Closing Bell - Closing Bell: Win Streak Snapped, Fade The Rally and Amazon's TikTok Copycat 8/17/22

Episode Date: August 17, 2022

The Dow snapping a 5-day winning streak following disappointing retail sales data and a huge profit miss by Target, which was forced to slash prices to eliminate excess inventory. Fmr. Macy's CEO Terry Lundgren discusses whether he thinks the industry's inventory problems will be fixed in time for the holiday shopping season. Fmr. Kansas City Fed President Thomas Hoenig discusses how much the Fed will hike interest rates at its next meeting and if he thinks the central bank could pivot to rate cuts next year. Wells Fargo Investment Institute's Scott Wren believes a pivot is off the table and investors should be fading this recent rally, adding this is the most negative he has been on the market in a while. Manhattan Venture Partners' Rashaun Williams explains why he thinks the ice cold IPO market is about to heat up and lays out the top 5 names on his IPO watch list. And UBS's Lloyd Walmsley on whether Amazon testing a TikTok-like feature could be a game changer.

Stocks look set for a comeback after the Dow clawed back from a 300-point loss, but we are on the downswing here as we head toward the close. The Dow briefly turning positive after being down more than 300 points. 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 in the market, down half a percent on the S&P 500. Only one sector that's positive right now, and that is energy. Everybody else is a little bit weaker.

Not extreme. Consumer discretionary is your worst performing group right now. It's down six-tenths of a percent. But we did rebound after the Fed minutes showed there was some discussion of carrying back those big interest rate increases. We'll talk about it in just a moment. We're down 100 on the Dow. Low of the day was down 323. The high of the day was just positive. Here's a look at some of the names that are leading the Dow today right now. You've got Apple, IBM, Merck, Chevron, and McDonald's

right now a little bit doing better on some of the defensive names like utilities, healthcare, and staples performing a little bit better than discretionary technology and communication services today. Yields firmer today. That's been a big theme as we pull back really for the first time in five days. Ahead on today's show, former Kansas City Fed President Thomas Honig will join us to break down the latest signals from the Fed minutes. Plus, we'll talk to the former CEO of Macy's about today's downbeat retail earnings and how they differ from yesterday's results from Home Depot and Walmart, as well as the retail sales data. The S&P 500 showing a widespread between its 50 and 200 day moving average, which is partly why some market participants aren't

surprised by today's pause. CNBC Senior Markets Commentator Mike Santoli is here to kick it off. And a lot of people have been zeroing in on these technical levels. Mike, why? Yes. Once you've had this kind of real spring loaded rebound that we had, and the fundamentals never change as fast as the market prices do, so it does tend to trade a little bit technically when we get to these critical barriers. So here we have the S&P along with the 50 and 200-day. Yesterday, it basically touched that 200-day and backed right off of there, up 17%, down half a percent, really not material. Now, if there was a continued pullback, I would say anything down to about there, that's the previous early June highs, would be perfectly textbook and not a big deal.

It might actually just be relatively healthy. I did want to point out, though, this difference between the 50-day average and the index itself is wider than it's been since that point. That was early September of 2020. And you see that you had a pretty big pullback there. So that's why you have to be wary. A very short-term looking stretch. Longer term. Looks like maybe a term final point.

This 200-day is still going down. That's why some people say it's still a bear market. You can't call it otherwise. Two-year note yield. Pretty significant. It's kind of inching back up toward the highs from mid-June. By the way, that was the low in the stock market right there in mid-June. And so you came down off of that.

And now we're building back up. But interesting, as you say, Sarah, it seemed like the Fed minutes was a little more of a moderate message that maybe they're going to be looking for the chance to slow down and ease off of the rate hikes before too long. But still, within the two-year window, we're going to get up to at least that high. So I don't think it's that material. It's interesting the market's able to make its peace right now with a 3.3% two-year yield. Yeah, I was wondering about your takeaway from the minutes. Because on one hand, there was some discussion about the need to slow down or potentially pull back.

There was some discussion about the risk of overdoing it on tightening. But then there was a big chunk on inflation and how it's running really hot, well above target, and they're going to have to be restrictive in order to fight it. Right. And they're not taking a lot of explicit comfort in the decline in commodity prices. That was another thing that could have been read as hawkish. I think you have to look at it through the prism of what we would have just expected them to say after raising rates by three quarters of a percentage point last month. They would have you would have expected them to say we still have to be quarters of a percentage point last month. They would have, you would have expected them to say, we still have to be vigilant about inflation.

