Transcripts For CNBC Closing Bell 20220826

For what the trading range is. Bigger picture, we never broke that downtrend from the january peak and the rally off the lows got a lot of credence to it. This is where the trenches are dug between the bulls and the bears here, right around these levels now, take a look at highyield debt part of the message from jay powell seemed intended and making sure that Financial Conditions dont get too loose, the markets dont get too generous in financing risk heres the highyield bond etf right here what you see is by the way that was the first fed rate hike in march. Here you had the june lows in the stock market where basically when we had that big stagflation panic and you saw real weakness and widening of credit spreads they really now have come back its widening out again this gap between these two. It shows you more anxiety is filtering into the financing markets although were well off those worst levels the gap between the two is not at a high stress level lets talk about all this and bring in Steve Liesman from jackson hole for more on powells speech. Wall streets reaction, steve. What strikes you most here five hours later . You know, its the market what they were anticipating, mike it looks like they were thinking the fed would come forward and get a more dovish speech from the fed chair. Instead jay powell in his muchanticipated speech here at jackson hole taking pains, taking strides to say the fed is going to be resolute in its fight against inflation, even warning, and something ive not heard from a fed chair before, the possibility that it could cause some pain to businesses and households. Restoring price stability will likely require maintaining a stricter stance for some time. This cautions strongly about prematurely loosening policy. Powell making a specific point about warning investors about making too much in the recent decline in inflation saying its not enough to change the feds course, at least not early on. While the lower inflation readings for july are certainly welcome, a single months improvement falls far short of what the committee will need to see before were confident inflation is moving down so, we are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2 . Mike, i feel like those who have listened to the fed speeches and comments that weve been reporting on the past couple of weeks, those who listen to us and the fed speak we had here from jackson hole were not surprised by powells speech those who may have been engaging in a healthy dose of Wishful Thinking are those who are most surprised and it looks to have been a good part of the stock market. Thats exactly the point in a sense, steve there has not in the bond market been a very dramatic repricing of rate hike expectations or where the fed is going to likely end up it seems mostly as if what the stock market is taking from powells comments very kind of blunt in this way is that, look, a prolonged period of below trend growth as he calls it, which could include a recession or something we might wanti to expect as opposed trying to fend off at the first time inflation ticks lower. I think the bond market in the past couple of weeks has repriced if you look at the fed rate outlook, what youll see is the market now has a peak rate of 380. It was down 3. 30, 3. 25 a couple of weeks earlier but the market repriced to just where the fed was. Im not sure the stock market was paying attention to where the bond market was. I think thats pretty critical one other point, mike. You remember in the last press conference i asked chair powell really twice how a recession would affect policy. He really wouldnt answer the question i think he answered that question today, and i think thats a significant change. Hes saying, look, theres going to be some pain. Thats saying even if there is a recession, we may have to keep going. Without a doubt, steve, yes, you have been hammering on that point. You got the answer, steve. Appreciate it. Talk to you again soon. Lets continue the conversation with david zerbos and peter. Welcome to you both. David, you heard us talking, steve and i. It is somewhat interesting to see the way the stock market has reacted to this. I wonder if its just a matter of the stock market had built in or was building in a Greater Prospect of a soft landing and now they have to reduce that a little bit i know you were getting a little cautious about the possibility for further equity upside given what the fed was up to here coming into this week. What strikes you about the Market Reaction today . So i really agree with a lot of what steve said i think the comments that he took, the excerpts that he took from jays speech were really the important ones these guys are not in any hurry to make a turn or a pivot. And i think they have been quite steadfast in that statement. There was some Wishful Thinking on the stock market side but more importantly, mike, i think the stock market when we were touching those june lows down at 3650 on the s p, we had just gotten everybody pumped up for even more downside we had all these folks talking about 3100 or below 3000, and really thats why i think the stock market had the rip that it did. We had a lot of bad positions, a lot of people who had pulled themselves out of the market they were feeling somewhat comfortable they had outperformed the s p as the s p started to rip back above 4000, they stepped over themselves to get risk back on thats why we were up at 4300 and change and why the feds message hurt a little more than usual. I think it was summertime positioning that drove a lot of this. Yeah. Theres no doubt, i guess, there are exacerbating factors related to that. Peter, broader context in a way here is the fed is now in a complete mirror image stance that it was in when it was saying were going to keep rates at zero until we see the lane or market tighten more than it tightened in prior cycles. We are not going to flinch at the slightest turn in the Unemployment Rate. That was the line going into this tightening period in fact well let inflation trending even higher now its acting as if its again a one mandate fed, exempt the mandate is whatever it takes on inflation, and were not going to regard whats necessarily happening in terms of the wear and tear on the economy. Its a great point. But also highlights something that jay powell has realized that in order to have sustainable maximum employment, you first need stable prices you do point out correctly that they prioritized one side and then flipped it. But over time its stable prices that is really the foundation of a healthy recovery and i think thats an important distinction in fed policy