Closing Bell - Closing Bell: Stocks Soar, Fmr. Treasury Secretary Jack Lew On Inflation and A Tale Of Two Retailers 5/17/22

Episode Date: May 17, 2022

Stocks rallying as investors go bargain shopping following the recent sell off. Walmart one of the few members of the Dow under pressure after an earnings miss, but fellow retailer and Dow stock Home Depot reporting strong results. Evercore ISI's Greg Melich discusses whether Walmart's earnings miss is the canary in the coal mine for retail stocks and The Luethold Group's Jim Paulsen explains why he likes consumer discretionary stocks, which have been hit hard this year amid fears about inflation and a possible recession. Former Treasury Secretary Jack Lew explains why he sees some signs that inflation may be peaking and whether the Fed risks creating a recession by fighting inflation too aggressively. And Citi's Kristen Bitterly reveals why she is bullish on cybersecurity and pharmaceutical stocks.

Stocks are rallying with the Nasdaq in the lead. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand in the market. Up almost 400 points on the Dow, not too far off the highs. S&P is up 1.75%. Every sector is green right now, except for consumer staples. You've got technology stocks leading and coming back today. Financials are also doing quite well. Materials. So it's a mix of the cyclical groups, the beaten down groups, and even a little bit of the defensives. The Nasdaq Composite up the most.

Of course, it's been down the most. It's up 2.4% as we speak. The 10-year note yield also going back up. We've seen that stabilize lower. It's still below 3%, but it is reversing the trend of the last few sessions. Check out some of the top performers right now on that Nasdaq 100 leading the charge higher. AMD, we'll talk about it, up 8 percent. A lot of the semiconductors and the Chinese Internet names. That's what's leading us higher today. You've also got a lot of the software names leading and some of the mega cap tech as well. We'll talk more about the

strength in chips in particular later in the show. Also ahead, an exclusive interview with the former Treasury Secretary Jack Lew on inflation fears and whether or not he thinks the U.S. is heading toward a recession. Let's get to our top story, though. Two retailers with two very different earnings reports. What does it tell us about the market and consumers? Inflation and supply chain eating into Walmart's results this morning, missing analyst estimates, lowering guidance, sending the stock sharply lower. It's down more than 11 percent. On the other hand, Home Depot is raising its full year outlook on the back of its strong earnings and higher prices, not pushing consumers away from stores, according

to the company executive. So what does it mean for investors? Joining us, Jim Paulson from the Luthold Group and Greg Mellick from Evercore ISI. Greg, you cover these names. What does it say about the consumer? It says a consumer has a strong balance sheet, but they are starting to make choices. So particularly lower end consumers are choosing what to keep in the basket and where they can save some money because they're the ones under the most pressure. But middle and upper end consumers and homeowners have almost three trillion of cash in the balance sheet they didn't have two years ago. And they're willing to spend it given the housing shortage that we have out there. Jim, you like consumer discretionary. It's the hardest hit sector of the market this year amid inflation concerns.

What do you make of these two reports and what that says about the group? Well, your data has not been easy, but we did just add Home Depot to our top. Oh, that was for Jim. Sorry, Greg, I'll get back. I'll get back. I just wanted to get Jim Paulson in here, too. No problem. No problem. I guess, you know, I think it could well say something about inflation's disproportionate impact on lower income groups than it is at higher income groups on average, you know, where higher income groups are going to be less impacted. As Greg mentioned, starting to be more concerned about necessities, if you will, where lower income groups, bigger portion of the demographic at Walmart, probably is starting to really feel the pinch with 8 percent inflation and looking more at

saving money to make sure they can get necessities. I guess all those sales, Greg, weren't they strong at Walmart? Wasn't it some of the cost inflation on food and transportation and energy and wages that's hitting Walmart? Do you expect the same for Target tomorrow or is Walmart doing something differently? They were, look, sales were good. So sales for Walmart were up 3% for Home Depot as a 2-2 comp up against a huge comparison. So both were a little better than expected. Home Depot a little more. But I think the key is that Home Depot was able to keep their margins. And whatever costs they were seeing, they were able to pass through for the near term. And whereas Walmart couldn't pass through

all the rising costs they had and everything from labor to fuel, as well as Home Depot was. So from an earnings standpoint, that's where I think with the market, and I mean, Jim's the expert here on this, I would say Walmart is a classified a consumer staple stock.

