Closing Bell - Closing Bell: China tech stocks crushed, Scott Minerd’s call on surging bond yields, & market bottom nowhere in sight?

Episode Date: March 14, 2022

With Chinese tech stocks continuing to get crushed, Matthews Asia investment strategist Andy Rothman explains why the investing environment in China during the second half of the year will be significantly better than it is now. EU Commissioner for Competition discusses the challenges of regulating social media in the war between Russia & Ukraine. Guggenheim Global Chief Investment Officer Scott Minerd on why he sees bond yields peaking and why he is now looking at beaten-up tech stocks. And Wolfe Research Chief Investment Strategist Chris Senyek on why he thinks a sustainable market bottom is nowhere in sight.

The major averages all in the red with the Nasdaq getting crushed. The most important hour of trading starts now. I'm Sarah Eisen, and I'm thrilled to welcome you all to a brand new vision of Closing Bell. Our goal is simple, to deliver you sharp analysis of the stories that matter most, timely conversations with the biggest newsmakers, and everything you need to know for trading as we count you down to the close each day. So let's jump right in. Here are my top takeaways on today's biggest stories. A new headache for multinationals, COVID concerns and lockdowns in China. School in Shanghai is remote. 17.5 million people in Shenzhen are home. Already, yum China, saying sales suffered as

Omicron surge. Investors now have to keep an eye on China exposure for downside risk. Nike, Starbucks, Wynn, all falling to 52-week lows right now. Remember the vaccine stocks? They were largely abandoned after COVID cases plummeted and data indicated boosters aren't that impactful. Well, with this new China surge, those stocks are surging too. China's own vaccines aren't considered as effective as the American mRNA vaccines, Moderna and Pfizer. Or investors too quick to give up on the vaccine trade. And finally, homebuilders getting wrecked right now. Why? Treasury yields

are jumping to multi-year highs, and that means higher mortgage rates and a potential slowdown in home buying. Those stocks are now almost 30 percent off their highs. The Fed hasn't even raised rates yet. And the housing market already is bracing for a big slowdown. Could get worse if the Fed signals more rate increases faster this week. Let's dive into the news of the day, though. Chinese stocks getting smoked and American companies with exposure underperforming. Check out Las Vegas Sands, worst performer on the S&P right now with all that Macau business. Take a look at the K-Web. That's the ETF that tracks Chinese Internet names. Tencent, Alibaba all in there. It's down more than 11 percent. Joining us to discuss CNBC's Beijing Bureau Chief Eunice Yun, Andy Rothman from Matthews Asia and Mike Santoli,

of course. Andy, Chinese population, one and a half billion dollars, one and a half billion people, the second biggest economy in the world. And yet these stocks are proving over and over to be uninvestable. Is there anywhere safe to invest in China? Hi, Sarah. Thanks for having me on on your revamped show. Congratulations on that. You know, I don't think on it. I don't think uninvestable is the right word. This is clearly a very tough macro environment for China right now.

And sentiment's really taking a beating. But I don't think the problem is really with the companies. And I think let's put the COVID story in perspective. There is a significant rise in cases, but there's only about 8,000 people in Chinese hospitals with COVID right now. We've got about 20,000 here in the United States. And of course, our population is about a quarter the size of China. So you could argue that their vaccines are actually doing a pretty good job of keeping people from getting sick, keeping people from dying.

And as we've seen over the last year, the government there is putting public health over economic growth as a priority. So while they continue to lock down, this is going to continue to dampen consumer spending as well as manufacturing and construction activity. But this doesn't make China uninvestable. It just means there's going to be a rough few months. So are you saying you would buy some of these beaten down tech stocks on a dip like today? This is not their first either. They've had a number of dives recently on regulatory issues and China's slowdown fears. Well, as you know, my expertise focus is on the Chinese economy, not on the stock. So I never give investment advice. But what I would say

is that I expect in the second half of the year, the macro environment for investing in China is going to be significantly better than it is now. I think COVID is likely to be more under control by then. And also from the economic side, while we're talking about tightening here, the Chinese government has signaled a clear easing approach. They've already been cutting rates, and I think more rate cuts are coming. They've made credit more available to companies and to households. We're looking at a really big fiscal stimulus taking place this year, an increase in government spending of about 16% compared to last year when it was flat. We're seeing loosening of regulations on the property market, and we'll see a choppy but less tough environment on the regulatory side for those

