Closing Bell - Closing Bell: Streaming Wars, We've Got Spirits & Bed, Bath & Beyond Takes A Bath 8/18/22

Episode Date: August 18, 2022

It was a volatile day on Wall Street as stocks staged a late-session comeback. JPMorgan Asset Management's Phil Camporeale says we're currently in "the most supportive environment for investing we have seen all year". Former TikTok CEO & Former Disney executive Kevin Mayer discusses the winners and losers in the streaming wars and why he thinks Netflix's upcoming ad-supported tier will be a success. Plus, he discusses investor Dan Loeb's new push for Disney to spin off its ESPN business and Amazon testing a TikTok-like feature. Suntory CEO Takeshi Niinami discusses whether he is seeing customers trade down to cheaper whiskeys and other spirits in this economy as well as how his company is competing in the red hot tequila market. And B. Riley Securities Susan Anderson reacts to investor Ryan Cohen's intent to sell his stake in meme stock darling Bed, Bath & Beyond just days after she downgraded the stock to sell with a $5 price target.

Stocks are stuck in a range today as earnings, data, and the Fed remain in focus. 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. Dow is the only one that's down, and really, it's unchanged. The S&P 500 up. It's a turnaround from where we started this morning. Higher now about two-tenths of one percent. Energy, technology, and utilities are your best-performing sector.

The ones that aren't doing so hot today, the defensive groups like real estate and health care financials are also in the red, and so is consumer discretionary. NASDAQ's up a quarter of one percentage point. The chip stocks are doing well. Cisco also strong off the back of earnings. But here's our chart of the day. It's Bed, Bath & Beyond pulling back sharply from its meme-driven rally after influential investor Ryan Cohen revealing his intention to sell his stake. Much more discussion about that in just a moment. Also ahead on the show today, former Disney executive and former TikTok CEO Kevin Mayer will join us in what has been a very busy week of news surrounding streaming. We'll get his thoughts on strategies from Disney, Netflix, Amazon, and others. Plus, we'll talk to the CEO of Suntory, the parent company of Jim Beam and Maker's Mark,

many other favorite brands, for his read on the high-end consumer. That stock is up 5% this year, easily outperforming the broader market. But let's kick things off with today's market dashboard, our senior markets commentator, Mike Santoli, here as always with more. What are you watching, sector leadership? Sector leadership, for sure. And also the fact that the market's able to hover here. We've been sort of on a short term basis a bit overbought after that big rally off the June lows for we're flat for the week. We're about flat for the day. Market breadth today is about 50 50 even. So we're managing to kind of levitate at these levels about one percent below the high that we saw a couple of days ago which is the high for this move now. Here's where it leaves us. You could sort of

draw a very simple trend from the January peak to about where we are right now it actually might lift a little bit higher than that that's not the straightest line. It's also where the two hundred day moving average comes and we

touched it. So this is a natural place a lot of folks would say it should pause maybe it rolls over a little bit. And I would say as long as it stays above or in the area of the early June highs, which also go all the way back to last summer when we kind of launched off at these levels just under 4,200, it's very routine. It's kind of a no-big-deal pullback if, in fact, we do even get that.

But I do find it pretty good that there's still some skepticism out there about the nature of this rally that we can feed off of for at least a little while to stay supportive. Now, in terms of the sector leadership, it's not the clearest story. Utilities making an absolute all-time high, as well as a high relative to the S&P 500. But this is a two-year look, and it shows you that utilities and industrials are exactly neck and neck. Of course, the difference being industrials much stronger through last year, had a bigger decline and have now come back a little bit. So to me, it doesn't say utilities are at an all time high. That's a super defensive market. That means the cycle's bad. That means it's all about bond proxies. Not quite because utilities, I mean, industrials have participated. Now, homebuilders, different

story. That's where the cycle is having its challenges. This big peak up here, homebuilding related. Yes, it's bounced as well. But I think that's an area where it's not quite certain that it can pick itself up and participate in the leadership of this market soon. So what what are you saying with that? It's a confusing period, whether you should be in cyclicals or defensives. I would say it's somewhat confusing. I think the messages are mixed. The U.S. economic surprises have actually improved quite a bit from low levels. So I think that's what the industrials are telling you, which is they've kind of averted an immediate real retrenchment in terms of overall activity. We got the good Philly Fed manufacturing number today better than expected. Industrial production

was at a high again this week. So it seems as if that part of the economy, however, consumer discretionary, not really showing as much just because inflation taking its toll on consumers. And it just doesn't seem like it's quite ready to be that engine. And the housing data kind of goes from bad to worse. Big part of that, yeah. Mike, stick around for this next story because we know how much you love the memesters. Shares of Bed Bath & Beyond falling hard after activist investor Ryan Cohen said in an SEC filing

