Closing Bell - Closing Bell: Another ugly day on Wall Street, Interactive Brokers chairman on market turbulence 4/26/22

Episode Date: April 26, 2022

Stocks closed at the lows of the session after another painful day on Wall Street. Phil Camporeale from J.P. Morgan Asset Management and Eric Johnston from Cantor Fitzgerald square off in a bull-bear debate to discuss whether or not the selloff is a buying opportunity. Interactive Brokers chairman Thomas Peterffy weighs in on how retail investors are navigating the volatility. And as the Nasdaq paces for its worst month since 2008, Angelo Zino from CFRA breaks down what we’ve learned from big tech earnings, and what to expect when the rest of the mega-caps report results.

Stocks are sinking and the Nasdaq is tanking right now. Most important hour of trading starts right now. Welcome to Closing Bell, everyone. Another down day where the Nasdaq is down 2.5%. The Dow is down almost 600 points. Low of the session was about 657 points, but every Dow stock is lower right now, except for Chevron. Energy is the only standout, which is sector outperforming today. Here's where we stand overall. The small caps are down 2.2 percent. The Nasdaq 100 heat map really shows you that tech is in the eye of the storm today, with the broader Nasdaq composite now on pace for its worst month since October 2008. And as you can see, every name almost in the Nasdaq 100 is lower. The biggest drag, Tesla, down about 10% or so. Let's see. Yeah, 10%. It's also dragging some

of the other EV makers like Lucid down, but you've got a pretty broad sell-off. The FANG names, Microsoft and Alphabet ahead of results, ahead of the results after the closing bell today, and also some other software names getting slammed as well. We're looking at Salesforce, big drag in the Dow, lowest level we've seen since 2020. Take a look at bond yields, the 10-year yield falling hard today. It's now below 2.8%. That's different than what we've seen lately with rising rates and higher yields pressuring technology. Today, maybe more of a flavor of slowing growth where treasuries are getting bought and yields are coming down. We're going to be all over the sell-off throughout the final hour of trade with some great guests for you coming up.

Interactive Brokers Chairman Thomas Pederphy will join us to look at how retail investors are handling all this volatility. And a top tech analyst on the mega cap names pulling back ahead of those earnings, including Alphabet and Microsoft. As you can see, they are down 1.5% and 2.3% they're reporting later. Let's get straight to the market sell-off. And the key question for investors, is it a buying opportunity or is there more pain to come? Joining us now, Phil Camparelli from JPMorgan Asset Management and Eric Johnston from Cantor Fitzgerald. Gentlemen, good to have you both.

I know you're on opposite sides of this trade. Phil, I'll start with you. Harder to make the bull case, I think, on days like today, on weeks like this week, on months like this month, and years like this, where the Nasdaq is now 22 percent off the highs. What's your case? Yes, Sarah, good to see you. It's great to be with you again. Listen, we fully acknowledge that this is a rate hiking or normalization cycle that not many investors have ever seen before, okay? There is 100% priced in now for 350 basis point hikes in a row and just under 250 for all of this year.

What makes that especially jarring is that as recent as December, the Fed thought, oh, maybe we'll do 325 basis point hikes. I mean, you got to go all the way back to 1994 to get anything like this. Now, Sarah, really important. Why is that clear or key is because in 1994, there were no FANG stocks. There was not even an internet, right? So I think that false sense of security,

of low rates, low inflation, low growth, which helped since post-GFC and post-2008, is no longer there, so you gotta recalibrate. However, there's an important piece here. We've taken our stocks lower, but we are resisting the urge of taking them lower and to an underweight to our index for three very important reasons. The first is, listen, we're in the camp that we're right around peak inflation. And if we're right around peak inflation and rates stop rising, that stops, that could put some pressure, it stops putting pressure on internet stocks. The second thing is,

there's a cyclical trade still happening. We haven't reopened yet. Delta prevented us from reopening last year. Omicron prevented us from reopening over the holiday season. Airlines, hotels, diners, all those things we could see some upside for. And then the third piece, and this is really important. Listen, if you're buying into a balance fund now, and that's near and dear to my heart as an asset allocator, if you're buying into a balance fund now, and that's near and dear to my heart as an asset allocator, if you're buying into a balance fund, you're sitting at a 275 10-year note and average 25-year average on PEs. So if things get better, you're buying the stock market at a good price. And if things capitulate from here, then you're getting the benefit of diversification from here, Sarah. So it's all in the price.

It's the first time stocks and bonds have been down 10 percent at the same time post GFC. So this is a really good entry point. Yeah. Aside from the whole peak inflation, which which you have to have a view on that, Eric, there there's a few good points that Phil raised, including that a lot of this is just getting priced in the extreme hawkishness of the Federal Reserve. The fact that valuations have come down to reflect that and the fact that everyone's so negative. Why do you remain so? So I think within the rates market, I think the Fed's hawkishness has gotten priced in, but I don't think at all it's gotten priced into the or not enough into the equity markets. If you look at prior bear markets that we've that, and this is not like any one we've had in the past,

but if you look at the year 2000, people think of the bubble bursting in March of 2000. The S&P was hitting new highs in September of 2000. And then during the 2007 crisis, we had companies that had gone bankrupt by October of 2007. Citibank was down 50%, yet the S&P was still at the highs. So things can be known but not priced in. And we think we are in the process right now of pricing in this massive reversal that has gone on from a fiscal standpoint and from a monetary standpoint that is all just beginning to happen. Where do you see it yet to be priced in? I mean, the Nasdaq's gotten hit hard.