tech companies that you talked about. So I'm pretty optimistic about the macro environment for investing in the second half of the year. Well, Eunice, the COVID numbers might not be quite as high as the ones we've seen in the U.S., but the reaction is much tougher. This zero COVID policy. Talk about what it's like there and how long you expect these lockdowns to last. Well, it's really anyone's guess as to how long the lockdowns are going to last, but they definitely are severe. And, you know, it's interesting your conversation so far just that people here aren't necessarily worried about catching COVID. Of course they are, but they're also worried about being locked down in buildings randomly. So that actually creates quite a bit of disruption just on a personal level

and then also from a business level. So 51 million people have been locked down or in partial lockdown, including in the tech hub of Shenzhen. So Shenzhen, as you will know, is a big manufacturing as well as IT base for several different companies, including Huawei, Tencent. And those businesses have all been told to suspend all of their operations for a week. The authorities there are going to feel it out, see how things go. Foxconn, as well as Unimicron, which are Apple suppliers, have both said that they're looking for ways to try to mitigate the impact.

But it's definitely having an impact on the manufacturing side and also on the consumption side. That was something that we heard here from several economists and just people on the street. People are worried about going out. They don't necessarily want to get caught in a store and then find out that there was a case in that store or nearby and then be traced back and have to deal with mass testing as well as potential lockdown. Mike, J.P. Morgan disagrees with our guest. And he calls the stocks uninvestable today, which a lot of people see as a pretty late call. The JD.com, I don't know if you read that report, because that stock has held up a little bit better. It's widely known, widely owned.

It's a double downgrade today from J.P. Morgan down to $35. And they say it doesn't look like there's going to be any value play. It's coming anytime soon here. Right. I mean, obviously, the call is chasing the stocks lower. We have to be clear about that, that they are way off their highs. And I would have to agree that it's not really about the corporate fundamentals for the most part. If you look at Alibaba, Baidu, JD.com, they actually look cheap if you believe the earnings numbers. The analysts have been very slow to give up on these, though. Each one of those stocks I just mentioned has 85 or 90 percent buy ratings. So I do think it's been a slow recognition.

And when we talk about uninvestable, I think even if it's a low probability that there's some kind of sanctioned slash delisting risk out there for China, it's not zero and it's probably higher than it was a little while ago. So that to me is the fix. Plus, there's hedge fund liquidation going on in this area. We've also seen that hit other parts of the market combined with the typical look. All of tech is having this huge valuation reckoning and they're caught up in that. So essentially every strand of this downtrend in the market is visible in the Chinese internet. Sure. They're just feeling it the hardest. Andy, Mike, Eunice, thank you all for joining me. It's good to have you here.

We've got just less than 50 minutes to go here before the closing bell. Take a look at the market. We're lower across the board. Dow actually trying to rally, just turning positive. But at the highs today, it was up 451. NASDAQ getting hit the hardest, down almost 2%. S&P down 7 tenths. You're getting strength in names like the financials, which are doing better today on the back of those rising yields.

After the break, censorship, propaganda, violence. Europe's top tech cop, Margaret Vestager, on social media's role during the war in Ukraine. And then later, Guggenheim, Scott Minard, on that surge in yields that we are seeing today to multi-year highs ahead of a very crucial Fed meeting this week. You're watching Closing Bell on CNBC. Just want to note, Dow is trying to go positive here, up 14 points. As you can see, it was down in the red, got as low as down 126, was also as high as 451 earlier in the session. What's leading us higher right now?

American Express, Visa, Coca-Cola, and Travelers. What's weighing on the Dow? Nike, with all that China exposure, Chevron, and Intel. European officials are currently discussing additional Russian sanctions. That's what Margaret Vestager told me. And in fact, just this afternoon, the EU did add more sanctions on oligarchs. Vestager, of course, is the top European tech regulator. We spoke at South by Southwest over the weekend, and I asked her about some of the new challenges of this war in the digital age. Listen. Well, cybersecurity is an overwhelming thing because when you have a war

and it is, of course, hybrid, but unfortunately also, you know, extremely violent on ground. We have people losing their loved ones. We have people having to flee in unprecedented numbers, saying goodbye to half their family. So of course we have all the attacks on grounds, the bombings, the shelling, all of that. And at the same time, we see the cyber marching in, and of course all the propaganda, all the manipulation with your mind as to what is actually ongoing on ground.

