit of follow through with that. Secondarily, there was a belief that the Fed is already discounted in the market. And again, with the 10-year no yield and the inflation break-evens a little bit below the peak that they were at earlier in May, that condition still is in play. And then lastly, economic expectations just got far too

negative. We had the negative GDP print in the first quarter on inventory and exports. Some of that's going to reverse going into second quarter. So expectations just got a little bit too negative. So all three conditions that set the stage for a rally or a bottom remain in place, it's still highly questionable if it's the bottom. So what do you do as you see rally days like today? Should you take it as an opportunity to get more defensive, to take positions off the table, to set up for whatever's coming next? I think you set up for whatever's coming next. So the biggest bounce so far has been in those areas that got hit the most. And that makes sense. Remember, every rally starts with a short covering rally. So you're getting a bounce over the last few weeks with the exception of the last week. You're getting a bounce in those names that

have had the worst drop. So at this point, if you didn't like them down 10 percent ago, a couple of weeks ago, you may want to cut back on those. Again, this is in the context of a market that's trying to find its footing because the money backdrop is very different than it was even two months ago. And get into where? Do you still like energy? Another 3 percent today. A tremendous move. You know, what I've done is I've taken a neutral bias. So if you're overweight technology or if you're overweight energy on a ramp, I just neutralize it. I think this is an environment where you don't want to get hurt. I don't think you get negative.

You certainly don't want to get negative down 20 percent in four plus months. That was our call. So as you go up, if you were uncomfortable a few weeks ago, then get comfortable and do whatever it is. I think it's inappropriate for people like me to come on and broadly say what people should do, because that's based on the risk tolerance. If you were uncomfortable at the lows down 20 percent a month ago, you're now eight percent or so or seven percent off of those lows. Yeah, that's about 25 percent off the high. So, Shannon, you are putting money to work here. And you like some of these tech names, I think, especially ones that are working today in the software space,

like CRM. Have you held that conviction throughout the big sell-off, not worried about an IT spending slowdown? Well, it would be inaccurate to say I'm not worried about it. Of course, you're worried about it. You look at the economic data, and to Tony's point, we've seen things get significantly more negative over the last couple of weeks as it relates to sentiment. But I think that Tony's point is well taken. And in looking at across whether it's sectors or your allocation and stocks versus bonds, neutralizing your exposure, we've been actually bringing down our technology exposure incrementally over the last nine months or so to get to an even weight. That's in part because we want to make sure that

some of the names, like you mentioned, some of our cloud names, CRM, Adobe, those that are really going to benefit from this hybrid environment are higher conviction names in our portfolio. And so that comes at the expense of trimming names like Microsoft and Apple. But we think that's appropriate as we're going into the back half of the year. I don't disagree with Tony. I think we're setting up for potentially a summer rally, but I don't see that rally happening until after mid-July. I think we need some earnings catalysts for us to build a true foundation for this rally. And I actually think we're going to get a couple more weeks of chop here as we move into July. Well, earnings, I mean, Shannon brings up a good point, Tony, with earnings, which are not moving in the right direction. We had the Microsoft guidance cut. Yes, it was on this

strong dollar, which theoretically could be temporary. We don't know yet. We had Target today warning on profit margins. Do the elevated earnings expectations make sense here in this market? And do they represent a big downside risk to your view? I think they do, Sarah. So remember earlier in the year, you looked at me and you said, you know, I'm used to you being bullish. I don't get it. And it's still the case. Here's the thing. It's been a long time. You got it. You have to have money for investment, for buying stuff or doing stuff. All three things take money.

Where do you get your money from? Many people take it out of their homes. They refinance their home to take advantage of the higher prices. Well, that's shot. Every meeting I'm on with institutions at this point, I ask the clients to raise their hand if they have a mortgage rate that's below 3.5%. It was there for so long, the majority of people have it there. So think about what it's going to take in a move from five and a quarter, 30-year fixed mortgage to get those people to refinance. You've got to have a draconian drop in long-term interest rates.