And when you get a consumer staple stock that misses that much on margin and the earnings get talked down and there's a sign that there's an inventory overlay that could take a few quarters to get rid of, I think that's why Walmart's getting hit so hard today. Whereas Home Depot, they have the demand, they have the inventory they need, and there's no sense they really have to do any massive promotion to move it. But Greg, what about Target tomorrow? Wouldn't they be dealing with these same pressures? Target will be interesting. So I think the read through here is that the sales should be fine. We think Target's customers in a pretty

good spot, as we talked about before. I think they've had stronger traffic. So I think traffic helps you. Basically Home Depot has customer accounts up 5% still from 2019 whereas Walmart's are down 9%. So if and Target's been growing its customer accounts over the last two years so I think Target has a shot to have strong sales. The big question mark there is margins and that's frankly why we have an inline on the stock. So we think Target's pretty cheap but our concern is the margins, not just near term, but particularly into the back half. So Jim, given all of these pressures and changing dynamics, what do you do with this group? How do you feel about retail, consumer staples,

consumer discretionary in this environment? I don't like staples, but I do like consumer discretionary a lot. If I look back historically, Sarah, all of the major outperformances back to 1950 that occurred by consumer discretionary stocks were decelerating inflation environments. Accelerating inflation were the biggest underperforming periods, and that's what they've been up against. It not only destroys demand, as we're starting to see, but it also pressures the company's margins, as Greg was talking about. But worse than that, it destroys confidence, and it forces consumers to reel in their animal spirits, if you will. I think inflation is peaking, and as it does, I think we're going to see rising confidence,

greater animal spirits, and to Greg's point think we're going to see rising confidence, greater animal spirits. And to Greg's point, they're going to start using their balance sheets and good job market prospects in a bigger way towards discretionary items. These stocks have been beat up in the last year. They're better relative values. I think it's a great time to commit. Yeah, the group down 26 percent this year. Up really well today. We're seeing the cruise lines that are in that group, the retailers like an Under Armour, the homebuilders even catching a bit today. Greg, Jim, we'll leave it there.

Thank you both for joining us on the American Consumer. After the break, the Goldman take on bonds. We'll talk to the firm's head of investment grade credit about where he's finding opportunities in this market. You're watching Closing Bell on CNBC. We are now at session highs again. Dow's up about 450. Check out today's stealth mover. It's Molson Coors, the brewer,

one of the worst performers in the S&P 500 today after Bernstein downgraded the stock to market perform from outperform citing valuation. Stock has rallied nearly 20% this year compared to the benchmark index's 15% decline, not helping out the staples trade today, although Walmart is really what's sinking it. It's down 11 and a half percent. At the same time, we're watching a broad rally in today's session. It's led by materials, tech and financials. The 10-year note yield under some pressure today with the yield nearing 3 percent. Again, the 10-year note, I should say, under

pressure yields are a little bit higher. Joining us now is Johnny Fine, Goldman Sachs' head of investment-grade syndicate in the Americas. Johnny, I think the headline today is that the Fed stopped spooking the markets. We had how many Fed speakers this morning and just heard from Fed Chair Powell this afternoon, the last hour. He was talking tough on inflation. We're going to keep expeditiously raising interest rates, going past neutral, whatever it takes to fight inflation. And guess what? The market is still rallying. So has the market gotten past all this? So I think you're 100 percent right, Sarah.

We're moving to a point of inflection with respect to Fed speak overall. Really, since the beginning of the year, every time there's been an FOMC member who's had the opportunity to engage the public, they've taken the market to a more hawkish position than it was previously. I think today and maybe in the last couple of sessions is the first instance of effectively the Fed saying, yeah, the market's got it right. It's now priced appropriately for what the Fed is likely to do. So what does that mean? Does that mean that you should be buying bonds now? It's not working today, but that's sort of been in the last week and a half, the change. Well, I think most importantly, it might be signaling that we're nearing the end of a very

intense bout of fixed income volatility. One thing that we've been looking at since February is the move index, the volatility of U.S. Treasuries we've been looking at since February is the move index, the volatility of U.S. Treasuries, the sister cousin to the VIX index and what that does for the S&P. That's been trading at extraordinarily elevated levels, levels that we haven't seen in a dozen years. And even at the start of the pandemic, where we did see a brief spike higher, we're now not even trading that far from those levels. I think one of the key unlocks from here is going to be a tampering down of rate volatility in that move index moving lower. That could be good news for stocks. You know,

