Closing Bell - Closing Bell 6/17/22

Episode Date: June 17, 2022

From the open to the close, "Closing Bell" has you covered. From what’s driving market moves to how investors are reacting, Closing Bell guides listeners through each trading session and brings to you some of the biggest names in business.

Stocks struggling for direction as a brutal week for the bulls comes to an end. Though the Nasdaq is seeing some pretty nice gains today, the most important hour of the trading day starts right now. Welcome to The Closing Bell. I'm Melissa Lee in today for Sarah Eisen. And let's take a check on where the market stands right now. We are higher across the board. Technology really leading the way with the Nasdaq,

looking at a 1.8% gain so far in the session. The S&P 500 up by 0.7% in terms of sectors. That three-week low in crude, that's taking the energy sector and the S&P lower today. And we are seeing some outperformance in some of the big cap techs, with a notable exception of Apple. Take a look at some of the biggest losers of the week on the S&P 500, which itself is looking at a 5% loss for the week some pretty remarkable downside moves cotera down 21 and a half percent for the week followed by eog schlumberger halliburton devon energy no surprise all energy names with this uh three week low in crude coming up in today's show chart expert

chris varone says the market pressure will not be over until quality stocks fall even harder he'll break down the level to watch specifically on Apple. We just mentioned it as a relative underperformer compared to big cap tech today. It's far below where it sits today. Let's get straight to the markets as the S&P 500 paces for its worst week since the start of the pandemic following the Fed's big rate hike. Joining us is Allianz chief economic advisor Mohamed El-Erian. Mohamed, it is always a pleasure to get your take on things. Thank you, Melissa. What do you make of this entire week? What's the message from the markets?

You know, it's a week in which the market got worried first about inflation and then about growth. And we've ended up being whipsawed in the fixed income market, but under enormous pressure in the equity market. And that's what you would expect. In terms of the moves that we've seen, we've seen some pretty extraordinary moves, not just in the equity side, but specifically in fixed income. Also in the credit side, we saw junk bonds of spread go above 500 basis points for the first time since, I think, 2000, Mohamed. So how do you interpret all of that in terms of the potential stresses the markets could be facing? So I think we've realized that inflation is such a problem that this Fed is going to tighten significantly. We've also realized that other central banks are going to join in.

So we are pricing in a significant tightening of financial conditions globally. That was very clear this week. And then we went to the next step, which makes sense, which is what about the economy? And now not only did we have interest in inflation rate risk, but we have credit risk being priced in as well. And that's why you saw what you saw in the bond market, especially the most vulnerable segment of the corporate bond market. In terms of junk and in terms of some of the zombie companies out there, Mohamed, I mean, there are so many, there's a whole cadre of companies that got financed at free money, basically, free cost of capital. Should we be concerned about that, about the chickens coming

home to roost, so to speak, and the impact. Could that be systemic in any way, do you think? Or are things different this time around? So I don't think it's systemic. I do think we're going to see a significant uptick in the default rate. I do think we're going to discover that all sorts of things were done at zero interest rate, massive liquidity injections by central bank that do not make sense, and they will not make sense. I don't think that's systemic. What is systemic, however, is that we get a global slowdown that produces further complication on this inflation growth tug of war. So I am worried about the global outlook more so than a week ago. But I don't think we have a systemic issue within the financial sector like we did in previous downturns.

Just to home in on that notion, Mohamed, about the further complications, because everybody around the world is tightening at this point, practically, except for China, I guess. Does that mean that we're more prone to a deeper recession or that we're more prone to a stagflationary environment? So we're certainly prone to a stagflationary baseline. And the risk of a recession is going up. Melissa, there's one issue this week which I think was the most significant issue that happened. And it's not the Fed. It's the Swiss National Bank. Melissa, there's one issue this week which I think was the most significant issue that happened. And it's not the Fed.

It's the Swiss National Bank. The fact that they hiked by 50 basis points has a ton of information content. And what it basically tells you is that there are very few central banks that want to see that currency depreciate. Yes, Japan, but very few away from that. And what that tells you is that this tightening is going to feed onto itself because central banks are going to want to avoid more imported inflation. They're going to try to protect their currencies by hiking. And that means we're going to get an even bigger global hiking cycle than we would have otherwise. So it's a race, basically, to defend currencies. It's a race for rates to go higher,

which is the complication here. So, Mohamed, in terms of what we need to see for the equity markets here, you know, there's some line of thinking that we do need to see PEs come down further, that we need to see earnings estimates revised lower. What do you want to see to feel like we sort of flushed through or priced in a lot of these concerns?