What they didn't do is show any real displeasure with how the markets have been behaving in recent weeks. We know that these minutes, you know, can be revised before they're released. So I think that's why the market was like, okay, not a lot of fresh new information here. It wasn't overly hawkish, which it could have been because we've heard that a little bit from the speeches lately. Mike, thank you. We'll see you later. Mike Santoli.

This morning, we also got a fresh batch of earnings, including Target, the company reporting a 99.0% plunge in quarterly profit from a year ago. We also got retail sales data this morning. Those numbers showing retail activity was flat, though it did rise if you take out gasoline and autos. Joining us now is Terry Lundgren, former Macy's chairman and CEO, longtime retailer. Terry, welcome. What have we learned about the consumer this week? Well, first of all, you know, you guys did a pretty good job this morning, I think, of cleaning up the numbers of retail sales. And so when you extract auto sales, which everybody bought a new auto in the last two years, right, and gasoline, sales are actually up 0.8%. That was above expectation.

So there was a lot of good news there in those numbers, and many categories were strong. There was obviously weakness in things that you already have, appliances. I said cars, but appliances, electronics, the super casual apparel that you've been wearing for two and a half years. You've got enough of that. So those categories are weak. But dress apparel was've been wearing for two and a half years, you've got enough of that. So those categories are weak. But dress apparel was up, beauty categories were up, and there were several others. So I actually feel okay about where we were. I am a little worried about going forward.

We get to this Target subject, and we're all a little bit concerned about that big drop. But the reality is they took their licking and got rid of, hopefully, enough of the bad inventory so that they're positioning themselves going forward. But they got into a pickle with too much inventory, no question. And that's a cardinal sin for retailers, is too much inventory. Particularly, if you have too much inventory, get it in the fourth quarter, not in the second quarter. So there's going to be other retailers that are going to have the same issue of cleaning up overstock situations. Okay, before we get to them, Target in particular, because it does feel like there's been a lot of bad news lately and a lot of kitchen sinking and a lot of we're taking this now and then the second half is going to be

better. Do you believe them? Well, I do believe they're going to be better because I think they just, but it just happens a lot, by the way, or I shouldn't say it happens. What I see as what happened in the last six months is there was obviously delays of inventory coming in due to the supply chain issues. At the same time, retailers were panicked because they were out of inventory and they were ordering more inventory. And all of a sudden, many of the supply chain issues got corrected and it sort of double dipped on top of them and they had too much inventory to deal with. And so that, you know, it's not excusable, but I can understand how it happened to many retailers. Inventory management is a critical role and critical subject for anybody who's going to

have a good second half. And you have to go in to the second half with clean inventory. Fresh, new receipts are critical to your performance in the second half. Who else is going to have trouble? Anybody. You'll have to look at all the numbers, whoever reports. But anybody who's got a big lump of inventory significantly above their sales trend is going to have to take some lumps. Which is most everyone now. A lot of them.

Because they all were super lean last year during COVID and during shortages. And they made money. They were able to raise prices. And now the consumer's changing and the supply chain is clearing up. Yeah. We always said, you know, we hated to miss sales. We made a lot more money when we did. And we were chasing after sales because our margins were higher. We were taking less markdowns. And we were chasing after sales because our margins were higher. We were taking less markdowns. And we never performed long-term well when we were overstocked. So do you think that we will see disinflation in apparel and accessories now going forward because of all these markdowns and the easing of supply chains and inflation? I definitely think there's retail adjustments that are going to take place now. But I'm thinking by the fourth quarter, people are going to be back in good position and you're going to start seeing some more of that

inflation that we've experienced in the last year. And by the way, apparel hasn't had inflation for 10 years. So there is a substantial deflation for many, many years and they're just sort of catching up now. And honestly, Sarah, it's not making a huge difference in a $50 item, the inflation that we're dealing with now for apparel. So that has actually helped some of the retails, certainly in 2021 and the first quarter of 2022. And so I think that'll all get adjusted out. So the problem for retail now this quarter is the inventories. But what if the economic environment shifts downward? Then aren't we going to be talking about a demand problem? Sure. We haven't had a demand problem so far, and consumers are definitely spending. So I think it's

been self-inflicted wounds that have happened to certain retailers. You saw Walmart's numbers. I mean, they're up 7%. That's a big number on top of the largest retailer in the world. So it can be done. Granted, they are substantially loaded in the food and grocery category, which is probably about half of their business. And there's certainly inflation attached to those businesses and those numbers. That helped them. They're much more penetrated in those categories than Target and obviously more so than many of the other retailers. So Walmart, you think, is a safe sort of recession play.

Who else in this environment? I actually think Target is going to come back. I think Target is going to come back. I always look at the balance sheets and who's got a strong balance sheet. Can you afford to deal with these problems, these lumps and get past them? Or are you loaded up and leveraged and you're, you know, sort of a death nail for you? And I think anybody who's highly leveraged at this point in time is going to have a really difficult second half. The luxury sector has held up very well.

