Closing Bell - Stocks Sink On Walmart's Woes, Housing Horror & Getting Chippy 7/26/22

Episode Date: July 26, 2022

The Dow & S&P 500 falling for the 2nd time in three days after Walmart cut its earnings forecast because inflation is forcing shoppers to cut back on discretionary items. Former Toys R US CEO Gerald Storch says this is the latest sign inflation will continue to weigh on consumer spending. Stifel's Mark Astrachan reveals where he sees opportunities in the retail industry. Evercore ISI's Mark Mahaney discusses how investors should trade Alphabet ahead of its earnings. Glenn Kelman, the CEO of real estate brokerage Redfin, reacts to the larger than expected decline in new home sales and says the housing market will continue to cool. And Medtronic CEO Geoff Martha discusses why passing the Chips Act in the Senate is so important for the future of the medical device industry.

Stocks taking a step back today as the Fed meeting gets underway and Walmart sends a chill through Wall Street. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand in the market. We're pretty much at the lows of the day, down 1.25% on the S&P 500. The Dow's down 3.25%, about 240 points or so. The Nasdaq feeling some pain, down 2% ahead of those big tech earnings, which kick off after the bell today.

Microsoft and Alphabet. Within the S&P, there's some strength. It's in defensive groups like health care, utilities, and real estate, all green today. But everybody else is down. Consumer discretionary getting hit the hardest. And here's a look at the stock of the day and partially who's to blame. Walmart pulling back sharply on an earnings warning last night, taking a number of retail and consumer names down with it. Much more on that in just a moment.

Also ahead on the show, we've got the Senate clearing another hurdle today surrounding the CHIPS Act. We'll talk to the CEO of $120 billion medical device company Medtronic, who was part of the White House meeting with the president this week about funding that deal. Plus, more signs of a cooling real estate market, new home sales, sharply missing estimates in the latest data. We'll discuss it with the CEO of online broker Redfin, whose stock has been tumbling. Let's get straight to our top story, though. It's Walmart's big warning. The company cutting its quarterly

end-of-year profit guidance because of inflation. Walmart CEO Doug McMillan saying in a press release, the increasing levels of food and fuel inflation are affecting how consumers spend, focusing more on necessities like food instead of clothing and electronics. Walmart shares are falling on the back of that news, dragging other retail stocks like Target and Costco down with it. Joining us now is Gerald Storch of Storch Advisors. He was also the former vice chair of Target. And Mike Astrakhan from Stiefel, who published today on the Walmart News. Gentlemen, good to have you both. So, Jerry, is Walmart management to blame for mismanaging inventory or a broader problem?

No, I have to say this is a broader problem. You know, there's a tendency to say, oh, we heard this from Target when they warned, so it's more of the same. But there's a lot of new information here. Remember, Target's warning was seven weeks ago. Meanwhile, it's kind of an open book exam. Here's the retail sales report for June. And guess what the two worst categories were? Apparel and department stores. And what was the best? Grocery. So it's exactly what we heard from Walmart. It's an underlying trend across the whole economy. It's not just Walmart. And it looks really sad for the rest of the year. Mark, you say it's old news, though, right? Why? We think it's a bit backward looking. Our survey work says the consumer is actually getting a little less bad.

I'm not saying it's getting better, but we're saying that our survey work shows that we actually showed discretionary spending intentions remaining positive. Importantly, I think from a consumer standpoint, that goes to Walmart, those lower income consumers, those making less than $75,000 per year. We actually saw sequential improvement in the purchase intentions amongst those. It was actually the first time we've seen that since the war in Ukraine broke out and inflation got a lot worse. So again, we're not calling victory here, but I think we look at the result and say, hey, look, this is a bit backward looking. We saw inflation rise through the quarter. Obviously, gas prices had a huge impact, especially if you think about the

lower income consumer. They're off of highs. I mean, still, relatively speaking, 15% off of highs with 35% up year on year. And I think, too, that Walmart, back to the previous comment, probably had no choice but to do this because Target basically said in early June that they're going to start marking down a whole bunch of that inventory, general merchandise, apparel, things like that to kind of force Walmart's hand. So both of those companies were just extremely heavy coming out of first quarter and I think needed to do what they needed to do to get inventories in a better spot, which they've effectively promised to do by end of the next quarter or so. Nobody's looking at it like that, Mark, as a sort of backward looking. They put out a warning at intra-quarter, ahead of their quarter release. I feel like this is as fresh data as it gets when it comes to what we're seeing on the consumer. Well, I guess if you look at how Target stock has traded since the release in early June,

it really has just bounced around, but hasn't gotten worse. I think the expectation at that point probably increased that Walmart would have to do this. So there's probably folks out there waiting for Walmart to, in fact, do this. I think the underperformance in just the overall market today hasn't helped. But Walmart stock opened down more than it is right now, and it's kind of hanging around as the market's getting weaker. So directionally, that might tell you, too, that folks kind of think we're to a point where it's not quite as bad as expected. They alluded to performance going forward in the releases, saying back to school while early is off to at least a decent start. I think that's something to be seen. So not a disaster in our view in terms of where we are from a consumer standpoint.

