Closing Bell - Closing Bell: Stocks surge on tech’s turnaround, Spirit Airlines’ CEO on rising fuel costs, Palo Alto Networks’ CEO on cyber attack threats, and why the Fed is no longer your friend.

Episode Date: March 15, 2022

Stocks staging a big rally as tech stocks rebound from their recent sell off. Jefferies Tech Analyst Brent Thill lays out his top tech picks. Spirit Airlines’ CEO on why higher oil prices actually increase the carrier’s competitive advantage. The CEO of cybersecurity firm Palo Alto Networks explains why he has never been as worried about cyber attacks as he is right now. And Jefferies Chief Market Strategist David Zervos on why the Fed is not your friend this year.

stocks are at the highs of the day and technology is in the lead the most important hour of trading starts now welcome to closing bell i'm sarah eisen here my top takeaways on today's big stories markets on covid watch again stocks like zoom peloton docusign classic stay-at-home poster children getting some love yes they've been beaten up but europe is dealing with a new wave of infection china's locking down cities and in the u.s the., the CDC is tracking an uptick in COVID in our sewage. We're investors too quick to dismiss the COVID story. China slowed down, helping curb inflation. Oil's falling hard again today.

Wheat is well off its highs. Why? China's the world's top energy consumer. Chinese COVID lockdowns are hurting growth. If those restrictions persist and even expand, commodities could continue to see more pain. Good news, at least, on the inflation front. And pre-gaming the Fed decision tomorrow.

Perhaps the biggest question for investors, the balance sheet. The Fed has built up more than $9 trillion in holdings, buying bonds to stimulate the economy. They have to unwind it. Any word on when and how will be a major market fixation tomorrow. Market love stimulus saying goodbye may be painful. Let's dive into the top story right now. Big rebound in tech. The Nasdaq leading the gains among the major averages up 2.3 percent right now. It's being driven by some of the recently hard hit Chinese internets like JD.com,

along with chip stocks like Marvell, NVIDIA and AMD. So is the tech trade back on? Let's bring in Julian Emanuel from Evercore ISI, Brent Thill from Jefferies, and our own senior markets commentator, Mike Santoli. Julian, any reason to think this is more than just a bounce off of very oversold and very hated bear market conditions for tech?

Well, there's really a lot of things going on here. So number one, over the last day or so, the yield in front of the Fed tomorrow has stopped skyrocketing higher. Basically, we're expecting the market expects seven hikes in 2022. We're looking for six. I would argue that given the sell-off in the commodity markets, there's a little less fear of inflation. And when that's the case, the natural inclination is to go towards the growthier sectors. And, you know, even a place like the China technology stocks is so oversold that it bounces vastly over doing our opinion.

Brent, how much do your clients hate the stocks that you cover right now? And is it enough to make you interested and to look to buy because it's just gotten so negative? Yeah, I'm the fat kid on the playground right now. You know, we're at a 10 of 10 on pain. Our desk continues to see a lot of negativity. We've seen cash levels go to the highest levels in five years. And we're not seeing any buyers on our desk at Jefferies right now. So I think it gives you a sense that this may be a more bullish sign, to Julian's point, that we may be vastly oversold.

But obviously, it's hard to factor in what's going to happen with the Fed on Wednesday, what's happening in the unfortunate situation in Ukraine and the hangover, all these other factors and the economy potentially slowing. But I think a lot of this is now in, you look at companies like Facebook at 13 times earnings, maybe there's some downside, but at 13 times, I mean, you're not taking a big risk with a multiple way below the market. Facebook or Meta is barely rebounding, Brian. It's still near the lows. So of all the stocks that you cover, which valuation looks most enticing? You mentioned Meta. Anybody else?

You know, I think other great companies like Adobe are starting to look more interesting. We think TROP on Adobe is 370. So that's getting closer, certainly a phenomenal franchise on that side. Microsoft is still a great story that's going to grow. You know, mid-teens with great earnings leverage and a phenomenal management team. So we like the Microsoft story.

There's a handful of small and mid-cap names that we think now are trained below takeout valuation. So what's even more interesting is small and mid. Those names right now are trading well below trough. Like what? We're seeing companies like Vimeo, the MEO. You look at some of the multiples across SMID. These multiples don't make any sense. Private equity is going to start getting excited.

