Closing Bell - Closing Bell: 3-Day Losing Streak, Underpricing a Recession & National Economic Council Director on Inflation 8/30/22

Episode Date: August 30, 2022

Stocks falling for a third straight day over concerns the Federal Reserve will continue raising interest rates in order to fight inflation. National Economic Council Director Brian Deese discusses how fast inflation could come down from here and why the White House expects the rate of job growth to cool in the months ahead. Marathon Asset Management Founder Bruce Richards says the market is underpricing a recession and thinks there is a lot more downside ahead. He reveals the sectors he believes will outperform during a recession. BD8 Capital CEO Barbara Doran explains why she thinks the market is setting itself up for a rally this fall and unveils the stocks that could lead the charge. Brookings Institution's Michael O'Hanlon on how increasing tensions between China & Taiwan could impact the market. And Citi Global Head of Commodities Research Ed Morse reacts to today's energy sell off and why he thinks oil prices could continue to slide.

The late summer pullback gaining steam today as stocks fade throughout the session. The S&P 500 falling below the 4,000 mark. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the market with one hour left of trading, down more than 1% across the board, 1.5% for the Nasdaq. There's the S&P 500. It's down about 1.3% at the moment. Every sector is lower. Energy is the hardest hit. Big giveback in oil prices today. Energy stocks down almost 4%.

Utilities are at the bottom of the pile as well. Technologies not doing particularly well. Materials, really, it's the cyclicals, it's the safety and tech all moving lower throughout the session. The Dow is down about 360. Low of the day was about down 450. Here's a look at the biggest decliners right now in the S&P 500. And you can see there are plenty of energy names on that list, some material names there as well with the sell-off of commodities. We're going to talk to Ed Morris of Citigroup later on in the show. Also coming up in today's

show, we will talk to Bruce Richards from Marathon Asset Management, get his playbook amid this latest market downturn. Plus, National Economic Council Director Brian Deese joins us to break down the latest jobs data. We got some good news for the economy on job openings today and what that signals for the Fed and the economy. Whether it increases the odds of recession in the future. First up, we'll kick it off with the market dashboard today. Senior markets commentator Mike Santola is going to call you a correspondent. You're a commentator.

What are you focused on amid the selling, which has gotten worse? It has, Sarah, and it's sort of this decline has taken out some of the minor defenses this rally had built up. In just today, you went through 4,000 on the S&P 500. That was also basically the 50-day average and also cut through the halfway mark of the entire June to August rally. So basically this went up about 19 percent. Half those, half that amount was actually unwound with today's decline. It's actually just a few points above where we are right now. Now, it doesn't necessarily say that's it. It was all a head fake higher and it's down from here. But it certainly depletes the bull case a little bit to say that we have not gotten to skate velocity.

This rally stopped exactly at the 200-day average, which is falling. So I don't think the Bears are particularly concerned right now, but there is still the possibility that we gather ourselves up. My personal thought is if we lose a few more percent from here, it looks like we're going to retest the lows. Sentiment would get really ugly quickly, and it would get pretty pretty oversold and maybe you'd have a chance to bounce. Now, the data this morning did not help. I actually put some more pressure on the market, in particular, the job market tightness that was evident in the Jolt's job opening labor turnover survey, as well as compared to the total number of unemployed people. Now, this is an interesting

relationship. Obviously, massive labor slack back here post-global financial crisis. This is obviously the pandemic spike in unemployment. And here we have more job openings than we have unemployed people. That's been the case for a while. Had an uptick in openings. That's sort of working against what the Fed says it wants to do. Look, Jay Powell on Friday said the labor market is clearly out of balance. If you thought it was the case Friday, this contributes to the idea. Although the quit rate has gone down, there's ways to look at the Jolt's data to say that, yes, there's some cooling under the surface of the job market, just probably not enough. Market took it as a bad sign that the Fed has to do more, go bigger, potentially go longer on higher interest rates.

Yes. As I said in the chart, higher for longer. Higher, higher, higher for longer. Stay with us because the market reversing some earlier gains. Also after news that Taiwan's military fired warning shots at a Chinese drone that buzzed an island controlled by Taiwan near the Chinese coast. It marked the first time warning shots have been fired in such an incident. Let's bring in Michael O'Hanlon, director of research at the Brookings Institution. Michael, how seriously do we take this? Hi, Sarah. Well, you know, given the tension right now, every little thing like this has the potential to blow up.