that he intends to sell his stake in the company. The filing showing Cohen's RC Ventures proposed selling 9.45 million shares. We should note the stock is still up 250% in a month. Joining us now is Susan Anderson, B. Reilly's senior analyst, who just this week cut her rating on the stock to sell $5 price target, was completely ignored, Susan, as the stock then ran up to new heights. What do you think the significance of Ryan Cohen either having sold or planning to sell his stake is? Yeah, so we downgraded on Tuesday and our thesis was really a valuation.

You know, it had run up prior to that 320% and then shortly after that it came out, he had out, he had bought these calls at significantly higher prices than where the stock was trading. So, you know, I think that helped to rally the stock up even further. But I think the news that now he is looking to sell everything, you know, is obviously pressuring the stock. And our call is really based on valuation.

So we have a five dollar price target, point two times our next year's sales on an EBITDA sales basis. I would say that's pretty typical for struggling retailers that don't have profit. It's trading at 0.5 times now, which is more indicative of a healthy retailer that has profit. So, you know, we continue to think that the stock's overvalued. And I think as this meme fanatic kind of lets its air out, we'll continue to see the stock go down. I know it's almost ridiculous to put out fundamental analysis in the middle of in the middle of such a period when the stock moves 20 to 100 percent on a given day. Susan, how bad how bad a shape is Bed Bath & Beyond in right now fundamentally? Yeah. So when they

reported first quarter earnings back in late June, they missed the street significantly more than double- you know at that point in time that will deal with March and with left the company. And the CEO positions now in flux- they said at that point to that the comps for second quarter we're running down mid 20% range. They also said at that point

they expect those constant improve in the back half which we don't see that happening we have. Not seen any indication that they have improved actually we. You know heard from target and Walmart- they have been able to clear through a lot of that

excess home merchandise so. I don't think that's helping them at all- they do have you know liquidity so we estimated at the end of the first quarter they had about nine hundred million in liquidity. But they're really going to need to stop that cash burn at some point soon.

Otherwise, that could run out pretty quick. So that was Susan's take on the fundamentals, Mike. And meanwhile, what record volumes, crazy trading activity. Is this GameStop all over again? It's Echo's GameStop just in terms of the ingredients, obviously a heavily shorted stock, one that was also a household name. I think the familiarity of a lot of people with the brand and with having gone to the stores matters when you're talking about essentially this sort of populist movement of a social media stampede into a stock. Of course, the Ryan Cohen Association has Echo's with GameStop as well. So all of the ingredients are in place.

And, you know, as Susan mentioned, if you look at a trailing price to sales multiple, if you want to get fundamental, it's right in line now, I think, with like a Gap or Macy's or Kohl's. Again, struggling retailers. The issue is it doesn't account for what's happening on a forward-going basis to those sales, to Bed Bath & Beyond, which seems like it's headed for something a good deal worse than some of those other ones. So now it's kind of, in a sense, being returned to the hands of people who are probably more likely to care about the immediate business prospects, as opposed to, are we going to have this big options-driven melt-up to the upside just because somebody seems to own something? But it's still, what, three times as high as Susan's price target?

So, Susan, are you in touch with the company? The other thing that sort of reminds me of GameStop is we haven't really heard anything from the company. They're not issuing new shares as of yet, something that Kramer's been urging them to do to take advantage of this financial lifeline they've been given. They have a brand new CEO. How are they reacting to all of this? We actually talked about that in our note, too. They did have a note or a little communication or blurb out the other day that talked about they're looking, they're speaking with the banks

on, you know, restructuring their debt and figuring out ways to move forward. So I think we'll hear more when they do report the second quarter earnings. It does sound like they're working on something. OK, Susan, Mike, thank you both very much. Bed Bath & Beyond now tanking. Netflix is reportedly considering a big change in its new ad supported tier. We're going to discuss that news and a slew of other streaming headlines with former Disney and TikTok executive Kevin Mayer next.

You're watching Closing Balance AMBC. The Dow is down 11 points, S&P 500 and the Nasdaq, though, in positive territory. S&P is up a quarter, 1%. It's being led by energy, though information technology also strong. We'll be right back. The latest on Netflix. Subscribers to the new Netflix ad tier may miss out on a key feature of the streaming service. A new report saying the company will block its download feature in the new cheaper plan.