Johnny, a lot of talk of recession lately. And are we going into one? And how soon is it coming? The credit market would be a key signal here. What do you see there as far as recessionary risks and warning signs? So I don't think the credit market is really calling for a recession as I see things over the course of this year having developed. Yes, credit spreads have been widening in investment grade over the course of the year, but they've done so in a very low beta manner to the equity market overall. It's sold off less meaningfully than one would expect on down days. It's actually rallied less meaningfully than one would expect on up days. And so I think what that is telling us is that corporate America did such a good job in fortifying

its balance sheet coming out of the pandemic that ultimately recession risk is low. Now, we've taken down our growth forecast for next year, as I'm sure that you've seen, roughly one and a half percent. We see a one in three shot of there being a recession next year, as does the market. It's clear that the Fed has a very tough job to land the plane here overall. But I would say there's no canary in the coal mine insofar as credit is concerned. So companies still can finance? I know it's been affected somewhat, having to pay higher rates. So obviously, the cost of financing has gone up from both the rate component and the credit spread component. But to put it in context, we financed around $680

billion of investment-grade credit in the U.S. alone since the beginning of the year. That's the third busiest start to the year that we've had on record. Markets are open. Deals are getting done. There's strong sponsorship. Yes, costs have risen. But overall, there's certainly been no cessation of activity. There's been no freezing over of credit markets. The investment grade market from AAA down to BBB minus alive and kicking. When I usually talk to bond guys like you or credit experts, it's usually sort of a pessimistic conversation and it's something ominous for equities. But if I'm at home and I'm wondering what's happening with the volatility in the stock

market, it sounds like given the signals in the credit market, you're fairly optimistic. Is that the takeaway or at least a little more sanguine? Yeah, I think that's right. Look, not every corner of the credit market is working perfectly in investment grade. There's been a change in the liquidity dynamics in our market in the same way there's been changes in the liquidity dynamics in the equity markets over the course of this year. That's made it more difficult for less liquid credits to find a foothold for borrowers who have either are coming to market for the first time or have very small debt stocks outstanding. Those are finding execution trickier and in some case, not having the access that they wish that they had. That's something that I think with a tamponing down of rate vol will fix that part of

the market as well. But I definitely say that the market's had some liquidity strains over the course of recent weeks and months. Well, we'll talk to you if we get there again or sooner. Johnny, thank you. Johnny Fine from Goldman Sachs. Let's give you a check on the markets right now. And today is an up day. It's a rebound day, up 431 on the Dow Jones Industrial Average. S&P 500 going strong here into the close up, about 2% right now. Again, every sector is higher. On the back of those rising rates, you are seeing financials do particularly well. Technology also strong. Chips are in the lead. Chinese internet stocks are doing well. The Nasdaq's up up 2.7%.

Coming up, just how concerned should you be about a recession in America? We'll ask former Treasury Secretary Jack Lew what he's forecasting in a CNBC exclusive interview next. And as we head to break, check out shares of video game maker Take-Two Interactive getting a big jump today despite missing booking estimates. Jim Cramer will be speaking to CEO Strauss Zelnick about the quarter and Wall Street's reaction tonight on Mad Money. Do not miss it. We'll be right back on Closing Bell. Upday in the market today, but the recent sell-off has fueled fears of growing fund outflows and asset management stocks, for one, have taken a big hit. Mike Santoli taking a closer look at that group for his dashboard today. And some of these brokers, Mike, you would think would rally off higher rates. Yes. Well, brokers, in fact, they did, especially Schwab in the late part of last year,

did seem like a boon to them. And they should benefit to some degree as the Fed raises rates. But the asset values drag on the other direction. So with stock and bond markets both down, the value of the assets in the funds declines. Obviously, their fees are tied to, and people are afraid of what's going to happen to fund flows.

They've started to reverse to some degree. But you see the stocks over the past six months have already taken on a lot of punishment. And so the argument now is this longer term value being created in these stocks. If you take a look at each of these stocks' valuations, so Schwab, BlackRock and T. Rowe Price, forward price earnings multiples are now right down near the bottom of their 10-year range. Charles Schwab, actually pretty close to as low as it gets. That's in the green. Chiro price, very cheap.

It's very equity-focused. You can understand why a smaller player. But again, a high-quality operator, and then BlackRock as well. So if the earnings are in the ballpark of being correct, if the markets don't fall apart from here, you might consider them to be leveraged bets on the markets finding their footing, because they're going to have a magnified effect as markets do better. So obviously, there's always a risk that that doesn't happen. But this shows you that the market is already kind of cheap in them to some degree. Are we seeing the corresponding amount of outflows?

You're seeing only the beginnings of outflows. I think a lot of the data is that, you know, only three or four percent of the money that flowed into stock to funds in general last year have come out. The fear is that, you know, losses build up and people decide to flee or at least no inflows are are not going to be likely anytime soon. Mike, thank you. We will see you in the market zone. Up next, Treasury Secretary, former Treasury Secretary Jack Lew on whether the Fed's aggressive moves to fight inflation are increasing the risk of recession. An open letter to Senator Elizabeth Warren. Senator Warren has blamed corporations for inflation, saying they're using it as a cover to raise prices and pad profits. But Walmart's earnings today tell a very different story. This stock is sinking. It's down more than

11 percent, one of its worst days ever. Earnings were a big mess. CEO Doug McMillan saying it's the opposite of what Warren claims, which is inflation is weighing on its bottom line. Quote, U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we had expected, he said. Higher wages are also eating into their profits. The company cut its profit outlook for the year, actually now expects a decrease of 1% instead of profits increasing. Inflation is hurting Walmart's profits as it drives up costs. Now, Warren and others point to oil giants as well, who have reaped billions in profits and are returning it to shareholders in the form of buybacks and dividends. But again, they don't have pricing power.