Obviously, inflation doesn't bite as much if you've got the high incomes. But does that change? I don't think so. I think that high-end consumer says, this is really upsetting. These prices are getting very high. I'll take two of those, you know, handbags. And so I don't think it's going to materially change the behavior of that high net worth household income. So it sounds like you're not so worried about recession. You're just focused on where the consumer is prioritizing and how they're dealing with inflation. Well, I think what we're dealing with now, Sarah, with all of the issues that we've already discussed, is that apparel in particular is an event-driven purchase. And so I think through Father's Day, you know, people were spending and it was toward that event.

The weddings are starting to come back finally. I think all the 2020 and 2020 weddings, at least I think I've invited to all of them, it feels like in 2022. And so- I bet you're a good wedding guest. But there has to be some event to drive it. So I believe that the Christmas period,

the holiday period, well once again, back to school was a push versus last year. But keep in mind 2021 was the highest record of activity in sales volume and back to school ever. So we're going against powerful numbers. I think we're going to have a good fourth quarter that's going to be event driven for holiday purchases. I think that business will be good. Terry Lundgren, always good to get your perspective. Thank you very much.

Thanks, Sarah. Coming up, former Kansas City Fed President Thomas Honig gives his first take on the Fed Minutes, whether he thinks the FOMC is on the right path. Dow's down about 127. Again, we've come back a little since the Fed minutes were first reported. Down more than 300 points at the lows of the day. Still, every sector except for energy is negative. You're watching Closing Bell on CNBC. Heading south again here in the market in this final hour of trade.

Just want to show you what's been happening. Down day on Wall Street. The low of the day was down 323. And then you can see a little bit of a recovery just in the last hour or so. That's when the minutes from the last Fed meeting were released. Market embraced that. There was some rallying in the bond market as well. The Dow actually briefly went positive. You see that little blip on the screen and then turned lower again. The biggest drags right now are Boeing, Visa, 3M and Disney. The S&P 500 also lowered. It's down about seven tenths of a percent and is negative now for the week. Also, the Nasdaq composite is negative for the week, about three-quarters of a percent. Right now, it's down a little more than one percent. Let's talk about what we got from

the Fed, because the minutes show that the Fed would likely not pull back on interest rate hikes until inflation comes down substantially. However, the Minutes also noted some members were worried the Fed could overdo it with the increases. Joining us now is former Kansas City Fed President Thomas Honig. It's great to have you back on the show, Tom. So it's hard to read something like this because there's clearly a discussion going on at the Fed about whether they could overdo it, whether it's time to pull back on some of the aggressive interest rate increases. But at the same time, there's a discussion on how worrisome and high the inflation numbers really are. So what do we make of that? Well, frankly, that's not unusual for an

FOMC meeting, in my opinion, in my experience. And I would tell you, as you read through those minutes, and you have to do it quickly, I realize right now, but as I've read through them, there's a pretty much unanimous agreement, though, that inflation is the top priority. At that point, it was too high, and that was their priority. And then you get into it, and they begin to talk about the fact that there is a slowing in the economy. When you get the regional reports from the participants, there's clearly indications that things are slowing and that that should begin to mitigate some of the inflationary pressures. Also, some discussion of labor and wages. This was before the big announcement, but still a feeling that that might come more into balance. And and the fact that the economy broadly was slowing, that gave them, I think, a sense that they were on the right track.

And I think when in that environment, then you always get those who are very concerned that it may turn. It may slow down more quickly. And so you say, well, maybe we shouldn't go quite so fast and so forth. And I think Powell made it clear in his press conference, though, that they weren't giving forward guidance, that 75 wasn't necessarily on the table, 50 basis points maybe. And that's kind of a sense you get from the minutes that you're going from there. And so I think flexibility is a big deal. And so they're going to have discussions about, well, we don't want to go too far. But the real test will be, I think, down the road as things slow and these voices of, well, we don't want to go too far, become more prominent. And will they then stay at a rate of, say, if they get to four to four and a half percent, will they stay there or will they

back off if unemployment starts to hide? So the challenge is still ahead. And these minutes are pretty not surprising. Well, on that, the market is excited about the fact that they will pivot eventually into next year. The S&P is up 8%, 9% since the last Fed meeting. Is that too enthusiastic about what's coming? I think it is when you have inflation still at 8.5 percent.

