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    Goldman Sachs CEO advises clients to be cautious because Fed policy has unpredictable consequences

    Goldman Sachs CEO David Solomon is advising his clients to be more cautious with their finances because the Federal Reserve’s moves to combat inflation could result in recession or other negative consequences.
    Higher interest rates and a reversal in the Fed’s bond-buying programs are “going to have an impact on a number of things in your business that are hard to predict,” Solomon told CNBC’s Andrew Ross Sorkin on Wednesday.
    “You have to think about the fact that there’s a reasonable chance at some point that we have a recession or we have, you know, very, very slow, sluggish growth,” Solomon said

    Goldman Sachs CEO David Solomon is advising his clients to be more cautious with their finances because the Federal Reserve’s moves to combat inflation could result in recession or other negative consequences.
    Higher interest rates and a reversal in the Fed’s bond-buying programs are “going to have an impact on a number of things in your business that are hard to predict,” Solomon told CNBC’s Andrew Ross Sorkin on Wednesday.

    “You have to think about the fact that there’s a reasonable chance at some point that we have a recession or we have, you know, very, very slow, sluggish growth,” Solomon said. “If you’re running a significant enterprise, you have to be looking through a lens with a little bit more caution right now than you might have been when we were sitting here a year ago.”
    The combination of rising prices for raw materials, continuing supply chain issues and the Fed’s tightening monetary policy has damaged the confidence of corporate executives, according to a business survey released Wednesday. While a majority of respondents are expecting a recession, Goldman economists peg the odds at about 30% over the next 12 to 24 months.
    Target shares sank on Wednesday after disclosing that rising costs for labor and shipping and lower sales for discretionary items took a bite out of earnings.
    The Fed boosted its benchmark interest rate twice so far this year and has said it will shrink its balance sheet by tens of billions of dollars a month, “a journey in progress of tightening economic conditions,” Solomon said.
    That change, a sharp reversal from the easy money policies of the last decade, has stung investors and caught some companies off guard as they attempt to raise capital, he said.

    “There are a number of companies that thought that they’re going to have easy access to capital, that now probably have a harder journey to raise the capital they need,” Solomon said.
    During the wide-ranging interview, Solomon also discussed topics including crypto and fintech — saying he was a “real bull” on the digital disruption of finance — to his investment bank’s new vacation policy. The bank is giving partners and managing directors greater flexibility to take time away from work because “historically, our people haven’t taken the vacation they’re entitled to,” Solomon said.

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    Bitcoin production roars back in China despite Beijing's ban on crypto mining

    China’s share of global bitcoin mining capacity plummeted to zero in July after authorities launched a fresh crackdown on cryptocurrencies.
    But several underground mining operations have since emerged in the country, with miners taking care to work around Beijing’s ban.
    New research from the Cambridge Centre for Alternative Finance shows that Chinese bitcoin mining activity has quickly rebounded.

    By September 2021, China made up just over 22% of the total bitcoin mining market, according to Cambridge University research.
    Paul Ratje | The Washington Post | Getty Images

    Bitcoin miners aren’t giving up in China despite Beijing’s ban on the practice.
    China was once the world’s biggest crypto mining hub, accounting for between 65% to 75% of the total “hash rate” — or processing power — of the bitcoin network.

    But the country’s share of global bitcoin mining capacity plummeted to zero in July and August 2021, according to Cambridge University data, after authorities launched a fresh crackdown on cryptocurrencies.
    Among the steps China took was to abolish crypto mining, the power-intensive process that leads to the creation of new digital currency. That resulted in several miners fleeing to other countries, including the U.S. and Kazakhstan, which borders China.
    But, as CNBC has previously reported, several underground mining operations have since emerged in China, with miners taking care to work around Beijing’s ban.
    Now, new research from the Cambridge Centre for Alternative Finance shows that Chinese bitcoin mining activity has quickly rebounded. By September 2021, China made up just over 22% of the total bitcoin mining market, data from Cambridge researchers show.

    It means China is once again a top global player in bitcoin mining — second only to the U.S., which eclipsed China as the largest destination for the sector last year.

