Closing Bell - Closing Bell: Wild Day On Wall Street, Retail Wreck and Kohl's Activist Investor Speaks Out 5/20/22

Episode Date: May 20, 2022

Stocks storming back in the final hour of trading. The Dow was down 617 points at session lows, but ended the day in positive territory, although it did fall for the 8th straight week, the longest losing streak since the 1920s. Truist's Keith Lerner and JMP Securities' Mark Lehmann discuss whether the recent sell off is a tremendous buying opportunity for long-term investors. Doug Ostrover, the CEO of alternative asset manager Blue Owl, reveals where he sees opportunities in this volatile market. Fast Money trader Dan Nathan says he is buying the QQQ ETF to gain exposure to beaten down big tech stocks. Retail getting wrecked this week following disappointing earnings from Walmart & Target. Fmr. Macy’s CEO Terry Lundgren explains why the current retail environment is one of the hardest he has ever seen in his career. And Kohl's activist investor Jonathan Duskin reacts to the retailer's disappointing earnings and explains why he is accusing the board of withholding material information from shareholders at its recent annual meeting.

Stocks giving up an early rally attempt with the Dow now heading for its longest weekly losing streak since the 1920s. And the S&P 500 on pace to close in bear market territory. 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. We are off the lows. Got as low as down 600 or more than that on the Dow, down about 350 or so right now. But that early rally attempt just did not hold. S&P down 1.5%. We're now down more than 4% for the week. Two sectors green right now, real estate and health care.

So defensive plays. Everybody else is lower. Consumer discretionary again at the bottom of the pack. The Nasdaq down 2.25%. It is down more than 5% on the week. And check out some of the biggest losers on the week in the S&P 500. Some shocking moves. It tells the story, though, of what went wrong this week. Retail earnings causing all sorts of concerns about broader health of corporate America and

the concerns about what inflation is doing to profits and concerns about the consumer. Look at Target losing 30 percent this week. Bath and Body Works, raw stores will hit. It's the latest of the big retailers to basically have a disastrous post-earnings move. Coming up on today's show, we will talk to the CEO of Blue Owl, which has more than $100 billion under management about the latest plunge on Wall Street and whether he sees any end in sight. Huge asset manager. Plus, we'll check out the plunge in shares of Kohl's. That 11.5% as questions emerge about whether a takeout deal will actually happen. We've got some new details for you. Plus, we will talk to the head of the

activist firm, Maselem, which just penned a scathing letter slamming Kohl's management and its board of directors, threatening legal action. Let's get straight to the market, though. Another ugly day here on Wall Street. Joining us, Keith Lerner from Truist Advisory Services and Mark Lehman from JMP Securities. Mark, you like tech stocks. Tech stocks did not do well this week. They have not done well basically since last fall. Why is now the time to get in? Well, I don't know if now is the right time. I think over time, we've been proven that being a bull on tech with the right companies has proven out there are periods obviously that have been very tough on tech. We're going through one right now.

But I think as that continues to overtake the economy, you're going to have to find entry points for some of the great companies. We mentioned some of the top of the hour. You look at Apple down 30 percent. Microsoft, there's nobody that's left unscathed. But if you have an opportunity to buy companies that are going to be durable through this market, you're going to want to pay attention down 30 percent. And that's where we're paying attention here at J&P. And everything's for sale right now. The only thing that's not in a bear market is assets under management that is being waiting to be deployed. And nobody's going to hit the first at the bottom. I think we're waiting for that window for people to put

more money to work. It has not happened yet. And I'm waiting for that. But I think if you have a chance at 30 percent off to buy the best companies in the world, you probably want to start doing that. But I'm sure it's been a painful year for you because you've liked these companies as long as I can remember. Correct. And I was here on your show in 2020 when nobody wanted to buy them in March of 2020. And I said, you know, this is going to overtake parts of our economy. And nobody wanted to pay attention then either. And so you look at some of those two year charts. People are doing just fine. You look at

anything for a year or less you're not doing fine. And so fortunately- like a lot of your investors you have to take a longer term perspective. And it's very hard to call tops and bottoms. But I think over time. You're going to want to be in

the stock so you're right. It's been very painful in twenty twenty two. It's been painful for late twenty twenty one but if you take that longer term perspective of the course of my. A career in certainly the last few years you've done really

really well remember Tesla bottomed out at thirty five dollars a share three years ago. Thirty five dollars a share. Now it's down fifty percent off its all time high we're gonna all talk about that four or five hundred points but it's

thirty five dollars a share. Three years ago where nobody's talking about that right now maybe it'll go back a lot lower. But over time, everyone's talking about how it still might be too expensive for this market, even though it is it is correct. A big loser today. Keith, I just want to bring you in here. Is Mark right to buy tech? Some of these bigger tech companies that drive the economy like an Apple or an Alphabet, 30 percent off their highs. Yeah, well, first, Sarah, great to be with you, even though it's another brutal week, as you mentioned. You know, our point of view is we're actually underweight tech. We've been

underweight several months. I don't disagree about the longer term outlook for tech as positive. But as we kind of zoom out a little bit, I mean, a lot of these names have really outperformed the market by a huge margin over the last five and 10 years. And I think tech's got a problem as far as positioning. You know, remember coming into the year, the top four or five stocks accounted for over 20 percent of the of the market. So I think that's part of the issue is heavily owned and it's still somewhat heavily owned. And we're not trying to call it tops or bottoms either. But I will say, you know, today you made a 52 week low in tech and the relative price to the market is also near a 52 week low. We'd rather And the relative price to the market is also near a 52-week low. We'd

rather see some stabilization in that before getting more aggressive. And the last point is the earning trends relative to the market, the reason why you buy tech, the earning trends are moving sideways. So we'd rather be in places like energy, where the earning trends are moving higher, where it's still relatively cheap, materials, health care, some of the areas that are still working, as opposed to trying to find something to pick a bottom intact. So you're both in the market. Neither of you actually sounds pretty downbeat or bearish on this market. I guess, Keith, the story changed this week, though. I pointed out some of the performance of retail. You know, the two things that were holding up and all these worries about interest rates and inflation and recession were corporate

