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 high-yield debt part of the message from jay powell seemed intended and making sure that financial conditions don't get too loose, the markets don't get too generous in financing risk here's the high-yield 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 it's widening out again this gap between these two. it shows you more anxiety is filtering into the financing markets although we're well off those worst levels the gap between the two is not at a high stress level let's talk about all this and bring in steve liesman from jackson hole for more on powell's speech. wall street's reaction, steve. what strikes you most here five hours later? >> you know, it's 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 much-anticipated 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 i've 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 it's not enough to change the fed's course, at least not early on. >> while the lower inflation readings for july are certainly welcome, a single month's improvement falls far short of what the committee will need to see before we're 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 we've 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 powell's 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. >> that's 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 powell's 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 you'll 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. i'm not sure the stock market was paying attention to where the bond market was. i think that's 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 wouldn't answer the question i think he answered that question today, and i think that's a significant change. he's saying, look, there's going to be some pain. that's 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. let's 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 it's 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 jay's 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 that's 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 that's why we were up at 4300 and change and why the fed's message hurt a little more than usual. i think it was summertime positioning that drove a lot of this. >> yeah. there's 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 we're 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 we'll let inflation trending even higher now it's acting as if it's again a one mandate fed, exempt the mandate is whatever it takes on inflation, and we're not going to regard what's necessarily happening in terms of the wear and tear on the economy. >> it's 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 it's stable prices that is really the foundation of a healthy recovery and i think that's 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 it's going in the right direction. but the market's 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 didn't 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. we're sort of akin to sort of misses that were happening in the '70s thankfully inflation expectations are anchored. five-year forward, five-year break evens and the survey data are holding remarkably well. the fed doesn't want to play with that. it's going to stay in a volckeresque structure for a lot longer than people probably think. i think that's what jay was pushing today, even invoked some old volcker quotes in his speech today. that's something we've pushed really hard on at jeffries, that was was jay's volcker moment he's staying with that and is going to make sure that we don't 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 short-term pain it's 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 it's in consumer and corporate balance sheets which don't seem particularly strained, whether it is in just the labor market that's 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 doesn't necessarily have a particularly damaging recession? >> well, i think there's no chance that we avoid a recession. but whether it's damaging or somewhat mild i think is more of the question now, if people think mild leads to a quick recovery, i'm 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 we've seen, to me there's an economic adjustment of note that we have to digest, and it's not something that's going to happen quick. we've seen how quickly the housing market responded to this very sharp rise in interest rates. we're 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 haven't 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, it's really tricky. we talked about picking bottoms in our piece this week and it's 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 mid-june as we saw if we have to do that you have to be pretty nimble and think that it's certainly possible, put a 50-50 or 60-40 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 there's a lot of cash that is looking to get back into risk if we do go down again. can we go back to that mid-3000 number again and test around and play around? i think it's 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 hasn't picked up steam and we go for the full 95 or 94 billion a month we're 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. it's down 3.5% let's bring in mike mahany handicap where things might go from here, mark. it's good to talk to you we've had really so many waves of, i guess, valuation adjustment in parts of the nasdaq you've 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, there's a lot to that we've 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. i've 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 haven't 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 we're obviously going into we don't 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 that's how i think about stock picks. if you're telling me we have hard money environment, sustainably high inflation rate and high interest rates, it's 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? >> you've got it, mike it's those it's companies that you can look at and say free cash flow. these companies are trading at 12, 13, 14 times gaap earnings we're not doing ebitda or adjusted earnings. so in the space i'm looking at i'm 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 you're starting to see a real dramatic increase in cash flow there i'd throw all of those into my hard money basket. names that can outperform but have to have free cash flow supports they can't be long duration assets they have to have real profits inform '22-'23 long duration assets won't 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 don't 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 that's leaving the stock where it is? >> that skepticism, mike, is dramatic this is the new ebay, this is the new yahoo! it's 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 there's regulatory risk being thrown at facebook and just this belief that it's matured out. i don't think those headwinds are accurate or at least i think they're hedges against the headwinds, if you will, if that's not too complicated so i like facebook here. i think there's a path for revenue acceleration they haven't had their breakout quarter. amazon had that last quarter, facebook hasn't, meta hasn't 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 it's 30% operating margin generating 25, $30 billion in free cash flow a year to give them plenty of strategic options. they're returning that cash to us as shareholders i think there's a lot to like about facebook when the market certainly doesn't 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 don't 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 it's 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 don't know what's going to happen first, whether those financial conditions actually work -- at some point along the way shopify can generate free cash flow but that's a couple of years out. i don't 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 long-term investor to want those stocks now unless you've got a really specific catalyst