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tv   Closing Bell  CNBC  May 23, 2022 3:00pm-4:00pm EDT

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the power lunch show cast is available where you get your podcasts you can listen there, you can follow and we highly recommend it. >> throw us a review what are the podcasters always say? thanks for watching "power lunch," everybody. >> "closing bell" begins in just four seconds stocks broadly higher to kick off a new trading week with the dow up more than 600 points as we head toward the close. the most important hour of trading starts right now welcome to the closing bell. i'm melissa lee in for sara eisen who is on assignment in davos. let's take a check on where we stand. the dow jones industrial average surging higher, helped by jpmorgan, goldman sachs, walmart. jamie dimon rally. check out the s&p sector winners today. as i mentioned led by strength in banks, following optimistic comments from jamie dimon at the investor day energy not too far behind, although wti is flat on the
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session. it's up by 2.75% staples getting a bid up 2.2%. coming up can you trust this market bounce-back we'll ask tom lee if he thinks the bottom is behind us or there is more pain to come plus we'll talk to the ceo of take-two about the closing of its deal to buy zynga and fresh m & a speculation in the space we begin with jamie dimon wrapping up remarks at investor day where earlier comments helped spur this rally we're seeing in the financials leslie picker is there on the ground at the conference with the very latest. >> that's right. chairman and ceo jamie dimon just wrapping up jpmorgan's investor day he shared an analogy that economic risks like war in ukraine and qt are akin to storm clouds. >> your storm clouds, and we hope they mitigate
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there's things that we are seeing are serious as you may see in your lifetime they may mitigate. as opposed to a tsunami that's not going to mitigate. that's what happened in '08. >> analysts say that dimon must not see an imminent risk of recession or the firm wouldn't have lifted net income interest guidance that's akin to stock moves with citi, bank of america and wells fargo. a tailwind for that important profitability metric is higher rates. so when asked about inflation, dimon stressed that the fed has to raise rates and do quantitative tightening although he said he's not sure how they're going to do it he just said it's something that needs to be done there were also several questions about expenses and the firm reiterating it will spend
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$777 billion this year he spent team outlining where they are going, technology and cyber. jpmorgan is up 7% right now. >> quite a turn-around considering the decline they saw in january when they last talked to investors i wonder what they're saying about the consumer we heard the ceo of wells fargo last week talk about the deterioration of the consumer's ability to pay jpmorgan sounds a little more optimistic about how the consumer will fare >> yes, much more optimistic you heard dimon this morning talk about the strength of the consumer, the strength of the economy, largely thanks to quantitative easing, monetary easing, fiscal policy as well. he said that should bode well if we do go into a recession. he also talked about the credit quality and said a lot of their businesses are really, really focused on prime consumers and therefore he's not that worried about the potential stresses in the economy and what that would
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mean for their risk exposure. >> leslie, thank you leslie picker at the jpmorgan investor day. strong performance banks lifting the entire market. stocks bouncing across the board after the dow logged its eighth straight week of losses. is this the start of a sustained comeback let's bring in tom lee tom, is this rally convincing to you? >> you know, i would say for anyone who's an investor, there's a lot of bargains out there. there's so many stocks that have been obliterated in the last eight weeks. we've been highlighting how companies with faster revenue group trade at a discount more than companies with negative revenue growth so i think a lot of stocks are pretty attractive risk/reward. >> i like how you qualify that if you're an investor, meaning that's a longer term horizon in the nearer term, tom, i'm
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wondering how you think the markets start digesting this idea of a potential recession. now creeping into the conversation there's talk of a stagflation out there. whether or not you think it's true, and i believe you're in the boat that thinks that it's not true, it's out there and it's a concern how does the market process that we've seen what's happened the past seven weeks in the dow and eight weeks in the dow and nasdaq. >> yes, it's enclclear the caser investors is the fed will tighten until they achieve what they want which is engineering a soft landing but they would like to see a demand destruction by either jobs falling or gp contracting. and i think the thing that is not really priced and very difficult to price is a lot of things could go right. something as simple as labor market could start to ease because you get rebounders, people coming back to the workforce or the job market
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weakens, or we have a real decline in goods prices now that we've seen it from these retailers, they have too much inventory. that's actually deflationary supply chains could come back online better than expected and possibly the war could ending. so if you think the cumulative probability of many of these things is much greater than the markets discounting, that means stocks and the fed could be much further along than people realize. >> you've been taking a look at the data, tom, data from indeed, for instance i'm wondering what you see and how you interpret that there's been some pull-back in hiring in certain sectors, which would seem to me like on the surface that's bad news. but that's actually what the fed wants to happen. >> yeah. i actually think the job market is really important to watch and i think the market and investors and your audience has to be aware of fed really has to work with lag data the report that they cite from