Do you think there's more pain there? Down 20% now for the year. I do. So a perfect example is mega cap equities. So essentially, FANG MT. Two weeks ago, we turned negative on this group. We reiterated it last night. We think there's a lot more downside for the mega cap tech names.

Their multiples relative to where they've been historically and relative to their growth rate is just far too high. Number two is people have had this view that they are not levered to the economy. And the economic slowdown is going to hurt Apple, Microsoft, Nvidia, et cetera. And then the third piece is that the individual investor is piled into these names. And one of our strong views is that the individual investor is just starting to sell equities. Their allocations are at the highs.

They're just starting to sell. And that the mega cap names are really going to suffer based on that. There's still 23% of the S&P. We think that's going to come down and be a drag on the overall market. Phil, I'll let you take the other side. Final word. Yeah. So I think from a FANG stock perspective, it's important to have earnings. We felt that last week with Netflix. However, if you go forward from here, you've got to be really

selective with your securities. We haven't even mentioned value stocks, which we still like, which are still at a discount to growth, right? So it's not just, do you own the equity market or not, but you've got to be selective within the equity market. And we think profitable tech with some value makes a lot of sense here. And we didn't talk about it, but credit as well. If you don't have a view that the U.S. is going into recession over the next 12 months, things like corporate credit make a lot of sense to us to get a little higher quality than just taking a flyer on the equity market. I've seen that credit risk rise lately. We'll watch it. Eric, really quickly, do you have something? Sure. I just wanted to say that,

you know, sure, just very quickly is that you have had a lot of stocks sell off, but I put out Lucid as an example. The stock is down, call it 50 percent from the highs. It still has a 30 billion dollar valuation and not many revenues to to speak of. So we are in a new environment where even though it's down 50 percent as an example, still a 30 billion dollar valuation that looks far too high from my perspective. Lucid, one of the biggest losers today off the Tesla side. Eric, Phil, thank you both. We'll continue the debate, no doubt. We're going to have much more on this sharp sell-off. Throughout the show, we're down 600 again on the Dow. After the break, we'll talk to an analyst about the pain specifically in tech ahead of the big name results

that are coming after the bell from Microsoft and Alphabet. You're watching Closing Bell on CNBC. Stocks under heavy selling pressure in this final hour. NASDAQ now down about 3% and tracking for its worst month since October 2008. This comes as a number of big tech names report results after the bell today, including Alphabet and Microsoft and Texas Instruments. Let's get to Angela Zeno, CFRA tech research analyst, covers two out of the three. Angela, I wanted to start with Alphabet in particular, which is showing some weakness. You've got a strong buy and a $3,400 price target. We are a long way from there.

What do you expect them to report today? Yeah, listen, thanks, Sarah. You know, overall, when I think of big tech here overall, I mean, listen, this isn't going to be kind of the beat and raise type quarters like we've seen in the last three years. We've got probably the most headwinds we've seen in the last three years. We've got probably the most headwinds we've seen in years now, right? But the hope here is valuation has really discounted many of those challenges, whether it be consumer issues, whether it be supply constraints, Russia, Ukraine, a stronger dollar. I mean, tons of uncertainties out there. But at the end of the day, as far as Alphabet is concerned, I mean, it's all going to be about the search business. It's going to be

about YouTube, and we think it's going to be about the cloud. And we're expecting fairly good results out of all three of them. In terms of the search side of things, we're looking at 20% plus growth. On the cloud side of things, I think that's going to be really important as long as we can see 35% to 40% growth on that side of things. I think, you know, I think overall's going to be really important as long as we can see 35 to 40 percent growth on that side of things. I think, you know, I think overall the quarter holds up very well. But again, it's all going to come down now to Q2 guidance in the second half of the year. And as far as the downside potential, I think, to consensus estimates, I'd say maybe max about 3 to 5 percent to the downside. And given that, coupled with the valuation of about 17, 17 and a half times earnings to our

23 estimate, I just I feel like it's a bit overdone here. The problem, Angelo, is that all those those headwinds that you mentioned that have been hurting the stock and all of stocks rising dollar, guess what? It's still strengthening and still making new highs going back to 2020. The war in Ukraine still happening. The weakness in the economy is back to 2020. The war in Ukraine, still happening. The weakness in the economy is starting to come. So my question is, what sort of insulation does Alphabet's ad business have to these kind of cyclical and macro factors which don't appear to be getting better? Because that's going to be the key, right, for guidance. Yeah, no, absolutely.

Listen, I think as far as Alphabet is concerned, I mean, typically most marketers out there, the last thing they'll usually cut is kind of the search side of things. That typically holds up much better than other aspects of kind of the ad space. And I think maybe that's why Alphabet is kind of seen as a bellwether here relative to other ad-oriented or ad-driven type of companies out there and that being said i mean there's clearly a lot more uh tied to um alphabet here rather than just kind of the search side of things again we do see good results on the youtube side of things as well as the the cloud side of things decelerating growth but nonetheless i think the secular tailwinds there still remain intact despite some of the concerns that we kind of highlighted. If you like Alphabet as

sort of a value play that it's been beaten down, what about Meta? You're on hold, but your price target is $2.94 and the stock is trading, I don't know, $1.82 or so. So do you consider it also a good deal? So listen, I think as far as Meta is concerned, to us, it's a bit of a value trap. I mean, we're not as bullish on that side of things our concern definitely here is more on the the user side of things whether or not that can continue to grow i mean currently the street looking at about two to three percent growth here for q1 and q2 um i don't know if you're there i think the bigger concern here is do we potentially see negative numbers um especially as we kind of go into q2 on a year-over-year basis. If we do, I think all of a sudden that the meta story looks very similar in many respects to what we're seeing out of the

Netflix story. Whereas you kind of have significantly higher OpEx numbers, significantly higher CapEx spend, you know, amid a period where those ad dollars aren't kind of offsetting kind of the growth trajectory or the investments that they're looking to make. You also cover Apple, which has been a little bit more resilient, and it reports on Thursday. What do you expect there, given especially some of the new concerns this week about China and expanding lockdowns? So, you know, as far as the March quarter is concerned, we do expect them to be overall. I mean, as far as the iPhone side of things, you look at smartphones on a year-over-year basis, probably dropped about 10% year-over-year, more pronounced on the China side of things. So it would be interesting to kind of see what they have to say about China.

