Closing Bell - Closing Bell: Wild May Wraps Up, CME's CEO On Market Volatility And Getting Defensive 5/31/22

Episode Date: May 31, 2022

Stocks falling on the last trading day of May, which has been a wild month of trading. CME Group Chairman & CEO Terry Duffy discusses the volatility in the stock, bond and commodity markets and what that means for his exchange's bottom line. Oil prices initially rallying, but gave back most of those gains on a report that OPEC may suspend Russia from its oil production deal. RBC Capital Markets' Helima Croft weighs in on what that will do for oil prices while Eurasia President Ian Bremmer looks at the potential geopolitical impact. And Strategas' Chris Verrone says he is skeptical about last week's rally, but reveals the one defensive stock he thinks investors should be buying.

Another volatile day for stocks. Dow's off the lows, but the broad market is heading south once again. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now. Dow's down about 200 points. At the lows of the session earlier, we were down about 460, then went positive, and we're now giving up ground again. S&P down about six-tenths of 1%. Two sectors stand out as positive right now, consumer discretionary and communication services. There's buying in a lot of the beaten down names of May, like Amazon, Under Armour, Hasbro, Starbucks and Nike. Those are all helping the consumer stocks.

The Nasdaq is down about six-tenths. It's down about two percent for the month of May, while the S&P is pretty much flat. So definitely an underperformer overall for the month. Here's a look at some of the most actively traded names right here, right now at the New York Stock Exchange. You've got AMC Entertainment off the better top gun sales. It's done a turnaround today. It was sharply higher earlier. Snap is on there, which is one of the biggest decliners, down about 50% for the month. Worst month ever for Snap after warning on earnings down another 9% today. NIO gets a boost off the China news. A lot of the China-related stocks are higher today on the word of the end of the lockdowns in Shanghai and Beijing. Coming up this hour, we will discuss

the volatility in the stock bond and commodity markets in an exclusive interview with CME chairman and CEO Terry Duffy. Let's get straight to our top story, though. European Union leaders agreeing to ban Russian crude oil. The move will impact 90 percent of Russian oil imports by the end of the year, which excludes pipeline imports. The ban could exacerbate an already volatile energy market. Oil prices have soared since the start of the year, jumped again on the back of today's news, and then have given up the gains. Moments ago, the Wall Street Journal reporting that some OPEC members are floating the idea of suspending Russia's oil production deal. Let's bring in Halima Kraf from RBC Capital Markets. Halima, the OPEC news or report seems

to have turned the price of oil around. Energy stocks have given up their gains, are now negative on the day. What's the significance of this? I mean, I think there's an expectation if Russia were to be essentially involuntarily suspended from OPEC, that would pave the way for Saudi Arabia and UAE to put more barrels on the market. But the question that we continually raise is, even if Saudi Arabia and the UAE were to essentially say this production deal, which ended the end of September, we're going to end it now. There is not a lot of additional OPEC barrels that can be put on this market. I mean, Saudi Arabia is almost at the production level seen in April of 2020 when they were in the all-out price war with Russia. There may be around 2 million barrels that they could potentially add to the market. But if we are talking about significant Russian losses because of sanctions, that is not going

to fill that type of export gap if Russia does indeed go out in the market in a big way because of sanctions. I guess, though, Halima, anything helps. Why haven't Saudi and other OPEC members pumped up more so far? And what's changed now that they're willing to cut Russia out? Well, first of all, we have to wait and see if this story is actually accurate. I mean, the issue is that the Saudis have said, first of all, we have to wait and see if this story is actually accurate. I mean, the issue is that the Saudis have said, first of all, we're looking for a new security partnership with the United States. So you've had really prominent Saudi officials like Prince Khalid bin Salman, full brother of the crown prince, deputy defense minister.

He has visited Washington. You've had senior administration officials from the Biden administration visit Riyadh, all trying to come up with this new grand bargain that energy will be part of. But Prince Abdullah Aziz bin Salman, the Saudi old minister, has said, look, we don't have that much spare capacity out there. If we were to put all these barrels on the market now and we still have this war going on and we could lose more Russian barrels, the market might then focus on the lack of spare capacity. In 2008, OPEC was putting more barrels on the market, and yet prices were running up to 147. So they question how effective would it be to deplete all spare capacity at this stage. Halima, stay with us. Also want to bring in Ian