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their may fomc meeting was data from march 31. it's always six weeks lagged that's why our team has been looking at the indeed data, which is updated daily there's four industries that have accounted for the majority of rise in job postings. retail, leisure, health care and then construction. as we highlight in our note, if you look at the data since march 31, all four of seen a pretty big downturn in health care it's not because people aren't going to see the doctor, it's just that the staffing required for covid has drastically declined so i think the job market could be a lot softer than the fed has in mind when they say the data shows it's the tightest job market in history. everything since march 31 shows it's weakened a lot. >> why doesn't that give you pause for concern ifthe job market is softer than we think the whole -- one major pillar of the bull case is the consumer remains strong, the consumer can
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handle inflationary spikes because they have jobs but if we are seeing softness in the job data that isn't showing, it seems to beg for some sort of adjustment in the market. >> well, it's a good question. it's like heads i win, tails i lose i think what the market is going to care about is monetary policy because this is really the first time the fed is using the channel of wealth effect to try to slow the economy. not through tightening credit as much as trying to really hit demand if the job market weakens, that's going to alleviate the biggest pressure point, which as powell said many times is the tightest job market in history if that pressure valve eases, it starts to take a lot of pressure, especially from the market perspective about what the fed has to do and that's why i think stocks could rally substantially. again, there's many paths for
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positive outcomes, and i think the central case that this is a tightening until we have a crash, even jamie dimon's comments address the fact that maybe the market's central case is too hawkish. >> all right, tom, we'll see always good to see you. after this break, shares of take-two handily outperforming the s&p 500 this month today the company is closing its deal to buy rival zynga. we'll talk about the merger and later speculation in the video game space next. you're watching "closing bell" on cnbc.
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shares of take-two up more than 6%. the video game giant behind grand theft auto claiming its $12.7 billion acquisition of zynga today. joining us is the ceo and chairman strauss zelnik. hello. >> thanks for having me. it's great to be here. >> interesting day to think about how the industry is shaping up you're pure play gaming. we've got microsoft and activision on another side and ea potentially looking for a buyer, potentially a non-game player like comcast, like apple, et cetera. how do you think about that world in which you fit where your competitors are teaming up with bigger tech companies? >> at the end of the day our job collectively and individually is to make hits and we have sufficient resources, to say the least now,
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to deliver hits not just across console and pcs but of course in the mobile market as well. mobile now represents 50% of our net bookings ea is a tough competitor, a great company run by a great executive. activision is the number one pure play company in the space we don't take competition for granted or lightly at all. however, there's nothing about those companies being part of larger enterprises, assuming the speculation of ea is correct, and i'm not at all certain that it is, that would interfere with our ability to create this >> do you think it gives them an advantage in terms of platform or distribution, getting at gamers in different ways >> i wouldn't want to underestimate those companies. i don't underestimate anyone it's a tough market. that said, what drives distribution is the quality of what you do and we're really
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proud about the quality of our products the products that we have historically had and built here at take-two and the new hits that are coming to us now with the combination with zynga so we continue to aim to be the most creative, innovative and efficient entertainment company in the world distribution will take care of itself. >> i want to talk about competition in terms of other releases to your games there is some concern out of your last earnings release, which was just last week, hard to believe, that gta online, nba 2k were facing some competition. can you give us some color as to how long those headwinds will last some of those are high profile releases from competitors, and some of that is some very successful releases of your own in your own portfolio. >> i think you're referring to our recurrent spending which isn't the fourth quarter
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moderated a bit. these are huge, massive franchises grand theft auto online has been in markets since 2013 and has better engagement that many years in the past. nba 2k '22 is one of the best titles ever created in our basketball franchise and the results are massive. we've sold 165 million units of grand theft auto and over 10 million units of nba 2k '22. so this is a great news story and at the same time, yes, it's a competitive marketplace. sometimes we'll see a bit of decline in engagement. these are highly resilient growth titles and we feel really good about the future. >> sports, of course, is a very important part of your franchise, strauss, and i wonder if you're interested in a fifa partnership? >> well, the news was not lost on us. we're not in the soccer business yet. >> okay. not yet. you leave that open, though, it
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sounds like? all right, no comment there. let me ask you about gamestop, which is a partner of different sorts. they are announcing a crypto wallet for crypto as well as nfts i'm wondering if you think that that's something that you would look into, the use of crypto and nfts within the gaming platform? >> well, we haven't done anything yet with nfts we selldigital goods and our consumers love them. an nft is simply a digital durable good so i think that's pretty exciting at the same time, we want to make sure that we're not asking our consumers to speculate there is this overhang of speculation of all things crypto and all things nft so do i believe there's durable opportunity for nonfungible