America. Earnings revisions weren't that much lower. And the consumer, which we all thought was in really great shape. And those two things got questioned this week amid some of these earnings. So does that not make you change your mind about the market? Well, sorry, if you recall, we actually downgraded our view for the first time in two years in early April and stocks have moved down about double digits since that downgrade. But what we're saying to our clients today and even when we publish this morning. But it wasn't an underweight, right? It was just a sort of stay neutral. No, but we moved from an extreme positive position to more of a neutral position. And we have in our portfolios, we've reduced equities and reduced risk

every single month since February, February, March and April. But now what we're telling our investors is at least a lot of this bad news and this uncertainty is being factored in. And we wouldn't be sellers here, especially for longer term investors, because the way we look at it is we're down 20 percent. You know, if you look at an average recession, which people are concerned about, that's not our call. But obviously the risks are somewhat growing. In a recession, the average drawdown is around 29 percent. So arguably you're already pricing in about a 60 percent correction. And I do think as prices move lower, you look over the next two, three to four years, the return prospects for stocks are moving up. The only challenge that we have right now is still the Fed. And we don't have the Fed put. So I think

that's going to just continue to add volatility. But on a short term basis, we are getting oversold. And I think the risk reward is improving somewhat here short term. So, Mark, I guess you would agree with that just in terms of the tech winners that you want, you mentioned Tesla, you mentioned Apple. What about some of the higher growth names that have been harder hit, like Zoom Video is now 80 percent off the highs, DocuSign 76, PayPal 75 percent off the highs. Do you see any winners there? PayPal, you know, just around $80 eighty dollars a share Sarah as a company that is the ecosystem for the kind of payments environment that we're going to have for a while. And so I think what they own in terms of their assets that they're trading at a mid-teens multiple is a name

that you can obviously start to leg into like you said down a fair amount. But PayPal is going to be part of our payments ecosystem for a long time. And I think that's where you to play you look at docusign like you said down a great deal but that ecosystem is not changing you've had insider buying there over time and i think those are the kind of names over time that will turn to profitability in the next couple years they're certainly going to start slashing their costs slashing their r&d and i'm not saying you want to buy companies when they save their way to prosperity but i think we've had this economy where spend, spend, spend. You can always hire people. You can always spend more and get more market share. That's tempering right now. And that's a good thing for the economy. And it's actually a good thing for companies that are really the future of how we pay and how we

DocuSign and how we live our lives. And that's why I'm putting companies like Apple, like DocuSign, like PayPal that will be here for the long haul. I'm not calling a bottom here. It's impossible to do that. But you're finding great companies in an environment that's far more favorable. You went there. I picked the NASDAQ 100 names that have been hardest hit. And you like two of them, DocuSign and PayPal. Mark, Keith, thank you both for joining me today.

Have a great weekend. Thanks, Sarah. With some picks. After the break, former Macy's CEO Terry Lundgren weighs in on the brutal week for the big box names. What he expects from next week's round of retail reports. And then later, we'll talk about the market's losing streak with the CEO of Blue Owl, which has more than $100 billion under management, competes with all the giants like Blackstone and KKR. It's actually been one of the more successful SPACs as well. Dow's down about 461.

The low is down 617. We'll be right back on Closing Bell. S&P down about 1.8% right now. Check out today's stealth mover. It is Allstate, the insurance giant, one of the weakest performers in the S&P after Argus downgraded the stock from buy to hold, setting April's jump in new claims and a

smaller increase in auto rates, stock down about 3.3 percent. It's been a terrible week overall for retail after disappointing results from names like Target and Walmart. Both companies saw their worst days in the market since 1987. Another stock getting hit right now, Raw Stores. Yesterday, the off-price retailer reported earnings that missed Wall Street estimates. The company's operating margins were hit by higher transportation and labor costs, a common theme among many retail earnings this week. Plus, they missed on sales. Joining us now is Terry Lundgren, founder and CEO of TJL Advisors, former Macy's CEO and chairman, longtime retailer. Terry, what did we learn about the consumer this week? Well, the truth is, Sarah, about 70 percent of the retail retailers who announced first quarter earnings, it beat or met or beat top line expectations. Several of them missed the

bottom line expectations, however, and they got crushed. And so I think the market is just waiting for some sign that we're heading towards some negative news here. And we got it. We got it from the big guys. And frankly, I was not expecting the shortfall in earnings from both Walmart and Target. But as I've digested all of this information for the last few days, it does appear to me that there still is consumer demand out there. The consumer is ready to spend. You've still got $4 trillion more versus pre-COVID in terms of savings. It is coming down, but there's money to be spent. So I'm somewhat optimistic still about certain categories of the business returning with positive performance. Well, that's the key. What we learned from these companies listening to their calls and digging into some of the sales numbers, Terry,

is that she is shifting her spending away from discretionary items like TVs. We'll see what Best Buy shows next week. And into staples because inflation is really starting to bite. And I think it took the market by surprise that that is happening now because all we were hearing was the consumer's in great shape. Things are going swimmingly. Right. Well, a couple of a couple of detail notes here, and that is what we're all looking at is the aggregate of the of the quarter, February, March, April. February, March was actually fairly good. The tail end of March weakened and April was not good at all. And there was clearly a weather impact. People don't like to talk about that. I didn't like to talk about it when I was running

companies. But the fact of the matter is it does impact performance of apparel in particular. And so when you have the coldest March in April in the last 20 years, it definitely has an impact on sales. But I've also heard from those who are making comments, Sarah, that May got better. And so is there starting to see that shift back for those other categories that didn't perform as well, as you pointed out, during COVID? The ones that did perform well, the home business, home office, furniture, all those subjects we know, electronics, we've got those now. Yeah, it's not happening anymore. What don't we have?