So as part of the sanction, sanctioning Russia Today, Sputnik, big tech coming on board to help out. And this has nothing to do with freedom of speech. This is a mechanism of war that propaganda is being pulled on you so that you don't see what is actually ongoing. You're talking about what the Russians are doing, banning Facebook, Instagram. They're also, the White House says, paying TikTok influencers to put out their version of the stories. Is there anything to do about this? Well, I think the most important thing is that every citizen sort of feels a coalition with their government, with their democracy right now, that from a systemic point of view, we do what we can to make sure that you know what you're seeing, if it's something to be

trusted or something that you should be really careful with, but also that everyone uses their sort of critical sense to say, no, this is not the truth that I'm being told right here. It also sort of raises the question about whether social media ultimately is good because it promotes this kind of dissent and public space for truth or not good because it also promotes a lot of disinformation and propaganda and hate and things that are even worse than that. But we see both and we have done that for a very long time. You know, the Amber Spring was very much fueled by people being able to organize, to come together, to say, oh, I'm not alone. I'm part of a community who wants change. And we've seen that over and over and over again,

that social media allows people to organize, to be part of a community, to figure out what to do, how they would think about things that they have in common. And at the same time, we see the manipulation, we see the hate speech, we see now, of course, its extreme version. But, you know, we have seen women being discouraged from being part of public life. There's a lot of thralling. So the democratic task that we have ahead of us is, of course, to get in control of what we would think of as illegal in the offline world, while, of course, paving the way for a lively, dynamic,

and sometimes, of course, also hurtful debates, but not illegal. Should the government regulate what should be on Facebook to make sure that that kind of hate and all the bad stuff is not allowed? Or is that something they can self-regulate? Well, the tricky thing here is, of course, that there is a gray zone. I think it is for government to regulate and to say what we have decided was illegal offline is also considered illegal online. And we have discussed that and we have a continuing discussion about what is illegal. And that discussion should continue. Now, in most European countries,

hate speech has been deemed illegal over the last 10 years or so. And that must be the same offline and online. But there's still a gray zone. There's still a zone where you say, well, this is not, this is not harmony. This is not nice. It was not well meant when it was put out there. But actually, it is legal and it's it's part of what society also shows. And I think that's the that's the tricky thing here, that there will still be something for any social media to consider. Do we think that this is what we want to be? While at the same time, of course, having to do what they are obliged to, to make sure that they take down things that are illegal.

As for regulation, more is coming, of course. She's in the final stages of the Digital Markets and Services Acts in Europe, which would further crack down on American tech companies on privacy and competition and disclosure. So he expects those bills to pass early next year. We've got just about 43 minutes left of trading here before the bell. Down now firmly positive. NASDAQ is the loser today, along with the small caps, which are down almost 2 percent. NASDAQ down 1.6 off the lows. But it is technology that's getting hardest hit. The S&P down half of a percent. So we're covering a little in this final hour. After the lows, but it is technology that's getting hardest hit. The S&P down half of a percent. So we're covering a little in this final hour. After the break, two parts of the market that aren't

usually talked about in the same breath, the price of oil and Cathie Wood's ARK Innovation Fund. Mike Santoli on why you should be watching this relationship next. Kathy Woods, ARK Innovation Fund falling 5% today. Oil is down as well, more than 7%. But that hasn't been the pattern. Mike Santoli here with the dashboard looking at the relationship here. What is the story? Long term, here's a five-year look at the ARK Innovation Fund against crude oil. It's a really good picture of a regime shift, right?

We remember into early last year when essentially everybody wanted crowded into ARK innovation, which represents disinflation, innovation. We're not talking about real assets. We're talking about digital soft assets and the digital transformation. Remember, right in here, crude oil traded negative and it was basically the world stampeding away from that. Now we've converged up here on a five year basis. Exactly. Now, it doesnged up here on a five-year basis. Exactly. Now, it doesn't mean that we're necessarily at some kind of inflection point again in this relationship.