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tokens going forward in the interactive entertainment business i do i want to make sure it's in service of a great entertainment experience and also in service of treating our consumers fairly >> all right strauss, we'll leave it there. it's always great to speak with you. thank you. >> thank you for having me. >> strauss zelnick of take-two. let's get a check on the markets with the dow higher by 1.9% that's 600 points on the dow s&p up by 1.7% nasdaq composite up 1.3%. up next, mike santoli breaks down the latest ceo confidence data and what they could foretell about a possible recession in america. check out some of today's top search tickers the 10-year yield getting the most interest followed by tesla, apple, amazon and the s&p 500. we'll be right back.
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stocks are rebounding with all major averages trading in the green after the dow's longest streak of weekly losses
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since 1923, but the macro climate and market swings are translating into plunging ceo sentiment. mike santoli has a closer look in today's dashboard. >> yeah, melissa, plunging ceo sentiment from stock prices going down or the same issues driving stock prices down. to me it's a much more rapid and direct impact of declining share prices relative to the wealth effect on spending what you see is a very interesting level that we've reached in ceo confidence. i want to draw this across here. it's about as low as it gets without being on the verge of a recessionary level the shaded areas are recessions so we plunge below that here you have the 2000 recession, obviously 2008 but you did reach this level a couple of times, like in '98 and 2011 what happened then near-miss recessions, 20% declines in the stock market, but not quite at a closing level. same as we have right now. so it seems as if we're on that same mode as we are with credit spreads, yield curve, all these indicators that say, yes, things are late cycle, things are
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slowing but not clearly just yet in recessionary terms. one final point, melissa this right here was off the chart previously so you had this massive search in ceo confidence coming out of the recession with all the stimulus so it's unclear if we're operating on the same scale that we were historically. >> presumably ceos won't invest in their business or we can't make that argument >> i think we can make that leap a little more careful about hiring, a little more careful about capital investment sometimes it's translates into m & a or maybe i'm willing to sell because i'm less confident interestingly repairing of balance sheets maybe they'll pay down a little more debt if you feel like you have to build up a cushion. in other management news, a new report looking at board room diversity found that women are making progress towards closing gender gaps. julia boorstin has that story for us julia. >> well, the average percentage of women on the boards of
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america's thousand largest public companies, that's the russe russell 1000, increased from 23.8% to 28.2% between 2019 and 2021, according to new analysis. but just 3% of those 1,000 companies had equal or higher representation of women on their boards in 2021 that's up from 2% two years earlier. they point to general motors, citigroup, procter & gamble, merck and neilson saying those are the only ones with boards that are at least 40% female and have at least one committee chaired by a woman and they also raise the question, does diversity drive results. a study out on friday tried to answer just that question. among the 72 s&p 500 companies headquarters in california, those with boards with higher
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diversity across gender, race and age of its board members saw higher revenue growth of 24.2% compared to 20.7% revenue growth for those with a lower diversity score. and california is in focus because a judge just last week struck down the law mandating for diversity thresholds, so, melissa, certainly one to watch. >> julia, thank you. up next, venture capitalist bradley tusk explains why he thinks his industry is to blame for flops in the tech sector
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"experts see deep flaws." "that was the worst thing i've ever seen in my life." to stop tesla's full self-driving software... vote dan o'dowd for u.s. senate. tech is one of the worst performers so far this year. one of the culprits could be venture capitalists according to our next guest let's bring in bradley tusk. bradley, great to have you with us. >> thanks for having me. >> where was the error made in terms of venture capitalists calculations they were too optimistic about these companies? they didn't stress test these companies enough bad timing where was the error? >> the answer is going to shock you, but it's actually greed, which pretty much drives every bad decision we see most of the time look, here's the problem because institutional investors
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were willing to allocate a lot more money to venture capital, vcs kept raising bigger and bigger funds 2% of a much bigger fund gets you more than 2% of a smaller fund but you can't write a $2 million check. you've got to write a $20 million check to make it work. you can't put a $20 million check into a small company so the valuation has to be a lot higher to justify it in order for people to justify chasing higher management fees every single year, fund sizes got too big , valuations got too big, these companies are just widely overvalued and i think the market has been pretty smart and accurate in bringing them back down to where they should be. >> people at home, bradley, are going to look at the screen and say this guy is a vc also. so you're an early stage vc. so you're saying this is happening in the later stages of venture capitalists?