Bremmer, president of the Eurasia Group. He joins us now by phone. He also has a new book called The Power of Crisis, How Three Threats and Our Response Will Change the World. Ian, it's good to have you here on this day. We're talking about oil prices and sort of the lines of the oil maps being redrawn as we speak. How do you see, let's move on to Europe and what we got today, the consensus to basically sanction Russian energy imports except for what goes through the pipeline. How do you see that playing out for Europe and for Russia? Yeah, I think that this is historic. It's really the first time we've seen the forcible decoupling and what will end up being the complete decoupling of a G20 economy

from the advanced industrial world. The Americans were never doing much business with the Russians, but the Europeans, of course, were. And they recognized, particularly the largest economies, that it was a massive strategic mistake. Now, the Hungarians, of course, dug in and said that they really were not prepared to be a part of this. They'd use a veto unless they were granted an exemption. And as those negotiations went on over a few weeks, a number of other Eastern European economies were more than happy to ride their tails. But the Germans and the Poles are saying that they're going to completely end their piped oil from Russia by the end of the year. If you add that to all the shipped oil, you're talking about 90 percent of what Europe gets from Russia by the end of the year, if you add that to all the shipped oil, you're

talking about 90 percent of what Europe gets from Russia. This is a really big deal in terms of cost to Europeans. It's a really big deal in terms of how much the Russians are being punished. Well, how about the Europeans for one? And we just got that European inflation number, 8.1 percent in Germany, 8.7 percent, numbers that they haven't seen since the creation of the euro, that this could only make it worse. So how is that likely to go down in Europe? Surely there are implications more than just the ECB for the European political landscape.

What do investors need to know there? Yeah, well, I mean, if it were the Americans, I mean, if this crisis were exactly the same, but the United States were the ones that were doing all the energy trade with Russia, were being asked to make that sacrifice, I'm not sure that we'd come out in the same place. But I do think that this is seen as an existential crisis in Europe. You've had six and a half million Ukrainian refugees that have fled. A lot of them are in homes of Europeans, especially in Poland, but in Germany, too, across the continent. And they've really been shaken by this, shaken by 30 years of a peace dividend that they now know no longer holds true for them. So, I mean, your absolute inflation numbers are daunting, and this is going to hurt

the average European. And yet I don't think that the political leaders in Europe, and especially in Germany, are feeling an enormous amount of pressure to change their view. If anything, the public has made them a harder line in the way they react to Russia invasion and war crimes against an innocent nation of 44 million. Halima, what's the upshot for the market? This as Chinese major cities are starting to come back online, increasing, right, oil demand, and Europe finally goes through with a deal that many thought wasn't possible. Sarah, I think the most important part of this story is not simply the number of barrels that are not going to be going into Europe, but the fact that they are also sanctioning the provision of shipping and insurance services. That means it's going to be more difficult for countries like India and China and Turkey to take those barrels.

Essentially, you are closing potentially the homeless shelter for Russian barrels. Essentially, you are closing potentially the homeless shelter for Russian barrels. So I think that is an important secondary measure that was imposed that could have major implications for how many Russian barrels are actually off this market. So Brent goes where? It's at just below $123 a barrel. I mean, Sarah, the real thing to watch is, you know, potentially, do we get Russian weaponization of exports? How do the Russians respond? Do they start essentially cutting off more gas importers, pulling more barrels back before the Russians have an order, before there's an orderly wind down in Europe? I mean, the combination of sanctions and weaponization by Russia, that is the path at a minimum retesting the highs we saw earlier this

year, but also reaching those levels like 185 that have been talked about in the market. You need those secondary sanctions and you need Russia weaponizing exports. But that is that really dangerous combination that could take us to that 185 level. Well, what will the Russians do about European gas is, I think, the next big question. Ian Halima, we'll leave it there. Thank you both for joining me. It's good to see you with oil prices higher on the day, but giving up some of their gains. Chris Verone, skeptical of last week's rally, but up next, he reveals the one stock he thinks is a huge buying opportunity right now. And later, CME chairman and CEO Terry Duffy on how bond market volatility is impacting his exchange's bottom line. The Dow is down about 200 points.

You're watching Closing Bell on CNBC. Check out today's stealth mover. It's Sherwin-Williams, the paint company, one of the biggest decliners in the S&P 500. After Credit Suisse initiated coverage with an underperform rating, $245 price target, which implies a downside of more than 10% from these levels, the analysts, they're saying that paint demand could be hit by those rising mortgage rates and a weaker housing market. We've seen shares decline

pretty much all year long. Meantime, we've got less than an hour left of trading in the month of May. It has been a volatile day already, up and down. Joining us with one of his top stock picks in this market, Strategas head of technical and macro research, Chris Ferron, which is Strategas is a Baird company. Welcome back, Chris. So what is the one stock that you are buying on the dips? Well, I'll say this. I think this market has given us clues about where leadership is going, and that's the area I want to concentrate on. It's defense. And when I look at names like Lockheed Martin or Raytheon, those are your leaders in this tape. So if we talk about a

name like Lockheed in particular, this stock's up 30% or 40% off the lows. It's been consolidating for the last several months, but it's consolidating in an uptrend against a sea of downtrends. So this is a leader in a tough tape. There's so much good support in that 420, 430 range where I think viewers have to be looking to this as a viable decline in a name that is a leadership stock in a leadership group. We think ultimately this goes on and makes new highs here.