You look at historic software M&A at 8 to 12 times revenue. You've got most of the small and mid cap names trading below those ranges ranges. So again, a lot of the bad news is baked in. I think the only concern we have now is, are we going to see fundamental weakness? We have not seen that in tech. We've seen everyone say, things are phenomenal. Everyone came out of Morgan Stanley's conference and was like, no one's shown any signs of weakness last week. I think that's the concern now is do the rate hikes and some of the overhang of what's going on in Europe have some fundamental impact? We haven't seen that yet. So that's the only big risk I would call out that we're keeping an eye on. But we have not seen that in numbers yet. No fundamental slowdown. Mike, on the valuation point, Brent says that the valuations look

enticing. They look good here. Is that true? Or were they just way too inflated last year? And during COVID, when they got very sky high multiples, some of these companies, you know, multibillion dollar companies with hundred million dollar revenues. Both those things can be true. They were way overinflated last year, especially on the smaller side. And they're becoming more reasonable. And yes, when prices come down, when valuations come in, risk goes lower, not higher. If you look at the overall Nasdaq 100, which of course is still unduly influenced by the very largest stocks, it's gone from like 31 times forward earnings down to under 23, like 22. Its premium to the overall market is back roughly in the zone where it was in 2018, 2019.

So it has given up that entire pandemic era kind of excess premium that was built up. I think you could say that. I mean, Apple, again, it's under 25 times, but it used to trade well below that. So I think it's still up for debate as to whether as a group they're cheap, but they are cheaper. And if overall earnings growth for the S&P 500 is considered to be at some risk, usually people latch on to some of the predictability. I think if Scott Minard is right yesterday at Guggenheim, he said if yields peak, then tech should be a buy. And that, you know, we're seeing yields come down. That's a key factor. And you could argue it's under-owned or getting there. Sure. Brent, Julian, Mike,

thank you all for joining me to talk about this tech rebound with the Dow. Now it's session highs, more than 500 points higher. We've got some breaking news on Sarah Bloom Raskin's Fed nomination. She is withdrawing it. Elon Moy with the details. Elon. Well, that's right, Sarah. Sarah Bloom Raskin is withdrawing her name from consideration as vice chair of supervision for the Federal Reserve. That's according to a source familiar with the situation. And it comes after she faced intense opposition from Senate Republicans, as well as from Senator Joe Manchin, a key Democrat who would have provided her that 50th vote she needed in order to get confirmed. Senator Manchin was opposed to her nomination because he was

concerned about her stance on energy policy and her beliefs on climate change. In a resignation letter that was obtained by The New Yorker, Sarah Bloom Raskin said that it is, it was, and is her considered view that the perils of climate change must be added to the list of serious risks that the Federal Reserve considers. So she is doubling down there on her position and her stance around climate change. She said that she had been the subject of relentless attacks by lawmakers throughout this process. Now she is withdrawing her name from consideration to the Federal Reserve Board, according to a source familiar. Guys. Well, she is welcome back on Closing Bell for her Fed Day panel.

Ilan Moy, Ilan, thank you very much. Here's a look at where things stand in the markets. We've got the Dow up more than 500 points right now. We're building on the gains that we saw earlier, 568. The only sector that's red in the market is energy. Everybody else higher. Consumer discretionary and technology lead the charge. Airline stocks are rallying hard after a number of major carriers raised their outlooks today. Up next, the CEO of Spirit Airlines on what he's forecasting. You're watching Closing Bell on CNBC. Thank you. Morgan's investor conference, saying it sees a V-shaped recovery in demand. It's seen that since President's Day. Let's bring in Spirit Airlines president and CEO Ted Christie joins us now in a Closing Bell exclusive interview. Ted, welcome to the show. Talk about what you're

seeing as far as demand and why it's better than expected. Well, thanks for having me on. Good afternoon. It has been a nice recovery out of the Omicron deaths. Just past the New Year holiday, we really saw a fall off in demand and booking activity as a result of that surge. to see demand really eclipse 2019 levels and starting to see yields get close to 2019 levels and maybe a little bit higher. So a very strong spring as we head into spring break. Coupled with that strong demand, you are seeing higher costs, obviously jet fuel front and center for you. How has that changed the economics just in this last surge that we've seen in oil prices? Well, yeah, it's frustrating, obviously, in the near term. When oil moves quickly like that, it's difficult for airlines to adjust what happens with their network and that sort of thing. But the good news, when you operate an ultra low cost business like ours, we're the most fuel efficient

business in the industry. And so as oil prices begin to climb, that actually increases our competitive advantage because we burn less fuel per seat. So it's not a good thing when input costs go up, but we're in a better position than most. What does it do for pricing? So you're seeing the strong demand and rising cost. Does that mean we, the travelers, are going to be paying higher prices? And if so, when? Well, what really drives pricing is demand. Input costs in the airline business aren't a big driver of the way prices work. What drives pricing is increased demand. And like we just talked about, there's been a lot more demand into the spring break travel period, and we're already seeing it into the summer as well, which is very encouraging. So there will be a supportive pricing as a result of all that.