So in that sense, it doesn't make me feel good that it happened, but I feel OK now that it's over. Although China is angry enough with the Pelosi visit and everything else that's been happening that I wouldn't be surprised if they just keep creating small incidents to see how Taiwan reacts and maybe even if Taiwan overreacts to give themselves a pretext for further aggression of some kind, probably not all-out war. I don't think they're looking for that at this juncture, but I think they wouldn't mind spooking the Taiwan markets, for example, making the people of Taiwan worry that they can't just elect political leaders who seem to move towards independence. This is the Chinese view of the matter, and get away with it. And so I think China wants us all to be anxious, and they'll look to do things that create some degree of risk if the risk is

controlled and if people keep their nerves it shouldn't do a whole lot it may sometimes affect the stock market in taiwan or what have you but it really shouldn't lead to war but there's always the potential this kind of thing gets out of control if the next drone is shot down if an airplane is shot down then you get into some really uh tense moments yeah well, we know investors are paying close attention to all these developments. Obviously, we're talking about the world's two biggest economies with the U.S. and China. And that does bring the question, Michael, to the U.S. and what the posture is here. There's a report in Politico today that the Biden administration is going to ask for more than a billion dollars worth of arms package for Taiwan, which I'm sure would not make China very happy.

Where does it go? The relationship. Yeah, you know, the relationship is not going well, as you're well aware. And I think that this will be one more issue that makes China react. But China is somewhat accustomed to arms sales. You know, we've been doing them for decades. And Taiwan needs stuff. They're way behind China.

Obviously, China's got a $250 billion military budget, plus or minus. And Taiwan's is $15 billion, plus or minus. So just the sheer numbers mean that Taiwan's going to have to buy good stuff, the right stuff, from the best weapons manufacturers in the world. And so I think that China always objects, but it has accepted a certain amount of ongoing U.S. weapon sales. When it gets to be a billion dollars, that's a big one. And you combine that with everything else. And yes, there is the potential for China to feel it has to do something else by way of reaction. So it's the combination that bothers me here more than the weapon sales themselves. Michael Santoli, how does the market even begin

to price something like this? I don't think in any precise way just yet. I'm clearly wary of it because, you know, the headlines out of tone happened before the economic numbers and the market did sort of back off a little bit, it seemed, on that. In bear markets, it seems like there's a yet another thing to worry about, but you don't really start to price it in until you have to. So I think to me, it'd be more about any other signs that that, you know, China is having these geopolitical priorities overtake its interest in good economic relationships or withdrawing that much more from, you know, the kind of entire economic kind of ecosystem as they've done now. And, of course, we've seen what happened with the Chinese currency.

That's also been a little bit of a worry point with the weakening there. It's weakening, but the dollar is strengthening. Everywhere, yes. So that is a pull everywhere. Michael O'Hanlon, how do we think about the economic stakes here? I'm watching some of the semiconductors. We know that industry is right in the middle. What other industry should we be watching? Well, just to back up Michael's point, when he says, you know, the market won't price this in

until it has to, I agree, because what is this? If this is U.S.-China war, then there's no way to price that in. Then we're going to be worried about the survival of our planet. And I'm not just being melodramatic. If, on the other hand, there's some potential that China does aggressive military exercises that lead to a week's disruption in cargo shipments, that's the sort of thing the market could price in. But how do you know it's just going to be a week? How do you know it's going to stop there? So I agree with Michael's point fundamentally, because if and when this starts to get worse, there's no telling where it stops. And therefore, there's no real way to meaningfully

quantify the risks or the dangers because they could be almost infinite. But my guess is no one's looking for that. China's looking to make us all talk about this, worry about this. They especially want lawmakers in the United States and leaders in Taiwan to be nervous enough about a process that could get out of control, that we stop doing things like Speaker of the House visits to Taiwan or the Taiwan leaders pushing for more autonomy on the international stage. I'm not sure China's going to succeed, but that's what they're trying to achieve. It's a good discussion, one I'm sure we'll be having in the weeks and months to come. Michael Hamlin, thank you very much. My pleasure.

Thank you, Michael Santoli. We'll see you in the market then. After the break, Bruce Richards from Marathon Asset Management says he does expect the market to retest the lows, but his long-term view is decidedly more bullish. He'll join us with his playbook next. You are watching Closing Bell on CNBC. We're covering a little bit down 274 on the Dow. Only Dow stock that's positive right now is Nike. Show you where we stand. Dow down about 229 points or so. So we are off the lows. We were down about 450 at the low point of the day. But you've got every sector lower. The S&P is down a little less than half a percent, or excuse me, almost 1 percent, 1.5 percent now