Obviously, I think the companies could have done a much, much better job of both purchasing and managing the inventories earlier. So, Jerry, what do we make of it then as it relates to the consumer picture and the overall economy? What does the Fed take away from this? Sure. I'd like to be optimistic about the future. But having run multiple retailers, you don't put out a warning like this unless you're pretty certain it's going to be a big problem. And, you know, it's very unusual for Walmart to do something like this. They have their earnings report coming out shortly to do this a few weeks ahead of that. They're seeing a problem that's continuing until this day. And so I don't think it's getting better. The only way the Fed can halt this inflation, which is a consumer-driven

event, is by putting a stake in the heart of that vampire, and that's what they're going to do. And every piece of data about clothing sales is negative. Certainly, there's some very high-end retailers who have done fine during this period. But the one thing we all know is that the strongest correlation for high-end sales is performance of the stock market. And so if the stock market continues to perform poorly, then even the luxury customer is going to be affected by this. And we're going to see the same pattern. Meanwhile, groceries. So we heard today from Albertsons, again, fresh news. You know, they're thriving. They're growing. Grocery is growing. That's what Walmart said as

well. This is a pattern we've seen before. Consumers are flocking to necessities with what money they have left. Of course, if you have more money, you can still spend on some discretionary items. But that bar starts to increase, increase, increase, increase as the economy does worse. And I'm sad to say I think that's what's going to happen here. Well, I would add Albertsons, Coca-Cola and Kimberly-Clark all had pretty good sales out today, which shows you where the spending is. So, Mark, what should investors do off this report? Are you suggesting they should buy Walmart on this sort of clearing event if you think things are going to get better or buy some of the other retailers also getting hit today?

Well, to be clear, we're not recommending Walmart. We're not recommending Target. We've been recommending Costco, saying that's probably the best place in a tough neighborhood. We also cover consumer staples. So your comments on those companies, we think there's probably better places to be there where the consumer is going to be recurring and absorbing or willing to absorb price increases. So and things from pet food to energy drinks and the like. So I'd probably rather be there than I would from a retailer perspective. But I think just to go back to the previous comment, I mean, LVMH put up numbers today,

which showed the U.S. numbers being phenomenally good. So I think you still have the consumer spending. Right, luxury versus mass. But obviously what's going on here from the willingness of the consumer to accept from a stateful standpoint is still there, right? You know, Procter, Colgate, Kimberly, Coke, to your point, are all seeing pricing going higher.

And so far, they're still telling us that elasticity is below historical levels here. So, you know, something has to give. And I think what has to give is general merchandise and apparel, meaning people are spending less on that and they're spending more on staples. I think you both would agree with that. But it is a confusing picture. Mark, Jerry, thank you both for joining me today. Thank you. Our pleasure.

Walmart shares sharply lower. We've got a Dow sell-off here down 270. New home sales just came in at their lowest level since the start of the pandemic. Sharply missing estimates for June. So how much cooler could the housing market get? We'll ask the CEO of online broker Redfin next. You are watching Closing Bell on CNBC. Just want to show you what's happening with the Nasdaq.

We're pretty much at the lows of the day for the tech-heavy index, down a little more than 2%. All the big tech names are lower today. Microsoft at the bottom of the list for the triple Qs. Remember, it reports earnings after the bell. Amazon lower. Tesla, Meta down 5%. Apple, NVIDIA. Remember, all these names come out with earnings a little bit later this week

in the wake of some warnings over the economy. Today, Walmart, last week it was Snap. Snap, by the way, continuing its deterioration down another 2%, now down almost 90% over the past 12 months. And check out today's stealth mover. It is Vista Outdoor. Roth Capital downgrading the maker of Remington Ammunition and Bushnell Binoculars to neutral from buy, slashing its price target there to 32 from 53 on concerns that weakening ammo demand will weigh on earnings through fiscal year 2024.