where they went from an asymmetry approach or symmetry approach on inflation. As you highlighted, mandating or wanting those jobs back that were lost to focusing on inflation that affects everybody, whereas unemployment affects only a small group of people right and so they are not, david, going to anticipate a favorable turn in inflation. They have been saying this for a while, of course they need to see multiple months of evidence that its going in the right direction. But the markets effort to see around the next corner is going to have people asking, well, the leading indicators of inflation might start to become a little more benign and maybe whatever the fed is saying right now, realities might mean Something Different next year. Is that not something that an investor should engage in right now, david i think jay told you something a little bit differently. He didnt say this explicitly, but he said, look, we just had the biggest miss on inflation that we can remember at the fed, anybody sitting around that table. Were sort of akin to sort of misses that were happening in the 70s thankfully Inflation Expectations are anchored. Fiveyear forward, fiveyear break evens and the survey data are holding remarkably well. The fed doesnt want to play with that. Its going to stay in a volckeresque structure for a lot longer than people probably think. I think thats what jay was pushing today, even invoked some old volcker quotes in his speech today. Thats something weve pushed really hard on at jeffries, that was was jays volcker moment hes staying with that and is going to make sure that we dont get an unhinging of the inflation anchor that peter was just talking about the most important thing for long run growth is having anchored Inflation Expectations. Jay knows it peter was just talking about it. I think this speech was all about making sure we think about the long run and not get too caught up in a little shortterm pain its just not that important in the big picture. Peter, i guess that brings up the other analysis, which is how much can the economy withstand what kind of a cushion has been built up, whether its in consumer and corporate Balance Sheets which dont seem particularly strained, whether it is in just the labor market thats been as powell said unbalanced in the direction of being perhaps too tight. So can we have an economy that deals with the most hawkish fed in a couple of generations and doesnt necessarily have a particularly damaging recession . Well, i think theres no chance that we avoid a recession. But whether its damaging or somewhat mild i think is more of the question now, if people think mild leads to a quick recovery, im thinking something that is mild but drawn out. Easy money has been the life blood of Economic Activity for a while. So when you go to the other side, this rate shock that weve seen, to me theres an economic adjustment of note that we have to digest, and its not something thats going to happen quick. Weve seen how quickly the Housing Market responded to this very sharp rise in Interest Rates. Were already beginning to see it in autos. And just the general rise in the cost of capital is going to impact behavior all throughout the markets. One thing we havent even discussed so far yet here is qt, which then has its own impact on Financial Conditions and the valuation of asset prices. So to me this still has a long progression of events to play out. Again, because of the rate shock. I think people are being way too nonchalant with the impact of qt. David, how does all of this inform what you would expect out of markets from here you mentioned that at the lows in june in the equity market around 3600 things seemed pretty washed out, pretty oversold. People were expecting further downside what about now do you still have some kind of confidence that that might be a floor, even if the ceiling is not far from where we traded last week . You know, its really tricky. We talked about picking bottoms in our piece this week and its really not an easy task. Many people have picked bottoms along the way in this one or in past bear markets and gotten shellacked basically so i think the reality is that there are some positive forces associated with high nominal gdp growth as we go down and test some of those lows that we saw in midjune as we saw if we have to do that you have to be pretty nimble and think that its certainly possible, put a 5050 or 6040 probability on it and understand that down there you need to be in a position where you can get a balancounce like what we just. This is an epic bounce these are incredible movements in just two or three months. I think the market did get itself back to closer to onside. A lot of risk was put to work in the high yield market and the equity market. And i think theres a lot of cash that is looking to get back into risk if we do go down again. Can we go back to that mid3000 number again and test around and play around . I think its certainly possible as we go through the fall. As peter points out, we sort of feel out what qt does. I think the market has priced a lot of qt in but hasnt picked up steam and we go for the full 95 or 94 billion a month were looking at it might hurt a little more than some people think. People at least wait to see how it does filter through and the lows in june would be about a 10 drop from here in the s p 500. David, peter, thanks very much appreciate the conversation. Always a pleasure, mike. Thanks, michael. The nasdaq is feeling the brunt of the pain today. Its down 3. 5 lets bring in mike mahany handicap where things might go from here, mark. Its good to talk to you weve had really so many waves of, i guess, valuation adjustment in parts of the nasdaq youve had really even the mega caps have become looking cheap in some regards. Something like a meta. Apple has retained this big premium. How would you try to boil a lot of that down to say how much of the macro and policy stuff has already made its way into that complex . Well, theres a lot to that weve had a massive d rating since the beginning of the year because we had a massive rerating last year we had multiples well above their average bands and we took all of that out through june then we went into estimates risks, estimates cuts. Ive had three quarters in a row where 70 of the companies that i cover, the december, march and june quarters, have had negative estimates and relatively material ones. I havent seen that level of negative revisions in multiple years. And, you know, i hope that the numbers or estimates are down enough to accommodate the softening recessionary conditions that were obviously going into we dont know that, but i hope the numbers