for the week. I'm just looking at the month, too, because we're coming up on the end of the month of August, down 3.3 percent. Joining us now is Bruce Richards. He's the founder of Marathon Asset Management. And Bruce, you have been saying that we are heading into recession in the U.S. Do you think the stock market is underpricing that? It's underpricing. And what's also underpriced is the credit markets, because if the credit markets and equity markets aren't pricing in recession, which I don't believe they are,

then there's further and significant downside from here. So $36.50 on S&P 500, I think it will have to test that, which is down another 8% from here. So 3650 on S&P 500, I think it will have to test that, which is down another 8% from here and out 100 basis points from here in high yield bonds is where we'll get to. But I think we'll actually get to a 10% yield in high yield bonds. So I think, yes, we're underpricing recession. And given the yield curve and what is pricing now, you can set your clock forward about nine months from today. And I think that's when any EBR will designate this being a recession. Why is the market not pricing this? It's very telegraphed with the yield curve, with what the Fed is saying. Well, I think S&P earnings right now for this calendar year is about $214, $215 per share. That's what we're on pace for.

And if you look at what's expected for next year, it's $235 or $240. It's about a 15% increase in earnings. I think that's a pipe dream at this point because I think earnings will actually contract. In every recession, earnings contracts about 20%. We think, but that's a nominal number, and so there's inflation, so it'll be less than that, maybe 7%. So it takes earnings down to 205 maybe, 207 from 215 today, as opposed to 235, 240,

what's being priced in. So there's a lot of downside from here yet. Where do you think we are in the tightening cycle? The early stages, the middle stages, or the end? Because the market can't figure it out. It's not so much where we are in the tightening cycle, because, and I hear you on that question, it's a great question, because I think there's more tightening to go, and I think we'll be three and a half, four percent probably before it's all over. The point, though, and the more relevant point is inflation as it trends down from nine percent to six percent, and we're in that, you know, on that trend now, we'll settle in around 4% throughout all of next calendar year.

That takes away the Fed put, and it takes away the Fed pivot. And the markets haven't priced that in yet, because if you keep rates higher for longer, it means the recession won't be V-shaped, because the Fed will not be easing into a recession as they always do when recessions hit. The market has that wrong, you said. But the market has that wrong. But the Fed will maintain the higher rates as you're in a recession in order to bring inflation down. And they're going to do that, and they said they're going to do that.

And it's all about Powell's pain plan that he talked about at Jackson Hole. He told us to expect pain. Expect pain for consumer and businesses. So you take a survey of the consumer confidence, and you take a survey of CEO confidence, and the CEOs have real good insight as to what's happening with their companies. Eighty-one percent of these CEOs now think there's a recession coming in the next year. Eighty-one percent. And that's a record high number.

So expect a recession, expect earnings to be considerably weaker, and expect credit spreads to blow out. Because the pain plan is all about higher rates, it's about wider credit spreads, and it's about lower equity markets. And that's the only thing that's really going to weaken conditions, which will weaken demand. And when you weaken demand, you can bring prices back down. But the problem is prices can't really come down much because you have a supply chain issue, both with energy, actually with labor, if you want to include that, but with energy, food, labor, structural things. And we're going from globalization to what I call regionalization as you move the supply chain back to regionalized areas, which is really good for

the U.S. I love that long-term, but in the short-term, it's expensive. So I guess the question now becomes how deep of a recession and how prolonged of a recession? Well, prolonged, yes, but shallow. So it won't be deep. In 2008, 2009, it was a 4.5% economic contraction. And you saw something similar in 20, although it was even more V-shaped in terms of its recovery because the $5 trillion of STEM money and quantitative easing that happened. So this time, the Fed, again, can't ease when the recession hits because the high levels of inflation. And so it's going to be longer, but very shallow.

And that's going to hit a lot of different industries across the board. Energy will probably do well. Farm will probably do well. Utilities will do well. But there are a lot of sectors like retailers and the home builders and other segments of the marketplace that are going to be rather hard hit when it comes to earnings. Yeah, because I was going to, I mean, it's a pretty bearish view, at least in the short term, that you're laying out. How, at Marathon, are you positioned for this? Well, we're positioned defensively, and so we're letting cash build. But I think, you know, look, when high-yield and leveraged loans and the bonds that you can buy in the marketplace yield 6%,

and we can be in alternatives that are private credit earning, say, 10%, that's a really nice alpha pickup. But when those high-yield bonds are down 10%, which they are this year and we're still making 10% in alternative private credit then you know imagine you're an allocator and you are the you know CIO of a pension plan and down the foundation you're gonna say to your staff I want to find less you know I want to allocate less money to the public credit markets and much more money to the public credit markets and much more money to private credit markets. And that's where we're seeing our clients' preference shift.