So two things. I think PEs are important because they need to reflect not just interest rate risk, but also credit risk. Two is I need to have more confidence that we're not going to get pockets of illiquidity. We're starting to see little pockets of illiquidity. They're not systemic in any way. But it's important that they remain small. So those are the two things that we need to see before I would feel comfortable putting a lot of money back into the marketplace.

Even though, I must tell you, Melissa, there's some attractive single name valuations. And I'm just curious, Mohamed, in terms of the attractive thing, it's hard to wrap your head around that when you see, you know, integer moves within a single day on some of these big cap stocks that you wouldn't think move in that way. And especially when you're trying to grapple with what is a historic P.E. because what sort of environment are we in right now? If you slapped a 16.5 P.E. on stocks right now, that's a historic average for the S&P 500 over the past 10 years.

Is the environment average? No, because we're transitioning from a very loose liquidity regime to a much finer liquidity regime. So we're going to have to overshoot historical levels before we stabilize. Mohamed, thanks so much for your time. Great to speak with you. Thank you for having me. Mohamed El-Erian. Shares of Apple meantime down 4% on the week and 25%

on the year, but one chart expert thinks there's a lot more room to the downside. He'll join us next to explain why that matters to the entire market. You're watching Closing Bell on CNBC. Let's check out today's stealth mover. It is UTS getting an upgrade to a buy from Goldman Sachs, a firm citing a strong position in the salty snack category. Saying UTS can benefit from faster growth, lower private label exposure, and better pricing power. Goldman Sachs also noting the company's recent pullback in valuation is a compelling entry point. That stock is up more than 6% right now. Stocks in the green today, recovering after yesterday's massive sell-off.

Joining us now is Chris Verone, head of technical analysis at Certigus, a Baird company. Chris, so we bounced, but what do you make of the charts right now for the S&P? Hey, Melissa. Well, I think, number one, we ought to distinguish between an oversold bounce and a major capitulative bear market bottom. I think there are two different things. It's not difficult to make a case that we're tactically oversold here and you can rally into late June, into July. I'm not opposed to that. But in terms of the conditions of a major bear market low, I just don't think we can check enough boxes.

I mean, capitulation is defined by swellings of volume haven't seen it it's combined uh it's defined by big spikes and put call ratios haven't had those it's defined by Vicks above 40 45 50. haven't seen that so I think we need to distinguish here between bounce and major bottom. I don't think this is the latter. And I would also just add, remember, upwards of 60% of the Russell 1000 is back to where it was pre-COVID. If S&P went back to where it was pre-COVID and followed that script, you're talking 34, 3500 S&P. That's been our target. I don't think that's a stretch given what the conditions look like under the surface here. And in the path to roughly 3,500 on the S&P 500, Chris, you say Apple has a long way lower to go. Yeah, I think these declines or these

capricious lows are often characterized by the best stock of the cycle falling last and hurting people. And that's been Apple this entire cycle. And I just don't think we're done there. Apple is not at major support yet. Major support we've called Apple is at par. Apple at $100. That's the long-term 200-week moving average on Apple that's been support many, many, many times over the course of this 10 or 12

year cycle i think apple to 100 microsoft to 200 tesla to 450 those are some of the levels you want to kind of keep in mind of okay where does this index ultimately bottom with those stocks in those areas did you you said tesla to 450 microsoft to what level? Microsoft 200 is kind of long term support there. So, I mean, you're still talking about between Apple and Microsoft. That's that's down 15 to 20 from here on both those names. Wow. So these are the big cap tech stocks and these are the generals. Right. So in the last stages, they come for the general, so to speak, Chris. But we've certainly seen a lot of other sectors being taken out much earlier. It's been sort of a rolling correction that we've seen, particularly in a lot of the innovation stocks and the fintech stocks.

And I'm wondering, is it possible, Chris, that there are opportunities there that they have perhaps staged some sort of a bottom or close to a bottom before these big cap generals have? Well, I think not only is that possible, that's frankly, historically likely. By the time you get to your index low, most stocks have typically bottomed. I think of like 2008, 2009, the S&P bottomed in March of 2009, but most stocks actually bottomed in October of 2008. So there was a six-month gap between when most stocks made their low and when the index did. So Mel, I think that's the appropriate way of thinking about that here. Now, I don't think we should confuse a price low in some of the speculative stocks with their resumption as leadership, though.