    There is one caveat: The research methodology relies on aggregate geolocation from huge bitcoin mining “pools” — which combine computing resources to more effectively mine new tokens — to determine where activity is concentrated in different countries.
    This approach may be vulnerable to “deliberate obfuscation” by some bitcoin miners using a virtual private network (VPN) to conceal their location, researchers said. VPNs make it possible for users to route their traffic through a server in another country, making them handy tools for people in countries like China, where internet usage is heavily restricted.
    Nevertheless, they added this limitation would “only moderately impact” the accuracy of the analysis.

    What is bitcoin mining?

    Unlike traditional currencies, cryptocurrencies are decentralized. That means the work of processing transactions and minting new units of currency is handled by a distributed network of computers instead of banks and other intermediaries.
    To facilitate a bitcoin payment, so-called miners need to agree that the transaction is valid. That process entails making complex calculations to work out a puzzle that increases in difficulty as more and more miners join the network, known as the blockchain.

    Read more about tech and crypto from CNBC Pro

    Whoever is first to solve the puzzle gets to add a new batch of transactions to the blockchain and is rewarded with some bitcoin for their effort.

    Why is Beijing worried?

    This method of reaching consensus, known as “proof of work” consumes a lot of energy — roughly as much as entire countries, such as Sweden and Norway.
    China has frequently issued warnings about crypto. But its most recent crackdown was arguably the most severe.
    The world’s second-largest economy was dealing with a multi-month energy shortage last year, which led to numerous power cuts.
    China is still heavily reliant on coal, and is increasing investment in renewable energy in a bid to become carbon neutral by 2060. Authorities see crypto mining as a potential obstacle to that plan.
    Now, a resurgence of bitcoin production in China has catapulted the country to the second-largest destination for people hoping to find new digital currency — there’s still 2 million bitcoins left to be mined. It might be a less profitable endeavor now, though, with the bitcoin price down more than 50% from its November peak.
    China’s National Development and Reform Commission and the People’s Bank of China — which have both issued strong warnings against crypto mining and trading — were not immediately available for comment when contacted by CNBC.
    – CNBC’s Mackenzie Sigalos and Evelyn Cheng contributed to this report

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    Lowe's sales decline as cool spring weather weighs on demand for outdoor products

    Lowe’s missed Wall Street’s revenue expectations for the first quarter, as cooler spring weather hurt demand for supplies for outdoor do-it-yourself projects.
    Net sales fell to $23.66 billion from $24.42 billion last year and missed analysts’ expectations of $23.76 billion.
    Lowe’s results diverged from those of its competitor, Home Depot. On Tuesday, Home Depot surged beyond Wall Street’s expectations for quarterly earnings and revenue.

    A customer pushes a shopping cart towards the entrance of a Lowe’s store in Concord, California, on Tuesday, Feb. 23, 2021.
    David Paul Morris | Bloomberg | Getty Images

    Lowe’s on Wednesday missed Wall Street’s sales expectations for its fiscal first quarter, as cooler spring weather hurt demand for supplies for outdoor do-it-yourself projects.
    The company’s shares were down more than 2% in premarket trading.

    Lowe’s reiterated its full-year outlook, saying it expects total sales to range between $97 billion and $99 billion and same-store sales to range from a decline of 1% to an increase of 1%.
    Here’s what the company reported for the quarter ended April 29 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

    Earnings per share: $3.51 vs. $3.22 expected
    Revenue: $23.66 billion vs. $23.76 billion expected

    Lowe’s results diverged from those of its competitor, Home Depot. On Tuesday, Home Depot surged beyond Wall Street’s expectations for quarterly earnings and revenue, chalking up its growth to home appreciation and a boom in projects for housing professionals.

    Lowe’s, however, has a different mix to its business. It has historically gotten about 75% to 80% of its total sales from DIY customers compared with Home Depot, which gets about half of its sales from them. That makes Lowe’s more vulnerable to shifts in demand, if homeowners decide to skip a painting or landscaping project.
    “Our sales this quarter were in line with our expectations, excluding our outdoor seasonal categories that were impacted by unseasonably cold temperatures in April,” CEO Marvin Ellison said in Wednesday morning’s earnings release. “Now that spring has finally arrived, we are pleased with the improved sales trends we are seeing in May.”