The move, of course, comes as Netflix deals with lagging subscriber growth and Disney plans to release its own ad tier later this year. But a Netflix spokesperson telling CNBC this is all speculation at this point. Joining us now is Kevin Mayer, co-CEO at Candle Media and former TikTok CEO. So much to talk to you about. We wanted to start there, Kevin, because you have been all over this move by the streamers to go into ad-supported tiers. Do you think Netflix can pull it off if they do something like this and sort of decrease the value for customers? Well, first of all, nice to be here. Thanks for having me, Sarah.

Always a pleasure. Yes, I do think they can do this. There's a massive amount of demand by advertisers for high quality premium video placement. And as the linear television audiences have shrunk so dramatically, you can find those audiences being replaced in these over-the-top, you know, S-pod services. So there's plenty of demand from the advertisers.

There are consumers who I think will feel well-served by having a lower price point option if they're willing to put up with advertisements. I think it works for consumers as a choice. It works for advertisers. The tailwinds are there from a business perspective, massive secular tailwinds. I think it's a great move and I'm sure they can pull it off. And can they pull it off and become profitable? It's really been a whole rethink by Wall Street about whether streamers can do this profitably. I think the streaming business is inherently profitable. The pricing has come up.

People are getting more judicious about their spend. They're still spending a huge amount on great entertainment product, which is where my company, Candle Media, comes in as an independent provider of that content. They're still spending a lot, but I think the growth in that spending has mitigated to some degree. And there's a renewed emphasis from Wall Street, not just on the top line subscriber number, but of course, on the bottom line. I think that's healthy.

And I think it will serve everyone's interest. And I do think, fundamentally, streaming is a profitable business. There is no reason that this shouldn't provide very stable and ongoing returns to the successful players. So does Disney just have to, I don't know, hike another four times? I've already said that for my kids,

I would pay a really high amount of money for Disney+, given their addiction to some of these movies. that is that how it's going to go. Well look there's no way it's not you don't have infinite pricing power. Look at what happened to Netflix before their last earnings call. They had a substantial price increase. I believe that the number of disconnects and the churn from that price increase surprised Netflix. I do think that, for instance, with Disney+, this is a big price move. Adding $3 to a $7.99 base price is very substantial. The graphic there says a 38% increase. I think you'll see some fallout from these price increases. I would have

expected Disney to probably price their ad-supported tier a little lower than the current price, because even at the current $7.99 in the U.S., they only added, I think, about 100,000 new net subscribers this last quarter. So you might look for some turbulence arising from this one price increase. But I do think the prices still have a ways to go. I think it'll be done over time and titrated very carefully in the future. So you thought that was a little aggressive. You alluded to the fact that they're spending less as they are focusing on profitability, all of them. Is that something that you're feeling

in your company that you're doing as the content provider? Are we seeing valuations come down for what the Netflixes and the Disneys and the Warners of the world are willing to pay? No, I think there's a flight to quality, actually. I think they're not spending less. The growth in spend is going to be mitigated. They were growing at very strong double digits in their spend, I think, for the next year or two. You might see that come down to single digits. But remember what Netflix is spending,

$17-plus billion this year, probably go up to $18 billion next year still. Disney has a whole company spending something like $30 billion on content. Just multiply that through all the different streaming services. There's a huge amount of money being spent on content. The key is having the right content, the must-have content that will attract subscribers and help retain subscribers. So branded franchises that really connect with audiences, more important than ever,

there's still a substantial competitive environment in the streaming world. And if you have the goods, like Candle Media does, we're in a great position, probably stronger than ever, actually. The other thing that's happening is this re-bundling of media. We have this anticipated combination of HBO Max and Discovery+. Disney does it. It sells a package with ESPN and Hulu and Disney Plus. Wasn't the whole promise of streaming to get away from the cable bundling?

Well, let's look at the bundling. Let's define it the right way. The cable bundling was you couldn't buy a cable package unless you bought all sorts of channels, 100 channels, 150 channels. That was the basic offering from cable. So it was a forced bundling. And there were a lot of people paying for sports that didn't like sports, people paying for certain types of entertainment that didn't like that. So there was this cross-subsidization across a very substantial subscriber base. That sort of bundling where you're forced to buy things you no longer want to consume,