But you're talking to the CEO of one of the lowest fare airlines in the industry. Our job is to keep fares low for consumers and stimulate more activity. And that's what we're really excited about doing heading into the summer. Well, you're also merging with another low cost carrier, which is Frontier, to gain scale there. There have been complaints, though. Some Democratic lawmakers do not want to see this deal go through. AOC, Senator Warren, Senator Bernie Sanders all sending a note to the transportation secretary and the antitrust regulators saying it will not result in lower prices for consumers and it will not be a friendly deal.

Look, it's a tough environment, Ted, for antitrust right now. The Biden administration has blamed corporations and monopolies for some of the inflation we're seeing. Are you going to struggle to get this deal done? We're really excited about this deal and feel very good about the case we're going to present. While there has been some, we've seen the letter as well. I think what was key in there was they were focused on if the transaction were to provide some problems with pricing or competition, then they would be concerned. And what we're excited to show is that this is actually a very pro-consumer, pro-competitive deal because you've got the two lowest cost businesses combining to drive lower fares and more growth. So we're really looking forward to giving that story.

And I think at the end of the day, our deal gets done. So just talk to us about the pricing, because I think the response or the criticism has been if you do get together and gain scale and then become more of a competitor for United or Delta, the bigger airlines, then you have room to raise prices to compete with them. Well, you start with the DNA of both businesses, which has always been about low costs, low fares, stimulation. That's going to continue post the transaction closing. And so we'll make sure we outline that to them. This is a unique deal.

This is different than any other airline merger that they have experience with. And so they may be a little bit jaded based on other transactions that have been done in the past, but we can show them what this deal is going to do for consumers, for our guests, for our team members and our shareholders. And I think they'll be supportive. I think I'll wear a mask on planes from now on. And I was just on a plane this past weekend and everybody has to wear masks, but that is set to change. The CDC is sort of postponing that decision. How does your staff feel about it? Do they want people to still wear masks? Well, it's been a challenge, obviously. It's been a difficult couple of years for all of us as we've

adjusted to the realities of the pandemic and facial coverings on board airplanes were adopted early on. There is still an FAA mandate in place today that has been extended into April. And our teams are obviously supportive of and complying with the regulation. There has been an uptick, however, in unruly passenger behavior, and it can be largely attributed to some friction associated with the facial covering. So I think when the time is right that the CDC and the FAA decide that it's time to relax the mask mandate, I think that will be received positively by the crews because I think it can cool the cabin a little bit. But until that happens, our group will make sure that they adhere to the requirements and make sure people have their facial coverings on.

Well, that would be good if we do not see unruly passengers as a result. Ted, thank you. Stocks ticking to the highs of the day on this interview. Ted Christie, CEO of Spirit. Let's check in on the markets right now. We've got just about 43 minutes left of trading. Take a look. We've got the Dow at session highs and continuing to move higher, up 600, more than 600 points right now. The S&P 500 up 2 percent. The Nasdaq's in the lead, up 2.5 percent. The chips are coming back. The S&P 500 up by 2%. The Nasdaq's in the lead up 2.5%. The chips are coming back. The software names, everything that was beaten down the hardest.

The retail and consumer names, small caps lagging up only 1%. The odds of a recession in the U.S. are rising. That's according to our latest CNBC Fed survey. So what does that mean for the market? Mike Santoli charting it out next. Up 600 points right now on the Dow. Wall Street forecasters are upping the likelihood of a recession in the next 12 months. That's according to CNBC's latest Fed survey.

Mike Santoli here with the dashboard of the day, looking at the historical path of stocks if recession is on the horizon. Yes, after a deep correction. Yeah, exactly. It's the only thing that really matters for how it goes from here. Ned Davis Research says this is all of history's at least 18% declines in the S&P 500. We have not yet gone to 18% at the recent lows, down 15%. The blue line is if there has not been a recession after that 18% decline over the next 12 months or so, you're up on average 14%.

Now, this is very intuitive, right? Obviously. So up if no recession? So all we have to do is figure out if there's going to be a recession or not. Well, is there? It's tricky. The three-month to 10-year Treasury yield is the one, when it goes negative, is the one that has predicted in a timely way the last few recessions.

And that is far, far, far from inverting. So that's at least a little bit of comfort. A lot of people look at the choose tens to your 10-year, and it is flattening. Flattening, yes. Flattening, and the flattest it's been in years. Yes. If that inverts, that's also a recession signal. It is, but usually with a longer lead time and one that has a lot more play in it,

and we still have 20-something basis points in there between the two 10. I think it remains to be seen. I think it's a less than 50% probability, though. We'll see what the Fed says about it, if anything, tomorrow. Mike, thank you. Up next, the CEO of cybersecurity firm Palo Alto Networks on the cyber risks from Russia right now and competing against Google, which is acquiring rival Mandiant. Closing bell back in a moment.