They can't gouge consumers when they sell oil. The reason profits are exploding there? Because global oil prices are way up. Now, to be sure, lots of companies are jacking up prices, and they're even boasting about their ability to preserve profits by passing hikes onto the consumer. But there's a limit there, and they wouldn't be able to do it if their own costs weren't skyrocketing. And final point, profit margins this quarter, as Bob Bassani reported earlier, citing S&P Global, are actually declining after being stable for the past three quarters. So inflation, objectively, is more of a hit to profits at this point.

And it's not just Walmart. Hard to blame corporations for the inflation we are seeing. Fed Chair Jay Powell speaking last hour with The Wall Street Journal, talking about how the Fed will try to tackle inflation without sparking a recession. Listen. It is going to be a challenging task, and it's been made more challenging in the last couple of months because of global events. So it's challenging because unemployment is very low already and because inflation is very high. Joining us now in an exclusive interview, former Treasury Secretary Jack Lew.

Secretary Lew, great to have you again. Welcome back. Good to be with you. You think the Fed can pull it off, fighting inflation all the way back down without taking us in a recession? Look, I think it's a hard job. The history of rate increases to get things back to normal certainly makes the odds of there being some bumps along the way pretty high. But I do think that the way the Fed has managed since the beginning of the COVID crisis should give us all some confidence that they're going to be moving step by step, watching what the impact is, trying very hard to avoid the kind of hard landing that would be very painful. There are a lot of things going on in the world right now that they don't control.

Some of those are contributing to making it much harder. But they're on a path. They've been clear in communicating it. And I think the road ahead is going to create uncertainty and volatility. But I certainly hope that they can at least be bumpy and not hard. Where do you see inflation going? Do you have a forecast of when, in your mind, you think it's going to peak and come down, given the Fed's fight and all of these supply chain issues, the war, everything that's contributing? I think you have to break inflation into multiple parts because

the general direction of the economy, the demand in the economy, growth in the economy will be affected over time by what the Fed does on interest rates. But that's not instantaneous. When you see things like oil supplies shutting down because of a war and prices spiking, that has a much more immediate impact. So I think you can see in some parts of the economy signs of inflation settling down. The last month's jobs report showed a much lower wage increase than we'd seen in the past. One month's data doesn't prove where it's going, but it was a good sign. Things like used car prices, they're going down, not up. There are other things that are still feeling upwards pressure. So things are going in both

directions. Everyone I talk to expects that over the course of the year, there will be a substantial settling down. But I don't think it will be back to normal by the end of the year because the world has changed and it's going to take a little longer to get there. I think that one has to look beyond the kind of immediate six-month period ahead and say, where is it going to settle down afterwards? There does seem to be a risk that it's going to settle down higher than many of us would have liked to have seen. And if so, that will mean that the Fed will have to keep looking at what do they need to do over the longer term. I think they've been right to move gradually because we don't know that that's the case. And they do know that if they move hard and fast, they can trigger a recession.

They're trying to thread a needle. Meantime, it's a midterm election year and this is becoming very political. It's the number one concern right now for Americans, as I was alluding to. And there's a lot of blame, the blame game on who is most responsible or responsible, at least, for inflation. I just wanted to get your take on something that President Biden tweeted out and then got some blowback from one of the richest people in America, Jeff Bezos. So the president tweeted, want to bring down inflation? Let's make sure the wealthiest corporations pay their fair share.

Then he got called out by Jeff Bezos, who said that the newly created disinformation board should review this tweet or maybe form a non sequitur board instead, because raising corporate taxes is fine. Taming inflation is critical to discuss, but mushing them together is just misdirection. And I'm curious who you side with in that debate. Well, I don't participate in Twitter debates, never have and probably never will. I think that the causes are complicated. I think that when you look at what we need to do in this country to address some of the problems that are not

necessarily contributing to inflation, but are making it harder for families to deal with the inflationary pressures, we have to figure out how to pay for that. So you take something like increasing the availability of child care credits, having families have access to refundable tax credits, things that really get right to the bottom line of families, some of them middle class, some of them down near the poverty line. You have to pay for those things. And one of the ways to pay for them is through some of the tax proposals. So, you know, I'm not sure I would make it a cause and effect. Sure, but that's not how you, yeah, I get it. I get it. But raising corporate taxes and taxes on the wealthy doesn't bring down inflation. But I think your point is interesting because I know you recently wrote an op-ed on making the child tax credit permanent with another former Treasury Secretary, Secretary Rubin. And my response to that was, doesn't that just increase more spending right now at a time where we're already dealing with inflation?