have been cut enough a lot of the valuation risk has been taken out your prior guest talked about hard money, easy money thats how i think about stock picks. If youre telling me we have hard money environment, sustainably high inflation rate and high Interest Rates, its a different list of stocks you want to be looking at. Yeah. So characterize what hard money stocks look like right now kind of the observable earnings support and Balance Sheet yes. Stability or what . Youve got it, mike its those its companies that you can look at and say Free Cash Flow. These companies are trading at 12, 13, 14 times Gaap Earnings were not doing ebitda or adjusted earnings. So in the space im looking at im sure apple and microsoft fall into that in the space i look at, google would be one, Meta Facebook would be another, booking would be another, ebay could be a name in there if i want to get creative, i think uber could work into that because i think youre starting to see a real dramatic increase in cash flow there id throw all of those into my hard money basket. Names that can outperform but have to have Free Cash Flow supports they cant be Long Duration assets they have to have real profits inform 2223 Long Duration assets wont work in a hard money environment. I have to say in that category that you describe there, meta does really stand out just in terms of how you really dont get back much of the losses from the highs. It really does screen out and is looking very cheap based on current earnings and the rest of it what is the nature and the level of skepticism about the current earnings power of this company thats leaving the stock where it is . That skepticism, mike, is dramatic this is the new ebay, this is the new yahoo its perceived to be a melting ice cube, a deteriorating asset because of tiktok and these privacy changes that apple implemented that gutted a lot of the Advertising Marketing plans that were out there, the ability to really track and measure campaigns. Then theres Regulatory Risk being thrown at facebook and just this belief that its matured out. I dont think those headwinds are accurate or at least i think theyre hedges against the headwinds, if you will, if thats not too complicated so i like facebook here. I think theres a path for revenue acceleration they havent had their breakout quarter. Amazon had that last quarter, facebook hasnt, meta hasnt i think they have the potential to do that as they turn on reels monetization and other things to improve the platform this is a really nice business model. Even under duress its 30 operating margin generating 25, 30 billion in Free Cash Flow a year to give them plenty of strategic options. Theyre returning that cash to us as shareholders i think theres a lot to like about facebook when the market certainly doesnt like it. Just to get on to some of the easy money type names, this would have been the very high growth yes. High expected growth, low earnings power i know you Say Something like shopify, roku, where it was something that took years of faith. Shopify, i think i upgraded this in november at the peak so it shows how little i know. But these Long Duration assets, i dont know if they can work in a hard money environment but if you can get clear signs that inflation is not just moderating but is coming back sharply and its going to allow interest rated pressures to really abate, then i think you can see a path to working toward some of these Long Duration assets i dont know whats going to happen first, whether those Financial Conditions actually work at some point along the way shopify can generate Free Cash Flow but thats a couple of years out. I dont know which comes first these are good growth assets roku, even speculative names like dash generating small amounts of profits but have a lot of potential in the future i think you can make money in those but you have to be a very patient longterm investor to want those stocks now unless youve got a really specific catalyst over the next three to six months if you dont have that, its hard to see those stocks outperforming in a hard money environment. Yeah. Maybe theyll come back one day. In the 2000s, some of them came back hard and some didnt manage to mark, thanks very much. Appreciate it. We have a news alert on 3m seema mody has the story. Reuters is reporting that a judge declined to dismiss the 230,000 lawsuits against 3m accusing that they sold defective ear plugs. The bankruptcy filing did not necessarily protect 3m from exposure to those claims back in july 3m said it would based on the comments from this judge, that is why youre looking at 3m shares down nearly 9 we have reached out to the company and will get those comments to you as we get them mike, back to you. Seema, thank you. Yeah, its been a real overhang on the stock and now intensifying on this news. Lets get back to the broader selloff heres a live look at the s p 500 sector heat map. Energy nicely outperforming, countercyclical again but Everything Else down quite a bit more technology, all of the higher valuation cyclical stuff such as Consumer Discretionary as well are underperforming, although industrials down about 3 . That has been a Leadership Group and materials also not escaping the pain utilities also have been hitting new highs recently, down just 1. 5 today. Lets dig deeper into some hardhit areas in this selloff. Steve kovach is looking at apples pullback, diana olick watching the Home Builders and Pippa Stevens energy apple is taking a leg lower saying the doj could file its ag agent trust lawsuit by the end of the year. This covers the same issues regulators have been hitting them with focusing on the market power with its app store the investigation is focusing on whether or not apple stifles competition by taking fees from developers selling on the app store and requiring customers to use apples Payment System apple has argued these fees support the app store and without it a lot of these companies wouldnt make money at all. It also lowered fees for most developers amid all the scrutiny the European Union passing the Digital Markets act expected to go into effect next year to require apple to allow alternative Payment Methods hurting the app store and the allimportant services segment, mike. Just so im clear on that, steve, in terms of how this doj report fits into what apple has been contending with already, is it just another investigation of the same set of issues or is it something fresh . Its largely the same set of issues, mike, the same thing weve heard Developers Like spotify and match group complaining about the last two years or so. They basically dont want to pay these fees and its hurting their