over the next three to six months if you don't have that, it's hard to see those stocks outperforming in a hard money environment. >> yeah. maybe they'll come back one day. in the 2000s, some of them came back hard and some didn't 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 you're 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, it's been a real overhang on the stock and now intensifying on this news. let's get back to the broader sell-off here's 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. let's dig deeper into some hard-hit areas in this sell-off. steve kovach is looking at apple's 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 apple's payment system apple has argued these fees support the app store and without it a lot of these companies wouldn't 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 all-important services segment, mike. >> just so i'm 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? >> it's largely the same set of issues, mike, the same thing we've heard developers like spotify and match group complaining about the last two years or so. they basically don't want to pay these fees and it's hurting their profitability. apple argues you need to pay these fees because the app store supports your whole business and that's 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 lowe's 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 didn't say anything about housing specifically, he did talk about maintaining restrictive policy stance for some time and that means higher rates. mortgage rates don't follow the fed exactly but are influenced by fed policy. they loosely follow the yield on the 10-year 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 powell's 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 that's 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, we've already done part of our job. clearly he's 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 what's going on in the market right now, this very sharp pullback and we're starting to see home prices come down a little bit and that was new this week you've got to wonder how he's factoring all of that in, it's 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 sell-off pippa stevens has a closer look. >> that's right. energy stocks are holding up better than the rest, down about three-quarters of 1%, making it the best sector today. it's 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 powell's comments but recovered those losses and is ending the week with brent back above the $100 level. drilling down on the energy sector, it's 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, it's 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 what's 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. let's 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, it's been part of the story all year valuations getting compressed in equities in reaction to what's 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 >> i'll give you a conditional response this is a market that's 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 doesn't 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 we're in for these periods of uncertainty, and this week is a reminder that we're 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. we're not just going to necessarily take last month's 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 that's what you see in the t-bond to me there is no better indicator of long-term expectation of inflation than the t-bond rate. right now the market is pretty upbeat about what will happen with inflation as we saw in the 1970s, sometimes markets don't quite get how difficult it is to get inflation under control. that was, i think, jerome powell's message today, which is just because we had a month of good inflation doesn't mean we've 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 there's old tech and new tech if you look at old tech, i don't 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. you're seeing this in the market i think they will hold their value better if you look at apple, i think it's the greatest cash machine in history if you're concerned about holding on to value, i would rather hold apple than coca-cola. >> that's interesting to hear you say. if you just look surface level at apple's valuation, it's premium to the s&p 500 it looks like it's 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. that's 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 that's able to maintain 30% margins through good and bad times and pricing power. in a sense if you're worried about inflation, this is a company that i think has a chance of holding its own. inflation is never good but it's 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 that's what we don't 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 that's 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 sell-off, let's 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 today's 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 don't fight the fed or don't fight the tape. no matter how you slice it, you're fighting one or the other up until today you had high momentum that carried more than 90% of s&p components above the 50-day. the problem i had with it that we talked about earlier in the week on "fast money" was that i can't find any of those occurrences where the fed was tightening interest rates, where you made a major market low and a momentum shift so we're 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 three-month 10-year 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 open-minded about both directions >> i think you have to be open-minded 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, we've 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 don't understand why people think we're in a sharp recession -- i know it's 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 you've got 2-10, 5-30, three-month, 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 you've had it get to 55%, which it did a couple of weeks ago, you've ended up in a recession the fed is raising rates to a historic degree and they're only halfway done based on what the indications are. in a generationally levered system with rising inventories and slowing demand, that's a tough one to say you've got to chase a market that's at 18 times. >> right no, exactly. it's hard to say chase it. at the same time, you're kind of going through this list of we've 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 there's 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 they're 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 high-yield corporate debt we called it a game-changing decision but by then the market had ripped so i was wrong at that point. it's different the fed is still raising rates that's 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 we're 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, what's 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 here's the problem it's 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 don't have to do anything. my dad used to come down to the basement and look at my brother and me and say don't just look at me, do something. all year i've been saying don't just do something. i have a market momentum telling me you can't bet against it and a fundamental backdrop that tells me you don't want to add to it until you go back and retest that low so that's been our framework for months i don't 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 we're 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 there's 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 they're spiking and the fed is really tight, they ending up easing pretty quickly the data point that i'm 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. it's not where they want it to be today's message was clear by fed chair powell but i think the real thing that's going to be the kicker of when they're 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 that's by the end of the year if you look, it leads the