Why would you inject more into the economy? The point we made in that piece that we wrote is that if you more than pay for it, even though families that have low incomes are likely to spend at a higher rate than those of us with higher incomes, you're reducing the deficit by more. And net, it's not going to be inflationary. So it is a question of whether your fiscal policy reflects where you are at the point in the cycle.

At the moment when there was a global health crisis and we just had to make sure that when you shut down the economy, things could come back. No one asked, what did it cost? Now it's right to ask, what does it cost? And paying for it is the way for it not to be inflationary. One of the, I have to ask you, finally, I've asked you as Treasury Secretary a number of times something that you were never able to answer. But now that you're former Treasury Secretary, hopefully you'll answer, which is, is the dollar getting too strong? It's a big deal for corporate America. We're starting to see it impact earnings, impact exports, impact emerging

markets, economies and other economies as we see the euro fall to almost parity against the dollar. Is that going too far? Yeah, it probably won't surprise you, Sarah, that I actually still see the problem is other currencies and other economies are too weak. What's driving up the strength of the dollar is that, you know, there is this confidence in the U.S. economy. Still, we're growing. Still, interest rates are going to be rising as the Fed raises rates and other economies are not catching up as quickly. And, you know, so I think the solution is more global growth, as I have always believed, targeting the value of your currency against against the notion of where it should be is a risky business. So I think that we're at a moment now where you look to a country like Japan, very weak currency now.

There are other examples. I think getting growth up and prospect better around the world is more of an answer. And I think if you look at China, the value of the RMB is down because their economy is shut down again. They've got to get out of this COVID shutdown in order for them to bounce back.

So there's a lot of things that are driving this right now. Yep, agree. And actually, we've had a sharp three-day fall here, but still near some strong levels on the dollar. Treasury Secretary Liu, thank you for joining me. Always good to see you. Always good to see you, Sarah.

Let's show you where we are in the market right now. Holding on to the gains at more than 400 points on the Dow Jones Industrial Average. If you look at what is driving the Dow higher, we've got Boeing adding a lot today. J.P. Morgan, the banks are in solid shape today. Home Depot after strong earnings and strong sales, especially compared to Walmart, which is the biggest drag on the Dow, taking 106 points off the Dow would be 100 points higher if not for Walmart. S&P up almost 2%. So we're building on those gains into the close. Still ahead, a top market strategist reveals which part of the tech

sector she is so bullish on right now. Tech is coming back in a big way today with the Nasdaq up more than 2.5%. We'll be right now. Tech is coming back in a big way today with the Nasdaq up more than two and a half percent. We'll be right back. Check out some of today's top search tickers on CNBC.com. Ten-year note continues to take the top spot lower today, yields higher just below that three percent level. Walmart sinking 11.2 percent. This is Walmart's worst day since 1987. It closes down 12%. It's the worst day ever in reaction to a big earnings miss and a lowered forecast for earnings, though better sales. Home Depot going the other way, better earnings and better sales up 2.5%. Tesla is rebounding to the tune of 5%. And even Twitter is up today at 2.8%, even though Elon Musk has still put the deal on hold, according to his tweets

to find out more about the bots and whether twitter is accurately stating that five percent bot level amd shares also surging today on a big upgrade how that's impacting other chip stocks straight ahead that story plus chinese tech taking off and a bullish call on cyber security when we take you inside the Market Zone next. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Christina Partsinella is with us on the big rally for chip stocks and Citi's Kristen Bitterly

on where she is buying opportunities in technology right now. We'll kick it off with the broader market. Stocks rallying where she is buying opportunities in technology right now. We'll kick it off with the broader market. Stocks rallying into the close. Near session highs right now. Dow's up for a third session in a row. But the S&P and the Nasdaq, importantly, are up strongly today. Mike, how do you know whether to trust a rally in this kind of environment?