And they're still going to be talking about increases, I think, through the end of the year. They may be a little bit ahead of themselves. But they are counting on the fact that next year, even if inflation is still elevated, that the Fed will become more concerned about the economy and employment, and they'll back away from that. And I think that's what the market's counting on. And these minutes would not dissuade them of that, in my opinion. There were 14 mentions of inflation on the Target conference call today. There are problems with food and wages. And some of these categories, Tom, are proving stickier than others, especially food, wages and shelter.

Does the Fed need to see all of those things come down before it pauses? I think it should and I think it, unless unemployment starts to rise quickly. Then it'll become a real contest within that FOMC. But clearly, inflation's embedded in this economy. That's coming through pretty loud and clear. And the Fed knows that if they give away too soon, if they back off too soon, they're going to have even a bigger problem on their hands. So they want to say inflation's first. But to keep everyone kind of on board, I think this idea of flexibility and look is what the chairman's kind of putting out there. But he knows that they have a big road ahead of them still. Do you think they're upset about what's happening in the markets, the loosening of financial conditions we've seen in the rally,

frankly, since the last Fed meeting? I don't know that there's so much that's said as surprised, given that they've said inflation is number one and so forth. But when you look at these minutes and this discussion of flexibility, you can't be too surprised that people are walking away from that and interest rates are easing, people are getting, shall we say, more enthusiastic, again, about investing. I think if the Fed sticks to their guns through the end of the year and beyond, and they become convinced of that in the September meeting or one of the later meetings, then the market will back away from this enthusiasm to some extent. And they probably need to. What's your call? Is it 50 in September?

And then what for the rest of the year? Well, I think it's 50 or 75, depending on what the next employment and inflation number shows before their meeting, because they come out before their meeting in September. And if those numbers are still strong, then I think 75 is on the table. If those numbers, if the employment numbers are more modest than they were last time or inflation is as high or nearly as high then i think they'll they'll they'll stick with 75 but if they back off of that then they'll come down to 50. thomas honig thank you for joining us with some perspective having been in the room former former Kansas City Fed president. Let's give you a check on the markets right now. We've got a sell-off on our hands. The Dow's down about 167 right now. So that brings the, if we close lower, the five-day win streak to an end.

The S&P 500 down seven-tenths of 1%. We've picked up a little bit of steam lower just in the last few moments or so. The Dow had gone positive just after the Fed minutes about less than an hour ago. The Nasdaq down 1.2%. Tough day for technology and communication services in particular. in the last few moments or so. The Dow had gone positive just after the Fed minutes about less than an hour ago. The Nasdaq down 1.2%, tough day for technology and communication services in particular. It's been a brutal year for the IPO market, but a top venture partner says there are some major names in the pipeline

waiting to go public. He'll join us with his watch list. And then later, an analyst explains why Amazon's new holiday plans could be a gift for investors. As we head to break, check out some of today's top search tickers on CNBC.com. Bed Bath & Beyond takes the top spot today. Not surprising why.

It's up another 27.75%. It's been halted for volatility. It's absolutely embroiled in meme mania with 55% of shorts on this stock. For the week so far, Bed Bath & Beyond, by the way, it's up 103%, no doubt, on the fundamentals. The 10-year note is in the second spot, and we've got a sell-off today. Yields are a little bit higher, 2.89 on the 10-year.

Don't forget, we also got some very strong U.K. inflation number overnight. That started the yields moving higher. Target, Tesla, and Apple rounding out the top five. We'll be right back. Check out today's stealth mover. It's Krispy Kreme, the donut maker missing Wall Street's profit and revenue estimates, slashing its full year outlook, citing the strong dollar and softer consumer demand. But the company did say it has been paying a lot less dough for key commodity costs in recent weeks on the upside.

Market, though, focused on the demand story. Stock down 11, almost a half percent. The IPO market turning ice cold this year. But venture capitalist Rashawn Williams thinks it could be ready to heat up. The big names he expects to go public when Closing Bell comes right back. IPOs have been big underperformers this year. Take a look at the Renaissance IPO ETF. Compared to the S&P 500, it's down nearly 40% year to date. And IPO volume has all but dried up. Renaissance Capital says only 52 IPOs have priced this year. It's down 81% from last year. And proceeds are down a whopping 95% from a year ago.

But our next guest says some big names are waiting in the wings. Let's bring in Rashaun Williams of Manhattan Venture Partners. It's interesting, Rashaun, that you have a whole list of companies that you think are looking at a liquidity event in the next year or so, either an IPO or a buyout. Why? What turns the tide here? Yeah, I think for most people in the private tech market, we understand that delay doesn't mean deny. It's not the same thing. So no one wants to go public in this environment where you have multiple contraction, where you used to be

valued at 10, 15 times revenue. Now you're valued at four to six times. So people are just waiting in the wings. And remember, the IPO isn't the only liquidity event option that private companies have. They can do direct listings. Ninety-four percent of all liquidity events are M&A. And they also have SPACs, reverse mergers into shale. So there are a lot of different ways that companies can tap the public markets and get liquidity events. But the least attractive one right now is the IPO market. And also, there's not a lot of bankers out there that would even take your company public because they know investors don't have that appetite right now. Yeah, SPACs aren't too hot either, are they?