And obviously, we haven't needed apparel except for maybe the waist up for the last couple of years. And I think that's still got an opportunity for an improvement when we do return to the office. And even if that's only three days a week. Yeah, not not active wear, which actually I think hurt Kohl's yesterday. But anyway, Terry, just on the profit side of things, because that was, to your point, pretty worrisome for the street. And I think really surprised people just the magnitude of the misses from some of these companies. You have led Macy's and other retailers for, I don't know, how many years? Have you ever seen a cycle and challenges like this?

This is a hard one. I can tell you this. I spent an awful lot of my career focusing on the details of planning and trying to get it right. And I would say to one buyer, okay, I'm all over you in your category. Let's go. Let's roll the dice. Let's take a big move here and go forward. That doesn't mean everybody. I'm over here. I'm talking to this group. Not so much over here. And in fact, I'm planning you down. And so I've spent a lot of time focusing on those details. And what I'm seeing out there is this is one of the hardest times to actually plan performance

by category that I've seen in my career. And so I think that's what's happening. I think some have planned better than others, but I think that's what's happening. I think some have planned better than others, but I think it's gonna continue to be complicated planning for, and by the way, the supply chain issue, which you and I have talked about in the past, was difficult, obviously, and it was in the news last year. Well, it takes about six months for that inventory to actually get produced and shipped

and arrive into the store. So you're seeing that show up on the shelves, or as I said, not show and shipped and arrive into the store. So you're seeing that show up on the shelves, or as I said, not show up in some cases on the shelves now. And that's another issue that's going to continue because I think Shanghai is one of the biggest ports in the world. And it's been basically out of business for months. But it's not just the supply chain, Terry. And there were some questions about whether it was poor execution here because there were other issues like overhiring and wages and sort of managing the staff levels, marking down inventories. Those sort of issues raise concerns about execution, don't they? They totally do.

And that's planning for me. You know, you have to plan that up front. You plan your costs. You plan your inventory. You plan your costs, you plan your inventory, you plan your receipt pattern. By the way, you're going to take some risks in doing so, but I think over time you get some experience about these patterns, and I think the ones who have planned most effectively have been able to manage that. I do think that the inventory buildup is a concern, at least in many of the categories I supervised for my

career, often are cyclical and seasonal. And I think if you've got the wrong inventory coming at the wrong time, man, you are in trouble for some period of time. It takes a while to get out of those difficulties. It doesn't disappear overnight. So who are the winners in this environment? I'm just looking today, VF Corp is at the top of the S&P off earnings. TJX had a really good quarter. They were rewarded. How do you spot those companies? Where do you see them? You know, I actually think, as I started to talk about earlier, is that I think the ones who are in the categories that haven't really fully been reported by the retailers that have been reporting so far, those who are catering to the consumer who's going to purchase items, including apparel, for travel,

when they start traveling again, when business travelers begin to get back on airplanes and travel, they're going to need more wardrobe changes when you see people coming back into the office. That business, I think all those businesses are going to benefit from that. I think VF Corporation is one of those, frankly. And I think, you know, Dillard's, I mean, their stock is getting slammed, but they were up 23%. I mean, kind of blew me away. And they're in all those categories that I just mentioned. I think beauty will benefit from from this return as well. That's an interesting strategy. Well, we'll see. We've got a bunch more retail reporting next week. Terry, thank you. Have a good weekend. Terry Lundgren, former CEO, longtime CEO of Macy's.

Show you where we are in the markets. We're down about 400 or so on the Dow. S&P is down one and a half percent. So we've actually come back a little bit off the worst levels of the markets. We're down about 400 or so on the Dow. S&P is down one and a half percent. So we've actually come back a little bit off the worst levels of the session. Real estate's your only positive sector. Health care is holding up pretty well. And so are consumer staples, consumer discretionary at the bottom of the pack. But today, that's largely a story of Tesla, which we'll talk about a little bit later. Big tech is getting hit again. Industrials are also at the bottom of the market today. The Nasdaq down two and a quarter percent. Coming up, we'll talk to Jonathan Duskin.

He is the activist who just wrote a scathing letter slamming Kohl's board and its management, saying they withheld material information from shareholders and raised the possibility of legal action. You'll want to hear from him next. As we head to break, check out some of today's top search tickers on CNBC.com. Ten-year yield right on top. Yields are coming down. There is buying of Treasury. Second week in a row we've seen this as the concern on Wall Street shifts

from inflation and higher rates to growth and slowdown. 2.75 on the 10-year. There's Tesla down almost 10 percent. Apple, again, rough week, down 2 percent. The S&P 500 and the Dow rounding out the list. We'll be right back. S&P 500 down 1.6 percent as we speak, tracking for a weekly decline now of about four and a half, a little more than that percent. That's the seventh week in a row of declines. Bob Bassani here to break down the NYSE's big movers. Frank Holland also joins us to take a look at the moves in cloud and cyber stocks in particular. Bob, let's start with you. What are you watching? Well, the important thing is, while tech was briefly up for the week or outperforming, I should say, not up, it's not the case here. So the mega cap tech names are continuing to decline middle of the day. No particular reason why they're getting hit today, but AMD, NVIDIA and the semiconductors and particularly Apple and Microsoft,

both of which are down the 25 to 26 percent range for their 52-week high. So they're already in bear market territory. Elsewhere, the important thing I've been pointing out is there's two sectors that continue to hold up very well. This week, we saw consumer staples fall apart. There were three. Now there's two sectors. Energy stocks continuing to hold up comparatively well with oil 110, 113 or so. Marathon, Apache, Exxon was at a 52-week high. Chevron's the best performer in the Dow this year, up about 40%. The other sector still holding up is big pharma, not biotech, big pharma. Merck was at a new high a couple days ago.