It's been a winning stock basically up until January. New home sales falling more than expected, down 8.1 percent in June, now down more than 17 percent from last year. Meantime, homebuilder Pulte reporting a big drop in new orders this morning with their cancellation rate doubling. Joining us now is Redfin CEO Glenn Kelman. Glenn, welcome back to the show. Nice to see you. Good to be here. So how bad is it? We're talking a lot about the R-word, recession, and whether we're in it in this economy or just parts of the economy. Are we in a recession in housing? Yes. The housing market always feels a recession first just because it's the ultimate high-ticket purchase. So I think we're going to see housing get worse first and get better first.

But things have got to get worse before they can get better. What are you seeing right now as far as sales and trends? And how much has it changed? Well, it's been a sea change, especially in the markets that really boomed during the pandemic. So if you look at Boise, Salt Lake City, Denver, these were the hottest markets. Now those are the markets where more than half the listings have had a price reduction. In Salt Lake City, it's 65% of the listings having a price reduction. So homes are being marked down near the end of the summer because people are trying to get anyone to buy it before the school year starts. And it's going to be a real log jam starting to clear this inventory. What about pricing?

We've seen two months now of deteriorating pricing in the S&P Case-Shiller Home Price Index. We know that's what the Fed is trying to target here, right, on the inflationary front. What are you seeing? Well, we're seeing very aggressive pricing. The housing market has gotten more volatile because there are several players that weren't as active in the past that have been very active over the past five years. So investors have sometimes been a quarter of all home sales. They are going to react very quickly to the market. You also have iBuyers trying to get out before the market turns completely against them. They are going to price ahead of other consumers. Normally, price discovery is really slow in real estate because you have to convince a homeowner that her house just isn't as

beautiful as she hoped and that she wasn't going to get the money that she needed. But builders, iBuyers, investors, they know how to get out fast. And so that's going to drive faster price discovery and it's going to help the housing market recover faster too. But it just means it's going to be a wild ride on the way down. But so are you telling your brokers to push lower prices, to push the sellers to accept lower prices? Well, we're doing that because it's in their best interest. Time is not on your side if you're listing a house. If you're hoping that things will get better in the fall, that usually isn't the case. Seasonality is one factor, but also it seems like the Federal Reserve's resolve is fairly strong right now. And so if you've got two, three weeks on the market, you're only getting four to five showings per week.

The market has spoken and you need to lower your pricing. So homeowners are often resistant to that, but it's what's in their best interest. I get it. So what does that mean for your stock? It's down 85 percent now over the past 12 months. I feel like you're getting dinged as a as as a web play, right, where we've seen lower multiples and also as a housing play. What are you hearing from investors and what does it mean for your business fundamentals? Well, I think investors just want to make sure that during the recession, we are able to strengthen our competitive advantage, that we're taking share, that we're improving sales execution, that we're growing our website traffic. So you want to focus on the factors that you can control. And in this case, we have built a better mousetrap.

We're able to sell homes for a 1% fee, sell them faster for more money. So we should continue to take share. And how the street values that as a business will change over time in ways that I cannot control. But I know we can become a better business every quarter. Well, you've been cutting jobs, right? We've reported that. What is the broker picture going to look like? Are you going to be able to retain them in this kind of environment? Agent retention has actually improved. Obviously, we hate having to cut jobs. It's very difficult when you employ your real estate agents in such a cyclical industry to hold on to people through thick and thin. We do our best. And in this case, I made a mistake in hiring too many agents at the peak of the pandemic. But having said that, agent retention is very strong right now because the rest of the housing market is a disaster.

People would love to be working at Redfin because at least here, our website is connecting them with people who still want to buy houses. So are more cuts coming? Not in our core business. I mean, we may have to adjust the size of our mortgage business. That's happened in every other part of the lending industry. But in our core business, we made our cut. We think that there will be some attrition that we don't backfill. That'll give us continued leverage over our costs, but we don't anticipate having to make another cut. Okay. That's something. At least, Glenn, we appreciate it. Always. Glenn Kelman, CEO of Redfin. Let's give you a check on the markets right now. The Dow down 224 or so.

S&P 500, some of these sectors are holding gains. The defensive sectors like healthcare, utilities, but it's the consumer names that are getting hit the hardest today. Also technology not having a great session. We've got communication services down 2%. Consumer discretionary down 3.2%. Amazon is getting hit. It's sort of a triple whammy for Amazon. The tech sell-off,

Walmart, and some news on Shopify also cutting back. After the break, Wall Street is buzzing about bombshell allegations surrounding China and the Federal Reserve. We'll tell you what one senator says he has uncovered next. And as we head to break, check out some of today's top search tickers on CNBC.com. Tenure yield back in the top spot. There's buying today yields a little bit under pressure at 2.8 percent. Walmart, no surprise in there. Eight percent on its profit warning. Amazon down 5 percent, as I mentioned, getting hit on all sides. And there's the Shopify fallout down 14 percent as it cuts 10 percent of its workforce. GM off earnings down 3 percent. We'll be right back.