profitability. Apple argues you need to pay these fees because the app store supports your whole business and thats where the conflict is coming, mike. Got it. Makes sense. Hard to know exactly how much of that apple is outperforming the nasdaq even with a 3 drop today. Home builder stocks sinking as well in reaction to jay powell diana olick has a look at the biggest movers there hi, diana. Hey, mike yeah, the Home Builders are taking it hard with the itb, which includes lowes and home de depot, off 4 . D. R. Horton, lennar, even Toll Brothers that had been higher on remarks that they were seeing renewed buyer interest in the last few weeks while powell didnt say anything about housing specifically, he did talk about maintaining restrictive policy stance for some time and that means higher rates. Mortgage rates dont follow the fed exactly but are influenced by fed policy. They loosely follow the yield on the 10year treasury and that yield spiked way up during the speech, came up sharply right after. We actually saw Mortgage Rates pull back a little bit in july and the first part of august, likely why toll saw that bump, but they began climbing sharply in anticipation of this speech today. Mike yeah, diana powells comments about long period of restrictive policy certainly having an effect i think also perhaps there may have been some folks wondering if he would give a nod in the direction of the pain thats already been felt in housing in terms of the activity declines, even the softness in prices, and maybe make that a gesture of saying, well, weve already done part of our job. Clearly hes not taking much heart in the fact that supply is now up relative to sales and all the rest of it. Yeah, it was surprising obviously it was a very short speech, much shorter than expected it was surprising that he talked a bit about the consumer but said nothing at all about the Housing Market given whats going on in the market right now, this very sharp pullback and were starting to see home prices come down a little bit and that was new this week youve got to wonder how hes factoring all of that in, its got to be part of it but again nothing specifically. He seems to welcome it at least for now, diana thank you very much. The Energy Sector also lower but it is still by far the Top Performing group in this selloff Pippa Stevens has a closer look. Thats right. Energy stocks are holding up better than the rest, down about threequarters of 1 , making it the best sector today. Its also the only group in the green for the week with a gain of about 4. 5 . Oil did briefly trade in the red after chair powells comments but recovered those losses and is ending the week with brent back above the 100 level. Drilling down on the Energy Sector, its really the upstream players that have been outperforming. Apa, marathon oil, devon energy and pioneer all registering positive gains in a down market. Energy stocks look attractive. A resurgence in Commodity Prices is a risk for the market broadly, so Holding Energy stocks can mitigate some of that potential downside, mike. You know, pippa, its interesting given that the market as a whole is showing a bit of concern about economic downturn and consumer demand perhaps getting hurt at the same time, you have all of these other factors that seem to be, you know, lifting, Natural Gas Prices and crude prices to a degree, supporting crude prices based on whats going on in the world. It seems not as much to do with the Global Economic cycle. There are a lot of factors beyond the Federal Reserve that are influencing Energy Equities at this moment we have a rebound in demand in china that can really lift things in the back half of the year as well as ongoing sanctions against Russian Energy so the commodity market is a little bit more insulated than perhaps it normally would be given all of these catalysts that could potentially push prices higher. Again, the ftr release will stop in october so a lot to watch in the coming months this fall. Oh, for sure. Many things in play, pippa thank you. Lets now get a check on the markets. They are sitting near session lows the dow is down 884, about2. 6 the s p 500 i mentioned around that 4080 level was the august lows it is slightly below that right now. The nasdaq down about 3. 5 joining us now, a professor of finance at nyu sterns school of business great to check in with you here. In terms of the market kind of repricing on the fly here in terms of equities, its been part of the story all year valuations getting compressed in equities in reaction to whats happening with Monetary Policy and growth expectations. Just big picture, how does it look to you . Does the market seem to be roughly in tune with what the macro outlook reads at ill give you a conditional response this is a market thats been driven by inflation almost all through the year for the First Six Months markets had no idea what was coming. In july and august the markets thought they had arrived at a consensus. They thought the economy had slowed down and it would be a soft landing and inflation would come down quickly. This week is a reminder just because markets reach a consensus doesnt mean that the consensus is right or cannot change we still have no idea how deep or long this recession will be and how quickly inflation will come down. So i think were in for these periods of uncertainty, and this week is a reminder that were not quite done now, you say that inflation has been clearly the beacon for where markets are going to go from here. That would seem to be the huge swing factor in terms of deciding if the market is fairly valued, overvalued or not. Were not just going to necessarily take last months cpi to do that calculation is there a way to handicap what the market is already pricing in, in terms of the future trending of inflation . I think the market is pricing in about a 2 to 3 inflation coming in pretty quickly thats what you see in the tbond to me there is no better indicator of longterm expectation of inflation than the tbond rate. Right now the market is pretty upbeat about what will happen with inflation as we saw in the 1970s, sometimes markets dont quite get how difficult it is to get inflation under control. That was, i think, Jerome Powells message today, which is just because we had a month of good inflation doesnt mean weve got this monster under control. I think that reminder is needed, because i think markets are getting a little ahead of themselves in terms of having the inflation boogieman back in the closet. Yeah. I guess in terms of the internal drivers of the overall stock market valuation, in the end of 2021 dramatically concentrated in the very large Growth Stocks where you