And that's true not only of the institutions, but it's also very true of retail. So the RIAs around the country who cover, you know, households that have built up wealth, they're finding more and more interesting opportunities in private credit and private equity than they are in the public markets. And we're seeing that shift. And that shift is a multi-year and multi-trillion dollar shift, we believe. When we talked right before the show, you said, no, no, no, I'm not that bearish. I'm bullish in the long term. I'm bullish in the long term. Which it didn't really come through yet. So explain what you mean and where that opportunity lies. So as globalization evolves into regionalization, then supply chains and manufacturing capabilities and plants are

going to come back to the United States. The United States is energy independent, which Europe isn't, right? And so we're in a very favorable position with not only having the brightest minds in the world and a capitalistic system, but we also have a lot of manufacturing coming back to the States. And these are global manufacturers that want to be in our marketplace

in addition to domestic manufacturers. So in the long run, intermediate run, I'd say I'm very, very bullish. But in the short run, I think we have to get through the Fed-Titany cycle, this recession that's coming, the earnings recession. When do you start to buy? When do you turn? I think I can safely buy when high yield is back at 10%, equivalent to what we can buy. And the S&P is 36? You know, I think maybe $305 a share times $16 might get you down to $3,200, $3,400. So I think there's actually more downside than $3,650. I'm not saying we're going to get there, but I know we'll at least, or I have a high confidence level, we'll at least test the lows.

And the lows is $345 on 10-year notes and a $ and a 3650 level on S&P 500. You're more specific with your targets than the equity strategist. Thank you, Bruce. My pleasure, Sarah. Good to have you here and get your worldview from Marathon Asset Management. Show you what's going on in the market right now. Down 254 or so on the Dow. S&P giving back 1%.

You've got every sector red. What's holding up better today? Financials, higher yields. That's certainly helping. Healthcare also doing a little bit better, but everybody's down. UBS raising the red flag about the economy today, saying there is now a 60% chance of recession in the U.S. in the next year. We're going to discuss the outlook for jobs, inflation, and more with the Council of Economic Advisors Director Brian Deese. He joins us from the White House. As we head to break, check out some of today's top search tickers on CNBC.com.

Tenure yield regains its top spot. A lot of interest. Sell-off in bonds continues with the tenure at 3.1. Bruce Richards says 3.45 is going to be the high. You've got Tesla in there, Bed Bath & Beyond, which was higher on the day earlier. It's now down about 11.3 percent, still higher for the week. And you've got crude oil best buy, which is surging off of better than expected weaker results. We'll talk about that later. We'll be right back.

Check out today's stealth mover. It's a stealthy one. Bolero, which is scoring a strike for investors. JP.P. Morgan initiating coverage of the bowling center operator with an overweight rating, a $17 price target, implying upside of roughly 50 percent, citing rising demand in a post-pandemic world. Shares of that company, which is the world's largest bowling center owner with more than 300 locations, are up already about 30 percent so far this year. A defensive play, I guess. Up next, National Economic Council Director Brian Deese on how fast he thinks inflation could come down from these current levels. Dow's down about 260.

We'll be right back. New jobs data out today. July job openings topping estimates 11.2 million. That is nearly double the total amount of available workers in this country and nearly a million more openings than what was expected. I spoke earlier with National Economic Council Director Brian Deese and began by asking for his read on today's data and how it jibes with some of the other mixed signals we've seen lately about the economy. Certainly there was some encouraging signs in today's data. We try to look at perspective out a couple of months.

What you've seen over the last four months or so is some cooling in the level of openings in the economy, but still in the context of a very strong labor market, historically strong labor market. Of course, unemployment is now 3.5, which ties a 50-year low. And of course, we saw very strong job growth in July. One thing I would note is that we have been saying for a couple of months now that certainly we expect and anticipate the rate of job growth to cool in months ahead. That would be consistent with the unemployment rate we have and the strength of this labor market.

But all signs continue to point to a labor market that is continuing to deliver for American families. And that is good news. So what are your expectations then for the August report, which we'll get on Friday? Well, we're close to that report. I won't try to speculate on any one month. And I think the is, your viewers probably know, in the range of $250,000 to $300,000. But I think the important point is that even as we see some expected cooling in the rate of monthly job growth, again, to what would be historically consistent with what we see with a 3.5% unemployment rate, we still have strong job growth. We still have a strong labor market, and independent of any one month,

that continues to be true. And that's important for not only the opportunities that workers are seeing in this economy, but also household balance sheets and the resilience of the American consumer. No, it's great news for the economy if the labor market stays strong, but the market is taking it as bad news, indicative that the Fed has to do more or will do more when it comes to tighter policy, higher interest rates for longer, that it could be inflationary. Is that your read as well? Well, as I said, we are in a transition and we certainly anticipate that as part of that transition, we will see some cooling in the rate of job growth across time. I think we have started