Because you know the bear market rallies can be fierce and can fool you. Yeah, for sure it's tricky. I do think Friday's rally, the characteristics of it, how broad it was, gave you a little bit of a cushion in the sense that perhaps it was somewhat overdue and we got washed out enough. Also, incremental evidence that there has been sort of a sold-out nature of the market, whether it be the Bank of America Global Fund Manager Survey, highest cash levels in 20 years, or the 13F reports of the big hedge funds that have been

on the ropes, having really liquidated out of a lot of the big tech stocks. Just a sense out there that the market has less concentration risk, less crowding risk. At the same time, the valuation has come down. I still think you can go up, you know, five or six percent from here and still have the decision to make as to whether we're selling these rallies. That only gets you back to within 10 percent of the all-time high. So that's why it is always a tough call in the moment. Wanted to highlight the consumer staples. It's the only sector that is lower today, and it's one of the best performing sectors of the year. In fact, it's pretty much flat this year, which is a win. Clearly, Walmart is weighing on the group. It's down 11 percent right now. Terrible day for Walmart off the earnings list. But look at some of these other declines. General Mills, Kimberly Clark, Hershey.

And I highlight it because, Mike, on the earnings call on Walmart, the executives there did talk about the consumer starting to trade down to private label from some of the brands. And that would suggest some pain for some of these companies. Some of them do make private label from some of the brands. And that would suggest some pain for some of these companies. Some of them do make private label, but a lot of them get their premium pricing on their own brands. And it's also contrary to what we heard from P&G, from Kellogg, from a number of these companies that consumers are paying up for the strong brands.

I ask you about it because it has been kind of a safe haven for this market. In an inflationary and a slowdown environment, usually people go to these staples, like a Walmart or some of these food companies. Does that change today after what we got from Walmart? I think it's a big part of the story, Sarah. The fact that you did have a lot of people in this sector, a lot of dollars flowing into it, mostly because of the perceived safety, because it was supposed to be predictable, and also a haven from, you know, cyclical weakness.

And when the biggest grocer in the country, you know, effectively Walmart, does say that they're having a little bit more trouble having their customers, you know, pay up for brands, I get why those things are getting a little bit of a haircut today. It doesn't seem like a radical exit from the whole group. It really is, at this moment, a little bit more of a Walmart issue. Right. Kroger's down in sympathy, 3.6 percent, though Kramer noted much better quarter dealing with all this inflation. Fintech stocks are flying high today after Coinbase announced plans to slow hiring and reassess its headcount because of current market conditions. Meantime, Robinhood announcing a new crypto wallet that will allow users to have full custody of their cryptocurrencies and NFTs.

Our Kate Rooney just spoke to Robinhood CEO and joins us with the highlights. Kate. Hey, Sarah. Yeah, I spoke to Robinhood CEO Vlad Tenev here at West Palm Beach at the Permissionless Conference. The company is now letting customers store their own crypto and NFTs with a new wallet product today. He says they're competing with the likes of Coinbase by doing this for free. They're doing zero fees, similar to what they do in the brokerage side of the business. Although he wouldn't say how they're going to monetize this yet.

He says revenue will come eventually if users sign up. I also asked about Robinhood laying off about a tenth of its workforce last week in that announcement. Tenev says it's about cost discipline. Here's what he said. It's about cost discipline. We obviously know that when, you know, the Fed is sending stimulus and the markets are going up and interest rates are low, that things are great and it lifts all boats. But I think it's the companies that exercise that discipline and show that they can stand the test of time through rough market conditions. The market conditions have certainly changed since Robin Hood went public last August. We also talked about Sam Bankman Freed's investment, the CEO of FTX.

He bought about 7.6 percent of the company. Tenev says that he knows Sam, that he's met him. He's a smart guy and they've shared similar venture investors in the past. He didn't answer it really with a straight answer. He said that there are a lot of shareholders in the company. He said he's happy to have new investors involved, but no comment on if Sam reached out to him or how that whole thing went down. Also asked him, of course, about Charlie Munger and Warren Buffett, two of Robinhood's biggest critics.

He did say that if those two started investing right now, if they were starting their investing journey, they'd be using Robinhood. Anyway, back to you guys. I think they'd beg to differ on that, Kate. Great get. How many of your companies right now that you cover in this sort of new, hot fintech area are cutting costs, pausing hiring, cutting staff. It feels like there have been a lot of announcements right now. There's been a ton, and I'm told likely more on the private side when it comes to venture capital. We had Coinbase announcing this morning that they were slowing hiring, so no layoffs necessarily, but they had these huge plans to triple the workforce. They've called that off in this morning in an email to employees saying, essentially,

we're slowing down the hiring process. Again, it's about cost discipline and needing to show profitability at this point. Like you mentioned, the stocks are all down significantly from the highs last year. The picture has really changed when it comes to fintech and growth at all costs. It's now more about things like cost discipline, like Vlad Tena mentioned. Yeah, and Mike, these companies have not been through cycles. They have not been through bear markets. They have not been through Fed hikes and inflation. How are they going to make it through?