    Lowe’s net income for the quarter increased slightly to $2.33 billion, or $3.51 per share, from $2.32 billion or $3.21 per share, a year earlier. The results were above the $3.22 expected by analysts surveyed by Refinitiv.
    Net sales fell to $23.66 billion from $24.42 billion last year and missed analysts’ expectations of $23.76 billion.
    Same-store sales declined 4% year over year, a larger decrease than the 2.5% drop that analysts expected, according to StreetAccount.
    As of Tuesday’s close, shares of Lowe’s are down about 25% so far this year. The stock closed Tuesday at $194.03, bringing the company’s market value to $128.27 billion.
    Correction: Lowe’s net sales missed analysts’ expectations. An earlier version misstated that fact.

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    Target shares sink more than 20% after company says high costs, inventory woes hit profits

    Target shares dropped sharply on Wednesday, after the company said its quarterly profits got hit by supply chain troubles, higher fuel costs and lower than expected sales of discretionary merchandise.
    The big-box retailer said it saw a healthy customer, but a shift to experience-based purchases, such as toys for birthday parties and luggage for trips.
    Target reiterated its revenue forecast, which calls for mid single-digit growth this year and beyond.

    Target on Wednesday reported quarterly earnings that fell far short of Wall Street’s expectations, as the retailer coped with pricey freight costs, higher markdowns and lower-than-expected sales of discretionary items from TVs to bicycles.
    Shares fell about 24% in premarket trading.

    Here’s what Target reported for the fiscal first quarter ended April 30, compared with Refinitiv consensus estimates:

    Earnings per share: $2.19 adjusted vs. $3.07 expected
    Revenue: $25.17 billion vs. $24.49 billion expected

    The national retailer, known for its cheap chic brands of apparel, home decor and more, lapped an especially elevated sales period. A year ago, shoppers had extra dollars in their pockets from stimulus checks and reflected a sense of optimism with their purchases as they got their first Covid-19 vaccines. 
    Sales did grow compared with that year-ago period. Comparable sales, a key metric that tracks sales at stores open at least 13 months and online, grew 3.3% in the first quarter. That is on top of a 23% increase in comparable sales in the year-ago quarter and it is higher than Wall Street’s projections for 0.8%, according to StreetAccount estimates. At Target’s stores and its website, traffic rose 3.9%.

    Even so, CEO Brian Cornell said the company missed the mark as its gains were “accompanied by unusually high costs.”
    “While we saw healthy top line growth in the quarter, we were less profitable than we expected to be or intend to be over time,” he said on a call with reporters.

    Among the challenges, Target said profits got hit by inventory that arrived too early and too late, compensation and headcount that rose at distribution centers, and a mix of merchandise sales that looked different than before.
    Target’s results mirrored Walmart’s quarterly earnings performance. Walmart reported Tuesday that it also missed on earnings, also citing higher inventory and numerous cost pressures. Walmart’s shares fell more than 11% on Tuesday and touched a 52-week low.
    Target reiterated its revenue forecast, which calls for mid single-digit growth this year and beyond. It did not provide an earnings per share estimate.
    Target’s net income in the quarter fell to $1.01 billion, or $2.16 per share, from $2.1 billion, or $4.17 per share, a year earlier. Excluding items, the retailer earned $2.19 per share, 88 cents short of the $3.07 expected by analysts surveyed by Refinitiv.
    Those adjusted earnings per share dropped sharply – down nearly 41% from the year-ago period.
    Total revenue rose to $25.17 billion from $24.20 billion a year ago, above analysts’ expectations of $24.49 billion.