I think that's the thing of the past, by and large. Look, I created that bundle at Disney with Hulu, Disney+, and ESPN+. But that was to serve subscribers. You could choose to buy a bundle at your own option and get a substantial savings on the price of the three services combined. That sort of bundling serves consumers

and it serves the providers as well. Forced bundling, where you must buy certain things to gain entry to a package, I think, by and large large that's dramatically reduced. And now it's up to the consumers to choose to bundle what they want to bundle. And I think that's a positive. So it's not a re-bundle. You reject my term of the re-bundling. Well, it's not a forced re-bundle. You don't have to buy a bunch of products. You can if it's convenient for you and the right marketing products are in place. And so if the price is lower to buy a bundle, it works for both parties. It works for the providers, they get more

subscribers and more certainty, and it works for the consumer, they get a lower price. So this type of bundling is actually a win-win for people. Got it. I'm wondering, Kevin, what you make of Dan Loeb re-entering the Disney stock and calling for some specific actions from CEO Bob Chapek, including spinning off ESPN. Do you think that Disney would ever do that? And should they? Look, Dan Loeb is a very smart guy. I don't know him that well, but I do know him. He came in and out of the Disney stock over the pandemic. I think he made a bundle on that, I would suspect, or he wouldn't be back in. I think it's a smart move. He bought when, you know, Disney has been at a cyclical low.

I think they have a great runway in front of them to increase their share price as businesses revert to normality. I think that's a good play. Whether or not they should spin ESPN, you know, there are arguments for and against, I suppose. On the one hand, sports isn't as strategically compelling to Disney as it once was. ESPN was the must-have channel of all the channels in the cable bundle. And as you were trying to get enhanced carriage terms for your other channels like ABC, like the Disney channel, like FX, like all the ABC family or Freeform, it's called now. When you wanted to bring those into a sale process to cable operators and satellite

operators, ESPN was enormously valuable. Now that everything is being disaggregated from a force bundle, as we just discussed, and ESPN will ultimately be sold over the top directly to consumers, that bundling effect that was so strategic to Disney is no longer there. So the reason to own ESPN is probably a little strategically less compelling than it was 10 years ago. On the other hand, it's still, I presume, quite profitable and it's a great cash flow engine and Disney's making a lot of investments in streaming and upgrading their theme parks and all the different businesses they're in. So it does help to have a big cash flow generating machine. You can go either way. This will come down to the judgment of the Disney management team, which they're very smart about this stuff and very disciplined.

So it will be interesting to see what happens. The other proposal on the table there from Loeb was to take control of Hulu. And you know probably better than anyone the complexities of that option for Disney to buy the remaining option of Hulu from our parent company, Comcast. What do you think happens here? Well, there is a, you know, I actually negotiated that deal too. I know. One of the last things I did at Disney

was negotiating that deal with our friends over at Comcast. And look, I think it's set up, there will be, there'll be a purchase of Disney of the rest of it in 18 months, no matter what, because there's a put call. That means that Comcast has the right to make Disney buy their share, and Disney has the right to call the share. It's going to happen. So that's happening in 18 months. What Dan said, I think if I read his letter correctly, was that he thinks it should happen sooner than that, as soon as possible, actually. Look, I think it makes a lot of

sense. I always thought Hulu was a very strategic asset for Disney alongside Disney+, which has a very pure mission. Hulu has a pure mission. ESPN+, it has its own pure mission. I think that it's nice to have those three services. You know, it's just interesting. It's a tough call. It sounds like you're in favor. And finally, Kevin, your other previous job, CEO of TikTok.

Wanted to ask you about that because in the news every day and the latest, the Wall Street Journal is reporting is that Amazon is testing out a TikTok-like feature for people to make videos in their streams of their shopping habits. And Meta is chasing Facebook and Alphabet is chasing TikTok, excuse me, and so is Alphabet. Do you think any of them will give TikTok a run for their money? Everybody wants the kind of growth and the demographic of TikTok. I think, you know, it's interesting. Obviously, TikTok is a cultural phenomenon. Its product victory is beyond argument. They have an incredible product based on artificial intelligence

and an ease and simplicity of creating decent quality videos that consumers can create. And as a feedback loop, that's a very, very powerful product. So of course, given the cultural affinity that it's been able to establish, of course, everyone wants to copy them. I don't think copying a vertical scroll short form feature is enough, though. You need to have the network effect of having a billion users on it. The users are also the content creators. So that whole universe of content creation feeding back to audience and that positivity and that flywheel, it's just hard to recreate. So I understand everyone's desire to do so. I think that some folks like Instagram are probably in a little better position to do it

because they already have that audience flow and they have a way to actually promote these videos and deliver them and make money off of them. Entrants like Amazon or others trying to do it, I think, is going to be difficult. And if they're after trying to recreate the TikTok ecosystem, good luck. I just don't see it happening. Kevin Mayer, thank you very much. We could go on all day. We'll have you back on soon. Thank you. Appreciate it. Thank you. Always a pleasure. Thanks. Candle Media, former TikTok and Disney exec, still ahead. My, what big earnings you have.