No, they're not. I don't think anything is that hot right now other than the private markets. To be honest with you, I've seen a lot of demand in the private kind of pre-IPO market. I would say private equity in a pre-IPO tech market, huge demand. And it's because those trade more fundamental and the public market stuff trades technical. There's absolutely no reason why DocuSign and Spotify and all of these amazing companies should be trading at the discounts that they're trading at compared to their revenue growth, their CAGR, their market share, their profitability. But if you look at the private

market and you strip away the ability for speculators to just sell shares short and for people to just wake up on the wrong side of the bed, afraid for their 401k, then you get stuff that's trading more fundamental. So in the private markets, I do think we're feeling some after effect from the public markets. But for the most part, it's trading very fundamental as opposed to technical. And it's still very attractive. That's an interesting distinction. So who's on your list that we should be watching for this so-called liquidity event? Yeah, for sure. So what we do is my firm and head venture partners, we have one of the best research teams in the business for private pre-IPL tech companies. We look at over 350 private companies. We have our

own proprietary way to determine whether or not they are going to go public or get acquired in the next, let's say, one to two years. And 60% of the time, we get it right every time, like Ron Burgundy says. But I'll give you my top five. Number one, Instacart, for sure. I'm sure you've heard about Instacart for forever. Cohesity is number two on our list gopuff is actually number three on our list hootsuite is number four and then of course what would a list be without stripe stripe is number five well i wanted to mention clarna which i i noticed on there because it also very famously recently had a very sharp down round. Its valuation got slashed from just a year ago.

Yeah. Yeah. Klarna is on there. Are you in that company? Yeah, we are. Notice how I didn't mention that one because the valuation got slashed. But yes, we are in Klarna. And it's a very simple explanation for that. What's happening in the pre-IPO market is a lot of public investors are coming into our market and they have a very different criteria that they need to mark to market their investments. Right. Private folks like me would say, hey, I don't need to just, you know, raise another round and mark my shares down just because that's what I do in public markets. So Klarna is getting a lot of money from public investors and they're looking at public comps. So if you're going to comp Klarna, which could have been a 15 or 20 times revenue

company in a private market before the correction or the contraction, now if it's a 5 to 10 revenue multiple, that's where they have to raise money at based on the public markets. So just like things contract, things also expand. So what I expect to see is multiple expansion, and then these companies will start to trade near their historic averages for software and fintech companies. And you'll be north of 10 or 20 times revenue by the time we come out of this trough. So you're saying there's still action in the private. So you're saying that there are folks besides Adam Neumann also raising money in this environment? Oh, yeah, absolutely. I mean, I saw the headline when Andreessen Horowitz making the largest investment. Would you give him money for his second venture after

we worked debacle? Clearly, there are smarter people above my pay grade who really believe in him. So I'm going to trust in their ability and their track record to figure that out. But for us, we've been making investments as well. And we're very, very happy with some of the companies that we invested in. For example, we love the gaming industry. We invested in Epic Games. Epic Games owns Fortnite, Grand Theft Auto 5, Unreal Engine. I mean, this is one of the biggest and best known game developers in the world, doing billions in revenue and dominating the marketplace for over a decade. We invested in a fintech company. You guys know I'm partial with fintech because I worked on Wall Street for 12 years and I was an early Robin Hood and Coinbase investor.

But we invested in Revolut. Look at Revolut, one of the largest UK based fintech companies in the market. And they're just completely crushing it. We love that industry. We love that market. And we went and doubled down on that company. And then my sleeper, you'll never hear anyone say this name on your show ever. But my sleeper is the publishing company hear anyone say this name on your show ever, but my sleeper is the

publishing company platform called Automatic with two Ts. They literally power 40% of all websites on the internet via their WordPress company, and they have a direct competitor to Shopify in their WooCommerce business that they have. So yes, investments are happening, and we're able to get great companies at huge discounts from distressed sellers. And we love it. Well, that whole Coinbase and crypto discussion is one for another day. Rishan, thank you very much, though, for joining us. Thank you for having me.