Johnson & Johnson's been holding up very well. Bristol-Myers, Lilly, all fractionally off of their 52-week highs, a few percentage points. Those two sectors continue to hold up. The bears say eventually they may too fall apart, but right now they're holding up quite well. Just want to put up a point here about the Dow, the S&P from S&P Dow Jones Indices, Sarah. They're making a call on the bear market here. If the index closes at 3827 or below, we will classify January 3rd, 2022 as the ending date of the bull market and the starting date of the bear market, 3837. S&P, as you can see right now, at 3843, Sarah. So just six points or so above that. That just came out a little more than an hour ago from S&P Dow Jones indices.

Sarah, back to you. Yeah, so that's 20 percent from the highs, right? You're saying close below that? That's right. And their point is if we hit that, if we close there, that will, January 3rd, which was the old 52-week high, will mark the end of the bull market and the start of the bear market. If we end below that figure, that 38, 37. That's right. Yeah, it's been a rough ride since then. Bob, thanks. Bob Bassani. Let's get to Frank Holland now on the rough week for cloud and cyber stocks.

Frank. Yeah, another rough week in this sector. The WCLD cloud computing ETF will finish with its seventh straight negative week. Interest rate pressure, sky-high valuations, geopolitical uncertainty among the factors hitting the top of the stack. Those are cloud names built on top of hyperscalers like an Amazon and Google and a Microsoft. For example, Datadog. I've heard you talk about this stock a lot this week, Sarah. Down 16% this week, now 54% off of its high. Cloudflare down 18%, forward PE of almost 2,800. Snowflake with earnings next week, down double digits this week, almost 900 times forward earnings, also 75% off of its high. Cyber stocks really the one area working today after a very strong report from Palo Alto Networks. It's the best performer in the Nasdaq 100 today after earnings

where CEO Nikesh Arora said demand is up because of the Ukraine war. The company actually raised guidance well above what the street was expecting. Tenable and Sentinel One also gaining a percent, kind of moving positively after that report. Back over to you. Frank Holland. Frank, thank you. For more on today's sell-off, let's bring in Doug Ostrovery, Blue Owl co-founder and CEO. Blue Owl is an alternative asset management firm which just had its investor day today. Doug, thank you for joining us. It's good to talk to you again. Well, it's nice to be back.

And I was hoping for a big update with our investor day, but I see now that I've come on the air, our stock is actually up 3 cents on the day. So I will take that as a victory. All right, Doug. So tell us how the volatility and the changing rate environment is impacting your business. Well, listen, you know, I was listening to the show before I came on. And, you know, we are not in the equity markets.

We are an alternative business. We focus on three core categories. We have a direct lending business, which I'll touch on in a moment, which is actually benefiting in this environment. We have a GP solutions business where we take stakes in very large cap alternative managers. And we have a triple net lease business. And I have to tell you, when we talked about this today at Investor Day, you know, a lot of companies are coming out and lowering guidance. And there's obviously a lot of headwinds. We actually have a lot of tailwinds in our business. And so we upped guidance today.

And I'd say people came away pretty pleased. Let me just comment one thing on what we're seeing on lending, because that's our biggest vertical. You know, as rates go higher, you know, one of the benefits for us is all of our debt, all the loans we make are senior secured and floating rate. And so our investors benefit. We float off of three month or sixmonth LIBOR or SOFR. And so our investors are getting higher and higher returns. The second part of this is with so much volatility, so much uncertainty, the banks have pulled back. They started to pull back.

You'll remember this. In 2008, it's gone on for a long time. But right now, if a company is asking for a bank to put a commitment on their books, how does the bank do that? Because their goal is to turn around and lay it off. So you step in there. Yeah, and we're in it for the long haul. And you've probably seen that, you know, recently we led a deal for a company called Anaplan with Toma Bravo. You know, this is a buyout. Toma Bravo is buying a world-class software business, $10-plus billion. This is software. You see more of those, Doug, as the software valuations have come down? We, I mean, we have announced three, and I can tell you we are working on quite a few deals. And the size of those deals range from a couple billion

to well in excess of $10 billion. Think about that. Like a few years ago, would you ever thought that direct lenders would be in a position to be stepping in and providing the capital to buyouts, you know, greater than $10 billion? But that is the case today. And if the market stays volatile, I think, I think, yeah, I think more opportunities. Well, yeah. So, so, so tell us about the dividend, which a lot of people like your stock for growing it. How much confidence that you have that you will not have to cut the dividend in this uncertain environment? Well, for us, cutting the dividend, it would be, in my mind, nearly impossible. And the reason for that is, you know,

95% of our revenue comes from permanent capital streams and all of our income comes from management fees. So think about a long-dated pool of capital where all of the revenue is from management fee. So just to give you a great example, I laid this out at Investor Day today. We did $523 million of distributable earnings last year. We will earn that $523 million for the next 10, 15, 20 years. So the question is, how do we grow it? Well, we have other pools of capital we'll deploy and start earning fees, and that will roll into that

annuity. Can we grow beyond that and then continue to look for accretive acquisitions? So just to give you an idea, today we talked about getting to a dollar dividend per share. So I'll ask you a question. If we get to a dollar dividend to share, can you see any scenario off of permanent capital, long dated pools of capital, where we can trade at 10 or 11 dollars? I just don't see it. It's a CEO's guarantee. Well, speaking of your training, I was going to mention, you know, SPACs have had a really rough time. And I feel like you're one of the few that might, I don't, did you ever break below $10 that didn't trade below the issue price? Why is that? Well, you're right. I think the SPAC index is down about 80%. But, you know, we use the SPAC as a way to get public. And it's