to see that, although the labor market continues to be very strong. And it's our expectation that we'll continue to see that as well. But any time that Americans have more job opportunities to get good jobs with higher wages, that's good news. We just have to work through this transition in a way where we can get to a stable, steady source of growth for American workers and for the economy without having to give up the economic gains that we've done. Certainly, we believe that that's possible. And we also think that the policy we're pursuing, the legislation we passed recently, will help contribute to that. How fast do you think inflation comes down from here? We are starting to see signs everywhere

from shipping rates to commodity prices to supply chain thawing that that that's really happening yeah certainly we're seeing some uh some positive trends on those on those indicators i think that we spend a lot of time looking at the transportation logistics system with all the work we've done on the nation's ports and you're certainly seeing more fluidity and costs coming down there and of course on gas prices continuing at over two months of daily declines and gas prices down more than a dollar and 20 cents at this point but you know what i can tell you is that we are continuing to look at every policy lever we can to try to encourage that process in the economy while

providing some real tangible relief for consumers, which is why our focus is turning toward implementing the Inflation Reduction Act, which has some very powerful tools to try to do that, both on health care costs that families are facing, but also on energy costs that they're facing as well. But if that's true, that you're looking at every possible lever to bring down inflation, why go ahead with the student loan forgiveness, which is estimated to cost hundreds of billions of dollars and potentially boost demand, at every possible lever to bring down inflation why go ahead with the student loan forgiveness which is estimated to cost hundreds of billions of dollars and potentially boost demand all of which could be inflationary well i think the president spoke directly to the the logic of

that and he believes it's well justified and that those uh those borrowers will benefit from that relief in terms of the inflation impact i think a lot of independent analysts have looked at this and it's appropriate economically to look at the impact of not only the debt cancellation, but also the restart of payments. Right now, nobody is making student loan payments or a very small share of borrowers are making student loan payments because there's been a pause in effect because of the pandemic. What the president announced and what we will implement is a restart of payments at the end of the year alongside the cancellation. I think that those who have looked at that, including Goldman Sachs and others, say that basically the inflation impact

in the short term is negligible. Not helping the mood today, Director Deese, is a report that Taiwan has fired a warning shot on a Chinese drone. I know this is outside your specific area, but clearly if it impacts the markets and the global economy, the consequences could be severe. What are you bracing for here? What is at stake if we do continue to see an escalation between China and Taiwan? Look, we're monitoring all those developments very carefully. And I think you've seen in the United States' posture over the last couple of weeks our effort and our resolve to not have that to not have that happen and while also operating consistent with our long-standing policies and long-standing practices. Look economically speaking if

we lift up and we look at where we are in the global economy one of the things that's important is that the United States is in a better position economically than almost any other country to navigate through these global challenges. And also that we're taking steps to build resilience in our own supply chains so that we are not as vulnerable as an economy and as a country for both economic and national security reasons to some of the economic challenges in the region. Certainly, the significant decadal investment we're going to make in semiconductors is a big part of that.

But much more broadly, it's why we've put the kind of focus on supply chain resilience that we have. I also asked, I followed up by asking about the odds of a recession. He didn't really go there, just said that, that continued to point to some of the resilient data in the US likeS., like the consumer balance sheets and showing that the U.S. is in a better spot than the rest of the world. And our markets have outperformed as well. Here's where we stand. Speaking of in the markets, down about 300 points right now on the Dow. It is a broad

sell off, though nothing too extreme, but down more than one percent on the S&P 500. You've got at the bottom of the pack today, energy down 3.4 percent. Materials and industrials are also getting hit particularly hard. Financials and health care holding up better, but everyone's down. The Nasdaq is down 1.3 percent or so. All the tech players are lower. The unprofitable tech names, some of the mega caps as well, like Apple, Meta, Alphabet, all lower today. Up next, Evercore ISI's Mark Mahaney will be here to weigh in on the tech sell-off, whether more pain is on the horizon. And a reminder, you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app.

Down about 3.09 on the Dow. We'll be right back. Tech leading the slide today. As you can see, everything is down. It's a pretty broad-based sell-off, but technology in particular getting pretty hard hit. NASDAQ 100 down around 1%, now down 4% on the month. Losers today include Baidu, which had earnings, Lucid Motors, which is issuing more stock, Tesla, Nvidia, Apple, Microsoft, Amazon, Meta. They're all weighing pretty heavily on the index as well. Joining us is Mark Mahaney of Evercore ISI.