That's a bridge too far for me. I don't think these stocks that broke first are going to suddenly reemerge as your leadership, but I am totally okay with the idea that they bottom before the index does. So there could be a trading bounce in some of these names. Is that fair to say, Chris? And I'm wondering what pockets are you looking at for that? I think that's reasonable. Remember, we kind of have a little bit of a purgatory quiet period here before we start to get July earnings in the second half of July. Seasonally, frankly, the next six weeks are not bad. We do have some of those oversold conditions. So I wouldn't be shocked if you've got some of that speculative tech to bounce here.

But again, is it really going to reemerge as your leadership on the other side? That's where I'm skeptical. Last question, Chris. A lot of people want to enter energy right now with the pullback that we have seen. Is that smart or do you wait? I think energy is going to remain your leadership here. I recognize it's gotten slapped around here these last week or so. I think it's really endemic of a bear market that they're coming for everything now. So energy has been sold, but it's been sold in the context of an uptrend. And I think really important, despite the weakness in energy equity over the last couple of weeks, there has been no stress in energy credit. I am much more comfortable buying weakness in a sector when credit conditions are relatively stable.

That's still the case with energy. Chris, thank you. Good to see you. Thank you. You too. Chris Verone, let's get a check in the markets right now because we are fading in terms of the gains going into the close. The Dow is now negative. We are down by about 34 points. The S&P 500 almost at the flat line, up by just one-tenth of a percent. The Nasdaq has a 133-point gain of one and a quarter percent. Up next, Mike Santoli heads to the telestrator with a look under the surface of the S&P 500 and if it's starting to look oversold.

And as we head to break, check out some of today's top search tickers on CNBC.com. Mostly macro interest today, the 10-year yield, followed by WTI crude, the S&P 500, the Dow, and Tesla. Stocks managing to stay in the green into the close, but still lower for the week. The S&P 500 currently trading 23% from its 52-week high. Mike Santoli is taking a look at the damage that has been done under the surface. Mike. Yeah, Melissa, damage has been broad. It's been deep. Many ways to measure it. Here's one of them. This shows you the percentage of stocks in the S&P 500 that are still within 20% of their high. As you can see right here, it's just over a quarter coming into today.

And what I find interesting about it is how it compares to prior major market sell-offs, major market lows. Obviously, the COVID crash, that went down, you know, 35 percent in the S&P in five weeks or something. And that was pretty much on par, though, with late 2018. Also here, interestingly, in 2001, 2002, it was mostly the huge stocks that led the way down. And it wasn't really the S&P on the small stuff. But here, of course, is the one that really scares everybody. Right. So multi-year bear markets, 2008, 2009. That's where you have to be careful. But I do find it interesting that for the most part, a lot of payback is in the books. As Chris Ferron was saying, it's just the fuel for some kind of

snapback oversold rally at some point, maybe not right away. Take a look at stocks versus bonds on a quarter to date basis. And why this is important is as we get into month end, you do see this mechanical rebalancing of asset allocation portfolios, 60-40 type stuff. And this is total stock market down here. That is a huge quarter to date loss by historical standards. And now bonds are down, too, but obviously much less. So if you were 60-40 stocks, bonds coming into the quarter, you're now like 56-44. In theory, you want to sweep money into bonds. We have expiration today after expiration in June. Historically, it's weak, but who knows after such a washout this week.

But by the end of the month, maybe this ends up being a bit of a tailwind. You said we want to sweep money into bonds at the quarter end? Sorry, into stocks. Into stocks. OK. Yes, because stocks have underperformed. Sorry. You'd want to pick those up. Great. Thank you, Mike. UBS slashing its S&P 500 price target this week, following the Fed's big rate hike. But with the index down just 6 percent this week, how much more downside could be ahead? We'll ask the man

who made that call next. The Nasdaq higher today, but the Dow is lagging. Stocks are down big on the week. The S&P 500 on pace to lose more than 5.5% since Monday. And on pace for the 10th down week and 11th, something that has never happened before. Joining us now is David Lefkowitz, head of equities for the Americas at UBS, who took down his year-end price target for the S&P to 3,900 from 4,300. David, great to see you. Thanks for having me, Melissa. Part of this is prompted by the House's downward revision of where they see the 10-year yield ending the year, which is now 3.25 percent.