But at the end of the day, the market share gains has really been phenomenal for Apple. You're talking about 15% market share a year ago about 18 percent here in Q1 of this year so you know overall the market share gains we think offset some of the declines in the broader market but I think as far as Apple's concerned the key is going to be services we do see about 17 percent growth on the services side of things and that's really the crux of the growth story for Apple so as long as that holds up, we like this story. And then on the capital allocation strategy, we're looking for $100 billion in a 7% dividend hike. So, you know, probably another thing that investors are hanging their hat on right now. Apple's now down about 11.5%. Angela Zeno, thank you for helping us pregame some of those earnings.

By the way, we've taken a little bit of a leg lower and the Dow is now down more than 700 points. We are making new session lows as we speak, down 712. UNH, UnitedHealthcare is the biggest drag, along with Boeing ahead of earnings tomorrow and Microsoft ahead of earnings after the bell. Goldman Sachs, Visa, you've got weakness all across the board. Chevron just going lower, which means 30 out of 30 Dow stocks are down. 2.4% decline on the S&P. Every sector is red. Consumer discretionary hardest hit. Energy staying positive. Speaking of the consumer, Lululemon and Chipotle are both lower today, along with the broader market. Their long-term charts look remarkably similar. Mike Santoli, of course, here to tell us what the correlation means in his dashboard. And as we head out,

check out some of today's top search tickers on CNBC.com. Ten-year yield getting the most interest, and the yields are actually falling for a change today, followed by Tesla, which is falling hard down 11.3 percent. The Nasdaq, Twitter, which is also falling a little farther below that takeout price of 54.20, and the S&P 500. We'll be right back. Welcome back. Dow down 700 points right now. We are at new lows. There's the S&P 500 sector heat map. The S&P down almost 2.5 percent, 2.4 percent or so. Every sector is lower except for energy. Look at consumer discretionary. It's getting slammed today, down 4.3 percent, harder than everybody else. Tesla is a big part of that story, which is down 11 percent or so. Carnival Cruise also sinking. News that Arnold

Donald, longtime CEO, is stepping down. But you've also got weakness and discretionary names like Under Armour and Nike as well. And we'll stick with that theme because Chipotle shares are falling ahead of Q1 results after the bell. Mike Santoli here with a look at the stock's performance against another millennial favorite for his dashboard today. Mike? Yes, Sarah. Well, you know I'm not one to stereotype millennials, but I would say Lululemon, along with Chipotle, did come to prominence along with the millennial generation. And for the last two years, the stocks have been almost in lockstep right here. Why is that? Well, they both trade around 40 times earnings. They peaked around 70 times earnings. I would argue they both essentially created their segment of retail. They dominated.

And yet there's still a lot of runway for additional store expansion. So it's this unique kind of combination of they already dominate the space and there's a long runway, at least theoretically. However, the premiums are coming out of all the great growth stories. And that's happening right here, too. Chipotle going to report after the market. They're still, you know, holding above the lows of the last couple of years. And both of them are down about 25, 26 percent from their highs. But they are probably better positioned than a lot of other purely consumer cyclical companies that are out there, Sarah. It's really interesting. And I first of all, it's amazing how correlated they actually are. I'm not sure that burritos and yoga wear necessarily go together. But, Mike, there's a difference between these are sort of quality

growth stories and then the unprofitable tech stories. A lot of those names in the ARK Innovation ETF, which is down more than 5% today. So it's important to draw a distinction there. It's not just all of growth getting totally thrown out. Oh, no. These are kind of, you know, quality brands. People think there's a long term still growth story in there. It's not about catching lightning in the bottle, but still it is about what you're willing to pay up front for riding that growth. Mike, just overall markets, just another deterioration here as we go into the bell. Not really a catalyst, especially for tech names. And you can't blame rising treasury yields, to your point. It's not always exactly correlated because they're falling today. So what's happening with growth? Yeah, I mean, I think people are

essentially trying to step out of the way of any further bombshells like you've gotten the Nasdaq from Netflix from the last quarter, from Facebook. And just it's very unencouraging trends, discouraging trends in a lot of the bellwether stocks. I wish there were a new story behind it. I mean, the dollar's flying. There are global growth concerns. There are new layers to the issues right here. But it's more a matter of investors looking in every direction and not really seeing daylight. We were down at these levels in the S&P in the third week of January, in the third week of February, also part of March. I'm not saying it's all the same.

We're going to bounce off these levels, but it's been the same wear and tear on the market. We keep revisiting this ground. I will say we just broke below 4,200 on the S&P, and that has been a key support level. So we'll keep an eye on it, see if we close down there. Yeah, we've been below it, but yes. We've been below, but we're nearing March lows, aren't we? 4,170, the closing low. 4,170. All right, so we're above it? 41.70, the closing low. 41.70.

All right. So we're above it. Yep. 41.93. Mike, thank you. We'll see you in the market zone. Sea of red, as I mentioned in the markets today. NASDAQ taking the brunt of the pain.