Mark, can you invest in these names with treasury yields moving up the 10 years back above 3% and all this volatility around higher interest rates? Yes, you can. But I think what you have to do is bias yourself towards what I call hard money longs rather than easy money longs, i.e., you know, the long duration assets, the companies that weren't going to be profitable materially for a few more years, maybe that's the Shopify's or the Roku's. Those are much harder to buy in this environment. So you need companies that have got free cash flow yields on 23, that trade close to market multiples on gap earnings.

There are names like that. There are Google, Meta, names like that, and Booking, eBay. There are names that are more defensive that can work in this environment. But it's clearly challenging for growth equities, no question about it. At the same time, the dollar keeps getting stronger. And we have seen what a headwind that is for tech and some of the problems that are bigger in other places like Europe with energy rationing and the UK and the global growth concerns, I would think that that represents a risk to some of these what you deem as safer companies. Yeah, it does. I mean, 22 is turning out to be an extremely challenging year.

FX, recession and then slowdown and tied into that slowdown in advertising spend. So it's really the kitchen sinks being thrown against. Oh, and then rising interest rates as a factor of kind of impacting trading dynamics and just, again, interest in long duration assets. So this is turning out to be, there's a Latin expression for it, but a horrible year or very challenging year for equities. We're going to have to start thinking ahead, though, to 23. And can you find cases where you're going to have material revenue growth acceleration and margin expansion? Sarah, the big setup here is we had dramatic derating across tech. We had multiples come down materially as they probably should have because they got way overrated. Easy to say that in hindsight,

but they did get way overrated during that latter part of the COVID crisis. As they have come down now, the risk of these stocks is more estimates rather than multiples. And we've had three quarters in a row of pretty material estimates cuts. When those estimates cuts become more balanced or the move of estimates become more balanced, there's real opportunity for wins in some of these stocks. So I'm going to stick with the highest quality assets with that got good free cash flow positions. I think there are names like that. I think Meta is one of them. I think Amazon is. I think Google is, too. All right. Well, you're consistent on that front, Mark. I had to ask you, I have to ask you about Twitter with the new developments today that Musk is using the

whistleblower as a new reason to back out of the deal. Does it does it change your view about what happens and what to do with the stock? I'm more confused than ever. But I will point out this, that the whistleblower does say that Twitter's accounting for the DAUs, monetizable DAUs, was probably pretty good, which I thought was Mr. Musk, which was Musk's major complaint and major reason to back out of the deal. Now, the whistleblower is bringing up other things like potential noncompliance with the FTC. This is one person's assertions. They're very serious assertions. They need to be assessed. If you're a Musk's legal team, of course, you file a motion based on this new whistleblower information. But it does seem to undermine the original argument, whether it creates viable new arguments to stop the deal. It's out of my league.

I don't know. But this thing is just, I'm sure we're going to have more of these news days between now and when the trial begins in the middle of October. But you're not touching the stock at 39.24. No, I mean, it's an event stock. And I'd much rather look for good, fundamentally sound companies that I think are dislocated. Twitter right now, you've got to be a legal genius to invest in, to trade Twitter now, and I'm not. Mark Mahaney, well said. Thank you very much, Evercore ISI.

Look at the energy stocks. By far the worst performing ones on Wall Street today. Up next, a top analyst on whether today's energy sell-off is creating a buying opportunity. That story, plus why Best Buy is rallying when we take you inside the market zone. Dow is down about 270. We'll be right back. We are now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here as always to break down the crucial moments of

the trading day. And Mike, haven't really gotten a bounce since the big sell-off that we had last week and mainly on Friday post-Jackson Hole. What does that tell you? Well, it tells us the buyers are definitely on the defensive and they see no hurry to step in, at least just yet, basically because the charts keep weakening a little bit. I don't think anybody has a clinching argument that it's not like those who said it was just a bear market rally can yet say, I told you so. But today's economic numbers that suggest it's resilience in the labor market, good consumer confidence, or at least better than expected, shows you that we're on the defensive for a Fed that feels like it needs to talk and be hawkish until we get more confirmation that inflation is coming down. So I think it's a defensive type posture, but it's really not an urgent exit from the markets, at least not yet.

Major averages on track to close lower for the third straight day, but off the worst levels of the session. Let's hit energy. It is by far the worst performing sector. Mike, what do you see in the energy stocks relative to the price of oil, which is declining? White House seems to be celebrating these lower gas prices. Yeah, I mean, the stocks had actually had a period when they were outperforming crude oil.