It does fundamentally make sense, Chris. We know that Europe, for instance, is really ramping up its military spending for the first time in years. Places like Germany in response to Ukraine. Why hasn't this stock and others been acting stronger? Well, I think in the context of the year, this name and this entire group has acted great. And when you look at the leadership that's come from the defense contractors, it's telling us that this conflict in Russia and Ukraine lasts longer than the consensus expects. It's giving us the same message that, say, the energy stocks or oil here is. So this idea of peak conflict or peak inflation or peak yields,

I don't think the market is justifying any of those. And these defense contractors, as your leaders here, I think support that view. So you like Lockheed and defense names like Raytheon, but not the overall market. Why are you not convinced that the bounce could go on for longer? I think when you look at the quality of this rally, the internals have been decent, not exceptional. We're looking for days where 50, 60, 70 percent of the market gives you a two standard deviation advance. The best we've done on this bounce the last week or two is maybe about 10 percent. So we don't have that momentum surge, that urgency that often shows up coming off a low. And frankly, Sarah, we really haven't turned over the leadership here either i i i would

expect if we're really putting in a bear market bottom and a good durable low we're gonna have to see leadership turnover and that just hasn't happened i mean your leadership here still energy it's still resources it's still material so i think until you see some big leader and i think that in the status financials at three percent of the communication services that i mean there is a real balance and some of those hard-hit areas.

But this is where I want to think between bouncing in a bear market versus leadership. 80% of energy made a 52-week high this week. The bounces you're seeing in banks, the bounces you're seeing in tech are from very, very oversold conditions. Those aren't your leadership here. So I want to make that distinction in terms of what the signal to take here is. You know, when we look at bear market bounces, up 15 percent over about two months has historically been your typical bear market bounce. I think that's a reasonable framework here. It gets you to like 43, 43, 50 on the S&P. There's a lot of resistance on top of us there. That's where I think this gets tricky. Chris Ferron, good to get your technical

take from Strategius. Thank you. Let's give you a check on where we are right now in this market, down 122. So we're recovering a little bit from where we were at the top of the hour, still lower across the board. The S&P, though, only down a quarter of 1%, which means we are just barely positive for the month of May on this final trading day of the month. The Nasdaq is climbing toward the flatline. Communication services and consumer discretionary are positive. Amazon is up about 5.4 percent. It's still down 2 percent for the month, but climbing back today, along with some of the other beaten down names. Consumer confidence sliding on inflation fears. Up next, Mike Santoli looking at what that could mean for both the job market and the Fed. And as we head out, check out some of today's top search tickers on CNBC.com.

Ten-year Treasury note yield taking the top spot, and we are seeing yields higher today, followed by Tesla, WTI crude, which is mostly higher today, Apple, and Amazon, which is leading the triple Qs. We'll be right back. New economic data from today shows a dip in consumer confidence in May amid inflation. Mike Santoli digging into the data and taking a closer look, Mike, at how consumers are feeling about the job market in particular for the dashboard. Yep. Inside the conference board, consumer confidence numbers every month is this question. Do you believe jobs are plentiful or are jobs hard to get? So this is the difference between those two responses. As you can see, basically record levels of perceived job market strength recently, basically saying jobs are plentiful.

We know this from the job opening data. The Fed is targeting vacant jobs and the excess labor demand out there. So what we've seen here is a little bit of a rollover. It's gone down still to a high level, but you have seen it curl lower. Now, this chart tracks extremely well with measures of wage growth. So it's a prerequisite for any change in the Fed stance or maybe some moderation down the road later this year to have wage growth calm down. And Sarah, as you know, the party line has been we're not trying to raise unemployment, the Fed says. We're just trying to maybe we can sweep

away a couple of million open jobs and somehow that's going to cool off the labor market. Not clear that's the way it works, but that's the story. But that's what's happening. So far, it's happening. Which are you calling the rollover in inflation? Calling basically the peak in annualized wage growth would suggest is in, but that doesn't mean it's really going to crash down to acceptable levels. And this is just a confidence measure. That's right. A survey. Mike, we'll see you in the Market Zone. Oil well off its highs of the session on a report that OPEC is considering suspending Russia from a key production deal. Up next, CME Chairman and CEO Terry Duffy on the outlook for commodities and interest rates.