really in the rearview mirror for me and for our team. You know, we look at ourselves as the newest large scale alternative asset manager. And, you know, we don't think we should be judged on the route, how we went public, but rather what are the fundamentals of our business? And I can tell you that, you know, we think we have something that is differentiated, unique versus all the other alternative managers in the marketplace. What about the IPO market freezing up? Does that affect you at all? Are you involved in any of those deals? Well, the IPO market freezing up is actually a benefit for us. You know, if you're not going to go public, but you need funding, we have lots of ways here at Blueout to provide capital to you. If you're an alternative manager and you were thinking of going public,

you know, we have the largest player in GP stakes. We can come and take a stake in your business, give you that capital while you wait to go public. If you're sitting with unencumbered real estate through our triple met lease product, we can come in and write very large checks to free up capital. And as I said, we are one of the largest lenders in the market. So another source of funding is for us to step in and provide capital. I will mention just one quick area. We are one of the largest lenders today to the software space. It's been incredible for us. 20 billion of loans, never had a default, nothing in arrears. The fund has generated about a 15% gross return. We focus on two areas. One is we provide capital for new buyouts,

but we also work with companies still sitting on the balance sheets or in the funds of the VC community. And think about a company that is growing and is used to always doing the next up round. Well, we're in a position to come in when markets flatten out or like they are today, where values have come down, where we can come work with that company and come up with a bespoke solution to meet their funding needs. Doug, it's an interesting place to be in this market with all this with us happening and an interesting time to be raising your guidance. Thank you for joining us on Investor Day. Thanks for having me. Blue Owl. I've got some new reporting to share with you here on the Kohl's sales saga. Speaking

of deals, the major bidders are now sitting on the sidelines. A person close to the process telling me that the company has been informed today that a deal cannot be financed in the 60s. Remember, back in February, Kohl's reportedly rejected a bid for $64 a share, claiming it was too low. Well, now the lenders, I'm told, do not have confidence in the numbers that the company is reporting after the earnings yesterday. And in this deal, it's a big one. Lenders are required. Everyone, bidders and their financiers, were pretty shocked, I'm told, by the surprise miss on sales and the lowered guidance yesterday. Yes, it happened to Walmart and Target earlier in the week. But unlike Kohl's, they're not involved in a sale process, constantly engaged with the bankers and the bidders. I did reach out to Kohl's for comment, did not get one. Now, I can tell you that

according to sources, nobody has officially walked away from this process, but that the big players that were doing the most due diligence here on this deal are now officially on the sidelines, and the prominent retail bidders are on hold. Now, prior reports have indicated Hudson's Bay, Brookfield and Simon Property Group, Sycamore Partners. Those have been the top bidders. Coal shares have been down all day long. They're down now about 12.5%. Another factor weighing on that stock today, a scathing letter from shareholder McKellum calling coal's earnings results, quote, extremely disappointing. It went on to say it was alarming to learn yesterday that the current board appears to have withheld material information from shareholders about the state of coals in the lead up to this year's pivotal annual meeting.

And, quote, we are actively exploring claims against the board and will take legal action if necessary to protect our interests as a major long-term shareholder and the interests of our fellow shareholders. Joining us now for an exclusive interview is McCallum Capital Management CEO Jonathan Duskin. It's great to have you here today. I don't even know where to begin. How about what I just reported, Jonathan, the fact that the major biddlers, I can tell you, according to really well-placed sources, are telling this company

they're on the sidelines because they can't get the financing. Sarah, this is the first I've heard of that. It's obviously disappointing to hear. I'm a little surprised by that. I've heard slightly different things. And I think you made the point about financing. Remember that so much of this transaction is going to be financed by the real estate that the company owns. So I don't know how reliant it is on the debt markets. If we're talking about pick your price, but $9 billion, five or six of those could easily come from the real estate. So the amount of leverage that they would need to finance this is actually relatively small. It might be one turn of leverage on EBITDA. So that's not significant. But I don't doubt what you say that people are surprised and shocked and disappointed and

want to kind of circle back and make sure they understand what they're underwriting, because those numbers, as we point out, were disappointing. And obviously, the company sat on material information and didn't share it with their investors. It doesn't sound like they shared it with the potential buyers. So I do feel like this is such a failure of leadership and governance that they could even be in this position. Remember, they had these offers back in January and they rejected them. And, you know, had they, you know, moved forward, you know, and not, you know, put a poison pill in and done all the things they've done to entrench themselves and focus on trying to maximize shareholder value, this company could have been sold a month or two ago. Right. So it's now in the 40s. And so what I'm told is that a deal can't get done in the 60s, can't get financed now in the 60s. So what is your plan of action here? You've threatened

legal action. Why don't you just walk away from the stock? Well, you know, we ran a campaign two years ago. We think Kohl's is a good company, could be a great company. We see tremendous value here. We think it them. Even some of the companies have had hiccups, as you pointed to, a Walmart or a Target, those companies are still up pretty significantly from pre-pandemic levels. And even their sales were okay when they reported they had some problems with gross margin and too much inventory, but Kohl's sales were negative. And so for us, we actually, we're long-term holders. We want to create long-term value. And we see a real opportunity to get the right board in there and the right board management configuration. We didn't even touch on the two of the top four senior executives leaving. So we think one of them was announced that they were going to DSW today.

So I think that cleared some something up. You know, look, I'm I'm a little bit skeptical. I Doug, I believe was Doug Howe had a 18 million dollar change of control provision. He had a nine million dollar severance package. I'm not sure what all conversations took place, but it seems like Doug might have been given the signal that maybe he wasn't going to make it and perhaps started looking. I don't know why you'd leave a $20 billion company to go to a $3 billion company unless you really were trying to preempt the inevitable. So what is your end game here? Are you just pushing for a sale at any cost? How does that play into your value? No, Sarah, I think that's a fair question. You know, when we started this campaign, M&A wasn't on the table.