In part, that's because natural gas was so strong and also because just crude staying near these levels is quite profitable for them. I do think it's an interesting moment for the crude look as well, because, you know, it broke this downtrend from the highs. It seemed like it was about to gather up another run higher. And then it hasn't really convincingly done so. And I'm also alert to the idea that oil bulls are now saying, hey, but look at the weather and we could get some hurricanes. And it's just the SPR release that's keeping inventories low. In other words, that story about supply was so tight prices could go nothing but up a few months ago has been altered. And at least that tells me that the bullish case has been widely adopted. And it's maybe coming into a little bit of friction.

Hovering just around the 92 level. We were just below there a moment ago on WTI. Let's bring in Citigroup's global head of commodity research, Ed Morse. Ed, you've been bearish, I think, on oil for a long time, even with the big run-up that we saw this year. So are you expecting that we've seen the highs? It's hard to know whether we're seeing the highs. You just mentioned the weather. And yes, a hurricane season could be a very big surprise. But I think there are very big, lumpy uncertainties in the next two to four weeks and maybe a little bit beyond that that are keeping people out of the market. The amount of participation in the market by financial players is extremely low. I say they're dominated by machines.

We have, on the one hand, possibility of Iran coming back. And we have, on the other hand, a possibility of Iraq going out or the hurricane season. So it's a crapshoot at the moment. So driving it right now is what? It's all those factors? Do you have technicals coming in as well? I think the technicals are driving it and the algorithmic traders are driving it. Clearly, we're having weakness in certain parts of the market. Undoubtedly, gasoline prices now down 11 weeks in a row. Diesel a little bit up, but the thrust is certainly downward. Demand is unbelievably weak and could get a lot weaker if the slowdown in economic growth turns into a more global recession,

which has a good 50% likelihood. So there's uncertainty. And I'd say from our perspective right now, the probabilities are higher for lower prices than they are for higher prices. But the certainty is not really there to the degree that you can say this is a 60 or 70 percent probability. The bulls would say that demand has actually held up better, especially in the face of China going through its covid lockdowns. And that supply is really the issue here. And that even if you're worried about recession, you've got such a global supply crunch with what's happening in Ukraine and in Europe that it's hard not to be long oil. Why do you disagree with that? I think they're wishful thinking mostly in terms of the supply

being dominant. They're looking at the amount of dollars being spent in upstream investments rather than the efficiency of capital, which has increased dramatically. And if you look at the demand side, it's not just China, it's the United States and Europe. U.S. demand is down below where it was a year ago by a large chunk. It's been flirting with being down the lowest it's been in 10 years. So I don't see where the demand is coming from. And yes, there are a lot of uncertainties about supply, but there are as many on the upside as there are on the downside. We have upside potential not just from the U.S.,

but from Canada, from Brazil, from Colombia, from Argentina, from you name it in the non-OPEC world as well as the OPEC world. And this is sustainable. It's going to be there this year and next year at a time when demand is falling. Ed Morse, sticking to the bearish view on oil prices. Thank you for joining us from Citigroup. Thanks for having me. I want to bring you a news alert here on SNAP and some layoffs. Leslie Picker has the details. Leslie. Hi. Yes, Sarah. This comes from a report from The Verge citing people familiar with the matter. But the report says that Snap plans to lay off 20 percent of its employees. It has about 6400 employees and plans to lay off about 20 percent of them.

The article goes on to say that they've been planning this for about several weeks. They will begin on Wednesday and hit some groups harder than others. The article goes on to say that they've been planning this for about several weeks. They will begin on Wednesday and hit some groups harder than others. The article cites the team working on ways for developers to build mini apps and games inside Snapchat. They expect that to be severely impacted are the words that the article uses. And also its hardware division, which is responsible for spectacles and the Pixie camera drone that was recently canceled. Snap declining to comment to CNBC on this reporting, but 20 percent of Snap's workforce is expected to be laid off, according to people familiar with the matter that spoke with The Verge. Sarah.