Session Eyes for the market. Shares of cybersecurity firm Palo Alto Networks up more than 50 percent over the past 12 months. But recently, the stock has come under pressure down 10 percent or so over the past two weeks, even as chatter grows around rising risks from Russia. Let's bring in today's closer in person, Palo Alto Network CEO Nikesh Arora at Post9. What a treat. Good to see you. Nice to see you as well, Sarah. So talk to us about what the threats are looking like coming to Ukraine from Russia and potentially beyond Ukraine as far as cyber. Well, Sarah, as you know, we are in something that's unconscionable in the world.

And we've been witnessing activity just even before the war started where we were beginning to see attacks into Ukraine and some Western entities that were in Ukraine. And most recently, as companies have started to react to the sanctions and started to pull out of Russia, we're beginning to see activity against some of those companies, which is still a bit low. I think Russia is not trying to pick too many battles. But I think I've never been as worried about cybersecurity as I am now, given

what I think we're going to see in the next six to 12 months. From Russia specifically? I think so. Look, in my mind, sanctions are economic warfare. We are now going to impact their economy. We're going to create damage, which is the intent, because we want to make sure they don't do what they're doing. But I can't expect that there will not be a reaction to that. And the reaction will be in some sort of cyber warfare, which is another way of inflicting reverse economic pain if they can create enough chaos or shut things down. Who's most vulnerable? The companies that have left Russia you mentioned? Well, you know, if you've noticed, the nature of cybersecurity has changed. It's gone from individual attacks where we used to look at companies which were being attacked,

data was exfiltrated, sold on the dark web, or companies were held to ransom for a few million dollars, five, up to $50 million. I think the next set of attacks will be to create chaos and shut things down, which I think are going to be... Like infrastructure? Yeah, we saw the colonial pipeline event. We could shut down the pipeline for weeks. I think imagine if that was the intent

and they were not willing to settle for economic returns or you couldn't pay them off, so they turned my systems back on. Here's a ransomware. That's a bigger risk, and I think we should all be vigilant in these times. Can we protect against it? Yes, of course. Look, this is not a new topic. You and I talked in September 2020

and we talked about nation state activity. We talked about how companies need to get ahead of this thing. The conversation is moving from the technology teams to the boardrooms. I think boards are paying attention. I think all of us are paying attention. And you saw this. We've talked about this. The pandemic exacerbated all of this as well. Right. So have you seen a ramp in spending from corporations since the war began? We have

seen more thoughtful, strategic spending around cybersecurity, which is more sort of run of the mill. Let's buy it like you buy IT. Now we see people worry about what's our cybersecurity posture. Are we going to be more secure? So we are seeing spending, which is being done in a much more thoughtful manner, as I said. You've seen the White House get involved. We've seen an executive order on cybersecurity for the first time. We saw the establishment of JCDC. So we are seeing activity, which is forcing companies to focus more. But I think still a lot more needs to be done. I guess I'm trying to figure out where you are in a very long growth cycle. You're coming up on some tough comps. Everything went online during COVID. So are we still kind of growing at those levels or was it just pulled forward? Yeah, you know, the unfortunate part is strife

and war is good for our business. You know, we are seeing more focus. We have spent three years transforming our company. We figured out more focus. We have spent three years transforming our company. We figured out where we thought the puck was going. We built a huge cloud security business. I think that's going to be the next bastion where cyber wars are going to be fought. We built a huge business which is focused on real-time prevention around applying artificial intelligence to the business. And most recently, we acquired a business which is getting a lot of attention is where we look at companies from an attacker's perspective. Because when you're doing cybersecurity, when you're in no imminent threat of danger, you kind of go make sure everything's

up and running, everything's bolstered up. Today, you're trying to see if I'm a nation state trying to attack your company, what am I looking at? The good hackers. That's exactly right. So does Wall Street understand the difference when it comes to your competition? Zscaler, we talk a lot about some of these companies, CrowdStrike. What's the difference, and do you think Wall Street gets it? I think Wall Street is slowly getting it, and it's evident in our stock price. But I think, obviously, they haven't fully got it yet.

From our perspective, we are the first cybersecurity. Two years ago when I came, I was told there is no one cybersecurity which is going to become one of our strategic partners because we have 30, we have 40. Now for the first time we're seeing companies consolidate across our three platforms. 47% of our customers use all three of our platforms. Three years ago that was one platform, another three. So we are seeing the desire for people to consolidate with one partner. We are seeing people focusing with us on a better cybersecurity option. You're going to be competing with Google now, buying Mandiant.