All of this trades on his CME group in a volatile environment. We'll talk to him about it next on Closing Bell. Take a look at oil prices taking a leg lower this afternoon, still higher by just about a third of a percent after a report that OPEC may suspend Russia from its oil production deal. Of course, this comes as prices are up more than 50 percent or so on the year. Joining me here at Post 9 of the New York Stock Exchange, Terry D duffy cme chairman and ceo they let you in the building they did let me in this building and uh it's great to be back here in this building with you sarah nice to see you i gotta be honest with you what strange is walking

in there i was thinking of my dear friend dick grasso when i took cme public in 2002 so this building i do enjoy this building well it's good to have you especially amid all this crazy market volatility we started with oil because that's the mover of the day. You, of course, run the NYMEX, which is oil trading. What are volumes like right now? You know, the volumes have been year to date better. Last year, they were not as much. But, you know, when you get into situations where the markets are propelling straight up and all the news appears that it's going to continue to go straight up, sometimes people don't hedge as often as you would think, but now we're looking at markets that are fluctuating quite dramatically

with any kind of news at all. So the markets are starting to trade a lot more on the NYMEX. What does that mean? What does that tell us about where it goes? Well, I don't know if it tells us the exact price where it goes, Sarah, but it does tell us that people are concerned about the market movements in today

or over a short period of time based on rumors and based on facts. So the question will be the ultimate price will be determined on fundamentals and what's going on geopolitically. But right now, there's a lot of rhetoric going on between OPEC, between Russia, between other parts of the world that are producing this product and in here in the United States. So you oversee all of all of the spots of the market where we've seen the most volatility, agriculture, interest rates. Where have the craziest volumes come from?

Well, I mean, the biggest volumes are coming from the rate markets, as you know, because of what's going on with the changes with the Fed. And so we're continuing to see massive moves in our interest rate complex. And then we saw today where the president was meeting with the Fed chairman, which is pretty unusual to do, to see that going on, because I'm assuming the president's very concerned about the inflation. And what does it mean? What can the Fed chair do about it? Can he increase it or can he not? What kind of pace does he need to go at? I think there's a whole bunch of speculation of why these two are getting together at this moment in time as these prices are at these levels. Well, he's worried about the midterms, probably. There's no question there's a lot of political conversations about what's going to happen

in the midterms and prices associated with them. Is the market usually right on Fed pricing of expectations for interest rates? You know what? It was for a long time, and then it wasn't for a while because everybody anticipated that the Fed could not stay at that zero interest rate policy. And then actually the market was right and the Fed appeared to be wrong, right? Because people have said that they're behind the curve on moving the rates higher. And it appears that they were. And here's the situation we're in today. So right now, I think the markets are

getting it right. What is the derivative market telling you about odds of recession at this point? You know, I think a recession is not based on the derivatives market. I think it's based on the eye of the beholder. So if you have two things and you have to give up one of them, and you're a single family or a multifamily, whatever you're supporting, and you have to give up one of those items, is that a recession for you and your family? So I think the definition of recession is in every single household around the country. So the question is, what's a recession in your mind? So I don't know if the derivatives market is making that decision or do you want to give up, you know, putting fuel in your car in lieu of buying food for your family. So that would, to me, be deemed

a recession. Which more people are making those kind of decisions. There's no question about it. That's exactly what's going on right now, Sarah. What about the agriculture market? So grains prices also have shot through the roof this year. What type of unusual activity are you seeing there? And could we be about to see a huge relief if President Putin actually does open the port of Odessa and let those Ukrainian grains flow? Yeah, I guess we'll find out June 5th or whatever he has made that determination he would do. But, you know, listen, we've got two countries that are a third of the breadbasket that are fighting against each other. You've got another country in the EU, which is France, which is the biggest producer of wheat in the European Union. So those, and they're potentially having a drought. So there's a lot of issues going on. We've got 7.7 billion people on

the planet going to 9 billion by 2050. We need to feed them. You know, somebody on your show said something very profound. And Gary Cohn, when he was on was on here when he said we can go find more fuel i'm worried about food and he's absolutely concerned to be making that statement i'm glad thanks for referencing a show that was on three absolutely i watched it all terry um bitcoin yeah what are you seeing there because you you testified recently in congress and you seemed pretty angry at Sam Bankman-Fried, the FTX. What are they proposing that has gotten you so worked up? You know, Sarah, I think sometimes people confuse anger and passion. I have a passion for the industry. You know, I believe that we should have rules associated with it. I've been under regulation

my entire career at CME. That's what we do. And I think regulation breeds credibility to the marketplace. So I want to continue on with that path. I don't like short-cutting processes. I made it very clear to Sam prior to that hearing that I was going to oppose it. And I'm going to oppose it for all the right reasons. So he's trying to do what? He's trying to get an amendment to a margin relief so he can have direct margining to the client versus we believe cut out the broker yes and not only potentially cut out the broker he has said that he may allow the broker but there's a whole host of other issues embedded in his proposal associated with

how defaults work and everything else we think it's a market structure issue not just a margin amendment issue so if in fact we're going to go down that path we need to make sure everybody has the ability to do so not just sam andX. It's largely a regulated versus unregulated fight, it sounds like. What's happening with Bitcoin futures volumes as we've seen the price collapse? Yeah, and I think one of the reasons Sam wants to get into the futures end of it is because our volumes are going up significantly, which would add to his franchise as he goes forward. And there's no secret behind that. All of them want to have that.