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you're pointing fingers basically? >> no, no, no, it's happening everywhere we have kept our fund sizes pretty small our most recent fund is $140 million so we kept it pretty reasonable no, you see it across the board. the growth equity to me seems the craziest, i just don't understand how you could invest in a late series tech startup that you know is going to get knocked down as soon as they ipo. but no, i think everyone shares the blame here. >> it's fun to talk about venture capitalists being greedy people love to think that people who were once making a lot of money were just simply greedy. what are the repercussions in terms of funding new companies i would imagine as a young company it's much more difficult to get that check, maybe it's harder to bring these companies to market. maybe there's a gap now in the development of companies in the pipeline >> all of that is true so there are companies who are now raising -- that are really struggling, if it was six months ago or even 30 months ago would
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have been inundated with term sheets and offers so there's a really, really significant lag now not just in valuation but willing to deploy capital. so there is definitely a price being paid for it. on the other hand, to me this is a tremendous opportunity because valuations are down. there's a lot more opportunity to really check these companies before putting in a temple sheet. >> growth at all costs is not in favor in the public marketplace, bradley, so what's happening in the private marketplace? are companies getting small? are they girding for the worst-case scenario in many terms of what their head count looks like, what their investment looks like? >> yeah. you're seeing a few things one is people are trying to accumulate as much cash as they poss possibly can you're seeing people cut whatever they can to reduce the monthly burn rate. you're seeing layoffs at some of these companies. we had two companies that
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conducted layoffs recently in every single way, founders and ceos are aware that the party is over at least for now if they want to make it through to the end, they'll need as much cash as possible. >> bradley, good to get your perspective. thank you. let's get a check on where you stand in the markets again, it's the jpmorgan rally, because jpmorgan is helping the dow and s&p here the dow is higher, holding on to a 600-point gain s&p 500 up by 67 and nasdaq up 1.33%. last week ftx started offering zero commission stock trades this week the crypto exchange may be shopping for a stock trading brokerage. and a programming note, do not miss tonight's special, "inflation and your stocks" hosted by becky quick featuring several top ceos at 6:00 p.m. eastern time here on cnbc.
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what is wall street buzzing about today? it's ftx the crypto brokerage that announced last week it's getting into stock trading now it maybe be shopping for a partner. kate has the details. >> they have been quietly shopping and looking for deeltz. the crypto firm has approached three privately held brokerage companies about an acquisition this is according to sources familiar with the talks who asked not to be named because
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those discussions were confidential the startups including weeble and others it speaks to ft x's ambition in the space. and trading assets under one roof just last week ftx announced its official move to offer stocks. it's already made a couple of strategic investments in the space. in april it invested in a stock exchange operator and there was a 7.6% stake in robinhood. it fueled some questions about deals in the space and robinhood's future as an m & a target as its share price drops more than 80% from the high. bottom line, i'm told expect more consolidation in the space as prices come down. back to you. >> kate, thank you kate rooney. up next, jill carey hall on why recession risks may already be priced into small cap stocks.