So can you walk us through how you get to the 16.5 percent P.E. that you landed at? Yeah, sure. Happy to do that, Melissa. So I yeah sure happy to do that was it so. Yeah I ain't so over the last several years has been a pretty strong correlation between. Interest rates and valuation multiples in the market and. You know it as we've seen this year as

interest rates have risen and risen quite dramatically. That that's had a pretty detrimental impact on the valuation for in the market so. It's really just taking on the higher interest rate expectations. And what that means for for valuation so

I would say though Melissa. Yeah look we've had a twenty four percent decline in the markets. But I also think it's important to think about the long term perspective here. Valuations for the market are now. Basically in line with the the markets. But I also think it's important to think about the long-term perspective here. Valuations for the market are now basically in line with the multi-decade averages. And it does

suggest that investors should expect pretty healthy returns from here, 8% to 10% over the next 10 years. So yeah, it's a very murky environment. But I think taking the longer-term perspective is exactly what you want to do in this kind of environment. But I think taking the longer term perspective is exactly what you want to do in this kind of environment. There are some who might argue, David, that estimates should come down further and that we haven't seen downward revisions or at least downward forecasts from companies yet, and that we will surely see that when the next earnings season rolls around. And I'm wondering how you start to think about that, because if 16 and a half, it's the 20- year average P.E.

It's roughly the 10 year as well. And this year does not seem to be an average year when it comes to headwinds. Yeah. So, look, I fully agree that we're going to see downward earnings revisions. In fact, our our earnings numbers for next year are are 235 for the S&P. That's about 7% lower than the bottom up consensus. But after a 24% decline in the market, I think investors are expecting at least some decline in earnings and don't really place a lot of stock in the estimates that are out there at this point. So I think investors are braced for it. Look, that doesn't mean that we couldn't see some, I mean, it certainly is a headwind for the market as part of the reason why we took our estimates down.

But on trailing earnings, Melissa, you know, we're at 220 or so. That's in line with the long-term average that we're trading about 16, almost 16 and a half times trailing earnings. that is the long-term average since 1960 what's your top pick for sectors David going into your end so we've had a pretty long-standing call on energy it has been obviously the best performing sector this year you know I still think the the outlook for

energy looks pretty good especially over over time when there's no easy solution to these high energy high oil prices it's going to take time to get supply and demand back into balance so you know i think that still makes sense look obviously we have a recession nothing is going to be immune and energy will get hit also but we also think it makes sense to balance that out with some defensive exposure, which is why we like health care, where valuations are still, I think, pretty reasonable relative to the market. Certainly, earnings will hold up much better than the market in a downturn. And I think a lot of the concerns around drug pricing are are likely going away. Either they'll get resolved or they're going to move to the back burner.

David, thank you. Appreciate it. David Lefkowitz, CBS. The FDA paving the way for covid vaccines for children as young as six months in a CDC advisory panel is meeting right now to discuss approval. Meg Terrell's got the latest for us, Meg. Hey, Melissa. Well, after the FDA signed off on both Pfizer and Moderna's vaccines this morning, the decision now goes to the CDC, who, as you noted, is meeting with its advisers today and tomorrow. If that vote is favorable and the CDC director signs off, these vaccines could be available to the youngest Americans as early as next week. Now, these are not identical vaccines, so it's a little bit different of a rollout than we've seen before.

Moderna's is two higher doses. Pfizer's is three lower doses. And they have different dosing schedules, so it'll take you about three months to get fully vaccinated with Pfizer's vaccine versus a month for Moderna. But we also know that only about 18% of parents have said they want to go out

and get their kids in this age group vaccinated right away the fda's commissioner today addressing why they think a vaccine for this age group is necessary here's what he said while kobe 19 does affect older and immunocompromised populations more adversely than young children young children can still suffer the severe consequences of COVID-19, including severe illness and death. Notably, since the surge of the Omicron variant, children zero to four years of age have been hospitalized at a rate approximately five times higher than the previous peak experienced during Delta variant predominance. And while the stock reaction has been interesting, you are seeing Moderna stock up today. That company actually getting clearance all the way up to age 17. It hadn't yet had clearance under 18. So really kind of catching it up to Pfizer.

And you can see Pfizer and BioNTech are down there slightly. Mel? Meg, do we know if there's any differences in the safety profiles of the two since the Moderna is such a bigger dosage up front versus the Pfizer-BioNTech, which is a smaller dosage over time? Yeah, we haven't seen any long-term safety issues for either of these vaccines. Of course, these are small trials, so they will be looking closely at that over time. But in terms of the reactogenicity, how you feel right after you get the shot, there are more fevers with the Moderna vaccine than there are with the Pfizer one. But overall, experts that I've talked to are not worried about the profile of either of these vaccines. All right, Meg, thank you. Meg Terrell. Let's take a check on where we stand in the markets. There's under a half an hour left to close out this week. Good riddance, right? A lot

of you are saying Dow Industrial is higher by a quarter of a percent, S&P 500 up by 20 points, and Nasdaq Composite hanging on to a 1.7% gain right now. Coming up, we will discuss what is behind today's big drop for oil prices and if this is the start of a broader downturn for crude. And you can listen to The Closing Bell on the go by following The Closing Bell podcast on your favorite podcast app. We'll be right back. S&P 500 up around a half a percent so far today.