So we have the volumes in Bitcoin at CME have done quite well over the last several years since we launched them. But yes, when you have the volatility we've seen from roughly 8,000 to 62,000 back to 28,000 now, today up 12%. So I mean, there is a ton of all trading in these products. But people exit as the price goes down it's all it's all you know we don't have the ultimate information who's doing what on an individual basis but you could watch the open interest of the positions open on the market

which is publicly available to see how much interest is in that particular contract so yes if the open interest goes down less people are involved it goes up obviously more involved terry duffy always good to get your take on the color around these markets. Sarah Eisen, always a pleasure to see you. Thank you. The CME Group chairman and CEO. We've got a market flash right now on Disney and Netflix. Julia Boorstin with the details.

Julia. Sarah, Disney and Netflix shares both trading about 1.5% higher despite the sell-off today. This after both media giants reported huge streaming numbers for their series that debuted Friday. Disney Plus reported that its Obi-Wan Kenobi series is the most-watched Disney Plus original premiere globally. They also reported that hours viewed of other Star Wars titles tripled in the weekend. Meanwhile, Netflix reports that it's Stranger Things

that season four set a record for the best premiere for an English language series, beating Bridgerton series two. So moviegoers returning to the box office for Top Gun Maverick did not depress the streaming numbers this weekend. Sarah? We got a little bit of a boost for those names.

Julia, thank you. Here's where we stand right now in the markets. We continue to climb back from the losses that we saw at the top of the hour. We were down 200, now down about 60 points or so on the Dow. NASDAQ has gone positive again in the session, so we are attempting another bounce, stronger by about a quarter of 1%. Thank you, Amazon, Google, Starbucks, Qualcomm, and Apple leading the way. Wall Street is buzzing about today? please do that. We're down 61 points on the Dow. We'll be right back. What is Wall Street buzzing about today? Unilever, the consumer product giant behind everyday basics like Dove soap, Hellman's mayo, Vaseline. It has a new board member, Tryon's Nelson Peltz, and Wall Street is excited about it. The stock is up more than 10 percent

after popping 8 percent on the day that word leaked that he became a shareholder. That was back in January. Why the excitement? Well, Peltz just stepped off of rival P&G's board since he was named back in December 2017. P&G has rallied 63%. Unilever is down over that same exact period. What does Nelson Peltz have planned here? Well, no comment from Peltz, no comment from Tryon, but the playbook could be similar to P&G. There, he helped push a restructuring of the business where it was less focused on corporate

and more on the individual business units, essentially instilling seven CEOs running the various businesses like health or grooming, where there's more responsibility in each unit from everything from sales to profits. So ultimately shrinking corporate and placing those people inside the businesses. It has seemingly really helped to supercharge performance in recent quarters for P&G. Unclear what's possible here at Unilever, but the company has faced growth problems

and credibility issues after a failed bid for Glasso SmithKline's consumer health business under CEO Alan Jope. At the very least, Pelts' board presence here lights a fire under management and the board, and the market certainly likes that. When we come back, SoFi, one of the several big fintech stocks rallying this month after a rough start to the year. Find out whether that trend can continue into June straight ahead. That story, plus the Chinese stocks bouncing and a countdown to Salesforce's earnings when we take you inside the market zone next. Welcome back. We are now in the closing bell market zone. CNBC senior

markets commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Kate Rooney on the fintech rebound. Edward Jones's Angelo Kirkopas on today's pullback. First up, though, stocks volatile on this last trading day of May. The Dow and the S&P 500 trading lower. The Nasdaq just turning positive on the session again. They're all positive on the month while the Nasdaq leads. Today, it's down more than 1 percent in the month of May. Mike, financials just popped into the green. Consumer discretionary is really the standout. And it's Amazon today at 5.7 percent. Why the big move today? It's unclear specifically why Amazon up that much today,