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we are now in the "closing bell" market zone. cnbc's senior markets commentator mike santoli is here to break down these crucial moments of the trading day and frank holland, and jill carey hall on the outlook for small caps we begin with the rally today. all 11 sectors trading higher
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after the dow finished last week trading lower for the eighth week in a row. mike, what do you make of this rally so far >> a lot of things lined up to have a lot of people expect a little bit of a bounce the s&p is up 4% from friday's low. i think what's on everybody's mind is less than a week ago we were 5% off the prior week's low and it seemed as if we were already also primed for another rally. so i do think that the fact that you've had a series of these short-lived bounces is on traders' minds on the other hand one thing that distinguishes this week from the prior ones is the calendar this is a pretty strong week after may expiration leading into memorial day. i think the market got more oversold and sentiment got more depressed coming into this week so in theory this could have some legs to it even if almost everyone believes it might only have head room up to a 10% rally off the lows. >> we are seeing real help
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today, mike, from the real beaten-down big cap names. not just apple and microsoft which are strong and holding on to their strains into the close but walmart is catching a meaningful bid after last week's just decimation of market cap. >> yeah, absolutely. also i think that reflects some kind of separation of winners and losers that's being attempted here today, because not all the retailers are strong it is kind of a walmart/costco story in terms of consumer and then of course the banks are pretty big exceptions to what's been the rule, which is meaning their upside leadership today they have not been for a long time. >> speaking of the banks, financials are the best performing sector, this after jamie dimon's bull inner comments at jpmorgan's investor conference those sent big bank stocks higher overall bank stocks are down 16% in 2022 but jane frazier made a bullish case for the group when she sat down with sara this morning at the world economic forum in davos. >> i think a number of them are
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undervalued but there's a lot of uncertainty out there at the moment as i say, we're seeing equities coming down anyway in the asset allocation of investors. but i personally, as you would expect, think there's quite a lot of upside there. >> a lot of uncertainty and storm clouds as jamie dimon put it maybe hanging over the economy, mike, but they do seem or jamie at least seems to be more than willing to be sort of more optimistic when it comes to his outlook for the consumer, particularly when you think about jpmorgan rolling out credit products. you don't necessarily roll out new credit products when you think there's an imminent slowdown or imminent recession coming. >> that's right. he certainly didn't flag any rapid erosion of customer credit experience right now so with the group down 30% off its highs, clearly it was discounting a high risk of an adverse economic scenario, credit going south in a big way on the corporate side.
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so i think just the words from him as well as bank of america's brian moynihan really doing nothing to bless the worst fears of the market is enough today to give a lift because the valuations really have come in quite a bit. jane fraser no surprise thinks her stock is cheap because it's really, really cheap, way under book value and has been for a long time. >> the investment banking side of the business, the equity side of the business could be in for more trouble pinto said he expects the next couple of years he expects market volatility. that's a long time for market volatility to last. >> it does go in longer cycles, although it seems like we rush to a place here, down 20% on the s&p. bond volatility almost off the charts outside of crises, so it seems like the market has gone a long distance toward kind of handicapping that type of environment. capital markets, looks like it's still not a place where people
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are willing to go out on a limb and say things are going to get good any time soon >> don't miss more coverage, by the way, from davos tomorrow on cnbc including sara's interview with the ceo of micron at 10:00 a.m. eastern time. shares of vmware is in talks to be acquired by broadcom it could be one of the largest mergers ever in the tech sector. frank holland joins us frank, broadcom is a serial acquirer are tries to be why vmware >> just some news out from dow jones, according to dow jones, broadcom is discussing buying it for about 140 a share to make this a $60 billion deal, up from the $50 billion that the financial times reported just a few days ago now to answer your question, it's really a big bet on the hybrid cloud that's a combination of having data on site totally controlled
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by a particular company in addition to having data and applications on the public cloud. for large enterprises, think of big bank or multi national corporation. that's the reality for the foreseeable future vmware has 50% of the virtualization market where a company takes your on-premise workloads and just maximize them and make them more efficient, make them better and just work with what you already have and make that better so if you believe that economic slowdown might be coming, a slowdown in i.t. spending might be coming, you would want the ability to maximize what companies have in addition to do pure play cloud where vmware was transitioning towards and having a little difficulty. >> it's interesting to think about where the stock is trading now. frank, you mentioned 140 a share. the stock is nowhere near that, mike you think back to the last big
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purchase that broadcom tried and that was for qualcomm. that, of course, didn't happen on some security concerns, mike. what's your take on the regulatory environment this time around >> yeah, i mean it seems a little bit maybe less in the crosshairs knowing what we know right now in terms of product overlap and things like that, it's outside the chip area. what you would take from broadcom's share performance, down 4%, is probably i would say on a net basis encouraging for the broadcom folks it's not a big penalty that the market is applying on this idea of paying this floated price right there. it's kind of fascinating how broadcom is rebuilding this kind of tech conglomerate you could go back to the old ibm. they made chips. they had software services they had all kinds of other products across the enterprise, so try to do it in a smart way, pay the right price and shepherd those cash flows for investors.