We nominated great directors. We put Tom Kingsbury on the board last year, one of the, you know, great retail CEOs in the country, turned Burlington around. So our intent was to help this company be a better company and create long-term value. Unfortunately, given the dysfunction in the boardroom, the mismanagement by the executives, you know, they've put the company in an unusual space, difficult space. And, you know, I really think we have to see what these offers are. It's hard to know, you know, what to compare it against, right? And it's hard to know the validity of their own plan. And that's why we think this company really needs to kind of acknowledge that they did withhold material information and realize that this whole election was likely to be invalidated and they're going to have to go to get a vote again now that

everybody has the information. You're talking about the investor, you only received 10% of the vote. Do you really think that would that would have been materially different? So I personally only received 10 percent of the vote, but our two nominees that I recommended for received 40 percent of the vote. And we were very close to getting them on the board. And I'm I mean, you tell me if you had the information today before the vote, you don't think you might have voted differently, that this company was going to materially miss numbers, have significant drain in their cash. They burned a billion dollars of cash. They were losing their chief merchant. You know, Jeff Cantor was the head merchant for Macy's. You don't think as a shareholder you might have liked to know that their chief merchant was leaving and maybe Jeff Cantor was the head merchant at Macy's who's been taking market share for polls for a decade.

Might have been a good addition. Agree. I don't know when any of that came to light or when they knew that. But I do think that, you know, there were they were not the only one that surprised this week. We'll just say with Walmart and Target and there were plenty of calls that they should have warned. Jonathan, quick final comment. And then we've got to get to the Dow, which is coming back in a big way right now. About to go positive. Yeah, Sarah, I think that my final point would be that those other companies weren't in the middle of a contested election. This company came out and misled investors and told the story that things were great and they were doing really well and vote for them and keep them in control.

And that they were trying to sell the business as well. It looks like they've failed on almost every count. Jonathan Duskin, thank you for joining me on a big Tuesday for Kohl's. We'll stay on top of it. We are going straight into the closing bell market zone. Risk reversal advisors principal and fast money trader Dan Nathan

is here with me to break down these crucial moments of the trading day. Subbing in for Mike Santoli. Good luck, Dan. Big shoes to fill. Stocks are well off their worst levels, gaining into the close here. All three major averages, though, still tracking for weekly losses. Down seven weeks in a row on the S&P 500. But look at this reversal, Dan. What does that tell you? We had a bounce attempt at the open, then lost it all,

got down more than 600 points, and here we are, climbing into the close into a weekend. Yeah, one word, Sarah, it's Apple. I mean, if you think about it, you just quoted the Dow. I don't look a whole heck of a lot of the Dow, but you look at that's the largest component, you know, in the S&P 500. It's not the largest component of the Dow, but it's having its way back to break even here. And it looked a little nasty. You know, this stock had been this week, in my opinion, a real leading indicator about where the broad market was going to go. We had a day, I think it was yesterday, when the stock was down, you know, a couple percent when the major indices were unchanged.

It was just telling me that investors are starting to get around to some of the stocks that they were holding onto very dearly. But at some point, we're looking to raise some cash, and that was the last place to do it. One stock that is not making a comeback today is John Deere, heavy equipment maker, beating Wall Street estimates. But the company missed on revenue because of weaker than expected sales of tractors and other small agricultural machinery. Our Seema Modi joins us. Seema, over the last year, John Deere has managed supply chain issues pretty well, and the stock has outperformed. It's been a best beneficiary of all the tightness in the markets for agriculture. So what happened? Sarah, you're right. This was a surprise miss from John Deere. It's been regarded as one of

those industrials that has been able to manage supply chain and inflation issues much better than its competitors. This quarter, a different story. Over a billion dollars of inventory in house, inability to procure the parts that it needs, leaving it with incomplete machinery. The demand story does remain strong. Yes, farmers are feeling the pinch with fertilizer prices up, but its backlog suggests orders are there. The smaller tractor business, this tends to be a bit more tied to the housing market. People sitting on a lot of land, they like those lawnmowers you can sit on. Deere says that market, though,

is being impacted by higher interest rates. The stock now on pace for its worst day in two years, Sarah. So, yes, the market may be off the lows of the session, but this stock's still down about 11 percent with a price to earnings ratio of 15 times, which is back to levels not seen again since 2020. Do you buy it, Dan? Down 11.2 percent? No. Why? No, no. And you don't buy this. You don't buy Cisco. You don't like those are two negative revenue reports here. And, you know, again, I think the way that you just kind of segue that to SEMA is really interesting. These are companies that have managed the supply chain issues pretty well. Here's another one that has done that. Tesla. Remember that report that they had about a month ago? Well, they're not likely to do that again in this current quarter.

And we've just seen one prominent analyst at Morgan Stanley raise the red flag on that. Another name, Apple, that we just talked about. They managed supply chain issues pretty well in that last quarter. Not likely to happen here in the Q2. But here's the thing. If we keep saying that demand's good, OK, well, let me tell you something. What I took away from Target this week is that consumer demand is changing right before our eyes here. And whether we want to recognize it or not, I just think that, you know, if you're going to give these companies the benefit of the doubt, when we've just had about six major U.S. companies, you know, disappoint on for a whole host of different reasons. And you want to explain it away on inflation and supply chain issues.

I think you're doing this game wrong a little bit. So to me, I think we're probably closer to the start of these sorts of warnings than we are to the end of them. But Seema, on demand, didn't Deere say that it was strong, that it was so strong it couldn't even need it because of the supply issues? That's exactly right. It's not that demand wasn't strong for farmers. It just doesn't have the ability to sell the products that are in demand for farmers because it's dealing with these supply chain issues. But I think Dan raises a great point.