Shares of chip company Wolfspeed are sprinting higher today on the back of quarterly results. We'll talk to an analyst who just upgraded the stock and raised his target. Look at that move. Wolf is up 30%. The Dow has turned positive now. Joining the S&P and the Nasdaq, it's up 35 points. We'll be right back. Check out today's stealth movers. It's a double today.

Mattel and Hasbro, competitors. Bank of America initiating coverage of Mattel with a buy rating because the toy maker has completed its turnaround and is now in growth mode, it says. Bank of America also reinstating coverage of Hasbro with a buy rating because the company has one of its best ever content lineups, including new Marvel, Star Wars, and Dungeons and Dragons products, according to analysts. Both stocks higher today. The S&P 500 down more than 10% in 2022. But one of the areas that's working well, liquor stocks. Brown Foreman, maker brands like Jack Daniels and Finlandia up 12%.

And then there's Centauri, which makes Jim Beam, Maker's Mark, LaFroig, and other high-end liquor. It's up nearly 5%. The industry is dealing with headwinds like the rest of the economy. And some customers are beginning to trade down to cheaper options, according to some of these companies. The CEO of Suntory, Taknin Ami, joins us now. Suntory reported first-half earnings last week,

and revenue is up over 15% from the year. Tak, it's great to have you. Talk about what is driving the strength right now in this increasingly uncertain global growth environment. Definitely, our strategy of the premiumization has been so much successful to bring attention of the drinkers. So we've been working on premiumized brands. That is the key factor. Even though the headwind is ahead

and we are underway as well. And the plus supply chain affected, but we could go through those difficulties. I want to talk about both of those things, but to your strategy around premiumization, what are you seeing right now from the consumer as far as trading down

to brands that are less expensive? How much is it happening and where? I think consumers are still wanting to enjoy the premium brands. Even they do not sell, I mean, buy luxury and big stuff. So I think the tendency has been staying around.

And plus we've been increasing the quality and we put investment to either distilleries in Kentucky as well as UK. That is, I think, an appealing point for consumers. They got to know the improved quality. I think that's our strategy. What about the supply chain? Has it improved? Yes, we've been more or less increasing inventory quite earlier by catching the information that we would face challenges. And for soft drink segment, we still picking up our inventory level. So we took very early action to face up with the challenge, such as in China, such as

East Asia, which are the center of the supply chain. What are you seeing as far as trends, Tak? I feel like for a while there was this move into hard liquor, especially scotch and whiskey, which has been great for you. It feels like now tequila is having a moment. I know you have a few tequila brands, but I'm wondering if you think that it's a lasting trend or just a fad or what? I think definitely tequila trend is a key factor for us to focus on. And plus, this trend will last, you know, quite a lot.

And we have to definitely be more focused on tequila as well as American whiskey. Still, American whiskey is doing great, but we have to put more attention to tequila. Everyone on my Instagram feed is drinking agave-based tequila, so I'm not surprised to hear you say that. Talk, quick question on Japan, because we've seen the Japanese yen weaken significantly. Obviously, that's helpful for your earnings. What's it going to mean ultimately for the Japanese economy as it tries to come out of the COVID slump?

As a matter of fact, the current Japanese yen situation is not good for Japanese consumers because it's pretty much difficult for consumers to accept the price hike. So we can't increase the prices so easily because their mindset is still in deflation. So it's a huge challenge in Japan. Well, I guess good for American travelers, not so much for Japanese consumers. Tak, it's great to have you. It's like 30% off everything over there. Tak Ninami, CEO of Centauri, appreciate it. Thank you. Still to come, J.P. Morgan's Phil

Camparelli says we're currently in the, quote, most supportive environment for investing we have seen all year. He'll join us with how to play it next. What is Wall Street buzzing about today? Turkey and a shock central bank move and fears of a currency crisis all over again. Turkey's central bank cutting interest rates 100 basis points, a full percent, while most other central banks in the world are raising interest rates right now to fight inflation. And Turkey has a pretty big inflation problem, 80 percent inflation rate. But instead of fighting it like everyone else with higher rates, the central bank, directed by President Erdogan, who has fired other central bank chiefs before for not listening to him,

is going the other way to try to boost economic growth. The problem? They're wrecking their currency, which is making the Turkish people poorer. The lira is at a record low. It's a similar playbook as last year, and it raises the odds of a default. It's not the most interconnected economy, especially for the U.S., but once emerging markets do fall, it can also, it can often lead to a domino effect and can exacerbate the global growth issues.