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>> this is a michael dell story ultimately he's a major owner of vmware shares, isn't he >> he owns 40% obviously the thought is that he has a lot of input on this deal and a lot of sway on this deal one other thing, if you look at some of the other stocks that are competitors of vmware, those shares are up. rumors have it that they are being eyed for acquisition ibm made acquisition of redhat which was a vmware competitor back inspect 2019. those shares are up. so this is creating excitement >> frank, thank you. frank holland. citi turning bearish, downgrading abercrombie and fitch, kohl's and rolfe lauren
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reducing gap and children's place to sell. courtney reagan joins us 2021 was a boone for retail. retailers cut back on promotions is that over >> yeah, melissa, it is such a good question because i think 2021 became an anomaly for so many retailers after years and years of having to promote to get consumers to buy, all of a sudden average unit retail was going up, margins were getting padded. it was pretty amazing to see the consumer demand and supply be copacetic with one another to make that a reality. but now retailers, especially apparel retailers, have had to work really hard to get all that inventory in, get ahead of the supply chain problems. now all of a sudden they have more than they can sell. it's just not matching demand. and it's not the consumers aren't able to buy apparel right now, it's that frankly they're not really interested in buying it they're shifting what they're buying when it comes to discretionary items because of
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what we've seen from inflationary pressures on the items that they have to buy. so citi is putting that altogether and saying, look, apparel is really going to be crunched as a result, we're downgrading all of these players we think this year is going to be really hard and bye-bye to some of those average unit retail and increasing merchandise margins. you're going to have to promote to sell. you have way more inventory than you have sales demand that matches up with that but i take this altogether and say, look, what we went through during the pandemic and what some of these retailers took the opportunity to do, to really right size their business and to improve their operations wasn't lost there may be a few bumpy quarters, but if you're a company like ralph lauren or tapestry or capri that took the opportunity to look at your pricing really tough, look at your inventory, figure out where it makes sense, in the long run you'll still probably be better off than you were before, when you took the chance when everything as really beaten down to evaluate your business. but i do think there's pain here
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in the short term after last week, expectations are frankly really low. >> mike, when you think about what the banks are saying about the consumers, consumers have money to pay and to courtney's point and the points made by the ceos of target and walmart last week, they're just paying different things they're spending on different things yes, the wallet is still there, the wallet could be strong, but it may not be beneficial to all the retailers out there. it's probably beneficial to the gas pump but not to gap, for instance >> that's right. you know, as courtney was saying, it's really a clothing story. best buy ahead of its numbers, stock about flat today massive inventories. up from a macro basis, maybe not the worst news the retailers' margins may suffer, but the idea that you're going to have pricing come off the boil perhaps a little bit is not unwelcome to anybody who's trying to see if the fed gets a little help on what it's trying to do this summer in terms of restraining inflation. >> courtney, thanks. russell 2000 is higher but
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underperforming the major averages small caps continue to lag slightly behind the s&p 500 this year, down 20%, while the s&p is down 17% joining us now is head of u.s. small cap and midcap strategy, jill carey hall. good to have you with us i guess the question for investors of all size companies is what have we priced in in terms of recession fears and stagflation fears. have small caps in your belief priced in more than the large cap stocks, for instance >> yeah, thanks, melissa, for having me. i do think they have we've seen some interesting trends this year you know, small caps have already sold off about 30% from their highs late last year the typical drawdown in small caps when you look at prior recessions going back to the 1950s has been on average around, you know, 36 to 40%. so we're actually about 80% of the way there in terms of what we typically see, and valuation
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multiples have come down to pretty similar to where we've seen on an absolute basis during prior recessions now, for large caps, valuation multiples are still above their long-term average. in our view based on moves that we've seen and looking at the equity risk premium, large caps can only be discounting about a 40% recession risk at this point. so i think if recession risks continue to rise, there certainly could be more downside risk to equities across the segment at this point but we do think that the risks are more adequately being reflected in small caps and that from here large caps could have further to fall. >> inflationary environments like the one we are in right now, jill, if inflation continues to go higher or just remains high, how do small caps traditionally perform versus their larger counterparts? >> well, so i think from looking at prior historical inflationary