    Target vs. Walmart

    While Target and Walmart both missed profit expectations by wide margins, they diverged in descriptions of the American consumer. 
    Walmart Chief Financial Officer Brett Biggs told CNBC that the big-box retailer has seen some budget-strapped customers trade down to the store brand for deli meats and buy a half-gallon of milk rather than a full one. Some others, he said, are seeking out new gaming consoles and patio sets. 
    Target CEO Brian Cornell, meanwhile, said on a media call that the company is seeing a healthy consumer, but one who is living – and spending – differently while resuming some pre-pandemic habits.
    For instance, Cornell said toy sales were a standout in the first quarter and grew by the high single digits as families resumed bigger children’s birthday parties. Luggage sales were up more than 50%, he said.  
    On the other hand, sales of items like TVs, kitchen appliances and bicycles dropped off as consumers shifted their spending towards experience-based purchases like booking trips and buying gift cards for restaurants, he said.
    Cornell, however, warned that cost pressures “will persist in the near term,” stressing that some are beyond the company’s control. One of those factors is the price of gas, which hit a national average of $4.523 per gallon on Tuesday, according to AAA.
    Still, he said, it will continue to invest in the business, open new stores and said Target’s bright, long-term trajectory remains the same.
    With inflation at a nearly four-decade high, Chief Financial Officer Michael Fiddelke said on a call with reporters that Target will focus on offering value, even if that means absorbing some costs. He said raising prices “continues to be the last lever we pull.”
    “We’ve earned so much trust over the last several years with investments we’ve made in price and we aren’t about to trade that out in the current environment,” he said. 
    As of Tuesday’s close, Target’s shares are down about 7% so far this year. Shares closed at $215.28 on Tuesday, bringing the company’s market value to $99.82 billion.

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    Op-ed: Investors need to keep their emotions under control in this volatile market

    FA Playbook

    Although no one can predict what is going to happen next, there are strategies that investors can consider to help manage their portfolios through volatility.
    The starting point for every investor should be to take the emotion out of investing. The key, of course, is to avoid making irrational investing decisions.
    The best thing to do is to stay focused on your portfolio strategy and look for long-term opportunities in the market.

    NicolasMcComber | E+ | Getty Images

    Whether you’re new to investing or have been in the market for years, you may feel a little bit like you are lost at sea looking for a safe harbor.
    Investors are contending with a confluence of market forces such as inflation, interest rates increasing, and the Russia/Ukraine conflict.  This is a troublesome combination of macroeconomic factors that has combined with a world still dealing with the effects of the pandemic.

    The changes in the market have prompted many investors to look for portfolio strategies on how to navigate this market.  Although no one can perfectly predict what is going to happen next, there are strategies that investors can consider implementing to help manage their portfolios through this volatility.
    The starting point for every investor should be to take the emotion out of investing. The key, of course, is to avoid making irrational investing decisions.

    More from FA Playbook:

    Here’s a look at other stories impacting the financial advisor business.

    Market volatility, especially when it’s resulting in asset prices declining, can make investors very emotional. The recent discussions on the possibility of a recession bring haunting feelings of 2008 (the great Financial Crisis) and 2020 (the start of the Covid-19 pandemic) to mind for many investors.
    Fear often breeds poor investment decisions, so investors should try to pause and take a more analytical approach in assessing their investment decisions.  There is nothing wrong with changing an investment strategy or allocation as long as it is based on facts and not emotions.
    As a part of taking a more analytical approach to the portfolio, investors should assess their current cash positions. Ideally, an investor should have enough liquid assets outside of the market to meet the next 12 months of living expenses.  The security of knowing that all current living expenses are met can help investors not be as emotionally and mentally affected by market fluctuations.

    Investors should also focus on a long-term strategy and should not lose their appetite for stocks.

    It is not uncommon for investors to give up on investing in stocks after a difficult time in the market. However, investors should not let the current volatility permanently close the door on stocks as an investment allocation.
    Instead, investors should remind themselves that despite the poor start to 2022, stocks still remain the best source of long-term asset appreciation. The current market offers an opportunity to make investments today that will provide income and appreciation well into the future.    
    An investment portfolio should also be thoroughly reviewed given the changes in the market environment. That’s means doing some rebalancing.
    The market has taken a more defensive posture; quality companies with strong balance sheets and pricing power are outperforming now, and potentially, into the future.  With interest rates increasing, fixed income and cash investments will have poor long-term real returns.