had embedded expectations of great growth for years to come, they have come in a fair bit is there a way to assess whether they have rationalized at all by now . I think the tech sector, i think we make a mistake of classifying it as one sector, but theres old tech and new tech if you look at old tech, i dont think it was ever as overvalued as people claimed it was new tech, the zooms, pelotons, shopifys, clearly got way ahead of themselves. I think old tech will behave much better than new tech. Youre seeing this in the market i think they will hold their value better if you look at apple, i think its the greatest cash machine in history if youre concerned about holding on to value, i would rather hold apple than cocacola. Thats interesting to hear you say. If you just look surface level at apples valuation, its premium to the s p 500 it looks like its pretty stretched relative to its history. But you think that it redeems that valuation just based on the cash Flow Dynamics and things like that . Over the last five years, apple has returned close to half a trillion dollars of cash while still increasing its market cap. Thats amazing when you think about it so i think when you compare apple to other companies, that cash flow factor has to be brought in, as do its margins. This is a company thats able to maintain 30 margins through good and bad times and Pricing Power. In a sense if youre worried about inflation, this is a company that i think has a chance of holding its own. Inflation is never good but its a chance of holding its own, if inflation days high. In terms of what you had characterized as new tech, i guess you could even extrapolate it to this Venture Capital back, private companies that were aggressively valued. That has really been largely flushed out of the system. Is that going to be a positive or is that just going to those stocks are just going to haunt the indexes in the market for a while . Well, i hope they will be completely flushed thats what we dont know yet. We have no idea whether this is the end of the down rounds risk capital has gone to the sidelines and showing no signs of coming back quick in this market thats concerning especially with money losing high growth companies. Without risk capital to back you up, those stocks are not coming back. They need more before it pays off. Professor, thank you very much thank you now for more on this selloff, lets bring in tony dwyer. Tony, take us through where we are in your game plan here in terms of the range you think the market looks to be trading in and how todays macro news has been digested. Mike, thanks for having me, number one number two, so we expected summer rallies we pulled the plug on that and we had an extraordinary rally. You had a 16 rally off the low. Ultimately that brought in a lot of thrust indicators you and i have been doing this a long time and our old friend marty used to say dont fight the fed or dont fight the tape. No matter how you slice it, youre fighting one or the other up until today you had high momentum that carried more than 90 of s p components above the 50day. The problem i had with it that we talked about earlier in the week on fast money was that i cant find any of those occurrences where the fed was tightening Interest Rates, where you made a major market low and a Momentum Shift so were just in this conundrum of which is more important, the momentum or the fundamental macro backdrop. And we obviously have bounced between taking our lead from either of those, depending on the day or the week. It is completely a market of mixed messages in that sense out there. You have the inverted yield curve. The threemonth 10year is going to invert before too long. That usually means be careful. Recession vigil is under way at the same time, as you say, the tape itself acted pretty well off those lows. Is there a way to, i guess, kind of synthesize those two points and come up with a strategy or just be openminded about both directions i think you have to be openminded here, mike our call was for a tumultuous first half and a summer rally. Fear of fed had been extreme in april, may and june. Then you had an oversold condition. Think about the fact that the university of Michigan Consumer sentiment number in the history since 1949, i think it was started, weve never had that negative a sentiment so we had this the ingredients were in place. And of course Economic Expectations got too negative. Mike, for the life of me, i dont understand why people think were in a sharp recession i know its two negative quarters of real gdp. But we had 7 nominal growth corporate profits were okay. So the recession call and how we go from here comes next year to discuss the yield curves, everybody has got their own favorite yield curve youve got 210, 530, threemonth, whatever. When you look at the percentage of yield curves, the percentage of yield curves that are inverted hit 55 a couple of weeks ago. Going back over the last six or seven cycles, every time that youve had it get to 55 , which it did a couple of weeks ago, youve ended up in a recession the fed is raising rates to a historic degree and theyre only halfway done based on what the indications are. In a generationally levered system with rising inventories and slowing demand, thats a tough one to say youve got to chase a market thats at 18 times. Right no, exactly. Its hard to say chase it. At the same time, youre kind of going through this list of weve never seen this before this is what an exception to the usual cycle is i remember on the way up in 2020 and 2021, we did the same thing on the upside. We never had a market double off the low as fast as it did. Obviously theres a bit of a whipsaw effect i wonder what the indicators are telling you in terms of how the real economy will perform through this when it comes to things like consumers having more of a cushion than they have in the past. You look at things like the senior loan survey and whether in fact banks are willing to finance growth from here how does that shake out at this point . I think we have to separate the economy and the market but again, it goes back to what is the fed going to do from here and theyre raising Interest Rates. In 2020 my mistake coming i think we did a good job of looking at the low and all the extremes like we had in june of this year. And then i kept calling for a retest initially, even though what caused us to shift from there is when the fed announced they were buying highyield corporate debt we called it a gamechanging decision but by then the market had ripped so i was wrong at that point. Its different the fed is still raising rates thats the difference on a test. When you look at a test of the low to me, again, any Momentum Shift, i am respectful of the market momentum. Any Momentum Shift where it was a Sustainable Low and real v bottom, every time i could find it, it came with not just a fed that stopped raising rates as much but an actual easier fed, so were in between. Yeah, we are actually making new lows here for the session, down more than 900 on the dow, more than 3 on the s p 500. So down below those previous august lows in the s p, down 3. 