It's down about 3% more than that, 3.4%. Joining us, Interactive Brokers Chairman Thomas Pederphy. Thomas, great to have you back on the show. How are your clients? How's the retail investor dealing with all this volatility in days like today? Well, so it's interesting. In the last several months, interactive brokers, customers have turned cautious. And at the end of the quarter, cash reserves have increased to all-time highs. Margin loans have decreased and short positions went to all time highs again. So since that time in this month, that has been moderating a little bit.

In other words, people are beginning to nibble at the market. But I think there are lots of reasons to sell. First of all, geopolitically, the war in the Ukraine can drag on, pushing Russia more and more towards China. I do not think that Putin can tolerate defeat. If he is denied some face-saving concessions, he will have to resort to tactical nuclear weapons. China moving to incorporate Taiwan would be another unpleasant surprise. I know you've been warning about that. Also, social wars in the West are in turmoil.

Advocates of collectivist ideas, including socialism, are on the rise. Some corporate managers appear to be confused about their proper role concerning various social issues. If they lose their focus from product innovation and efficiency, that is a problem. Inflation is raging all over the world. Interest rates must rise. That will deliver a shock to many businesses. And the fallout will... No, it's a laundry list. It's a laundry list.

Now we go to the other side. The other side of the coin is that what are you going to do with your money in an inflationary environment? You can't just keep it in the bank, right? So I think that after some more down market, it is going to turn around and people will start to realize that they have to own stock. I'm interested in what you said about your clients, how they have been bearish, as you said, and they've increased cash reserves and they're starting to put it back to work.

I'm wondering, Thomas, specifically within technology, where we've seen so much pain now, the Nasdaq's down about 20 percent this year. How much has that shifted the allocations toward technology? It was such a beloved sector during COVID and before. Yes, but I think the buying is more not oriented towards low P stocks, like the old fashioned auto stocks and industrials. Right. That's where the buying has been lately. Yes, yes, yes, yes, yes, yes. What about energy? How much exposure do clients have? Because that's been an outperformer. Is there more to go there, do you think, in terms of positioning and portfolio managers loading up on those names?

Obviously, it depends on how to what extent the U.S. will relax prohibition against drilling and these issues. Right. Absolutely. So, you know, I say to traders that they should hold on to shorts or should sell, but investors should hold the longs and prepare to add to long positions because, you know, they are not as nimble as traders. So I think eventually the market, maybe we have another 10% to 15% to go down,

but then it will too. What about the decline we're seeing, and it's sharp in names like GameStop and AMC? Is that still a good proxy for retail and the kind of pain that we've seen as a result of the hype? Yeah, well, game is still at $130, and it's worth nothing. So I think that we have to see that stock to go to zero.

To zero. But what would that do? How many of your clients are holding GameStop still? Oh, no. My clients are more on the long side in game. Really? Your own stock. I wanted to mention your own stock, which has also been hurt.

You know, I think of interactive brokers as a beneficiary of higher interest rates, even maybe more so than some of the big banks. Yeah, that's true. But on the other hand, you know, our investors' assets are falling along with the market, right? So, you know, the less assets we have, the less activity we'll have in the future. Right now, activity is very high. But in the future, if the market settles out, say, further down by 10, 15 percent, we will not have that much activity in the future. What about options activity? That was a bright spot for you and some of the other retail brokers.

Is that holding up given some of the moves we've seen? Options activity is very good, especially vertical spreads. In a dumb market like this, people often will say, on an apple, say, that's right now at 157 or something. So you would sell a 160 call and buy a 175 or a 180 to protect yourself right so so that kind of uh those kinds of spreads uh are people are trading and and and you know when they catch the market this dumb market you know they they make a lot of money on this yes Yes. So overall, Thomas, the participation of retail investors right now is what bullish or bearish for the market? Oh, for the market? No, I mean, yeah, they just most of my most of Interactive Brokers customers are still slightly on the bearish side, but they are starting to cover. Got it. Thomas Petterfee, valuable insight. Thank you very much for sharing. We appreciate it.

Thank you very much. Let's go a little deeper now into some of the hard hit parts of tech with the Nasdaq near session lows down almost three and a half percent. Steve Kovac is here with a look at the mega caps. Julia Borsten covering the social and streaming stocks. And Frank Holland is watching the cloud stock. Steve, start us off with the big cap names. What are you watching? Yeah, that's right, Sarah. Big tech under pressure this afternoon, just ahead of earnings week for the sector. Two big ones reporting today, Microsoft and Alphabet are both off nearly three percent ahead of their earning reports

in just a few minutes. And Apple is down about more than two and a half percent. But it's also the best performer in big tech so far this year, down about 10 percent year to date. And Apple is reporting Thursday, along with Amazon, which is the worst performer of the group today. And last year's big tech laggard down more than three percent. Sarah. Steve, thank you. Let's go to social and streaming stocks. Also having a pretty rough session, Julia Borson, with more of those names, Julia, including Twitter, which is selling off. That's right. And social stocks are plummeting pretty much across the board on the heels of Twitter's sale to Elon Musk and ahead of Meta's earnings, which are tomorrow afternoon. Now,

shares are down about 3 percent. We see Twitter and Snap both down more than 3%. Pinterest shares also down about 3%. Now, those stocks are hurting on concerns about a pullback in ad spending. Meanwhile, the streamers are also suffering after Netflix's disappointing report. And on the heels of Warner Brothers' discovery warning that its 2022 profit would be lower than anticipated. That stock is now down over 7%. Paramount Global is also down over 5%. And then Roku, down the most of the bunch, down about 8.5%. Meanwhile, we're also seeing Netflix continuous decline, down nearly 5%. And Disney off 3%.