How do you feel about that? You know, I worked at Google for 10 years. I look forward to that discussion. But, look, Mandiant, whether you like it or not, actually September 2020 when you and I talked, we talked about a company called Crypsis, which was an incident response business. And we bought it then because we knew that you need a senior cybersecurity advisor to sit down with you, look at your posture and help you if you get attacked.

That's what Mandian does. So whether Google buys it or not, that's an essential service that's needed. I hope they do well with Google. The next thing to say about your competitor, more consolidation coming? Cybersecurity doesn't consolidate as easily as you think because a lot of the stuff that's slow growth and is old and doesn't solve the problems of today. So cybersecurity has to be forward looking. You may see acquisitions of startups and newer companies are highly unlikely that people are going to buy older cybersecurity companies. Nikesh, great to hear from you, especially right now. Thank you for having me.

Nikesh Arora, CEO of Palo Alto Networks. Take a look at the market. Continue to zoom higher here in this final hour of trade. Fresh session highs up 650 points almost on the Dow. The Nasdaq in the lead. Take a look. Up 3%. We've gone positive on the week.

Still down about 20% or so from the highs. Russell 2000 lags. It's up 1.25%. Up next, why shares of Coupa Software are getting crushed right now, what that means for the rest of the industry. And you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. We'll be right back. The big picture today, Coupa software. It's falling around 20%, even as the Nasdaq surges to session highs. In our big picture segments, we try to glean a macro message from a stock story.

For Coupa, it's slowing growth. The cloud software company posted a beat on earnings this morning, but growth is decelerating. And more importantly, guidance missed estimates. The pure play cloud names all saw their business boom during COVID, but now worries about demand being pulled forward are materializing. The bloom is coming off the rose, as Wedbush's Dan Ives says. This environment for growth, especially in the smaller cloud names, will be more challenging than during COVID when corporations had money to spend and moved

everything online. It could also be a harbinger for weakness in broader enterprise spending, Coupa down almost 20 percent. When we come back, a top analyst at Bernstein calls Peloton an unlikely hero. She'll outline why she's bullish on the stock. Plus, Jeffrey's David Zervos on the Fed's big meeting tomorrow, how it could impact the markets, those stories and more when we go inside the market zone. Day plus benchmarks, Matthew Harrigan on why he sees 30 percent upside for Zoom and Jeffrey's David Zervos on tomorrow's big Fed decision. The Fed is widely expected to raise interest rates tomorrow. Mike, you've been taking a look at how all the hawkishness from the Fed, we are expecting a rate hike, has impacted both stocks and bonds. What chart are you looking at?

Yes, Sarah, this is what's made it so tough for investors in general. You've got no help for bonds when stocks have been correcting. Take a look at this chart of the corporate bond ETF, the LQD against the S&P 500. Since the date when the Fed really did that pivot toward hawkishness, when the Fed essentially tried to redirect investor attentions toward the likelihood of a lot of hikes, that was in November, both of them down, both yesterday at the close, making a six-month low. Bespoke talks about how that's rare. Now, we're getting some relief on that today.

You've priced in a lot of hikes. You've priced in a little bit of spread widening. And so we'll see if this represents, you know, a little bit of mean reversion would work us to the upside. One thing that I think people are trying to figure out is this move in credit, which is getting a little worrisome, right? Risk is rising. That usually

leads stocks, but stocks have already had such a big move lower. So does it signal that more is coming or is it just sort of coincident now, as you say, the fact that they've diverged? It's coincident to the point where, as you suggest, credit almost followed, equities lower. That also seemed to happen in late 2018, where stocks really had to correct hard before it got the attention of fixed income. Hey, corporate balance sheets are in good shape. That's probably the reason why. But it is something we have to keep flagging and why it makes this Fed decision a little trickier because you have had the weakness in credit as well as volatility in equities. Well, one thing that is certainly easing the pressure in stocks today is crude oil, which is plunging to a two-week low after surging to a seven-year

high earlier this month. Let's bring in Amrita Sen, head of research at Energy Aspects. Amrita, did it just get too overcrowded with everyone betting on oil, or is there a fundamental shift going on here for the outlook? No, there isn't any fundamental shift. And of course, you know, it's been a 30 percent plus correction, and that is spooking the market. There are a couple of reasons. Obviously, the covid cases rising in China and expected mobility restrictions is playing a big part. But if you ask me, the biggest reason is absolutely the lack of liquidity in the market right now. Risk management is really like obviously banks and other risk management teams are putting traders under a lot of pressure. Given the volatility.