7 on the nasdaq so, tony, in terms of the what do you do question, whats your best guidance on that score . The sectors in terms of types of stocks. I was bullish for so long i was the mega bull. But heres the problem its all about money availability people forget that back in the 2007, 2008, 2009 period or even the 2001, 02 and 03, liquidity really shrank. The direction of earnings is driven by Economic Activity and driven by money availability what do you do people like me are famous for coming on here and telling you exactly what to do with High Conviction you dont have to do anything. My dad used to come down to the basement and look at my brother and me and say dont just look at me, do something. All year ive been saying dont just do something. I have a market momentum telling me you cant bet against it and a fundamental backdrop that tells me you dont want to add to it until you go back and retest that low so thats been our framework for months i dont see any reason to change it or make a big bet given the backdrop that we have. Another a jobs number coming on friday, cpi number the week after that and then the fed meeting so were looking at three plus weeks when it seems as if the market is going to have this intense focal point on one place and probably will react to it there. You have a september seasonal weakness, Midterm Election patterns, maybe theres a little difference there is there any way to say what to look for to know if the market has overshot or given you some kind of signal that things might be firming up . So the great philosopher mike tie tyson said everybody has a plan until you get punched in the face every time i look back at Interest Rates when theyre spiking and the fed is really tight, they ending up easing pretty quickly the data point that im really focused on here, mike, is the Unemployment Rate. Remember, the core pce, the fed has let the narrative be about the cpi. The core pce which they have stated in the past that they use, that peaked a few months ago. So we know that inflation is getting a little bit better. Its not where they want it to be todays message was clear by fed chair powell but i think the real thing thats going to be the kicker of when theyre going to not just stop tightening rates but ease more quickly than people think is when the Unemployment Rate starts to go up. In our view thats by the end of the year if you look, it leads the Unemployment Rate by four months were coming to the point where it should pivot. I dont know if its august or september, but ultimately im watching the Unemployment Rate more specifically because like i said, when the economy starts to really punch you in the face in an Election Year and the markets are weak, i dont know how hawkish theyre going to sounding. Exactly, yeah no, there should be a rethink before maybe powell suggested there would be today well see how that goes. Tony, great to talk to you thanks for coming on. Thanks for having me, mike. Have a great day. And with the dow down more than 900 lets get into the market zone. Deirdre bosa is here and brandon ross on one video game stock thats outperforming today lets start with the market. Nancy, pretty severe repricing in equities. Bonding market says we kinda had this would you take it as an opportunity or warning in terms of what stocks are doing today well, you know, one day does not a market make but i get your point, mike. We had been adding risk back to our portfolios back in june. And a week and a half ago, two weeks ago, we cautioned our clients not to throw money in indiscriminately, not to chase the rally and gave ourself that same advice. I do think this can be an opportunity. If we get some sustained volatility to the downside, i think you want to go in and add to those high quality names run by great management teams who have Pricing Power youve heard it from everyone, Dividend Growth, reliable earnings growth, because we will slow down and we think we will be in recession in the first half of next year. So the market is going to shift to the companies that can delivery liable earnings by that, just take a look at Palo Alto Networks they raised guidance and beat o almost every metric. So you want to pick your spots, but there are plenty of others that are going to provide an opportunity. We think this will chop around for some time. Well, lets hear fed chair jay powell he said this morning in his speech at jackson hole that higher Interest Rates will persist for some time and more pain is ahead. While higher Interest Rates, Slower Growth and softer labor Market Conditions will bring down inflation, they will also bring some pain to households and businesses these are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain so, nancy, in this way powell has been casting the fight against inflation as in fact the populist way to help the overall economy and the average consumer out there. That way its sort of like, look, the political kind of popular point two years ago was get unemployment down as far as possible now its you have to slay inflation. On the other hand, just this morning we got a pretty welcome decline in the pce core number some of the leading indicators of inflation look like theyre going in the right direction is there a risk of getting a little too negative about the inflation outlook based on powells warnings . Yes if you look at the economy, pmis have rolled over, supplier delivery times have improved, which indicates the supply chain is loosening up an unclogging. Youve got new orders down, prices paid down then we did see this core pce number that improved somewhat. I think one of the things that the market is struggling with, and i do believe in redemption but he has made a series of mistakes ever since he joined as fed chair, starting with october of 2018. That was his first bear market when he spoke rather loosely about how long he was going to raise rates. And then again last year ignoring inflation, insisting it was transitory with a laser beam focus on the labor market. All the while the federal government was supplementing benefits for people not to work. So i think this is why the market tends to overreact in the very near term and then recalibrates as time goes by i dont think he said anything new. And the fed members have been saying all of this for the previous two weeks so i liked the shortened speech and the lack of taking questions, but i dont think theres a lot of new information there. The economy is slowing, the bond market is telling us were going into recession, and that is a fact so the fed has to be very careful as they hike from here not to really add exponentially to the downside in the economy we do have the dow down more than 900, s p down more than 3 . You know, weve now worked ourselves into a point where 50 versus 75 basis points in september somehow seems like its crucial, even though it might not have before. 