although there is some outperformance today by the mega cap growth stocks. It feels as if investors may be feeling slightly underinvested after a 9% rally in the S&P at the end of a month. And Amazon is probably the one that's the most oversold relative to its trend. It's still not even up to the price where it gapped down to on its last earnings report on April 28th. So I think that's why it's a bit of a catch up move. Also, the stocks but takes effect on Friday. That should have zero influence on the stock, but you never know if that's also part of it. So where are you on the overall rebound? It does feel like today there was a lot of indecision after such a strong week last week,

the best in years, and people wondering whether that can last longer and go deeper as far as a rebound. I think there's good reason to wonder about that because we've had multiple failed rallies of at least 5% this year. I think last year's action did buy some credibility for this market, not so much that it's going to just soar from here, but that the lows we reached on May 20th, that'd be just over 3,800 on the S&P. Maybe it would take, you know, a new helping of very bad news to break that. You saw very good breadth numbers coming out of those lows. That sometimes buys the market a little bit of time, gives it some kind of a cushion. And today's action is mostly digestion. Most stocks are down, but just not much. Keep in mind, we were up 250 S&P points last week. We're only giving back 14

of them right now. Good context there. Communication services doing nicely as well. Alphabet, Paramount, Dish Networks, all higher. Several big fintech stocks are also staging a comeback in the month of May after a pretty rough start to the year. Kate Rooney joins us. Kate, are fintech companies with more cash on their balance sheets faring better than others? Is that part of the turnaround story here? It's interesting. So not necessarily on the surface when you just look at the share price,

but some analysts are now seeing those companies with more cash as potentially more resilient here in a downturn. But as for the month of May, we had SoFi and Robinhood really outperforming. But those with more cash, Robinhood is one with more cash, but are seen as the better opportunity. And the thought is they could afford to really spend more, maybe do some M&A. J&P Securities ran some screens on this. They looked at more than 100 fintech companies and looked at cash relative to market cap. So Root was number one. That's an insurance fintech company. And then Robinhood was number two. So despite the sell-off we've seen, could be some opportunity

there. There's a lot of different variables that go into this. And the sector as a whole has really been beaten down. But J&P calling it a good starting point for value. They say the more cash companies have, the better they can weather a downturn and potentially spend more to grow. We'll see how that turns out. They're also looking at things like earnings projections and then short interest. Interesting, I mentioned SoFi is really the big outperformer. That company has about 15 percent short interest. So it could have to do with some of the outperformance here. So if there is a sentiment change, you could see a bit of a short squeeze. That's another thing they're looking for in terms of opportunity. Mike, is it an opportunity? I

don't usually think of these fintech players as the most quality in terms of cash flows and profitability. But as Wall Street stiffened out some winners here? Yeah, most of them are, at least in terms of sustainable heavy cash flows. I mean, obviously, if they are well capitalized, they have cash on the books that are going to keep them going and they're survivors. That's the first step, especially once the stocks have been down this much. I really don't think a lot has changed about the overall thesis behind fintech, which is massive addressable market and things like payments, new ways of paying for things and borrowing money. All that stuff is the same. It's just that it got caught

up in the whole boom bust of excitement over secular growth type companies. So I don't see much happening except a bit of a bounce. You have your credit based ones like a SoFi where it's going to be much more of a concern or a firm about credit quality and potential recession than it is really about kind of the big picture changing of behavior of how people deal with their money. Yeah. So financials overall up on the session, obviously still down about 9 percent or so for the year. Kay Rooney, Kate, thank you. Stocks with exposure to China are also a bright spot right now in the market amid reports that major cities in China like Beijing and Shanghai are beginning to relax those covid lockdown restrictions. The K-Web Chinese internet

ETF up 5 percent. But internet stocks aren't the only names getting a boost from easing restrictions in China. Morgan Stanley naming EV stock NIO a tactical trade idea, saying it is well positioned to capitalize on local stimulus programs in China and resume sales momentum. And the beauty world could see a boost from reopening, too, according to Oppenheimer, which re-added Estee Lauder to its top pick list. The firm predicts a China and travel recovery could drive 10 percent sales growth. Christina Partsenevelos joins us. Christina, how do chips and software stand to gain or fare given the easing of China COVID restrictions? A lot of factories there.

Yeah, there are a lot of factories. And given the easing of these COVID restrictions, along with the increase in foundries being built all across the world. And then lastly, unfortunately, the slowdown in consumer electronics. That's supposed to bode well for the chip shortage and maybe ease this chip shortage much sooner than anticipated. We're seeing several of these names, AMD, Micron, for example, actually Micron turning positive just towards the end of the day today. And you also have the SMH ETF. This is a semiconductor ETF having its best month since November. Another note that came out from Wedbush saying that their supply checks show that Apple's doing quite well in China over the weekend, and this bodes well for the iPhone 14.