Another problem to worry about right now. There's the strong dollar, weak Turkish lira. Keep an eye on it. Here's where we stand right now in the markets. We are accelerating some gains. The S&P is up four-tenths of a percent right now. There's the strong dollar, weak Turkish lira. Keep an eye on it. Here's where we stand right now in the markets. We are accelerating some gains. The S&P is up four tenths of a percent right now. You've got the financials just turning green, joining now consumer discretionary also in the green. You've got BorgWarner, Hasbro, MGM, Tapestry leading the charge there. Energy is the best performing sector by far. It's up two and a half percent. And the only thing that's red now is real

estate and health care. When we come back, St. Louis Fed President James Bullard throwing some cold water on all the speculation that the Federal Reserve could cut interest rates. What that could mean for the market straight ahead. Talk about a howling success. Look at shares of Wolfspeed. They're soaring 30% on strong quarterly results and guidance. Up next, an analyst who just hiked his price target on the chipmaker. That story plus Cisco climbing higher. And whether market speculation over rate cuts is premature when we take you inside the market zone.

Dow's up 54 points. We are gaining ground here in this final hour. We'll be right back. We are now in the closing bell market zone. BDA Capital CEO Barbara Duran is back to break down these crucial moments of the trading day. Welcome. We've got Frank Holland as well on Cisco and Oppenheimer's Colin Rush on Wolfspeed. We'll kick it off, though, with the broader markets and Barbara Duran. We've got the down now positive. It's at the highs of the day, 40 points up.

And the S&P 500 up a third of 1%. Barbara, this is kind of a familiar pattern. We've had some attempts at weakness this week and then a reversal. It does feel like the uptrend for this market is intact after four straight up weeks. Are you a growing believer that this could be something more lasting, perhaps a bull market? Yeah, I absolutely am, Sarah. I think it is the early stages of a bull market that really started in mid-June. And I'm not a believer in the bear market bounce theory. If you look at this current rally, we know why it's happened in terms of earnings expectations were way too low. That came in positively. Investors were under positioned.

You know, but, you know, right now you've seen a broad based rally, which usually marks the start of a sustainable rally. And you also have the market going up or holding steady on bad news, like the China news on Monday and all sorts of other things. So that usually also is an indicator of a bottom being put in. So I think we've seen the lows. I think right now a pause would be normal given how fast we've come in such a short time. The S&P is up some 17 percent, although still down 10 percent on the year. NASDAQ is up 22 percent. And this is since mid-June I'm talking about, although that is still down 17%. And the market PE is at 18%. So I think it would be normal here for investors to say, OK, what's going on? We've got the Fed meetings coming up, Jackson Hole next week. Really, how fast and how far will inflation

fall? But I don't expect it to retest the lows. And I think if there's any giveback, it'll be small. I think this is very positive action. And there's still a lot of bears catching on the sidelines that needs to be put to work. Well, Barb, one reason that people, at least the bears, aren't fully convinced is the Fed. And new this afternoon, St. Louis Fed President James Bullard

said he is leaning toward a 75 basis point hike next month, while saying that the market speculation over rate cuts is, quote, definitely premature. But at the same time, saying fears of a recession are also overblown. This coming in an interview with The Wall Street Journal. The market's currently giving about a 58 percent chance of a 50 basis point hike at the September meeting.

So this is the risk, Barb, that the Fed goes even more than expected, not just in September, but into next year where the market is pricing in cuts. Isn't that a risk to the rally? Well, yes and no. I mean, I think the market is pricing in. The Fed continues to raise rate. I think the Fed has done a great job. By most accounts, the Fed has regained their credibility in the inflation fight. And I think that's what was interesting, though, in the Fed, the quote Fed speak of a day or two ago. And that was they reiterated their commitment to fighting inflation. But they also said, hey, we're going to be data dependent, which they said the last time. And to me, that is code for we do not want to overstep here and slow down the economic

situation too much. So which I think is actually a positive thing, because my feeling is the risk here is to the upside. Inflation could subside very quickly, much more than people are expecting. Because if you look at the inflation of the last 10 years pre-COVID, the Fed had difficulty getting to 2%. Those forces are still very much in play, and that's about technology, automation, the global supply chain. But we've had huge disruptions in demand and supply. And a lot of companies, including Cisco this morning, talked about how supply constraints are easing. And so that is that rebalancing is happening. And so it may just coincide with what the Fed is doing.