Here's a live look at the sector heat map in terms of leaders, consumer discretionary communication services, as well as information technology. And today's laggard energy, and by far the biggest laggard on the week as well. Today, energy is down by almost 5 percent. And for the week, it and by far the biggest laggard on the week as well. Today, energy is down by almost 5 percent. And for the week, it is down by more than 16 percent. One area of strength of the travel stocks rebounding after a brutal week. Take a look at these stocks. Norwegian, Carnival, American Airlines all seeing outsized gains today. Coming up, the analyst who says now is the time to buy American Express. Plus, a look at what is pressuring oil prices and the latest blow to crypto. Those stories and much more when we take you inside the Market Zone. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santelli is here

to break down these crucial moments of the trading day, plus Pippa Stevens on the big pullback for oil prices and Diana Olick on the latest headwind for the homebuilders. But let's tackle stocks first in the green after yesterday's massive sell-off. But the Dow S&P 500 and Nasdaq still on track for weekly losses. Any solace, Mike, in the buy the dip, at least for today? I don't know if I would pull too many messages out of what's going on today, except that a lot of the big macro drivers of the pressure on stocks have backed off for now. Obviously, you mentioned energy before.

Bond yields have eased up a little bit. So there's a bit of tension release. I think it's also interesting to point out. So we came in today with the S&P down just about 24 percent from its peak. 24 percent historically is the average peak to trough decline in bear markets that don't coincide with the recession. So you're basically right at that fork in the road between this is kind of how bad it gets if we avert recession. Obviously, it's not a science, but it's worth noting that's now still the debate, even though I think we did get maybe a little ahead of ourselves in declaring a recession parts of this week. We are just talking with the UBS strategist, and he just lowered his forecast

in the S&P 500. It seems like more and more people are revising lower their earnings forecast. They're revising upward their expectation for recession. I would argue that that may actually be positive, that people are getting much more on the bearish side of the boat. I agree it's eventually a positive. You absolutely are having people kind of marking their opinion to market as the as the indexes have slid down. Now, there's also a lot of attention on downside targets. Right. Everyone seems to think thirty five hundred on the S&P makes sense. Thirty four hundred makes sense. It just goes back to certain levels pre-pandemic and all the rest of it. So all that's a positive, I would say. I guess there's one kind of counter to that is that strategists and aggregates still,

almost all of them, see the market higher. So there's almost nobody with an official target that says we're in for more losses. But I guess I wouldn't expect that when you're down 24 percent in less than six months. And historically, strategists and analysts are usually they wait to revise lower. So they're usually lagging. All right. Let's get to the homebuilders. The S&P homebuilders ETF, the XHB, is up about a percent today, but still down big on the week, off more than 10 percent since Monday and new today. Wells Fargo lowers earnings across the board for the sector, including Pulte Group to 41 from 46. KB Home goes to 31 from 40. Wells also downgrading Toll Brothers to an equal weight from overweight, saying its affordable luxury line will be tested for the first time. Diana Olick joins us now with more. Just two months ago, barely two months ago, Diana,

builders like Horton and Pulte were saying in their earnings releases that demand was strong and even exceeded supply. What happened? Well, rising mortgage rates and then consumers hit by inflation. And it was really like last month that even Toll Brothers said they were still having pricing power. So then we see this incredibly sharp downturn in housing starts in May, much more than expected and much faster than expected. But there's one chart I want to throw up that you don't always see in the housing starts numbers that we got this week. And that is the number of homes under construction. It is up 25% from a year ago.

We've been talking about all this lack of supply, lack of supply, that's gonna help the home builders so much. Well, guess what? The supply is in the pipeline, it's coming. And the builders are reporting that buyer traffic has gone away and home sales are dropping and demand is dropping. So I think that's why you're seeing these stocks

just not get a break. And of course, the analysts who are looking at those numbers that are going to be coming through that pipeline and they are concerned, Melissa. Diana, earlier this week, there was a CNBC event, the FAA summit, and you had mentioned that there was demand for the iBuyers program, which I thought was interesting. So people are willing to just say, take my home off my hands and I'm willing to sell at a lower price? You know, that was a comment that I got from Redfin CEO Glenn Kelman. And that was during when they were laying off people this week. He put out a big blog and he wrote all this stuff about why they had to do the layoffs. And so I called him afterwards and he said, well,