What is Wall Street buzzing about today? Listen to this. Ohio Senator Rob Portman accusing China of recruiting Fed officials in an attempt to gain influence and glean confidential information. Elon Moy has that story for us. Elon, tell us more. Yes, Sarah. This was a two-year investigation by Republicans on the Senate Homeland Security Committee, and it centered on 13 Fed employees with ties to the PBOC, or Chinese Talent Recruitment Program. In one case, Chinese officials forcibly detained a Fed staff member doing a trip to Shanghai in 2019. They allegedly tapped his phone, accessed the Fed contacts in his WeChat account, threatened his family unless he turned over economic information, and then tried to force

him to sign a letter pledging silence or go to jail. The report states, quote, China has engaged in a sustained malign influence and information threat campaign against the Federal Reserve, taking advantage of America's open and collaborative research practices. The committee's report is based on 3,000 pages of documents from the Fed, which apparently conducted its own internal investigation into this incident and other potentially suspicious activity starting in 2015. But now the Fed is disputing its previous findings. And in a letter to the committee, Chairman Jay Powell said he's deeply troubled by the report's unfair, unsubstantiated and unverified insinuations. Sarah, the committee has asked the Fed to make those underlying documents in this investigation public.

Back to you. So many questions, Ilan. So what was China after here? And is there any indication that they got some of that inside information? So what the committee's report says is that China was able to get some modeling data, modeling information from some of these Fed officials, but it was unclear how sensitive some of that information was. The Fed has several categories or tiers of classified or

restricted information. So it received some, but we don't know exactly what that modeling information was. The Fed's argument is, hey, we have a lot of this information posted publicly on our website. And so their security protections against potential foreign influence is very strong. So that's why the Fed has pushed back so hard against this? Well, it doesn't want to be seen, obviously, as vulnerable to threats from China. It wants to be seen as taking this very seriously. But it's really unclear why the Fed said that it couldn't verify its own internal investigation. And the committee told me that it was surprised that the Fed

raised that objection sort of at the last minute. And that's why I want some of those documents to be made public. Really interesting. Elon, thank you. Elon Mui. Up next, the CEO of Medtronic discusses why passing the CHIPS Act is so important to the future of the medical device industry. When we come right back. The bipartisan CHIPS Plus bill to promote semiconductor manufacturing here in the U.S.

clearing a key Senate vote today, setting it up for final passage in the chamber in the coming days. This, of course, comes after President Biden met virtually with the CEOs of Lockheed Martin, Cummins and Medtronic, along with labor leaders. And Medtronic CEO Jeff Martha joins us now here first on CNBC following that meeting. Jeff, it's good to see you. We think about cars, we think about electronics, not necessarily medical devices for chips. What's at stake for you and your industry from this bill?

Well, Sarah, thanks for having me today. I'm really excited to be here, excited to hear about the progress on the CHIPS Act in the Senate today. Look, you know, chips, like you said, don't just impact American lives when it comes to consumer electronics or automobiles, but it also impacts their health. And a growing majority of the devices, the technology that we produce, contain chips. And every single chip we use is tied to a human life. Where are the chips that you use made currently?

Well, we get this from the same supply chain that the other industries, mainly outside the U.S. today. And that's why I think it's so important for the CHIPS Act to bring to onshore more of this chip supply and to ensure our future. How quickly, assuming this goes through and the money then gets dispersed, the $52 billion, how quickly could we see it actually come to fruition, where we make enough chips in the U.S. for you to use those in your medical device manufacturing? Well, I think it'll take several years to get that capacity online.

It impacts our supply chain and have us more self-reliant in the U.S. But right away, it'll have an impact on research and development. I mean, there is a network effect here where we are, the medtech industry is an R&D heavy industry, and most of that R&D for medtech is done in the United States. And to be able to work alongside the semiconductor companies on research and development as we enter a new era of medical technology, the convergence of advancements in traditional medical technology, like sensing and robotics and

miniaturization converging with advancements in the digital space is we're really entering a new era here. And semiconductors are at the center of that. How does the U.S., Jeff, stack up against China, which is this bill has been sold as sort of as a competitor to China, where they're trying to develop their own ships, and of course the reliance on Taiwan. How do we stack up on R&D for medical devices? Well, like right now, I mean, the U.S. has a lead on China. I mean, like I said, the majority of the world's R&D for medical technology is done in the United States. However, you know, the Chinese are really developing stronger and stronger local companies that are going to emerge as global players. And that is happening very fast. And, you know, when you start talking about leaders

in medtech, in a couple of years, you're going to have some Chinese names on that list. So what else was discussed at the meeting with the president? You know, look, he was really asking the CEOs that you mentioned about, you know, how is this, how is this CHIPS Act going to, in a little more detail, have more of a short-term effect as well, like with our R&D, and really trying to get into more of the details sector by sector. And he has a really good understanding of the impact of this and his team. This has been a top priority of his team. And he was really just asking us for more information and for our help.