Sarah? Question, Julia. Now that you've been talking to a lot of the analysts and investors, how do you think that Twitter takeover is likely to color or manifest in some of these big tech earnings that we're about to see, especially from advertiser competitors like a meta or an alphabet? Well, look, we already got a hint from Snap that the macro environment is not great. Snap really laid out how it's seen a decline in its growth rate from 44% at the beginning of the quarter down, at the beginning of the first quarter, down to about 30% now. And this is Snap that has really managed a lot of these issues better than, say, especially

when it comes to the ad targeting issues, better than, say, Meta had in the past couple of quarters. So we already got some red flags there. Analysts, a number of analysts are saying that they see Twitter's move to make this deal before earnings as another red flag of more macroeconomic challenges, whether it's inflation or supply chain constraints pushing advertisers to pull back. And we'll have to see how that shows up in Meta's earnings tomorrow. Another headache for Elon Musk when he takes the company as well, an advertising slowdown. Julia, thanks. The WCLD cloud ETF down more than 4%. Frank Holland with a look now at the cloud names getting hardest hit again, Frank. Well, Sarah, that cloud ETF

actually on pace for its worst month ever. Among the names hardest hit, Cloudflare. Fastly, MongoDB and AppLovin all down about 6%. Interest rate pressure continues to weigh on these high growth tech names. Asana also down about 5%. Analysts say there's also persistent questions about how they'll compete for the roughly 25% of the cloud market left after you account for Amazon, Microsoft and Google. Legacy players in cloud also caught up in this sell-off. Salesforce and Adobe, both down right around 2%. Also, both just about 2% higher than their 52-week lows, but it's really widespread. More specialty cloud names like DigitalOcean and Twilio also falling today.

Back over to you. Yeah, been a rough year for that group. Frank, thank you. Frank Holland, let's get back to the broader market now. We're near session lows. We're down more than 700 points on the Dow, 739. Ironside's macroeconomics director of research, Barry Knapp, joins us now on the CNBC Newsline. Barry, another day like today, but you can't this time blame Fed speakers. They're in quiet period or rising rates

because treasury yields are actually lower today. Nobody wants to get, as Mike said, in front of something like we saw from a Netflix in terms of a disappointment on earnings. What do you think happens here with the big FANG names about to dictate the direction of the markets? Well, I think that they still don't, even the biggest, highest quality names like Microsoft that's reporting after the close, still don't really represent growth at a reasonable price. You know, we've had such things. Don't blame the Fed. And I'm going to kind of blame the Fed a little, Sarah. But, you know, that obviously we've had such a hawkish pivot here. I've heard from investors time after time, well, the Fed is going to tighten until something breaks. Well, you and I have been watching some of the same things break.

The dollar yen has broken. Euro has broken. The RMB, which was hanging in so well for so long, has completely fallen out of bed over the last week or so. So there's been, you know, there's lots of cracks as a consequence of the Fed tightening policy. And it was always going to be difficult for the markets going into that May 4th FOMC when they increase the pace from 25 to 50 basis point hikes. They start balance sheet contraction. And so I would trace all of what we're seeing today back to that. But I also think that that's likely to coincide with a low in equities like we've seen in the rates market. I just want to bring it back to earnings, though, Barry, because that's the story of today and of this week. And I know the Fed is in the

background here, but even the losers today, I'm looking at GE, which is down sharply now double digits on the back of a warning. It's not like these companies are talking anything recessionary, even 3M, which is also getting beaten up hard today. We're in terrible results. And they're also still seeing growth. They're still seeing some pricing power, dealing with all these difficult things like supply chain risks and global economic weakness. So is it jarring to see a market that's starting to price in a more severe slowdown when what we're getting from corporate America is still growth, still pretty solid balance sheets. They're still investing. What do you think? So I think that the pandemic was two things, one of which is widely recognized. The other is reflected in the comments you've just made

around earnings, places like Triple M, where they actually showed margin expansion, not contraction. It was a inflationary shock, but it was also a positive productivity shock. So, you know, I've had this discussion a lot with investors where they pointed out the divergence between the consumer discretionary sector and staples, for example, and they will describe that as late cycle activity. That's true, but it's also activity that's characteristic of when we're going through these Fed policy normalization-related corrections. Like in 1994, 2004, 2010, 11, and 16, you get these periods when we move towards the Fed normalizing policy, and you have these very

highly correlated sell-offs, and the cyclical stocks get hit. People try and fit a narrative and say, oh, the Fed's going to drive us off the cliff. I'm not seeing that in the data. I'm not seeing it in the corporate results. We do have a lot of sectors that were wildly overvalued. You guys just walk through it with all your reporters. That stuff still needs to come down. But the cyclical stuff looks cheap. And I expect that as we get through May 4th and things start to settle down, that's what will lead us out of this as well. Tech to me still needs another quarter or two of what are likely to be good results. But they still, again, they still don't represent growth at a reasonable price. So what cyclical stuff, as you say, looks cheap?

Financials are down two and a quarter percent today. They've had a pretty tough run this week, down eight percent. Is that a part of the market? Industrials, where we heard from a number of companies this morning on earnings, retail. What do you like? Yep. Financials, industrials, materials and energy. I loved Morgan's interview with the Freeport McLaurin CEO last Friday. You know, I do think all of those sectors are really cheap, but we're going through one of those liquidation stages where, you know, you just you sell everything. But listen, today is really about backing tech down. It may be set up for a little bit of a bounce around earnings. But again, I still can't see my way clear to going overweight that sector because, as I keep saying, it's still not growth at a reasonable price yet.