Usually we don't get reversion to the mean. We get overshoots. But I do think it's interesting that we have had this full comeback of the ultimate real inflationary asset of energy and oil compared to this disinflationary play in digital assets. So the question is, where does it go? Because oil is actually facing a pretty big slide and was lower for last week. Does that mean it hasn't been ARK's time to shine? No, and it's down 60 percent and crude oil is up 60 percent in a year. So clearly there's room for both of them to kind of go the other way for a little while,

for ARK to bounce and for energy to have a little bit of a pullback. But I do think it's worth tracking the relationship to see what kind of movie is unfolding. Well, and it's also inflation expectations. Yes. If you think it's higher energy, lower. If it's the 70s, if it's the 70s, it's energy. If it's the 90s, it's ARK. There you go. We are getting some breaking news right now from the White House. Kayla Tausche with the details. Kayla. Well, Sarah, the national security advisor, Jake Sullivan, met with China's top diplomat in Rome today in a meeting that a senior administration official just described as intense and candid, lasting seven hours, a meeting that where the conversation reflected in this official's words, the gravity of the moment. In that conversation, this official said that the national security advisor conveyed deep concerns about China's alignment with Russia,

although this official did not go on to say exactly whether the U.S. still believes that China is contributing either financially or militarily to Russia's effort in Ukraine or whether China plans to. This official said that the U.S. and China discussed severe consequences for China if it does get involved, but declined to say what those consequences would be, although foreign policy experts have suggested that possible counter-sanctions could come into the conversation if China does become involved. The conversation also touched on North Korea and what the official described as an escalating situation there as the Kim regime tests a new intercontinental ballistic missile system. But certainly all the eyes are going to be on the U.S.-China relationship as

the U.S. tries to provide both a carrot and a stick to China to make sure that it does not provide Russia, in Jake Sullivan's words yesterday, a bailout in this situation. Sarah? Kayla Tausche. Kayla, thank you for the update. Up next, bond yields are hitting multi-year highs right now as investors look ahead to the first expected rate hike since 2018 coming this week. That's sending financials higher, technology tumbling right now. Guggenheim's Scott Minard will join us with his take on what he expects from the Fed and what it all means for investors. We'll be right back. Treasury yields hitting multi-year highs today as investors zero in on higher inflation and higher interest rates from the Fed.

Take a look at the 10-year, now well above 2%, hitting its highest level since July 2019. Joining us now in a segment we are calling The Closer, Guggenheim Partners Global Truth Investment Officer, Scott Minard. Welcome, Scott. It's appropriate that you're the first closer because Bill Gross, the old bond king, just crowned you the new bond king in his new book. Not sure if you're aware. Congrats on that title. Well, it's a real honor coming from Bill, but I don't know that I will ever have the impact that Bill had. He did an incredible job building an industry. Right. No pressure. Yeah, no, it's good to have you. As I showed, multi-year highs now for the 10-year yield, well above 2%. Where are we headed? Well, you know, this is the neighborhood of which

I've always said that, you know, we should expect to peak out somewhere in the 2% to 2.25% range. When you look at, Sarah, the technicals, you're starting to see the divergences that you would expect that would tell you that you're approaching a top in rates. The other thing is if you look at how flat the yield curve is, the 7-year note actually was yielding more than the 10-year note. That was before I came on. Who knows what's happened since I've come on the air. But typically, you know, when you see these flattenings in the yield curve like we're having now, you know, it's telling you that you're getting close to the end. And our work suggests that the ultimate level for the Fed funds rate, the overnight rate, would be somewhere in the neighborhood of 2 percent before you would induce a recession. So this seems to be the pricing that the market was going to get to to reflect the upcoming tightening of the Fed.

So just to be clear, you see yields topping out here? I think so. I mean, that's, you know, as good as I can get. That's right. It's going from bad to worse. So as we readjust, and just the latest is that now Shenzhen is locked down, home to factories that supply all sorts of consumer electronics. that's not going to make the supply chain easier and it's not going to make prices come down. No. And, you know, it's interesting, Sarah, that people are sort of misinterpreting a lot of this inflationary data. I mean, certainly it's serious. But every time we see prices rise, whether it's gasoline prices or food prices or whatever else, all we're doing

is taking away a purchasing power from the real economy. So, you know, real growth is suffering. And if you look at like GDP now, it's released by the Federal Reserve, you know, we're in striking distance of having an economic contraction in the first quarter. I think once, you know, if there were a negative print to GDP for Q1, people are going to start to speculate that we've actually already entered a recession. I don't think so. But certainly the market psychology is starting to price for recession. You said back in October that you thought that stocks were going to have a good year. I think you predicted 10 to 20 percent gains. S&P is down about 12 and a half percent so far this year. So do you think that reverses or are you changing the call?