So that's out. Then the other place you get it is from banks or your brokerage account. Well, we all know how those are down and the banks are tightening their lending standards. And then lastly, you get it from your job. Well, that real wages have been negative because inflation remains too high. So when we put aside all the great academic stuff that we talk about doing what we do, it all comes down to do you have money to invest or buy stuff or do stuff? And the answer is right now it's tighter than that. So it all depends to me on what happens later in the summer. If the Fed has got to have a signaling change to create, quote unquote, the bottom, you can have a treatable bottom, which is what I think we identified on the show about a month ago. Right. But does that come, Tony, if the economy weakens, if the economy weakens substantially,

is that if that causes it, do you still get the bottom if the Fed starts getting worried about the economy? Well, yeah, because you get you drop the earnings. Let's go back to your original question that I had way too long winded of an answer. Yes, you have to have the drop in earnings expectation. I'm at 225 for this year. I'm below the street by about three bucks, almost four bucks. I think I may prove a little bit too high. Expectations

are pretty strong going into the second half. We found out today wasn't a problem with inflation, Sarah. Today was a problem with a historic inventory build. And if you look at retail inventories, even X autos, it's at near a record level. Right. But the inflation problem has been hurting margins as well. Tony, we've got to leave it there. Thank you very much. Thank you. Good to get an updated view from you from Oppenheimer. Shares of Target, take a look. Story of the day, under pressure, well off the session lows after the company warned of weaker profits amid a glut of inventory. As just said, the retailer said it will take aggressive steps to get rid of that excess inventory, including canceling orders, offering markdowns. CEO Brian Cornell

telling CNBC that the moves are intended to make room for merchandise that customers actually want right now, like groceries, household essentials and back to school supplies. Target's warning coming less than a month after the company reported disappointing quarterly earnings that resulted in Target's biggest drop since the crash of 1987. Three weeks later, Shannon, they're cutting again. And Wall Street appears to be giving the company the crash of 1987. Three weeks later, Shannon, they're cutting again. And Wall Street appears to be giving the company the benefit of the doubt. We just had an analyst who's been on hold since 2019 on that stock, saying she gives the company major props for being transparent, clearing the decks and moving on. Do you agree? Well, this is a really interesting

narrative because if we go back several years, Sarah, everyone wanted to see Target focus on the middle of the store, where the margins were better. They really didn't, they weren't sure that this expansion into groceries was the best way to go. They thought Target was, you know, losing its competitive advantage by, you know, focusing on the outer rim. And now we're looking at, you know, the middle of the store being areas of discount. Granted, we have certainly seen an increase in goods spending over the last couple of years, but I don't give management quite as much credit yet. To that point, however, some of the declines in margin are certainly being priced into this stock. I think it becomes increasingly more attractive. However, I'm not

so sure that there won't be several quarters of potential margin pressure from bringing down these inventories. And I hope that they're able to bring them down quick enough so that they can restock those areas like back to school, which I actually think will be a big catalyst for the stock in the fall. Does it make you rethink any other names in retail if you were in any of them right now? You're getting weakness and lows. Pretty much everybody else is up and turned around. But Target specifically citing categories like TVs and apparel. Yeah, so we're certainly looking at our position in Best Buy, for instance. We're thinking about, you know, potential electronic spend. We're definitely seeing, you know, if you look at credit card data, you're seeing a huge shift from goods to services, how many additional electronics. So that's certainly a name that we're concerned

about. We also have Home Depot, to your point about Lowe's, not as concerned about Home Depot. I feel like the execution has been fantastic and we love the housing adjacent trade. So I think big box retailers, we own Costco, we own Home Depot. We're happy with those. I wouldn't be going out to buy, you know, either Target or Walmart at this level. But I think once some of this inventory clears, you know, I do think that there's potentially an opportunity with improved inflation that these stocks start to look more attractive over the next few weeks. All the investing in the home stocks today are down on this. Best Buy, to your point. We're seeing Newell Brands, Amazon's lower, Home Depot's lower and Lowe's, as mentioned. Energy, though, on a roll again. Best performing sector as Wall Street

reaffirms its bullishness on oil prices today. Goldman Sachs upping the price targets on Exxon, ConocoPhillips and Chevron after the firm raised its forecast for Brent crude for the second half of 2022 by 10 bucks. Evercore also bullish on Exxon, upgrading the stock to outperform, saying the current valuation is at a more than 20 percent discount. Exxon jumping to its highest level since back in July 2014. But Evercore wasn't as positive on another oil stock. The firm did downgrade Occidental to inline, saying tailwinds for that company may already be reflected in the stock's massive outperformance year to date. And Shannon just wanted to bring in some other color commentary here. The CEO of Trafigora, the big commodity trading firm,

telling the Financial Times that we could still see parabolic moves higher in energy prices this year. Wouldn't be surprised to see $150 a barrel or higher. So do you just stick with these names? Yeah, I mean, I think so. We're in some of the more high beta names, Sarah. But I think what you're seeing here is this rotation to names like Exxon. You're probably going to see some similar positive notes on Chevron because it focuses on capital allocation. If you go back to 2005 and 2006, we were talking about big oil

prices then, too. But there was a lot of capital investment in projects that, frankly, didn't make sense if oil prices dropped. And I think what people are finding is that the integrateds have been much more disciplined in terms of putting their capital to work. I think that's what was cited in the note today. And I think it's a good point as you start to perhaps rotate away from some of these higher beta energy names and really think about longer term. If we are undersupplied, you know, are these companies that have great balance sheets and are now improving their capital allocation? Is that where you get your best bang for your buck? It might be the second wave of this energy renaissance, if you will.