And they may need to ease up sooner rather than later, but they are not about to until they see the whites of their eyes. So, you know, there is still lots of risk. And that's why a pause here would not be, you know, would not be surprising, given all the still certainties that are still out there. I'm with you. The supply chain seems to be easing. We hear that. That's the sort of maybe transitory, longer than expected transitory part of inflation. But wages and food prices and shelter rent prices not easing so much. So I think that'll be a key tell on inflation. But I do want to hit some more movers here, Barb, because Cisco is the big winner in the Dow today. After beating Wall Street's estimates on both the top and bottom lines, the company also issuing stronger than expected revenue guidance

thanks to what Barb just said, easing supply chain issues and strong services growth as well. Something CEO Chuck Robbins discussed earlier when he joined Squawk on the Street. Listen. The annualized recurring revenue, the product side was up 13 percent this quarter, which is a real indication of future software growth. And it's, you know, we're beginning to see the benefit of what we've been working on for the last five, six years and actually seeing some of this predictability come back now that supply chain is at least stabilizing and maybe easing a little bit. Frank Holland joins us, covers the stock. Frank, good revenue guidance, profit outlook, a little light. Why are investors so bullish? It's

been a while since we've seen a move like this for Cisco. Yeah, absolutely. It's really those next level metrics that Chuck Robbins just highlighted just a second ago. They kind of show the resiliency of Cisco through those major supply chain challenges, as well as the loyalty of customers. He highlighted one of them, remaining performance obligation, really a key. Right now it stands at $31 billion. This is product or services invoiced to customers that hasn't yet been realized as revenue. Of that, 54 percent is expected to be realized as revenue in the next 12 months, $17 billion. Also, annual recurring revenue, AAR, that's money being spent by current customers, that increased by 8 percent. Overall, AAR for

product, as he mentioned, increased by 13 percent. That kind of paints a picture of customers that were told, hey, you have to wait, and they were not only willing to wait, but they also continued to spend. Another encouraging sign for investors willing to wait, but they also continued to spend. Another encouraging sign for investors is how Cisco was able to withstand inflation. And probably one of your favorite phrases, Sarah, currency impact of the stronger dollar that so many other companies, including Microsoft and Salesforce, had flagged as headwinds. European and Middle Eastern sales up 8 percent. That's even with the euro falling 3 percent to the dollar during the quarter. U.S. and Asia sales down slightly.

But remember, we were also wrestling with inflation concerns, higher wages, and a lot of other factors that could have influenced tech spending. Yeah, no, I think it was the bullish demand. Robbins really sounded like there was no slowdown when he was talking this morning about U.S. and Europe and Asia. Frank Holland, Frank, thank you very much. Thank you. Check out shares of Wolfspeed. It's a developer of semiconductors.

It's adding nearly 30 percent in today's session after reporting Q4 results. Wolfspeed lost two cents a share, better than the 10 cent loss that analysts were looking for. Revenue also came in ahead of estimates, improving margins and validation of its growth story, part of what is empowering this move higher. Joining us is Colin Rush, Oppenheimer Senior Analyst. He's got a buy on the stock, raised the price target to $120 this morning. Why is this coming as such a surprise, Colin, what the company reported? There's a handful of things that are going on.

And underlying those strong results were really the benefit of some improved yield at the facility that they have in Durham. And silicon carbide is a material that is very difficult to deal with, notoriously difficult. Wolfspeed has about 60% share on the material side, and moving that through into actual semiconductors can be really challenging. So what we heard last night was, one, accelerating demand and migration from silicon to silicon carbide-based power electronics and semiconductors. And secondly, we heard that they're making real progress on technology yields at their DERM facility, which should translate into their much larger facility in Mohawk Valley, where they're going to ramp pretty aggressively. And as we look at the long-term

story, there's really substantial upside to you know earnings growth but more importantly the the yields and in what they're predicting for that facility and their their ability to scale up that facility in another facility so for for those of us that aren't as quite as well versed in silicon carbide calin what is it a play on evs yeah that's the about 75 percent of of uh the the new bookings are the new design-ins that they had. But just to put this in context, silicon carbide versus silicon can add about 15% to 20% range to any EV in the inverter. It's a really substantial efficiency measure for these vehicles. And so when you think about the amount of silicon carbide that ends up in a vehicle, which is in the hundreds of dollars, and getting that extra range out of the battery and the rest

of the material, it's a tremendous lever for all the EV makers. Raising the price target today to $120 from $105. Colin, thank you for joining us for your quick take on Wolfspeed. Colin Rush, we'll get back to the broader market because our next guest says we are currently in the most supportive environment for investing that we've seen all year. Joining us, Phil Camparelli from J.P. Morgan Asset Management. You say that now, Phil, after the S&P has already run 17 percent from the lows? Yeah, Sarah, I love the nickname. Thank you for that. I appreciate it. So when I say that, I say that on behalf of multi-asset investing and kind of a balanced approach. But one of the things that has really changed, Sarah, since the last time we spoke, has been the dramatic fall in gas prices.