Are they good, sound investments right now because they've lost so much money? We don't know exactly how the customer base is going to react or evolve. So we don't know if the customer is going to either adapt and say, we're just going to build our balances up. We're not going to be all about free trading. What I do think, though, is these companies have been whittled down to very modest market caps. I'm not saying that they're cheap because Robinhood doesn't have earnings. But Robinhood and Coinbase together are now less than $25 billion in market cap.

Combined, at their peaks, they were over $100 billion. So clearly the market has said they're now marginal players. If they actually show staying power, it's probably going to be an upside surprise. But we just don't know if that's going to happen. Coinbase itself was $100 billion when it went public, which is crazy. Briefly, yeah. Right now to think about. Kate Rooney, thank you.

AMD, one of the big winners on Wall Street today. And sparking a rally in chip stocks after Piper Sandler upgraded the name to overweight from neutral, hiked its price target to 140 bucks from 98. The analyst behind the call says there are two old sayings in the investment world. Do not try timing the market and buy good companies when they are down. AMD shares have plunged nearly 30 percent this year. Christina Partsenevelos joins us. Christina, Piper's AMD upgrade driving the stock higher. Bullish call, not just about AMD.

What are the takeaways? Well, it seems like he's bullish about the entire sector now. Primarily, the first point has to do with commercial PC sales. Those are doing quite well and offsetting any losses from people like you and I who may not be buying laptops anymore.

And AMD does have exposure to that market. The second point is those custom chips that go in gaming consoles. If you're a parent watching, you know that it's maybe difficult to get an Xbox or PlayStation, so he believes that it will further drive the market. And then another point, I was just reading about Chenbro and Quanta Computing. These are Taiwanese companies, and they both said that they're bullish on U.S. and Chinese consumers primarily because of the cloud, which we know is a sentiment echoed recently by the CEO of Microsoft. And a second point those two companies said is that in the second half of this year, we'll see new processors from Intel as well as AMD. So that should further help demand. And then lastly, got to round it out with four points that maybe some of these stocks in the sector have already taken in those price

cuts for future earnings. So maybe they've come down in terms of valuation. Well, they are rebounding in a big way. One of the best subsectors right now in the S&P. Christina, thanks. Chinese tech stocks also outperforming today for several reasons. Investors optimistic a key meeting between Chinese regulators and corporations could lead to an easing of the crackdown we've been seeing on this industry. There are also new hopes on the covid lockdowns in Shanghai that they could soon be lifted as a result of possible diminished risk. J.P. Morgan now upgrading its view on Chinese tech stocks to overweight from underweight. And on top of all that, JD.com reporting better than expected earnings. Deirdre Bosa joins us now. Deirdre, how do some of these names look on a valuation basis? And how about that U-turn from JP Morgan?

U-turn indeed. It was only two months ago, Sarah, that they called Chinese tech uninvestable. Valuation is certainly part of it. They're looking as attractive as they ever have been. Remember, hundreds of billions of dollars have been wiped off the market caps, trillions even when you take into account U.S. listings, Hong Kong, Shanghai, Shenzhen. So J.P. Morgan actually cites valuation. Let me give you a few numbers here. They pointed to Alibaba's forward P.E. ratio, which is at 15 times. That's lower than the historical 18 to 28 times range. Interestingly, though, JD.com not included. Its forward P ratio is at about 22 times. That is below its historical range of 25 to 40 times. But that wasn't included with JP Morgan's picks. It all begs the question,

though, guys, why the change of heart? Sarah, you touched on this. Uninvestable to overweight. How do we know that this is the real deal? We didn't really know when Chinese regulators were going to sort of smack down these names. Now they think that this is opening up. It's a good time to invest. The key here is that you just don't know. So we always say this. You need to have the stomach to invest in these Chinese names. If you do, then these valuations are looking attractive. But you also got to believe that there's stimulus coming. Stimulus, the Chinese regulators, there's a lot of sort of hard to figure out things. Deirdre, thank you. Deirdre Boza, turning back to the broader market, stocks look to close out here with some big gains. NASDAQ's up about two and a half percent.

Kristen Bitterly from Citi Global Wealth Management joins us. Kristen, technology, buying opportunities. Would you go into this sector after some of the carnage that we've seen at this point? So what's really interesting is when you look under the surface, while the NASDAQ is down around 25 percent, when you break it down, we have 60 percent of those underlying stocks are down 20 percent or more, 40 percent are down 40 percent or more, and 30 percent of those underlying shares are down 60% or more. So it's a very natural question as to whether or not there are opportunities here. There's two things to keep in mind, though. In this market, and given some of the conditions and some of the headwinds,

we really want to delineate between what are quality profitable companies and what are essentially really hyper growth stocks that are call options on unknown futures. We are leaning into quality and we are happy building positions in some of those names for the long-term. The second piece is look to some of the subsectors out there like cybersecurity, where this is an area

where there's going to be durable demand. It is no longer a nice to have, it's a need to have from a corporate governor standpoint and really has become the G, the governance part of ESG, environmental, social and governance. So some of the sectors we really like, but really focus on quality. So how do you define quality right now in technology? Can you break that down any more specifically? Of course. So these are strong companies that are basically, they have been consistently growing their earnings. They lean towards that durable demand.