unemployment rate by four months we're coming to the point where it should pivot. i don't know if it's august or september, but ultimately i'm 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 don't know how hawkish they're going to sounding. >> exactly, yeah no, there should be a rethink before maybe powell suggested there would be today we'll 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 let's get into the market zone. deirdre bosa is here and brandon ross on one video game stock that's outperforming today let's 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 you've 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, let's 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 it's sort of like, look, the political kind of popular point two years ago was get unemployment down as far as possible now it's 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 they're going in the right direction is there a risk of getting a little too negative about the inflation outlook based on powell's 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. you've 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 don't 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 don't think there's a lot of new information there. the economy is slowing, the bond market is telling us we're 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, we've now worked ourselves into a point where 50 versus 75 basis points in september somehow seems like it's crucial, even though it might not have before. 50 will feel like a dovish move. >> right yeah, i think that's right that's why i think just on the day-to-day basis, you really can't draw too many conclusions. i think tony was dead on, we've been saying the same thing how hawkish is the fed going to sound after this september rate hike let's not forget quantitative tightening it's 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 i'm not convinced that we're 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 sell-off, but it's the private equity names taking the brunt of the pain leslie picker joins us leslie, private equity names i guess they're leveraged to financing conditions and things like that? >> yeah. they're 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 there's 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 weren't getting in traditional areas if the 10-year is higher, if there are other pockets of the credit market where investors can get yield, they don't need private equity as much to get that outperformance. >> and wasn't there a -- i don't know if this is a psychological input to this sell-off, 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 there's 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, that's 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 we're not seeing much opportunity and it has investors start to wonder what's 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. they're really just asset gatherers. it's not as if the companies have so much debt. have you viewed them that way or do you think there's risk there? >> no, we haven't. we've been moving in the other direction with our financial holdings we've 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 mid-range, which is why i think it's sort of rich that we get these huge sell-offs in old tech names which should do really well as growth slows in the economy. they will deliver the reliable growth i don't 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 sell-off is electronic arts that getting a stock after reports amazon will buy the company. let's bring in brandon ross from lightshed. brandon, just broadly speaking, it seems as if there's a ton of attention and chatter about the video game makers, whether they're 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 3-d interactive skill set. it's something that's very difficult to build on your own, so they're 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 that's something we're concept al about. >> you're skeptical of that. take two is also up today in an awful day for the markets. brandon, i'm 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. >> it's a conservative view in that we don't 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 what's the current line on these companies? >> i mean this is one of the growth areas of the market that fall out of favor. there's a number of factors here one is delinquencies as the economy softens and inflation rates go up, there's a fear that customers, especially the younger ones of buy now, pay later could miss payments or not be able to reach them. there's 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 e-commerce returns to pre-pandemic levels, something max did talk about, are they going to continue to keep that revenue up if you look at affirm's latest quarter, revenue has been flat over the last three quarters so it does raise questions about how much you're paying for this growth, especially unprofitable growth, mike. >> it strikes that he that affirm's point, not only were they early in this whole market but they have a better underwriting algorithm, they have a smart technology, they're 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. >> that's true but you see what's happening at some of the other fintech lenders. so if affirm's delinquency rates can be better than them, maybe that proves them i've known max for years and he's talked about this even in the boom times he said when the tide goes out, you'll see who's swimming without their bathing suit i think that's what investors will be looking for going forward. who's been taking on too much risk, who's 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, i'm guessing these areas don't 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 that's 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, it's interesting if we're 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 >> that's 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 pandemic-driven, so i do think there's some wisdom that cannot be explained in the markets and the ability to look far ahead. that said, i do think we're going to continue to feel some pain through august and into september. the fed's attention returns to earnings and the midterms. i think we'll rally hard into the final quarter of the year. that's my guess. i don't know if it's already been priced in it felt like recession was priced in in mid-june and then this rally sort of took us away frjtd. from that. so we'll see. >> one of the historic patterns is the market performs really well from the midterm election to midway in the following year. we're not there yet obviously. i think it's also important, nancy, to point out that when markets do have one of these nasty macro sell-offs and people flee from risk, when they rebound, it's not always because everyone sees it's 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 you'll 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 we've had the reckoning and they have paid their penance and we're 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 they're 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 e-commerce 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 there's 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. we'll 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. that's one of the cross current confusing data points. i think it's 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 it's a great place to be for the next three to five years. and it flies in the face of cyclical downturn, i know. but it's got a unique spot in this space. >> there's 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. we're 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 i'm scott wapner you just heard the bells and we are just getting started here at post 9 at the new york stock exchange i'll speak live to roger ferguson on what the fed's 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 sell-off and what could be a reality check for investors on where rates are going and the fallout for

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