the only bright spot in it is that our iBuyer program is suddenly getting a lot more popular. He said that, yeah, sellers are getting scared. They're worried they're not going to get the top dollar. So they might be willing to take a little less than top dollar just to get it off the market now and maybe not face something six weeks or a month from now or whatever, two months from now, that prices are falling and they might not even be able to get what the iBuyers are giving them today, Melissa. Mike, it seems like investors are, though, willing to separate, you know, homebuilders versus the home improvement stocks like a Home Depot and a Lowe's. There is a difference in attitude toward them, you know, that people in their homes will still have to fix their homes and improve their homes. Yeah, there's no doubt

about it. And, you know, the Home Depots of the world are almost in a way have a staples aspect to the consumption. It's pretty, you know, the run rate is there. They're also big kind of free cash flow, dividend and buyback stories. Although I did see interesting charts that if you look at the percentage of outstanding mortgages right now that are eligible to refinance and obviously be beneficial to the borrower to refinance at these rates, it's almost not. It's almost never been lower because rates went up so fast. So I do think that might be one thing that you don't get is that kind of home equity withdrawal to pay for your house. And now you have the homebuilders. I look back, Lenar, Horton, Paltry, price to book values,

they're kind of in the low end of the range, not really where they bottomed in the aftermath of the housing bubble, but they're getting pretty cheap here, so I guess some bad expectations are being priced in. Yeah, and tapping a HELOC, by the way, is much, much more expensive. Thanks, Diana. Diana Olick. Meantime, credit card stocks American Express and Capital One are surging today after getting an upgrade over at Baird, which says the recent underperformance in these stocks provides an opportunity to add exposure to the group. Joining us now on the news line is the analyst behind that call, David George, Baird's senior research analyst. David, great to have you with us.

Good afternoon, Melissa. How are you? Good, thanks. In terms of what these stocks have priced in, have they priced in more delinquencies? Have they priced in, you know, what we've been seeing in the auto sector and in some other credit sectors where consumers are having more difficulty to pay? Well, they've priced in a very significant downturn, in our opinion, probably a very severe recession, unemployment of 8 to 10 percent, in our opinion. So we think the group and the credit card stocks in particular are pricing in what I would call a very draconian scenario from a credit quality perspective. And with the panic selling, we think it's a great opportunity to start to add exposure to these stocks again. Talk us through the exposure that American Express has to travel, David. I would imagine that we see people traveling, and that should be, in theory,

good for AXP. Yeah, it is. It's, you know, the travel and consumer, as you know, the consumer spend patterns are shifting from things to experiences and travel. As you mentioned, Mel is a huge positive for Amex and Amex is probably the most levered company in our group of stocks to more robust travel. And that's a trend we think is going to last throughout the summer into the fall and into the end of the year. And expectations are quite low in the stock, in our opinion. For AXP and COF, David, you say that these companies generate a lot of cash, they make a lot of money, and also there's this lever that they can pull in terms of pulling back on marketing spend. How much of a cushion is that, these abilities to pull back expenses well it's very significant um

it's something that many investors are really not aware of both amex and cap one spend up to eight percent of revenue in marketing so when credit quality is softer you tend to see uh you tend to see these credit card companies pull back and and vice. So it provides an excellent lever, actually, as credit kind of moves up and down through the economic cycle. Should one have any concerns about the profile, the credit profile of the Capital One financial customer? Sure. I mean, Capital One is in the business of taking risk, particularly in the low-end consumer. But if you're buying the stock at just over tangible book value and seven times what we think is normalized earnings and five times forward earnings, we think that market participants are getting paid to take that risk

at these prices. All right. David, great to speak with you. Thank you. Thank you. David George over at Baird. Checkout oil prices sharply lower on the day right now, down about 6 percent. Worries about a global growth slowdown as central banks hike rates. They're weighing on prices. A strong U.S. dollar is also pressuring oil. Brent and WTI on track for the first weekly decline in more than a month. Pippa Stevens joins us. Pippa, crude had been one of the few bright spots up until recently.

How much of this broader market dynamics versus a fundamental story here? Hey, Melissa. Well, for such a long time, the story really was that demand is robust while supply is remaining constrained. But we are starting to hear more and more chatter that demand could actually soften here if we do dip into a recession, if there is this global growth slowdown. And with WTI down more than 6 percent today and snapping, as you noted, a seven-week winning streak, Rebecca Babin from CIBC Private Wealth said that everyone is grasping at straws trying to find the reason. And she said ultimately that while the fundamentals remain strong, there's no doubt that the downside scenario has grown more probable and deeper here than analysts were forecasting, you know, just a few weeks ago and even up until last week.