No, I'm not changing the call. I think it will reverse. I mean, historically, 100 percent of the time after the Fed starts to raise rates, which ultimately leads to a recession, stocks are higher a year later. So, you know, I think that as the Fed starts to tighten, that stocks will start to rebound. I think a lot of what we're living with right now is just a combination of two things. One is fear in relationship to whether the Fed will be serious about addressing inflation. And the other one is the uncertainties linked to the war and to the supply chains, which even when you look at that historically, wars are typically good for stocks. You can look at the Iraq war. You can look at the Afghan war. You can look at any number of conflicts historically and stocks tend to rally after the initial shock of an invasion.

So you're pretty bullish, it sounds like, on the market. Where would you be looking to buy then? Are you looking at rate sensitive sectors that have gotten beaten up? I mentioned housing at the top of the hour, which is down sharply today on those higher rates. Right. I think actually I'm looking more at some of the beaten-up tech stocks. When you consider, you know, that stocks like PayPal, Square, you know, these are profitable companies which stocks are down 60 and 70 percent. And, you know, as full disclosure, I'm personally long both of those. But, you know, when you look at when I start to forage through a lot of the tech industry, you know, I see a lot of companies that have been beaten up, the proverbial, you know, throwing the baby out with the bathwater. But one thing, sir,

I think people, I always make this point, you've probably heard me say it before, you know, you have to decide whether you're a trader or an investor, right? You know, I used to be a bond trader. That was, you know, a long time ago. I did it for 15 years. You know, I constantly have to fight myself to say, you know, the difference is, you know, am I looking for something that's good value that will pay off in three to five years, or am I looking for something I'm going to make money on tomorrow? And trying to call the bottom in this decline, I think, is foolhardy. But at the same time, the valuations are becoming so compelling that for investors that have a three to five

year horizon, I think there's a lot of money to be made. And in technology, which is interesting, I guess the risk to your view, Scott, is that we do go into recession and that the Fed is hiking into a very strong inflationary environment, which is only getting worse and that it does end up hurting demand because the Fed is now really serious and wants to be aggressive in fighting it. Well, you know, Sarah, I've been looking at a lot of periods in post-war periods of inflation. And I say post-war because remember, a year or two ago, we were comparing the pandemic to a war, right? We needed to run huge deficits and print a lot of money, just like we did in the First World War, the Second World War. And you see in the wake of a war,

typically, there's a big inflationary spike. Both of those instances, the Federal Reserve was able to rein in inflation by just stopping the increase in its balance sheet. So, you know, I've been arguing the Fed should just do what it did in the 1940s. Inflation got to 20 percent. The Fed stopped increasing its balance sheet inflation slowly declined and we had a mild recession the war ended in 45 we had a mild recession in 49 and and then we went into a long bull market and so you know i think that you know the formula here is to stop printing money and let the short-term rate find its own level, but stop manipulating short-term rates and long-term rates.

And I think we'll do just fine in terms of bringing inflation under control. And all of that would be very bullish for stocks. A lot of calls out there to hold you to. Scott Minard, thank you for joining us, especially on such an important day from Guggenheim. The GOAT is back. Tom Brady is unretiring and his decision is already helping to rake in big bucks. That story next. And you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. We've got under 30 minutes of trading. Dow's gone negative again, down 57. We'll be right back. What's Wall Street buzzing about today? Well, Brady's back and it's already a boon for business. We talked to Fanatics. Turns out in the 16 hours since the NFL legend announced he is unretiring from the NFL last night,

he's become the top-selling athlete across their entire network, including all leagues, sports, and players. Tampa and Boston are the top-selling markets for Brady merchandise since last night. It's also big news for Brady's sponsors. The quarterback has a long history of lucrative endorsements, including Under Armour, Aston Martin, Tag, Subway, UGG, Foot Locker, Sam Adams, Fanatics, and cryptocurrency exchange FTX, which he owns a stake in. His longtime sponsor, Under Armour, just telling us, we're excited to continue working with him as an Under Armour athlete

to ensure he has what he needs on his journey to compete and perform on the field, which may be a reference to his own sportswear line as well. Forbes, by the way, ranking Brady the world's ninth highest paid athlete last year when he raked in a reported $75 million. When we come back, two Apple suppliers suspending operations in Shenzhen as China battles its biggest COVID outbreak since the start of the pandemic. We'll look at what it means for tech stocks next in the Market Zone. With 16 minutes left in the trading day, we are now in the closing bell Market Zone.

CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Wolf Research's Chris Senyak and Bank of America's Jill Carey-Hall. Mike, let's start with what we just heard from Scott Minard of Guggenheim. Bullish on stocks. Thinks yields are topping out here. And as the Fed starts raising interest rates, that we will start to see a recovery for stocks and bond yields go down. What do you think about the call? Well, interesting.

A likely recession scare. He seemed to be handicapping. Also pointing out that inflation, the nature of the inflation we have right now is actually acting as a restraint on consumer activity, consumer energy. So maybe that creates its own kind of self-correcting effects down the road. I do think it's interesting from a longer term perspective when you see the fact we're down 13 percent in the S&P 500. There's nothing too extraordinary about that. There always is this apprehension ahead of a Fed rate hike, an initial one. I just think it's the market is sort of sitting here with such a wide range of potential outcomes from things like geopolitics and this potential blow off move in commodities that it's tough to have confidence in that call. But I have to respect his his kind of conviction, especially on the yields topic. Well, he also says that war has typically been very bullish for stocks. He likes tech, owns Square and PayPal. Our next guest, though, says a sustainable market bottom is nowhere in

sight. Let's bring in Chris Senyak, Wolf Research chief investment strategist, published on the topic. Chris, why do you see more downside for the market here? It's already been a pretty steep drop. Well, first, the market's still very expensive. It's traded over 18 times forward earnings. The inflation problems over the last few weeks have gotten worse, not better. And long term interest rates are rising, suggesting that the market's viewing the Fed is even farther behind the curve than what we thought even a few months ago. So what do you like in terms of defense? The treasuries are not proving to be particularly safe havens like they normally are. So where should we go? Where should we go?

We still like energy stocks. We would be loading up on energy stocks. We ran a deep value screen for a note today, and a lot of integrated oil and other big E&P names were on that list. We like health care, in particular pharma. And we like the defense stocks themselves. If they're down a little bit today, we'd be adding the position in defense stocks because we see a material re-rating of stocks as defense budgets worldwide grow over the coming years. Yeah, Lockheed moving on a report of a German purchase of F-35s today.

Chris Senyak, thank you for joining us with your call today. Take a look at the K-Web basket of Chinese Internet stocks falling nearly 9 percent, now down about 40 percent this year. J.P. Morgan downgrading several of those names to underweight, including JD.com and Alibaba. The analyst behind that note calling Chinese Internet stocks uninvestable on a six to 12 month basis because of China's geopolitical risks. Let's bring in Deirdre Bosa for more on how the street is viewing these names, Deirdre. Kind of a catch up call, but it does highlight all the uncertainty around these names. It certainly feels like a catch up call and it does feel belated since we've been talking about the sell off for months already. But when you take a look at where the street is on all three of these names, Pinduoduo, JD.com and Alibaba, you'll actually see that J.P. Morgan is certainly on the lower side.

I mean, take a look at the price targets, the mean price targets on Wall Street right now. And they are way higher than not just J.P. Morgan's call, but where these stocks are trading right now. So, you know, either these stocks have more room to go or these analysts still have it wrong. I mean, what was interesting about that J.P. Morgan note, Sarah, is that there was different reasons for Alibaba. It says that the fundamentals have really changed. But for JD.com, it says that this sentiment is just overwhelmingly negative. And the fundamentals are still good, but it's going to get dragged down like everything else. Well, yeah, it comes down to the to the fundamentals.

I know JD recently reported and the numbers were strong, but the outlook, I think, was a little bit weaker. And if China continues these rolling shutdowns, Deirdre, it would appear that their earnings are going to be affected. Yeah, and I think that's true. And also you think about the bull case for Chinese stocks in the first place. And it's always been that there is the middle class population of almost 350 million people. So you have to think that if the fundamentals come back, if the economy eventually comes back, that there is still that strength that is going to make these platforms valuable, even if Beijing, you know, ends its own crackdown. What's also interesting, Sarah, something that we were looking at a few months ago is this idea of soft technology versus hard technology, soft technology being the platforms like JD.com, Alibaba,

but the hard stuff like semiconductors and robotics, that has been taken down as well. You look at an SMIC, which is listed in Hong Kong, that's been hurt by the sell-off as well. So perhaps an indication that Beijing may soften its stance to get the whole market sort of rejuvenated. Again, though, it's just so hard to call a bottom here. There's so many uncertainties.