Margins have been increasing. If you look at Intercontinental Exchange, they've raised margins both for crude and for diesel. I mean, you're talking about a percentage increase, 90 percent of the front month for diesel futures in Europe. Of course, people will be forced to close out their positions when margins are being hiked to that extent. So this is genuinely just financial reasons rather than any physical market fundamentals changing. A 7 percent decline right now takes WTI to 95. I mean, we were talking about $150 crude. Why doesn't the China story make sense in that context? Because they're the top energy consumer, the top energy exporter. If they're starting to see a slowdown and already they've been hurt by the property sector.

Now the covid lockdowns. Doesn't that mean weaker demand? China was already what I shouldn't say slowing down, but China was not firing on all cylinders for pretty much all of last year. They've had breakouts before as well. They had one earlier this year. They've had several last year as well. So this is a new China hadn't even abandoned its zero COVID policy. So, sure, we've cut our Chinese demand numbers by about 170,000 barrels per day. But that's peanuts when you're talking about two to three million barrels per day of losses from Russia.

I think that's the context you've got to see it in. And our sources in China are telling us, yes, there's going to be pretty steep declines in, say, gasoline, diesel demand, 10 percent. It's only for two weeks because the government's gotten a lot better at controlling these breakouts. But yes, look, we're not expecting China to be firing on all cylinders till middle of next year anyways. So what happens next? What are your targets? I think, look, crude is going to be very volatile. It is, again, because of all these risk management issues and the lack of ability of traders to warehouse risk. But ultimately, this summer, we absolutely see prices heading higher. We are going to test the 2008 highs.

And, you know, we don't think demand really starts to fall below $160. So if rationing is required, that's where prices have to go. Amrita Sen, thank you for joining us. Another big decline for crude oil prices. Let's hit Zoom. It's given up all of its gains since the pandemic began, and then some.

Shares are down about 10% from March 2020, and that's even with a 4% gain today. This is an attractive entry point, according to our next guest, who upgraded the stock to buy from hold today. Let's bring in senior equity analyst at the benchmark company, Matthew Harrigan. Why now? Did it get just too cheap? I think it really did get too cheap. I'm startled to see it below $100, quite frankly. I think it basically just discounts the current meetings business and doesn't give them any street cred at all

for really developing more of a platform orientation over a period of time. And I still think they're very underpenetrated in the corporate global 2000 in terms of accounts that generate over $100,000 annually. So I think this is a remarkably attractive entry point here. Mike Fantoli, I feel like people have been trying to bottom pick this stock for a while, arguing that we're going to be in a hybrid work environment. Not everybody is back at the office. We're still going to rely on tools like Zoom. And it's just been one letdown after another when it comes to the earnings. So what's the other side? Well, it has. Look, I think you can actually now take a little bit of comfort in the fact that somebody, plenty of people, paid more than the current share price for Zoom in late 2019 before anybody had heard of coronavirus.

So you're no longer paying up for some kind of, you know, the world is changing type of story where we're all going to be working for home. It's much more about there's been a lot of adoption over the last couple of years, and it now has an earnings base. Yes, it's not really growing. Yes, maybe it's going to be a smaller or slower growing total market than we thought, you know, six months ago. But at least now you can value it based on on some of the results, even though, you know, that stock looks ugly. And I still think a lot of people have been burned in it. So maybe people are going to be wary for a while. Matt, you have a $124 target on the stock. Talk us through the valuation. Basically, it's just off a five-year model. And again, not giving them a lot of platform upside.

Really, to get to justify where the stock was a few months ago, still in the mid-hundreds, you really had to run the model out to the middle of the 2030s. And I think the valuation assumptions were just a little too aggressive at this point. I think this is really safe and sane here. You've also got maybe a 4.5% free cash flow yield. So to have that and have the growth upside here, which I still think is there off a great CEO and a great brand, and then just double digit growth and unified communications over a period of time, hybrid work, workflows. I think this just has a really attractive risk-reward here. So we had to discipline ourselves not to upgrade it a number of times when it imploded,

including after earnings, before earnings. But I think this is a great entry point. This may not get below. Hopefully this won't be below. No more disciplining. Yeah, you're out with the upgrade today. So, Matt, the other bear case that we hear on Zoom often is competition and bigger, stronger competition like a Microsoft with Teams and whether that's made an impact on its business. Well, yeah, Teams, Microsoft is certainly a frenemy overall.

But Teams integrates pretty well with a lot of Microsoft applications. And really, when you look at the meetings market, it's kind of a third, one third, one third, one third with WebEx and meetings. And I think that Zoom continues to have a lot of traction there for evident reasons as a global brand name and a great experience. Matt, thank you for joining us on the call today. Matt Harrigan, upgrading Zoom to buy. Well, speaking of stay-at-home stocks, a new CEO, a tighter belt, and a new supply chain strategy.

