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Earnings forecasts could be the next catalyst for the stock market

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Yahoo Finance’s Myles Udland joins the Live show to discuss Target’s warning and how earnings forecast revisions could be the next trade catalyst for stock market investors.

Video Transcript

JULIE HYMAN: Appreciate it. Well, as we look at what's going on in stocks here today, we've been watching, of course, the earnings outlook. That's something we've been talking to a lot of strategists about. We talked to Amanda Agati about it earlier today. She was pretty positive on earnings growth that we have seen. That was the topic of today's Morning Brief. Not everybody is so positive though. Myles Udland is here with us. What a pleasure.

MYLES UDLAND: Here we are. Look at this.

JULIE HYMAN: Look at this.

MYLES UDLAND: Oh, we got a hanging. Oh, OK.

JULIE HYMAN: [LAUGHS]

MYLES UDLAND: What's up?

JULIE HYMAN: So, Myles Udland, you were looking at some of the talk about earnings growth in the Morning Brief. And what's the sort of, I don't know, conclusion, if you can make one, from all of the divergent notes?

MYLES UDLAND: Well, so, what a surprise, Mike Wilson at Morgan Stanley's a little bit bearish on the market here. I think his argument is essentially founded in two real shifts that are happening in the market right now. The first is that the market has moved on the move in rates. And I think if you look at things like Peloton-- who you were just talking about-- I mean, go through all the kind of-- we won't use the word on-air-- but all the companies that have messy balance sheets, let's say-- they have all been sold pretty much indiscriminately, right?

Those stocks are down 60%, 70%, 80%. We all know the names. So that's the rates trade. Now we're going to head into the earnings trade, or at least this is what Wilson is saying. And that kind of comes to the Targets, the Walmarts. These are the big companies in the market that, in Wilson's view, are going to come out in July and say that their earnings over the second half of the year are going to be down. And a notable part of this story is, in the last two months, aggregate S&P earnings have actually gotten revised higher, which, Soz, I know is probably a little bit difficult to square in this environment.

And I think you hear what Target comes out with this morning and, all of a sudden, companies are either ready to admit that they have a better view, a more negative view on their business, or are just realizing that their business is not going to be as good as they hoped.

BRIAN SOZZI: Myles, let's try to write the Morning Brief tomorrow.

MYLES UDLAND: Brian Cheung has it, so let's frame it this way.

BRIAN SOZZI: Maybe then, like, Thursday or Friday. Target's warning signals recession risks. None of this is priced into stocks. Why isn't this a major sell signal?

MYLES UDLAND: Well, I-- what, you mean Target's warning specifically? Well, I think-- the way that I looked at Target's warning-- and I'd be interested on your-- I know you guys have rehashed this. I'm not going to go over it too much. But Target is kind of doubling down on, like, this is a macro problem, this is not a Target problem. But it might-- like, is it-- it might be a Target problem. Are we sure that Target here hasn't really miscalculated their own kind of product mix, their own inventories, whatever it is, and maybe they are now-- I mean, what, they cut their margin outlook for the current quarter--

BRIAN SOZZI: It's an everybody problem.

MYLES UDLAND: --by 75% in the last three weeks though. But the thing is, like, to me, everybody has a problem. But this is kind of, like, this might be Target's, specifically, problem, which is maybe why investors overall are not ready to slash their S&P earnings outlook, because, you know, just because Target says it's bad.

BRAD SMITH: One thing that we were discussing earlier was, what is to happen-- what is the economic implication, once you see some of the services- or experiences-related companies also saying, hey, we can't pass on every single cost to customers right now because they're starting to push back in some sense or the other?

MYLES UDLAND: Well, so, the problem is airlines come out and they're raising their forecasts every day. I mean, I think every major US airline has come out in the last couple of weeks and said that we are at record volumes or 2019 volumes or within shouting distance, raising the revenue. If anybody has booked a flight, they know how expensive it is. I saw there was, like, a viral dumb tweet going around yesterday of someone being like, I'm now sitting on a flight wondering, what does everybody do that they can afford to be on this flight.