Is this a company that's just saying that's the story or is there more to it with, you know, now the backlog much larger than expected and the supply chain issues certainly not confined to Deere, General Electric, Caterpillar, among other industrials, 3M, citing those very issues. So you've got to wonder whether this company is positioned uniquely compared to its peers, if not. Let's hit Amazon. Seema, thank you. Seema Modi. Amazon, briefly back in positive territory. Citigroup removing the stock today from its focus list, citing inflationary headwinds impacting the consumer, though the firm remains overweight on the stock, noting that Amazon remains well-positioned to reaccelerate retail growth in the second half of the year.

Joining us now, Ron Josie, City Managing Director for Internet Equity Research. So you still like it, but don't expect it to be a big winner. Ron, walk us through the call. Well, Sarah, you know, we're looking at call it near term, longer term catalysts overall and call it the next couple of weeks in the 2Q. We just heard a segment around more difficult comps impact on demand. We just got off of earnings this week with Walmart and Target. And so there's a lot of concerns going on there. But when we fundamentally take a step back and look at where our numbers are on Amazon and think about what might happen this coming year with Prime Day in July, holidays coming up, and really our view that Amazon can absorb much of those or much of those $6 billion of incremental costs they

highlighted in one queue by the end of this year and easier comps in the back half, we're believers that you are going to see reacceleration even if consumer becomes even weaker than what we're seeing or hearing about today. So while we took it off the focus list, that doesn't change our conviction on the story at all. And what about the other part of Amazon, which is the web services business? I feel like this week really started to, concerns materialized about IT spending and what that would do to the bigger cloud players like a Microsoft and Amazon. Yeah, I mean, it's almost coming at it

from a lot of different angles. And frankly, a lot of our bull case on Amazon is that you are exposed to e-commerce, video, online advertising, of course, the cloud. You know, it's interesting. There's a few different dynamics going on with the cloud overall. Of Amazon's core businesses, we probably feel best about AWS, to be honest,

understood about where tech budgets might go. But the overwhelming view and thesis of ours is that everything's moving to the cloud. That's not stopping anytime soon. In fact, it's probably accelerating for a variety of reasons, one of them being cost savings, just from as an organization looks to be more efficient. And so AWS is one that we're less concerned about on the retail side. That's where we're hearing more of the concern. And our view here is that comps are going to get better. And frankly, even if the consumer does weaken, this is a time in what we've seen in the past where Amazon gains wallet share and emerges on the outside, on the other side, a lot better. So do you agree, Dan, with Ron, that it's a good opportunity? Ron has a $4,100 price target. The stock is trading just above $2,100.

Yeah, I mean, obviously, that's a little high. He's going to bring that down, right, Ron? But here's the deal. I think expectations remain very high, at least among Wall Street analysts. There's 60 analysts that cover it, 58 of them rated a buy. The stock topped out last year. It happened to be to the week that Jeff Bezos stepped down. OK, so here we are down 43 percent here. They overbilled. They overspent. They know a lot of the inflationary pressures, wage pressures, all that sort of stuff. I think that if you want to take the playbook of Satya Nadella and Sundar and Tim Cook, that Andy Jazzy is going to put his imprint on this company over the next couple of years here. And I think that down 40 some percent here, I think that this is where you want to start thinking about owning a stock like Amazon for the next 10 years.

Might it go lower? Of course it might go lower. The whole market is a bit of a mess right here. This is where you want to start thinking about owning a stock like Amazon for the next 10 years. Might it go lower? Of course it might go lower. The whole market is a bit of a mess right here. But I think Amazon trashed it, but then said to buy it. Well, but I'll tell you what I'm doing, Sarah. The last time I was on with you, you know how I'm getting exposure to some of these big names. I'm buying the Q's. I'm starting to nibble at them down here, down 30 percent. We know that Microsoft, Apple, Google and Amazon make up more than 35 percent of the weight of that ETF. I don't really need the idiosyncratic risk in some of these names and what might be a very difficult next few months. But I like the idea of averaging into an index that is very levered to these handful of names. Nibbling on the cues. Ron Jossie, thank you for joining us from Citi on the call today.

Want to also stick with tech and hit the semiconductor and chip equipment stocks because they're big underperformers today and a big drag on the NASDAQ. Christina Partsenevelos joins us. Christina, applied materials earnings report seemed to trigger a lot of today's drop. What did we learn there? Yeah, it's because applied materials, they make chip equipment. And they said that it's not because of demand that they're reviewing their guidance and lowering their guidance it's because of supply issues so even the chip equipment manufacturer is not spared from this supply constraint and this comes at a time when a lot of companies are creating foundries so think of it like manufacturing hubs intel taiwan semiconductors the latest one too there was a report saying that they're going to be building a hug a hub

in singapore these hubs require equipment. So it's a trickle-down effect. A longer-term fear that a conversation is coming up a lot with Wall Street analysts is the oversupply in 2023. Because these foundries are coming online in the next few years, are we going to have an abundance of chips later on? And then two other issues are product-specific GPU units. So these are graphic processing units. The prices are coming down. It seems like supply is a little bit flattening out a little bit. So this could weigh heavily on NVIDIA as well as AMD. NVIDIA right now is the second largest point impact drag on the NASDAQ. And then last but not least, some

major Chinese phone makers are reducing their outlooks. Xiaomi is one of them and the Apple SE2 in China. So this is a concern about demand going forward for those that have exposure to smartphones. Christina Partsenevelos, thank you for running us through all of that. You know, Dan, the quote from management in the AMAT report, demand for applied materials, products and services has never been stronger, yet we remain constrained by ongoing supply chain issues, which once would have been sort of forgiven by the market and considered transitory, not so much anymore. What do you do with these stocks? Right. So demand, demand, demand. We keep hearing this, right? And so you just said about some of those retailers in that last segment that these companies, they should have been able to forecast better or they