50 will feel like a dovish move. Right yeah, i think thats right thats why i think just on the daytoday basis, you really cant draw too many conclusions. I think tony was dead on, weve been saying the same thing how hawkish is the fed going to sound after this september rate hike lets not forget quantitative tightening its going to double to 90 billion rolling off the Balance Sheet in september there are people who have estimated that the decrease in the Balance Sheet is worth 1 to 4. 5 in rate hikes strong dollar is also a tightening Financial Condition so im not convinced that were going to see unrelenting rate hikes for the next six to nine months yeah, at some point there was certainly the opening for him to emphasize those things and emphasize how far the tightening campaign has come but he chose not to do that meanwhile, bank stocks are falling along with the broader selloff, but its the private equity names taking the brunt of the pain leslie picker joins us leslie, private equity names i guess theyre leveraged to financing conditions and things like that . Yeah. Theyre basically acting as leverage data when you think about the Portfolio Companies that sit in these large Asset Managers they are looking at their comparables, they are falling in the market today and these are the ones in the Portfolio Companies are liquid, often have a bit more debt on them so when you hear commentary that sparks fears of a recession, these stocks do tend to fall theres also the added headwind of the fact that rising Interest Rates kind of reverses this dynamic they have enjoyed the last few years where when rates have been low, they have been able to capture a ton of aum as a result of being kind of a replacement in essence for the yield that they werent getting in traditional areas if the 10year is higher, if there are other pockets of the credit market where investors can get yield, they dont need private equity as much to get that outperformance. And wasnt there a i dont know if this is a psychological input to this selloff, leslie, but was it blackstone that decided they were going to stop buying so many Single Family homes in the real estate business this week just a sense that theres some indigestion in terms of some of the activities they have been engaging in . Yeah, it was blackstone and that does create the psychological dynamic. The one benefit they have in this market is theoretically when you see valuations tumble, thats opportunistic for them because they can buy at these lower valuations, especially in the Public Markets but even an entity owned by blackstone is saying were not seeing much opportunity and it has investors start to wonder whats next from them. Nancy, so many Value Investors have become enamored with this group of stocks within the financials they have the business models, the assets are sticky. Theyre really just asset gatherers. Its not as if the companies have so much debt. Have you viewed them that way or do you think theres risk there . No, we havent. Weve been moving in the other direction with our Financial Holdings weve been adding insurance names, minimizing our exposure to money center banks. There was a great analysis and he went back and looked at tightening Financial Conditions. Financials are the worst performing group of all sectors in the S P Technology kind of comes in midrange, which is why i think its sort of rich that we get these huge selloffs in old tech names which should do really well as growth slows in the economy. They will deliver the reliable growth i dont want to chase the riskier parts of the Financial Sector at this point got it. And, leslie, thanks to you meanwhile one bright spot in the market selloff is Electronic Arts that getting a stock after reports amazon will buy the company. Lets bring in brandon ross from lightshed. Brandon, just broadly speaking, it seems as if theres a ton of attention and chatter about the video game makers, whether theyre ripe for consolidation and the big tech and Media Companies desire perhaps to participate in a bigger way in that industry. Well, i think that the prevailing viewpoint started because there has been consolidation in the industry this year, most notably between activision and microsoft, which is a deal that is expected to close maybe by the end of this year all the big tech platforms are interested in sharpening their 3d interactive skill set. Its something thats very difficult to build on your own, so theyre out there probably wanting to make acquisitions the question is, who are the right targets and will the government allow such acquisitions, especially under this administration. And thats something were concept al about. Youre skeptical of that. Take two is also up today in an awful day for the markets. Brandon, im afraid because of what the market is doing we have to leave it there for now. We have the dow down close to 1,000 points shares of buy now pay Later Company affirm falling off a cliff after the Company Reported a larger than expected loss for the quarter. On tech check they talked about his outlook for the credit environment. Its a conservative view in that we dont know what the credit future looks like the economy is not in the healthiest place we haeeard jay powell speak to that point we are extremely confident in our ability to grow the business. Deirdre bosa was part of that interview. Other fintechs getting slammed as people worry about the credit risk whats the current line on these companies . I mean this is one of the growth areas of the market that fall out of favor. Theres a number of factors here one is delinquencies as the economy softens and inflation rates go up, theres a fear that customers, especially the younger ones of buy now, pay later could miss payments or not be able to reach them. Theres also the question of cost of capital for the affirms, for the buy now, pay later companies. It goes up as rate goes up and growth and gross payment volumes, right they have seen Enormous Growth over the last few years