Sure. But you have to believe to believe in the cyclicals that we're not going into recession. And then there's definitely a debate on that right now. Very. You're not in that camp. I am definitely not in that camp. I don't see any evidence of that. I would argue that the Fed tightening of policy is going to be a big problem for Asia. It's something of a problem for Europe. Remember, the They have outsourced a lot of their manufacturing activity. They're big importers of energy. The dollar trades differently with respect to oil than it used to. So this is clearly a problem for Asia. This is a problem for Germany.

It's not such a problem for domestic U.S. economy. If there's one area that really is worth watching, it's the housing sector. That is an area that could, you know, we have to watch closely. But so far today, right, the results today weren't too bad, right? Sherwin-Williams. No, Sherwin-Williams is up. D.R. Horton actually wasn't bad. They raised their revenue guidance. Barry, we've got to go. Thank you for joining us. Barry Knapp from Ironsides. We've got about less than 20 minutes to go. Dow's down 700 points. We're getting some breaking news on Lael Brainard's confirmation at the Fed. Ilan Moy with the details. Ilan. Well, Sarah, the Senate has now confirmed Lael

Brainard as vice chair of the Federal Reserve's Board of Governors. She did pass with bipartisan support. The final vote tally was 52 to 43. Now, the Senate had also hoped to move forward with Lisa Cook's nomination to the board of governors as well today, as well as possibly later on this week, Philip Jefferson to the board, as well as, of course, reconfirming Jay Powell as Fed chairman. But now that two Democratic senators have covid, along with Vice President Kamala Harris, that is upending the Democrats narrow majority in the Senate and throwing the timeline for those additional nominees to be confirmed into flux. But at least for now, Lael Brainard has been concerned,

confirmed by a margin 52 to 43 as the vice chair of the Federal Reserve's Board of Governors. Sarah Elon Moy, thank you for the update on Brainard. We are now going straight into the closing bell market zone with this big sell off. CNBC Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Roth Capitals, Craig Irwin on Tesla. Shares are tanking today. Piper Sandler's Harsh Kumar on the big sell-off in semi-stocks. First, though, we'll start broad markets because stocks are selling off into the close. We're now at session lows. We took a dip lower in this final hour. And Mike, it's pretty broad. Every Dow stock is lowerothole risk from a lot of the big earnings reports. Now, it doesn't mean the market's going to be correct and the reports are going to be bad.

Maybe we're pricing in some expected downside to the likes of Alphabet, which has lost $300 billion in market cap this month. So I think you have to kind of see both sides. We are revisiting and spending a lot of time at the low end of this index range. Market as a whole is really not super oversold. Each week we seem to get a 1%, you know, one day rally and it keeps the market from really getting stretched to the downside. But I think that's where we're set up. And it's a growth scare combined with all the other things we were dealing with, which is, you know, that mega cap kind of draining away of the excitement and valuation premium from those stocks?

Well, it's a stagflationary scare because it's slower growth, higher inflation, problems that the Fed is going to have dealing with it in terms of rising rates. And now there's concern, Mike, that the defensive parts of the market that had been working really well, utilities, staples, health care, real estate, are getting too expensive. And I go back to Mike Wilson and Morgan Stanley's note this week that now the S&P could enter a bear market because those places have been stretched and everything gets dragged down. Right. If basically if they are deemed to be, you know, too high a price to pay for defensiveness right now and people start selling out of them and it doesn't really go somewhere somewhere. Sure. I mean, I think it's almost semantics at this point.

But I'll say the equal weighted S&P 500 isn't even down 10 percent from its high. So we're still with all the issues we're dealing with, with most stocks being way down. You're still not seeing it mostly be about, you know, the average stock getting smoked. It's been magnified by what's happening with the largest ones. It's not it's not kind of by what's happening with the largest ones. It's not kind of trying to make excuses for the market, but it's just a fact. The math says it's mostly about money coming out of the trillion dollar club. And on the earnings question, Mike, I'm looking at 3M. It's lower. GE, sharply lower. DR Horton, which Barry mentioned. I mean, none of this was bad news. I watched the Larry Culp interview with Kramer this morning.

It wasn't like, you know, things are all falling apart. Aviation is a bright spot there. So what is the message from corporate America? And does it matter in this environment where the market is just ahead of them in terms of pricing in some sort of slowdown? It ultimately will matter if, in fact, the story is intact. And it's like, I mean, the mean the GE to me it seems like it keeps getting pushed into the future when you're really going to start to click and when earnings power is really going to show up again. With other industrials I think it's about look we're sort

of preoccupied with China shut down, dollar surging, all these things that seem like it's a complicated moment to start to bet that you know that they're about to get it together and the stocks are cheap enough right now so i think that's why it's complicated it's a high friction environment nobody's very uh nobody has high conviction about which way it goes how about tesla mike down 11 today really collapsing it's the worst performer in the nasdaq 100 after ceo elon musk officially announced he would acquire Twitter for $44 billion, fueling some speculation that Musk may have to sell Twitter shares to fund part of his Twitter bid, I think there's also the risk, right, of Musk taking over Twitter and what that's going to look like and whether Tesla may be collateral damage in some way. Right. To me, it is a little more immediately about the prospect for this overhang of selling by Musk.