What about medical devices themselves, Jeff? Where are those made? Is that something that could be made in the U.S. ever? Oh, sure. Look, so first of all, the medical device industry, there are several big companies like Medtronic, but there's a lot of startup companies in this space. And a lot of those startup companies, like I said, are here in the United States.

A big component of the medical device industry is startups. And they are many located here. Most of them are located here in the United States. And, you know, they typically start manufacturing here in the United States. So there's a, like, look, for Medtronic, we have manufacturing facilities all over the country, in the East Coast, the Southeast, the Midwest. We have several plants in California, even where it's a little higher cost to operate. There's very innovative manufacturing there. So we've got manufacturing all over this country.

Oh, that's good to hear. What about the more acute near-term issue of accessing those chips? Where are we on the shortage as it relates to your industry? Are you able to get them? Well, look, there's definitely some supply constraints. I've talked to my peers at other medtech companies. We're all feeling it. But the industry has done a good job, along with the providers in this country, of being adaptive and resilient. And so it has not resulted in a significant disruption to care, but we are feeling the pinch.

And that's why this act is so important. So this doesn't happen again in the future. Has it gotten any better or has it gotten worse? It hasn't gotten worse. I mean, I think it's been stable. I mean, we look at this every day. It's been been stable. I mean, we look at this every day. It's been fairly stable. I'm optimistic about the next couple of months, but, you know, we'll have to

wait and see how that plays out. Got it. I know you're somewhat limited, too, in quiet period. Jeff, Martha, thank you for joining us. Medtronic CEO. Thank you so much, Elle. Out of that White House meeting. Here's where we stand right now in the markets, down about 220, just off the lows here on the Dow. The S&P is down about 1.2 percent. We were down 1.4 percent a moment ago. It's technology. It's consumer discretionary. It's staples because of Walmart, although some staples are working out better, like a Coca-Cola and ADM off good earnings. And NASDAQ down about 2 percent. Up next, the big picture on what unusual spending trends for Coca-Cola products could signal about other consumer stocks. And you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. Down 221 on the Dow.

We'll be right back. Today's big picture. The consumer is slowing and booming at the same time. It's a weird, atypical spending environment because of all the pent-up COVID trends. That's at least how CEO of Coca-Cola, James Quincy, put it to me this morning when we talked about his earnings and what he's seeing from the consumer. For Coke, the results are strong. Double-digit growth on the back of both higher volumes and higher prices. The company raised its outlook for sales for the year

and actually kept its outlook for earnings intact, despite a major headwind right now from the strong dollar, 9 percent off of earnings. Coke's growing market share. It's increasing advertising and the beverage category at large, all doing well. Pepsi's seeing that kind of growth, too. But when it comes to the consumer, Quincy says in the U.S. and Europe, he is seeing consumers putting the brakes on spending and trading down in grocery and convenience stores. But in leisure and travel, spending is booming. Coca-Cola says he nets out fine. But for other consumer companies, it does depend where the exposure is

because of all this reprioritization of things away from home. Coke does benefit from the away-from-home business, as well as being in a strong category right now. But the key question for all companies is what happens after the summer? Will all this pent-up demand for experiences and travel hold up? Will it fall along with other pockets as inflation and higher rates take a toll? That's the question many of these consumer CEOs are wondering about right now. Up next, Evercore ISI's Mark Mahaney on what he expects from Alphabet's earnings after the bell

and whether investors should buy the stock ahead of that report. It is under pressure right now, along with the broader Nasdaq. That story, plus a rally for a pair of big industrials and Coinbase getting crushed when we take you inside the market zone. We are now in the closing bell market zone. Hightower chief investment strategist Stephanie Link is here to break down these crucial moments of the trading day. Plus, we've got Seema Modi

on GEN3M and Evercore ISI's Mark Mahaney on Alphabet. We'll kick it off with the Nasdaq because it's once again lagging the other averages today. This as we get set for the mega cap tech names to report this week. Steph, what do you, is this positioning ahead of some of those reports? Microsoft, Alphabet, lower ahead of today. Amazon also getting hit pretty hard after the Walmart news. Yeah, I mean, I think that this this is a really important week and I think there was some nervousness to begin with. Right. I mean, you have 35 percent of the S&P 500 companies reporting this week. We have the Fed decision. We have two very important