That is behind Bernstein's call today on Peloton, initiating outperform on the stock, $40 price target, about 50% upside from here. Let's bring in the analyst behind the call, Anisha Sherman, Bernstein analyst, who writes, it's time to buckle in for the ride. Anisha, thanks for joining us. Is this just a call in your faith in the new management? Hi, thanks for having me. It's less about the new management and it's more about the fact that this is still a core health, a healthy core business. It has extremely high user engagement, industry low levels of churn, and a huge TAM. And so, yes, it's decelerated from the COVID levels when people were working out 26 times per month. We're not working out that much anymore at home. But on a long run, this is still a very attractive stock with a healthy business. And the market is pricing in and all the downside. If you look at what's

priced in at the market right now, it's essentially minus 75% growth on hardware and like zero growth on subscriptions, which I think is too bearish. I mean, you have to believe that it's going to grow subscriptions a little bit beyond where it was last year. Market markets assuming it doesn't gain a single new subscriber and that hardware sales drop by 75 percent. So we think that the path from here is up and to the right. Mike Santoli, a healthy business. It certainly is not how Wall Street is pricing it, at least if you look at the stock decline from the highs. Yeah, obviously, fast money in, fast money out. I mean, we still have to have a certain leap of faith in terms of confidence when it will turn, you know, bottom line profitable

because Peloton is not being run that way now. But, you know, a billion dollars plus in trailing digital subscription revenue, just subscription revenue when you have the market cap now down below eight billion. I mean, it wasn't that long ago that the street was willing to put huge multiples on anything that seemed like subscription. Here we have the noise of the hardware, and what can we expect about future adoption? So obviously, not as easy a call as when you have present earnings, but it's, again, de-risked to a degree. And this is another situation where people in 2019, right after the IPO for Peloton, paid more than it's trading for right now. Well, Anisha, it's especially problematic when you have weak fundamentals and lack of profitability

at a time where the market is worried about Fed rate hikes and the Fed is going to get aggressive when it comes to fighting inflation. If that's the message we hear tomorrow, what happens to a stock like Peloton? Isn't that a challenge to your optimistic view? So Peloton isn't going after the consumer that's going to be most squeezed by inflation, which is a more lower income consumer, whose wallets are going to be tightened by the increases in kind of discretionary or in state. No, I guess I meant just on the valuation, the whole valuation reset, higher rates, you know, stocks, certainly unprofitable stocks,

stocks that have been inflated over the past few years have just come back down to earth and have been among the most hated. It's really been the story of the Nasdaq, but Peloton certainly in the crosshairs. Yeah, no, absolutely. I mean, Peloton was trading at kind of six plus times sales. It's now, you know, we think a fair valuation is about three times sales. The valuation has absolutely come down. But even if you put a normal kind of, you know, conservative valuation on it and you look at what the market's pricing in, it's pricing in an incredible decline in trajectory, which just doesn't seem reasonable. Anisha, thank you for joining us with the call. Bullish call on Peloton, $40 target. Stocks are rebounding right now. We've got seven minutes to go before the close. The Dow is up 630 points ahead of that much anticipated Fed decision where officials are expected to raise

rates for the first time since COVID. Let's bring in David Zervos, Jeffrey's chief market strategist. What do you think is the biggest wildcard or uncertainty, David, going into the Fed meeting? We know they're going to raise rates. We know they're going to talk about fighting inflation. What don't we know? We really don't know, Sarah, how hawkish Jay Powell is going to be in the press conference, how the discussion about the balance sheet unwind is going to get presented to us, and how the forward guidance on rates is going to be presented to us. My guess is it's going to sound a little bit more hawkish than people want it to sound. And that's going to be a little tough to digest, particularly in the fixed income markets. I think the equity market might digest it a little bit better, but it's going to be a tough

swallow. We've got a 7.9% headline CPI, and we've got a lot of supply chain issues that are now cropping up, not just because of the war, but also because of the return of COVID in China. And it just doesn't feel like they're going to sit there and go, OK, this is going to go away soon. Don't worry, I got you. That was the message last year. I think there's got to be a lot more actions than words, and I think they're ready to do it. But on the flip side, we've also got global growth that is weakening and a U.S. economy that is slowing, yes, off higher growth. But because of the very high inflation, because of the fact that Russia is basically cut off from the world and that hurts Europe,

which eventually hurts us, China's in lockdowns, the global growth picture looks very different. So I wonder if he'll strike any sort of dovish tone around that, or you just think, no, they're focused on inflation. I really don't, Sarah. I think if you look at the housing market in the United States, it's as strong as it's been since the housing bubble, and in some places a lot stronger. You look at the labor market, we've got a 3.8% unemployment rate.