I mean, it's very difficult to see if he doesn't name and draw some outside equity investors, which to this point have not emerged alongside of him, how he makes his $21 billion contribution to buy Twitter without selling a fair amount of Tesla shares, in addition to what he's already using as collateral for the margin loan. So I think that's the overhang right now. It's very important to the way the overall Nasdaq trades on a short-term basis, not over the long term. There is a lot of hot money that flushes in and out of that name and kind of bumps up against a lot of other stocks along the way. Well, at consumer discretionary, as a start, it's the worst performing sector because of Tesla down almost three, no more than that, 4.7 percent. That's

by far the largest, except for Amazon. You know, Julia Flagg, that snap warned that advertising might be starting to slow down. If we do get a sharper contraction in the economy and advertising with Twitter as a private company under Elon Musk, then did Tesla shares get punished as a result? I mean, that shouldn't necessarily have any effect on Tesla's shares. What does have an effect on Tesla's shares, I mean, if his side business starts to fail, it shouldn't necessarily matter to Tesla unless he gets a margin call, which happens because Tesla shares go down. To me, it's more about there's obviously always been an Elon Musk premium

that accounts for a tremendous amount of Tesla's market cap, and that gets revalued in real time here, depending on what else is going on. Well, yes, down 11.3%, being revalued right now, down 28% from the highs. Mike, I also want to hit the chip stocks, which are dragging on the overall tech sector. AMD, NVIDIA, and AMAT among some of the biggest decliners. We've got Texas Instruments after the Bell. Mike, it's just cyclical concerns here, right? Have the fundamentals of these businesses changed? They've changed at the margins, obviously, for NVIDIA. People are concerned about some pricing issues. It does seem as if some of the momentum has come out of the

fundamental story. Clearly, people are very defensive about what it means that China is shutting things down. And honestly, a lot of them were story driven. I mean, AMD trades pretty horribly and also doesn't look particularly expensive anymore. I mean, it used to pretty chronically. And so I do think it's about broken charts, you know, the reversal of these multi-year winners, people just feeling like, you know, the money's been made. And then, you know, a little bit of an overlay of fundamental concerns. But that's the way it always looks, you know, when people find some reason for relief. I wouldn't want to, you know, foreclose on the idea that over the course of the earnings season, people might see the weight of the evidence and say, OK, maybe we prematurely got too

scared about recession on the way. Down more than 20 percent for the year on some of these names, 26 percent for the subsector. How did the semi sell off compared to, say, software sell off and some of the other parts of tech that have also been beaten down? It feels like it's all just gotten dragged in lower. Yeah, I mean, software led the way lower, much deeper pullback. It was a lot more, you know, the cloud stocks really did get a lot more expensive as a group than SEMIs ever did. For SEMIs, it's much more about kind of giving way. And they've had this floor in the chart over the last

about a little over a year or so that seems to have cracked right now. So, again, I don't want to make it all about, you know, the technical mechanical stuff, but it's one less reason to buy a dip when it seems like a chart is impaired. And I think that's what we're dealing with some of these stocks. Take a look at GE, which I mentioned before. It is one of the worst performing stocks in the S&P. The industrial beating on the top and bottom lines, reaffirming its full year profit outlook. But in the release, CEO Larry Culp warned inflation and supply chain issues will result in earnings falling, he said, toward the low end of that guidance range. Seema Modi joins us now.

Seema, Steve Tusa, the analyst at J.P. Morgan. Neutral rating, $55 price target. Everybody watches him on GE. RBC has a buy rating and a $118 price target. Why is the street so divided on this stock? Well, Sarah, this just speaks to how diversified General Electric is. And there's really something for the bulls and bears in this report, right? RBC Capital pointing out that GE has outperformed the broader sector by 240 basis points in the past three weeks.

So they're not really surprised by today's market reaction. Citi Group says Larry Culp's plan is actually largely intact, pointing to the strength in aviation, which, by the way, was impressive. Orders up 31% as travel demand returns. But to your point, Steve Tusa has been a longtime critic, and he's doubling down on his price target, 55 bucks. That's the lowest on the street, pointing to the challenges with renewable energy. As to who wins this debate,

it may really rest on the two big unknowns. First, how the China lockdown story unfolds and the ongoing conflict in Ukraine. What we do know is that splitting this company into three will make it much easier to fully understand the story that we're seeing out of power, renewable, healthcare, and aviation, Sarah. Well, what I was

wondering is how, if it's GE, if there's anything here that's GE specific, or this is a broader macro tell with everything that they're dealing with, supply chain and economic weakness as the main factors. Because it's also a stock in the middle of a turnaround story, right? Absolutely. The macro factors affect GE in many ways, but the renewable challenges it's facing, you could say, are company-specific. The competition it's facing from Siemens Energy on the wind turbine front, Ventas Energy is another company there. So that competitive landscape adds to a market in here in the U.S. which is already meaningful soft, meaningfully soft, especially at a time where it's not getting the subsidies that it needs to make its products more competitive.

Seema Modi, Seema, thank you. Mike, you know, GE makes everything from MRI machines to wind turbines to jet engines. It is also a read for a broader industrial part of the economy and potentially a leading indicator, though, interesting, they did not change their guidance. He just sort of warned around it. That's right. And no doubt, I mean, there's certain macro, a macro telling there somewhere, mostly, you know, kind of in the industrial business to business area. I think one thing that maybe kind of reality check a lot of the top line guidance out there is when, you know, a company like GE more or less affirms what high single digit revenue growth. I mean, that's what CPI is at right now. Right. So, I mean, nominal GDP is growing, you know, in that range.