inflation reports later in the week. ECI, Core PCE, we know they're going to be hot. And then, of course, you had Walmart on top of all of the nervousness. And I am not all that surprised about the Walmart news after Target, after RH, after several other retailers did talk about missing the whole shift from goods to services. And of course, Walmart had problems with food inflation and their low end customers. So you have all this going on and then you have such uneasiness about digital advertising spend in general. And you think about it, I mean, Alphabet, both classes are 4.4% of the S&P 500. Microsoft is 6%. So you've got like 10% of the S&P at our fingertips. And there's a lot just riding on these companies, along with Amazon and Apple

and Meta later in the week. Right. So you mentioned the consumer slowdown. It certainly is here, at least that's what we're getting from some of these warnings on Wall Street. So Walmart, take a look, shares down sharply. The company did lower its outlook and says that customers are spending more on food and less on discretionary items, higher margin items like clothes and electronics. Walmart also unable to pass on those costs to its consumers as effectively as some of the other retailers. Now look at shares of Adidas lower in today's trade, also putting out a warning today, taking down sales margin and earnings guidance,

mostly on weakness due to the Chinese market because of those rolling shutdowns on COVID, but also saying that the consumer is facing challenging macro conditions that lead could lead to an overall slowdown in spending. And that guidance captures that. And then there's Shopify, the stock getting crushed after announcing layoffs for about 10 percent of its global workforce. That works out to roughly a thousand workers. The company CEO telling staff he misjudged how long the pandemic e-commerce boom would last. The stock is down another 13 percent. So the takeaway on the consumer, Stephanie, is what? I think it's very mixed. I really do, because you mentioned all those companies. But on the flip side, you know just as well as I, Coca-Cola had a good number and they raised their

sales number to 12 to 13 percent. Right. And we had Pepsi last week that did the same, that that talked about a very strong consumer, resilient consumer in terms of demand in the face of double digit price increases. We also had Microsoft, excuse me, McDonald's this morning, and they posted a nine point seven percent comp and they had upper single digit comps across every region. And so they're doing a really good job in terms of the menu changes and delivery and digital and all that kind of thing. So, yeah, they're all seeing inflation, but they're also saying that demand has held up. So it's a very mixed picture at this point. We'll have to see, Sarah, if these companies that I just mentioned have pricing power or not, because that's critical for them, at least at the onset. But I think it's a mixed consumer, and I think the high end is doing better than the low end.

And I think, you know what, if I had to choose between Target and Walmart, I would take Target, not because I own it. I do own it, but it has lagged Walmart by 23 percent year to date. And it trades at 13 times forward estimates, and it gives you a decent yield, and they've already taken their medicine. So I think Walmart was late to doing this. They're more of a staple. Aren't they considered more recession proof because they've got such a big food business? They do. They do. But so does Target. I mean, Target has been getting more of a combination. They definitely have more general merchandise versus food, but they have been increasing their food mix over the time. So I don't know. I mean, I just think it's a very mixed picture. I mean, the sector got clobbered.

And by the way, my favorite Costco is still trading at 39 times earnings and it hangs in there. But I'm watching that one to actually get back in at some point. It is getting hit today on the back of the Walmart news. I would say it varies by income group and also by category. It really depends just where you are right now. Yeah. Apparel doesn't look great. For sure. Airbig Industrials are top performers on Wall Street today. 3M is the biggest winner in the Dow after reporting better than expected earnings, announcing it will spin off its health care business. And then there's GE rallying more than 4 percent, leading the S&P after reporting profit that more than doubled analyst estimates thanks to strong sales in the jet engine business. Sima Modi joins us.

Both companies, Sima, now embarking on separate plans to spin off their health care units. Is the market on board or is it just the fact that they're not seeing a bigger slowdown in earnings? Well, I think the price performance today, Sarah, tells us that being a large, diversified industrial may not be the way to win on Wall Street. 3M revealing those plans to spin off healthcare, which accounts for about 25% of its total sales. Melius Research calls it a smart and aggressive move for a company that really needs it. The stock has fallen about 27% since Mike Roman became CEO in 2018.