You saw that Charlie Munger, he doubled down at the end of last year on Alibaba. That stock has continued to fall some 35% since then. Yeah, good point. And so hard to see the visibility into Chinese rulemaking as well, both on COVID and on regulation. Deirdre, thank you.

And China is battling the biggest outbreak from COVID since early 2020. It's hitting the tech stocks along with rising rates. Apple suppliers Foxconn and Unimicron announced today they are suspending operations in Shenzhen after the tech hub imposed new measures to curb the spread of COVID-19. Foxconn saying in a statement, quote, due to our diversified production sites in China, we have adjusted the production line to minimize the potential impact. Joining us for more is Steve Kovach. How big of a deal are these Foxconn plans for these companies, Steve? They're a big deal in the long term. Right now, the shutdown is only going to be for a week. And analysts are saying, including Katie

Huberty and Morgan Stanley, that, hey, we don't need to worry about this right now. They're going to be able to shift productions to other cities that aren't shut down quite yet. And on top of that, only about a fifth of iPhones and other gadgets are actually made in that facility. So unless this shutdown gets extended or extends to other cities, then we have to worry. Mike, there's also some chatter that maybe some of these factories could shift to places like Saudi Arabia, for instance, when it comes to making consumer electronics. Obviously, a long-term issue. In the near term, implications for tech stocks? What do you think? Well, as a general rule, I think over the several years, let's say back in the entire iPhone era, it's generally paid not to get too negative on Apple when you hear about these production snags or disruptions and what's going on in China.

Not to say they're not going to matter and that, you know, the stock shouldn't be down today, but it seems never to be the thing that really upsets one of these upgrade cycles. Would also point out, as we were talking about last week, Sarah, the stock is kind of at this very kind of critical spot, just crossed under its 200 day average over the last couple of years. It usually doesn't spend a whole lot of time underneath that with the exception of the COVID crash. So worth watching those levels as well. Steve Kovacs, Steve, thank you on Apple. Take a look at the small caps. They're underperforming today. They've underperformed the broader market this whole year. Russell 2000 in bear market, trading more than 20 percent from

its recent record high. That was back in November, getting hit hard again. Bank of America says now is the time to buy small caps. Let's bring in Jill Carey Hall, Bank of America head of U.S. small cap and mid cap strategy. Jill, I feel like you've been saying they're cheap for a while now. Why now? Thanks for having me, Erin. Congrats on the new show. Look, I think, you know, we've seen volatility in both large and small caps. We expect volatility to remain elevated this year. You know, we wrote a note back in late January that we thought a lot of the worst was likely behind us in terms of the small cap sell off. So, you know, we've we've seen volatility since then, but we've stayed above kind of those lows that we saw. And when you look at the relative performance since February, which was around when the Russia-Ukraine headlines began,

we've seen small caps outperforming, obviously, you know, down today. But we have seen that size segment start to do well relative to large. And I think, you know, when you look at what's happening, COVID cases have been improving. I think that's been very correlated with small versus large relative performance. If we see that continue and the spending recovery resumes, that's more positive for small caps, which are not only domestically oriented and could hold up better in a period of geopolitical risk, but also benefit more from services spending than good spending where large caps are more exposed.

Well, it also domestically focused as well, given everything that's happening in now China, Europe, Russia, Ukraine. Jill Carey-Hall, thank you for joining us with the call. Take a look at oil dipping below $100 a barrel earlier today. Now well off its high that we saw earlier this month. Let's bring in Raymond James Energy and Clean Tech Analyst Pavel Mokhtanov. Pavel, has oil peaked? If the war ends, as we hope it will, then oil prices will subside. Absolutely.

Look, between the first day of the war and the highs of last week, oil was up 40 percent. Of course, that's not sustainable. And any ceasefire, not to mention a more durable peace agreement, would lead to more manageable prices. But let's remember, even before the fighting began, you know, oil was close to $90 a barrel, which was still an eight-year high. We just had a call from a Wolf Research analyst saying that some of these oil stocks, he says, still represent deep value. What's happened to valuations since the spike in oil prices and these stocks have been the best performing sector of the year, up 33 percent. Well, that's right. But this is the important point. So spot oil prices

is what we see in our screen, right? When we say oil's up 40 percent since the war began, that's the spot price. The futures curve is nowhere near as high. If we look 12 months out, you know, oil is less than 90 bucks a barrel. If we look two years out, it's barely $80 a barrel. So the commodity market is telling us prices will subside. And indeed, they will. It's only a question of timing. And so the valuation of the stocks are not discounting today's war-inflated commodity price. They're trading off of the futures curve. So valuations have not run up nearly as much as you might think by looking at the spot market. And as far as your call that if the war ends, which, by the way, there's no indication that that's happening. Is it just your assumption that the Russian oil exports can resume to places like the United States and Europe will just keep buying?