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regimes, small caps have typically held up well, better than large caps during inflationary environments. when you think about parts of the '60s, early '70s, early '80s and when we have looked at margins, small cap margins have actually been less detrimentally affected by inflation than large caps going on today you had many large multi national companies seen their margins benefit from lower taxes, lower labor costs abroad and globalization now if globalization is reversing, we do think that this could be a headwind to margins for many large cap multi national companies so small caps have -- stagflationary environments, which is not our base case we are looking to upside to the s&p 500 this year, no recession, slower but continued economic growth but a stagflationary environment historically not good for
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equities you have seen small caps outperform large caps. >> in terms of sectors within small caps, jill, you are actually saying to look at, and this is not a sector question, but you're saying to look at dividends. are there any specific sectors that are more inclined to give dividends within the small cap space? >> yeah. typically in late cycle backdrops, dividends continue to matter or begin to matter more and that often continues during downturns that dividend yield is one of the top performing factors. we've seen this in our small cap and our large cap work our view is if the fed is hiking rates, cash becomes more valuable we're in a lower return world environment where if equity returns are pretty tepid, then total return matters so even within small caps where investors may often be thinking about small caps for growth, you know, just since the start of last year, since the start of 2021, just dividend-paying stocks within the russell 2000
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are up about 20% versus non-dividend paying stocks down 20 so wide spreads just based on dividends. in addition to dividends, we focus on quality quality has been a big differentiating factor between best and worst performers within the market, within small kacaps from a sector perspective, financials which we were speaking about earlier on the program, energy, these are two cyclical sectors that work in both large and small one sector where you do see differentiation in how it looks and determining whether -- based on whether they're a large or small cap investor is health care health care, biotech has really been the biggest detractor from the russell 2000 performance this year. health care is outperforming large caps i think there's been a lot of challenges to small cap health care with higher rates, the covid backdrop, et cetera. so that's a sector where we do see more risk but an m & a pickup could be one positive. >> jill, great to speak with
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you. thank you. >> thank you. >> jill carey hall. under two minutes to go in the trading day. mike, you have more on the market internals. >> pretty solid if you look at the new york stock exchange volumes. about two-thirds upside volume versus downside, a little better than that. not a huge one-sided rush but definitely positive. take a look at the u.s. dollar index. it's come off the boil a fair bit today. most of that story is euro strength after christine leguard of the ecb clarified some of their moves toward tighter policy but the dollar index rolling over along with inflation expectations and perhaps the worst fed fears. the volatility index is easing back, it's under 29. still in that frustration zone where not low enough for people to think the market is stable, not high enough for people to wait for a big rush and panic but an improvement off of last week's highs, melissa. >> a little surge of energy as we get into the close. we are looking at the top performing sectors in today's session being the financials
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being helped by jpmorgan and jamie dimon sounding upbeat when it comes to the shape of the consumer it looks pretty good despite the storm clouds there look at apple, shares closing out 4% higher on the day dow is up almost 2% on the session. we'll send it now to scott wapner in "overtime. all right, melissa, thank you very much. welcome, ervverybody, to "overtime. i'm scott wapner we're just getting started in just a few minutes we'll get zoom's latest earnings report, a real-time temperature check on once high-flying tech stocks we'll have the color and instant reaction and everything you need to know about that we do begin with our talk of the tape the bounce, whether it can last for more than a day or two, that's what it's come to all we're asking for is a day or two. let's ask liz young. it's good to see you 'rsh


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