And they've actually also been consistently growing their dividends. And this goes beyond technology in terms of areas where we have been adding exposure very comfortably over the past six months. So this expands beyond technology, but actually into areas, for example, like healthcare, where there is durable demand, where you see areas like pharmaceuticals. Those are the areas. And if you look at the broad-based sell-off that we've seen in equity markets here to date, those types of companies are actually

dividend growers. U.S. equity dividend growers are down only around 7%, where the broad-based market is down 15%. So this is not a unique view to technology, but really taking a step back and looking at those quality companies more broadly. Mike, the B of A fund manager survey today, which gives a good sense of where the crowded trades are, where the consensus, showed that technology stocks are the biggest short since 2006. Yeah. Yeah. So essentially, active fund managers are as underweighted in that sector as they were as they have been since 2006. You know, a lot of it is just about, you know, tell me what the market did in the last few months and that's going to be coloring their stated positioning. But again, to me, why it says that there's a little bit of cleaner setup here in terms of no longer as crowded in that area.

I just think that the general market feels as if it got pretty defensive in a hurry. Doesn't mean it's all culminated. Doesn't mean that the downturn is over. But it makes sense that we paused on the downside momentum where we did just ahead of that 20 percent pullback level in the S&P 500. And Kristen, you mentioned health care, I think, just now as one of the places you like for quality. Can you get more into that? Is it biotech, which is lagged? Is it pharmaceutical companies, some of the insurers? It's pharmaceuticals. Because the whole group actually has been working.

The whole group has been working, and we've seen that as an area of really strong outperformance compared to the broad-based market. But pharmaceuticals is the area that we like looking forward in terms of, again, it goes back to this concept of what is going to be durable demand. And I think what's really interesting is if we look at what's fueled some of this rally today around retail sales and consumer spending, there are some cracks in terms of this consumer story. So when you look at what is actually fueling that spending, we are seeing pre-pandemic levels of the personal household savings rate. We're seeing pre-pandemic levels when it comes to credit card balances. And we're actually, we had a record 537 million credit cards opened in the first quarter of this year in the United States.

And so when we see those cracks starting to unfold as to how consumers are actually spending, you want to lean into those areas like pharmaceuticals that will have durable demand quickly how much of your portfolio should be in cash right now none with the inflationary products and bonds bonds so where we really like in terms of where we have high conviction is bonds are back actually adding fixed income exposure in terms of whether we've hit peak rates at this rate or whether we're going to see it throughout the course of this year, we are very confident in adding high quality fixed income in terms of US treasuries, investment grades,

and also in municipal bonds where we're seeing that yield ratio comparable to compared to tax equivalent at 90%. That's an area to add some hedging, diversification and really asset allocation is back. Kristen, thank you from city management. Appreciate it. Kristen Bitterly, just under two minutes to go here. Mike, what do you see in the market internals as we rally into the close? Yeah, pretty solid, Sarah, in terms of the breadth of the market. New York Stock Exchange upside to downside. It's about five times. So not

as dramatic as last Friday, but definitely pretty solid. Take a look at the two-year note yield. We did get a little bump higher on some of those, you know, aggressive seeming comments from Jay Powell, but nothing really new. And the yield level tells you not a lot new. We're slightly below the highs. It's been static or so sideways for about a month. And so it supports the idea that Powell hinted at that maybe the market has priced the Fed's intentions reasonably well so far. VIX is down another point and a half or so, down around 26. So it's created another spike on the chart. And it shows you the market's on a little bit of a firmer footing. We'll see if we can get down to the springtime lows in the low 20s, Sarah. As we head into the close, Dow's up 400 points. What is leading us? Goldman

Sachs contributing the most right now. Boeing, Visa, Caterpillar, no shortage of winners today. Although Walmart is a big drag on the Dow, taking 100 points off the Dow. It's why it's underperforming the Dow Jones Industrial Average. S&P 500, higher to the tune of 2%, so a nice rebound there. Every sector higher except for consumer staples. You've got technology, financials, and materials in the lead. Look at the NASDAQ closing out with a gain of two and three quarters percent. So again, a big relief day. Unclear whether this will be the start of a bigger bounce, but certainly positive all around. That does it for me. I'm closing out.