We also know that Tesla Shanghai manufacturing building added a second shift, so we're seeing production ramp up over there. So these bode well for the entire sector. And then lastly, on the Nasdaq, some of the strongest names today are these Chinese e-commerce companies like JD.com, like Baidu, like Pinduoduo, all trending higher. You can see on your screen right now, JD.com, like Baidu, like Pinduoduo, all trending higher. You can see on your screen right now, JD.com up about 5%. Big question, though, Sarah.

Will the Chinese consumer be like the U.S. consumer? Will demand surge once people can head out to the stores and shop and buy all these goods? We'll see. No, it seems like there would be a lot of pent-up demand after people have been locked in for, I don't know, 60 days or so. Christina Partsanovos, Christina, thank you. I also look at YINN, which is the triple China bull ETF. Mike, it's up 10 percent or so. I guess the question is, is this a great opportunity, as we saw when the U.S. emerged from lockdowns? Or is there just too big of a risk that as long as China sticks with the zero COVID policy, they just go straight back into it? Yeah, I mean, I think maybe the latter is the way to think about it, at least because there have been some false starts.

To me, the big maybe influence on our markets is whatever China does to try and help, you know, stimulate and loosen financial conditions as opposed to the domestic reopening and the character of that recovery within China at this point. It just seems like it's just too hard to actually handicap that at this point. Yeah, impossible to tell. Let's hit retail. Shares of American Eagle under a lot of pressure. Morgan Stanley downgrading the stock to underweight from equal weight, slashing its price target to $8 from $22 because risk to margins and sales will likely make the retailer's lowered financial targets unachievable, according to the bank.

Courtney Reagan joins us. Courtney, retail had so many mixed messages in the last couple of weeks. Is the Morgan Stanley call about the way American Eagle is running in this environment or more about teen consumer, the denim cycle, which I thought was still going strong? Yes, it's kind of a little bit of both, but I think it's sort of more overweight, really what's going on with the execution at American Eagle. And really, the Morgan Stanley note says, look, the company just didn't appropriately understand sort of the weight of lapping stimulus and the influx of obviously the inflation that consumer is feeling, lapping this really strong number from last year. And so they underperformed in the quarter. And while American Eagle management did take down their estimates for the full year, Morgan Stanley says it's just

not enough. There is so much uncertainty ahead. And they're looking at the last year at 2021, which was strong for American Eagle. But they say all of that sales growth really actually came from their ability to increase the cost, the average unit retail, the prices that consumers pay really went up. And that accounted for almost all the sales growth in 2021. And as consumers are more pressured right now in this year, they're probably going to be a little bit more reluctant to pay those higher prices. Not to mention American Eagle inventory is up 46% year over year, much, much higher than sales growth. And they're not alone. We saw higher inventories across the board. And so Morgan Stanley says, look, as we look across the balance of the mall and other retailers, there's too much inventory.

There's going to have to be discounting. Consumers are going to get to be discerning. And the last point I would make, Sarah, is you've got this growing business in Aerie, but a lot of it really leans towards that casual consumer lifestyle. And like we heard from a lot of the department stores, those aren't the categories that are selling. So it's not that the consumer isn't strong, it's that their preferences are changing and management just isn't executing with the cards they have in their hands. No, it depends on what category you're in, depends on what income level you cater to. I mean, the contrast in some of this retail performance in May, Target down 30 percent, Bath & Body Works down more than 20 percent. And meantime, names like Tapestry and Ulta actually higher for the month. It's amazing. Courtney, thank you. Courtney Reagan. Let's talk

Salesforce. It's the big name on the after the hours earnings deck. Frank Holland has the key numbers to watch for. And the stock has been disappointing for a lot of the bulls into this report, Frank. Yeah, you know, absolutely, Sarah. Actually, share is down about 1% today, but doing better than WCLD cloud computing ETF, which is down almost 4%. Salesforce EPS for this quarter is actually forecast to decline by more than 20% year-over-year, with revenue forecast to actually increase by more than 20%. Macro had wins, seen as the biggest factor there, but the number that analysts are really watching

is current remaining performance obligation. That estimate is about 21 and a half billion. This is work that Salesforce expects to get paid for in the next 12 months. That number will give a lot of insight about cloud spending and IT spending overall. Guidance also closely watched. Salesforce notorious to be very

conservative. Any raise to what it gave last quarter could give a boost to the entire sector. Salesforce performing slightly better than the group year to date, but still hit hard by similar interest rate pressure as other cloud stocks. Back over to you. Down 36% year to date, Frank. I tried to pin Mark Bandy off town. I had him last Wednesday in Davos about whether they were going to continue their pace of hiring. Because, as you say, it's such a bellwether for IT spending and whether we're going to see a pause, for instance, in hiring and expenses. He couldn't talk. He was in quiet period.