might have worn earlier. So if we know that they have this lack of visibility, OK, and we keep hearing the only positive thing they could say is that demand is really strong. What do you think the likelihood is in the current environment that we're in where large parts of China are locked down, where Europe's likely to be in a recession really soon because they have a shooting war, where we are halfway to a recession here, where the U.S. dollar year over year is up massively. Right. I mean, the list goes on and on and on here. Right. So, I mean, the point is, is like, I don't think you can trust those statements out three months. I think you can trust them right now that that's what they think they see. But I think the likelihood of a global recession in the next six to nine

months is probably better than a lot of people think. I think the stock market is telling us that right here a little bit. And I don't think that that demand call by all these companies who are telling you a bunch of other crap that's not good and particularly useful. Yeah. Yeah. All right. You don't buy it. EV makers broadly lower as well today. Names like Tesla and NIO weighing heavily on the Nasdaq 100. Even EV adjacent stocks like ChargePoint and EVgo are caught up in the selling as those supply chain disruptions and material shortages weigh on the industry. You mentioned Tesla, Dan. You're nibbling in the triple Qs.

Would you be buying Tesla at these levels? Nope. Nope. Nope. I mean, listen, Elon Musk is unravelled. There's a lot of Twitter noise. We don't know what's going on with the deal. I guess the concern also now is China and Wedbush, Morgan Stanley, both raising the flag on margins and China supplies.

Yeah, no, I would not be buying it. I actually hate the fact that it's a top six name in the QQQ. I think it's going to actually drop out of that top six in the not so distant future. I think the stock has a lot of room to run. And I got to tell you, if a large part of the premium in this stock is because of the aura of Elon Musk, well, he's unraveling before our eyes on Twitter the company that he wants to personally buy, but he can't afford to buy it because Tesla stock keeps going lower. OK, so I just think this is a big mess. And I'll just say the last thing. I've been in the markets for 25 years, Sarah. Every single mania and every cult stock leader, they've all imploded. This is the last

one. I think it's starting to happen right here. So I would not be a buyer at this thing at 669 or 666 or whatever he thinks is funny about the price of the stock. So, OK, let's let's hit the broader market because we have seen a pretty strong rebound here into the close. Huge intraday comeback. Dow S&P 500 and Nasdaq still on track, though, for weekly losses. We're seeing real estate, health care, staples, utilities, and energy now stronger. Those are the sectors higher. Consumer discretionary industrials are lower. Technology just popped into the green as well. The Dow down only 14 points. What are your thoughts heading into the weekend, Dan?

Yeah, I think things were getting pretty nasty, Sarah. I was looking at JP Morgan just an hour ago. It was making a new 52-week low. And we know that the banks are not the epicenter of what's going on here in this valuation correction. But a stock like that had been leading the S&P to the downside, never confirmed any of the new highs in December or January. So I guess the point that I would make is that things were getting really, really oversold. The precipitous drop in a stock like Apple, even Tesla, on a near-term basis. Look what happened to consumer staples. Your consumer staples this week, they absolutely got nailed.

So I think a lot of negativity was wrapped up in this week. We had that down 4% day in the S&P and 5% in the NASDAQ. That felt slightly capitulatory here. So I guess my point is, markets don't go down in a straightDAQ. That felt slightly capitulatory here. So I guess my point is, is like, you know, markets, you know, don't go down in a straight line here. And we've been down about 16 or 17 percent from the late March highs. So we're going to have some fits and starts. I think it's going to be one step forward, two steps back. OK, so the Dow and the S&P are about to go positive here in this dramatic reversal just in the last few moments of trade. For all the hoopla about the bear market, it doesn't look like we're actually going to close in a bear market for the S&P 500.

We're now 19 percent off the highs, those all time highs that we hit in the beginning of January. Dow has just turned positive on the session really quick, Dan. So you think this is just a tradable kind of bounce, doesn't change your fundamental outlook, which sounds very bearish to me. Well, it's not very bearish. I think it's going to take some time for this bear market to play out i don't really care what you mean you just said recession in six months yeah well here's the thing sarah maybe the stock market will start to discount a recession we're not going to know there's going to be a recession until after the fact here so i mean like that i just think that you gotta take a step back here i'm not calling

for a stock market crash i think large markets for the stock market have already crashed here so now we're waiting for some of these larger um components of the major indices to do it and that's happening right here so i think you're going to see lots of stock and major indices retrace back to those pre-pandemic highs. The S&P, that's 3450. That's down 30% from the all-time high. The NASDAQ would be down 40%, 45%. It is true. A lot of the bad news has to be in there already with these kind of levels.

We are 19% off the all-time highs on the S&P. Dan Nathan, it's been great to have you here for Market Zone. Very good. We won't tell Mike Santoli. Just into the close here, I want to show you what's happening. The Dow has actually remarkably turned positive. We were down more than 600 at the lows of the day. We actually started the morning higher, gave it all up, and then some. And just in this final, I don't know, 10 minutes or so, 15 minutes, we've really

rallied back into positive territory. We're still down on the week, eighth week in a row lower for the Dow, seventh week in a row lower for the S&P, which is also remarkably positive right now. Healthcare, real estate, energy, utilities, staples, and technology are your positive sectors. Into the close, consumer discretionary, worst hit on the day and on the week, where all the losers, major losers, came from discretionary and staples. Those are the two worst performing groups after a lot of big misses. Target, Walmart, Kohl's, Ross stores today. There goes the bell. The Nasdaq is the only one of the big three that's lower. It's down about a quarter of 1%.

It's also come back pretty hard, but still down sharply on the week. Seven down weeks for the S&P. Have a good weekend. That's it for me. I'm closing the bell.