Leslie Picker. Leslie, thank you very much. And, of course, we'll bring you any more information as we get it. Mike, I guess not too shocking for a stock that's down, what, 80 percent or so from the highs. What's interesting is it's just the latest in a trickle of some of these tech companies that have seen their stock prices and their businesses suffer, like a Robin Hood and some others others to announce layoffs. We really haven't seen get into the macro data yet. No, not quite. Although, you know, claims have gone up a little bit, but there's definitely this theme running through mostly tech where there was just, you know, everyone cared about chasing top line growth and maxing out scale as well you could. Don't worry about profit. Keep in mind, Snap's a

big, successful company, yet it doesn't really have a path to genuine bottom line profit at this point, at least not in the next year or two. So I think all that stuff gets into the mix. A lot of CEOs have expressed a ton of frustration about this productivity levels in their workforces. They're trying to bring a little more discipline, probably overhired in a moment of labor scarcity. And this is the result. So what we're talking about, twelve, thirteen hundred people would be about 20 percent of Snap's workforce. It's interesting that the stock is lower. It's not sometimes, you know, the stock perversely rallies on this news because cost cutting is a good thing. And so is financial discipline, Mike. But not not happening right now. No, it's not. I mean, who knows exactly why that might be unless it's sort of indicative that maybe the numbers in terms of revenue trends, advertising volumes, that's another shoe to drop. And we're just hearing about the layoffs beforehand.

Let's get back to the broader markets before we head into the close, because we are seeing this broad sell-off today. Joining us now is BDA Capital's Barbara Duran. Barb, it's good to see you. You've been pretty constructive, and I know you've been buying at least in the summertime, right, as we've seen this summer rally. What are you doing now, and how are you feeling post-Jackson Hole? Well, I am not buying anything right now. I'm just watching and monitoring, because even though, in my view, the Fed did not see anything new, he did put stronger language. And of course, now investors, to me, it's almost setting up to be a replay of what we saw coming into the second quarter earnings where the market got very oversold. And that's because they weren't sure. And we still aren't sure what the time and duration

of inflation will be. So I think we have potential here to get more oversold on the downside. And yet, really, when you look at what's happening, inflation is coming down. We saw that in the PC number last week. Surveys are showing consumers are continuing to think inflation will come down. And you've still got very strong employment. You mentioned the JOLTS number this morning. Even though some investors are interpreting that negatively, it was another million job openings. And you've got consumer confidence has bounced up six points to 103. So I think we're going to continue to see inflation come down and we could be setting up for a positive surprise in the fall. But in the short term, given how investors are looking at this and worrying about earnings,

and I think they could be discounting even dire earnings that I don't think are likely to happen, given the scenario I just described. So I'm just waiting and watching a bit. And through Labor Day, you know, we've got the private ADP numbers tomorrow in terms of jobs. We've got jobs number Friday. And then in two weeks, we have the CPI number. So there's a lot that's going to happen that could be positive. So we'll see. Which sector, what types of stocks would you be looking to buy on your pretty rosy outlook for the fall, which you don't hear too often? No, I know. I think I'm

the outlier at this point. But, you know, as always, you know, you look at some of the technology and Mark Mulhaney just mentioned, you know, whether it's the Googles, the Amazons, the long duration assets, I think you can wait a bit longer because it looks like they are going to be going a bit lower here. But as always, these are the ones that have long-term secular growth stories. And that's where your growth could be scarce as the Fed continues to raise rates. So then I'd be continuing to look there and also some of the oversold retailers who have one-time inventory dislocations as everybody tries to figure out as demand and supply normalize, which is also happening pretty independently of the Fed. Yeah. Retail holding up a little bit better.

Actually, Best Buy is having a good day despite reporting comps that were down double digits. It was it was less bad than expected. Barb, thank you. Barbara Duran, good to get your take. We've got two minutes to go in the trading day. Mike, what are you seeing in the internals today? One percent down on the S&P and volumes as well, because we're still at the end of August. Yeah, overall volumes are really not impressive. It definitely is a heavy skew, though, to the downside. If you look at the New York Stock Exchange volume split there, it's been, you know, 80, 85 percent downside volume all day. So that's a decent wash.

And when you have energy plus tech down, a lot of times not an easy place to hide. Take a look at the two year note yield when we did get that the job openings number at 10 o'clock. It twitched higher to just about three and a half percent, settling a little low, lower than that. But it's basically at the cycle highs right now. This is the highest since 2007, building in the Fed rate hike expectations. By the way, the one, two, three, four and five year note yields are basically all around the same, essentially saying all the hikes are going to be done within the first year. Volatility index ticks higher. We have a higher low again, mid 20s showing concern, but not real outright panic gets there as we sort of try to hold right around the 50 day moving average on the S&P.

All right. Let's take a look at where we stand as we head into the close. The Dow is down 288 points at the low of the day. First of all, we started off positive, as you can see. Didn't hold that way for long. Lows of the day down 450 points. We're kind of below that right now, down 300 points or so. Nike has been the outperformer on the Dow all day. It's one of the few Dow stocks higher, along with Salesforce, Amex, and JP Morgan.

With the bell, you've got the Nasdaq down 1%. The S&P down 1%. Every sector in the red. Energy at the bottom, along with materials. That's it for me in closing ballots.