But hard to believe that it's not too late. Four and a half percent move higher in Exxon on top of a 70 percent move year to date. Amazing. Take a look at Robinhood shares. They are under pressure today ahead of expectations that SEC Chair Gary Gensler will be announcing proposals to change payment for order flow as soon as tomorrow. Bob Bassani joins us. Bob Gensler has been saying for a year now he wants to do something on this issue. What do you expect? Well, the important thing is he hasn't told us exactly what he's going to say, but I've talked to market participants. They think he's going to try to float a proposal that would allow for some kind of auction process to occur so he can take some of the power away

from the handful of market makers who are controlling payment for order flow right now. He's been very unhappy about the current system of this payment for order flow. He thinks these market makers have too much power, and he thinks some of the brokerage firms that are involved in sending the order flow out may have conflict of interest. Now, none of that is exactly clear. I'll tell you what the problem is going to be. He's going to have to demonstrate some kind of real harm here. Right now, we've got zero dollar commissions right now. The average retail investor is getting a pretty good deal, even if it costs a few cents for the payment for order flow. I think he's going to have a hard time demonstrating that the average retail investor is

getting greatly disadvantaged. More than likely, he's going to float the proposal, see how it reacts, see how it works, and propose some rules down the road. For sure, though, he's going to ask for more disclosure. He's going to want a clearer breakdown of what the actual costs are for payment for order flow. So question, Bob, and it comes from a note, Stephen Chuback, the analyst at Wolf Research, put out a note today saying, obviously, Robinhood and Schwab are most exposed when it comes to equity payment for order flow. Any sense that they would go after options payment for order flow, cryptos? Oh, they could go after the whole system. I mean, listen, all of the exchanges, the New York Stock Exchange, NASDAQ, they all provide rebates to participants who trade down here. So that's a form of payment for order flow. If he decided to generically go

after the whole system, oh, yeah, there'd be a lot of existential threats to a number of the exchanges. And I'm quite certain they'd face lawsuits for sure if he went after the entire system of payment for order. Right. Because I guess equities payment for all the three percent of revenues for Schwab, 12 percent for Hood. But obviously, if they go broader than equities, it's a huge weight on revenues and profitability. Bob, thank you. Bob Asani, we will watch it. Major averages are in the green heading into the close. We're near session highs right now, Shannon. And we've seen a nice recovery throughout the day. We were down almost 300 points. We're up now almost 300 points. And it's not just energy. You've got cyclical groups rallying and technology rallying. What does it tell you? I think it's repositioning and, you know, to the point of looking at what's happened over the last

couple of weeks. I think in some cases, some of the names that are being bid up, particularly in the tech sector, you know, are names that people are looking at wanting to hold for, you know, the next several years. I mean, albeit, you know, the concerns and the potential overhang for lower IT spending at the enterprise level, you know, I think that there are names that, you know, if people had been looking at these, you know, 9, 12, 18 months ago, you know, they're starting to look a lot more attractive. And I think on the cyclical side, I think a balance between more defensive names, you know, the names that have done well, health care and perhaps technology starting to regain some of that defensiveness. I think it's still important in an inflationary environment, which

regardless if we're seeing improvement in trend, we're going to be in for the next several years. You've got to have some cyclical exposure. I wouldn't be surprised to see people starting to branch out, though, more into materials and industrials, maybe getting a little bit concerned about the increases we've had in energy. But I actually think that would be good for the market if that cyclical trade started to widen out a little bit. And oh, boy, if we got financials to participate, that could really create that foundation for the rally that Tony was talking about. Yeah, the problem is this whole recessionary question weighing on the market. But to your point, you know, the data has been strong and we are seeing some strength in days like today.

Shannon, thank you very much. As we head into the close, just want to show you what is happening right now with the Dow up 260 points. You've got names like CRM, software names contributing big time today. Every sector in the S&P right now is green. Energy, industrials, technology lead. Consumer discretionary is the only group that is lower. And Target is at the bottom of that list, along with Etsy and Amazon, which is taking a step back today. But you've got strength in Apple, Microsoft, NVIDIA, Meta, and Tesla, helping the NASDAQ rally nearly a full percent.

There's the CEO of IHG ringing the bell. That does it for me. I'm closing down.