Then there are also some technical factors at play here. Rob Bensing, you are from Bensing, your investment strategies noted that oil had WTI had double topped at 122 with the downtrend showing a move below $100. And so he said that this is liquidation here heading into a three-day weekend without, Melissa, any upside catalyst that could push crude higher in the near term. Mike, it's interesting to see the weekly decline on crude itself, the underlying versus the equities, which is, you know, the energy sector overall is seeing about a 16% decline so far in the week. So there's a huge, even though, I mean, crude at $ 110 is highly profitable for these stocks. Well, there's no doubt. And obviously, the energy stocks get caught up in general, kind of across the board index selling. There is an element,

too, of, you know, investors in aggregate are taking massive losses everywhere from crypto to bonds to stocks. That's been going on. And so naturally, just from a portfolio effect, you kind of have to sell what you can if you need to kind of build up a cushion again. So all that is in play, as well as, you know, the potential concern about demand in a slowdown scenario. You have Biden going to Saudi Arabia. The idea that headline risk might work in the direction of lower oil prices. People are increasingly talking about a negotiated settlement between the Ukraine and Russia. Who knows if any of this is true? But that's the psychology that I think is starting to get into the market a little bit. Yeah. And there had been some thinking before, Pippa, I think that if there were

peace between Russia and Ukraine in some way, shape or form, that that oil would not, you know, from Russia, the energy from Russia would not actually go to Europe. It would still remain banned. But if there's this peace deal broker, that could be part of the peace agreement. Presumably, yeah. And just in general, it's going to get into the world market, you know, some way or another. Yeah.

Pippa? I was going to say that once you implement sanctions, it is very hard to unwind them. And so even if there is some kind of peace settlement, and that's a big if, you know, it might not be an immediate move to have it go back to Europe, as you said, and particularly now that Europe has started to implement a strategy to shift away from Russia. But also, as you noted, you know, even with WTI at 90 bucks, energy companies are basically minting money at that point. So WTI could still fall

quite a bit further from where we are right now. And these energy companies could still be raking in a lot of money. All right, Pippa, thanks. Pippa Stevens. Let's turn to Bitcoin here under pressure once again today, down nearly 30 percent for the week on track for its worst weekly performance since March of 2020. This comes amid another credit crunch in the crypto industry, crypto hedge fund. Three arrows capitals considering asset sales or a bailout after failing to meet margin calls this past weekend. The firm is the latest to fall victim to the crash in crypto prices over the last few months. Kate Rooney joins us. So, Kate, obviously, this would mean a huge ripple effect for a lot of these assets if they're looking at a major

asset sale and are under duress. Yeah, absolutely. And we're seeing a ton of these assets if they're looking at a major asset sale and are under duress. Yeah, absolutely. And we're seeing a ton of collateral damage right now in crypto, and it highlights some of the risk for counterparties in this and the high-yield products that have almost no transparency into where they're getting, say, 18 or 20 percent yield in some cases. So not a lot of disclosures on the back end. It also goes back to that collapse of Luna, that stablecoin that was supposed to be backed by other cryptocurrencies. It is just a reminder that there's just not a lot of transparency on the back end. And we're seeing some of these severe, severe ripple effects. I'm also told some of the lockup periods, I talked about that 18% yield. A lot of the projects that give that type of yield require some of the investors to hold

and keep their money locked up in these projects for, say, a year. If customers, meanwhile, if they're shopping that yield out to customers and they have people coming in and saying, all right,

well, I'd like to get my money back, they can't necessarily liquidate in some cases. So I'm told that's causing some of the issues here. And it also highlights the need for people, in a lot of cases,

to custody their own assets. I'm told there's a lot more discussion around that, not wanting the counterparty risk and just the focus on holding your own cryptocurrency, not necessarily going for that 20 percent yield, looking to just protect what you have. OK, you know what's so remarkable is that 3R's capital is actually a hedge fund that's existed for a decade. So they've actually been through some crypto winters before. So this is not the first time. You've got to think about the hedge funds that are newer and have not navigated this sort of treacherous price action.