But I assume that will be watched. I was watching, Sarah. He said he was in quiet period, but he kind of gave you an eye. So I don't know which way that really went, whether they would continue hiring or not. He wanted to talk about the trees. Frank Holland, thank you very much. Let's hit the major averages, because right now we're down again about 100 points, looking like they will go two for three in May with the Nasdaq finishing lower, but the Dow and the S&P 500 in the green just barely. Let's bring in Angelo Kerkophis,

Edward Jones, investment strategist. How are we set up for June? No doubt the backdrop remains challenging, even in the months ahead. Growth, economic growth is slowing and monetary policy is tightening. And that historically has never been a good combination for equities. And this time is no exception. However, we don't necessarily agree with the prevailing view that the economy is on a one-way road to recession. I think the recent economic and earnings data challenge this view and suggest that the pendulum might have swung too far to the pessimistic side. So there is some reasons for optimism. So would you be buying the cyclical groups that have started to price in recession, like banks, consumer stocks, industrials?

So last week's rally was a reminder that there is a path for stocks to stabilize and rebound. Of course, one week of change does not mean that the cost is clear. But it is encouraging that so far the market has been able to defend the bear market, the S&P at least, the bear market threshold. So we still favor cyclicals and value as interest rates, the path of least resistance remains higher. However, we do see opportunities emerge in some of these areas of growth, like the profitable tech companies that have a positive cash flow and strong balances. We are still a little bit cautious on the unprofitable tech names that still trade at high valuations. What about small caps? They're also up about half a percent for the month, but they have been hit harder. They're down about 24 percent or so from the high. So they're definitely in bear market.

They're leveraged to the U.S. economy, pretty cyclical group. Would that be a buy if you think that the recession fears are overblown? Yeah. As we move later in the business and economic cycle, the risk for this asset class tends to rise. However, the risk reward, in our view, is now more attractive, particularly if this pullback in the markets proves to be a non-recessionary correction. And to gauge whether the rebound incurs, we will look for evidence of moderating inflation and signs that the Fed does not need to tighten more aggressively than the market expects. The only — the pushback I have there is that the Fed repeatedly, every time they have the chance — and yesterday it was in the that the Fed repeatedly, every time they have the chance.

And yesterday was in the form of Fed Governor Waller, who's an important member of the Fed, tells us it's inflation, not the economy. They're not worried about recession. They're not worried about the slowdown. They're worried about inflation, which means that they're just going to keep tightening here. Yeah, it's all about inflation this year. The argument, though, for peak inflation has gained more traction recently. Looking at last week, 4PC, which is the Fed's preferred measure of inflation, eased slightly from the previous month. And if we look at the market-based inflation expectations, specifically talking about the break-even rates, they peaked in late April. Of course, one month doesn't make a trend. But if we see two or three prints lower, that can take some pressure off the Fed.

And they are likely to move at a more gradual pace after this summer. So far, we have 250 basis points hike penciled in for June and July. And the September meeting can go either way. Angelo Karkafas, thank you for joining us with the Outlook for June. We've got two minutes to go here in the trading day. Mike, what do you see in the market internals as we give up more ground down to 14 now on the Dow? Yeah, they've been pretty soft all day, Sarah. You mentioned earlier, you know, that we had very strong breath in the rally last week and we're having a bit of a give back here. You see well over two to one declining to advancing volume.

It is those big mega cap growth stocks that have been propping up the big indexes. Take a look at energy, the XLE versus tech. This goes back to the end of 2019. So it encompasses the entire pandemic period. Yeah, energy is up a ton. It's up 57 percent year to date. Seems like it's got to quit pretty soon. Seems like it's very stretched relative to the market. But you see here, all it's really done is almost catch up to what tech has done over that period. So longer term, maybe that's bullish. The volatility index has kind of settled back. Not really much of a new week pop. We have basically a meandering index as we're stuck in the mid 20s. We'll see if anything

really breaks it out as we get into a little bit of summer trading mode, Sarah. That is an amazing chart, the joining of energy and tech performance at the hip after a few years. As we head into the bells, take a look at the Dow. We're down 200 now. We're up still for the month of May, and this is the final session of May. You've got Nike leading us higher, at least in terms of point contribution. UnitedHealth is the biggest drag today on the Dow. S&P 500, mixed sector performance.

Consumer discretionary and communication services are both higher. Amazon, Google, some of the mega caps are doing really well today after suffering this year. Energy is now underperforming. It was a better performing sector all day long. It's now the worst in the market, along with materials and health care. That's just for the day, though. S&P 500 looks like going to go out with a gain for the month of May, but lower on the day. It's flat. Hard to call.

NASDAQ lower for the month and lower for the day as well. That does it for me on Closing Bell. Have a great evening.