So even though it's better than in years past, it's not something in itself for investors to get marginally excited about relative to where we were yesterday. Long list of 52 week lows right now. Just want to show you some of them. Verizon trading at lows we haven't seen since March 2020. Disappointing quarter last week. Domino's Pizza, Starbucks, BlackRock, all trading at lows going back to 2020. So really giving back a lot of those pandemic wins when the stock market did so well. BlackRock lowest since November 2020. And JP Morgan also making a new low since December of 2020. NASDAQ is on track for its worst monthly performance since

October 2008. Let's bring in Scott Wren, senior global market strategist at Wells Fargo Investment Institute, joins us on the phone. And Scott, I feel like you've been one of the few that have actually been embracing technology this year. Everybody hates it. It continues to be in the eye of the storm. Are you still a buyer? Well, I tell you, Sarah, we still do favor technology. Now, a lot of this, we think there's going to be good earnings growth in technology. It's not as cyclical for the most part. The parts of it that we like are things that deal with automation and efficiency. So we continue to be overweight technology here. We don't think interest rates are going to go much higher,

let's say, for instance, the 10-year yield than where we are right now. And we think this is an adjustment period. Obviously, there's been some churn here and technology has been hit, but we expect it as we move through the year to regain some footing here and do better, certainly in the second half of the year about sooner than that so you think i think you have to feel that inflation has peaked and that we've sort of priced and max caucus nests from the fact i have that the air right yeah and i think sure you know right now if you think about what's been worrying

the market lately i mean this china and the supply chain and slowing growth and uh... you know what what that's going to do to inflation, which the Fed could make a mistake here. Those are the kind of concerns that's really taken the air out of the market lately. I would argue the market was hanging in pretty well until this China shutdown situation, lockdown situation really started to accelerate because earnings are coming in overall slightly better than expected. Slow growth in earnings, but that's

what the market expected. So, you know, maybe you're up toward 7, 8 percent growth in the first quarter. That's a couple of percent better than expected. So I don't think it's earnings. I think it's the bigger concepts, supply chain, inflation lasting longer, Fed making a mistake, those kinds of things that are really creating some headwinds for the market here. Just want to zero in on the action right now into the close. It's getting worse, down 3.7 percent on the Nasdaq composite right now. The S&P is now down over 2.5 percent. And there is the Dow Jones Industrial Average losing 700 and almost 40 points into the close here. Scott, just be specific. So what what parts of tech would you buy here? And does any of it have to

do with valuation at this point as we head into heavy earnings? Today, we're going to get Alphabet and Microsoft, tomorrow Meta and then Amazon and Apple. Yeah, Sarah, you need to focus on the companies that own their niche, that are growing their revenues. And as I said, if they are involved in increasing automation for companies, if they're involved in increasing efficiencies for these companies, those are the ones that we want to focus on. Now, that could be an equipment company. It could be a software company. It just depends. It's a company-by-company type of basis. But I think our message to our clients is that, yes, interest rates are higher here. They've made a big move. But if you look back at the last six or seven hiking cycles, on average, what sector has done the best through those hiking

cycles? Technology. So I don't think it's a right to count technology out here. Obviously, taking it on the chin here. But they had such a strong runoff. But we think it's going to be better. They did. I mean, we just talked to Barry Knopp. He said there's so much more to go. It's hard to make even a valuation case at these levels when you've got an economy that is slowing and interest rates that are rising. Even if you see a peak, there still could be more downside. There still could be. And Sarah, if you look at it, calendar year 19, 20, 21, the S&P 500 was up more than 92 percent. You know, technology did better than that. So, you know, there has to be some give back here at some point. And is this the

beginning or do we still have a lot more downside? We don't think we do. And this is where we want people to, you know, we want them to be putting their toe in the water here incrementally if they have cash on the sidelines that they want to dedicate to stocks. I think there's also some fears around tech and changing trends, Scott. The pandemic is, we're in a very different place right now. Netflix subscriber loss, I think, was sort of one of those moments where it made people wonder how much behaviors are changing and how much some of these seemingly structural growth trends are peaking. And that's a problem for the group.

Companies need to own their niche, and they need to not have a lot of competition. As these streamers, there's a lot of competition. So once again, you've got to take it on a sector-by-sector basis. Understood. Well, Scott Wren, we appreciate you joining us. Wells Fargo Investment Institute with stocks at session lows, down $7.70 on the Dow right now. Two minutes to go on the trading day.

Mike, what do you see in the internals? Oh, it's pretty lopsided, as you would imagine, to the downside, Sarah. So really not a lot of refuge. Not quite 90% of all the New York Stock Exchange volume to the downside. Some people look at that as a threshold of a real washout. But it's pretty close. As you can see, it's more like 7 to 1 declining to advancing volume. Wanted to take a look.

You've been mentioning treasury yields have been backing off. The two-year note yield is now down off of its highs close to a quarter point, or actually a little more than that from the highs several days ago. And that equates to roughly one quarter point Fed rate increase anticipated over the next two years. It's not quite that specific, but that tells you a little bit that it's come off the boil, though still kind of holding near those prior highs around two and a half percent. The volatility index obviously got some upside here. We're above yesterday's highs, which are around 31. So into 32, you saw there back in March, we were well above 35 before we peaked. You always have to see that fever break by peaking and starting to pull back, Sarah.

Absolutely, Mike. Thank you. We've got under a minute to go. Take a look at the Nasdaq. That's where the selling is happening. 3.75% lower on the Nasdaq 100. Nasdaq's actually having its worst day since September 2020. There's the Dow. It's sinking into the close, down 780. There's the Nasdaq, down 3.9%. Every Dow stock is lower right now. As far as the Nasdaq, Tesla is down now more than 12%.

Lucid Motors right down with it, down 9% or so. But you've got weakness in all the mega caps. Apple, Microsoft, Amazon, Nvidia, Google, Facebook, all lower ahead of truth time. We've got earnings coming up from Alphabet and Microsoft in moments. Consumer discretionary is the worst part of the market. That is going to do it for me here on Closing Bell. Dow going out with a decline of more than 800 points.