    Investing a portfolio in companies that pay dividends is an excellent way to provide cash flow to help buffer market volatility. Dividends are also found more often in strong, long-lived companies that can act as relative safe ports in a stormy market. Investors should also rethink which sectors may be beneficiaries of the current environment.
    For instance, a case may be made that financials will benefit from the increase in interest rates or that health-care stocks will be immune from inflation and interest rate fears as demand for their products remain steady.
    Finally, investors should not forget that there is value in harvesting tax losses from weak companies.  These losses can be used to offset gains in other investments and provide necessary cash for opportunistic portfolio reallocations. 
    To be sure, the past few months have been challenging for every investor.
    The best thing to do is to stay focused on your portfolio strategy and look for long-term opportunities in the market. Refocusing and reviewing the portfolio is an important part of a successful investment process. More

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    Stocks making the biggest moves premarket: Target, Walmart, Carrier Global and others

    Check out the companies making headlines before the bell:
    Target (TGT) – Target plummeted 22.1% in the premarket after the retailer reported an adjusted quarterly profit of $2.19 per share, below the $3.07 consensus estimate. Revenue and comparable-store sales beat forecasts, but like rival Walmart yesterday, higher costs ate into Target’s bottom line.

    Lowe’s (LOW) – Lowe’s fell 2.9% in the premarket after the home improvement retailer’s quarterly comparable-store sales fell more than expected and revenue come in slightly below Street forecasts. Lowe’s beat bottom-line estimates by 29 cents with quarterly earnings of $3.51 per share.
    Walmart (WMT) – Walmart fell another 1.9% in premarket action after tumbling 11.4% yesterday following its earnings miss. The retailer’s stock suffered its worst one-day loss since 1987.
    Carrier Global (CARR) – Carrier fell 2.7% in the premarket after Bank of America Securities downgraded the stock to “neutral” from “buy.” The firm said it is now more bearish on the residential HVAC market following a recent industry conference and said Carrier has the highest relative exposure of its peers to that market.
    Penn National Gaming (PENN) – The casino operator’s shares rallied 3.2% in the premarket after Jefferies upgraded the stock to “buy” from “hold,” noting the current stock price only assigns minimal value to Penn’s digital operation. Jefferies feels the unit could demonstrate good returns over time.
    Shoe Carnival (SCVL) – The footwear retailer reported a quarterly profit of 95 cents per share, 9 cents above estimates, with revenue also beating consensus. Shoe Carnival also raised its full-year outlook. Shoe Carnival added 1% in premarket trading.

    Analog Devices (ADI) – The chipmaker earned an adjusted quarterly profit of $2.40 per share, 29 cents above estimates, and reported better-than-expected revenue. The company said it was able to increase output despite supply chain challenges, with demand remaining strong. Analog Devices added 1.9% in premarket trading.
    Warby Parker (WRBY) – Warby Parker slid 2.1% in premarket trading after the stock was downgraded to “neutral” from “buy” at Goldman Sachs. Goldman said it sees a longer path to growth for the eyewear retailer, which reported lower-than-expected quarterly earnings earlier this week.
    Container Store (TCS) – Container Store surged 8.2% in the premarket after reporting better-than-expected profit and revenue for its latest quarter. The storage and organization products retailer also said it aimed to achieve $2 billion in annual sales by 2027.
    Doximity (DOCS) – Doximity plunged 14.5% in premarket action after the cloud-based platform for medical professionals issued a weaker than expected current-quarter revenue forecast. Doximity also reported better-than-expected quarterly profit and revenue.

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    Americans are more stressed about money than ever, and it's hurting our mental health

    Americans are more stressed about money than they’ve ever been, according to the American Psychological Association’s latest Stress In America Survey.
    “Eighty-seven percent of Americans said that inflation and the rising costs of everyday goods is what’s driving their stress,” said Vaile Wright, senior director of health care innovation at the American Psychological Association.