Is that why you're saying that oil prices have peaked? Well, oil, to be clear, Europe is still buying Russian crude and China and other, you know, Turkey, etc. They're all buying Russian crude. The U.S. embargo affects 600,000 barrels a day, which seems like a lot, but fungible within the context of a global market, those 600,000 barrels will find a home. It may be at a lower price than what the Kremlin would prefer, but those barrels are still going to get exported. It's just a question of where specifically. Pavel Malchenov, thank you for joining us. Big slide in oil prices today. We appreciate it. Mike, just looking at the broader market, Nasdaq's down 2%. Feels like the Dow has

been trying to rally this hour. It's kind of flattish. S&P is down. And you've got a sort of strange dynamic. You've got financials leading, which is higher interest rates. But then you also have health care, staples, and industrials. So a mix of sort of defensive and cyclical. Yeah. What do you see? Well, just one bottom line aspect to what's going on is the S&P yet again took another trip down to this low end of this range. It's been in for a while. Most of the downward pressure is still coming from the mega cap growth stocks. The equal weighted S&P is up, is down far less than the market cap weighted one. So that's still the same story. Still value draining out of the big caps, you know, yields up at a time when also oil is down and stocks are down on balance. Shows you kind of people are selling everything. They're selling bonds, they're selling oil and selling equities.

And, you know, could be that we're in the zone of exhausting some of this selling pressure. There's some seasonal issues that might start to become favorable here in March. But I think that's where I see. And of course, financials tracking with yields. That's the that's the thing that's not counterintuitive. Is that positioning ahead of the Fed? We've got this very historic Fed meeting on Wednesday expecting the first interest rate hike since obviously covid and yields continue to rise, which is interesting because a lot of it has been priced in, right, for hikes this year. Absolutely. The market's become even more aggressive right now in pricing in hikes.

I mean, the two-year note yields at 1.86, right? This is pricing in several, probably seven or so. So that shows you that, yes, whether it's correct or not, whether it's a reliable signal or not of what the Fed's going to do, the market is bracing for something like that. Probably, as most investors hope that once the Fed raises rates by an expected quarter point, they also express some kind of flexibility that it's not going to be autopilot from here. And in fact, they're going to be responsive to financial conditions and economic numbers thereafter. Apple biggest weight right now on the triple Q's. NASDAQ down 2 percent, S&P 500 down about three quarters of 1 percent. About two minutes to go here in the trading day. What do you see in the market internals as we go into the close? Yeah, it's been pretty weak on balance. If you just look

at the volume split on the New York Stock Exchange, really, again, the NASDAQ effect is sort of leading the downside. But you do have just about 3 to 1 declining to advancing volume also on the New York Stock Exchange. Wanted to spotlight semiconductors. And if you look at a one-year chart here, boy, they surrendered that leadership position they had for a while. Up only 2 to 3 percent over this period, over the last year. That's underperforming the S&P. When we were on our way up and whenever the market got overbought, you say, you know what, it's OK if semis are outperforming. That's definitely not something in the positive column.

The volatility index is now up a point and a half above 32. There's a lot of noise out there in VIX land that basically says, you know, we're just elevated at these levels ahead of the Fed because the market's been so jumpy. But also some of those VIX exchange traded instruments, you saw some kind of noise there where Barclays stopped creating new shares. And so I do think that that's a little bit of a stressed market as well at this point, Sarah. Under one minute to go before the closing bell. Take a look at where we stand in the markets. Dow is just barely positive. It's sort of been the outperformer all day long, continues to be so.

American Express is the biggest contributor to the Dow gains. Travelers, the insurance company, Coca-Cola, 3M, some of the winners on the Dow. Some of the losers today include Nike, Intel, Chevron. S&P 500 off the lows of the session, but still down about three quarters of one percent. Energy is the biggest loser in the S&P. Financials are the best performer. And it looks like we're going to go out with a decline for the Nasdaq of 2%. That does it for Closing Bell. We'll see you tomorrow for the most important hour of trading. Now, let's send it over into overtime with Scott Wachner.