It's good to talk to you. Yeah, good to see you. Here's where we stand right now in the markets. We've got a little less than a half an hour left of trading. We've got the S&P down six-tenths of one percent. It's sort of hovering at these levels. The NASDAQ down 1.2%, and the Dow Jones Industrial Average down 152 points,

drifting south pretty much. Originally, it got a little rally after the Fed minutes, and then some digestion, maybe the focus on inflation. People realized it wasn't that different of a message that we were getting from the Fed. After all, energy is your only positive sector. It's up 1 percent. A devastating drought in the southwest is threatening this year's cotton harvest.

Up next, the big picture on the impact that could have on shoppers. We'll be right back. Time for today's big picture. How a dry spell out west is disrupting the very fabric of the economy. The drought in western states is leading to a shortage in a very important basic commodity, cotton. Farmers in the U.S. reportedly abandoning their harvest planted in the spring, and it's putting more pressure on cotton prices, which are 20 percent higher than a year ago. The U.S. is the world's leading cotton exporter, according to the Department of Agriculture, with around 35 percent of global cotton exports. The department notes that 66 percent of cotton

production is based in these areas that are dealing with the drought. And last Friday, the USDA said it expects domestic cotton production to fall by 28 percent. Apparel companies have been dealing with higher input costs for the last year or so and passing those higher prices onto consumer. Lately though, there's been some relief and signs of hope. Apparel prices actually came down a bit in July's inflation report. And retailers are increasingly talking about markdowns,

but that could change if this drought and potential cotton shortage intensify. Levi's CEO said last year that cotton accounts for 20% of the cost to make a pair of jeans. Two pounds of cotton in every pair. Amazon taking a page from TikTok's playbook as it tries to increase user engagement. We'll share the details when we come back. That story plus a possible solution to Apple's supply chain issues and targets tumble when we take you inside the Market Zone next.

We are now in the closing bell Market Zone. Wells Fargo Investment Institute's Scott Wren is here to break down these crucial moments of the trading day with us. Plus, we've got Steve Kovach on Apple and Courtney Reagan on Target. We'll kick it off, Scott, with the broader market here. We are seeing a decline. It's the first decline in six days for the Dow. So it is notable, but it's only half a percent right now. S&P down seven-tenths of a percent. The Fed minutes offered a little bit of glimmer of hope to the crowd that is hoping that the Fed pivots, although we gave some of that back. Do you think the market is still in an uptrend or are you preparing for a turn here after a pretty remarkable four weeks higher? It has been a remarkable four weeks, Sarah.

But certainly we ran into some resistance yesterday. We touched the 200-day moving average. You know, above that is the big trend line at about 43.65, coming off the all-time record high at the beginning of this year. We've had a pretty good run up here. We don't think we're going to see much follow through. And really, as far as the FOMC minutes, you know, we're in the camp that the Fed is not going to pivot. Certainly the minutes didn't make us change our mind at all.

So we think a 75 basis point hike is likely in September and we'll see more hikes at the end of the year. You know, we're looking at a 350 375 more hikes at the end of the year. You know, we're looking at a 350, 375 Fed funds target at the end of the year. So that's where we stand. We think the market's a little lofty right here. I was going to say, so are you telling people to fade this rally? Yeah, we've that's basically what we're doing. I mean, we've been we've taken on since March a more defensive type of stance. So We've gotten away from the more cyclically oriented sectors. We've tried to de-risk portfolios.

So from here, this is an opportunity to fade this rally. All right. Well, let's talk about Apple because it's holding up in the sell-off today. Pair of analysts issuing bullish notes on the stock today. Wedbush's Dan Ives raising the price target to $220 from $200, citing encouraging supply chain checks ahead of the release of the iPhone 14 next month. And then there's Credit Suisse, which also upgraded the stock to outperform, hiking its price target to $201 from $166, citing strong services revenue growth and upside to gross margins. Meantime, Apple may be eyeing a major production shift out of China. It is reportedly in talks to produce Apple Watches, MacBooks and other products in Vietnam for the first time because of COVID related supply chain disruptions

in China. The company already makes some AirPods in Vietnam. Our Steve Kovach joins us. So, Steve, clearly this doesn't happen overnight when it comes to addressing supply chain issues. How is Apple overall dealing with some of these problems right now? Better than expected, Sarah. So we learned last quarter during those COVID shutdowns in China that they were able to manage it as well as they could. They were able to move some iPhone production out of the regions that were experiencing the worst of the shutdowns. And they kind of sacrificed in a weird way other less profitable businesses like the Mac and Apple Watch in order to prioritize the iPhone. And what we're seeing now,

and we've seen this all year, by the way, we're seeing them expand out of China to kind of protect themselves, give them kind of a shield so they don't need to rely so much on China, especially during these stringent shutdowns. And in fact, there are just some more shutdowns this week. They're not related to COVID, but related to extreme temperatures or extreme heat in China that shut down some production facilities reportedly that work on Apple Macs and wearables. So that's why we're seeing them experiment and shift around. Like you said, they already make some AirPods in Vietnam. They also make them in Malaysia. And we've even seen some iPhone production open up in India. All of this is meant to diversify. But again, that's not to take away the importance of China