    More than 40% of U.S. adults say money is negatively impacting their mental health, according to Bankrate’s April 2022 Money and Mental Health report.
    “I was in debt off and on all of my 20s and early 30s,” Tawnya Schultz, founder of The Money Life Coach, told CNBC. “I was in this debt cycle of trying to get out of debt, paying off debt, getting back into it. And I was just tired of feeling like I could never get out of it or feeling like I was always going to have debt.”
    More from Invest in You:Want a 720 credit score? Here are four ways to improve yoursReady to invest in the stock market? Here are three strategies for beginnersHere’s how to pick between a savings and money market account
    Some Americans lack hope they will ever have enough money to retire, with roughly 40% saying their ability to be financially secure in retirement is “going to take a miracle,” according to the 2021 Natixis Global Retirement Index.
    “I think that people need to have a sense of hope,” said Mark Hamrick, Washington bureau chief at Bankrate. “When the economy is working for them, there’s a greater likelihood that people will have hope that they can accomplish their basic personal financial objectives.”

    Watch the video above to learn why Americans are more stressed than ever about money and how it’s impacting their mental health.
    SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox. For the Spanish version Dinero 101, click here.
    CHECK OUT: Meet a 34-year-old who has sold over 11,000 items on Etsy and makes nearly $3,500/month in passive income with Acorns+CNBC
    Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns. More

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    Goldman Sachs cuts its China GDP forecast to 4% on Covid controls

    Goldman Sachs analysts have cut their China GDP forecast to 4% from 4.5% after weak data in April.
    The bank does not expect China will start fully easing Covid controls before the second quarter of 2023.
    On Monday, Citi — which had one of the highest China GDP forecasts — cut its outlook for growth to 4.2% from 5.1%.

    Since March, mainland China has struggled to contain its worst Covid outbreak in two years. Notably, the metropolis of Shanghai, pictured here on May 18, only started this week to begin discussing resumption of normal activity — with a goal of mid-June.
    Hector Retamal | Afp | Getty Images

    BEIJING — Goldman Sachs analysts on Wednesday cut their forecast for China’s GDP to 4% after data for April showed a slump in growth as Covid-19 controls restricted business activity.
    The new forecast is even further below the “around 5.5%” growth target the Chinese government announced for the year in March.

    “Given the Q2 Covid-related damage to the economy, we now expect China’s growth to be 4% this year (vs. 4.5% previously),” Hui Shan and a team at Goldman wrote in a report Wednesday. That prediction assumes there will be significant government support, on top of measures to stabilize the property market and control Covid outbreaks.
    Since March, mainland China has struggled to contain its worst Covid outbreak in two years. Notably, the metropolis of Shanghai only started this week to begin discussing the resumption of normal activity — with a goal of mid-June.
    Among April’s weak data, the Goldman analysts pointed to a plunge in housing starts and sales, half the credit growth that markets expected and a drop below 1% for the increase in consumer prices, excluding food and energy.
    Other data for April released Monday showed an unexpected drop in industrial production and a worse-than-expected 11.1% decline in retail sales from a year ago. Exports, a major driver of growth, rose by 3.9% in April from a year earlier, the slowest pace since a 0.18% increase in June 2020, according to official data accessed through Wind Information.

    “The weak data highlight the tension between China’s growth target and zero-Covid policy which is at the core of China’s growth outlook,” the Goldman analysts said.

    They noted how Chinese leaders have emphasized their “dynamic zero-Covid” policy, and how news that China will not host the Asian Cup next summer due to Covid reflects Beijing’s conservative mindset.
    “We now expect reopening does not start before 2023Q2 and the process to be more gradual and controlled than previously assumed,” the Goldman analysts said.
    “This is why our 2023 GDP growth forecast only increases by a quarter point to 5.3% (vs. 5.0% previously) despite the half a point downward revision to 2022 full-year growth forecast.”

    Other banks cut forecasts

    On Monday, Citi — which had one of the highest China GDP forecasts — cut its outlook for growth to 4.2% from 5.1%.
    A few days earlier, JPMorgan had reduced its estimate to 4.3% from 4.6%. Morgan Stanley cut its target in late April to 4.2% from 4.6%.

    Read more about China from CNBC Pro

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