It's remarkable. And I'm also told that we will likely see more of this. This is probably the tip of the iceberg in some ways, not to say that it will necessarily end up sparking other issues in the broader financial markets. But there's a lot of counterparties here. And like I mentioned, not a lot of disclosure. Someone described it as sort of a spider web on the back end. This person's lending to this person. It's in a protocol here. There's really no way to see this transparently, even though, you know, the whole point of blockchain and this industry

was to be decentralized, have it so that you could see all of this stuff listed on a public ledger. When it comes to these companies, hedge funds, other lenders out there, you just don't have that. So I think we will likely see more effects of this play out. The irony. Kate Rooney, thank you. Turning back to the broader markets, the Nasdaq holding solid gains, the Dow actually dipping negative. Just a moment ago with us now is BD8 Capital Partners CIO and Senior Portfolio Manager Barbara Doran. Barbara, great to have you with us. How are you feeling this week? Have you added to positions? I don't know if you want to know how I'm feeling. What a tough week. But I have

been adding to positions because any time, in my view, that you see indiscriminate selling like we saw yesterday where every stock is down in just about every sector, that you see indiscriminate selling like we saw yesterday, where every stock is down in just about every sector, that is an opportunity. So, yes, I have been in buying. I bought my usual favorites in terms of technology, Google, Apple, Microsoft, Amazon. But I also added Costco, Walmart, because I see these as great names that are off significantly for the year. And also I added GM, which may be a bit perplexing because if we're heading into recession, one would argue you don't want to be in autos. But I think GM and Ford as well are both selling at recession or near recession levels. I mean, GM right now is under 5 PE on next year's earnings, and which gives it

absolutely zero value for all the electric vehicle production that will be ramping up in the 23 to 26 timeframe. So I think there's opportunities like that that are happening. It doesn't mean I think the bottom's in. It could be, or we could have another 5 to 10 percent down. But I think you're getting some amazing opportunities in this kind of market where investors are periodically taking big freights from inflation and high interest rates. Mike, it's interesting to hear investors wanting to add to Apple and, you know, a favorite, of course, as we're hearing more and more on the technical side, we heard Chris Verone say Apple to 100 and then Bernstein out with a call today saying that they're concerned about Apple because so much of it is transactional. Less than 10% of

its revenue is actually recurring revenue. Much more of it is sort of a one-time buy of an iPad or a laptop or an iPhone. For sure. It's interesting. In a broad downturn like we've had, relative outperformance all of a sudden becomes suspect because you feel like, well, all that is is a lot of profits that are yet to be taken. That may or may not be true. I do think Apple, in theory, should also have that quality premium just because of the balance sheet, because of the aggressive buyback that I doubt they're pausing on at all. You know, Buffett owns more and more percentage-wise of this company every day because they buy back stock from everybody else. So it'll be an interesting experiment, actually.

It's certainly more expensive than it's been on average over the past 10 or 15 years. People say they've smoothed out the upgrade cycle. So it's a pretty good debate on this. We'll see if it has to somehow retrench that much more, just even as a symbol of broader surrender by investors who've been trying to hold on to the last things that have been doing relatively well. Barbara, as we look out to next week, should we see another sell-off, another gyration in the markets? What's on your buying list? Well, I think I'm fine for now because unless we do have another massive sell-off,

which doesn't look likely, but I don't expect much upside. We've seen five or six failed rallies this year to date. I don't see any legs to what we saw today. Maybe it goes up. But I think we're just going to see a lot of churn as we wait to see when inflation is going to peak, which is what the big surprise was in the CPI number a week ago. People were starting to think, investors were starting to feel inflation is peaking. They know more of a path for the Fed. Recession probabilities are lessening. But that CPI number ended all that. So but we are seeing lots of signs of weakening, whether it's the housing starts,

job growth is slowing, although still at record highs. So there are signs that the economy is weakening. Barbara, great to speak with you. Have a great weekend. Barbara Duran. Meantime, we just saw the Dow go negative here to close out the session. Mike, what are the internals today? They're sort of net positive, Melissa, but nothing too skewed one way or the other. About 60% advancing volume in the New York Stock Exchange. You are up for most of the day. Take a look at the two-year no yield. You've really had this sharp turn lower in the last couple of days.

This is really the battlefront between what you think about inflation and and obviously the Fed. It was at three twenty five before we got that leak that the Fed was likely to go seventy five basis points and it did. And so now we've unwound a lot of that so you taking kind of a quarter point. Out of that two year-

you know track for Fed expectations for hiking the volatility index has backed off we got this expiration we're gonna finish right on thirty. It's kind of the middle of the range we've been in for a while. Indecisive going into month end. Month end and also a three-day weekend.

So it's interesting price action on that front, too. Mike, thank you. We'll see you shortly. Meantime, as we look to close out what has been a very rough week, we are looking at major losses in the energy sector. For instance, 5.7 percent is a decline right now, down 17 percent for the week as crude oil is down to at least a few weeks low here. The S&P 500 is holding on to gains into the close, up two-tenths of a percent, but closing the week down 5.8 percent. The Nasdaq will get a 1.4 percent gain, with a weekly decline of 4.8%. That does it for us here on The Closing Bell.