That's actually the same year Larry Cull became CEO of General Electric. And he, too, has laid out a plan to spin off health care, break up the company into three, aviation, energy, health care, to really simplify the story a bit. And we're looking at shares of 3M now on track for its best day in two years. A pretty good rebound in GE shares, too, Sarah, up 4%. Their main challenge is on renewables, right? I asked him, when will this business turn a profit? He couldn't give me an answer versus the conviction that he had for other business like aviation and healthcare. That's where he sees the growth. Seema Modi, Seema, thanks. Steph, either of these companies a buy off the news today. They're both down more

than 20% this year. They're both about 30, 35 percent off the 52 week highs with some slivers of good news. Yeah, I mean, I own GE. I don't own 3M, but I do like 3M as well. And I like this move quite a bit. And you get a nice yield while you wait for the recovery and the spin. But for GE, I think you're starting to see the culp is starting to get respect and he's starting to get traction at the company in terms of making the changes that were very much necessary. So they beat organic growth was five percent. That's pretty, pretty, pretty impressive. Free cash flow was better than expected at 200 million versus 900, 800 to 900 million loss expected.

And I think, yeah, aviation is the bright spot for sure. With total revenue up 27 percent, orders up 26 percent. And by the way, total revenues up 27 percent compared to 12 percent last quarter. So they've seen a nice progression sequentially. And I think when they split up the company, that's going to be your catalyst. That doesn't happen until next year. So you kind of have to buy your time. But in the meantime, he's doing the right things. Interesting to see earnings winners at the top of the Dow, McDonald's and 3M, Walmart at the bottom, of course. And then there's Coinbase,

not in the Dow. Shares are sharply lower on an SEC probe over whether some of its cryptocurrency listings should have been registered as securities. Coinbase's chief legal officer writing on Twitter, quote, we are confident that our rigorous diligence process, a process the SEC has already reviewed, keeps securities off our platform. Kate Rooney joins us. Kate, what does this investigation mean for Coinbase and the rest of the crypto industry, just as they are debating this very issue of whether they should be regulated by the SEC? Yeah, it's so true, Sarah. The diligence process that the legal officer mentioned there from Coinbase, it's this framework that other exchanges, about a dozen other crypto exchanges, also use. So this could really set a precedent here, depending on what the SEC decides.

You could see penalties, lawsuits, class action lawsuits, I'm told. And you can't retroactively list a cryptocurrency as a security. So at this point, there's about 150 tokens listed on Coinbase. They can't go back and say, oh, by the way, those were securities. So they're going to have to deal with it. They've issued a petition to the SEC to try to get them to issue more of a framework and give a little bit more clarity. But it's been one of the criticisms from the crypto industry when it comes to the SEC and regulation. They say they want more clarity. The SEC, meanwhile, says we've given you clarity. These are securities and you've got to

act like they are. Coinbase is registered as an alternative trading system. They've got some of the broker dealer licensing, but they haven't had to use that yet. We'll see if this changes anything on how they actually have to be regulated and work with the SEC. Could have a chilling effect, though. And I'm also told that because there's no injunction and there's no cease and desist order, Coinbase can sort of do business as usual. They won't have to change anything in the near term. But all eyes are on what the SEC says here as far as what it means for the broader crypto industry, Coinbase being the biggest U.S. company and the only real publicly listed crypto exchange at this point.

Other than Robinhood. Kate, but the stock is down 21 percent. What is Wall Street so fearful of here if the SEC does make a bigger move on Coinbase? The worst case scenario would be that they are not able to facilitate any of the trading of the tokens that they do. About half of their revenue or less than half comes from Bitcoin trading. So if the SEC came out and said everything you're listing is an unregistered security and for some reason they were not able to continue doing business, they would really only be allowed to facilitate trading in Bitcoin, which is not a huge part of their business at this point. So from that perspective, also from a competitive perspective, if people say, all right,

I'm going to go to one of these exchanges overseas, Coinbase has really tried to build its reputation on being the more compliant, transparent version of this. If they're not able to operate within the existing regulatory framework, really bad news for Coinbase. And you're seeing it in the shares today. Absolutely. Kate Rooney. Kate, thank you. Take a look at Alphabet. It's lower. It is reporting after the bell today after Snap's warning on advertising spending. Analysts will be watching Alphabet's ad revenue numbers closely to see whether it's an industry-wide problem or something more specific to Snap, plus, of course, the performance of Google Cloud. Joining us now is Evercore ISI's head of internet research, Mark Mahaney. So Google shares about 30, 31 percent off the highs, would you buy it