to the Apple supply chain. It's all there. And the consumer, right? That's kind of the holy grail for Apple in terms of a growth market. So, Scott, my question to you is, does Apple fall in the category of defensive that you would like in this kind of environment? Well, I think a lot of Apple products are expensive. Consumers, while the unemployment rate is low right now, we're certainly looking for it to crawl higher. We're unfavorable in the consumer discretionary sector. So for us, consumer spending is going to slow. I think in that type of an environment,

once again, not being an Apple expert by any stretch, but consumers are going to be more hesitant to buy these buy items, and they're going to be slower to replace items, whether it's a car or an iPhone or, you know, you name it. So we're looking at slower consumer spending as we move ahead. People are going to be more cautious. Well, let's stick with that. And Steve Kobach, thanks to you. We'll talk Target now,

speaking of the consumer, because shares are under pressure. The retailer reporting a big profit miss and weaker than expected same store sales because it had to slash prices in order to reduce that excess inventory. That's been the story there. The company, however, is reiterating its full-year forecast and does expect operating margins to rebound sharply for the rest of the year. Courtney Reagan joins us. I guess, Courtney, that's why the stock is only under a little pressure because it had a nice run yesterday off the back of that Walmart news. So is this investor saying it looks like Target can put these problems behind them? That is, that is exactly what I think is what the market is saying, Sarah. Frankly,

I'm a little surprised because this EPS miss was so wide even after the company had lowered guidance twice. But the analysts are looking at this and say, hey, look, the company says that they're taking the bulk of the financial pain for the year in this quarter and that the bulk of it is behind them. They like the target reiterated their guidance for the rest of the year. And to your point, Walmart also was fairly optimistic for the rest of its year, even though it did not have as much reason to be concerned to start with. So I think most people are saying, look, if you're going to have some bad results, you may as well get it all out of the way while you can. They're giving Target the benefit of the doubt. It's still seeing some positive growth in the store traffic, in those overall store comps, even if they were slightly less than the street had expected.

Several analysts notes from Stiefel and D.A. Davidson and J.P. Morgan said, what's a couple hundred basis points miss when you're talking about such a big miss on some of these results? A miss is a miss. They're giving it a little bit of forgiveness here today. Yeah, that reiteration of the guidance is key. Courtney, thank you very much. So, Scott, you know, I know you're worried about the economy and a consumer slowdown. People have been worried about that for a while now. And sure, these retail results are messy and the inventories are messy and there are issues with consumer behavior. But nobody's talking about consumer demand falling off a cliff. The sales numbers still at Walmart were pretty strong and the retail sales taking out gas and autos for the month of July actually grew. Yeah, it's not bad. You know, Sarah and Anne, for apparel and other

retail like that, I mean, our retail analysts are expecting, you know, these Christmas or holiday sales, I mean, it's going to start at 50 percent off and go up from there. So these retailers have way too much inventory and they're really going to be discounting them. But I'd have to agree, you know, when you have 3.6 percent unemployment and with discretionary spending skewed towards the upper end of the wage scale, you haven't seen much, you know, of an issue there. So spending is good for now. But as I said, I think, you know, we're looking at a little bit north of 4 percent for the unemployment rate by the end of this year, a little bit over 5% for the unemployment rate at the end of 2023. If we see those kind of numbers, you're going to see consumer spending slow.

And that's one of the factors that we're looking at here for the economy, along with, of course, the Fed's going to be very aggressive here. We still have supply chain issues. Real wages are falling. Housing is slowing. of course the fed's going to be very aggressive here we still have supply chain issues real wages are falling housing is slowing so you know there's a lot of curveballs out there that the consumer is getting thrown right now and i think that's going to result in a slower economy i have not heard you this negative in a while scott let's say i tell you sarah this this is the most negative we've been uh in a while and you know we had been optimistic up until coming into this year.

But, you know, things have changed. You were the only one that liked tech when it was melting down. I remember that. And we still do like tech. But, you know, I think for the next few quarters here, you're going to have to play defense. You're going to have to think about capital preservation, not capital appreciation. And that's going to change probably halfway through the recession that we think is going to start pretty soon. But for now, you know, we want to play defense. We don't want to play offense.