We're probably through full employment. The JOLT survey is still very high. Anybody at the bottom end of the income or wealth distribution that wants to get a job can get a job very easily at a very, very good wage compared to where it was a year or two ago. I think there's one blemish on the Fed's record, and that is inflation. And I think they're going to have to do something about it. And sort of the criticisms are there. They've been pretty heavily criticized for being a little bit too slow. I think Jay, as you know, we talked about this, I think, around Jay's testimony to the Senate, the semiannual testimony, talked about Paul Volcker, and he was iconifying Paul Volcker after Senator Shelby's remarks. I think he wants to be Paul Volcker more than he

wants to be Arthur Burns. Which means that he is going to have to get very aggressive and which means that he could have to sink the economy in a recession, which is what Chair Volcker did. Mike, I'm looking at the Nasdaq up 3% right now, still 20% off the highs. If David is right and the message is a Volcker-like message, whatever it takes on inflation. Can you buy tech stocks? Well, I think the question is how much has already been essentially built into where the market finds itself before the Fed meeting. You know my mantra before Fed meetings. The stock market likes to pull itself into kind of a neutral spot right into the meeting. Well, we're right at the middle of the four-week range in the indexes at this point. So it's done that at this point.

I also wonder, you know, how it will be taken when the last dot plot of the Fed was three hikes this year. Now the market's pricing in seven. So can Powell sound net hawkish based on what they had said before? And still the market is not necessarily taking it poorly. Well, that's a good question, David. What do you think? The market has already gotten ahead of itself on this, or maybe not, but certainly expecting a pretty hawkish stance. I think the market is expecting in the rate space a relative amount of hawkishness,

although that would only take us to 175 on rates, which is where we were going into COVID with low inflation and the same unemployment rate. But it's really the balance sheet, the $5 trillion that we added in two years, where we need to see what the Fed is going to say. And, you know, Powell's been a bit wishy-washy on that. The last time he talked about it, he wasn't so hawkish. Prior to that, he was quite hawkish. So there's a lot of variables here, and I think the bottom line is for this year, the Fed is just not your friend. It was your friend in many other cases because we had that low inflation. We had that historically low inflation from the misses that we accumulated over many years. This is a Fed that kind of has

to act tough. And we got to take some tough medicine because of what happened with inflation, whether it's the Fed's fault and it's demand-driven or whether it's supply disruptions, it's that blemish on the report card that I think they've got to expunge. And it could be a little bit painful. It is a little bit painful. It feels like an LQB. It certainly has been. Yeah, it doesn't sound like that will change, according to you.

David Zervos, thank you. Agree, the balance sheet is the big wild card, what he says about it. Two minutes to go in the trading day. Mike, pretty nice rally here, more than 2% higher on the S&P. What do you see in the internals? Yeah, pretty positive on the internals, although I can predict what some of the strategists and the technical types are going to say in the morning. Yeah, it's 3 to 1 advancing versus declining volume on the New York Stock Exchange on a 2% up move.

That's perfectly fine, but it's not something that's so persuasive that says, aha, some kind of massive rush of buying interest and demand found its way to the market. So it's still a wait and see market. Still some things to prove. Didn't want to take a peek at gold going into that Fed meeting. The chart, at least over the last six months, looks like a slightly paler version of oil. That's a pretty good peak. It poked above 2000 a little less than two years ago, poked above 2000 here in the latest month. And now it's retreated quite a bit. If this is essentially something that benefits from the perception that central banks have things out of control, probably good that it's on a decline right now as the dollar goes higher as well.

Volatility index, it's easing back a little bit, still pinned at 30. People have made the point the Fed has never done an initial rate hike with the VIX anywhere near 30. So this is kind of a tricky spot no matter how you slice it, even though it is off its highs, the VIX, from the mid-30s just several days ago, Sarah. All right, less than a minute to go. To the bell. We've got 28 out of 30 Dow stocks higher right now, a pretty sizable rally. Microsoft is adding the most to the Dow, adding about 68 points. Home Depot also a big contributor to the Dow gains. Look at the S&P 500. More than 2% gains here into the close.

Every sector is positive. Consumer discretionary is your best performing sector. Energy is the only group that is lower today. The airlines are skyrocketing after a better forecast. Technology is a big winner today as well. Microsoft, Apple, all of the big cap techs. skyrocketing after a better forecast. Technology is a big winner today as well. Microsoft, Apple, all of the big cap techs. That's going to do it here for us on Closing Bell.

See you tomorrow for the most important hour of trading. We'll send it now into overtime with Scott Wapner.