ahead of earnings? No, I think you the probability is that estimates come down both on the top line and the bottom line because of FX, because of macro conditions. I mean, this is an ecosystem here. If there's weakness in consumer discretionary retail spend, if there's pressure on margins, that means that the margin people are going to spend less on advertising. They'll spend less on Google. It's secular, but it's secular cyclical. So I think it's a probability that estimates come down. I don't think we have anywhere near the kind of cuts that we had with Snap where estimates came down 20 to 30 percent. I think your downside risk on the estimates, a lot of this is priced in, but you never know, is probably more in a 5 percent range, maybe 10 percent max. But no, I would not be buying Alphabet in front

of the print. But haven't estimates already come down for names like Alphabet, especially in the wake of Snap? Haven't you yourself lowered estimates into today? Yes, I did. I'm still fearful that there's more cuts, and I think I'm below the street. So I think the street could come down. And FX is a real legitimate issue. I mean, that 12% appreciation in the dollar, companies like Google, Amazon, Facebook, I mean, they have 50% of exposure to international markets. And I really do worry about these data points we get from Walmart, cuts in discretionary spend, that consumer discretionary spend that will impact advertisers. And again, think about Google as a major item and most retailers P&L, like that's their marketing

expense. And if that P&L is being pressured because of inflationary costs in other places, they got to take it out of somewhere. So I wouldn't be surprised if there may be greater pressure than I thought just as recently as a week ago on Google. I'd be cautious about Google, Amazon and Facebook. I think numbers come down for all three this week. And what are your expectations for all of them on hiring freezes, layoffs, cutbacks in spending, those issues? Yeah. And Sarah, I thought actually that was one of the biggest tells. I mean, the number of consumer technology companies that have started to cut back Shopify 10% or slowing down or freezing. I mean, that's a real tell. Google has got tremendous visibility into the global economy. They may know the global economy better than anybody, given the search activity that they

can look at. So when they slow down their hiring and they do it twice in a relatively short period of time, we should all step back. And hopefully this isn't, you know, I don't think there's anything permanent going on here. And I don't think there are necessarily company-specific issues. And by the way, if you want to be defensive about this, you know, you still have with Google a 7% free cash flow yield. It still trades at, you know, 15 times gap earnings. And even if you cut them by 10%, you know, you still have something like it's at 17 times gap earnings. You've got search advertising, which is about the last area to get cut. You've got cloud computing.

And I haven't seen any evidence that there's a slowdown in spend for cloud computing. So there's a lot to kind of this stock will hold in better than others. But, you know, I am fearful that estimates come down. First thing is stocks will get cut. That is some pretty bearish talk on these names from you, Mark. Mark Mahaney, we don't always get that. Thank you very much for joining us. We'll see what we get after the bell. Two minutes to go in the trading day, Steph, into these tech earnings. Would you be making any moves to agree with Mark

that the numbers have more downside and then so do the stocks? Yeah, I think they do have downside to the estimates, although they are all down quite a bit. The big five, right? I mean, they're down 20, 30. My goodness, Meta is down 52% year to date. So numbers have been coming down. People know things are slowing. We know digital ads are slowing substantially.

I only own Meta, and I own it, and it's been wrong, but I own it because it does have size and scale. When I think of Alphabet, they also have size and scale. I mean, their search business, YouTube Shorts, it has 1.5 billion monthly average users and YouTube itself has 2 billion plus users. So that size and scale. So, yeah, if their numbers come down, that story starts to get a little bit more interesting to me in terms of if the numbers come down and the stock comes down and the valuation gets more attractive. At 17 times, it's kind of in the middle, in my opinion. It's not here nor there. I mean, Meta is at 13 times and trades at seven times EBITDA, but they're not immune. We know that. So I want to pick my spots in this space,

but I really have a very light positioning headed into the prints. Well, one downside of size and scale, at least globally, is foreign exchange, which all the analysts are warning about here with the strong dollar. Stephanie Link, love seeing you. Thank you so much for joining me. Thank you. Appreciate it. I just want to point out Amazon because it is falling more than 5 percent. Consumer discretionary is the worst performing sector right now in the market.

As we head into the close. It's Shopify. It's Walmart. All of those headwinds. It's the broader tech sell-off. There's Amazon down 5.3%. Beyond consumer discretionary, you're also seeing some pain today in communication services. That's what we'll be watching after the bell. We've got Meta down 4.5%.

Some of the Netflix, some of the media names also a little bit lower. Twitter is actually bucking the trend. It's up 39.43. And some of the telecom companies like Verizon and Comcast are a little bit higher. Healthcare, utilities, and real estate are strong in the close. That's the defensive part of the market. Consumer staples are holding up despite Walmart's fall. You've got names like Coca-Cola and Pepsi doing very well.

NASDAQ down almost 2% into a very heavy earnings hour. That does it for me. I'm closing the bell. See you tomorrow.