All right. Well, we appreciate you telegraphing the move for us. Let's talk about Amazon right now, because it does look like that Amazon is the latest tech giant attempting a TikTok copycat. New report this afternoon saying the company is testing a feature showing users short videos or photos of products to purchase. The story from the Wall Street Journal saying this feature is for users of the app and being tested internally right now. Joining us is UBS analyst Lloyd Wamsley. He has a buy rating and a $180 price target on the stock. Why is Amazon getting into this TikTok happy cat game? Look, I think there is a lot of convergence between social and video and commerce. And so it makes sense that they should be experimenting with this stuff.

I don't make too much of it. I mean, Amazon competes and stands out on its selection, convenience, price, reliability. Merchandising has never been a huge focus of theirs. It's an interesting experiment, but I wouldn't think of this as the future of Amazon. Okay. You do think it is notable that Amazon is adding a surcharge, a peak fulfillment fee of $0.35 per item sold in the U.S. and Canada. What is the story here? Look, if you rewind to the beginning of the pandemic, Amazon has been absorbing a lot of costs associated with revamping the facility centers, building out facility centers,

absorbing higher energy prices. And now they're starting to pass that along to consumers and merchants, right? We saw this at the beginning of the year with higher core fulfillment by Amazon fees. You saw it again with prime price hikes. You saw a fuel surcharge, and now you're seeing a holiday surcharge. I think this is the company being more focused on margins, starting to pass along these costs, which should show up in better margins in the second half of this year and in the next year, which we think is going to be the key to the stock working. A lot of analysts are excited about this, and yet Amazon stock is lower right now. All of tech is selling off. Yields are a little bit higher. There's some reversal of what we've seen. Lloyd, what gets Amazon from 140 to 180? Is that your price target

right now? If we are in an environment where the consumer starts to slow? And as Scott expects, we do start to see unemployment rise. Yeah. So our house view at UBS from our global equity strategist is bullish on consumer stocks, which tend to do well after inflation has peaked. I'm no macro economist or strategist, but when I look at Amazon on a bottoms up basis, the stock tends to work when margins start to improve. We think you're going to start to see that in the second half of this year, in the next year, on top of other improvements in top-line growth on a headline basis, strengthen AWS. We think all of that can drive the shares towards this 180 target. Lloyd, appreciate it. Thanks for

joining us to discuss some of the news around Amazon today. Lloyd Wamsley. We've got just a little over two minutes to go in the trading day. So, Scott, you're saying this is the most negative you've been for a while. What would change your mind and get you interested more in the longer term secular tech stocks that you have always embraced? Yeah, you know, I think, Sarah, you know, once again, if you're if you're time frames two plus years on bad weeks, bad days, I mean, you can put some money to work. But if you're concerned in the shorter term, six months, 12 months, something like that, I think you have to be a little more careful. And what would really make us more bullish is it has to do with inflation, really. I think the Fed,

no matter what data we're going to see, they are going to be aggressive through this year. And what we're thinking is the market's really concerned about what's going to happen next year with the Fed. You know, they're going to do what they've said they've hinted that they're going to do this year. So for us, if inflation comes off quicker, what we're fearing is that we see a couple of months here of good data. We get down into that five, six percent range on headline CPI, for instance, and then we're stuck there. And then the Fed just has to keep being more and more aggressive. But if that is not the case and we really finish this year with inflation really coming down very quickly, and that following through into the beginning of the year, I think that would make us more

enthusiastic about the market. We'd certainly have to play less defense. Scott Wren, Wells Fargo Investment Institute. It's been a pleasure having you here for The Market Zone. Thank you, sir. As we head into the close, take a look at where we stand overall in the market right now. We saw the Dow down as low as about 300, more than 20, 320 points, 323 or so at the lows of the day. We're heading south again here, down 172. So it does look like we're going to break the five-day win streak on the Dow. As far as what is dragging the Dow lower, it's a bunch of the Dow stocks, mostly cyclical. Boeing, 3M, Visa, Disney, Caterpillar, and Salesforce. Those are the biggest drags. Some pockets of strength, though.

Apple, we mentioned. Chevron, the energy stocks are doing well. IBM and McDonald's holding up better. In the S&P 500, we're pulling back about seven-tenths of a percent, which means we are now negative for the week, down a tenth. Energy is the only sector that's positive. The worst-performing sector right now is consumer discretionary, and that sector is down a little more than 1%. Technology is also at the bottom of the pack.

You've got weakness in some of the retailers. Ralph Lauren, Target, we talked about some of the automakers like Ford and General Motors are weaker today. That's dragging on the S&P. The NASDAQ going out with a decline of 1.3%, the biggest loser of all of them. Higher yields, a pause in the buying. Amazon, Nvidia, Meta, Alphabet all bringing up the rear there in the NASDAQ. That's it for me on Closing Bell. See you tomorrow.