And what that does is it breaks the feedback loop between high gas prices, high headline inflation, a Fed that's chasing inflation, high interest rates, and poor sentiment. That's getting broken now. The gas prices stopped rising on June 14th. Lo and behold, Sarah, that was when rates stopped rising at the same time. Because of that, we have closed our underweight two stocks. Now, we're stopping short of saying go overweight stocks because there still is some sort of shoe to drop on earnings and margins, which we're thinking about. However, on the fixed income side, really compelling. And Yogi Berra, one of my favorite Yankees, had a lot of yogisms. If he was talking about the fixed income markets, he'd be saying just because the Fed's raising rates doesn't mean rates need to rise. The Fed has moved 75 basis points, two meetings in a row, and 10-year treasury rates are 50 basis points lower, not higher.

And when you get fixed income to become a ballast back and a defensive part of your portfolio again and a diversifier, I think that improves sentiment for taking risk. The other piece here are volatility, right? So the VIX and the move index, so the VIX is equity vol, interest rate volatility and move index, have both moved lower. That is, of course, going to help sentiment. And Sarah, disinflation feels a lot better than inflation. So we've closed our underweight to stocks with neutral equities in the portfolio, and fixed income makes a lot better than inflation. So we've closed our underweight to stocks with neutral equities in the portfolio and fixed income makes a lot more sense for us right now. Barb, he's speaking your language. You're not kidding. I was saying music to my ears and I'm going to repeat that Yogi Berra quote. It's really good. But he's right. You know, you saw gas prices

coming down. That's a big part of inflation CPI. You saw the housing starts number yesterday. It was a disastrous down 9.6 percent versus two and a half percent estimated. And today we had the existing home sales. So that is taking a lot of pressure off. Pricing is still hanging up there, holding up there. But that should start to come down, too. So these are all disinflationary forces, but they are not pointing to a recession. And that's key. The market was very concerned about a recession in the not so distant past. So we're finding a nice combo here, I think, of economic slowing down, cooling down inflation. And yet, with that 3.5% unemployment rate and people working, it looks like threading the needle

in terms of a soft landing is highly possible. So one of the things, though, right, one of the things that I just want to make clear, we do not see the Fed stop. And I think that's still priced in. Right. So there's about 135 basis points left of tightening between now and the first quarter of 2023. But I continue to believe that if the Fed stays on this track of going to, you know, another 130 base points or so through the first quarter of next year, it's a much slower pace.

And I think that's something stocks can definitely handle. It's almost like a 25 basis point hike is the new pulse. And I think stocks would certainly appreciate that. Really, really quickly, Phil, what's the leadership?

Is it defensive stocks or is it cyclicals or is it tech? Yeah, if growth is scarce, because we're not talking about a gangbuster growth story. If growth is scarce, growth stocks in the S&P 500 make a lot more sense to us than what happened earlier this year when we were rotating into value away from growth. Barb, growth stocks? Totally agree. And yes, and for the same reasons in terms of economic growth, but stick to high quality cash flow growers and so on. But I totally agree with Phil. All right.

You guys are simpatico. Phil Camparelli, thank you very much. Barbara Duran, it's great to see you as well. Thanks for joining for the Market Zone. As we head into the close with a minute left of trading, you've got all four major averages higher, and the S&P 500 has gone back into positive territory for the week. It's pretty much unchanged. So tomorrow will be the determining factor. But we could be looking at our fifth week in a row higher for stocks if we continue on this

trend. The Nasdaq, it's lost a bit of steam here in the last few moments. As you can see, so did the S&P 500, but still positive. The Dow actually just turned negative. As far as what's working and powering us higher, it's energy today. Two and a half percent move higher for that sector off higher oil prices. WTI is back over 90. Technology is also strong today. And you can think the semiconductors on semi up 7 percent. Cisco also, as Frank Holland brought us, up almost 6 percent. That's a big move higher as well. So it's not actually the mega caps leading as we have seen. It's some of the other tech players. What's not working? Real estate, healthcare, communication services, and consumer discretionary just ticking into the red. It does look like we are going to

go out with a positive close, though, for all four major averages. The Russell 2000 actually leads. Small caps of 6 tenths. That's it for me on Closing Bound.