So, you know, I'm not sure it's quite at that level, but it's directionally at that level, and it kind of begs the question of, like, how much-- like, what can those companies say to counterbalance Target? And right now, they're saying more than enough.

JULIE HYMAN: I actually just put off a trip because the flight was too expensive.

MYLES UDLAND: OK, there you go.

JULIE HYMAN: Because I waited too long--

[INTERPOSING VOICES]

I waited too long to book. The flight is too expensive. I am not taking the trip at the time I was planning to take it.

BRIAN SOZZI: Sell signal. It's too much.

MYLES UDLAND: Well, OK, so we know that anecdata-- we know anecdata is the most important data.

JULIE HYMAN: Of course.

MYLES UDLAND: But can we get into this a little bit. Where were you going? How much lead time did you give yourself?

JULIE HYMAN: I was going to Vancouver and--

MYLES UDLAND: Oh, OK. So cross-border travel.

JULIE HYMAN: Or-- but I was also looking at Seattle as a possibility. And both of them were almost equally expensive. And I'm also picky because I will only do nonstop.

MYLES UDLAND: So there you go.

JULIE HYMAN: So there's a--

MYLES UDLAND: So it's a little bit of a you problem.

JULIE HYMAN: So I'm limited. It's a little bit of a me problem.

MYLES UDLAND: How many tickets? Was it for all four of you--

JULIE HYMAN: Four tickets, yes.

MYLES UDLAND: --or just you and Howie?

JULIE HYMAN: All four of us.

MYLES UDLAND: OK, everybody's going.

JULIE HYMAN: Also, as we talk about, though, is it a Target problem, is it a me problem, or is it an airline problem--

BRIAN SOZZI: Well, now you can go to Dave & Buster's.

JULIE HYMAN: --you know-- yeah, great. Is it a Target problem, or is it an everybody problem? I mean, it's a Target problem and a Walmart problem because they sell everything. And there aren't that many retailers anymore that sell everything, right?

MYLES UDLAND: I know. They do sell everything. But then the other way that you can cut the Target news-- and now the stock is only down 4%-- is because they're calling out strength in beauty. They're calling out that they're food business is actually OK. Their problem-- Target's problem-- is with the home business, the furnishings business. Now, we also got into this conversation back when Walmart and Target-- what was that-- three weeks ago-- they both cut earnings, or both cut their forecasts and inventory, yada yada. Next day, dollar stores come out and say everything's great.

And that shows a shift, right. The dollar stores called out food. So you have consumers leveling down for certain essentials, but just getting rid of-- like, not buying other things wholesale or, like, full stop getting rid of those things. So I think, again, it's, like, this complicated picture. And back to the airline conversation, investors aren't ready yet to say Target has a view of the whole world. Investors are kind of like, Target has a view of Target, and maybe that's not good enough. So.

BRAD SMITH: Yeah.

JULIE HYMAN: Yeah.

BRAD SMITH: Vancouver to Dave & Buster's, though, would be the trade down of trade downs.

MYLES UDLAND: I mean, we should go. We should go tonight to celebrate.

BRIAN SOZZI: [INAUDIBLE]

JULIE HYMAN: Today. What are we celebrating?

MYLES UDLAND: They got earnings tonight, come on.

BRIAN SOZZI: We're celebrating Myles back on set.

JULIE HYMAN: Oh, no, they already reported this morning. They did better.

MYLES UDLAND: Oh, they did this morning?

JULIE HYMAN: Yes. It was-- the timing guy.

BRIAN SOZZI: Work that ticker into the post.

BRAD SMITH: Indeed.

MYLES UDLAND: That's a good ticker.

BRAD SMITH: Our own Myles Udland joining us here on set. Thanks so much, Myles.