but if ecommerce returns to prepandemic levels, something max did talk about, are they going to continue to keep that revenue up if you look at affirms latest quarter, revenue has been flat over the last three quarters so it does raise questions about how much youre paying for this growth, especially unprofitable growth, mike. It strikes that he that affirms point, not only were they early in this whole market but they have a better underwriting algorithm, they have a smart technology, theyre not going to get caught so badly in a credit downturn the only Way Investors will be confident is if they make it through a downturn and prove it. Thats true but you see whats happening at some of the other fintech lenders. So if affirms delinquency rates can be better than them, maybe that proves them ive known max for years and hes talked about this even in the boom times he said when the tide goes out, youll see whos swimming without their bathing suit i think thats what investors will be looking for going forward. Whos been taking on too much risk, whos had a better judge of credit worthiness, especially as buy now pay later is so popular with the Younger Generation for sure. Nancy, if you were kind of sticking with the less risky parts of the banking and finance industry, im guessing these areas dont tempt you . No. The riskiest stock we have in our portfolios is square you can make the same argument certainly best in class. A lot of things going right. The stock has gone from 240 down to 69 i think in that environment you need to take some risk but you want to really cover your portfolio with the companies that have reliable growth. In particular, Dividend Growth because thats going to be a really good offset against inflation in a declining market. We are down now just over 1,000 points on the dow, 3 . The s p 500 down a good bit more than 3 at the moment as we sort of have the losses deepen into a summer friday close. Maybe in that sense not too surprising nancy, its interesting if were talking about recession risks starting now or going into next year, the market peaked in january. It seems as if the market peaked too soon to be pricing in a recession that was over a year away or Something Like that. Is there any way to make any sense of that, or is it just that each cycle is different thats a great question, mike i think one of the things that struck me was when the yield curve inverted in 2019 briefly appeared then we ended up in the recession that was pandemicdriven, so i do think theres some wisdom that cannot be explained in the markets and the ability to look far ahead. That said, i do think were going to continue to feel some pain through august and into september. The feds attention returns to earnings and the midterms. I think well rally hard into the final quarter of the year. Thats my guess. I dont know if its already been priced in it felt like recession was priced in in midjune and then this rally sort of took us away frjtd. From that. So well see. One of the historic patterns is the market performs really well from the Midterm Election to midway in the following year. Were not there yet obviously. I think its also important, nancy, to point out that when markets do have one of these nasty macro selloffs and people flee from risk, when they rebound, its not always because everyone sees its all clear 2011, i was looking at that, it was bleak, everything was, and it ended up being a pretty good buying opportunity. And 2017 when we had negative earnings or no earnings. So i think investors need to be buying stocks they can hold for three to five years. No need for the capital. Look at names that are growing the dividends. Steel dynamics, Public Storage add some risk in Via Technology and i think youll be very happy in the next three to five years. Dee, just in terms of tech at the very top of the market cap scale this market, we keep thinking that in fact weve had the reckoning and they have paid their penance and were not really seeing it here perhaps with the exception of apple. Yeah. Apple sort of continuing to be that safe haven. I was just looking at shares of alphabet theyre down more than 5 . Even amazon is down 4. 5 there was this thinking, mike, that perhaps they had taken their medicine earlier on in the year they had overcapacity problems, they had labor issues, they hired too much too quickly during the pnandemic. The ecommerce story with amazon, even aws, the cloud giants fared pretty well last quarter. Still some deceleration, but i think what this brings up when chair powell says theres going to be more pain for households and businesses, are Companies Going to scale back even in the cloud space, which has proved pretty resilient alphabet is down 5 . It is tied so closely with Digital Advertising sales which is an easy thing for companies to cut right away if they are trying to save some costs. Yes, that is correct. Well have to see on that, dee, thank you. Nancy, you mentioned Steel Dynamics before. Does that mean you think the industrial economy is in decent shape . I do. Look at the Industrial Production numbers we got. Thats one of the cross current confusing data points. I think its also important to point out with unit labor costs rising so dramatically and productivity down, we think people will continue to spend on the cloud. Cio report says 86 of going to increase their spending on software Steel Dynamics is an Interesting Company because it does have a digital component but also an esg component. We like the company. We think its a great place to be for the next three to five years. And it flies in the face of cyclical downturn, i know. But its got a unique spot in this space. Theres a lot of offsetting currents right now nancy, thank you very much thank you, deirdre, as well. We are tracking for more than a 3 decline 3. 4 in the zmd. T s p 500. Were still hanging on to more than half of the total rally from the june lows down to that low 36 and change would be another 10 drop from here the market breadth is looking like a washout, 90 downside volume on the new york city. That does it for closing bell on a friday. Have a good weekend. Here is scott wapner with overtime. Mike, thank you very much. Welcome, everybody, to overtime on this friday im scott wapner you just heard the bells and we are just Getting Started here at post 9 at the New York Stock Exchange ill speak live to Roger Ferguson on what the feds next move is likely to be after that very hawkish powell speech in jackson hole an interview you cannot literally afford to miss we begin with our talk of the tape this ugly selloff and what could be a reality check for investors on where rates are going and the fallout for